Appendix 9

2003/04 Capital spending and financing

1. Capital expenditure

1.1 Table 1 below summarises the extent to which the 2003/04 capital programme has been started and the carry forward implications for 2004/05.

Table 1: 2003/04 Capital programme

1.2 Annex 1 provides an analysis of the programme over services.

2. Carry forward of schemes not started by 31 March 2004

2.1 The principle of carrying forward capital schemes which were planned to start by 31 March 2004, but for various reasons, will not start until the 2004/05 financial year, was agreed by the Leader in April 2004. Annex 2 of this report now provides details of those schemes carried forward in accordance with that decision.

2.2 The total value of schemes to be carried forward for a start in 2004/05 is £29.3m. This includes £3.7m of Education schemes and £0.2m of Recreation and Heritage schemes which have approved for carry forward to 2004/05 during the course of the year.

2.3 Including the deferred Education and Recreation and Heritage schemes, 88.2% of the 2003/04 programme has been started in 2003/04, as Table 2 below shows. This is an improvement on the figure from last year (2002/03) which was 79.1% and is the highest achieved in recent years, even though the programme is at record levels. In particular, the fact that Environment have no carry forward schemes from 2003/04 has contributed to the improvement. Though a number of Environment projects were deferred to 2004/05 during the year, new projects were introduced and started during the year to compensate. The steps taken during 2001 to improve the delivery of the programme have been successful. As Table 3 of this report shows, actual capital payments in 2003/04 are close to the level estimated earlier in the year and this also supports the view that delivery of the capital programme is progressing in line with expectations. The development of new procurement methods and Framework Arrangements with contractors have increased significantly the Director of Property, Business and Regulatory Services' capacity to progress work. Similarly, the further extensive use of professional consultants has led to increased momentum. Regrettably, recent attempts to recruit directly additional staff in most of the building professions have been unsuccessful. Further measures are being considered given the ongoing scale of the programme.

Table 2: percentage of capital programme started

Reasons for schemes not starting by 31 March 2004

2.4 Annex 2 includes the reasons for not starting each scheme during the year. Some are dependent upon specific negotiations and arrangements being made with third parties.

2.5 The largest projects not started by 31 March 2004 were:

2.6 The total value of these ten large schemes is £15.02m which represents 61.6% of the total value of schemes for which approval to carry forward is now sought. The remaining £9.36m is made up of 74 smaller schemes and an unallocated provision. All the schemes are listed in the Annex 2.

2.7 The schemes listed in Annex 2 can be carried forward to 2004/05 subject to the latest estimated costs of the schemes being accommodated within the overall starts limits for 2004/05.

3. Capital payments and financing 2003/04

3.1 Total capital payments for the 2003/04 starts programme and from schemes in earlier years are £153m. This is £6.4m less than the adjusted revised budget. Adjusted for creditors, capital expenditure for the year was £155.7m

3.2 The proposed method of financing these payments is set out below:

Table 3: capital financing

3.3 Lower than estimated total payments (-£6.4m) combined with the ability to use additional borrowing approvals (+£3.0m) and additional Government grant (+£0.2m) albeit with lower external contributions (-£2.3m) results in a lower than estimated balance to be funded from local resources (-£7.3m). Actual capital receipts were higher than estimated (+£1m), and use of specific reserves was lower than planned (-£1m). Therefore, as the level of payments to be funded by revenue contributions is £7.3m lower than estimated, the planned transfer of £3.3m from the capital reserve is not required, and £4.0m of the planned revenue contributions in 2003/04 can be transferred to the capital reserve to fund payments in future years.

3.4 Government grants of £34.5m were principally for education (£32.3m). Contributions of £10.9m included £4.6m from developers, £1.2m from other local authorities and £5.1m from other sources, mainly from the NHS towards nursing care.

4. Borrowing

4.1 2003/04 is the final year of borrowing approvals granted by the Government as a means of exercising control over the level of capital spending by setting limits on the amount local authorities may borrow. To date, maximum borrowing is determined by the total credit approvals from the Government adjusted by transfers to and from other authorities. In 2002/03 Portsmouth City Council lent the County Council £4m of credit approval and the Hampshire Fire and Rescue Authority lent £1.9m of credit approval to the County Council. These amounts have been returned in 2003/04, reducing the level of basic credit approval available in 2003/04 to £37.1m. In addition, £16.1m of supplementary credit approvals are available in 2003/04.

4.2 Government departments have until 30 September 2004 to issue some of their approvals for 2003/04 and so it is possible that the approvals still to be received will differ from the estimates in this report. Where there are differences, borrowings will be adjusted and offset by changes to revenue contributions.

4.3 From 1 April 2004, local authorities will be able to determine their own levels of borrowing in accordance with the Prudential Code for Capital Finance.

5. Capital receipts

5.1 Annex 3 contains an analysis of capital receipts obtained in 2003/04. Services can retain 25% of capital receipts from the sale of their assets with up to 100% for approved in/out schemes. Receipts from development account or county farm sales are retained for corporate use. In accordance with this policy, services' share of the 2003/04 capital receipts now due to be allocated amounts to £140,000 as set out in Table 5 of Annex 4.