Agenda item

Prior to consideration of the budget related reports, of which the Capital and Investment Strategy was the first, the Chief Finance Officer (CFO) made a presentation to the Council, which provided information about the strategic context within which the budget had been prepared, the medium-term financial plan, the robustness of the estimates, adequacy of reserves and budget risks. 

The Council considered a report on the Council’s capital and investment strategy, which gave a high-level overview of how capital expenditure, capital financing and treasury management activity contributed to the provision of local public services along with an overview of how associated risk was managed and the implications for future financial sustainability.

Decisions made now, and during the period of the strategy on capital and treasury management would have financial consequences for the Council for many years into the future. The report therefore included details of the capital programme, any new bids/mandates submitted for approval plus the requirements of the Prudential Code and the investment strategy covering treasury management investments, service investments, and commercial investments.  The report had also covered the requirements of the Treasury Management Code and the prevailing DLUHC Statutory Guidance.

Councillors noted that in order to achieve the ambitious targets within the Corporate Plan, the Council needed to invest in its assets, via capital expenditure, which was split into the General Fund (GF) and Housing Revenue Account (HRA).

All projects, regardless of the fund, would be funded by capital receipts, grants and contributions, reserves, and finally borrowing.  When preparing the budget reports, it was not known how each scheme would be funded and, in the case of regeneration projects, what the delivery model would be.  The report showed a high-level position.  The business case for each individual project would set out the detailed funding arrangements for the project.

The Council noted that some capital receipts or revenue income streams might arise as a result of regeneration schemes, but in most cases the position was currently uncertain, and it was too early at this stage to make assumptions.  It was likely that there would be cash-flow implications of the development schemes, where income would come in after the five-year time horizon of the report and the expenditure incurred earlier in the programme.

The Council had an underlying need to borrow for the General Fund capital programme of £286 million between 2022-23 and 2027-28.  Officers had put forward bids, with a net cost over the same period of £10 million, increasing this underlying need to borrow to £296 million should these proposals be approved for inclusion in the programme.

The capital programme included several significant regeneration schemes, which it was assumed would be financed from GF resources.  Detailed funding proposals for each scheme would be considered when their Outline Business Case was presented to the Executive for approval.

The main areas of expenditure (shown gross), as set out in the report, were:

·       £274 million Weyside Urban Village (WUV)

·       £62 million strategic property purchases

·       £32 million North Downs Housing (NDH)

·       £28 million Ash road bridge and footbridge

The report contained a summary of the new bids submitted and the position and profiling of the current programme (2022-23 to 2026-27).

Upon reviewing the current capital programme, officers had identified that there was a separate scheme for the bus station, the cost of which had also been included in the Shaping Guildford’s Future scheme, and therefore could be removed from the provisional capital programme.

The HRA capital programme was split between expenditure on existing stock and either development of or purchase of new dwellings to add to the stock.  The Council had in place a robust stock condition review process which provided 100% stock data over a rolling 5-year programme, which allowed for effective assessment against Regulatory and legislative standards.  In addition to which, the recently updated Fire Risk Assessments, had allowed the Council to plan the current and future programme to ensure compliance with the new building safety legislation and standards.  This, in turn, was complimented by the new compliance framework that had been rolled out over the last year which provided enhanced and improved levels of assurance and up to date information and requirements to meet the requirements of other key areas of compliance including asbestos, legionella, lifts and gas. 

Improved building safety standards across social housing had resulted in a national drive to improve standards and safety. Guildford had responded to the recent and forthcoming changes in requirements with an extensive improvement programme.  The first year of the programme required an investment at levels not previously seen in Guildford with £24.5 million invested in 2022-23, and a further £20 million planned for 2023-24 after which the extensive programme of building safety improvement would be completed, and investment level would return to levels as previously seen.  The capital programme will be funded from HRA capital receipts and reserves.  There was also £145 million between 2022-23 and 2027-28 million included for development projects to build or acquire new housing (including WUV).

The main areas of major repairs and improvement expenditure were:

·       refurbishment, replacement & renewal programme of existing stock, £11 million, which included kitchen & bathroom upgrades, void property refurbishment and roof works

·       works to existing stock to comply with changes to standards and legislation, £9 million, including replacement fire doors, electrical testing and fire protection works

·       mechanical and electrical works £2 million, including central heating systems

·       other works of £1.9 million including damp prevention works

The main development projects included:

·       Guildford Park Car Park: £38.9 million

·       WUV: £49 million

·       Foxburrows: £10 million

The Council noted that officers carried out the treasury management function within the parameters set by the Council each year and in accordance with the approved treasury management practices.

The budget for investment income for 2023-24 was £3.5 million, based on an average investment portfolio of £75 million, at a weighted average rate of 3.56%.  The budget for debt interest paid was £8.2 million, of which £4.8 million related to the HRA and £600,000 short term loans.  WUV interest of £2.8 million was being capitalised and added to the cost of the scheme.

The Council noted that councils could invest to support public services by lending to or buying shares in other organisations (service investments) or to earn investment income (commercial investments, where earning a return was the primary purpose). 

Investment property had been valued at £174 million, as per the 2021-22 unaudited Statement of Accounts, with rent receipts of £8.2 million.  The Council had also invested £25.3 million in its housing company North Downs Housing Ltd (NDH), via 40% equity to Guildford Borough Council Holdings Ltd (£10.1 million) who, in turn, passed the equity to NDH, and 60% repayment loan direct to NDH (£15.3 million) at a rate of 5%. 

The report had also included the Council’s Minimum Revenue Provision (MRP) policy and the Prudential Indicators and had set out the updated flexible use of capital receipts policy.  This policy, if approved at Council, would permit the use of any capital receipts received in year to be used to fund any service transformation costs incurred in the same year. 

The Capital and Investment Strategy 2023-24 to 2027-28 had also been considered by the Corporate Governance and Standards Committee at its meeting on 19 January 2023, by the Joint Executive Advisory Board at its meeting on 24 January 2023, and by the Executive on 26 January 2023.

Upon the motion of the Deputy Leader of the Council, and Lead Councillor for Finance and Planning Policy, Councillor Joss Bigmore, seconded by the Leader of the Council, and Lead Councillor for Housing and Community, Councillor Julia McShane, the Council:

RESOLVED:

(1)        That the General Fund and HRA capital estimates, as shown in Appendices 2 and 3 to the report submitted to the Council, as amended to include the bids approved by the Executive at its meeting on 26 January 2023, be approved.

(2)        That the Minimum Revenue Provision policy, referred to in section 5 of the report, be approved.

(3)        That the capital and investment strategy be approved, specifically the investment strategy and Prudential Indicators contained within the report and in Appendix 1 thereto.

(4)        That the updated flexible use of capital receipts policy at Appendix 8 to the report, be approved.

Reasons:

·       To enable the Council to approve the capital and investment strategy for 2023-24 to 2027-28

·       To enable the Council to approve the funding required for the new capital schemes proposed