Meeting documents

Cabinet
Tuesday, 18 April 2006

CA180406-06

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ITEM CA6

CABINET - 18 APRIL 2006

CAPITAL PROGRAMME 2006/07 – 2010/11

Report by Director for Resources

Background

  1. The Council approved a Capital Programme covering the period 2006/07 to 2008/09 at its meeting on 14 February 2006, subject to further report on the utilisation of surplus identified in the programme. The Capital Steering Group was asked to consider further projects for inclusion within the Programme and report back to the Cabinet. This report covers the recommendations from the Capital Steering Group.

  2. In addition, the Cabinet on 7 February 2006 requested a report back on the implications of the Council continuing to maximise its borrowing allocations in light of the removal of Government funding of Oxfordshire’s supported borrowing under the changed revenue support grant arrangements. This report also responds to that request.

    3. Recommendations from Capital Steering Group

  3. The approved a Capital Programme agreed by Council on 14 February 2006 showed available resources of £3.310m up to 2008/09 to fund new projects. The Capital Steering Group has considered the outstanding capital needs identified in the Asset Management Plan and Capital Strategy agreed by Council, and other capital issues, and makes the following recommendations to the Cabinet for projects to be added to the Programme.

  4. Time to Change Project: The investment required to implement Phase II of the Time to Change project in Social & Community Services is £1.2m. The investment will produce revenue budget efficiency savings of £0.333m in 2007/08 rising to £0.998m in 2008/09.

  5. Maltfield House: The refurbishment of Maltfield House Children’s Home (costing £0.227m) is required to enable the transfer of children from Holme Leigh. This will facilitate the sale of Holme Leigh, the capital receipt from which is included within the current estimated funding for the approved Capital Programme.

  6. Yarnton House: The project for Yarnton House (£0.150m) currently in the programme is no longer required as the accommodation needs will be dealt with as part of the Review of Property Assets. The overall cost to the programme is therefore £0.077m.

  7. Watlington Library: The library premises, including the first floor flat, are held by the County Council under a charitable trust. The Council is required to make appropriate use of the assets of the trust and to use all of the capital receipts and income from the assets for the purpose of the trust. The first floor flat has been unoccupied for some time and does not have access other than through the library. The library does not meet current standards.

  8. A preferred developer has been selected with the intention that the premises be refurbished to provide an improved library with the costs funded from the increased value of the first floor flat. Although Watlington Library is not one of the highest priorities for improvement, if a small contribution is available in order to secure a viable scheme then it should secure good value for the Council and ensure that the terms of the charitable trust are met.

  9. Bicester Library: An opportunity has occurred in Bicester to provide a new enlarged library in a building to be provided in the town centre redevelopment which is being promoted by Cherwell District Council. This would give a new library in a good position in Bicester and allow the sale of the existing library. The proposal would also relocate office accommodation within the new development.

  10. Discussions are continuing with the District Council. There will be a report to the County/District bilateral meeting on 7 April when it is hoped that the basis of an agreement will be reached. That is likely to require a contribution of capital funding from the County Council. The overall costs of building and fitting out the library element are estimated at £2.4m, offset by capital receipts from the sale of the current library and office accommodation and developer funding. The net cost is estimated at approximately £820,000. An update will be given at the Cabinet meeting.

  11. There will be increased running costs of the library which are currently being assessed. It is anticipated that increased staffing costs, if required, will be met within the existing service budget. There will be service charges on the building, plus additional utilities and rates costs which will be a budget pressure.

  12. Highways Depots: A list of proposals totalling £2.5m were considered as a strategy to deal with health and safety and environmental regulations at the Highways Depots. The three most urgent projects have been proposed for inclusion in the programme at a total cost of £0.210m. These are to relocate fuel storage at Deddington (£0.070m); to improve drainage and containment at Deddington (£0.080); and to improve drainage at Drayton (£0.060m).

    13. Summary

  13. The proposals come to a net total of £2.307m, which leaves an unallocated balance on the programme of £1.003m. This will provide a contingency for any future urgent projects which arise up to 2008/09.

    14. City Schools – Repayment to DfES

  14. The Council has received a reply from the DfES on our request to retain all or part of the additional capital receipts obtained from sale of surplus sites from the City School Reorganisation project. Hitherto it has been assumed that a payment of £8.8m would need to be made to the DfES. The DfES proposal reduces that figure to £5.55m. An update will be given at the Cabinet meeting.

    15. Implications of Continuing to Maximise Borrowing Allocations

  15. The table below sets out the Council’s budgeted costs of borrowing from 2005/06 to 2008/09, which show how the trend of borrowing costs increases as the Council takes up the full supported borrowing allocations given by government departments. The costs of prudential (unsupported) borrowing are stripped out within the table.
    Borrowing Costs
    2005/06
    2006/07
    2007/08
    2008/09
     
    £000
    £000
    £000
    £000
    Principal Repayment
    11,989
    13,718
    14,901
    15,761
    Interest
    16,963
    18,204
    19,462
    20,505
     
    28,952
    31,922
    34,363
    36,266
    Less Prudential Borrowing Costs
    -48
    -256
    -623
    -974
    Year on Year Increase
    +2,714
    +2,074
    +1,552
    Cumulative Increase
    +2,714
    +4,788
    +6,34

  16. From the table it can be seen that the Council’s borrowing costs will increase by £6.340m during the period 2006/07 to 2008/09. Part of this increase will reflect the full year costs of borrowing undertaken in 2005/06. In the first year of borrowing only a half year’s interest is budgeted.

    17. Comparison with Government Support

  17. The total Formula Grant to be paid to the Council in 2006/07 is £91.433m. This represents 27.47% of the budget requirement of £332.873m. In 2007/08 the Formula Grant will be £92.261m, which represents 26.79% of the budget requirement of £344.329m. The build up of the Council’s Formula Grant for 2006/07 and 2007/08 is as follows:
     
    2006/07
    2007/08
     
    £m
    £m
    Grant for Previous Year
    88.144
    91.433
    Function Changes
    1.408
    -1.598
    Amending Report
    0.089
              
    Base Grant
    1.793
    Plus 2%
               
    2.426
    Plus 2.7%
    91.433
    92.261

  18. This support based on a four block model is shown below:
     
    2006/07
    2007/08
     
    £m
    £m
    Relative Needs
    69.777
    72.103
    Relative Resources
    -62.277
    -64.07
    Fixed amount per head
    76.265
    77.461
    Damping
    7.669
    6.775
     
    91.433
    92.261

  19. The support for the costs of borrowing are included within the Relative Needs Formula (RNF). As the Council takes more supported borrowing the element for capital financing within the RNF increases, thus in theory providing more grant support. However, as the Council’s Formula Grant share is below the minimum level guaranteed by the Government, the Council receives damping grant to make up the difference. As our borrowing costs increase our relative needs increase and the damping grant reduces. So whilst the Council is in the damping grant mechanism our additional borrowing costs attract no extra grant, effectively falling on the Council Tax.

  20. The total inflation included in the Medium Term Financial Plan for 2007/08 is around £8.4m. This is some £6m more than the increase in Formula Grant. So no additional grant is received towards the increased borrowing costs shown in the table in paragraph 17. This is why the Cabinet should therefore give consideration as to whether the Council should utilise the full amount of supported borrowing available.

    21. Impacts of Reducing the Amount of Supporting Borrowing

  21. There are several impacts of reducing the amount of supported borrowing taken, notably:

    • The Council will not be able to deliver service improvement through new capital projects and will put at risk improvements to Best Value Performance Indicators that have an impact on CPA ratings (road conditions for example).

    • It may prejudice the level of supported borrowing approved by Government in future years. An example would be Transport Funding for the Local Transport Plan where financial penalties and rewards are already in operation in relation to performance against targets and programmes – not spending the awarded money would carry a high risk of penalty and a spiral of reduction in available finance.

    • The reduced cost of borrowing will bring savings to the Medium Term Financial Plan, thus allowing headroom for improving services in other areas.

    • The Relative Needs of the Council will reduce, with a compensating increase in the damping grant. There should be no change in the level of Formula Grant received.

    • It will take the Council longer to work its way out of the damping mechanism as our Relative Needs Formula increases more slowly. Thus we may lose the benefit of increased grant in future years by still being caught in the damping mechanism.

  1. As an example of the savings that could be made by reducing the amount of supported borrowing taken up by the Council, taking £10m less supported borrowing would save the Council £250k in the first year and £900k in a full year.

  2. Council could decide to continue its existing policy of maximising the use of supported borrowing, accepting the revenue funding implications. If however the Council wished to reduce the amount of supported borrowing taken up, the Capital Programme would have to be reduced by an equivalent amount, and the Council would need to consider which areas of the Programme to reduce. This could be either schools, transport or other services, or a combination of those areas. It is suggested that the Cabinet should consider this issue as part of the budget planning for 2007/08, and this issue will therefore be included in a report to Cabinet in September 2006.

  3. The new system for allocating support to local authorities is extremely complex. The Lyons inquiry is currently looking at alternative options for funding local authorities and this could lead to significant future changes to funding.

    4. RECOMMENDATIONS

  4. The Cabinet is RECOMMENDED to:

          1. endorse the additions to the Capital Programme 2006/07 to 2008/09 shown in paragraphs 4 to 13 of the report, and RECOMMEND these to Council for approval;

          2. consider the implications of continuing to maximise borrowing allocations with a view to possible variation of the Council’s policy in this regard, as part of the budget planning process for 2007/08.

JOHN JACKSON
Director for Resources

Background Papers: Nil

Contact Officer: Mike Petty, Strategic Finance Manager Tel: 01865 815622

April 2006

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