Source: City of Plymouth
The Government has written to Plymouth City Council to confirm its intention to grant a capitalisation direction, with no further investigation required into a previous financial transaction. This follows an independent review of the Council’s finances.
Last year, the Council had requested a capitalisation direction from the Department for Levelling Up, Housing and Communities (DLUHC) to resolve issues related to a 2019/20 transaction that saved public money. The Council used a novel treatment to borrow capital funds to significantly reduce the ongoing cost of a pension deficit to the Council’s revenue budget.
This enabled the Council to make more than £9 million savings to its revenue budget because paying the interest on the loan was cheaper than paying the deficit every year.
Whilst the previous government was minded to issue the capitalisation, it was subject to a number of independent checks – including an examination of our finances by the Chartered Institute of Public Finance and Accountancy (CIPFA).
Following a detailed review, CIPFA provided a positive assessment of the Council’s financial position, noting the efficient and effective financial management processes and strong and clear ownership of budgets across the council. In addition, the Council’s independent auditors also reviewed the transaction, and whilst they acknowledged it was unusual, it had not been ‘detrimental to the public purse’.
Therefore, Jim McMahon MP, the Minister for Local Government, has written to the Council to confirm that subject to reassurances regarding what steps have been taken to put in place robust procedures for any future transactions of a similar nature, he is minded to grant the capitalisation direction, without the need for any further reviews or investigations.
Responding to the letter, Councillor Tudor Evans, Leader of the Council, said: “We welcome the Government’s confirmation that thanks to a clean bill of health from CIPFA, they are looking to grant our request for a capitalisation direction.
“We have always been transparent about the transaction. We knew the transaction was novel in local government, but we were thinking outside the box to avoid cuts to local services. Particularly as costs to deliver services continue to increase, along with rising pressures on our services.
“Over the past few months there have been those who have repeatedly accused us of foul play. Bandying around phrases such as ‘bankruptcy’ and ‘dodgy’. This Minister is very clear – no further investigation is needed.
“There was nothing wrong with the transaction, other than it being unique. And the bottom line, it enabled us to save more than £9 million of public money, money that would have been lost for local services.
“The Minister has asked us to provide reassurances that we have put in place robust processes and procedures to manage any future similar fees. We will now formally reply to the Minister, re-enforcing the changes that have been implemented.”
“This capitalisation direction will allow us to put the whole matter to bed, validates our approach and reinforces our dedication to safeguarding public funds whilst delivering value for money to our residents.
“We will now move on, continuing to prioritise the financial health of our Council while striving to provide the best possible services to our community.”