Agenda item

The Council had ambitious plans for the city as set out in its Corporate Plan and the promises set out within it. A key enabler to deliver on this ambition was the capital programme. This report included both the Capital and Treasury Management Strategies which, at their core (i) confirmed the capital programme, as part of the Capital Strategy and (ii) the various borrowing limits and other indicators which governed the management of the Councils borrowing and investing activities, as part of the Treasury Management Strategy.

The ‘Capital Strategy’ also set out the long-term context (10 years) in which capital decisions were made and demonstrated how the Local Authority took capital / investments decisions in line with service objectives, giving consideration to both risk/reward and impact; as well as properly taking account of stewardship, value for money, prudence, sustainability and affordability.

The capital plans of the Authority was inherently linked with the treasury management activities it undertook and therefore the ‘Treasury Management Strategy’ was included alongside the ‘Capital Strategy’.

The main recommendations arising from the two strategies were summarised in the report and were also appended. 

It was highlighted that the borrowing would increase over the next three to four years, therefore a sustainable limit was needed.  This limit would be set in order that Council could not go over the capital programme.  The Audit Committee were asked to provide their recommendations to Council.

Discussions included the following:

·         Councillor Jordan referred to Page 124, Table 1: Prudential Indicator Estimates of Capital Expenditure and Capital Financing for the year 2021/22 £62.3M and 2022/23 £71.6M.  Councillor Jordan noted a dramatic increase over the period from 2020/21 where figures showed as £33.1M.  The Assistant Head of Finance advised that this was due to slippage in the previous years, however as we came to the back end of programme there were a few schemes that needed to be completed.  A lot of this referred to the Band B school project, along with other up and coming big schemes in those years.  The City Deal cost had accelerated its programme forward into largely 2021/22 and 2022/23 and in addition, grant funded schemes were also being carried into the next two year period.  The Capital Programme was shown further down within the appendix in further details but essential it was finishing off the current Capital Programme.

·         Councillor Lacey referred to the medium to long term Capital Investment and taking into consideration the past 12 months, how much was wiped off our investment as a result of this and was the Council into medium risk investment and what would happen next.  The Assistant Head of Finance advised that no investment into a risk category prior to the pandemic, therefore from an investment balance had not lost any money at all.  Interest rates however, on cash balances were very low, e.g. 0% and on some days were placed with the Government DMO who gave negative interest rates at the moment, which was why it was important to securely move the £10M into higher yielding investments going into 2021/22.  The Council were planning to do this this year but have not due to the pandemic, however, things have stabilised, which is what we were being told by our investors and have not lost capital value.  The hit on the kind of investments that local authorities had been carrying out had not been that big.

Secondly, Page 147 bullet point regarding latest demands on the Capital Programme and if investment in relation to the Transporter Bridge and the recent £8.5M from HLF, had that changed this bullet point. The Assistant Head of Finance was aware of HLF coming through and included Phase 1 and more recently Phase 2 of the lottery funding, this was therefore pre-empted and was incorporated within the report. 

·         Councillor Hourahine referred to the Assistant Head of Finance’s introduction where it was mentioned that we received a good principal grant from the Welsh Government this year.  Councillor Hourahine, however considered the grant as adequate/better than expected grant based on Newport’s population rather than giving the Council a higher grant this year.  The Assistant Head of Finance agreed that the plans were much lower.  The Head of Finance added that it was considered a good settlement by comparison to what was planned and there was a retrospective adjustment made as well.  We were now being funded on an updated population base, which meant we were receiving what we were due.

·         Councillor K Thomas referred to the development of Llanwern, which was 4,000 and Cothill was over 2,000 properties and therefore asked when did the Welsh Government normally consider population figures to pass on money; would this be 12 months in advance, if so, it could have a significant impact for Newport, considering the size of the development currently taking place.  The Head of Finance was not aware of this detail but the Census undertaken every 10 years, which probably took up to 18 months to collate, therefore this was based on real collected data.  Within the 10 years leading to each Census a population estimate was used by the Office of National Statistics.  This was a good point raised by the Councillor; how was the inward migration included.  Whilst the Head of Finance was not able to answer this, he would contact his colleagues at the Welsh Government to provide an answer to report back to the Committee regarding general population numbers.

Incidentally, Councillor Jordan mentioned that this was the last National Census to be carried out as the Office of National Statistics had the ability to progress their research and provide a wealth of data relating to populous.

·         The Chair referred to the important sums, which was slightly confusing, in so far as on the one hand there was unsustainable debts potentially going forward, high levels of financing costs compared to other authorities, the question there would be how high was high.  Making reference ahead of finance recommendation and the Head of Finance Summary replicated what was already in the paper and therefore could not tease out the recommendations clearly.  Therefore was not sure what the paper was trying to achieve.  The level of borrowing was basically based on what the Capital Programme was and could be more clearly summarised, regarding borrowing and investments, e.g. operational boundaries if these were created by the capital financing requirement the true level that you could go up to was the authorised limits.  If one was therefore saying that some of the debt levels were potentially too high, then the operation be amended or clarified in the paper to highlight that this was causing a problem and at what level should it be not to cause a problem.  The Chair advised that reading the report ‘cold’ might not help councillors and considered more clarity in relation to the debts from an operational level and whether the capital programme was too ambitious for the Council’s funds.  The Head of Finance explained that because we were funding the capital financing revenue costs of the current programme to the end of 2023/24, then that was affordable.  It took us to a position which was a fairly high level of revenue cost that had to be spent on outstanding debts compared to our peers.  However, it was no more than it was currently as a percentage of our budget and the risk that funding slows down in the future although this budget was locked in, was no different and therefore not a new risk.  For the next four years, the actual advice to the Council was, this was affordable and it took us to a reasonably high level of revenue cost and debts but as a percentage of our budget, it was not much.  The key recommendation was beyond the four year period. That line was too steep to sustain and exemplified what that would look like at the two levels mentioned previously by the Assistant Head of Finance and this would be considered as a warning to Council that we could not continue at this level.  It would therefore be for the Cabinet of the day to manage the capital programme within the borrowing limits. One half of the capital programme was funded from grants, so even with a £7M annual borrowing over a period of five years, £35M, we would probably be looking at a Capital Programme of well into £78M, with the grant funding element included. The Head of Finance would therefore reflect on the Chair’s point about being clearer and sharpen up that element. The Assistant Head of Finance advised that the operational boundary limit was set at a level which was affordable and what the current programme stated which was the low level that the Head of Service was recommending to Council and that would deliver the current capital programme.

·         Councillor Jordan asked if the Council had saved more money this year than was expected due to the pandemic and whether this could be added towards this year’s budget.  The Head of Finance advised that this was a mixed picture. There was pressure on revenue to deliver savings however, on the other side there were opportunities to make savings such as office/travelling expenses were lower, school closures etc.  Cabinet had shown a £3M underspend but this was offset in other areas.  Also reduction of people in the social care system had also made savings, covered by the Welsh Government hardship fund. It would not impact on next year’s budget but would go into the Council’s reserves.  In response to Councillor Jordan’s final question however, this would not go towards reducing the council tax fund.

Finally, the Head of Finance mentioned that the Assistant Head of Finance was leaving Newport City Council and thanked his colleague, who would be missed, for his hard work over the years.  The Audit Committee congratulated the Assistant Head of Finance and echoed comments from the Head of Finance.

 Agreed:

·         That Audit Committee provided comment on the Capital Strategy (Appendix 2), including the current capital programme within it (shown separately in Appendix 1) and the borrowing requirements/limits needed to deliver the current capital programme.

·         That Audit Committee provided comment on the Treasury Management Strategy and Treasury Management Indicators, the Investment Strategy and the Minimum Revenue Provision (MRP) for 2021/22. (Appendix 3)

Also as part of the above:

o   Noted and commented, as needed, on the increased debt and corresponding revenue cost of this in delivering the current capital programme, and the implications of this over both the short and medium-long term in terms of affordability, prudence and sustainability.

o   Noted and commented on the Head of Finance recommendation to Cabinet and Council, that borrowing needs to be limited to that included in the current capital programme and,

o   That future debt funded expenditure should be limited and managed within the agreed limits to ensure external borrowing remains within a sustainable level over the long term.