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 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 GF capital programme of £298 million between 2021-22 and 2026-27.  Officers had put forward bids, with a net cost over the same period of £16.5 million, increasing this underlying need to borrow to £315.5 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:

·       £218 million: Weyside Urban Village (WUV)

·       £63.5 million: strategic property purchases – it was proposed to widen the remit of this fund to allow redevelopment opportunities (for example estate redevelopments)

·       £32 million: North Downs Housing (NDH)

·       £28 million: Ash road bridge and footbridge

As part of the savings programme and in realigning the capital programme in line with the new corporate plan, officers had reviewed the capital programme, and had recommended the removal of some schemes from the programme, and if required in future would come forward with a new mandate under the PPM governance framework.

The report contained a summary of the new bids submitted and the position and profiling of the current programme (2021-22 to 2025-26).

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.  Work had started on updating the condition surveys of the existing stock and bringing it into line with changes to legislation.  This had resulted in a need to invest a far greater sum for 2022-23 than in previous years - £24.5 million.  The capital programme would be funded from HRA capital receipts and reserves.  There was also £142 million between 2022-23 and 2026-27 million included for development projects to build or acquire new housing (including WUV).

The main areas of major repairs and improvement expenditure were:

·       £11 million: refurbishment, replacement, and renewal programme of existing stock, including kitchen and bathroom upgrades, void property refurbishment and roof works

·       £9 million: works to existing stock to comply with changes to standards and legislation, including replacement fire doors, electrical testing and fire protection works

·       £2 million: mechanical and electrical works, including central heating systems

·       £1.9 million: other works, including damp prevention

The main development projects were:

·       £45.7 million: Guildford Park Car Park

·       £17 million: Bright Hill

·       £15 million: WUV

·       £10 million: Foxburrows

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 2022-23 was £1.2 million, based on an average investment portfolio of £118 million, at a weighted average rate of 1.69%.  The budget for debt interest paid was £5.74 million, of which £5.05 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 earning a return was the primary purpose). 

Investment property had been valued at £152 million, as per the 2020-21 Statement of Accounts, with rent receipts of £7.8 million, and a yield of 5.8%.  The Council had also invested £21.2 million in its housing company (NDH), via 40% equity to Guildford Borough Council Holdings Ltd (£8.5 million) who, in turn, passed the equity to NDH, and 60% repayment loan direct to NDH (£12.7 million) at a rate of BoE Base rate plus 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. 

During the debate, the Committee made the following comments:

·       Whether the spending objectives for evaluating the benefits of capital schemes should include ‘impact on the environment’ in the context of the Council’s Climate Emergency declaration. In response, officers indicated that this would be taken on board for future consideration.  The Committee would also like to see more capital projects coming forward that addressed issues relating to the Climate Emergency.

·       In response to an enquiry as to the risks associated with increasing inflation, especially with regard to affordability, borrowing, and the effects of slippage in the capital programme, officers acknowledged that inflation was a real concern and that provision for this should be made in the Council’s Corporate Risk Register.  The Council did not inflate its capital schemes as a matter of course, but it was noted that the tendering process mitigated some of the impact of inflation.

·       In response to an enquiry as to why it was proposed to fund the upgrade/ replacement Housing Management and Asset Software Management Systems from the HRA, it was explained that these systems were used to administer properties within the HRA.

·       In noting that the interest receivable had been calculated before base rates had increased, a question arose as to whether interest payable and the affordability of the Council’s borrowing had been factored into the future cost of borrowing.  In response, officers drew attention to the fact that most of the Council’s borrowing would theoretically come from the Government’s Public Works Loan Board, which was based on gilts that fluctuated. However, the majority of the borrowing was currently fixed on the HRA, with an assumption of a higher interest rate of 2.5% for the GF element.

·       It was noted that the Council did not have a dedicated officer responsible for identifying possible sources of grant funding.  Although the Council had signed up to GrantFinder, with limited success, external funding towards major projects had been sourced on a project-by-project basis mainly from government – for example via the LEP and housing infrastructure funds.

·       In response to continuing concerns over delays progressing schemes in the HRA Capital Programme, officers acknowledged the slippage in both the GF and HRA Capital Programmes, which had been monitored over a number of years.  The Committee was reminded of the measures the Council had put in place to address this matter including the introduction of the PPM governance framework for projects, and the new Major Projects team introduced following Future Guildford.  In relation to the HRA Capital Programme, officers had sought to develop a broad portfolio of schemes of varying types, size, and structure in order to overcome this issue.

·       Query as to whether the proposed capital expenditure of £24.5 million in 2022-23 on maintaining the existing housing stock was absolutely necessary given that most bathrooms, kitchens, and roofs normally functioned beyond a ten-year life cycle, and whether the Council should have a process of looking at what actually needed to be replaced.  In response, officers advised that

decisions were based on data gathered from stock condition surveys, together with guidance following changes in legislation post Grenfell.  In addition, there was an urgent need to address requirements for smoke detection, fire alarm, and carbon monoxide systems.  The Committee also noted that the Council followed the Decent Homes Standards in managing its housing stock, which

required certain elements to be replaced after a specified period of time. Finally, it was noted that due to the age of the stock and given that a number of elements had been undertaken 30 years ago, it was now necessary to undertake these replacement works.

·       In response to a request for clarification on “pipeline bids”, officers confirmed that the Council had a long list of schemes that over a period of time had been reviewed and, following further discussions with Planning officers, viability work had been carried out.  Following that work, some schemes had been brought forward for implementation.

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 9 February 2022, to approve

·        the capital and investment strategy for 2022-23 to 2026-27; and

·        the funding required for the new capital investment proposals.