Agenda item

The Leader presented the first report to colleagues on the Capital and Treasury Management Strategy for 2024/25.

This is an annual report focussing on the Council’s capital expenditure plans, the financial impact of those in terms of borrowing, and investment strategy for the year.

Whilst full Council ultimately approve the borrowing limits and prudential indicators contained within the report, Cabinet was requested to approve the detailed capital programme itself and recommend the report to Council for approval.

Governance and Audit Committee considered the report in their most recent meeting and endorsed the proposed strategies, with no further recommendations.

There were several key points in the report:

The five-year capital programme is managed on a rolling basis, meaning that a new year (2028/29) had been added to the programme.

The programme itself continued to reflect the challenging financial circumstances and, as such, continued to comprise ongoing and previously approved schemes, as well as annual sums for activities such as asset maintenance and fleet renewal.

Whilst there were no new schemes being included, the programme, especially in 2024/25, is still significant and contained a number of the Cabinet’s highest priority schemes such as new school projects, the Transporter Bridge and new Leisure and Wellbeing provision.

Because of the affordability challenges, there was no new borrowing headroom to be approved at this point. However, the programme included indicative new borrowing from 2027/28 onwards, which, if still affordable nearer the time, would be available to pursue new schemes, such as the next wave of school development projects under the Sustainable Communities for Learning Programme.

Until the point at which new borrowing could be formally approved, capital headroom is limited to those amounts already held in specific earmarked reserves and uncommitted capital receipts. As a result, careful prioritisation was required when making new commitments from the headroom and every opportunity needed to be taken to boost it via one-off sources, to continue to respond to emerging pressures as and when they arose.

Whilst there no new borrowing was included in the next few years of the programme; previously approved borrowing would be incurred over that period; this would increase the overall Capital Financing Requirement and the Council’s level of debt.

The borrowing limits proposed in the report take account of this and the revenue consequence of additional borrowing (e.g. interest payable on loans) was already budgeted for, following the budget investment made in 2021/22. Therefore, the programme proposed is affordable, prudent, and sustainable, based on current information and assumptions.

In terms of Treasury Management, the report detailed the Council’s approach to borrowing and investing. It confirmed that the Council would continue to pursue an internal borrowing strategy, by using available cash resources to defer external borrowing for as long as possible and only undertake borrowing in advance of need where there was a clear financial rationale for doing so.

It is important to highlight the large refinancing requirement the Council has during 2024/25, which saw a handful of large loans repaid and new loans taken out in their place. The strategies reflected a prudent assumption of the capital financing cost that this replacement borrowing resulted in.

For investing, the Council continued to prioritise security, liquidity, and yield, in that order, striking an appropriate balance between risk and return.

A minimum investment balance of £10m is still required, which is currently being met via three covered bond investments.

Cabinet noted that the Head of Finance commentary within the covering report directly addressed the question of affordability, prudence and sustainability and confirmed that the proposed strategy and programme met all of those criteria.

Decision:

That Cabinet recommended to Council for approval:

§  The Capital Strategy (Appendix 2), including the proposed Capital Programme within it (shown separately in Appendix 1), and the borrowing requirements/limits needed to deliver the proposed programme.

§  The Treasury Management Strategy and Treasury Management Indicators, the Investment Strategy, and the Minimum Revenue Provision (MRP) policy for 2024/25. (Appendix 3)

§  As part of the above, Cabinet

o   approved the proposed Capital Programme, subject to Council approving the necessary borrowing limits that underpin this.

o   noted the increasing debt, and corresponding revenue cost of this, in delivering the rolling Capital Programme, and the implications of this over both the short and medium-long term with regard to affordability, prudence and sustainability.

o   noted the Head of Finance comments that borrowing needed to be limited to the extent that it stabilised the Capital Financing Requirement and did not add pressure to the Council’s Medium Term Financial Plan, and the recommended prudential indicators on borrowing limits to achieve this.

o   noted the feedback provided by the Governance and Audit Committee on 25 January 2024 (paragraph 8).