Part 2 - Medium Term Financial Strategy (MTFS)
Background to the Medium Term Financial Strategy (MTFS)
The Council's Financial Strategy provides the strategic framework and corporate financial policy document for managing the Council's finances over the medium term and ensuring sound governance and compliance with best practices.
The MTFS updates Members on the key financial assumptions for the current year budget position (2020/21) and projections for the years 2021/22 to 2024/25.
The MTFS sets out the financial Revenue Strategy, the Capital Strategy, the five year Capital Programme,Treasury Strategy, Investment Strategy and identifies the key financial risks for the Council.
You can download a full copy of thedocument here.
The purpose of the Medium Term Financial Strategy (MTFS)
The purpose of the MTFS is to:
(i) Deliver a budget which is robust
(ii) Ensure long term financial sustainability
(iii) Enable the Council to deliver the Council's priorities including City Centre regeneration, continuing with the work on the Fairness agenda and delivering the Council's essential services to the best it can within the resources available.
The key influences in formulating the update to the financial strategy are:
The Council reviews all key financial assumptions on an ongoing basis and identifies whether there are any material changes which need to be incorporated. These may include changes in assumptions made, either as a direct result of changes in external factors, economic climate, legislation or decisions made locally.
This report updates Council on the key financial assumptions for the current year budget position (2020/21) and projections for the years 2021/22 to 2024/25. All major changes to forecast assumptions and implications for the financial forecast are included within the appendices to this report.
Set out in the MTFS are the general fund revenue forecast, Capital Strategy, five year Capital Programme, and Treasury Management Strategy including prudential indicators, Investment Strategy and Minimum Revenue Provision Statement. It builds on the platform of the previous strategy. The longer term view of the Council's financial position enables the Council to effectively forward plan.
The Council reviews its finances over a longer term period for major development plans, the vehicle replacement programme, the core and major asset maintenance plan, long term borrowing decisions and individual business case decisions.
The financial strategy is supported by a number of monitoring procedures to ensure the basis for formulating estimates are up to date and reflect all current factors such as changes in levels of fees and charges, increases in costs etc.
The monitoring procedures which support the MTFS and forecast
- Embedded monthly budget monitoring
- Review of the Council's earmarked Reserves and balances
- Quarterly performance reports to Cabinet Member Resources and Performance
- Capital Project Managers Performance Monitoring and Updates
- Treasury Management specialist external advice and meetings
- Reporting of the annual outturn position to Cabinet
In addition to the financial monitoring procedures the Council is currently implementing improvements to Performance Management.
The CIPFA Financial Management Code (FM code), has been introduced to help assist local authorities to embed statutory responsibilities for sound financial administration.
The Council has assessed the requirements of the Code. The majority of the FM Code requirements are already embedded in the Council's own financial management arrangements.
A couple of areas of improvements have been identified such as improvements to the budget monitoring process. Plans are being formulated to implement the improvements and these will be identified within the Service Delivery Plan of the Finance Department.
The global pandemic has had a significant impact on this financial strategy. The original estimates reported at the February 2020 budget council meeting have been updated to reflect the financial pressures on the Council as a result of the pandemic.
The Council has received various forms of Government Covid-19 funding towards meeting the costs.
As a result of the emerging pandemic the Lancashire Resilience Forum met in March 2020 to agree a Lancashire-wide emergency response. This resulted in the Lancashire Resilience Forum establishing a command structure for Lancashire to target key crisis areas.
The Council's senior managers played a key role within the respective areas ensuring that a local response was put in place.
The Council swiftly implemented its Business Continuity plan. This involved Covid-19 Corporate Management Team response meetings and all departments having a Service Area Co-ordinator. These were fundamental in leading the Council through actions such as mobilising the Council's workforce to begin to move from 'business as usual activity' to emerging new priorities such as the humanitarian response through the establishment of a Community Hub established to support those on the NHS shielding list and the vulnerable, to a system of administering grants to local businesses.
The Council provided sound leadership during the crisis with the ability to move resources around to ensure that it had the capacity to respond.
Teams whose usual work ceased during lock down were moved into new areas of activity, with much achieved through agile working, for example, the dedicated call centre for the Community Hub was operated remotely by staff working from home, with IT solutions put into place to enable this to happen. This was operated not only in usual business hours, but also during the evenings and weekends.
The ICT department provided an excellent service in enabling staff to work from home. Furthermore all the Council's activities were risk assessed and additional control measures were put in place such as social distancing in offices, extra PPE, hand sanitizers, screens, and implementing new changes to work patterns.
To enable decisions to be made during the crisis delegated powers were given to the Chief Executive in consultation with the Leader and Group Leaders. This meant that the Council was able to respond to urgent issues swiftly.
Since the start of the pandemic the Council has:-
- Implemented emergency powers to enable the Council to respond to the Global pandemic.
- Been a key member of the Lancashire Resilience Forum which is enabling to a Lancashire wide response to the pandemic.
- Enabled the Council to hold meetings virtually.
- Enabled a high majority of staff to work from home through effective IT systems.
- Kept the residents of Preston updated with key messages on social media.
- Supported the vulnerable and provided food parcels through the dedicated Community Hub.
- Provided accommodation for homeless and rough sleepers.
- Paid over £41m in Business Support grant payments to local businesses.
- Granted business rates retail relief of approximately £32m
- Allocated £1.6m council tax hardship fund.
- Made discretionary business payments totalling £2.5m to local businesses.
- Granted over £0.3m of rent relief to the Council's investment property tenants.
- Worked with City Centre businesses to ensure that the city centre safely re-opened after the lock down.
- Set up and operated two walk-in testing sites in Preston.
- Administering the self-isolation grant payment scheme.
- Carried out test and tracing through the a dedicated team of outbreak containment tracers
- Environmental Health have been contacting businesses giving advice to ensure they remain Covid compliant. They have also taken an enforcement role.
- Emergency grant assistance has been made available for the vulnerable
- A venue has been made available for Covid-19 testing for businesses in the City Centre
Throughout the pandemic the Council has been working with key partners.Throughout the pandemic the Council has been working with key partners.
The Covid-19 pandemic provides an opportunity for the Council to review the way in which it works, how it uses its buildings and consideration of environmental factors both for the Council and the whole Preston Area.
The Council's climate change agenda will form a key part of the financial strategy going forward however this will need investment.
The Local Government Finance Settlement 2021 / 22 and update on future Government Funding
On 4 February 2021 the Government published the Final Local Government Finance Settlement for 2021/22. The announcement included funding for 2021/22 only.
The chart below shows the core Government funding for Preston over the period 2013/14 to 2021/22. For 2021/22 the main allocation has been set at the same level as in 2020/21.
Core Government Funding
The Government have published a new funding allocation for 2021/22: Lower Tier Services Grant allocations 2021 to 2022.
The allocation is provided specifically to lower tier authorities with a one-off minimum funding floor. The allocation for Preston is £236,834. It is expected that this funding can contribute to the Council's finances to help towards the cost of Covid-19.
Local Council Tax Support
The Government are to provide authorities with additional funding in 2021/22.
They have stated that they expect that the funding will meet the additional costs associated with increases in local council tax support. We are to receive a lump sum amount in April 2021.
The Council Tax referendum principles
The Council Tax referendum principles allow the Council to increase Council Tax by up to 2% in 2021/22. This means if the Council sets a Council Tax of 2% or above it would have to hold a referendum to agree the increase.
These principles do not include Parish Councils.
The Cabinet proposals include a 1.99% Council Tax increase for 2021/22; a new Band D charge of £327.13.
Covid-19 is having an impact on the levels of council tax being collected. The Council has seen a sharp increase in the levels of council tax support numbers, the collection rates are down compared with previous years and requests have been made to arrange different payment terms.
The current pandemic is having a major impact on the collection of business rates.
The Government announced that businesses in the Retail and Leisure Sector would be granted 100% business rate relief for 2020/21. This means that approximately 50% of businesses who usually pay businesses rates have been granted business rate relief.
The Government are compensating the Council for the relief granted in 2020/21. The Council is also seeing a reduction in the collection level of those rates which have been billed.
The Council made a decision to remain out of the Lancashire Business Rates pool during 2020/21. The Council had been part of a Lancashire Business Rates Pool in the previous year 2019/20 when the 75% business rates pilots were held. However, the 75% pilots were for only one year and therefore the scheme reverted to the previous scheme which offered less protection. Current projections show that the Council will need to call on the safety net for 2021/22 however this is dependent on the final business rates position at the end of March 2021.
The Council will remain out of a Pool in 2021/22.
New Homes Bonus allocations for 2021/22
The Government have published New Homes Bonus allocations for 2021/22. In 2020/21 the grant was to be phased out, which meant receiving a one year only payment for 2020/21 and 'legacy payments' relating to previous year's allocations. However, the Government has announced an allocation for 2021/22 and are currently
consulting on the future of New Homes Bonus.
The Council pays its New Homes Bonus into the City Deal.
Local tax income guarantee for 2020-21
The Government have confirmed they will compensate local authorities for 75% of irrecoverable losses in council tax and business rates income in respect of 2020/21.
New regulations have recently been implemented to allow the 2020/21 collection fund (business rates and collection fund) surplus/deficit to be spread over three years not the usual two years.
2021 / 2022 Cabinet Budget Proposals
The Cabinet have put forward the following budget strategy in working towards setting the 2021/22 Budget and Council Tax:
- Council Tax Increase - it is proposed to increase Council Tax in 2021/22 by 1.99%.
- Use of earmarked reserves -an earmarked reserve is available to fund expenditure on land previously transferred to the Council. It is proposed to part fund the grounds maintenance expenditure on this land through an annual contribution.
- Use of the discretionary business grant funding to assist the Preston Businesses for Covid recovery.
Community Wealth Building
A budget provision of £100k is being set aside for Community Wealth Building. A report will be presented to Cabinet at a future date setting out scheme(s) details.
Community Wealth Building - £50k in 2021/21 and 2022/23 is being made available to fund a fixed term post dedicated for working on the community wealth building agenda.
City Growth and Housing Post
£25k part contribution toward funding a post dedicated to working on the City Growth agenda and affordable housing.
Towns Fund Project manager
£50k contribution to fund a post which will be appointed for the period of the Towns Fund. This is subject to confirmation from Government if the Council has been successful in its Towns Fund bid.
Revenue cost of funding the capital programme new schemes
A number of the capital schemes being proposed required borrowing to fund the scheme. There will be an annual cost on the revenue budget from funding these costs.
- A number of capital schemes have been identified which require priority works to be undertaken during 2021/22 and 2022/23. These are highlighted within the capital programme pages of this document. They include works on the Parks and Open spaces including necessary works to steps. A couple of schemes have been added to the final year when the capital programme was updated to reflect the inclusion of the additional year 2024/25. These include vehicle replacements which the Council already has available revenue funding to finance the borrowing costs.
- In addition to the new schemes the £500k Investment Fund is being re-designated to a scheme which will fund Covid recovery (capital spend) and Climate change schemes. Reports will be presented to Members at a later date setting out further details.
- The Council will continue with the Digital First Strategy agenda to deliver further service improvements for customer service and roll out the digital agenda to the other departments through the Service Improvement Board.
- The Council's strategy is to continue to have a planned release of non-earmarked reserves to fund the shortfall in financing during the period of the financial forecast.
- Contingency Plans - the Council has a list of contingency savings circa £1.3m which could be called upon in the event that significant risk materialises or further savings are required. This list contains non-statutory services. However, the Council will seek to find alternative efficiency savings and opportunities for income generation before these savings were called upon.
- The Budget Working Group who consists of Cabinet, three back benchers and Corporate Management Team will meet during 2021 to work towards formulating the next efficiency plan to identify savings of £600k required in 2022/23.
Cabinet carry out stakeholder consultations on the proposals including raising Council Tax by 1.99%. The results of the consultation will be provided to Members at the Budget Council meeting.
All savings proposals are subject to an Equality Impact Assessment (EIA). The EIAs consider the effect on people within all the equality strands in relation to the wider community; and, if and how one group is disproportionately disadvantaged by the savings and growth in relation to other groups.
The General Fund Revenue Forecast
The General Fund Revenue Forecast includes the budget for the day to day running costs associated with the delivery of the Council's services. The Council agreed the original 2020/21 Revenue Budget and set a Council Tax increase of 1.99% at the Budget Council meeting in February 2020. The forecast at that time showed general fund reserves being used over the life of the forecast. The Council maintains a £1.1m minimum working balance in the General Fund.
The Council reviews key financial assumptions on an on-going basis and identifies material changes which are highlighted within the appendices. The significant change for the mid-year forecast is the impact of the Covid-19 pandemic. Whilst estimates have been included it is still too early to realistically forecast the full impact of the Pandemic.
The forecast has been updated to reflect the underspend position in 2019/20, slippage of budget from 2019/20 into 2020/21, additional spending as a result of Covid-19, funding from Government and other organisations and in-year budget decisions made by Members. The latest estimated position is included in the information below:
- Original Budget: set at Budget Council February 2020 (see appendix A) 22,231 (£ m)
- Impact of 2019/20 Outturn (slippage of budget into 2020/21) 1,144 (£ m)
- Other forecast issues included in this update -1,468 (£ m)
- Latest Estimate : Revenue Budget 2020/21 (see appendix E) 21,097 (£ m)
General Fund (GF) Monitoring - The Council has submitted monthly financial management returns to Government setting out the Covid-19 spend the Council is incurring and Government grant it is receiving. The financial information has been incorporated into the latest financial forecast.
The financial forecast approved at Budget Council February 2020 showed a balanced financial position over the life of the forecast with no further savings requirement other than those savings already identified. A mid-year forecast was then presented to October 2020 Council which adjusted the financial position to reflect the impact of
Covid-19 however this was based on projections at that point in time. This latest forecast has been further updated with latest financial projections and the Cabinet budget proposals for 2021/22.
The latest forecast sets out a savings requirement of £600k in 2022/23. The Council has previously agreed to the use of reserves to fund the shortfall between 'the amount the Council spends on providing its services' against 'the funding the Council receives to fund the net budget in order to achieve the minimum balance by the end of the forecast. For reference, the Council has a required minimum working balance of £1.1m.
The Budget Working Group which consists of Cabinet, three back benchers and Corporate Management Team will work on formulating the next budget efficiency plan during 2021. These plans will take into consideration the £600k savings requirement in 2022/23 and will also consider the updated position for Covid-19 and future Government funding.
Reserves and Provisions
The Council holds a General Fund Reserve and a number of Earmarked Reserves and Provisions.
These are held for various purposes:
General Fund Reserve
A working balance to help cushion the impact of uneven cash flows and avoid unnecessary temporary borrowing.
As a contingency to cushion the impact of unexpected events or emergencies
Earmarked Reserves and Provisions
- Monies set aside for future events or liabilities
- General Fund Reserve balance 31 March 2020 - £8.822 million
- Earmarked Reserves and Provisions balance 31 March 2020 - £23.5 million
Appendix E contains the latest forecast for General Fund reserves.
An updated Reserves and Balances Policy is presented to the Cabinet Member (Resources and Performance). In line with the policy the current level of Balance Sheet provisions and earmarked reserves will be reviewed to take into consideration any
proposed call on the reserves during this financial year.
Reserves may be needed to be called upon to assist with the financial impact from Covid-19.
The updated policy will include details of those approved for release or if there will be an additional call on the reserves.
In line with previous agreed forecasts the Council is using available reserves to fund the shortfall between the income receivable against revenue expenditure incurred in the day to day running of the Council's services. This is in order to achieve a balanced forecast position over the medium term.
Other earmarked reserves may be used to:
(i) act as a contingency if the savings targets are not achieved; and
(ii) be used for any significant one-off costs arising from the budget plan.
The Council has an embedded planned approach to financial management and corporate governance, safeguarding public monies and ensuring accountability.
The Council's External Auditors, Grant Thornton have recently completed the annual external audit of the 2019/20 accounts. They gave an "unqualified opinion". The signing of the accounts and the audit had been delayed due to the global pandemic.
As part of the Audit Grant Thornton are required to give a Value for Money and financial resilience conclusion.
The conclusion on the 2019/20 accounts was Grant Thornton were satisfied that in all significant respects the Council had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.
Grant Thornton give an unqualified opinion on the Value for Money and financial resilience conclusion for the 2019/20 audit.
The Preston, South Ribble and Lancashire City Deal
The Preston, South Ribble and Lancashire City Deal was signed in September 2013 and is an ambitious programme of work that aims to ensure that the City Deal area continues to grow by addressing strategic transport infrastructure challenges to deliver new jobs and housing.
To deliver the City Deal, partners established an infrastructure delivery and investment programme worth £430m over the lifetime of the Deal. The programme facilitates a significant commercial development (more than 20,000 net new private sector jobs) and housing (approximately 17,400 homes); this includes four highway schemes and local community infrastructure required to support the scale of such ambitious development. As set out in the programme, a fundamental review of the City Deal has been undertaken and discussions are still ongoing. A report will be presented to Members during 2021.
The City Deal Infrastructure Delivery Programme (IDP) is funded through pooled local and national private and public sector resources. This includes Community Infrastructure Levy (CIL), s.106 contributions, local major transport schemes, Homes and Communities Agency land receipts, New Homes Bonus, business rates, local
authority capital programme resources and land receipts.
The original target number of new homes in Preston on the City Deal sites is 9,579 which includes an additional 1,000 properties not allocated to specific sites. More information about the City Deal can be found on the Lancashire Economic Partnership (LEP) website.
The City Deal Infrastructure Delivery Programme sets out the projects and programmes to be funded and the forecast resources.
Lancashire County Council are the accountable body. They project manage the schemes, take responsibility for the cash flow of the overall plan, and ultimately have the majority of the financial risk.
The City Deal's Executive and Stewardship Board initiated a comprehensive review in March 2018. This decision was driven by a number of factors, one of which being the commitment to review the Deal in its fifth year of implementation as per the original agreement with Government.
Partners are currently considering the outcome of that review and are progressing a revised Heads of Terms for future working. Reports updating on the latest position are being presented to each of three main authorities.
The final agreement for the revised Heads of Terms will require full Council approval.
City Deal Programme for Preston
Within the original IDP there is £56.3m allocated for the delivery of community infrastructure projects over the lifetime of the City Deal programme, for schemes such as health, education and leisure to support new residents and the jobs that will be created. For Preston the original funding allocation for community infrastructure is £36.2m.
Allocations from the community infrastructure fund have previously been agreed/spent on a cycling strategy/upgrades to the Guild Wheel links and a number of City Centre schemes. Any future requests require formal approval by the City Deal Executive Board prior to spend.
In addition to the above the Council has been receiving £8.03m in the form of annual payments.
Income Transferred to the City Deal
When the City Deal model was formed it was anticipated that the contribution of income from Preston City Council would come from the following sources:-
- Community Infrastructure Levy (CIL) receipts from residential and retail developments £33m
- CIL Plus Contributions - assumption of additional revenue from development £7m
- New Homes Bonus £28m
- Business Rates £5m (if additional growth from City Deal)
Impact for the Financial Forecast
As a result of the City Deal the financial forecast includes additional Council Tax income.
As new housing is built the additional Council Tax income will increase and will also bring in additional Council Tax resources for the major precept authorities. Additional costs associated with serving the new housing have been built into the forecast however annual Council Tax income is estimated to outweigh these annual costs.
New Homes Bonus received by the Council is shown to be paid over to the City Deal during the current financial forecast period.
At this point in time we have received income totalling £4.4m for community provision.
Capital Programme - Community Infrastructure Levy and Community Infrastructure
The Capital Programme assumes that Community Infrastructure Levy (CIL) receipts totalling £13.3m received from developers will be paid over to the City Deal in the period 2020/21 to 2024/25.
The CIL is a charge on most forms of built development; it allows a charging authority to levy a charge on owners or developers carrying out built development so that they contribute to the costs of providing the infrastructure needed to support development of the area.
The CIL funds infrastructure projects such as transport, education, leisure, and health and open space provision set out in a published list, known as a Regulation 123 list.
When spending plans have been agreed for the community infrastructure allocation, subject to approval by the City Deal Executive Board, the schemes will be included within the Capital Programme.
The Council is required to maintain a separate fund (the Collection Fund) for the collection and distribution of amounts due in respect of Council Tax and National Non Domestic Rates (NNDR).
The fund records all of the transactions for billing, exemptions and discounts granted, provision for bad debts and appeals, and payments made to the Council's General Fund, the County Council, Police and Crime Commissioner and Fire and Rescue precept authorities and Central Government.
The deficit on the Collection Fund for Council Tax as at 31 March 2020 was £1.112m. This deficit is being shared between the Council (17%), Lancashire County Council (69%), the Police and Crime Commissioner (10%) and the Fire and Rescue Authority (4%) in 2020/21 and 2021/22.
The deficit balance is expected to increase at 31 March 2021 to £2.046m because of a reduction in the collection rate and an increase in council tax support in 2020/21 as a result of Covid-19.
The latest forecast is for a reduction in the in-year collection rate from 93.6% to 91.0%. A number of alternative payment plans have been agreed, allowing payments to be deferred to the next financial year. The Council's share of the forecast deficit is £0.332m.
Business Rates (NNDR)
Prior to 2013/14, the Council collected NNDR on behalf of Central Government.
All the NNDR income was paid directly into a central pool which was re-distributed to individual councils according to a needs-based formula. This system was replaced by the Business Rates Retention Scheme.
Under this scheme the Council retains a 40% share of its NNDR. The remaining income is shared between Central Government (50%), the County Council (9%) and the Fire and Rescue Authority (1%).
As at 31 March 2020 there was an accumulated surplus on the Collection Fund for NNDR of £1.138m. The surplus is being shared between the City Council, the County Council, the Fire and Rescue Authority and Central Government in 2020/21 and 2021/22.
The City Council's share of the surplus is £0.694m.
The latest forecast for 2020/21 is for an in-year deficit of £2.516m, of which the Council's share is £1.006m. This is largely due to an expected increase in empty property relief and an increase in the provision set aside for appeals.
The in-year collection rate is expected to reduce from 95.6% to 92.2% as a result of Covid-19. It should be noted that recent information has been received from the Valuation Office which is being considered by our external advisors which may significantly increase the deficit.
Section 31 Government Grant is received by the Council to compensate for the new NNDR reliefs the Council is statutorily obliged to grant. Funding is being set aside in an earmarked reserve to smooth peaks and troughs over the life of the forecast.
The Five Year Capital Programme 2020/21 to 2024/25
Capital Programme and Core Major Asset Plan
The Council strategically manages its operational properties through the Core and Major Asset Plan.
The Core and Major Asset Plan is informed by regular stock condition surveys to establish a rolling programme of improvement and refurbishment.
In addition we have a major repairs programme. Both of these take account of the need for efficiency and environmental impact issues.
The Council has an investment property portfolio managed to generate income to support the revenue budget and maximise opportunities for regeneration. Performance of this portfolio is reported quarterly to the Cabinet Member. As part of the efficiency plan work we engaged external property advisors to undertake a review of all property and land assets held by the Council, with the aim of identifying opportunities for disposal of assets for development and other available options.
The disposal of freeholds or changes to leases on existing buildings producing potential receipts was also considered. An action plan was developed and is in the process of being implemented to maximise the investment returns and potential capital receipts from the portfolio.
The Cabinet have already agreed the sale of previous operational city centre assets which results in a capital receipt and reduces the annual cost burden of maintaining empty operational properties.
The opportunity for new schemes to be added to the Capital Programme is limited. This is due to the continued reduction in capital funding and the pressure on the revenue budget which limits the capacity to fund borrowing repayments.
The Council has a five year programme; however the core and major asset programme extends over 10 years. There is a significant amount of capital expenditure required in the future which is outside the current programme.
Background to the Capital Programme
The Council has a five year capital spending programme.
The programme includes capital expenditure scheduled for the Council's operational assets. The Council ensures all capital expenditure is directly linked to the Council's priorities, affordable and delivered through key corporate projects. Any spend on the Council's operational assets is scheduled in line with the Council's Core Major Asset Plan. Expenditure in respect of grants or financial assistance is included if the nature of expenditure, when incurred by the Council, is classed as capital expenditure.
Capital expenditure is usually of a one-off nature, it can be a significant amount and can span over a number of financial years. Examples of capital schemes include the purchase and installation of a new lift or major construction works that includes extending the life of a building for example, new waterproof roof.
Other examples include the purchase of a new vehicle or the refurbishment of a park and open space.
The Capital Programme is updated continually for agreed changes and reported to the Cabinet Member (Resources and Performance) during the financial year on a quarterly basis and to Cabinet and Council as part of any financial forecast updates. A prudent approach is taken when preparing the programme to ensure that financing resources are only estimated for when there is relative certainty that they will be received.
In accordance with CIPFA's Prudential Code the Council's Chief Finance Officer is required to have full regard for affordability, sustainability and prudence when making recommendations about the Council's future capital programme. Such consideration includes the level of long term revenue commitments.
The Council considers the affordability of capital investment and the impact on revenue forecasts when formulating its capital spending plans.
Capital schemes are directly linked with the Council's priorities. Major items of enhancement or renewal are identified via the Council's Core and Major Asset Plan.
The latest Capital Programme is attached at Appendix G and totals £38.7m.
The planned spend over the life of the programme is continuously reviewed and any scheme profiling changes are reflected in quarterly update reports. The table below sets out the latest Capital Programme summary. This has been updated for agreed changes up to the end of December 2020:
Capital Investment Programme Summary 2020/21 to 2024/25:
The information below highlights spend in relation to the Council's key priorities.
- 2020/21 - £1.6 million
- 2021/22 - £4.3 million
- 2022/23 - £4.4 million
- 2023/24 - £1.0 million
- 2024/25 - £0.8 million
- Total = £12.1 million
- 2020/21 - £4.5 million
- 2021/22 - £4.3 million
- 2022/23 - £6.7 million
- 2023/24 - £3.3 million
- 2024/25 - £2.8 million
- Total = £21.7 million
Fairness for You
- 2020/21 - £1.5 million
- 2021/22 - £0.8 million
- 2022/23 - £1.6 million
- 2023/24 - £0.5 million
- 2024/25 - £0.5 million
- Total = £4.9 million
- 2020/21 - £7.6 million
- 2021/22 - £9.4 million
- 2022/23 - £12.7 million
- 2023/24 - £4.8 million
- 2024/25 - £4.1 million
- Total = £38.7 million
Capital spending over the next five years by Priority:
- Fairness for You - £4.9 million - 13%
- Your City - £21.7 million - 56%
- Your Council - £12.1 million - 31%
Examples of capital schemes by Council Priority
The following below shows planned capital spending by Council priority:
Parks and Open Spaces - £2.5 million
Harris Museum - £1.2 million
City Centre Investment Project - £4.5 million
City Deal Community Infrastructure Levy - £13.3 million
Winckley Square Townscape Heritage Initiative - £0.1 million
Regeneration (including Traffic Management) - £0.1 million
Fairness for you
Housing Schemes - £3.4 million - Including Disabled Facilities Grants, Renovation Grants and Empty Dwellings
Covid recovery and Climate Change - £0.5 million
Community Bank - £1 million
Fleet and Vehicle Replacement - £7.8 million
ICT Schemes - £0.9 million
Council Buildings - £3.4 million
Capital Programme - Financing the Capital Programme
The Council has estimated the following financing sources will be available to fund the capital investment programme:
- Disabled Facilities Grant £2.8 million
- Capital Receipts £0.9 million
- Revenue Funding £2.2 million
- Borrowing £17 million
- External Contributions £2.5 million
- Community Infrastructure Levy £13.3 million
The Capital Strategy
The full Capital Strategy is included at appendix I, the following provides a summary of the work undertaken by the Budget Working Group in formulating the Cabinet's capital budget proposals.
The Council's Budget Working Group have undertaken a review of the financing of the five year capital programme. The proposals are:
- To have a fully funded programme with no financing surplus to reduce the impact of borrowing costs within the revenue budget forecasts;
- Re-designate the Investment Strategy Scheme of £500k for the purpose of Covid Recovery and Climate Change.
- Removal of the Moor Park Avenue and Argyll Road Depot schemes due to the withdrawal of the Local Authority Accelerated Construction Housing programme (LAAC) funding offer from Homes England.
A review of the phasing of schemes was undertaken to produce a more accurate projection of expenditure and reduce the impact of financing costs within the 5 year programme.
A review of proposed new schemes was undertaken to examine the future requirements not only within the current five year programme but in the years beyond.
Budget Working Group has produced proposals for new schemes to be added to the current five year programme along with their financing proposals below.
Capital Programme Proposed Schemes
Budget Working Group has produced proposals for new schemes to be added to the current five year programme along with their financing proposals, these can be found in the information below.
Vehicle Replacement Programme additions 2024/2025
- 2024/25 - £495,000
- Total = £495,000
Core and Major Assets - Parks and Open Spaces
- 2020/21 - £60,000
- 2021/22 - £565,000
- 2022/23 - £40,000
- 2023/24 - £242,000
- 2024/25 - £0
- Total = £907,000
Core and Major Assets - Operational Buildings
- 2020/21 - £0
- 2021/22 - £447,000
- 2022/23 - £546,000
- 2023/24 - £354,000
- 2024/25 - £0
- Total = £1,347.000
Investment Property Refurbishment Programme
- 2024/25 - £30,000
- Total = £30,000
Riversway Managed Workshops
- 2020/21 - £0
- 2021/22 - £40,000
- Total = £40,000
Community Related Asset Infrastructure
- 2020/21 - £0
- 2021/22 - £120,000
- 2022/23 - £100,000
- 2023/24 - £100,000
- 2024/25 - £100,000
- Total = £420,000
Total New Schemes
- 2020/21 - £60,000
- 2021/22 - £1,172.000
- 2022/23 - £686,000
- 2023/24 - £696,000
- 2024/25 - £625,000
- Total = £3,239.000
Conclusions - Capital Programme
The Capital Programme has been updated to reflect the latest reported position.
Members should note that there is no surplus on the Capital Programme and this assumes £17m of prudential borrowing.
A strategic review of the Capital Programme including a review of the Council's investment assets and operational assets has been carried out.
The annual review takes into consideration; works identified from stock condition surveys (over a 10 year time frame), impact of savings proposals e.g. inclusion of capital receipts from potential sale of assets, and whether any of the Council's operational assets transferred etc. There has also been a full review of how the programme is financed to reduce the levels of prudential borrowing and utilise receipts and reserve balances to create savings in the revenue budget.
The Capital Programme includes a scheme for CIL payments to be made to Lancashire County Council as part of the City Deal, the scheme is financed by CIL payments from developers within the City Deal areas.
Treasury Management Strategy
Treasury management is the management of the Council's cash flows, borrowing and investments, and the associated risks.
The Council has borrowed and invested substantial sums of money and is therefore exposed to financial risks including the loss of invested funds and the revenue effect of changing interest rates.
The Treasury Management Strategy has been prepared in line with the Chartered Institute of Public Finance and Accountancy (CIPFA) Treasury Management Code of Practice.
This report sets out the proposed Treasury Management Strategy for 2021/22 to be approved, as required by CIPFA.
It includes the Council's borrowing and investment strategies, together with the treasury management prudential indicators which seek to ensure that the Council's borrowing levels remain both sustainable and affordable.
The Council's borrowing strategy continues to use internal resources (also known as internal borrowing) as a more cost effective approach in the short term.
The Treasury Management Strategy is fully set out within the appendices to this document.
The investment strategy (set out within the appendices of this document) is in line with statutory guidance that covers service investments (lending or buying shares in other organisations to support local public services) and commercial investments.
The Council does not hold any loans or shares in other organisations that provide a commercial investment return.
The Council invests in land and property within its boundary with the intention of facilitating economic development and regeneration.
The forecast includes a number of significant risk areas which are set out within the document.
Assumptions have been made on the long term impact of Covid-19 however this position will need to be closely monitored and the forecast updated accordingly when more information on the longer term impact is known.
The Final Local Government Finance Settlement has allocated funding for a one-year period only 2021/22 therefore it is difficult to forecast with any certainty future Government funding levels.
The Government have indicated there may be a multi-year settlement for 2022/23 onwards which would assist towards accurately forecasting future Government funding for the Council. Depending on the shift/outcome of these risks there could be a major movement on the financial forecast set out at Appendix E.
The current reported forecast sets out that ongoing savings of £600k from 2022/23 are required to be identified to ensure a balance budget over the life of the forecast.
The Budget Working Group will closely monitor the highlighted risk and will work towards formulating the next savings plan during 2021.
The Council has previously identified a contingency list of savings which can be called upon in the event that savings are urgently required. However, the Council would seek to implement further efficiencies through its' digital agenda and Investment Property Action Plan were possible first.
Members should be aware that the Council has ambitions for the City Centre and City Centre Assets, aiming for the ultimate achievement of regeneration and growth in the City. The impact of Covid-19 means that there will be a higher level of financial risk going forward and therefore it will be paramount that any major projects/spending areas are fully evaluated and have business cases, input from external expert advisors to ensure the Council is being prudent in its ambitious decisions.
The Council undertakes longer term financial planning when considering major schemes, business cases are prepared covering a long term period such as 30 to 40 years. The Council considers whether spend is affordable and how sensitive it is to changes both external and internal.
The Council has a 10 year vehicle replacement programme and a 10 year capital expenditure forecast and treasury plans are reviewed over the length of the remaining borrowing terms. The forecast is also reviewed for
sensitivities in underlying long term assumptions.
The ultimate aim for the Council is to work towards bridging the gap (shortfall between how much the Council spends and how much the Council receives in funding) over the long term to ensure long term sustainability for the Council and an ongoing balanced budget.
The Council currently has a significant level of non-earmarked reserves, however these are shown to reduce over the forecast to minimum recommended levels. The Council hold a number of earmarked reserves which may be used as a last resort to phase in future saving requirements.
The forecast includes a proposed 1.99% Council Tax increase in 2021/22 and thereafter. The capping rules allow for setting the Council Tax up to the 2% in 2021/22. If the Council set Council Tax above this % then it would be required to hold a referendum which would cost in excess of £110k.
The Council carefully considers and monitors the risks set out in this report and in the Corporate Risk Register.
Financial Assurance Statement
In setting the budget the Council must act in accordance with its statutory duties and set a balanced budget for the following financial year by the statutory deadline. As the Council's designated Finance Officer, I have a legal duty to report to Full Council in February 2021 on the robustness of the Council's budget and the adequacy of reserves.
I have considered the major items of expenditure and income and their sensitivity to change especially taking into consideration the impact of the Covid-19 Pandemic, Government funding, the Cabinet budget proposals and the level of reserves.
It is my opinion that the estimates have been prepared and reviewed utilising the most up to date and accurate information available and that all assumptions made are reasonable in the current unprecedented time during this global Pandemic.
I can confirm the recommendations contained in this report will provide the Council with a robust financial position in 2021/22. I am of the view that the Council is pursuing a sound financial strategy in the context of the challenging financial position. However there is still a significant level of uncertainty from the major risks, e.g. long term impact of Covid-19 on the economy, unknown levels of future Government funding.
The major development in the Harris Quarter, whilst assisting the Council with the ultimate aim of regeneration and growth in the City, brings with it a higher level of financial risk than ever before. In addition there are a number of contingent liabilities which, if they materialise will have a significant impact.
The Budget Working Group will be working to formulate the plans for identifying the £600k savings requirement during 2021 and will be monitoring the Covid-19 impact.