A CONTROVERSIAL pension transaction which involved Plymouth City Council borrowing £72 million several years ago has still not been signed off by the Government.

The council’s novel accounting treatment where it used capital funds to reduce the ongoing cost of a pension deficit to its revenue budget was flagged up as a concern by auditors.

The council has had to apply for a ‘capitalisation direction’ from ministers in order to set a balanced budget.

But with nothing arriving since the Government gave “an intention” to grant the capitalisation direction in March, Conservative Councillor Lee Finn (Budshead), asked auditors and officers for the state of play at a meeting of the authority’s audit and governance committee this week.

He said councillors were told at a budget setting meeting in March that the official letter from the Government would arrive in two weeks.

“We still haven’t got that so how could we set a legal budget without the capitalisation direction,” he said.

“There is a risk to us setting that budget and it should be reflected in the audit plan. Without approval from the Government we would be required to expense the pension deficit which would be a huge risk.”

Barrie Morris from auditors Grant Thornton said their opinion was now that “a satisfactory resolution had been obtained”.

“We need to make sure the accounts are prepared on a true and fair basis and that was an example where we had concerns about the underlying transaction and accounting treatment of that and why we brought it to your attention,” he told members.

Chief finance officer Ian Trisk-Grove said the situation had not changed from March when the council was “satisfied it could set the budget” based on the intention of the Government to grant the CD.

But he said it was a “complex process” involving the Ministry of Housing, Communities and Local Government and His Majesty’s Treasury.

“They are satisfied at this point that all questions I have been given have been answered and I think it’s a matter of process.”

He said he was hoping for a final resolution very soon.

The city council says the transaction allowed it to make more than £9 million savings to its revenue budget because paying the interest on the loan was cheaper than paying the deficit every year.

The Chartered Institute of Public Finance and Accountancy (CIPFA) was requested to carry out a review of the council’s finances as a result of its actions

CIPFA’s report explained that the council used the loaned money to invest in an independent investment company called Miel Solutions Ltd which then used the cash to completely pay off the council’s pension deficit.

The transaction should have been classed as a capital spend but it funded “a revenue pressure” said auditors.