Agenda item

Context:

1.    Chartered institute of Public Finance and Accountancy (CIPFA) produced a revised regulatory Code in December 2017, which included a need for local authorities to produce a Capital Strategy. The requirements were staggered with an aim for reporting compliance during 2018/19 with a full Capital Strategy implemented for 2019/20. This report concentrates on the former in evaluating the governance, planning and priority setting involved in presenting 2019-20 capital budget proposals and the 3 years thereafter making up the collective capital medium term financial plan.

2.    CIPFA reported that a Capital Strategy should be tailored to individual circumstances and consequentially does not volunteer a prescriptive format. The overall intent is that any Capital Strategy should allow Members to understand how stewardship, value for money, prudence, sustainability and affordability will be secured. The overall purpose of a capital strategy being to provide opportunity for engagement with Full Council to ensure overall strategy, governance procedures and risk appetite are fully understood by all elected members.

3.    The code, in describing the Capital Strategy, reports it can be delegated to Cabinet (or similar body) with Full Council being responsible. The Authority’s approach is to report budget setting process through Cabinet, with consideration and approval of the future capital programmes resting with full Council. The Council’s Constitution is consistent with compliance requirements. It is anticipated that the actual resulting capital strategy will be reconciled and consistent with a wider financial strategy and both available for consideration during the spring cycle of meetings.

Key Issues:

Strong Communities Select Committee to consider and provide feedback upon the budget assumptions, pressures and savings proforma affecting this Select portfolio area.

1.    That Cabinet considers the capital strategy requirements and assesses the preparedness of current practices to satisfy capital strategy compliance obligations for onward endorsement to Council as part of capital strategy report in January 2019.

2.    That Cabinet considers the annual core capital programme identified in Appendix 2 for 2019-20, together with the additions proposed in paragraphs 6.14 to 6.18, and issues its draft capital budget proposals for 2019/20 to 2022/23 for consultation purposes.

3.    That Cabinet reaffirms the principle that during the financial year, any new schemes volunteered can only be added to the programme if the business case demonstrates that it is self-financing or if the scheme is deemed a higher priority than current schemes in the programme and therefore displaces it.

4.    When considering the relative merits of projects and potential displacement, that Cabinet considers the indicative priority matrix supplied in paragraph 4.15, either endorsing or amending it for onward consideration by full Council.

5.    That Cabinet considers the extent of proposed sale of assets captured in exempt Appendix 5, in order to support the capital programme, and that once agreed, no further options are considered for these assets.

6.    That Cabinet notes the potential forecast of capital receipt levels, prior to the consideration of using £75,000 of receipts balance to afford condition survey work to update historic condition survey information and a ceiling of capital receipts funding of £300,000 to assist with the business case affordability of Severn View Residential Home replacement. Any excess of capital receipts generated thereafter is proposed to be applied by Treasury colleagues in a fashion that will mitigate minimum revenue provision costs and interest payments, to assist with revenue budget management. This is a change in capital receipt strategy to that applied in earmarking receipt generation to afford Members tranche A Future Schools aspirations. This will mean that any further school redevelopment will need to derive a greater extent of revenue headroom to afford the prudential borrowing financing of such developments.

Capital Strategy Summary Considerations

1. The Capital Strategy sets out the council’s approach to capital investment over a longer timeframe than is traditional in the 4 year medium term financial plan and will provide a framework through which our resources, and those matched with key partners, are allocated to help meet strategic priorities.

It is about planning, prioritisation, management and funding and is more informed by the council’s consideration of:

·         Corporate Plan

·         Asset Management Plan

·         Commercial Investments Strategy

·         Treasury Management

Member Scrutiny:

The Assistant Head of Finance/Deputy Section 151 Officer presented the report and invited questions and comments from the Select Committee, as follows:

·         A Member asked about any areas of uncertainty in the Capital Programme, and any plans to mitigate them.  Maintenance of assets is the main aspect and available funds are distributed as appropriately as possible.  The main pressure is highway maintenance. The Capital Programme is not yet finalised, some bids are outstanding and next year some additional resources are likely to be included in the final settlement. 

·         The Member expressed concern about interest rates going forward, factors that may affect them and the position of lenders.  Members were referred to the Treasury Management Strategy.  It was added that the Public Works Loan Board provides concessionary loans to the public sector at a preferential rate. There is also a policy of internal borrowing to keep borrowing costs low.  Additionally, short term loans are used recurrently as they are currently less expensive than longer term loans.

·         A question was asked about the tendering process for the new schools. It was confirmed that the same contractor was used for the two new schools, and that the contracts were put out to public tender.  Welsh Government is looking at the advantages of a design model for all new schools in Wales to assess potential for economy of scale and similar pupil experience. The Cabinet Member, Resources explained that the design of both new schools was based on the requirements of the pupils, staff and curriculum.  In response to a comment, the Cabinet Member assured that both schools are built to the correct standards, and staff are involved with the design team.  Snagging and defect work is ongoing and any lessons learned will be taken forward.

·         A Member asked for information regarding £75,000 for a conditions survey and was informed that this is the cost of new conditions surveys for existing assets.

·         Considering the £300,000 earmarked to assist the business case for Crick Road, a Member asked for an update on viability.  It was responded that the costs are currently being checked.   It was noted that the project doesn’t currently balance hence the addition of a buffer to facilitate the project going forward.  It was confirmed that there are two business case options are under consideration; 32 bed (social care) and 48 bed (32 social care and 16 health related).  Discussion continues with the Health Board. It was questioned if this falls within the Investment Committee’s portfolio but explained that it is a Capital expenditure decision for full Council.