REPORT TO THE CABINET
Date : 22 FEBRUARY 2006
Title : CAPITAL PROGRAMME 2006 - 07
REPORT OF THE CABINET MEMBER FOR RESOURCES, AUDIT, AN EFFICIENT COUNCIL AND
CUSTOMER CHAMPION
IMPLEMENTATION
DATE : 22 February 2006
SUMMARY
1.
To consider the Council’s Capital Programme and
Treasury Strategy for the 2006/9 period, including the requirements of the
Prudential Code for Capital Finance.
2. The CIPFA Prudential Code of Capital
Finance in Local Authorities specifies indicators the Council must consider in
determining how much it will borrow for capital purposes. The code requires the
Council in determining its capital programme to set a range of indicators for
the 2006/9 period, which form part of the budget setting process.
BACKGROUND
3. The
Chartered Institute of Public Finance & Accountancy (CIPFA) developed a
Prudential Code for Capital Finance in Local Authorities (the Prudential Code),
to underpin the system of Capital Financing introduced by the Local Government
Act 2003. Local Authorities are required by regulation to comply with the code
when carrying out their duties under Part 1 of the Act.
4. The
new system is intended to place a greater emphasis on accounting practices, and
professional guidance. The advantage of this is that it is usually less
prescriptive than legislation, and can be amended more easily in response to
developments in local authority accounting. Furthermore, accounting guidance
can often be more flexibly interpreted in the local context, whereas
legislation is often inflexible. The Local Government Act 2003 requires local
authorities to take account of CIPFA’s Prudential Code in setting borrowing
limits, and as the CPA process develops, part of the financial use of resources
assessment will examine the approach authorities have taken.
5. The
code requires authorities to set a number of indicators and limits in respect
of capital investment and borrowing. The CIPFA requirements of the code are set
out in Appendix A, together with the limits proposed by the Chief
Financial Officer for 2006-9. These
limits are consistent with the recommended capital programme as contained
within the body of this report.
STRATEGIC CONTEXT
6.
The recommended capital programme has regard to the
Council’s Capital Strategy, which details how the Council plans and applies its
capital resources.
CONSULTATION
7. The overall capital programme provides for consultation with a wide range of parties and stakeholders, as detailed in the Council’s Capital Strategy and Asset Management Plan.
FINANCIAL/BUDGET IMPLICATIONS
8. The
Supported Capital Expenditure (SCE) that is applicable to the 2006/7 financial
year is detailed below. As in previous years the indication is that failure to
spend at these levels in respective service areas will impact on future
supported borrowing in those service areas. The equivalent figures
for 2005/6 are also detailed for comparative purposes.
2006/07 2005/06
£000 £000
Education 11,308 3,385
Highways 4,523 5,941
Housing 1,769 1,769
Social Services 175 112
Fire Services 127 123
Ventnor Landslips
Works - 275
17,902 11,605
These supported
borrowing levels are contained in the proposed outline capital programme as
detailed in Appendix B. In addition, £1,220,000 of bids are shown, in line with
the programme currently approved for 2005-06.
The total level of SCE for the
2006/7 financial year is up by £5.3 million from the previous year, principally
due to a large increase in that available for Education.
This increase principally arises from
the Governments increased national spending to raise investment and standards
of school buildings.
Coast Protection Schemes have been
previously funded through a combination of SCE and Government Grant. With effect from 1st April 2006
it is intended that such schemes will be fully grant funded by the Department
of the Environment, Food and Regional Affairs (DEFRA).
In
addition to the above are additional Highways allocations specific to
Ryde
Interchange and the Undercliff drive. These provisional allocations have yet to be
formalized but a total of £1.7m and £4.5m respectively for 2006/7, have been
included in the Prudential Indicators as set out in Appendix A.
9. Capital
Investment in respect of service areas falling outside of SCE have been previously
funded by the generation of capital receipts.
The programme for 2006/7 and 2007/8 as approved by Council in February
2005 in respect of such investment is also contained in Appendix B. It is anticipated that a total of new
capital receipts of £2 million will be generated in 2006/7.
10. The
Officer Capital Working Group is reviewing current capital bids for
prioritisation against available resources.
The Group will also be reporting to Directors regarding any application
of Prudential Borrowing to finance capital investment and any recommendations
on such will be brought forward to the Cabinet with a full option appraisal.
11. It
has become increasingly difficult to realise capital receipts and the Council
as part of recent capital finance considerations approved a total of £2 million
of unsupported borrowing (prudential borrowing) for the past two years. This sum was for use in the event of planned
capital receipts being delayed, or for projects that would be self-financing
over the medium term (on an ‘Invest to save’ principal) and which would be
subject to a robust business case being approved by the Cabinet. A new
requirement for prudential borrowing also arises from the need to neutralize
retrospective adjustments to the accounts caused by changes to national
policies. Use of prudential borrowing for this purpose does not affect capital
financing costs so affordability is not an issue.
12. It
has been the Council’s practice for some years to acquire its plant and
vehicles through an operating lease. Under the former capital finance regime
this had the advantage that such acquisitions did not qualify as capital
expenditure and so require scarce capital resources. The annual revenue premiums associated with operating leases
became a charge on the budget of the service receiving the asset. Under the Prudential Code, an authority may
choose to purchase rather than lease its vehicles, and an option appraisal
would need to take place in order to decide as to whether leasing or purchase
was the most cost effective method of financing. The revenue cost of prudential borrowing in such instances would
fall as a cost to the relevant service budget just as lease premiums had under
the previous capital finance regime.
13. No
capital provision has been made at this stage in respect of a replacement for
the County Records office. Initial
forecasts for a replacement are for an associated cost of £4.5 million. It is currently anticipated that a grant
funding of two thirds of this sum could be available from the Heritage and
Lottery Fund. Initial works on a
feasibility study for a replacement Records Office is to be undertaken during
the next financial year.
LEGAL IMPLICATIONS
14. CIPFA’s
Prudential Code is regarded as mandatory guidance associated with the Local
Government Act 2003.
OPTIONS
15. (i) To
approve the recommended outline Capital programme for 2006/9 as contained in
Appendix B.
(ii) To
amend the proposed programme having regard to other budget pressures and/or
capital priorities.
(iii) To approve the prudential indicators as detailed in Appendix
A.
(iv) To
amend the prudential indicators.
(v) To
approve the annual Treasury Strategy as contained in Appendix C.
(vi) To
amend the Treasury Strategy.