Contact: Jon Pittam, ext 7400, e-mail: [email protected]

1 Summary

1.1 The Cabinet at its meeting on 13 December 2004 asked executive members:

· to prepare proposals for a locally resourced four-year capital programme within the current programme limits, adjusted for inflation

· to submit, in addition, capital schemes supported by Government grants and supported borrowing allocations for 2005/06 and those expected to be supported in 2006/07, 2007/08 and 2008/09

· to submit proposals for the use of unsupported borrowing in accordance with the County Council's policy on prudential borrowing

· to submit proposals for possible private finance initiative (PFI) projects which might attract support from the Government.

1.2 This report explains the background to the proposed capital programme. It collates the service programmes prepared by executive members and shows that there are sufficient resources available to fund expected capital payments in the period from 2005/06 to 2008/09.

1.3 The report also confirms that the proposed programme complies with the requirements of the Prudential Code for Capital Finance in Local Authorities. The prudential indicators are included in Appendix 13 of the report on this Agenda on the Revenue Budget for 2005/06.

1.4 The other main points of the report are:

· the starts programmes proposed are in line with the guidelines set by Cabinet in December 2004, together with schemes supported by Government grant and borrowing allocations

· the total value of the programme over the four-year period is £517m.

2 Background to the guidelines for the capital programme

2.1 The existing capital programme, agreed by the County Council in February 2004, was reviewed by the Cabinet in July 2004 in the light of an increase in the forecast level of capital receipts. A number of major capital projects were added to the programme following the completion of feasibility studies.

2.2 The guidelines for the locally resourced programme agreed by Cabinet in December 2004 were based on the existing programme limits including the additional allocations in July 2004, plus an allowance for inflation.

2.3 `Locally resourced' schemes are those financed from the County Council's own resources such as capital receipts, contributions from the revenue budget, reserves and other funds. They do not include schemes supported by capital grant or borrowing allocations from the Government that are backed by revenue grants towards the resultant loan charges.

2.4 Some adjustments have been made to the guidelines agreed at the Cabinet meeting in December 2004 including proposals by executive members for transfers between capital and revenue:

· continuation in 2005/06 for a further year of the £3.678m addition made to Environment's structural maintenance provision in 2004/05 and originally in 2003/04 for one year only

· virement to revenue by Environment of £0.238m per annum from 2005/06 from the structural maintenance provision, in accordance with the special budgetary arrangements for winter highway maintenance

· continuation in 2005/06 of the one-off addition to schools' capital repairs in 2004/05, increasing the programme by £0.754m, to provide some flexibility in the capital programme. It will be funded from within the current level of revenue contributions to capital chargeable to the schools block

· revised phasing of the capital repairs programme to permit expenditure of £16m in 2004/05, £11.8m in 2005/06 and up to £19.9m in 2006/07, following a review by the Buildings, Land and Procurement Panel.

2.5 The adjusted guidelines for each service are shown in Table 1.

Table 1 - Guidelines for locally resourced capital programmes
2005/06 to 2008/09
	2005/06	2006/07	2007/08	2008/09
	£000	£000	£000	£000
Education	4,675	-	-	-
Environment	14,809	11,131	11,131	11,131
Policy and Resources	28,099	22,577	16,956	16,911
Recreation and Heritage	2,492	626	626	626
Social Services	1,135	760	760	760
	---------	---------	---------	---------
Total	51,210	35,094	29,473	29,428
	---------	---------	---------	---------

2.6 Executive members were asked by Cabinet in December 2004 to identify 1.25% cashable efficiency savings related to procurement. The targets for these savings include 1.25% of the locally resourced capital programme other than schools' capital repairs, but the Leader has decided not to implement this target for the revenue budget in 2005/06 primarily because of inflation pressures in the construction industry which means that net procurement savings are less likely.

3 The programmes submitted

3.1 The total starts value of the four-year programme submitted by executive members is £517m, as shown in Table 2. It includes £356m of schemes supported by Government funding.

Table 2 - Starts programmes submitted 2005/06 to 2008/09
	Land	Works, Fees, Furniture and Equipment			Total
		Locally resourced programmes	Schemes supported by Government approvals	Total
	£000	£000	£000	£000	£000
2005/06	2,471	57,513	115,992	173,505	175,976
2006/07	971	34,899	78,939	113,838	114,809
2007/08	971	29,278	80,397	109,675	110,646
2008/09	971	34,233	80,397	114,630	115,601
	--------	-----------	-----------	-----------	-----------
	5,384	155,923	355,725	511,648	517,032
	--------	-----------	-----------	-----------	-----------

3.2 The proposed programmes are in line with the guidelines set in December 2004. A reconciliation between the guidelines and the proposed programme is included in Appendix 1.

3.3 The payments flowing from these programmes and from the works currently in progress are summarised in Appendix 2, together with the resources available to finance those payments. The programmes themselves are set out in detail in the yellow pages in Appendix 3.

3.4 The following sections summarise the programmes prepared by executive members and highlight the issues arising.

4 Education

4.1 The proposed programme for Education of £197.5m over the next four years is supported primarily by the Government with capital grant and supported borrowing allocations, as Table 3 shows.

Table 3 - Education capital programme
	2005/06	2006/07	2007/08	2008/09	Total
	£000	£000	£000	£000	£000
Resources carried forward from 2004/05	6,792	-	-	-	6,792
Government's supported borrowing and capital grant allocations:
- new pupil places	3,766	4,378	4,445	4,445	17,034
- Schools Access Initiative schemes	2,119	2,143	2,143	2,143	8,548
- New Deal for Schools Modernisation	9,661	10,734	10,890	10,890	42,175
- allocations direct to schools	16,574	20,840	21,985	21,985	81,384
- targeted capital	8,545	-	-	-	8,545
Local resources:
- additions by Cabinet in July 2004	22,825	-	-	-	22,825
- guideline	4,675	-	-	-	4,675
- capital receipts	779	-	-	-	779
- prudential borrowing	2,857	-	-	-	2,857
- land for schemes in the programme	1,600	100	100	100	1,900
	---------	---------	----------	----------	---------
Total	80,193	38,195	39,563	39,563	197,514
	---------	---------	----------	----------	---------

4.2 The proposed programme includes schemes funded from resources of £6.792m from the 2004/05 starts programme which the executive member for Education wishes to defer to 2005/06. The schemes are listed in Table 4.

Table 4 - Education schemes to be deferred from 2004/05 to 2005/06
	£000
St Lawrence Primary School, Alton	787
Primary provision in Whiteley area, Fareham/Winchester	1,438
Crescent Primary School, Eastleigh	657
The Bridge Education Centre, Eastleigh	954
Secondary school Craft, Design and Technology improvements	500
14-19 Agenda	206
Sundridge School, Havant	750
	---------
Total schemes and resources to be carried forward	5,292
Unallocated capital receipts to be carried forward	1,500
	---------
Total to be carried forward to 2005/06	6,792
	---------

4.3 The Government's New Deal for Schools (NDS) allocations have been divided between modernisation works (included in the Education capital programme) and condition works (included in the Policy and Resources capital programme) using the 54%:46% split agreed by the executive members in July 2003. The condition allocations have been included in the Policy and Resources capital programme.

4.4 The Government's Building Schools for the Future (BSF) programme started in 2005/06, with the intention of replacing or substantially refurbishing all secondary schools in England over a ten to fifteen year period. Following a bid submitted in November 2003, the County Council has not been successful in receiving funding in the first three waves covering the period to 2007/08. The Department for Education and Skills has indicated it aims to include the County Council in the BSF programme by 2011. This could mean 2008/09, 2009/10 or 2010/11.

4.5 The County Council will continue to receive NDS Modernisation allocations in the meantime, although these have been top-sliced by about £10m per annum from 2005/06 to help pay for the BSF programme elsewhere in the country.

4.6 The Targeted Capital Fund allocations from the Government of £8.545m include the £5m for the reorganisation of special education in East Hampshire, originally allocated in 2003/04. This scheme was added to the capital programme by Cabinet in July 2004. The remaining £3.545m is an allocation from the Targeted Capital Fund for 2005/06 for the replacement of Sundridge Special School in Havant. The estimated cost of the scheme is £5.150m, with

the balance being met from the Education capital programme and the sale of surplus land adjoining Rachel Madocks Schools, as agreed by the executive member for Policy and Resources in July 2004.

4.7 The Government's support for overall capital investment in Education in Hampshire for 2005/06 exceeds £52m including the allocations for condition, as Table 5 on the following page shows. This is a little lower than the £55m allocated by the Government for 2004/05.

Table 5 - Government support for capital spending on Education
	2004/05	2005/06
	£000	£000
New pupil places	1,883	3,766
Schools Access Initiative	2,144	2,119
New Deal for Schools - modernisation	14,644	9,661
Allocations direct to schools	16,138	16,574
Seed Challenge	1,286	-
Targeted Capital Fund - East Hampshire SEN	-	5,000
- allocated by Government in 2003/04
Targeted Capital Fund - Sundridge Special	-	3,545
School travel plans	498	-
Specialist schools	748	-
Adult and community learning (DDA)	592	-
Youth service (DDA)	134	-
New Deal for Schools - condition	17,190	11,341
	---------	---------
Total	55,257	52,006
	---------	---------

4.8 The executive member for Education has proposed using unsupported borrowing in advance of capital receipts to progress two additional capital schemes. The first is the new Chiltern Primary School in Basingstoke which has been formed by the amalgamation of Worting infant and junior schools. A design project appraisal to adapt the junior school to provide the new primary school and nursery facility was agreed by the executive member for Education and the Buildings, Land and Procurement Panel in May 2004.

4.9 The scheme is being funded from the sale of the former Worting infant school site. The executive member for Policy and Resources approved the use of 100% of the anticipated capital receipt in November 2004. Enabling works are being funded from the Education capital programme, with the remaining cost of £1.850m met from the anticipated capital receipt and a contribution of £0.045m from the school. The works will be carried out in advance of the sale of the infants school site in 2006/07 and it is proposed that unsupported borrowing is used to finance the scheme in the meantime. The loan will be repaid from the capital receipt.

4.10 The second unsupported borrowing proposal is a project at Crestwood Community School in Eastleigh to provide a sports hall, changing rooms and associated facilities. This will be financed by a capital receipt from the sale of excess site area for housing developments and from school contributions. The total estimated cost is £3.588m, of which £0.395m has already been spent to provide a synthetic turf pitch, funded through the School Balances Loan scheme. The cost of the remaining work is £3.193m. The school is contributing £0.100m and £0.236m will be met from the Education capital programme. As the capital receipt will not be obtained until after the cost of the works has been incurred, it is proposed that unsupported borrowing of £2.857m is used, to be repaid from the anticipated capital receipt in 2006/07.

4.11 Notifications have been received from the Government of capital allocations of £0.1m each for eight schools which have been awarded specialist status. It is proposed that £0.8m is added to the Education capital programme for 2004/05 as a result of these allocations.

4.12 Cabinet agreed in December 2004 to rebuild Pinewood Infants School in Farnborough as a 90 place infant school, following the arson attack in March 2003. Provision has not yet been made in the proposed programme for 2005/06 to 2008/09 for the replacement scheme, pending confirmation of the capital contribution to be made from the County Council's fire reinstatement budget. It is likely that a contribution from the Education capital programme will be required. Proposals to amend the capital programme will be brought forward when the funding of the rebuilding scheme has been agreed.

4.13 The report to Cabinet a year ago on the current capital programme noted that there continued to be a funding shortfall within the overall Education capital programme. Schemes costing £7.1m had to be deferred to later years without the resources to fund them. This shortfall has now been reduced to £1.289m, largely through flexible management of Government allocations. Use of the School Balances Loan Scheme and unsupported borrowing against anticipated capital receipts has also helped to reduce the immediate pressures.

5 Environment

5.1 The Government's local transport plan (LTP) capital settlement for 2005/06 includes an allocation of supported borrowing of £27.456m for the County Council. This is a reduction of 12% compared with the equivalent figure for 2004/05 and reflects the 13% reduction in the amount available nationally for local transport. Allocations of £27.601m in 2006/07 and £28m in 2007/08 and 2008/09 have been assumed in constructing the capital programme.

5.2 The proposed provisions in the programme for Government supported expenditure on structural maintenance and integrated transport have been set at a level to make sure that the Government allocation for 2005/06 and the estimated allocations for later years are fully utilised. The provisions are summarised in Table 6. They reflect expenditure flows from previous years' programmes as well as preparation costs for major and other transport schemes which will be met from the LTP allocations.

Table 6 - Government supported LTP allocations for structural
maintenance and integrated transport
	Government support	Proposed programmes
	£000	£000
2004/05	32,179
	----------
2005/06	27,456	27,158
2006/07 - estimate	27,601	28,000
2007/08 - estimate	28,000	28,000
2008/09 - estimate	28,000	28,000
	----------	----------
Total 2005/06 to 2008/09	111,057	111,158
	----------	----------

5.3 In addition, the Government has allocated £6.6m of support in 2005/06 for the A3 Corridor Bus Priority scheme which started in 2003/04.

5.4 The executive member for Policy and Resources agreed in September 2004 that a number of capital schemes should be controlled on an `accrued expenditure' basis instead of the usual starts basis. These schemes are indicated by a # symbol in the detailed capital programme attached as Appendix 3. It is proposed that a further scheme, the LTP allocation for providing Safer Routes to Schools, should also be controlled on an accrued expenditure basis, with effect from 2004/05.

South Hampshire Rapid Transit (SHRT)

5.5 The Government is continuing to work with the County Council on revised proposals for the SHRT project. No decision on funding or a possible start date can be anticipated at present and so the scheme has not been included in the capital programme. If a suitable proposal is developed, the executive member for the Environment will report to Cabinet for approval, seeking the reintroduction of the scheme to the capital programme.

5.6 The proposed programme has been prepared on the basis that there will be no requirement for the LTP allocation to provide funding for the SHRT project. Should this prove not to be the case, the capital programme will be amended.

Other major transport schemes

5.7 Separate provision has not been made in the proposed four-year programme for any other major schemes. It is proposed instead that the Totton Town Centre scheme will be carried out in stages and funded from the Government's LTP allocations.

5.8 Preparatory work will continue on the Chickenhall Lane link road in Eastleigh, the Stubbington bypass and the Botley bypass. It is too early to determine when these schemes are likely to start on site and so they have not been included in the proposed four-year capital programme. In the meantime, preparatory costs will be funded from the LTP allocations.

Household waste recycling centres

5.9 Provision of £1m per annum has been included in the proposed capital programme to improve the County's household waste recycling centres, in line with the proposals agreed by Cabinet in July 2004. The increase from the existing provision of £0.3m per annum will be funded by Environment's share of capital receipts and by increased revenue contributions to capital matched by the revenue Waste Performance and Efficiency Grant from the Government. As the grant is dependent on performance, future years' programmes will be subject to revision if actual grant levels are insufficient to support the full increase in the programme to £1m per annum.

Environment locally resourced programme

5.10 The provision for locally resourced structural maintenance in 2005/06 includes an additional £3.678m above the guidelines set by Cabinet in December 2004. This continues the (one-off) increased funding in 2003/04 and 2004/05 which has enabled the County Council to address specific concerns about footways and rural carriageways identified from recent opinion polls. An additional 237 footways schemes and 53 carriageway schemes have been implemented. The additional investment has resulted in an improved rating for the local HAMP highways condition rating system, in line with the Cabinet priority for highways, whilst helping to prevent further deterioration of the highway and reducing the maintenance backlog, particularly on footways. The funding has also helped towards improving the accident reduction PSA by including sites in the maintenance programmes that have both accident-related as well as structural condition problems.

5.11 In accordance with the special budgetary arrangements for winter highway maintenance, £238,000 per annum has been transferred from the provision for structural maintenance of non-principal roads to cover the increase in the revenue budget based on the four-yearly average of winter maintenance expenditure.

5.12 If the revenue efficiency savings proposed by Environment are approved, the capital programme for structural maintenance will be reduced by £301,000 in 2005/06 and by £75,000 for 2006/07 onwards, matched by equivalent reductions in revenue contributions to capital.

5.13 Separate provision has been included in each year's programme for the Hampshire Villages Initiative to improve the environment in villages. This is in addition to the long-running programmes for the Regeneration of Older Urban Areas and Environment Improvements, which includes the Country Towns Initiative.

5.14 The locally resourced programme has been supplemented by Environment's 25% share of its capital receipts obtained in 2004/05. This £7,000 has been allocated as a contribution to private street works in 2005/06.

6 Policy and Resources

6.1 The allocation of the Policy and Resources capital programme between schemes is broadly similar to the existing programme. The main corporate priority continues to be the maintenance of the core buildings in the County Council's built estate, through the capital repairs programme.

6.2 Four adjustments have been made:

· £0.754m has been added to the 2005/06 programme for capital repairs in schools to continue the similar additional allocation made in 2004/05. Part of the current level of revenue contributions to capital chargeable to the schools block is allocated on a one-off basis each year, to provide some flexibility in the capital programme

· the phasing of the capital repairs programme has been revised to permit expenditure of £16m in 2004/05, £11.8m in 2005/06 and up to £19.9m in 2006/07, following a review by the Buildings, Land and Procurement Panel. Further consideration will be given later in 2005 to the profiling of capital repairs in 2006/07 and later years

· £45,000 has been included in the programme for 2007/08 for a contribution to replacement of Sherborne Village Hall

· schemes have been added to the programme for 2005/06 for investment by the County Council's business units for printing, catering, transport management and supplies. These schemes are estimated to cost £641,000 and will be financed from the business units' reserves.

6.3 The programme for 2005/06 also includes the £14m scheme to provide infrastructure for the County Council's development land at North Popley, which was added to the capital programme by Cabinet in July 2004. Part of the cost, £3.3m, will be funded by unsupported borrowing, to be repaid from capital receipts released by the development.

6.4 As outlined in paragraph 4.3, the Policy and Resources programme includes the Government-supported New Deal for Schools allocation to improve the condition of school buildings through capital repairs. The amounts are £14.0m in 2005/06, £12.3m in 2006/07, and £12.8m in 2007/08 and 2008/09. These provisions have also been re-phased following the Buildings, Land and Procurement Panel's review of capital repairs.

6.5 The programme for 2005/06 includes £0.15m for the fourth and final year of the Government's grant support for the capital cost of implementing electronic government.

6.6 Also included is the annual provision of £0.871m for advance and advantageous purchases of land.

6.7 Cabinet agreed in July 2004 that further feasibility work should be undertaken on the future of Ashburton Court, Winchester, funded from the existing provision in the capital programme for Advance Fees. A further report will be brought to Cabinet and Council to consider these feasibility studies and the business case, including costs and benefits, for any proposals for Ashburton Court and the sites adjacent to the Record Office.

6.8 The executive member for Policy and Resources will be asked on 17 February 2005 to approve the purchase of land at the Mount Hospital, Bishopstoke for £4.5m. This represents a partnership between the County Council and the Primary Care Trust to develop adjoining surplus land holdings. It is proposed that the initial 10% payment should be met from the provision in the 2004/05 programme for advance and advantageous land purchases. The balance of £4.05m of the purchase price plus holding costs of £0.4m would be funded from unsupported borrowing, to be repaid in due course from capital receipts from the development of the site. It is proposed that the scheme is added to the Policy and Resources capital programme for 2004/05.

7 Recreation and Heritage

7.1 The proposed programme for 2005/06 includes the £7.3m scheme for the Winchester Cultural Centre, for which provision was added the programme by Cabinet in July 2004. The revenue running costs of the Cultural Centre are shown in the detailed capital programme in Appendix 3 at £220,000 per annum. This will be subject to review and Recreation and Heritage will be required to find any actual increase in revenue costs as a result of the Cultural Centre from within the service's existing revenue budget. This can be included within the Efficiency Plan as an improvement achieved within existing resources.

7.2 The 2004/05 programme included increased allocations for countryside and rights of way improvements, as well as works to comply with Health and Safety legislation and the Disability Discrimination Act in Recreation and Heritage premises, community buildings and village halls. These increased levels of investment could not be maintained in 2005/06 and beyond from within the current capital guidelines. However, it is possible to support a bigger programme in 2005/06 from additional property disposals, subject to the approval of the executive member for Policy and Resources. Three properties have been identified with an estimated value of £600,000 and this amount has been added to the proposed programme for 2005/06.

8 Social Services

8.1 The locally resourced programme for Social Services in Appendix 3 is in line with the guidelines. However, Cabinet agreed in July 2004 to add £375,000 to the Social Services programme for 2005/06 to meet 50% of the cost of a replacement day centre for older people in the Hythe and Dibden area, on the basis that Social Services would make a matching contribution. Social Services have not been able to find this contribution from within their ongoing locally resourced guideline of £760,000 per annum. Instead, Social Services propose meeting the £375,000 from future capital receipts with, if necessary, the use of unsupported borrowing in the meantime.

8.2 Social Services already have other commitments to find resources to support previous capital programmes. The £7m programme to improve the County Council's residential homes for older people between 2000/01 to 2002/03 required Social Services to contribute £1.32m towards the cost. This was to be met from capital receipts from the sale of Social Services' property assets but this has yet to be achieved. In addition, there is a £1.7m shortfall of funding for the SWIFT social care IT system and other e-government development work. The executive member for Social Care has requested that unsupported borrowing be used to fund this shortfall of £1.7m pending future capital receipts. This would be in addition to the unsupported borrowing of £1.8m already approved for the SWIFT project from the PSA credit approval.

8.3 It is suggested that the executive member for Social Care be asked to report further on the proposed programme for 2005/06 to 2008/09 to consider the overall use of future capital receipts made available to Social Services to cover:

· £1.32m for the contribution towards the cost the improvements already made to residential homes for older people

· £0.375m for the replacement day centre for older people in the Hythe and Dibden area

· £1.7m for the shortfall on the SWIFT project.

8.4 As the sites that will be sold to meet these commitments have not been fully identified, it is suggested that the requests to use unsupported borrowing should be deferred as the Council's policy on the use of the Prudential Code requires specific identification of the surplus assets to be released to fund the unsupported borrowing in advance of the sale.

8.5 Schemes supported by Government grant to improve information management (£386,000 in both 2005/06 and 2006/07) and for IT to support integrated children's services (£230,000 in 2005/06) have been added to the programme.

Nursing care accommodation

8.6 Construction work is continuing on the £60m ENHANCE project to provide 500 new nursing beds to maintain capacity in the nursing home market. Funding of £40m has been provided by the Department of Health and the Strategic Health Authority. Cabinet agreed in February 2004 to fund the remaining £20m by using unsupported borrowing under the Prudential Code.

9 Private finance initiative (PFI)

9.1 No specific PFI schemes have been identified by executive members for the 2005/06 to 2008/09 programme. The revised proposals for the SHRT scheme could include a significant PFI element. There is also potential for funding some street lighting column replacement works under the PFI in 2005/06. Further consideration is being given to the opportunity for making a bid and the executive member for the Environment will report to Cabinet in due course if a PFI bid is proposed.

10 Unsupported borrowing

10.1 Cabinet agreed a framework at its meeting in November 2003 for the use of unsupported borrowing under the Prudential Code for Capital Finance introduced by the Local Government Act 2003. `Unsupported borrowing' does not attract Government revenue grants towards the loan charges. Instead, the loan repayments and interest charges have to be financed by the County Council from its own resources. Briefly, the framework included:

· borrowing for which loan charges are financed by virement from the executive member's revenue budget, including invest-to-save schemes that will generate revenue savings or additional revenue income

· `bridging' finance that will be repaid by eventual capital receipts, capital grants or contributions

· capital investment by business units

· limited borrowing for corporate priorities.

10.2 If the proposals in this report are agreed, the County Council's use of unsupported borrowing will increase as the following table shows.

# The executive member for Recreation and Heritage plans to use anticipated revenue underspendings in 2004/05 on outdoor centres to reduce the need for unsupported borrowing for the Calshot Activities Centre scheme. The extent of this reduction will be determined when the final accounts for 2004/05 are considered in June 2005.

10.3 Unsupported borrowing at the level set out in Table 7, together with the County Council's Government-supported borrowing, complies with the requirements of the Prudential Code for Capital Finance in Local Authorities. The prudential indicators by which compliance is in part judged are included in Appendix 13 of the report on this Agenda on the Revenue Budget for 2005/06.

10.4 The repayment and interest costs of the unsupported borrowing will be financed as follows:

11 Further review

11.1 In recent years, the capital programme has been the subject of a mid-year review in June or July, in conjunction with the annual review of the County Council's overall capital strategy. Whilst a full review of the programme may not be required in July 2005, it will be necessary to link proposals in the Efficiency Plan to the capital programme. That could include:

· reviewing the business case for developing land at Manydown and Bordon/Whitehill

· developing a firm plan to use the capital receipts flowing from the North Popley development

· reviewing the business case and setting cash limits for the re-development of Ashburton Court and the sites adjacent to the Record Office including, if appropriate, a Corporate Contact Centre.

12 Payments and resources - summary

12.1 Table 9 shows the capital payments flowing from the proposed capital programme, compared with the financing resources available.

Table 9 - Capital payments and resources
	2004/05	2005/06	2006/07	2007/08	2008/09
	£000	£000	£000	£000	£000
Payments	203,126	191,565	163,083	126,954	121,208
Resources	203,126	187,751	154,094	126,954	120,256
To be met from the capital
reserve	-	3,814	8,989	-	952
	----------	----------	-----------	-----------	----------
Resources to be identified	-	-	-	-	-
	----------	----------	-----------	-----------	----------

12.2 Resources are forecast to be sufficient to cover the estimated level of capital payments throughout the period, with the use of the balance available in the capital reserve particularly in 2005/06 and 2006/07.

12.3 Payments and resources will continue to be closely monitored during the remainder of 2004/05 and in 2005/06. Regular reports on the progress of the capital programme will continue to be brought to the Leader and Cabinet and these will indicate if any action is required to restrain payments to the level of resources estimated to be available. Executive members will also review progress on their capital programmes at regular intervals during the year.

12.4 Appendix 2 also includes details of the longer term implications of the proposed programmes for the revenue budget from increased running costs and capital charges. Details of the impact on the County Council's debt outstanding are also included.

13 Recommendations

13.1 The recommendations are included in the decision sheet summary which precedes this main report.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

Letters from Government departments on the capital allocations for 2005/06 and subsequent years.

i:\ . . . . \ian\docs\cap-cab-11feb2005a.doc 03 February 2005

Appendix 1

Capital Programmes 2005/06 to 2008/09 Proposed by Executive Members

1 Summary of the proposed programmes

1.1 The proposed four-year programme of £517m complies with the guidelines set by the Cabinet in December 2004, as the table below shows:

1.2 The starts value of schemes supported by Government grant and supported borrowing approvals, £332m, represents 64% of the four-year. This is 10% less than the proportion supported by the Government in the existing capital programme approved in February 2004. The Government's contribution of 64% illustrates the extent of its support for investment by local authorities but it also highlights the scope for the Government to influence the County Council's priorities.

1.3 The Environment capital programme for 2005/06 also includes a number of local transport schemes supported wholly or in part by developers, totalling £7.7m. The individual schemes are identified in the Environment capital programme in Appendix 3.

Appendix 2

Capital Payments and Financing Resources 2004/05 to 2008/09

1 Capital payments

1.1 The level of capital payments is one of the factors taken into account in determining the size of the capital starts programme, together with forecasts of financing resources.

1.2 Payments in 2004/05 and the following four years will result from works in progress (schemes started in 2004/05 and earlier years) plus those arising from the proposed programme for 2005/06 to 2008/09, as the table below shows.

1.3 In practice, payments in the years after 2005/06 may be higher than suggested by the table if more funding allocations are announced by the Government. Further developer contributions and lottery grants are also likely to be received in the future which will result in additional payments.

1 Resources available for capital financing

1.1 The sources of finance to support the capital programme are:

· Government support for borrowing, known as `Supported Capital Expenditure (Revenue)' or SCE(R), can be either:

- un-ringfenced SCE(R), which is allocated by the Government within its single capital pot and which can be used for any capital purpose. It is the equivalent of the previous system's `basic credit approvals' (BCA), or

- ringfenced SCE(R), which has to be used for specified schemes or programmes. This is the equivalent of `supplementary credit approvals' (SCA).

Since the introduction of the Prudential Capital Code in April 2004, the allocations are no longer permissions to borrow. Instead they are notifications that the Government will provide revenue support grant (RSG) to meet the principal repayment and interest charges on loans that the County Council raises, up to the value of the allocations

· unsupported borrowing - loans that the County Council may decide to raise in the knowledge that it will have to meet the principal repayment and interest charges from its own resources without any additional support from the Government. The County Council would need to consider the impact of such loans on the prudential indicators referred to in paragraph 10.3 of this report

· Government capital grants, now known by the Government as Supported Capital Expenditure (Capital) or SCE(C)

· contributions from other bodies, including the health service, other local authorities, developers and the national lottery

· capital receipts from the sale of land, buildings and other assets

· contributions from the revenue budget.

1.2 The following table shows the latest estimate of the resources available to finance capital payments.

1.3 In total, the Government's support for the 2005/06 starts programme announced so far in the form of borrowing allocations and capital grant is £84m. This is lower than the level reached in 2004/05 (£104m) in part because of the reduced allocations for New Deal for Schools modernisation and condition works and the lower LTP allocation for transport.

1.4 The general capital receipts available for funding the capital programme are estimated to be £12.0m in 2004/05 and £9.5m in 2005/06, in line with the assumptions reported to Cabinet in July 2004. The planning assumptions for future years are based on £6.45m per annum. The estimates of in/out capital receipts match the payments on such schemes included in the payment forecasts.

1.5 Contributions from the revenue budget to fund capital payments will be £30.7m in 2004/05 and £30.9m in 2005/06. These contributions support capital repairs of buildings (£11.8m in 2005/06), highway structural maintenance (£13.0m) and other capital schemes in the locally resourced capital programme (£6.1m). The revenue contributions from 2005/06 to 2008/09 are supplemented by the redeployment of the savings of £8.7m achieved from SAP Benefit Realisation which will enable the capital resources used to fund the investment in SAP to be repaid.

1.6 Overall, the resources available to the County Council are expected to be sufficient to meet the payments forecast over the period of the capital programme.

1.7 The following table summarises the changes in the balance on the capital reserve over the period of the proposed capital programme.

2 Revenue Implications

2.1 The revenue implications of the new starts programme are shown in the following table.

2.2 The running costs for 2005/06 include £220,000 for the Winchester Cultural Centre which will be subject to review as outlined in paragraph 7.1 of the main report. Recreation and Heritage will be required to find any actual increase in revenue costs from within the service's existing revenue budget.

2.3 The capital charges represent a 3.5% return on capital employed (4.95% on infrastructure and community assets) with, for most schemes, depreciation over the estimated life of the asset. They do not affect the County Council's overall expenditure as the charges to services will be counter-balanced by a corresponding credit to the centrally managed asset account.

2.4 However, the actual revenue expenditure of the County Council will be increased by the capital financing costs on the loans raised to finance the programme. The full year revenue impact of the additional borrowing over the four-year programme will be £14.4m. Apart from the use of unsupported borrowing, these costs will be reflected in the County Council's `formula spending share' for revenue expenditure and will attract revenue support grant from the Government broadly equivalent to the costs.

3 Debt outstanding

3.1 The following table shows the debt to be financed by the County Council, including the new borrowings necessary to finance the proposed four year programme.

3.2 The upward trend in debt outstanding reflects the County Council's policy of using in full all the supported borrowing allocations made available by the Government. Since the requirement to use part of all capital receipts to repay debt was abolished by the Government in September 1998, the only repayments of debt are those from the revenue account at the statutory minimum of 4% of the debt outstanding, together with repayment over seven years of debt relating to the transitional costs of the local government reorganisation in 1997. However, as explained in paragraph 3.4 of this Appendix, new capital financing charges from Government supported borrowing attract revenue support grant broadly equivalent to the costs. The impact on the council tax should be neutral as a result. So even though the County Council's debt will increase by 41% over the period, borrowing at these levels should fall within the limits of the Government's prudential regime for local authority borrowing.