Appendix 3
|
Medium Term Forecast |
2004-05 |
|
2005-06 |
|
2006-07 |
|
|
£000 |
|
£000 |
|
£000 |
|
|
|
|
|
|
|
|
Standstill budget 2004-05 |
157,405 |
|
157,405 |
|
157,405 |
|
|
|
|
|
|
|
|
One off resource, empty property yield |
490 |
|
|
|
|
|
Pay and price inflation |
|
|
6,121 |
|
12,094 |
|
Pension contributions |
|
|
784 |
|
1,467 |
|
Capital financing costs |
|
|
1,809 |
|
2,886 |
|
Education pressures |
|
|
928 |
|
1,335 |
|
Social Services pressures |
|
|
234 |
|
310 |
|
Waste management |
|
|
178 |
|
562 |
|
Fire audit fee (one-off) |
|
|
-25 |
|
-25 |
|
MORI BVPP poll |
|
|
0 |
|
15 |
|
Bids (excluding one-off items) |
604 |
|
604 |
|
604 |
|
Headroom |
-323 |
|
-323 |
|
-323 |
|
Members allowances - postpone |
-106 |
|
-106 |
|
-106 |
|
Reduced procurement inflation contingency |
-247 |
|
-247 |
|
-247 |
|
APTC pay at 2.8 |
-74 |
|
-74 |
|
-185 |
|
|
|
|
|
|
|
|
One off savings not repeated |
|
|
102 |
|
102 |
|
Funding changes |
|
|
702 |
|
702 |
|
Unidentified net savings required |
0 |
|
-3,334 |
|
-4,508 |
|
|
|
|
|
|
|
|
Net expenditure |
157,749 |
|
164,758 |
|
172,088 |
|
|
|
|
|
|
|
|
Revenue Support Grant and business rates |
101,642 |
|
107,350 |
|
111,226 |
|
Withdrawal from reserves |
0 |
|
0 |
|
0 |
|
One off support in 2004-05 |
0 |
|
-858 |
|
-858 |
|
|
|
|
|
|
|
|
Council Tax yield |
56,108 |
|
58,266 |
|
61,720 |
|
|
|
|
|
|
|
|
Tax base (band D equivalents) |
51,951.80 |
|
51,659 |
|
52,116 |
|
Collection Fund surplus |
302 |
|
0 |
|
0 |
|
|
|
|
|
|
|
|
Band D Council Tax |
###1,074.18 |
|
1,127.89 |
|
1,184.28 |
|
Tax increase (%) |
4.9 |
|
5.0 |
|
5.0 |
APPENDIX 4
Capital Programme 2004 / 2007
The Supported Capital Expenditure (SCE) that is applicable to the 2004/05 financial year is allocated to services as detailed below.
£
Education 8,393,700
Highways 6,305,000
Housing 1,702,000
Social Services 111,000
Fire Service 122,000
16,633,700
In addition to the above are the Highways allocations specific to the Ryde Interchange and the Undercliff Drive, and those applicable to approved Coast Protection Scheme.
The following bids which fall outside the Single Capital Pot and Supported Capital Expenditure (SCE), are recommended to be financed from capital receipts.
|
Bid |
2004/5 |
2005/6 |
2006/7 |
|
1. Ventnor Botanic Gardens, foul drainage |
£300,000 |
▬ |
▬ |
|
2. Acquisition of Land at Pan (approved by Executive) |
£200,000 |
£200,000 |
£200,000 |
|
3. Maintenance of buildings, including Disability Discrimination Act |
£300,000 |
£300,000 |
£300,000 |
|
4. Cemeteries |
£50,000 |
£50,000 |
£50,000 |
|
5. Cliff Falls, Landslip etc |
£100,000 |
£100,000 |
£100,000 |
|
6. Community Development |
£250,000 |
£250,000 |
£250,000 |
|
7. Housing Disabled Facilities Grant |
£240,000 |
£240,000 |
£240,000 |
|
|
£1,440,000 |
£1,140,000 |
£1,140,000 |
Notes:
1. Replacement of Foul Drainage System which is an essential Health & Safety requirement.
2. Already approved by Executive as part of the Capital Investment Strategy for Pan.
3. Essential works to meet legal requirements, Health & Safety and priorities or objectives for service delivery.
4. The establishment of an annual budget to address a backlog of essential repairs and associated risk.
5. This sum is considered as necessary provision to meet unforeseen costs associated with cliff falls and landslips.
6. This budget is for prioritisation by the relevant Strategic Director to address Health and Safety issues, and ensure the maintenance of revenue income streams from leisure facilities etc.
7. This is the Council’s anticipated funding share of an expenditure programme which attracts 60% Government Grant. The programme enables the provision of basic facilities to accommodate the needs of disabled people in their own homes.
APPENDIX 5
Prudential Indicators
The prudential framework for self-management of capital finance focuses upon the following elements:
- Capital expenditure plans
- External debt
- Treasury management
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:
- Prudential indicators for affordability
- 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
- Prudential indicators for Prudence
- 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
- Prudential indicators for capital expenditure, external debt and treasury management
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% |
APPENDIX 6
TREASURY STRATEGY 2004-2005
1.
TREASURY POLICY
1.1 This Strategy is pursuant to the Treasury
Policy and in accordance with CIPFA’s revised Code of Practice for Treasury
Management in Local Authorities, and Treasury Management Practices (TMP) as
adopted in February 2003.
2. TREASURY
MANAGEMENT
2.1. The Council’s Treasury Management
activities may include the following activities:
1) Cash Flow (daily balances
and longer term forecasting)
2) Investing surplus funds
3) Borrowing to finance day
to day cash fluctuations
4) Funding of capital
payments through borrowing, capital receipts, grants or leasing
5) Management of debt
(including restructuring and monitoring an even maturity profile)
6) Interest rate exposure
management
7) Dealing procedures with
brokers, bank and Public Works Loan Board (PWLB).
3. OBJECTIVES
The major
objectives to be followed in 2004-2005 are:
3.1. BORROWING
a) To minimise the revenue costs of debt
b) To manage the Council’s debt maturity
profile, i.e. to leave no one future year with a high level of repayments that
could cause problems in re-borrowing
c) To
affect funding in any one year at the cheapest cost commensurate with future
risk
d) To forecast average future interest
rates and borrow accordingly (i.e. short term and/or variable when rates are
“high”, long term and fixed when rates are “low”). Similarly maturity loans can be taken when rates are relatively
low, to lock in the principal for the maximum period, and possibly annuity
loans or equal installments of principal loans when rates are considered
higher.
e) To monitor and review the level of
variable interest rate loans in order to take advantage of interest rate
movements.
f) To restructure debt in order to take
advantage of potential savings as interest rates change.
3.2. INVESTMENT
1. To invest such
monies as are temporarily surplus to requirements
2. To maintain
capital security
3. To achieve a
level of return equal to or greater than would be secured by internal
investment
4. To maintain
policy flexibility.
5. The Council is
estimated to have investments of £27.5 million as at 31st March
2004. This represents the investment of
reserves, temporary surpluses on cash flow, and any advance drawdown of loans
to finance the capital programme.
4. FORECAST OF INTEREST RATES FOR 2004-2005
Bank base rate had
remained at 4.0% since 8th November 2001, (the longest incidence of
no movement in base rate for some decades)
before falling to a low of 3.5% in July 2003. Base Rate moved back up to
3.75% in November 2003 and commentators are expecting further rises throughout
2004, with a full 1% increase by the end of the year.
5. STRATEGY
5.1. CAPITAL FINANCE
To maximise the
use of Supported Capital Expenditure, to maximise the use of capital grants and
to utilise available capital receipts and leasing to finance a capital
programme consistent with the Council’s revenue budget.
5.2. BORROWING
The strategy will
in general be:
i to borrow long term when interest
rates are relatively low and to borrow short term when interest rates are
judged to be high.
ii to keep a reasonable balance between
short term and long term loans so that
o
there is not an unreasonable exposure to short term loans with
corresponding risk of increased interest charges; or
o
over reliance on long term loans which could restrict flexibility in
renewing debt at advantageous interest rates.
iii to aim generally to be in a net day to
day borrowing position so that the need for investment of temporary excess
funds is avoided as far as possible.
This will be
subject to variation in order to take advantage where appropriate of prevailing
market conditions.
For 2004-2005 the
strategy will be to continue to borrow medium to long term at fixed interest
rates, having regard to the low interest rates that are currently available.
5.3. TEMPORARY INVESTMENTS
To invest funds
temporarily surplus so as to produce the maximum return.
5.4. DEBT RESTRUCTURING
To use available
PWLB quota to take advantage of opportunities to redeem PWLB debt or convert
from fixed to variable rates or vice versa and replace debt so as to smooth the
pattern of debt repayment and/or minimise overall long term capital financing
costs. Consideration will be given to
the availability and attractiveness of loans other than PWLB for debt
restructuring purposes.
6. RAISING CAPITAL FINANCE
6.1. The following list specifies which
borrowing instruments, on and off-balance sheet, can be adopted. Only those marked a are currently
used by the Council.
Fixed Variable
PWLB a
a
Market Long-term a
a
Market Pooled Funds a a
Market Temporary a
a
Local Bonds
Overdraft a
Negotiable Bonds
Stock Issues
Internal
(capital receipts and revenue balances) a a
Leasing a
a
Bills
7. SOURCES OF
FINANCING
The following list
specifies which borrowing instruments the Council may adopt.
7.1. PUBLIC WORKS LOAN BOARD (PWLB)
1) The main source of longer term
borrowing for the Council for many years has been from the Government through
the Public Works Loan Board.
2) It
is still likely that the PWLB will remain the major source of the Council’s
long term borrowing requirements. The
2004-2005 quota for the Council is estimated to be £17.7 million, excluding the
sums for Undercliff Drive and Ryde Interchange.
3) Forecasts are that interest rates on
long-term loans (including long term PWLB loans) will rise in the near future,
and the timing of borrowing will therefore take account of this forecast.
7.2. MONEY MARKET LOANS - LONG TERM AND
POOLED FUNDS
The availability
of PWLB loans has become easier and their rates of interest are expected to
remain competitive. Loans are also
available through the London money market in particular longer term loans (40
years) which carry a low initial period of interest, but where the lender has
the option to raise the rate after this period. If that option is taken, the Council is free to repay if it so
chooses without penalty. These Lenders
Option: Borrowers Option (LOBO) loans carry the necessary security ratings and
can be an effective complement to PWLB borrowing in structuring the loan
portfolio and debt rescheduling.
7.3. MONEY MARKET LOANS -TEMPORARY (LOANS UP
TO 364 DAYS)
Short term loans
are used to avoid any unforeseen overdrawn position with the bank.
7.4. OVERDRAFT
An overdraft limit
of £3m is available with the Council’s bankers. This facility will be used on occasions when temporary borrowing
is difficult, or for amounts of under £250,000 wherever the transaction costs
outweigh any benefits from using the money market.
7.5. INTERNAL
Internal funds
include “reserved” or “set-aside” capital receipts which are to be used to
repay debt as a substitute for new borrowing.
There is no provision in legislation to compel authorities to use such
receipts in the year they are received, and those funds are normally used
internally thereby reducing the need for external borrowing but they could be
externalised and new borrowing taken up if conditions merit such an approach.
7.6. LEASING
This form of
finance will be used where appropriate and economically viable (eg for the
purchase of equipment and vehicles), and where the transaction costs are within
available resources and show no material cost over that of borrowing.
8.
BORROWING
8.1. The Council will have an estimated
borrowing requirements in 2004-2005 of
£17.7 million, in order to finance supported capital expenditure.
The estimated
requirements of £17.7m may be met as
follows: £M
Total Requirement 17.7
Less: movement in
amounts set aside 4.6
Minimum External
Borrowing Requirement 13.1
9. APPROVED ORGANISATIONS FOR
INVESTMENT
9.1. The current policy is that the investment
of surplus funds is limited to:
Major British
Clearing Banks and Subsidiaries
Larger Merchant
Banks
Top Building
Societies
Other Local
Authorities
9.2. The Council will also use Pooled money
resources that may become available through the auspices of approved
organisations for Investment, as contained above and to include H M
Treasury. The limit of such investment
to be placed at £8 million per each approved source and varied at the
discretion of the Chief Financial Officer.
The exercise of such discretion to be reported to the Executive as part
of the Annual Reporting requirement as contained under TMP6.
9.3. There may be exceptions to this approved
list from time to time depending on individual circumstances, and with the
agreement of the Portfolio holder for Resources. The list of above organisations is continually reviewed having
regard to their credit ratings.
Apart from the
Council’s own bank not more than £8 million may be loaned to any single
institution on one date. Not more than
£3 million may be loaned to any subsidiary of one of the clearing banks and no
such loan may exceed 1 month. A maximum
advance of £8 million may be loaned to Building Societies with appropriate
credit ratings for a period of up to three months.
9.4. Approved organisations will be continually
reviewed taking into account credit rating and other relevant information and
amended by the Chief Financial Officer or his nominated deputy.
10.
SECTION 45 OF THE LOCAL GOVERNMENT AND HOUSING ACT 1989
10.1. POLICY ON INTEREST RATE EXPOSURE
1) The Prudential Code requires the
Council to fix each year the maximum proportion of interest on borrowing which
is subject to variable rate interest.
2) In
order to take advantage where appropriate of low short-term interest rates it
is proposed that for the financial year 2004-2005.
the limit on the
proportion of interest payable by the Council which is at a rate or rates which
can be varied by the person to whom it is payable or by reference to any
external factors be 20%.
10.2. OVERALL BORROWING LIMIT
Taking account of
existing debt and the requirements for 2004/05 and the borrowing powers
available:
the maximum amount
which the authority may have outstanding by way of external debt be £181
million.
10.3. SHORT TERM BORROWING LIMIT
Taking account of
the need for flexibility in borrowing and in order to take advantage of low
short term interest rates as appropriate:
the maximum amount
which the authority may have outstanding by way of short term borrowing (being
part of the overall borrowing limit) be £40 million.
11. POLICY ON EXTERNAL ADVISERS
11.1. Treasury Advisers have been employed by the
Council to:
·
forecast movements in long term and short term interest rates
·
advise on long term borrowing and debt maturity profiles
·
advise on leasing and capital finance legislation
·
restructuring of PWLB debt
·
advise on future interest rate movements (including PWLB) and other
market developments
The Chief
Financial Officer has responsibility for the review of future provision of such
advice, and to amend the conditions or appoint different advisers as
appropriate.