Agenda item

The Committee considered the Capital and Investment Outturn Report for 2020-21, which had included:

·        a summary of the economic factors affecting the approved strategy and counterparty update

·        a summary of the approved strategy for 2020-21

·        a summary of the treasury management activity for 2020-21

·        details of compliance with the treasury and prudential indicators

·        non-treasury investments

·        capital programme

·        risks and performance

·        Minimum Revenue Provision (MRP)

·        details of external service providers

·        details of training

The Committee was informed that total expenditure on the General Fund capital programme in 2020-21 had been £29.4 million, against the original budget of £171.5 million, and revised budget of £28.8 million.  Details of the revised estimate and actual expenditure in the year for each scheme were set out in Appendix 3 to the report. Although the budget for MRP had been £1.64 million, the outturn had been £1.29 million, due to slippage in the capital programme in 2019-20.

The Committee noted that one of the strands of the Council’s savings strategy was to review the projects in the capital programme.  Officers had recommended that three capital schemes be removed due to the length of time they had been in the programme, and as such the original proposal was no longer relevant and a new business case would need to be prepared if any of the schemes were to come forward in the future.  These were:

·       Guildford Gyratory and Approaches - £10.967 million on the provisional capital programme in 2024-25

·       Stoke Park Office Accommodation - £665,000 on the provisional programme in 2024-25

·       Stoke Park – Home Farm redevelopment - £4 million on the provisional programme in 2024-25

It was also noted that the Council’s investment property portfolio stood at £155 million as at 31 March 2021.  Rental income had been £8.1 million, and income return was 5.8% against the benchmark of 4.6%.

The Council’s cash balances had built up over a number of years, and reflected the strong balance sheet, with considerable revenue and capital reserves.  Officers carried out the treasury function within the parameters set by the Council each year in the Capital and Investment Strategy.  As at 31 March 2021, the Council held £159.1 million in investments, £310.5 million in long-term borrowing of which £118.5 million is short-term borrowing, and £192 million is long term borrowing (related to HRA) so net debt of £151.4 million.

The report confirmed that the Council had complied with its prudential indicators, treasury management policy statement, and treasury management practices for 2020-21. 

The Committee noted that the slippage in the capital programme had 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 had also set out detailed information on the return on investments, and interest paid on external debt.

During the debate, the following comments/queries were raised:

(a)   In response to a request for an explanation as to the reasons why the short-term debt at the end of the year had been substantially higher than the end of the previous year, the Deputy Chief Finance Officer confirmed that the Council had substantial internal borrowing for the capital programme, which had been externalised by way of short-term borrowing, which was why borrowing had increased.  Officers were also aware that we were going to need to use our reserves for Covid expenditure. The Council had also been required to borrow from the PWLB in the current financial year through the local infrastructure rate funding subsidy which would start the long-term borrowing for capital programme in 2021-22.

(b)   Officers clarified that the rental income referred to in the report, which had been the same as the previous year, was rental income due.  It was expected that, as most tenants paid their rent promptly and there had been very few repayment plans, the Council would receive a substantial proportion of the rent due. 

(c)   In response to a question as to the impact of a possible increase in inflation on the capital and investment programme, it was not anticipated that any increase in inflation would have much impact on returns on the Council’s investment portfolio.

(d)   In response to a question as to the benefits of a strategy of holding £160 million of investments and increasing borrowing, which costs £1.5 million, the Deputy Chief Finance Officer confirmed that the fixed rate debt of £147 million and the variable rate debt of £45 million related to the Housing Revenue Account, the cost of which was charged directly charge to the Housing Revenue Account. For the remainder of the investment portfolio, the Council yielded 1.08% and the temporary borrowing was 0.51% so there was no cost of carry on that short-term borrowing overall.  

(e)   In response to an enquiry as to the impact on the Council and associated costs of the slippage in the capital programme over the last four or five years, the Committee noted that the main financial impact was the Minimum Revenue Provision, which was the repayment of internal borrowing which impacted on the General Fund and Council Tax.  It was also noted that a review of the Council’s balance sheet and capital programme had been undertaken approximately four years ago and we identified over the previous three years that although there had been a consistent 64% slippage in the capital programme, it had generally been the same schemes that had been delayed, for example, the Weyside Urban Village scheme. Part of the reason for this was that at the time, the Council did not have some of the delivery mechanisms in place that we have now.  This was being addressed and new governance procedures and project management tools had been introduced.  The Leader of the Council acknowledged that there had been issues in programme management and that a 64% slippage rate was not acceptable. Whilst a number of the schemes had been particularly complex, the Council was determined to improve performance. 

(f)    It was confirmed that the rental income from investment property was £3.1 million and expenditure on repairs and maintenance of £600,000, and in relation to industrial estates we had expenditure of £210,000 against £4.7 million income.

The Committee, having noted the various corrections on the Supplementary Information Sheet and that the outturn report would also be considered by the Executive at its meeting on 24 August 2021, and by full Council on 5 October 2021.

RESOLVED: That, subject to the comments referred to above and to the corrections set out on the Supplementary information Sheet, the report be commended to the Executive, and the recommendations therein be endorsed.

Reason:

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.