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Agenda item

Capital Strategy 2021-22 to 2030-31

Invitees:

Councillor Huw David, Leader

Councillor Hywel Williams, Deputy Leader

Gill Lewis, Interim Head of Finance, Performance and Change

Nigel Smith, Interim Group Manager – Chief Accountant

 

Minutes:

The Interim Chief Officer - Finance, Performance and Change presented a report, that provided the Committee with the draft Capital Strategy 2021-22 to 2030-31, which included the Prudential Indicators against which the Council measures itself during the financial year.

 

The Interim Chief Officer - Finance, Performance reminded Members the MTFS was a 4-year strategy and Capital Strategy was a 10-year strategy.  Capital was governed heavily by legislation and from 2020, when CPFA published the new addition of the prudential code for capital financing, local authority’s were required to have a Capital Strategy which needed to be approved by full Council. The strategy needed to demonstrate that all investment was sustainable and prudent and also that the prescribed prudential indicators, which were used to monitor this on a 3 year rolling period, made sure that the local authority kept within the limits and adhered to the desire to have prudent and sustainable investment.

 

The overarching principles were set out in paragraph 4.3 with a focus on the delivery of the wellbeing objectives and priorities to ensure that strong governance was in place over decision-making.  The strategy set out a framework and also in detail the following areas:- Capital Expenditure and Investment Plans, the Prudential Indicators, the external debt and treasury management.  She drew Members attention to 3 changes. At paragraph 4.5.1 accounting for leases. As a result of the pandemic, the implementation of that change had been delayed until 2022/23. Quite a significant one at 4.5.2 borrowing for commercial activities. She explained that the local authority was very careful about commercial opportunities and purchasing things perhaps, that some Council’s may have gone into such as hotels and shopping centres, etc., for commercial gain. The Public Works Loans Board (PWLB) had put a moratorium on borrowing for commercial activities.  This was set out very clearly in 3.4 of the strategy and she encouraged Members to look at this because it placed a huge constraint on herself, as the S151 Officer and Members to confirm there was no intention to buy investment and assets, which would be used primarily for yields. At 4.5.3, following an internal audit review of capital expenditure and feasibility studies, the

recommendation was to require a detailed feasibility assessment of capital projects with the need for a post project evaluation to learn from best practice.

 

Members asked the following:

 

A Member referred to Page 99, in respect of the Highways Asset Management Plan (HAMP). He noted that it mentioned that this was a living document, subject to continual review and development. The Member noted that the one on the local authority website was published in September 2007 and asked if there was an updated version.

 

The Interim Chief Officer - Finance, Performance and Change explained that it was one of the things had she had emailed, just this morning about, to make sure that the documents referred to in the report were on the website. She agreed to follow this up with the Interim Group Manager – Chief Accountant.

 

A Member asked, in relation to the Public Works Loan Board (PWLB)     situation, if it precluded the local authority from other commercial borrowing, for commercial activities. Was it is only from the PWLB that the local authority had to make assurances to?

 

The Interim Chief Officer - Finance, Performance and Change stated that her understanding was that it was any borrowing.

 

The Member felt this was a real disincentive for authorities to try to be innovative and practical in the way they moved forward whilst trying to generate an income that actually bettered communities.

 

The Interim Group Manager – Chief Accountant confirmed that the guidance had changed in November 2020 from the PWLB and what they had said was that the S151 Officer had to confirm that for the current and future two financial years the Council did not intend to invest in commercial assets for gain/return. This was irrespective of where those assets were funded from. What that would do was preclude the local authority from being able to apply to the PWLB for borrowing. He noted in the Capital Programme significant schemes that needed to borrow for e.g., 21st Century Schools, highway improvements, vehicle purchases, so it would cause a particular issue. He reiterated that the local authority was precluded from borrowing from anywhere for commercial reasons, or investment through capital receipts, or any other means.

 

The Member asked in terms of the Capital Programme, how this impacted on the Mutual Investment Model (MIM)?  He asked how this was being challenged because he felt as a democracy and as an elected body the fact that the local authority was being dictated to, should be challenged.

 

The Interim Chief Officer - Finance, Performance and Change explained that it didn’t prevent the local authority from doing many things, including the Bridgend Heat Network, as in the first phase this was classified as regeneration. What it did was put severe constraint on those that perhaps were borrowing for commercial gain. The Interim Chief Officer - Finance, Performance and Change stated that she was in agreement with it.

 

The Deputy Leader explained that his understanding of this piece of guidance was that the local authority was not allowed to borrow for financial reward but obviously the local authority did invest for other rewards e.g., the heat network would have a social benefit so that that needed to be taken into account. All this precluded the local authority from doing was investing in a financial reward scheme.

 

The Member explained that he appreciated that the Interim Chief Officer - Finance, Performance and Change, was in agreement with it, but he was not, but that was his personal view on things. He noted there was a difference between profit and reinvestment.  If the local authority chose to buy a hotel, which was part of regenerating a town centre, or investing in building a hotel within a town centre, any profit that came from that building could be used for employment and training opportunities but also in relation to ongoing town centre redevelopment. That was commercial acumen but it was not profiteering, noting the opportunities the local authority could be missing out on.

 

The Interim Chief Officer - Finance, Performance and Change stated that every single scheme would be treated on its merit and social investment would be one of those things that would be taken into account.  Treasury Advisors would help on all those things to make sure the local authority stayed on the right side of the line but it was primarily to protect against risk because there were a lot of local authorities who now had empty hotels and a bill too.  She didn’t feel it would prevent the local authority doing all the things talked about in terms of social benefits but agreed with the Deputy Leader’s point that the local authority couldn’t, for example run an energy company for profit, as this would be prevented. It was a major constraint on the local authority but she saw it as a very necessary constraint on public finance.

 

A Member referred to Page 100, 3.4, in relation to ‘the total value of Investment Properties of £4.635 million as at 31 March 2020. This would be expected to generate a rental income of £478,000 per annum excluding any vacant or rent-free periods’ and asked if this figure was excluding any maintenance cost.  In relation to the £1 million within the capital programme, agreed by Council back in 2014, he did not think the local authority should be looking at any portfolio investments in the County Borough, as there were many things that Members could spend the £480,000 in their wards as capital projects.

 

The Interim Group Manager – Chief Accountant stated that in regard to the net cost, he did not have that level of detail available and it would depend on the leases or arrangements that were put in place with each individual tenant. He stated that he could try and look and see if this could be identified.

 

The Interim Chief Officer - Finance, Performance and Change acknowledged that those comments could be taken into account in the Council debate about the Capital Programme.

 

A Member referred to Page 108 in relation to fully understanding what feasibility assessments were. He felt it needed to be understood that sometimes feasibility studies were to show how unsuccessful projects would have been and that a feasibility study did not mean that something was definitely going ahead. It was important for people to understand that the local authority didn’t always know the situation and that was why a feasibility was undertaken.  He asked if this could be made a bit more robust in the section, so that people understand that it was a ‘could’ but also maybe a ‘not’.

 

The Interim Chief Officer - Finance, Performance and Change noted that this was a really important point raised by the Member as it was normally seen as an issue about an overspend on a scheme, particularly with diminishing resources.

 

The Chairperson thanked the invitees.

 

RESOLVED:                      That the Committee noted the Capital Strategy 2021-22 to 2030-31 including the Prudential Indicators 2021-22 to 2023-24 and its associated Schedules, subject to the comments made by Members.

 

Supporting documents:

 

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