Agenda item

The Committee considered a report on the Council’s capital and investment strategy, including the capital programme new bids plus the requirements of the Prudential Code and the investment strategy covering treasury management investments, commercial investments plus the requirements of the Treasury Management Code and the Ministry of Housing, Communities and Local Government (MHCLG) Statutory Guidance.

The aim of the capital strategy was to demonstrate that the Council takes capital expenditure and investment decisions in line with service objectives and properly takes 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 the impact on the achievement of priority outcomes.

The strategy was intended to give 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. 

On view of the ambitious Corporate Plan and in order to achieve the targets therein, the Council needed to invest in its assets, via capital expenditure. The Council had a current underlying need to borrow for the general fund capital programme of £333 million. Officers had put forward bids, with a net cost to the Council of £6.4 million, increasing the underlying need to borrow to £339 million should these proposals be approved for inclusion in the programme.

Although it was likely that some capital receipts or revenue streams could arise as a result of investment in particular schemes, it was too early to make assumptions.  Some information had been included in the capital vision highlighting the potential income.  It was likely there would be cash-flow implications of the development schemes, where income would come in after the five-year time horizon and the expenditure would be incurred earlier in the programme.

All projects would be funded by general fund capital receipts, grants and contributions, reserves and finally borrowing.  It was not currently known how each scheme would be funded and, in the case of development projects, what the delivery model would be.  In order to ensure that the Council demonstrated that its capital expenditure plans were affordable, sustainable and prudent, Prudential Indicators were set and monitored each year.

The capital programme included a number of significant regeneration schemes, which had been assumed would be financed from General Fund resources.  However, subject to detailed design of the schemes, there could be scope to fund them from HRA 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.

The report contained a summary of the new bids submitted, together with the position and profiling of the current capital programme (2018-19 to 2022-23), and the capital vision schemes.

The Capital Programme Monitoring Group, Corporate Management Team, the Lead Councillor for Finance and Asset Management, the Joint Executive Advisory Board Budget Task Group (JEABBTG), and the Joint EAB had reviewed the bids presented in the report.

The report had also included the Council’s Minimum Revenue Provision 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, which was included at Appendix 1 to the report, and in accordance with the approved treasury management practices. 

Security, liquidity and yield were considered when making treasury management decisions, across the portfolio as a whole.  With an ambitious corporate plan and medium to long-term aspirations within the Borough, 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 2019-20 was £1.503 million, based on an average investment portfolio of £52.8 million, at an average rate of 3%.  The budget for debt interest paid is £5.755 million, of which £5.156 million related to the HRA.

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 this was the main purpose).  Both of these were termed non-financial investments.

The Council had £147.412 million of investment property on its balance sheet, generating a return of £8.9 million and a current yield of 6.59%.

The criteria for purchasing investment property, when originally approved were to achieve a minimum qualitative score and yield an internal rate of return (IRR) of at least 8%.  It was now recommended that the IRR be changed to 5.5% due to the change in the market forces and recognition of the move to investing for strategic purposes, for example economic growth and housing and regeneration.  The Council was not proposing to purchase outright investment property, but making purchases for strategic reasons.  The Council was not looking to purchase property outside the borough.

The Council had invested £4.501 million in its housing company – North Downs Housing (NDH).  This was via 40% equity to Guildford Holdings Limited (£1.803 million) and 60% loan direct to NDH (£2.698 million) at a rate of base plus 5% (currently 5.75%).  The loan was a repayment loan in line with the NDH business plan – with loan repayment anticipated to start in 2021-22.

The Council had the option of setting a policy where it could use new capital receipts to fund revenue expenditure that would generate ongoing savings, which could be used towards the Future Guildford project.

The report had also been considered by the Joint EAB at its meeting on 10 January 2019.  The Joint EAB had commended the recommendations in the report to both the Executive and full Council. 

Following clarification of a number of points of in respect of the Capital and Investment Strategy, 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 26 February 2019, to approve

·        the capital and investment strategy for 2019-20 to 2023-24; and

·        the funding required for the new capital investment proposals.