Agenda item

Purpose: The financial performance report provided to Members on a quarterly basis reports on the under or over spends against the Council’s approved capital budget.  This report presents the Quarter One financial position.

The Commission considered a report (Agenda Item 11) concerning the Capital Report for Quarter One 2022/23..

Joseph Holmes (Executive Director – Resources) introduced the report. Key points from the presentation were as follows:

·         The forecast was for a small capital underspend.

·         There would be some reprofiling of spend in future financial years.

·         Officers expected to deliver most of the capital programme, but there were some issues with rising costs – and there would be long-term cost pressures due to significant inflationary rises across a range of construction materials.

·         It was expected that there would be increased volatility in the capital programme showing by Q3 and Q4.

·         Cost increases were expected to show up more in the long-term programme for the next 5 to 10 years, which was due to go to Full Council in March 2023.

Members asked if capital projects would be delayed as a result of inflation and increased borrowing costs. Officers indicated that the Capital Strategy was continually reviewed to see how best to balance out the costs of capital financing and inflation. It was considered likely that there would be reprofiling shown in the report to Full Council in March 2023, which would take account of the Council’s supply chain and inflationary pressures. While the previous strategy had been to borrow over the longer term, it was expected that the Council may undertake shorter-term borrowing as it started to pay off greater levels of debt over the next 5-10 years. This created opportunities to make savings on the revenue budgets, since shorter-term borrowing was a bit cheaper. It was noted that much depended on macro-economic factors, including borrowing rates and other investors, such as the UK Infrastructure Bank.

Members expressed concern that current contracts may be reduced in scope due to the impacts of construction inflation. While it was accepted that this would deliver capital savings, it would have implications for future revenue budgets. For example, reduced specification on road surfacing would mean that the repairs would not last so long. Members asked about the scope for moving revenue savings from future years into renegotiating capital costs for the current year. Officers confirmed that they were always looking for opportunities to generate revenue savings through the capital programme. There were examples of such schemes in the report related to Adult Social Care and care homes. It was explained that many of the schemes in the current capital programme had already been procured, which was why there was not an immediate inflationary pressure in many cases. However, there would be greater impacts on future schemes, which would either require additional borrowing, grant funding or changes to project scopes.

Members noted that around £3 million was due to be spent on renewable energy provision. However, the Revenue Report had indicated that income from solar had been disappointing. It was confirmed that over the shorter-term there had been less income from solar projects, since fewer projects had been delivered than expected. A budget adjustment would be made for 20223/24 to allow the Council to catch up and deliver more schemes, which would generate more income.

Councillor Ross Mackinnon was invited to comment as Portfolio Holder for Finance and Economic Development. He confirmed that ‘invest to save’ schemes and schemes that generated income would not be priorities for reprofiling.