Agenda item

The Committee 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.

 

The Committee 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 Committee 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.  However, subject to detailed design of the schemes, there might be scope to fund them from HRA resources rather than the GF resources in due course.  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

 

 

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

 

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 is 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 includes 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 Committee was informed 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 Committee 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 2020-21 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 Committee noted the correction to the recommendation set out on the Supplementary Information Sheet, which clarified the proposal to remove £500,000 allocated in respect of the Bus Station relocation scheme from the provisional capital programme. Before the Committee debated the report, the Lead Councillor for Finance and Planning Policy commented that this would be kept under review as there was still some uncertainty regarding the scheme.

 

The Lead Councillor also drew attention to the impact of the interest rate rises on the capital programme, which would necessitate a review and reassessment of some business cases to make sure projects were still viable.

 

During the debate, the Committee made the following comments:

 

·       In response to a request for clarification as to whether

 

(a)   it was still correct to assume actual expenditure of 50% for schemes on the provisional programmes in the financial year (paragraph 4.7 of the report) given that projects were being more actively managed and that some schemes had been removed from the programme, and

(b)   provision should be made for inflation in the cost projections for schemes in the capital programme (paragraph 4.9)

 

the Lead Specialist – Finance confirmed that the 50% assumption reflected the need to minimise the impact on the Minimum Revenue Provision, and that although no provision was made for inflation the capital contingency fund was used as a source of funding for topping up capital budgets following receipt of tenders.  It was noted that where inflation impacts on larger capital schemes, these were subject to separate reports back to councillors.

 

·       In response to a request for information as to the nature of the estimated expenditure on the provisional capital programme on the North Street development, which would be £1.35 million by 2030, the Lead Specialist – Finance confirmed that details would be circulated to the Committee.

 

·       In relation to the detailed investment strategy in Appendix 1, and in view of the Council’s stated priority on environmental leadership, it was suggested that a watching brief was kept as to the appropriate time at which the framework for evaluating investment opportunities should be extended to include environmental, social and governance (ESG) criteria.

 

·       In response to a question as to whether any consideration had been given by the Executive to rebuilding those HRA properties that were in very poor condition, the Committee noted that such decisions would be informed by the outcome of the stock condition survey and resulting asset management plan. Consideration would also need to be given as to where displaced residents would be housed. 

 

·       In response to concerns expressed over the relatively low provision set aside for energy projects, and for Special Protection Areas, the Committee noted that these were projects to be funded by specific reserves.  It was anticipated that the energy projects would come before the Executive for approval in due course.

 

·       Request for clarification as to the level of risk of having to pay for levies relating to liability for asbestos and whether the health of residents was at risk.  In response, officers confirmed that there no specific, known risks to residents and that this was a very long-term liability.

 

·       Concerns over the operation of North Downs Housing (NDH) and the apparent lack of communication between NDH and the holding company. 

 

·       Whilst acknowledging the need to invest in the maintenance of the housing stock, there was concern as to whether it was really necessary to replace kitchens, bathrooms, and heating systems that were still fully functional every ten years. 

 

·       In relation to new schemes, clarification was sought in respect of whether any reports had been prepared in relation to Spectrum upgrades. It was noted that this would be subject of a meeting of the Joint EAB in the next few weeks.

 

·       Request for consistency in naming of capital schemes, for example there was reference in the capital programmes to “Slyfield Area Regeneration Project” and to “Weyside Urban Village”.

 

Having considered the report, the Committee,

 

RESOLVED: That the recommendations to the Executive and Council in respect of the Capital and Investment Strategy, as set out in the report submitted to the Committee, together with the comments referred to in the debate and summarised in the bullet points above, be endorsed.

 

Reason:

To enable the Council at its budget meeting on 8 February 2023, to approve

·        the capital and investment strategy for 2023-24 to 2027-28; and

·        the funding required for the new capital investment proposals.

Action:	Officer to action:
To circulate to the Committee details as to the nature of the estimated expenditure on the provisional capital programme on the North Street development, which would be £1.35 million by 2030.	Victoria Worsfold, Lead Specialist - Finance