Agenda item

Consideration was given to a report of the Director of Finance which set out the Capital Strategy for 2021/22 to 2025/26 and thereby the proposed 2021/22 capital programme, including identified capital investment priorities, together with the indicative capital programme for 2022/23 to 2025/26, having regard to the resources available over the life of the programme.

 

The Director of Finance introduced the report.

 

The Council’s Capital Strategy and capital programme were set over a five-year timeframe. The proposed Capital Strategy and programme for 2021/22 to 2025/26 took the essential elements of the 2020/25 and previous years’ strategies and programmes and moved them forward in the context of the financial and political environment for 2021/22.

 

The Strategy included a longer-term vision, a forward look at those projects

that were likely to run beyond the five-year strategy and programme period or be initiated subsequently. This covered a timeframe for the 10 years from 2026/27 to 2035/36.

 

The format of the Capital Strategy reflected the latest Prudential and Treasury

Management Codes issued by the Chartered Institute of Public Finance and Accountancy (CIPFA). The strategy therefore presented:

•      A high-level long-term overview of how capital expenditure, capital financing and treasury management activity contribute to the provision of services

•      An overview of how the associated risk is managed

•      The implications for future financial sustainability

 

The Capital Strategy was presented at Appendix 1. It was prepared in 15 sections and ensured that all Council Members were presented with the overall long-term capital investment policy objectives and resulting Capital Strategy requirements, governance procedures and risk appetite.

 

The Strategy incorporated the refreshed and updated elements of the Creating a Better Place Strategy, the Medium-Term Property Strategy and Housing Strategy. Following a review of the Capital Programme, as a result of the unprecedented economic circumstances due to the impact of the COVID-19 pandemic and the revised terms for PWLB borrowing, the principles established to complement the Capital Strategy as contained in the Commercial Property Investment Strategy and Fund and the Income

Generation Strategy had been removed from the Capital Programme.

 

The Capital Strategy section (section 1) highlightedthe impact of COVID-19 and the way this had shaped capital spending plans for 2021/22 and future years. During 2020/21, the COVID-19 pandemic had a major impact on the borough, its residents and the economy. The financial year 2021/22 would begin, at least, with a COVID-19 influence, however, it was expected, now that several vaccines were available, that normal activities would be resumed and the Councils capital spending plans which had inevitably been interrupted in 2020/21, could get back on track during 2021.

The pandemic had presented significant challenges for the feasibility, design and delivery of capital projects. As well as practical issues associated with maintaining safe working arrangements, supply chains and similar issues, it had been necessary to revisit significant elements of the strategy to ensure the priorities for capital investment remained appropriate in the context not only of the Council’s challenging financial position but having regard to the potential longer-term impact of pandemic on the economy and the potential for behavioural changes in work and transport needs as well as retail and leisure pursuits.

 

In preparing the Capital Strategy for 2021/22, it was important to consider the publication by HM Treasury in March 2020 of a consultation document seeking views on proposed changes to the lending terms of the Public Works Loan Board (PWLB). The Government launched the consultation as it was concerned that PWLB resources were being used to fund commercial investments solely for income generation purposes and carried a significant degree of risk.

 

Alongside the 2020 Spending Review in November 2020, the Government largely confirmed the proposals set out in the original consultation meaning there would be stricter conditions associated with the approval of PWLB loans to Local Authorities. The PWLB would now no longer provide loans to a Local Authority if their Capital Strategies included any plans to buy investment assets primarily for income generation. These new terms applied to all loans arranged on or after 26 November 2020. This Capital Strategy had been prepared to ensure that the Council was able to access PWLB funds despite the significant change to the lending criteria.

 

The National Infrastructure Strategy (NIS) published alongside the Chancellor’s 2020 Spending Review contained a range of Government capital spending announcements. The announcements contained little specific detail, and in some cases represented initiatives previously announced, however the NIS set out a considerable investment intention focussed on:

•      Boosting growth and productivity across the whole of the UK;

•      Driving recovery and rebuilding the economy;

•      Levelling up between regional areas and strengthening the Union;

•      Putting the UK on the path to meeting its net zero emissions target by 2050 by decarbonising the economy and adapting to climate change;

•      Supporting private investment in infrastructure; and

•      Accelerating and improving the delivery of infrastructure projects.

 

The Council would aim to access the maximum level of NIS resources to support projects in Oldham and the wider Greater Manchester region, working with the Greater Manchester Combined Authority (GMCA)and other GM Authorities as necessary.

 

Annex C of Appendix 1 set out the proposed capital expenditure and financing for the period covered by the Capital Strategy, 2021/22 to 2025/26.

 

The Strategy also advised that the Council was proposing to continue the use the flexibility provided by the Ministry of Housing, Communities and Local Government (MHCLG) to use capital receipts to fund the revenue cost of transformation. The 2021/22 revenue budget would rely on up to £2.000m of such funding from capital receipts. Annex D set out the required Flexible Use of Capital Receipts Strategy which advised of the summary of planned receipts, use and savings.

 

Capital Programme 2020/21 to 2024/25

 

The 2020/21 month 8 capital monitoring position included projections which were a key determinant of the 2021/22 programme. As many schemes spanned more than one year, the anticipated level of reprofiling between

years set the underlying position.

 

The projected outturn spending position for 2020/21 was £81.013m. The People and Place Directorate which managed all of the major regeneration projects, constituted the main area of expenditure. Grants and Other Contributions (£20.150m) followed by Prudential Borrowing provided the main source of financing (£53.553m).

 

Actual expenditure to 30 November 2020 was £50.566m (62.24% of forecast outturn). This spending profile was in line with that in previous years, however the position would be kept under review and budgets would continue to be managed in accordance with forecasts.

 

Capital Programme 2021/22 to 2025/26

 

The Council had set out its capital programme for the period 2021/22 to 2025/26 based on the principles of the Capital Strategy. The Capital Programme and Capital Strategy had been influenced by the level of resources considered available. The level of prudential borrowing included reflected the financing available in the revenue budget, capital receipts aligned with forecasts and grant funding and other contributions were based

on already notified allocations or best estimates at time of preparation. If additional resources became available, projects that met the Council’s strategic capital objectives would be brought forward for approval.

 

Due to the impact of the COVID-19 pandemic on a number of schemes, over the summer months the capital programme for 2020/21 was significantly re-phased. On 24 August 2020, Cabinet approved a revised vision and strategic framework for ‘Creating a Better Place’ which had associated with it a significant level of investment. The revised vision placed more emphasis on economic recovery and accelerating the potential for generating revenue budget savings. The report was the culmination of a fundamental review of the programme which commenced in April 2020 close to the start of the

pandemic. Following the review and in anticipation of the PWLB consultation outcome the Creating a Better Place Strategy was reduced by approximately £90.000m.

 

As at the month 8 capital monitoring position, the anticipated expenditure over the five year life of the 2020/21 to 2024/25 strategy was £404.630m, taking 2020/21 aside (£81.013m) left £323.617m for the remainder of the approved 2021/22-2024/25 capital programme. Following the refresh of existing strategies including Creating a Better Place, and moving forward the planning period by one year, the Capital Strategy for 2021/22 to 2025/26 totalled £340.289m.

 

The capital programme included proposed expenditure for 2021/22 of £84.099m, with the largest area of expenditure being on regeneration, schools, transport and infrastructure projects within People and Place Directorate. Total expenditure increased to £94.765m in 2022/23, then decreased to £71.418m, £62.553m and £27.454m in 2023/24, 2024/25

and 2025/26 respectively.

 

Resources Available to Support the Capital Programme

 

The Government was continuing to provide significant levels of grant funding. The main sources of grant income were the Highway Maintenance Grant at £12.204m, along with Education-related Basic Need Capital grant provision of £10.677m over the life of the programme. There were also considerable resources allocated to the Council via the GMCA including the Mayors Cycling and Walking Challenge Fund (£11.273m in 2021/22).

 

The grant funding provided by Government could be split into two categories: un-ringfenced and ringfenced resources, as explained in Section 10 of the Capital Strategy. The majority of capital Government Grant funding was un-ringfenced. Resources classified as ringfenced had to be utilised to finance particular categories of expenditure and therefore were restricted in their use. The 2021/22 capital programme relied on £11.793m of unringfenced and £21.973m of ringfenced grants.

 

As in previous years, a major source of financing remained prudential borrowing. The amount required in 2021/22 (£42.871m) included borrowing attributed to schemes that had slipped from prior years as well as new borrowing associated with the regeneration programme. The timing of the borrowing was linked to the cash position of the Council and might therefore not mirror the spending/financing profile.

 

On-going Review of the Capital Programme

 

Members noted there would be a continued review of capital spending requirements as the Council had further regeneration ambitions, but affordability and deliverability would be a key consideration in this regard. It was, however, possible that the capital position may change prior to the start of 2021/22 and during the year as:

 

•      There may be further Government funding allocations announced prior to the start of 2021/22 including those related to the Towns Fund.

•      The outcome of specific grant bids would be announced during 2021/22.

•      It was also likely that there would be new initiatives announced later in the financial year.

•      There may also be the opportunity to bid for additional funding.

•      The Council may identify other funding sources, including capital receipts, to finance additional capital expenditure.

 

Therefore, the overall capital programme position would be kept under review and any new information regarding funding allocations would be presented to Members in future reports.

 

RESOLVED that the following be accepted and recommended to Cabinet:

1.    The Capital Strategy for 2021/22 to 2025/26 at Appendix 1 of the report and summarised at section 2.1.

2.    The capital programme for 2021/22 and indicative programmes for 2022/23 to 2025/26 at Annex C of Appendix 1 and summarised at sections 2.2 to 2.6 of the report.

3.    The Flexible Use of Capital Receipts Strategy as presented at Annex D of Appendix 1.