Pioz is a Spanish village that has become famous for having debts that will take over 7,000 years to repay. The swimming pool (funded by borrowing) has had to be closed and the street lighting turned off. This shouldn't happen in the UK because of a little known quirk of local government finance known as the Minimum Revenue Provision.

Local authorities can borrow money for long term projects; historically this has been managed by central government granting capital approvals for borrowing. These approvals looked at the total level of debt for the authority; did it seem likely that the authority could manage that level of debt?

Prior to the introduction of the Minimum Revenue Provision there was an accusation that councillors¹ were taking out loans to fund projects but not making provision to repay the loans. So a councillor would build a shiny new leisure centre in his/her ward, the voters would all be pleased: 'yeah new leisure centre'. The loan would be taken out on a 25-year interest-only basis, so the people enjoying the new leisure centre would only see that interest cost hitting their council tax. In 25 years' time when the loan fell due, the councillors who'd voted for the new leisure centre would be gone and the leisure centre would no longer be shiny.

Every year in the local authority accounts something called the Minimum Revenue Provision is charged. This was introduced in the 1989 Local Government and Housing Act and is an important part of making councils accountable to council tax payers.

The Minimum Revenue Provision requires councils to charge approximately 4% of outstanding debt to the council tax payer in each year, thus those who benefit from the leisure centre also bear the cost. Local authorities do not have to repay 4% of borrowing each year; they will try to manage their borrowing to keep costs down. Local authorities may still borrow money over 25 years on an interest-only basis. The Minimum Revenue Provision is put aside in a protected reserve to repay debt when it falls due.

This provision is unique to local authorities and explains partly why local authority debt could be considered different from central government debt.

As a tool to hold local authorities accountable for the money they borrow, it fails in one major aspect: hardly anybody has ever heard of it.