Council borrowed £600m to invest in 15 commercial properties since 2017

A report on the rationale and justification of using the annuity method to calculate minimum revenue provision (MRP) on the council’s commercial property portfolio will be presented to the audit and corporate governance committee at its meeting on Thursday.

The committee will also be asked to grant approval of the council adopting the annuity method for calculating MRP for commercial properties, to be incorporated into the council’s 2022-23 MRP Strategy.

The report confirms that, since 2017, the council has invested in 15 commercial investment properties for a series of economic regeneration purposes and investment purposes.

These include Matalan on Winwick Road, Pure Gym on Fennel Street and Birchwood Park.

It says: “The council will have borrowed £619.1 million to purchase these properties by the end of the current financial year.

“To date the council has not paid MRP on the properties. This was agreed in previous MRP strategies agreed by full council.”

The report states MRP is the minimum amount which a council must charge to its revenue budget each year to set aside a provision for repaying external borrowing.

The report adds: “The rationale being that these are investments that will probably go up in value and may be sold in the future. The receipt of any sale would then pay off the debt.

“A proportion of the rental income each year is also put into the council’s commercial risk reserve.

“This approach was supported by leading QC advice and the council’s treasury advisors.

“This is a complex accounting issue that the council brought to the attention of Grant Thornton (GT), the council’s external auditors, for a view.

“Following an extensive review by GT, they concluded that they did not agree with the council’s approach and recommended that MRP be charged otherwise they would issue a statutory recommendation against the council.

“The council have thus made the decision to charge a voluntary MRP charge in the accounts backdated to when MRP would be first payable from 2018-19.

“This will result in a backdated MRP charge of £10.7 million and a yearly charge of approximately £5-6 million per annum for 50 years (dependent 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 the liability in the eventuality the complex MRP accounting issue could not be resolved with GT in the council’s favour.

“The council are paying a voluntary MRP charge because we maintain our belief that our previous approach was both lawful and prudent.

“We are in agreement with GT that if the council did not change its treatment the only conclusive way to resolve this technical issue would be to go to the High Court.

“The council’s chosen MRP treatment for its commercial property portfolio is the annuity method which is a method extensively used by other councils and is one of the recommended approaches allowed under Government MRP guidance.

“GT have recommended that a report be produced for the committee justifying the use of the annuity method for the MRP treatment of the commercial property portfolio.”

Meanwhile, the council’s leader and deputy leader will face a no confidence vote on Wednesday – but the Labour pair are set to highlight the ‘unfair’ funding cuts from the Government.

Conservative councillors will put forward the motion during the extraordinary council meeting,

The motion, which is to be proposed by Tory Cllr Nigel Balding, reads: “In light of the apparent shortcomings with regard to the Together Energy investment, including at cabinet, the council resolves that it has no confidence in the leader of the council nor in the cabinet member for corporate resources.”

Cllr Russ Bowden is the leader of the Labour-run council, while Cllr Cathy Mitchell is the deputy leader and cabinet member for corporate resources.

At the meeting, Tory councillors will also put forward a motion calling for the council to commission an urgent independent and open inquiry into the failures associated with this Council’s investment into Together Energy.

Together Energy announced it was to cease trading immediately last month.

The firm was 50 per cent-owned by Labour-run Warrington Borough Council.

But the council leadership will also put forward a motion during the meeting on Wednesday.

Proposed by Cllr Mitchell, the motion will state the council notes that since 2010 the Conservative Government have cut funding of councils under their ‘failed austerity policy’.

Part of the motion reads: “The 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, especially in the north.

“That equates to a loss of over £2,000 per household in our town. Warrington, as a result of unfair Government funding cuts and a historically low council tax rate is the sixth lowest funded council in the country.

“The council notes that it faced a stark choice – either to make deep cuts to the services it provides to the people of Warrington – or to find alternative ways to generate revenue income.”

If the motion is passed, the leader will write to the town’s MPs to ask them to use their influence to secure better funding for the town, as well as to the Secretary of State for the Department of Levelling Up, Housing and Communities to urge for the Fair Funding review to happen as a ‘matter of urgency’.

Furthermore, it will call on ‘any political group within the council who disagrees with the council’s investments strategy’ to produce and present an alternative budget in order to be ‘clear and transparent’ with the public of Warrington the level of cuts they would make without the revenue that the investments produce.