The prudential framework for self-management of capital finance focuses upon the following elements:
The prudential indicators are designed to support and record local decision making in these three areas.
In the Prudential Code, the indicators are set out according to whether they are indicators of affordability or prudence. This is necessary for an understanding of the role each indicator plays in the overall decision-making framework. The indicators are listed below:
- Estimate of the incremental impact of capital investment decisions upon Council Tax. It is important to note that all associated borrowing is supported and any saving through not undertaking the programme would be a one off, as a result of the probable loss of FSS for later years.
- Ratio of financing costs to net revenue stream
- Net borrowing and the capital financing requirement
- Confirmation that treasury management is carried out in accordance with good professional practice
- External debt within prudential and sustainable limits
Capital Expenditure
- Estimates of Capital expenditure
- Capital financing requirement
External Debt
- Authorised limit
- Operational boundary
Treasury Management
- Interest rate exposures
- Maturity structure of borrowing
- Total principal sums invested for periods in excess of 364 days
The prudential indicators are not designed to be comparative performance indicators, and to use them in this way would be misleading. It is only intended that they be used to measure performance within the authority over time. It also needs to be borne in mind that the indicators need to be considered collectively, rather than individually.
NOTES
1. Ratio of financing costs to net revenue stream is the total of capital financing costs divided by the Councils total income from Council Taxpayers and Government Grants as contained in its Consolidated Revenue account
2. The Capital Financing Requirement (CFR) is a new measure introduced by the Prudential Code, which represents the amount of capital spending which has yet to be financed.
3. The operational boundary for external debt represents the maximum level of borrowing that the Council is planning to have outstanding from its spending plans. The authorised limit on borrowing is set at a higher level in order to cover any unavoidable and unforeseen borrowing that may become necessary due to adverse cash flow movements.
The following sets out, for approval, the mandatory indicators recommended by the Prudential Code –
|
Indicator |
Basis |
Period |
Definition |
SCC Methodology |
Unit |
2004/05 |
2005/06 |
2006/07 |
|
Affordability |
|
|
|
|
|
|
|
|
|
Estimates of ratio of financing costs to net revenue
stream |
Estimate |
Years 1, 2 and 3 |
Estimate of financing costs / estimate of net revenue
stream x 100% |
Interest payable re. borrowing + interest payable re.
finance leases + gains/losses on early settlement of borrowing - interest on
investments + MRP |
% |
7.369% |
8.294% |
9.174% |
|
Estimates of the incremental impact of capital investment
decisions on Council Tax |
Estimate |
Years 1, 2 and 3 (and longer as necessary) |
(i) forecast the total budgetary requirements for the
authority based on no changes to the existing capital programme |
(i) Council Tax requirement under existing plans |
£ per
Band D Equivalent |
11.47 |
55.24 |
99.68 |
|
(ii) forecast the total budgetary requirements for the
authority with the changes proposed to the capital programme |
(ii) Council tax requirement including proposed capital
scheme |
% |
1.14% |
5.50% |
9.92% |
|||
|
(iii) addition or reduction to Council Tax as a result of
the difference between (i) and (ii) |
(ii) - (i) |
|||||||
|
Capital Expenditure |
|
|
|
|
|
|
|
|
|
Estimates of capital expenditure |
Estimate |
Years 1, 2 and 3 (and longer as necessary) |
Estimate of total capital expenditure to be incurred |
Capital budgets |
£000 |
29,155 |
35,239 |
22,977 |
|
Estimates of capital financing requirement (CFR) |
Estimate |
Years 1, 2 and 3 |
Estimate of underlying need for credit as at the end of
years 1, 2, 3 |
Fixed assets + deferred charges + FARR + Capital Financing
Reserve + government grants deferred + credit arrangements |
£000 |
155,712 |
180,115 |
191,173 |
|
External Debt |
|
|
|
|
|
|
|
|
|
Authorised limit (for borrowing) |
Estimate |
Years 1, 2 and 3 |
Authorised limit for borrowing. |
Estimates of borrowing + other long term liabilities (3rd
party balances, provisions, amounts outstanding on leases, government grants
deferred and other contributions deferred) |
£000 |
171,000 |
198,000 |
210,000 |
|
Authorised limit (for other long term liabilities) |
Estimate |
Years 1, 2 and 3 |
Authorised limit for other long term liabilities |
Estimates of borrowing + other long term liabilities (3rd
party balances, provisions, amounts outstanding on leases, government grants
deferred and other contributions deferred) |
£000 |
10,000 |
10,000 |
10,000 |
|
Authorised limit (for total external debt) |
Estimate |
Years 1, 2 and 3 |
Authorised limit for borrowing + authorised limit for
other long term liabilities |
Estimates of borrowing + other long term liabilities (3rd
party balances, provisions, amounts outstanding on leases, government grants
deferred and other contributions deferred) |
£000 |
181,000 |
208,000 |
220,000 |
|
Operational boundary (for borrowing) |
Estimate |
Years 1, 2 and 3 |
Operational boundary for external debt |
As above less contingency provision. |
£000 |
156,000 |
180,000 |
191,000 |
|
Operational boundary (for other long term liabilities) |
Estimate |
Years 1, 2 and 3 |
Operational boundary for external debt |
As above |
£000 |
10,000 |
10,000 |
10,000 |
|
Operational boundary (for total external debt) |
Estimate |
Years 1, 2 and 3 |
Operational boundary for external debt + operational
boundary for other long term liabilities |
As above |
£000 |
166,000 |
190,000 |
201,000 |
|
Treasury Management |
|
|
|
|
|
|
|
|
|
Adoption of the CIPFA Code of Practice for Treasury
Management in the Public Services |
|
|
The Local Authority has adopted CIPFA's Code of Practice |
|
ADOPTED
FEBRUARY 2003 |
ü |
ü |
ü |
|
Fixed interest rate exposure - upper limit |
Estimate |
Years 1, 2 and 3 |
Interest payable on borrowing at fixed rates - interest
receivable on fixed rate investments or principal sums
outstanding in respect of borrowing at fixed rates - principal sums
outstanding in respect of investments at fixed rates |
Upper limit |
% |
100% |
100% |
100% |
|
Variable interest rate exposure - upper limit |
Estimate |
Years 1, 2 and 3 |
Interest payable on borrowing at variable rates - interest
receivable on variable rate investments or principal sums outstanding in
respect of borrowing at variable rates - principal sums outstanding in
respect of investments at variable rates |
Upper limit |
% |
20% |
20% |
20% |
|
Maturity structure of borrowing (upper and lower limits) |
Estimate |
All years |
Amount of projected borrowing that is fixed rate maturing
in each period / total projected borrowing that is fixed rate x 100% |
Ranges for each period |
|
See below |
See below |
See below |
|
Total principal sums invested for periods longer than 364
days |
Estimate |
All years |
Total principal sum invested to final maturities beyond
the period end |
|
£000 |
10,000 |
10,000 |
10,000 |
|
Maturity Structure of Borrowing |
|
|
|
|
2004-5 |
Future Years |
|
|
Period |
|
|
|
Upper Limit |
Lower Limit |
Upper Limit |
Lower Limit |
|
Under 12
months |
|
|
|
10% |
0% |
10% |
0% |
|
12 months
and within 24 months |
|
|
|
10% |
0% |
10% |
0% |
|
24 months
and within 5 years |
|
|
|
20% |
0% |
20% |
10% |
|
5 years
and within 10 years |
|
|
|
50% |
25% |
50% |
25% |
|
10 years
and above |
|
|
|
95% |
50% |
95% |
50% |