Folkestone & Hythe ‘Stretches the Mortgage’ on £192m Debt: MRP Savings Now, Higher Bills Later

Folkestone & Hythe District Council (FHDC) is proposing a change that makes its finances look dramatically healthier on paper — not by paying down debt, but by changing the rule that decides how much it must set aside each year for past borrowing.

In its Capital-Strategy-2026/27 and Minimum Revenue Provision (MRP) Statement 2026/27, the council proposes moving from a straight-line MRP approach to an annuity approach, implemented from 1 April 2025. The effect is immediate: the council’s own tables show MRP falling from £1.7m in 2024/25 to about £0.4m in 2025/26 (forecast) and 2026/27 (budget).

To most residents, “MRP” sounds like something that lives in a spreadsheet and never troubles real life. In fact it is straightforward: Minimum Revenue Provision is the legally required annual amount a council must take from its day-to-day revenue budget — including council tax and other income — to reflect the repayment of borrowing used to fund long-term assets.

Put simply, it is the slice of the council’s everyday spending pot that must be set aside each year because the council has borrowed money in the past.

That is why the repayment method matters. MRP is money that cannot be spent on services. And the council’s own description of the annuity approach gives away the trade-off: it keeps the charge lower at the start but pushes it higher later. In everyday terms, it is the local-government equivalent of extending the mortgage term — easing pressure now, but leaving a steeper bill further down the line.

That would be controversial at any time. It becomes politically explosive because Kent is in the middle of Local Government Reorganisation (LGR). FHDC is openly preparing for a model where district councils are replaced by new unitaries from April 2028, following a shadow year — with a government decision on the structure expected in summer 2026, according to the public timeline being used by Kent and district leaders.

So the uncomfortable question writes itself: how much does it matter when the council making the change may not be the council still carrying the long-term consequences?

What the council is changing — in plain English

Councils borrow for “capital” things: buildings, regeneration schemes, major housing works, and other long-life assets. The law requires councils to make a prudent annual charge to revenue for that borrowing. That charge is MRP.

Under straight-line, the yearly charge is broadly even — like paying the same slice of the principal each year.

Under annuity, the yearly charge starts lower and rises over time — the same curve most people recognise from a conventional loan where early payments are lighter and later payments do more of the heavy lifting.

The council frames the switch as professionally reviewed and permitted, following advice from Arlingclose, it’s treasury advisers It also explains why it can do it now: because MRP is applied at the end of the year, adopting the new approach through the 2026/27 statement allows it to be used from 2025/26 onwards.

The key point is not whether annuity is “allowed”. It is. The point is what it does: it buys immediate revenue breathing space by pushing the repayment profile further into the future.

The numbers that matter — and why the timing is combustible

The council’s own capital strategy spells out the scale of the plan:

• Planned capital expenditure in 2026/27: £46.4m.

• Financing includes £20.1m of new debt in that year alone.

• The authority’s borrowing at 31 December 2025 is reported as £106.8m, at an average interest rate of 3.76%.

• The “debt-equivalent” measure used for affordability (the Capital Financing Requirement, or CFR) is forecast to rise to £192.3m by 31 March 2027 and £203.4m by 31 March 2028.

Set beside the MRP change, that is the story: a council planning significant new capital activity while sharply reducing the annual revenue provision for debt repayment.

Then comes the line that should make every councillor and taxpayer sit up: capital expenditure incurred during 2026/27 will not be subject to an MRP charge until 2027/28 or later.

That is not a minor technicality. It means the repayment pressure for the council’s late-cycle borrowing does not hit immediately — precisely the sort of lag that becomes politically contentious when governance itself may change in 2028 due to local government reorganisation.

“But isn’t this just accounting?” No — it’s a choice about future budgets

There is a familiar attempt to wave MRP away as “non-cash”. It is true that MRP is an internal revenue charge rather than a cheque posted to the bank that day.

But it has a very real consequence: it consumes revenue budget capacity. When it rises, it squeezes what is available for services or forces higher income demands elsewhere.

The council’s own capital strategy sets out “financing costs” (interest plus MRP and related charges) as a proportion of the net revenue stream. For 2026/27 it budgets General Fund financing costs of £25.9m, presented as 14.0% of the net revenue stream — a substantial slice of the council’s core spending capacity even before anyone argues about service levels.

In that context, the political attraction of an MRP reduction is obvious: it creates headroom in the years when budgets are tight and the organisation is heading toward a reorganisation timetable.

But that headroom is not free money. The annuity approach does not make debt vanish. It reshapes the curve.

The reorganisation problem: who owns the consequences?

Here is the core accountability issue.

Under the LGR timetable being advanced publicly in Kent, councils are designing new structures intended to begin in April 2028. The successor authority (or authorities) would inherit the assets, contracts and liabilities of the bodies they replace. That is the whole point of reorganisation: services continue, but under a new legal entity.

So a change that reduces MRP now but raises it later is not merely “a good year for the budget”. It is also a decision about which taxpayers and which councillors will face the later bills.

Even without any ill intent, this is how financial hot-potato happens:

• an outgoing authority makes a perfectly lawful decision that improves its near-term revenue position;

• long-term pressure is deferred;

• the successor council inherits the profile and must either absorb it or take the political pain of reversing it.

An independent local scrutiny site, ShepwayVox, put the public-interest version of the point bluntly: when a council presents an MRP saving, what it can mean in practice is simply “stretching the mortgage over a longer period”.

That doesn’t prove wrongdoing. It does underline why timing matters.

Buried details that change the risk picture

A granular read of the council’s MRP statement reveals other choices that matter to the long-term shape of liabilities:

• Freehold land is charged over 50 years under the annuity approach — a long tail.

• Some capital expenditure that is not a physical asset but is capitalised by regulation is charged over 20 years.

• The statement also sets out how MRP is treated for capital loans to third parties: the council can make nil MRP for certain “service” loans, relying instead on principal repayments being treated as capital receipts — but it also builds in a safeguard: where expected credit losses are recognised (for certain loans made on or after 7 May 2024), the MRP charge cannot be lower than the loss.

These are not headline-friendly points, but they show what MRP policy really is: a set of judgement calls about prudence, risk, and how quickly costs are brought into the revenue budget.

What the council will say — and what residents should demand next

The council’s case is simple: the strategy is presented as accessible, compliant with national guidance, reviewed by advisers, and — in the Alan Mitchell Director of Finance’s (pictured) words — “prudent, affordable and sustainable”.

Even if you accept that, there is still a democratic problem: the public is being shown the downward slope (MRP falling to around £0.4m) with far less visibility of the upward slope (how high does it rise, and when?).

If Folkestone & Hythe wants to carry public confidence through an LGR transition, it should publish the missing piece in plain English:

1. a long-range schedule showing the projected MRP path under annuity (not just the first few years);

2. an explanation of how much of the near-term “saving” is deferred cost and when it comes back;

3. a clear statement of how this profile would be handed to any successor authority in 2028.

Because otherwise, the change will always look like this: cheaper today, dearer tomorrow — and tomorrow may belong to a different council.

The Shepway Vox Team

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