Agenda item
Capital and Investment Strategy (2022-23 to 2026-27)
- Meeting of Budget Council, Council, Wednesday, 9th February, 2022 7.00 pm (Item CO97)
- View the background to item CO97
Minutes:
The Council considered a report on the 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.
Councillors 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 had showed a high-level position. The business case for each individual project would set out the detailed funding arrangements for the project.
The Council 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 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 report contained a summary of the new bids submitted and the position and profiling of the current programme (2021-22 to 2025-26).An updated HRA resources statement (Appendix 12 to the report) was attached to the Order Paper circulated at the meeting.
In relation to treasury management, the Council noted 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 Council noted that 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 Council 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 by 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.
The Capital and Investment Strategy 2022-23 to 2026-27 had also been considered by the Joint Executive Advisory Board at its meeting on 10 January 2022, by the Corporate Governance and Standards Committee at its meeting on 20 January 2022, and by the Executive on 25 January 2022.
Upon the motion of the Lead Councillor for Resources, Councillor Tim Anderson, seconded by the Leader of the Council, Councillor Joss Bigmore, the Council:
RESOLVED:
(1) That the General Fund and HRA capital estimates, as shown in Appendices 3 to 12 to the report submitted to the Council, as amended to include the updated HRA resources statement attached to the Order Paper, and the bids approved by the Executive at its meeting on 25 January 2022, be approved.
(2) That the Minimum Revenue Provision policy, referred to in section 5 of the report submitted to the Council, be approved.
(3) That the capital and investment strategy be approved, specifically the investment strategy and Prudential Indicators contained within the report and in Appendix 1.
(4) That the updated flexible use of capital receipts policy at Appendix 17 to the report be approved.
Reasons:
· To enable the Council to approve the capital and investment strategy for 2022-23 to 2026-27
· To enable the Council to approve the funding required for the new capital schemes proposed
Supporting documents:
- Item 10 - Capital & Investment Strategy 2022-23 to 2026-27, item CO97 PDF 803 KB
- Item 10 (1) - Capital & Investment strategy 2022-23 to 2026-27 - App 1 - Capital and Investment Strategy 2022-23, item CO97 PDF 349 KB
- Item 10 (2) - Capital & Investment strategy 2022-23 to 2026-27 - App 2 - Schedule of Bids, item CO97 PDF 47 KB
- Item 10 (3) - Capital & Investment strategy 2022-23 to 2026-27 - App 3 - Detailed Capital Bids, item CO97 PDF 2 MB
- Item 10 (4) - Capital & Investment strategy 2022-23 to 2026-27 - App 4 - Approved GF Capital programme, item CO97 PDF 189 KB
- Item 10 (5) - Capital & Investment strategy 2022-23 to 2026-27 - App 5 - Provisional GF Capital programme, item CO97 PDF 152 KB
- Item 10 (6) - Capital & Investment strategy 2022-23 to 2026-27 - App 6 - Capital Reserves, item CO97 PDF 139 KB
- Item 10 (7) - Capital & Investment strategy 2022-23 to 2026-27 - App 7 - Schemes funded from S106, item CO97 PDF 38 KB
- Item 10 (8) - Capital & Investment strategy 2022-23 to 2026-27 - App 8 - Capital Resources, item CO97 PDF 153 KB
- Item 10 (9) - Capital & Investment strategy 2022-23 to 2026-27 - App 9 - Capital vision, item CO97 PDF 23 KB
- Item 10 (10) - Capital & Investment strategy 2022-23 to 2026-27 - App 10 - HRA Approved Capital programme, item CO97 PDF 115 KB
- Item 10 (11) - Capital & Investment strategy 2022-23 to 2026-27 - App 11 - HRA Provisional Capital programme, item CO97 PDF 95 KB
- Item 10 (12) - Capital & Investment strategy 2022-23 to 2026-27 - App 12 - HRA Capital Resources, item CO97 PDF 126 KB
- Item 10 (13) - Capital & Investment strategy 2022-23 to 2026-27 - App 13 - Treasury management Policy Statement, item CO97 PDF 270 KB
- Item 10 (14) - Capital & Investment strategy 2022-23 to 2026-27 - App 14 - Money Market Code Principles, item CO97 PDF 87 KB
- Item 10 (15) - Capital & Investment strategy 2022-23 to 2026-27 - App 15 - Arlingclose economic and interest rate forecast, item CO97 PDF 132 KB
- Item 10 (16) - Capital & Investment strategy 2022-23 to 2026-27 - App 16 - Credit Rating Equivalents, item CO97 PDF 192 KB
- Item 10 (17) - Capital & Investment strategy 2022-23 to 2026-27 - App 17 - Flexible use of capital receipts policy, item CO97 PDF 90 KB
- Item 10 (18) - Capital & Investment strategy 2022-23 to 2026-27 - App 18 - Glossary, item CO97 PDF 257 KB