6
The Scrutiny Committee received report ES/0605 which set out the Council's Capital Programme for the financial years 2021/22 to 2024/5, including revisions to 2020/21. The report included the main principles applied to set the Programme (paragraph 1.4) and detailed the expenditure and financing in 2020/21, 2021/22 to 2024/25.
The Cabinet Member with responsibility for Resources introduced the report. He said that, as part of the annual budget setting process, the Council was required to agree a programme of capital expenditure for the coming four years. The report set out East Suffolk Council’s General Fund Capital Programme at Appendix A and the Housing Revenue Account Capital Programme at Appendix B for 2020/21 to 2024/25; it also incorporated revisions to 2020/21. The Cabinet Member added that the Capital Programme had been compiled taking account of main principles, these being to maintain an affordable four-year rolling Capital Programme; to ensure capital resources were aligned with the Council’s Business Plan; to maximise available resources by actively seeking external funding and disposal of surplus assets; and to not anticipate receipts from disposals until they were realised. The Cabinet Member continued that the General Fund Capital Programme included £103.65 million of external contributions and grants towards financing the Council’s £189.44 million of capital investment for the Medium-Term Financial Strategy period. This represented 55% of the whole General Fund capital programme. Key investments for the General Fund were the Felixstowe Regeneration (Leisure Centre and Infrastructure), Lowestoft Beach Hut Replacements, Commercial Investment, Flood Alleviation, specifically the Lowestoft Tidal Barrier project and finally a potential loan to the Local Authority Trading Company (LATCO); further details of this were within section 4 of the report. The Committee was advised that the Housing Revenue Account Capital Programme totalled £64.95 million for the Medium-Term Financial Strategy period and did not require any additional external borrowing to finance it. The Housing Revenue Account capital programme would benefit from £13.31 million of external grants and contributions, which was 21% of the programme. Key investments for the Housing Revenue Account were the housing redevelopment programme and the housing new build programme. Again, further details were provided within the report in Section Four. The Cabinet Member referred to Section 6 of the report which detailed the revenue implications arising from the Capital Programme, showed the capital charges for each year of the Medium-Term Financial Strategy period, which were split between General Fund and Housing Revenue Account. In conclusion, the Cabinet Member stated that approval of the Capital Programme for 2020/21 to 2024/25 was required as part of the overall setting of the Budget and Medium-Term Financial Strategy.
The Chairman invited questions.
Councillor Beavan, with reference to paragraph 1.8, asked if the change in borrowing rules from the Public Works Loan Board (PWLB) was for speculative property investments only, or all income generation projects. The Cabinet Member for Resources replied that the new arrangements prohibited any councils borrowing from the PWLB if their capital programmes contained any projects from 2021/22 onwards that were solely for income generation. HM Treasury had issued detailed guidance which was not straightforward - consequently, officers had already been briefed by the Council's external treasury advisors and would continue to have regular updates whilst further information was still being provided by HM Treasury.
Councillor Beavan asked what the LATCO would do and if this would include commercial investment. The Cabinet Member referred to the statement in the report that a full business case would be presented to Cabinet in due course. He added that the purpose of the LATCO was to create the opportunity for the Council to increase its revenue from commercial operations.
With reference to paragraph 6.4 of the report, Councillor Beavan suggested that the Minimum Revenue Provision (MRP) appeared to be depreciation; he also asked why it was indicated as trebling over the next four years when interest remained static. The Cabinet Member responded that the MRP was an annual cumulative charge for the repayment of the principal amount of borrowing. As the borrowing requirement increased this was where capital projects could not be funded through grants, contributions, capital receipts or reserves, then the amount of MRP being charged would increase.
Councillor Beavan referred to the summary table for the General Fund Programme and asked if the 2021/22 and later budgets had been adjusted to take account of underspend this year; he explained that he wished to understand what original meant in this context and if calculations were this year's or last. The Cabinet Member replied that original budgets were set at the beginning of the year and revised budgets followed the frequent departmental reviews. He confirmed that the budgets for future years benefitted from any underspend from previous years, unless the project had been completed.
Councillor Beavan asked why there was a £19k shortfall in operations this year whilst expenditure was not reflected in an increase in next year's budget. The Cabinet Member replied that budgets were set based on the perceived requirements for the coming year. These did not necessarily relate directly to previous years or reflect any shortfall in service.
Councillor Beavan referred to the summary table for the Housing Programme and asked for clarity on why housing repairs were a capital expenditure but other repairs were not. The Cabinet Member replied that housing stock was a capital asset and thus any repairs to the fabric of the asset was capital expenditure. Repairs of any other kind were revenue expenditure.
Councillor Beavan asked what direct revenue funding was and how was it calculated. The Cabinet Member replied that this was the mechanism by which resources/reserves were released to fund capital projects and were the budgeted costs for that project.
The Chairman asked if the Council sought and received expert advice on investment opportunities. The Committee was informed that considerable due diligence was applied before investment proposals were submitted to Cabinet for consideration; all commercial investments were subject to constant monitoring on a daily basis to ensure performance. The Chief Finance Officer said the Council's Investment Strategy had been approved by Full Council and provided a tightly defined and controlled environment for investments. He added that the level of commercial investment at the Council was limited and reiterated that all were subject to robust business cases and analysis.
Councillor Deacon, with reference to paragraph 1.8, asked about the Council's approach to ethical investment. The Cabinet Member replied that this was an area which was never 100% satisfactory to everyone, however, the Council's investments were across a wide range of stocks with attractive investments in green industries. The Senior Accountant (Financial Compliance) added that many of the Council's investments were with other local authorities, primarily for cash flow or capital investment purposes, and that there was no investment in non-ethical commodities.
Councillor Deacon asked about investments in local energy providers and referred to the Bill by Peter Aldous MP. The Cabinet Member replied that this was not currently available for investment but, if a good return was possible, it would be good to be able to invest locally.
Councillor Deacon asked if repairs were undertaken to be as near to zero carbon impacts as possible. The Cabinet Member replied that sometimes such repairs would be financially unviable but that this was an aim that was pursued as far as was possible without being financially imprudent.
Councillor Topping referred to page 36 of the report which detailed Housing Revenue Account capital investment projects and asked if the underspends were a result of the pandemic and if it was anticipated that this would 'catch-up' under the rolling programme of repairs. The Cabinet Member confirmed this was the case.
Councillor Topping, with reference to repairs at St Peter's Court, asked if the fire risk assessment had been completed as it did not appear to be shown in the table. It was confirmed that the building met fire regulations, but the cladding required additional work.
Councillor Gooch asked if information on how the lifespan of investments was calculated could be provided; she referred to proposed investment in a crazy golf facility and asked how, as an example, it had been included in the list and the lifespan of the investment arrived at. The Cabinet Member said the lifespan of an investment was not necessarily calculated in advance, but the Council would remain responsible for repairs. In certain large investments, the Council sought the repayment of its investment in 30-40 years, but not for small amounts as with the crazy golf facility. Councillor Gooch asked how members or the public would be able to know what constituted a medium or large spend and were these one-off expenditure or part of the rolling programme. The Chief Finance Officer explained that the Capital Programme was formulated from a variety of sources and was also prioritised. He added that the Council could look at developing a categorisation in its reporting of budgetary information which specified the key objectives of each project. This suggestion was welcomed.
Councillor Topping referred to the tables on Operations expenditure (pages 31/32 of the report) and, in particular, the costs for Waveney Norse Grounds Equipment; she asked if the Council purchased these and, if so, did they remain its property. Councillor Topping also asked if, at the end of a piece of equipment's useful life, it was sold and the income was reclaimed by the Council. The Senior Accountant (Financial Compliance) said equipment and vehicles purchased by the Council and used by Norse remained the property of the Council; at the end of their useful life, equipment or vehicles would be traded in for a replacement or sold with the revenue coming back to the Council.
The Chairman asked why the Council did not invest further in its own housing stock. The Cabinet Member said that the security and liquidity of the Council's money was more important than potential yield, therefore, there was a need to ensure risk was spread and to not have all the Council's assets in one place, for example, housing. The Chairman suggested that investment in shares and business parks was also a risk and that social housing was less of a risk. The Cabinet Member replied that it was not prudent to invest heavily in housing stock as it could impact on the Council's liquidity.
The Chairman referred to the LATCO loan receiving a 6% return and queried the report also stating that the Council could borrow at low rates. The Cabinet Member said his interpretation of prospective rates was a hope to return to 6% p.a. from the operation of the LATCO; this, he said, would be a satisfactory yield but in the current circumstances remained to be seen.
In response to a question by Councillor Coulam about the use of electric vehicles, the Cabinet Member confirmed that Norse already used electric vehicles. He added that the Head of Operations was working to identify the most efficient form of green energy for refuse vehicles.
Councillor Beavan asked if the Council could commit to electric charging points in car parks. The Cabinet Member said this was not within his portfolio but if such a project was proposed it would be assessed by the finance team.
Councillor Topping asked if the rolling programme of housing repairs included the installation of solar panels. The Cabinet Member replied that this was undertaken whenever possible and that both small and large projects were being considered.
There being no matters raised for debate, the Chairman moved to the recommendation which was proposed by Councillor Topping, seconded by Councillor Coulam, and by unanimous vote it was
RESOLVED
That, having reviewed and commented upon the Capital Programme for 2021/22 to 2024/25 and revisions to 2020/21, it be recommended for approval by Full Council.