Agenda item

Purpose: To outline the Capital Strategy covering financial years 2025/26 -2034/35 and the supporting funding framework, providing a high-level overview of how capital expenditure, capital financing and treasury management activity contribute to the provision of local public services along with an overview of how associated risk is managed and the implications for future financial sustainability.

Decisions made on capital and treasury management have financial consequences for the Council for many years into the future. Decisions are therefore subject to both a national regulatory framework and to local policy framework.

Councillor Iain Cottingham (Executive Portfolio Holder: Finance and Resources) introduced the Capital Strategy for Financial Years 2025/26 to 2034/35 (Agenda Item 8).

The following points were raised in the debate:

·       It was noted that drainage and flood risk projects would be 100% funded by external sources. Members asked if the council should allocate its own funds to demonstrate its commitment to flood prevention. It was explained that funding came from Environment Agency grants and that the relevant service director would have requested additional funds if necessary. It was noted that the Section 19 report had not yet been published. It was hoped that future reports could be published more quickly so they could inform the following year’s capital programme.

·       Members queried the breakdown of external funding. It was explained that £28M out of £37M of external funding was from grants.

·       A question was asked around why the Council wanted to develop a solar farm rather than lease the land to a commercial operator, which would have lower level of risk for the Council. It was explained that the Council had a goal to achieve net zero emissions by 2030. The solar farm would offset around 40% of the Council’s emissions. If the land was leased to a commercial operator, then it would not contribute to that goal. Also, leasing the land would result in the Council losing the feed-in tariff and carbon credits. It was an invest-to-save project. Members felt that more wording around carbon credits would be useful.

·       Members noted an inconsistency in that the Council was divesting its commercial property portfolio to reduce risk, but at the same time developing a solar farm, which would have its own inherent risks. It was explained that in addition to the contribution towards achievement of net zero, the solar farm would generate £100K of net income. It was accepted that there was an element of risk in terms of electricity prices, but the Council wanted to retain control of the project. Also, it was the right thing to do. Rather than being a commercial buy-to-let landlord with projects across the country, the Council was investing in a local project to help provide cheaper electricity for residents of West Berkshire. Members challenged the sale of the commercial property portfolio, noting that it generated £1M of clear profit, which could have been spent locally.

·       It was confirmed that the solar farm would be a 30 year project, with a 10 year payback period.

·       Members asked if there was a risk that the government may not allow emergency support funding to be spent on non-statutory projects. It was explained that the Council was not in danger of not being able to pay its suppliers or staff, and in terms of capital expenditure, it was operating within its borrowing requirements. However, it had to deliver a balanced revenue budget, so it was asking the government for a short-term loan to get it through a period where it had more revenue expenditure than revenue income. The impact on the revenue account of borrowing to fund the solar farm was not significant (around about £2M to £3M pounds of extra revenue expenditure). It was also noted that the solar farm would deliver a net return, so it made financial sense to proceed. A further point was made about the need for infrastructure investment and maintenance of existing assets.

·       It was noted that the emergency financial support from the government could be paid straight into reserves and could support the revenue budget, whereas council borrowing could not.

·       There was some discussion about the fact that the Council would break its own best practice rule whereby annual capital financing costs was forecast to exceed 10% of the net revenue. It was noted that this would not happen for three to four years, and it would be more concerning if this was predicted to happen next year or the year after. It was highlighted that there were a number of uncertainties affecting financial planning. Also, the rule would only be breached due to borrowing to fund the High Needs Block.

·       Further detail was requested around plans to increase SEND capacity. Members were advised that the SEND service would be best placed to provide this.

·       Members recognised that the Council was in a difficult position and stressed the need to do more with less funding. It was highlighted that the Council had a good record of delivering substantial savings year-on-year, and much had been done to drive down unit costs without impacting services.

·       A question was asked about whether minor capital works promised to schools that were in difficulty over the special needs clawback had been included in the Capital Programme. It was confirmed that provision had been made for around a dozen schools.

·       Members queried the line in the capital programme for Care Director. It was explained that although implementation of Care Director v6 had been unsuccessful, the Council had incurred costs relating to that project.

·       Members noted the line in the capital programme for nutrient neutrality and asked if this would be funded by developers, or if the Council was creating projects that developers could purchase. It was confirmed that this was a new area, and the rules were yet to be defined, but there may be an opportunity for the Council to sell carbon credits.

RESOLVED to note the report.