The Chief Officer – Finance, Performance and Change presented a report, that presented Cabinet with the Treasury Management Strategy 2023-24 (at Appendix A of the report), which included the Prudential Indicators, and the Annual Minimum Revenue Provision Statement 2023-24 (Section 7 of Appendix A), before submitting to Council for approval.

By way of background, she confirmed that local authorities are required to determine a Capital Strategy which demonstrates that the authority takes capital expenditure and investment decisions in line with service objectives and properly takes account of stewardship, value for money, prudence, sustainability and affordability when making these decisions.

The Strategy sets out the Council's plan for capital expenditure, and how that is to be funded, over the coming 10 years. In developing long term investment decisions, it is crucial that decisions are based on clear information, including a long term plan of management plans. Where capital investment is needed to deliver the council's priorities, the Strategy is the framework that the Council can rely on to develop a clear, consistent and informed process in undertaking capital investment decisions.

The document is an integral part of the Council's budget and policy framework and linked with the Corporate Plan, Treasury Management Strategy, the Medium Term Financial Strategy and the Council's Asset Management Plan

There were 13 principles which drive the budget and spending decisions of this Council, three of which refer specifically to the Capital Programme.

These were :

•           capital investment decisions are in alignment with the council's capital strategy and mitigate any statutory risks taking account of return on investment and sound options appraisals;

•           prudential borrowing is only used to support the capital programme where it is affordable and sustainable within the councils overall borrowing limits and the revenue budget over the long term;

•           decisions on the treatment of surplus assets are based on an assessment of the potential contribution to the revenue budget and the capital programme.

The Capital Strategy was also based on the following principles, added the Chief Officer – Finance, Performance and Change :

•           capital investment is focused on the delivery of the Councils well being objectives and priorities.

•           ensure strong governance over decision making.

•           ensure capital plans are affordable, sustainable and prudent

•           maximise and promote the best use of available funds.

The Plan detailed how any proposed investments in land and buildings will require the completion of a full feasibility study to evaluate the practicality of the capital project, and to assess its deliverability before the Council invests time and money into that project.

The Strategy noted that there are a number of significant areas that will need financing going forward, including economic recovery, decarbonisation and homelessness, digitalisation and coastal defences.  As reported to Council throughout this year there are also other financial pressures arising as a result of the pandemic and Brexit, which are being seen in existing schemes, and it is anticipated this will continue for some time going forward. The pressures include supply chain difficulties leading to higher prices and delays in schemes being completed.

The Strategy also refers to the changes with regards to the ability to borrow from the public works loan board in relation to borrowing to invest primarily for financial return. When seeking to borrow from the PWLB, authorities will be asked to confirm that there is no intention to buy investment assets primarily for yield in the current or the next two financial years. Whilst this did not preclude the Council investing in commercial activities, investing in assets  solely for yield would prevent the authority from accessing PWLB borrowing. As the Council will need to borrow to support the 21st century schools band B programme and the wider capital programme, this will prevent it investing in land or property, purely to achieve a financial return.

In section three of the Strategy, details are contained which outline the robust process in place to approve, manage and monitor capital projects. As Cabinet is aware, quarterly capital monitoring reports are prepared for both Cabinet and Council, which include details of any variances between projects as well as projections of likely year end spend.

The Chief Officer – Finance, Performance and Change, confirmed that in 2023 - 2024 the Council was planning capital expenditure of £69 million and this was summarised at Table Two within the Capital Strategy. The main capital projects to be undertaken in that period, were detailed within the Strategy, with the detailed proposed 10 year capital programme shown at its Appendix 2.

The Council had several funding streams available to support capital investment and these were detailed in Appendix one of the Capital Strategy. Funding was received from Welsh Government towards the cost of capital and this funding is prioritised towards investment that is required to meet health and safety requirements.

There were two main types of borrowing to pay for capital investment and these are:

•           Supported borrowing - the costs of servicing the debt are included within the annual revenue support grant that we receive from most government, and

•           unsupported borrowing - the cost of which must be met from the Council's revenue budget

Finally, the Chief Officer – Finance, Performance and Change stated, that each year the Council must set aside a provision for repaying external debt. This is known as the minimum revenue provision. The MRP needs to be approved by Council before the start of each financial year and the policy statement with regards to this, was shown at Section 7 of the Capital Strategy.

When agreeing the Councils Capital Programme, Members needed to be aware of the revenue budget impact of capital schemes which would include:

•           The costs of operating or maintaining a new asset;

•           the capital financing costs of servicing any borrowing required to pay  for investment;

•           the revenue costs of preparing and delivering projects

The Chief Officer – Finance, Performance and Change concluded by confirming that the percentage of the Councils revenue budget that is committed to capital financing costs is increasing in the long term period given the pressure on revenue budgets. This limited the affordability of other priorities in future years and should be a factor considered by Cabinet when determining the Capital Programme.

The Cabinet Member – Resources advised that a report on the Capital Strategy had been considered through the Council’s Overview and Scrutiny process. He welcomed the evaluation of projects going forward and asked, if the Authority would be required to borrow money for any of the Council’s pending capital projects.

The Chief Officer – Finance, Performance and Change confirmed that it was likely that the Council may have to borrow in order to support some projects over the next 3 year period, though the extent of this, was dependent on the Programme being delivered within structured timelines. The level of any borrowing however, would be closely monitored and such borrowing would not be pursued unless there was a need to do so.

The Cabinet Member – Education emphasised the level of expenditure that was being committed to the Council’s 21^st Century Schools programme which was significant. He felt that the programme was wellbeing based and one which supported the less fortunate in society.

The Cabinet Member – Communities acknowledged the work being planned that will allow access for play for all children in playgrounds/areas and the prioritisation of highway structural works.

The Leader commended the Council’s approach to feasibility studies carried out in relation to major capital expenditure projects as a positive form of forward planning for schemes undertaken in advance. He also acknowledged that the Council needed to consider ‘any lessons learnt’ from previous experiences when it came to developing future capital projects.

RESOLVED:                                   That Cabinet considered the report and recommended that the Capital Strategy 2023-24 to 2032-33 including the Prudential Indicators 2023-24 to 2025-26 and the Annual Minimum Revenue Provision (MRP) Statement 2023-24 at Appendix A, be presented to Council for approval.