The Council considered a report on the Council’s capital and investment strategy, including the capital programme new bids plus the requirements of the Prudential Code and the investment strategy covering treasury management investments, commercial investments, the Treasury Management Code, and the Ministry of Housing, Communities and Local Government (MHCLG) Statutory Guidance.
The strategy was intended to give an overview of how capital expenditure, capital financing and treasury management activity contributed to the provision of services along with an overview of how associated risk was managed and the implications for future financial sustainability.
In relation to the capital programme, the Council had a current underlying need to borrow for the general fund capital programme of £360 million, including bids put forward by officers, with a net cost to the Council of £47.8 million.
Whilst some capital receipts or revenue streams may arise as a result of investment schemes, in most cases this was currently uncertain and too early to make assumptions. Some information had been included in the capital vision highlighting the potential income. It was likely that there were cash-flow implications of the development schemes, where income would come in after the five-year time horizon and the expenditure would be incurred earlier in the programme.
All projects would be funded by general fund capital receipts, grants and contributions, reserves and finally borrowing. It was not currently known how each scheme would be funded and, in the case of development projects, what the delivery model would be. To ensure the Council demonstrated that its capital expenditure plans were affordable, sustainable and prudent, Prudential Indicators had been set that must be monitored each year. These were set out in Appendix 1 to the report submitted to the Council.
The capital programme included several significant regeneration schemes, on the assumption that they would be financed from General Fund resources. However, subject to detailed design of the schemes, there could be scope to fund them from HRA resources rather than General Fund resources in due course. Detailed funding proposals for each scheme would be considered when the Outline Business Case for each scheme was presented to the Executive for approval.
Details of the main areas of expenditure in the capital programme were set out in the report.
The report included a summary of the new bids submitted, the position and profiling of the current capital programme (2019-20 to 2023-24) and the capital vision schemes.
The Corporate Management Team, the Lead Councillor for Finance and Assets, Customer Service, the Joint Executive Advisory Board Budget Task Group, the Joint EAB, and the Executive had all reviewed the bids presented in the report.
The report had also included the Council’s Minimum Revenue Provision policy and the Prudential Indicators.
In relation to Treasury management, the Council noted that officers carried out the treasury management function within the parameters set by the Council each year and in accordance with the approved treasury management practices.
The budget for investment income in 2020-21 was £1.684 million, based on an average investment portfolio of £79.8 million, at an average rate of 2.18%. The budget for debt interest paid was £5.656 million, of which £5.06 million related to the HRA.
In relation to non-financial investments and investment strategy, the Council noted that local authorities could invest to support public services by lending to or buying shares in other organisations (service investments) or to earn investment income (commercial investments where this was the main purpose). The Council had £161.244 million of investment property on its balance sheet, generating a return of £9 million and a current yield of 6.3%.
The criteria for purchasing investment property, when originally approved were to achieve a minimum qualitative score and yield an internal rate of return (IRR) of at least 8%. It was now recommended that the IRR be changed to 5.5% due to the change in the market forces and recognition of the move to investing for strategic purposes, for example economic growth and housing and regeneration.
The Council had invested £12.251 million in its housing company – North Downs Housing (NDH), via 40% equity to Guildford Borough Council Holdings Limited (£4.903 million) (who in turn passed the equity to NDH) and 60% loan direct to NDH (£7.348 million) at a rate of base plus 5% (currently 5.75%). The loan was a repayment loan in line with the NDH business plan.
The Capital and Investment Strategy 2019-20 to 2023-24 had also been considered by the Joint Executive Advisory Board at its meeting on 9 January 2020, by the Corporate Governance and Standards Committee at its meeting on 15 January 2020, and by the Executive on 21 January 2020.
Upon the motion of the Lead Councillor for Finance and Assets, Customer Service, Councillor Joss Bigmore, seconded by the Leader of the Council, Councillor Caroline Reeves, the Council
(1) That the General Fund capital estimates, as shown in
(a) The updated and revised Appendices 3 and 4 to the report submitted to the Council (current approved and provisional schemes), as amended to include the new bids approved by the Executive on 21 January 2020 set out in Appendix 2;
(b) Appendix 5 (schemes funded from reserves); and
(c) Appendix 6 (s106 schemes),
(2) That the Minimum Revenue Provision policy, referred to in section 5 of the report be approved.
(3) That the capital and investment strategy be approved, specifically the Investment Strategy and Prudential Indicators contained within the report and Appendix 1.
· To enable the Council to approve the Capital and Investment strategy for 2020-21 to 2024-25.
· To enable the Council, at its budget meeting on 5 February 2020, to approve the funding required for the new capital investment proposals.