Agenda item

Consider report by Acting Chief Financial Officer.  (Copy attached.)

There had been circulated copies of a report by the Acting Chief Financial Officer considering the impact for the Council of changing the statutory accounting treatment for Service Concession Arrangements (SCAs) as set out in Finance Circular 10/2022 – finance leases and service concession arrangements.  The report explained that the Scottish Government’s 2022 Resource Spending Review contained details of a Service Concession Arrangement flexibility that related to the Council’s PPP schools.? The flexibility permitted Councils to undertake internal accounting changes that extended the period over which the principal repayment debt element of the unitary charge could be made over the life of the asset rather than the life of the contract.  This change would result in a one-off credit to the Council and ongoing annual savings for a period of time. In the remaining years following the end of the SCAs, the rescheduled debt repayments continued until the debt liability had been extinguished.  FC 10/2022 permitted the option for Scottish Councils to apply additional flexibility to the accounting treatment for Service Concession Arrangements (SCA) in place before 1st April 2022. The statutory guidance applied from the financial year 2022 to 2023 but permitted retrospective application as an option.              If this approach was adopted, it must be applied to all service concession arrangements, leases, and similar arrangements with the exception of such arrangements where the contract would expire within five years, where it may be applied. The Council had three such arrangements in place at present, namely the original PPP scheme (3 secondary schools – Earlston HS, Berwickshire HS, Eyemouth HS),  Kelso High School and the Jedburgh Intergenerational Campus.  In terms of the requirements of FC 10/2022 the Council would need to show that the financial implications of the change were prudent, sustainable, and affordable over the life of the asset and explain the basis for the accounting policy change.  The reason for the change needed to be disclosed, along with an explanation of the movement in both the Balance Sheet and the General Fund.  Where the annuity method had been applied, narrative would explain how this method linked to the flow of benefits from the asset.  Advice and support had been sourced from Link Asset Services, the Council’s treasury management consultant.  Members welcomed the proposal which helped to bridge the budget gap without severe cuts and helped free up funds for transformation projects.  Thanks were given to the Finance team for their work on this.

         DECISION

         AGREED to:-

         (a)      apply, as per section 2.2 of FC 10/2022, the permitted PPP Concession flexibility in financial year 2023/24 on a retrospective basis using an annuity basis with a useful asset life of 50 years;

         (b)     note that the flexibility being applied was consistent with current Council Loans Fund arrangements and was considered prudent, sustainable, and affordable over the life of the asset;

         (c)      note that, by applying the flexibility, a one-off retrospective saving of £29.093m would be achieved followed by a reduction in the annual charges for a further 16 years (commencing in Financial Year 2023/24) and the continuation of the statutory charges after the SCA contracts had been repaid; and

         (d)     allocate the £29.093m retrospective saving as follows:

(i)      £9.093m contribution towards supporting the revenue budget over the first 3 years of the revenue plan from 2023/24 as detailed in 4.13; and

(ii)     retain the balance of £20m in reserves to establish a £20m change fund.  This fund would be deployed over the next 5 years targeted at new technology, service changes and cost reductions to ensure the Council remained financially sustainable while maintaining service standards.

          DECLARATION OF INTEREST

          Councillor Rowley left the meeting during the discussion on the following item of business, and subsequently informed the Clerk to the Council that he was declaring an interest in terms of Section 5 of the Councillors Code of Conduct.  At the end of the item of business, the Convener advised the Members of this declaration of interest.