PPP Accounting Flexibility To Be Considered - Short Term Benefit But Long-Term Pain
25th January 2024
A briefing has been provided to all members of the Council on an accounting flexibility introduced by Scottish Government and available to Councils to utilise in 2022/23 or 2023/24.
A number of reports to Council in recent months have covered this topic, and a number of other Councils have utilised the flexibility in 2022/23 or are considering doing so in 2023/24.
This flexibility provides an opportunity to extend the number of years which the Council accounts for costs related to its private financed school PPP contracts.
This could extend the time period from the current 25-30 years, to 45 years.
A briefing has been issued to all members from the Council's Head of Corporate Finance, in advance of the matter being considered formally by the Council.
If the accounting flexibility was utilised, this would result in a large credit into Council reserves estimated at £68m, and ongoing credits over the short-to medium term estimated at £6m p.a.
There are longer-term implications. It would extend the time period over which costs are charged into the revenue budget. In total there would be £146m of charges against future years. The briefing to Members has also highlighted that additional interest costs could arise depending on use of the credits created.
Leader of the Council Raymond Bremner said: "It’s important to realise this accounting flexibility is not a magic solution to the Council’s financial challenges. The Council is still faced with a budget gap over 3 years of £113m, and the increase in Council reserves won’t solve that challenge. The Council is still faced with difficult choices in how it balances its budget in a sustainable way. That will require recurring budget savings, cost reductions and income generation, not a one-off use of reserves. The accounting flexibility can however assist with how the Council addresses that financial challenge by giving scope to use reserves to redesign how we deliver services and transform our operating models.
Convener Bill Lobban added: “Accounting flexibilities are another tool in our toolbox which we can use to get the best use of all our resources and help to minimise the impacts of our budget gap. This particular tool is akin to having an increase of credit limit on a credit card but as we all know, there are interest costs involved in using that credit. I am sure members will give careful consideration to this matter when it comes before them."
The accounting flexibility does not alter the contracts the Council holds with the companies operating the PPP schools, and nor will it alter how much they are paid. There will be no change to the operational arrangements in these schools or on the ground. Parents, pupils and staff will not be impacted. This is purely an internal accounting mechanism which would operate per Scottish Government accounting rules.
The Council has 3 private financed school contracts in scope for this accounting flexibility.
School PPP1; 4 schools: Ardnamurchan High and Hostel, Glen Urquhart High, Spean Bridge Primary, Strathdearn Primary.