Capital Strategy 2024/25-2027/28

2.1. Capital expenditure is where the Council spends money on assets, such as property
or vehicles, that will be used for more than one year. In local government this includes
spending on assets owned by other bodies, and loans and grants to other bodies
enabling them to buy assets.

2.2. The Council’s capital programme is included as Annex 1 to the capital strategy, with
total planned capital expenditure in 2024/25 and the following two years is summarised
in the table below.

Table, Prudential Indicator: Estimates of Capital Expenditure in £ millions

n/a	2023/24	2024/25	2025/26	2026/27
Capital Expenditure	99	119	106	40

2.3. Service managers bid annually to include projects in the Council’s capital programme.
Bids are then appraised by the Capital Strategy and Asset Management Group
(CSAM) based on a comparison of service priorities against financing costs and makes
recommendations to Cabinet.

The final capital programme is then presented to Cabinet and to Council for approval. Capital projects with the most beneficial impact on the revenue budget will be prioritised.

2.5. All capital expenditure must be financed, either from external sources (government
grants and other contributions), the Council’s own resources (revenue, reserves and
capital receipts) or debt (borrowing, leasing and Private Finance Initiative).

The planned financing of the above expenditure is in the following table.

Table, Capital financing in £ millions

n/a	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027
Grants and contributions	68	43	0	0
Capital receipts applied	2	5	1	1
Reserves	0	0	0	0
Other revenue contributions	0	0	0	0
Debt	20	59	92	25
Minimum Revenue Provision (MRP)	11	12	13	14
Total	99	119	106	40

2.6. Debt is only a temporary source of finance, since loans and leases must be repaid,
and this is therefore replaced over time by other financing, usually from revenue which
is known as Minimum Revenue Provision (MRP).

2.7. Alternatively proceeds from selling capital assets (known as capital receipts) may be
used to replace debt finance.

When a capital asset is no longer needed, it may be sold so that the proceeds can be spent on new assets or to repay debt. The Council is currently also permitted to spend capital receipts “flexibly” on service transformation projects until 2025/26. Repayments of capital grants, loans and investments also generate capital receipts.

2.8. The Council’s cumulative outstanding amount of debt finance is measured by the
Capital Financing Requirement (CFR). This increases with new debt-financed capital
expenditure and reduces with MRP and capital receipts used to replace debt.

The Council’s estimated CFR is in the following table.

Table, Prudential Indicator: Estimates of Capital Financing Requirement in £ millions

n/a	31 march 2023 actual	31 March 2024 forecast	31 march 2025 budget	31 March 2026 budget	31 March 2027 budget
Capital Financing Requirement	367	388	482	543	567

 

3.1. Treasury management is concerned with keeping sufficient but not excessive cash
available to meet the Council’s spending needs, while managing the risks involved.
Surplus cash is invested until required, while a shortage of cash will be met by
borrowing, to avoid excessive credit balances or overdrafts in the bank current
account.

Borrowing strategy

3.2. The Council’s main objectives when borrowing is to achieve a low but certain cost of
finance while retaining flexibility should plans change in future.

These objectives are often conflicting, and the Council therefore seeks to strike a balance between cheaper short-term loans and long-term fixed rate loans where the future cost is known.

The Council does not borrow to invest for the primary purpose of financial return and
therefore retains full access to the Public Works Loans Board (PWLB).

3.3. Projected levels of the Council’s total outstanding debt which comprises borrowing,
Private Finance Initiative (PFI) liabilities and leases are shown below and compared
with the capital financing requirement

Table, Prudential Indicator: Gross Debt and the Capital Financing Requirement in £ millions

n/a	31-Mar 2023 Actual	31-Mar 2024 Forecast	31-Mar 2025 Budget	31-Mar 2026 Budget	31-Mar 2027 Budget
Capital Financing Requirement	367	388	482	543	567
External Debt (incl. PFI & leases (see below rows)	n/a	n/a	n/a	n/a	n/a
External borrowing	198	230	313	374	398
Other debt liabilities	21	20	19	18	17
Total Debt	219	250	332	392	415

3.4. Statutory guidance is that debt should remain below the capital financing requirement,
except in the short-term. The Council expects to comply with this in the medium term,
as shown in the table above.

Liability benchmark

3.5. To compare the Council’s actual borrowing against an alternative strategy, a “liability
benchmark” has been calculated showing the lowest risk level of borrowing. This
assumes that cash and investment balances are kept to a minimum level of £30m, with
any other balance sheet resources used to offset/reduce the need for external
borrowing. The table below shows that the Council expects borrowing to be above its
liability benchmark over the medium-term.

Table, Borrowing and the Liability Benchmark in £ millions

n/a	31-Mar 2023 Actual	31-Mar 2024 Forecast	31-Mar 2025 Budget	31-Mar 2026 Budget	31-Mar 2027 Budget
Forecast borrowing	198	230	313	374	398
Liability benchmark	113	148	253	325	360
Difference	85	82	60	49	38

3.6. The Council is legally obliged to set an affordable “authorised limit” for external debt
each year. In line with statutory guidance, a lower “operational boundary” is also set
as a warning level should debt approach the limit.

Table, Prudential Indicators: Authorised limit and operational boundary for external debt in £ millions

n/a	2023/24 Limit	2024/25 Limit	2025/26 Limit	2026/27 Limit
Authorised Limits (see rows below)	n/a	n/a	n/a	n/a
Borrowing	463	503	565	590
PFI and leases	38	29	28	27
Total External Debt	455	532	593	617
Operational Boundary (see rows below)	n/a	n/a	n/a	n/a
Borrowing	443	483	545	570
PFI and leases	33	24	23	22
Total External Debt	430	507	568	592

Treasury investment strategy

3.7. Treasury investments arise from receiving cash before it is paid out again.

The Council’s policy on treasury investments is to prioritise security and liquidity over yield,
that is to focus on minimising risk rather than maximising returns.

Cash that is likely to be spent in the near term is invested securely, for example with the government, other local authorities or selected high-quality banks, to minimise the risk of loss.

Money that will be held for longer terms is invested more widely, including in bonds, shares and property, to balance the risk of loss against the risk of receiving returns below inflation.

3.8. Both near-term and longer-term investments may be held in pooled funds, where an
external fund manager makes decisions on which particular investments to purchase,
and the Council may request its money back at short notice.

Table, Treasury management investments in £ millions

n/a	31-Mar 2023 Actual	31-Mar 2024 Forecast	31-Mar 2025 Budget	31-Mar 2026 Budget	31-Mar 2027 Budget
Cash and cash equivalents	41	37	30	29	28
Treasury investments	74	75	60	50	40
Total cash and investments	115	112	90	79	68

3.9. The effective management and control of risk are prime objectives of the Council’s
treasury management activities. The treasury management strategy therefore sets out
various indicators and limits to constrain the risk of unexpected losses.

3.10. Decisions on treasury management investment and borrowing are made daily and are
therefore delegated to the Section 151 Officer and staff, who must act in line with the
treasury management strategy approved by Council each year.

The Audit and Governance Committee is responsible for scrutinising treasury management
decisions, and regular reports on treasury management activity are presented to this
committee.

3.11. The Council’s Treasury Management Strategy, Appendix 4, includes further details of
the Council’s borrowing and treasury investments.

 

 

4.1. Although capital expenditure is not charged directly to the revenue budget, interest payable on loans and MRP are charged to revenue (gross financing costs), offset by any investment income receivable (net financing costs).

4.2. Estimated financing costs are summarised in the table below and shown as a proportion of the Council’s estimated net revenue stream (the amount funded from council tax, business rates and general non-specific government grants).

Table, Prudential Indicator: Proportion of financing costs to net revenue stream in 

n/a	2023/24 Forecast	2024/25Budget	2025/26Budget	2026/27Budget
Interest payable	£8m	£11m	£13m	£14m
Minimum revenue provision (MRP)	£11m	£12m	£13m	£14m
Gross financing costs	£19m	£22m	£26m	£28m
Proportion of net revenue streams	5.4%	5.9%	6.7%	7.2%
Less investment income	-6	-4	-4	-4
Net financing costs	£13m	£18m	£22m	£24m
Proportion of net revenue streams	3.8%	4.8%	5.7%	6.2%

4.4. Due to the very long-term nature of capital expenditure and financing, the revenue budget implications of expenditure incurred in the next few years may extend for many years into the future. The Section 151 Officer is satisfied that the proposed capital programme is prudent, affordable and sustainable.

This strategy was last reviewed in 2024. 

The next expected review date is 2025.