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ITEM CA5

CABINET - 7 FEBRUARY 2006

CAPITAL PROGRAMME 2006/07 TO 2008/09

Report by Head of Finance & Procurement

1. This report updates and rolls forward the Capital Programme for the period 2006/07 to 2008/09, taking in the additions identified at the Cabinet’s meeting on 17 January. The programme is required to be approved by Council on 14 February alongside the revenue budget. The draft updated programme is in a separate booklet, published together with the agenda. (This is expected to be further amended for distribution with the Council agenda by 3 February; the present draft is therefore circulated to Cabinet Members only, but copies are in the Members’ Resource Centre and are available for public inspection.)
   
   (Capital Programme 2005/06 - 2008/09 - download as .xls file)
   
2. Some details of the capital settlements from Government departments were reported to Cabinet on 20 December 2005. Since then further changes have been notified:

• Education The DfES have announced that the capital allocations for 2006/07 and 2007/08 for schools will be delivered as part capital grant and part supported capital expenditure. The Council will also receive capital grants for Surestart of £4.697m in 2006/07 and £4.385m in 2007/08. Devolved formula capital allocations have been amended to reflect updated pupil numbers.
• Transport It is anticipated that a further £0.65m of supported capital expenditure in 2006/07 for transport will be announced shortly. This is expected to be for expenditure on detrunked roads. The programme has been adjusted accordingly. The Transport settlement has given figures for five years to 2010/11.

3. The full details of the announcements are shown in Annex 1.

Available Capital Finance

4. The capital programme for 2005/06 to 2009/10 is analysed below:

	2005/06	2006/07	2007/08	2008/09	2009/10
	£m	£m	£m	£m	£m
Spending
Children, Young People & Families	40.8	68.9	56.2	6.2
Social & Community Services	5.1	7.1	1.3
Environment & Economy	38.0	38.7	25.9	28.7	23.9
Community Safety	0.6	0.4	0.2
Corporate Governance	3.1	6.1	5.3	5.4	5.0
Property Client Fees	0.6	0.6	0.6	0.6
Repayment to DfES		8.8
HOPS Switch	2.1	2.9
Other	0.1		0.1
Total Spending	90.4	133.5	89.6	40.9	28.9

 

Funded by
Borrowing	54.6	45.5	35.4	22.7	21
Grant & Contributions	38	50.3	34.9	17.3	7.9
Capital Receipts	12.2	15.1	7	0.8
Revenue	2.4	0.8
Capital Reserve	3.5
Capital Receipts Unapplied	16.1
Total Funding	126.8	111.7	77.3	40.8	28.9
Surplus/Deficit ( - )	36.4	-21.8	-12.3	-0.1	0.0
Cumulative Surplus	36.4	14.6	2.3	2.2	2.2

5. The Capital Programme shows a surplus of £36.4m in 2005/06 reducing to £2.2m by the end of 2008/09 as capital resources are used up over the period of the programme. £2.2m therefore represents the uncommitted resources currently available to allocate.
6. The surplus in 2005/06 has increased, mainly as a result of slippage on the capital programme and the deferral of the repayment to the DfES of £8.8m until 2006/07. There is no loss of available resources as a result of this change.
7. We are still awaiting a response from the DfES confirming the amount of the repayment arising from surplus receipts on the City Schools reorganisation project.
8. The Service and Financial Planning Report to Cabinet on 17 January indicated that there was likely to be a capital programme surplus of £0.8m by the end of 2008/09. The increase to £2.2m is explained in the following paragraphs.
9. As part of the capital settlement the government announced that capital funding for Mental Health Services previously provided as capital grant will now be provided as supported borrowing approval. This accounts for £0.2m per year for 2006/07 to 2008/09, £0.6m in total.
10. An additional capital receipt of £0.3m is anticipated from the sale of a surplus highways depot. There are significant pressures for capital works at some of the Council’s depots. These will be considered against the available capital resources, along with all the other capital spending pressures, by the Capital Steering Group at their next meeting in March. Recommendations will then come forward to the Cabinet.
11. The report to Cabinet on 17 January identified revenue budget pressures which are proposed to be met from the capital programme. At that point it was anticipated that £2.245m would fall on the schools capital programme and £0.307m on the other services. Further work has identified that the charges will now be £2.429m on the schools programme and £0.123m to other services. The impact of this level of charge to the schools programme is currently being worked on and will be reported to the Cabinet once this has been reviewed.
12. The Council needs to reserve part of the surplus (£0.4m) for commitments made against previous capital receipts, leaving £1.8m unallocated (£2.2m-£0.4m).

Impact of Provisional Local Government Finance Settlement

13. Following the announcement of the Provisional Local Government Finance Settlement on 5 December, Oxfordshire County Council is a "floor" authority, as is every County Council in the South East. This means that the Council has received temporary protection from formula changes that would otherwise have reduced our level of Revenue Support Grant even further. It appears that one of the results of being a "floor authority" is that what is termed "supported borrowing" will not be supported through Revenue Support Grant for as long as the Council is at "floor". This means that repayment costs will be a charge to the council taxpayer and not supported by central government grant. Given the size of our capital programme in schools and transport, the Council needs to reassess the implications of continuing to maximise its borrowing allocations to enable Cabinet to determine whether they should be taken up wholly, partly or not at all in later years. While it is appreciated that this will have severe implications for the County’s infrastructure needs, the revenue costs of unsupported borrowings could have a serious impact on future levels of council tax.
14. Officers will report further on this issue to a future meeting of the Cabinet.

Budget Proposals 2006/07

15. The Cabinet is proposing as part of the Council’s revenue budget for 2006/07 that a one-off contribution be made to the capital programme for "non-schools and transport", to be allocated by the Cabinet to the highest priority capital projects awaiting funding, having taken advice from the Capital Steering Group and the Director for Resources.
16. It is recommended that the Capital Steering Group be asked to consider this additional resource in the context of the unallocated resources of £2.2m identified in paragraph 5, subject to leaving a residual balance available for any future urgent capital projects that come forward during the period 2006/07 to 2008/09, and to bring a prioritised list of capital bids back to Cabinet in due course for approval and further recommendation to Council.

Prudential Borrowing

17. A sum of £0.250m has been added to the capital programme for 2006/07 for Energy Conservation measures to be funded by Prudential Borrowing in line with the decisions in principle of the Executive in April 2005. The borrowing costs will be recovered by contributions from establishments benefiting from the work.

Capital Receipts

18. The capital receipts available to fund the capital programme have been updated as part of the programme review. Included within the proposed receipts is a sum of £0.9m required to fund Time to Change in 2006/07. As yet no capital receipt has been identified to fund the costs.

External Cash Managers

19. Interviews have taken place with prospective organisations to manage a part of the Council’s cash balances as indicated in the Treasury Management Strategy agreed by Cabinet on 17 January for presentation to the Council for approval. It has been decided to appoint Scottish Widows Investment Partnership and Investec Asset Management to each manage, initially, £10m on behalf of the Council.
20. The benchmarks for the individual managers have still to be agreed. One manager will be asked to adopt a more aggressive benchmark than the other. The intention will be for the external managers to outperform the returns achieved by the in-house investment over a three-year period.

Borrowing Strategy 2005/06

21. The Council agreed the Borrowing Strategy for 2005/06 at its meeting in February 2005. We have now taken almost all the approved borrowing for 2005/06. However we now want to review that position as from 7 December 2005 the Public Works Loan Board have extended the maximum period for which local authorities can borrow from 30 years to 50 years.
22. This resulted from the Government issuing 50-year gilts in September. Pension funds have been buying these gilts, heavily forcing down yields. The 50-year PWLB rate was announced on 7 December at 4.2%. This has now fallen to 3.7%. It is proposed that advantage should be taken of the current very low borrowing rates by taking part of our borrowing for 2006/07 in 2005/06, to a maximum of £10m. Council will need to agree this change as it falls outside the approved borrowing strategy for the current year.

Conclusion

23. The capital programme is in surplus at the end of 2008/09 by £2.2m. A further sum has been identified in the Cabinet’s budget proposals for 2006/07. This further allocation is available to fund the Council’s highest capital priorities. It is recommended that the Capital Steering Group consider the Council’s capital investment needs to achieve strategic priorities and recommend to the Cabinet how these needs should be addressed given the available funding.

RECOMMENDATIONS

24. The Cabinet is RECOMMENDED to:

(a) approve the updated capital programme for submission to the Council for approval subject to:

(1) addition of the revenue contribution for non-schools and transport capital expenditure when finally ascertained;

(2) the Capital Steering Group being asked to make recommendations to a future meeting of the Cabinet as to which highest priority capital projects should be recommended to Council for inclusion in the capital programme in line with the available resources;

(b) recommend the Council to agree to the use of forward borrowing for 2006/07 in 2005/06 up to a maximum of £10m;

(c) ask officers to report back to Cabinet on the implications of continuing to maximise its borrowing allocations in the light of the removal of supported borrowing under the changed revenue support grant arrangements.

SUE SCANE
Head of Finance & Procurement

Background papers: Nil

Contact Officer:
Mike Petty, Strategic Financial Manager (Capital & Treasury) Tel 01865 815622

January 2006

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