Agenda item

The Committee considered the annual outturn report on capital expenditure, non-treasury investments and treasury management performance for 2022-23.

In total, expenditure on the General Fund capital programme had been £35.4 million against the original budget of £158 million, and revised budget of £169 million.  Details of the revised estimate and actual expenditure in the year for each scheme were set out in Appendix 3 to the report.

The budget for Minimum Revenue Provision (MRP) had been £1.5 million and the outturn was £1.38 million.  This was due to slippage in the capital programme in 2021-22. 

Officers had reviewed the capital programme and had determined that there were schemes that were no longer required, that no longer met the original business case or had been removed pending a new business case in light of the Council’s ongoing budget deficit.  These schemes were detailed in the Financial Recovery Plan within the capital programme workstream.  Removing these schemes would reduce the Council’s underlying need to borrow for capital purposes and would generate a saving to the revenue account in respect of MRP and interest.

The Council’s investment property portfolio stood at £178 million at the end of the year.  Rental income was £9.5 million, and income return had been 5.7% against the benchmark of 4.7%.

The Council’s cash balances had built up over several years, and reflected the strong balance sheet, with considerable revenue and capital reserves in the HRA.  Officers carried out the treasury function within the parameters set by the Council each year in the Capital and Investment Strategy.  At 31 March 2023, the Council held £98 million in investments, £295 million in borrowing of which £147 million related to the HRA, £32 million related to the Weyside Urban Village Project, and £115 million was short term borrowing, resulting in net debt of £197 million.

The Council borrowed short-term from other local authorities for cash flow purposes in the year and had taken out a loan for Weyside Urban Village under the infrastructure rate.  This interest was capitalised against the project and not charged to the General Fund as interest payable.

Section 8 of the report confirmed that the Council had complied with its prudential indicators, treasury management policy statement and treasury management practices (TMPs) for 2022-23.  The policy statement was included and approved annually as part of the Capital and Investment Strategy, and the TMPs were approved under delegated authority.

The treasury management performance over the last year, compared to estimate, had been summarised in the report, and the factors affecting this performance had also been highlighted. There had been slippage in the capital programme which resulted in a lower Capital Financing Requirement than estimated. Interest paid on debt had been lower than budget, due to less long-term borrowing taken out on the General Fund because of slippage in the capital programme.

The yield returned on investments had been lower than estimated, but the interest received had been higher due to more cash being available to invest in the year – a direct result of the capital programme slippage.  Officers had been reporting higher interest receivable and payable and a lower charge for MRP during the year as part of the budget monitoring when reported to councillors during the year.

The report also contained detailed information on the return on investments, and interest paid on external debt.

During the debate, the Committee made the following comments:

·      In relation to the Council’s investment property fund portfolio, it was noted that demand for light industrial units was particularly high, and this element of the portfolio had performed considerably better than other parts of the property market within Guildford.

·      Concerns were expressed regarding ongoing slippage in the capital programme and over provision in the budget for MRP.  The Committee noted that MRP was calculated on a scheme-by-scheme basis, and it was only applicable when a capital scheme becomes operational.  Where there was slippage, the impact on the budget for MRP was reduced.

·      In response to a question as to the extent to which the Council was receiving a good return on its investments, and whether the Council should continue to hold certain investments, the Committee noted that a review of all investments would be taking place imminently.

·      In relation to key points relevant to investment property in the local area, it was suggested that the office and retail markets were “stagnant” rather than “subdued”.  Clarification was sought in respect of whether the comment in the report that landlords were “taking a 10-year approach when renting” meant that landlords were actually seeking 10-year leases.

·      Clarification was also sought as to whether town centre retail vacancies were significantly down, and running at a lower vacancy rate than the south-east average.

·      In response to a question as to the approximate proportion of the Public Works Loan Board (PWLB) debt related to assets acquired to increase rental incomes and therefore would no longer be allowed under the rules, it was confirmed that none of it was used for such purposes.  It related mainly to the borrowing on the Housing Revenue Account and to the Weyside Urban Village project. The Council had used its own resources to finance the acquisition of investment properties.

Having noted that this matter would be considered by the Executive at its meeting on 23 November, and by Council on 5 December, the Committee

RESOLVED: That the recommendations to the Executive and full Council contained in the report be supported, subject to the comments referred to above made by the Committee during its debate.

Reasons:

·       To comply with the Council’s treasury management policy statement, the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on treasury management and the CIPFA Prudential Code for Capital Finance in Local Authorities.

·       As per the treasury management code although the scrutiny of treasury management (and indeed all finance) had been delegated to the Committee, ultimate responsibility remained with full Council. This report therefore fulfilled that need.