Agenda item

The Committee considered a report on the Council’s capital and investment strategy, which was a new requirement under the revised CIPFA Prudential Code 2018. The report incorporated the position of the current capital programme and the new capital proposals for the period 2018-19 to 2021-22, and the Treasury Management Annual Strategy Report for 2018-19. 

These had been previously been presented as separate reports, but were now  presented together linking investment both in terms of treasury management and assets.  The aim was to avoid duplication between the reports, and to strengthen the link between capital spending and the treasury management function.

CIPFA had also revised the Code of Practice on Treasury Management (‘TM Code’), alongside the revision to the Prudential Code, details of which were highlighted in the report.

Due to the timing of the production of the codes, CIPFA had acknowledged that the 2018-19 report would be a year of transition, and that full adoption may not be possible until 2019-20. 

The Department for Communities and Local Government (DCLG) was consulting over revisions to their Investment Guidance, which included reference to investments in non-financial assets, and the Minimum Revenue Provision Guidance.  The Guidance would retain the requirement for an Investment Strategy to be prepared at least annually for approval by Full Council.

The Council had a duty under the Local Government Act 2003 to have regard to both the CIPFA Codes and the DCLG Guidance.

In relation to the Capital Strategy, the Council sought to demonstrate that capital expenditure and investment decisions were taken in line with service objectives and properly took account of stewardship, value for money, prudence, sustainability and affordability.  The Council also needed to demonstrate that it sets out the long-term context in which capital expenditure and investment decisions were made and gave due consideration to both risk and reward and impact on the achievement of priority outcomes.

The capital strategy also provided an overview of how capital expenditure, capital financing and treasury management activity contributed to the provision of services along with an overview of how associated risk was managed and the implications for future financial sustainability.

In relation to the Capital Programme, the Council had a current underlying need to borrow for the General Fund Capital Programme of £323 million.  Officers had submitted bids, with a net cost to the Council of £96 million, increasing the underlying need to borrow to £419 million should those proposals be approved for inclusion in the programme. The Committee noted that, due to their commercial sensitivities, details of four of the capital bids had been included in the “Not for Publication” Item 11 attached to the agenda.

The Committee was informed that some capital receipts or revenue streams could arise as a result of investment in particular schemes, but in most cases it was too early to make such assumptions, although some information had been included in the capital vision highlighting the potential income. 

All projects would be funded by general fund capital receipts, grants and contributions, reserves and finally borrowing.  It was not yet known how each scheme would be funded and, in the case of development projects, what the delivery model would be.  The capital programme included a number of significant regeneration schemes which, it was assumed, would be financed from the General Fund.  However, subject to detailed design of the schemes, there could be scope to fund them from HRA resources rather than General Fund resources in due course.  Detailed funding proposals for each scheme would be considered when the Outline Business Case for each scheme was presented to the Executive for approval.

Details of the new capital bids submitted were set out in Appendices 2 and 3 to the report submitted to the Committee, including the impact of proposed capital expenditure on Council Tax.  Each of the bids had been evaluated by Corporate Management Team, and reviewed by the Joint Executive Advisory Board Budget Task Group (JEABBTG).

The report had also included details of the Council’s Minimum Revenue Provision (MRP) policy and the Prudential Indicators. 

In relation to Treasury Management, the Committee noted that officers carried out this function within the parameters set by the Council each year in the Treasury Management Strategy Statement (now the capital and investment strategy), which was included at Appendix 1 to the report, and in accordance with the approved treasury management practices shown in Appendix 11 to the report.  The Committee noted the various corrections to Appendix 11, which were set out in the Supplementary Information sheet circulated at the meeting.

The Government’s view that the principle of security, liquidity and yield should apply to both financial and non-financial investments, was set out in proposed DCLG guidance (which was currently out for consultation and subject to change). 

With an ambitious Corporate Plan and medium to long-term aspirations, the Council was in a good financial position, and had a strong asset base and a good level of reserves.  The budget for investment income in 2018-19 was £1.6 million, based on an average investment portfolio of £115 million, at an average rate of 1.63%.  The budget for debt interest paid was £6.3 million, of which £5.1 million related to the HRA. 

The Committee was advised that the Council was now required to include details of its non-treasury investments in the annual investment strategy.  This included asset management, investment properties, investments in subsidiary companies and information on the Council’s commercialisation and transformation programmes.

The report had also been considered by the Joint Executive Advisory Board at its meeting on 8 January 2018, and its recommendations were set out in paragraph 9.1 of the report to the Committee. 

Following clarification of a number of points of in respect of the Capital and Investment Strategy, the Committee

RESOLVED: That under Section 100A(4) of the Local Government Act 1972 (as amended), the public be excluded from the meeting for consideration of the confidential bids referred to in item 11 on the agenda on the grounds that they  involved the likely disclosure of exempt information, as defined in paragraph 3 of Part 1 of Schedule 12A to the Act.

Following the readmission of the public, 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, be endorsed.

Reason:

To enable the Council at its budget meeting on 7 February 2018, to approve

·        the capital and investment strategy and the treasury and prudential indicators for 2018-19 to 2022-23; and

·        the funding required for the new capital investment proposals.