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Peterborough insists use of capital receipts is legal

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Peterborough City Council has defended its use of capital receipts following claims it has used them inappropriately.

The unitary has sought advice from a QC following an investigation by the Bureau of Investigative Journalism which earlier this week said the council appeared to have used nearly £23m from selling property to help balance its books, in a way which could potentially be unlawful.

The claim centres on whether the council has used proceeds from the sale of council property to make minimum revenue provision requirements (MRP). While councils can use capital receipts to pay off the capital of loans the bureau said the Ministry of Housing, Communities & Local Government had confirmed they are not permitted to use it for MRP.

A line in Peterborough’s 2017-18 accounts refers to £7.2m of “capital receipts used to repay MRP”. In the previous year this figure is shown as just under £5m. However, in the 2015-16 accounts this line is referred to as “use of capital receipts to repay loans”. In that year just under £800,000 was used in this way.

The bureau also said the council appeared to have used capital receipts to pay off an adult social care overspend this year.

A report to the council’s cabinet in February warned of a series of service overspends, including £4.5m in children’s services and £0.8m within “adults services” as well as costs of £2m from the associated with Peterborough Serco Strategic Partnership.

It said: “These pressures are currently being mitigated in part by the one-off use of capital receipts, generated from the sale of council assets, and the reduced financing needs of a smaller capital programme.”

The Bureau also points to a statement in the 2017-18 accounts that “the council is currently reliant on maximising the revenue benefit of capital receipts, with £12.7m built in to the 2017-18 budget and £2.9m in 2018-19”.

“If these are not achieved there is a risk to the revenue outturn position,” the accounts said.

Meanwhile, the council’s medium term financial strategy from 2019-20 to 2021-22 warned the council was running out of assets to sell.

It said: “As the council has used capital receipts from the sale of properties (assets) to support the budget for a number of years, the remaining value of assets is relatively low, especially with some of the higher value assets being sold in recent years.

“This now leaves the council with very little flexibility to use capital receipts in the future to support the budget, and also reduces the potential for the council to generate property rental income.”

The bureau’s investigation, based on freedom of information requests and analysis of council reports, found Peterborough had sold 50 building and land assets - such as pubs, petrol stations, a former community college and farmland - since 2014-15.

Earlier this week the Ministry of Housing, Communities & Local Government said it was “examining” the bureau’s evidence.

However, in a statement on Wednesday Peterborough said it had taken advice from a QC and was confident its approach complied with the law. It pointed out it had been approved by auditors and said its approach, of applying capital receipts to MRP, was known as the ‘annuity’ method as set out in the government’s Statutory Guidance on Minimum Revenue Provision.

The statement continued: “In addition a leading financial QC – has also given us an opinion that he cannot see that Peterborough City Council has acted illegally in any way in the application of capital receipts against MRP, as we are complying with all the relevant legislation.

“Taking this approach has allowed us to tackle large gaps in our budget at a time when we are facing the most severe cuts to government funding in the council’s history.”

A council spokesperson this morning told LGC they could ”confirm that we have never used capital receipts to meet adult social care services revenue funding”. However, they added: “It would be fair to say that we have used capital receipts from asset sales to repay debt but have kept within the MRP limits.”

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Readers' comments (1)

  • legal, or not, what the heck are they doing. If you use capital assets to fund current spending its totally crazy.

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