The council has borrowed £600million to invest in 15 commercial properties since 2017
WARRINGTON Borough Council has borrowed over £600m to buy 15 retail investment properties since 2017.
A report on the rationale and rationale for using the annuity method to calculate the Minimum Revenue Provision (MRP) on the Board’s commercial real estate portfolio will be presented to the Audit and Corporate Governance Committee of business at its meeting on Thursday.
The committee will also be asked to approve the Board’s adoption of the annuity method for calculating MRPs for commercial properties, which will be incorporated into the Board’s MRP Strategy 2022-23.
The report confirms that since 2017 the council has invested in 15 commercial investment properties for economic regeneration and investment purposes.
These include Matalan on Winwick Road, Pure Gym on Fennel Street and Birchwood Park.
He says: “The council will have borrowed £619.1million to buy these properties by the end of the current financial year.
“To date the council has not paid MRP on the properties. This has been agreed in previous MRP strategies agreed by the full board.
The report states that the MRP is the minimum amount that a board must charge to its revenue budget each year to establish a provision for the repayment of external borrowing.
The report adds: “The reasoning being that these are investments that are likely to increase in value and could be sold in the future. Receipt of any sale would then pay off the debt.
“Part of the annual rental income is also paid into the reserve for commercial risks of the municipality.
“This approach has been endorsed by key QC advisors and the board’s treasury advisors.
“This is a complex accounting matter which the board has brought to the attention of Grant Thornton (GT), the board’s external auditors, for advice.
“Following a thorough review by GT, they concluded that they disagreed with the board’s approach and recommended that MRP be charged or they would issue a statutory recommendation against the board.
“The board has therefore taken the decision to charge a voluntary MRP charge to the accounts with retroactive effect to when the MRP would first become payable from 2018-19.
“This will result in a backdated MRP charge of £10.7m and an annual charge of around £5-6m per year for 50 years (depending on the MRP methodology used).
“The backdated amount will be charged to the commercial risk reserve. Amounts had previously been added to the reserve to cover liability in the event that the complex MRP accounting issue could not be resolved with GT in favor of the board.
“The council is paying a voluntary MRP fee because we maintain our belief that our previous approach was both legal and prudent.
“We agree with GT that if the board does not change its treatment, the only conclusive way to resolve this technical issue would be to go to the High Court.
“The MRP treatment chosen by the council for its portfolio of commercial properties is the annuity method which is a method widely used by other councils and is one of the recommended approaches allowed by government MRP guidelines.
“GT recommended that a report be produced for the committee justifying the use of the annuity method for the MRP treatment of the commercial real estate portfolio.”
Meanwhile, the leader and deputy leader of the council will face a vote of no confidence on Wednesday – but the Labor pair are expected to highlight the government’s ‘unfair’ budget cuts.
Conservative councilors will present the motion at the special council meeting,
The motion, which is to be moved by Tory Cllr Nigel Balding, reads: “In light of the apparent shortcomings regarding Together Energy’s investment, including in cabinet, the board decides it has no confidence in the head of the board or member of the cabinet for company resources.
Cllr Russ Bowden is the leader of the Labor-led council, while Cllr Cathy Mitchell is the deputy leader and cabinet member for company resources.
At the meeting, Conservative councilors will also introduce a motion asking the council to order an urgent, independent and open inquiry into the failures associated with this council’s investment in Together Energy.
Together Energy announced it would cease operations immediately last month.
The company was 50% owned by the Labour-led Warrington Borough Council.
But council leadership will also propose a motion at Wednesday’s meeting.
Moved by Cllr Mitchell, the motion will state that the council notes that since 2010 the Conservative government has cut funding to councils as part of their ‘austerity policy failure’.
Part of the motion reads: ‘Council further notes that this equates to a loss of 60p in the £1 across the country of revenue funding for local councils and therefore local people, particularly in the north .
“This equates to a loss of over £2,000 per household in our city. Warrington, due to unfair government budget cuts and a historically low tax rate, is the sixth-lowest funded council in the nation.
“The council notes that it was faced with a difficult choice – either to drastically reduce the services it provides to the people of Warrington – or find other ways to generate income.”
If the motion passes, the leader will write to city MPs asking them to use their influence to secure better funding for the city, as well as to the Secretary of State for the Department of Landscaping, Housing and Communities to urge that the Fair Funding review occur as a “matter of urgency”.
In addition, he will ask “any political group within the board that disagrees with the board’s investment strategy” to produce and present an alternative budget in order to be “clear and transparent” with the board. Warrington audience on the level of cuts it would make without the revenue generated from the investments.