Appendix 6

Prudential indicators

1 Introduction

1.1 At its meeting on 24 November 2003, the Cabinet noted that the new prudential system for capital finance was to take effect from 1 April 2004 and approved a policy framework for the County Council. The new system is underpinned by a Prudential Code published by the Chartered Institute of Public Finance and Accountancy (CIPFA).

1.2 The Code provides a framework for local authority capital finance designed to ensure that:

· Capital programmes are affordable

· External borrowing and other long-term liabilities are within prudent and sustainable levels

· Treasury management decisions are taken in line with professional good practice.

1.3 At its meeting on 10 February 2006, the Cabinet recommended to the County Council a schedule of the prudential indicators prescribed by the Code. These were based on the revised and forward revenue budgets and capital programme submitted to the Cabinet.

1.4 This report summarises any changes to the approved indicators. In particular, it updates those previously based on the estimated position as at 31 March 2006 where actuals are now available, as required by the Code.

2 Prudential indicators

Actual and estimated capital expenditure

2.1 Actual capital expenditure incurred in 2004/05 and 2005/06, and estimated capital expenditure in the years to March 2009 are set out in the table below.

2004/05 Actual £m	2005/06 Estimate £m	2005/06 Actual £m	2006/07 Estimate £m	2007/08 Estimate £m	2008/09 Estimate £m
208.4	186.8	184.8	175.3	168.4	152.6

2.2 The actual capital expenditure in 2005/06 of £184.8m is £2m lower than the adjusted revised estimate of £186.8m. These estimates will be the subject of close monitoring during the year.

Capital financing requirement

2.3 The capital financing requirement represents capital expenditure other than that met directly from capital receipts, the revenue budget, capital grants or contributions. This can be financed from external borrowing or by borrowing from internal balances. The variation from year to year in the capital financing requirement represents the impact of new capital expenditure financed by borrowing offset by the provision made in the revenue budget and the use of capital receipts to repay debt. The actual capital financing requirements at 31 March 2005 and 2006 and adjusted estimates for 31 March 2007, 2008, and 2009 are set out in the table below.

At 31 March	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Supported borrowing:
County Council	435.0	458.4	487.2	510.7	534.6
Other bodies	51.5	46.8	44.7	42.7	40.8
	486.5	505.2	531.9	553.4	575.4
Unsupported borrowing	23.9	35.1	45.0	43.5	58.3
Total	510.4	540.3	576.9	596.9	633.7
Estimates approved in February	510.4	548.1	579.0	598.8	635.5

2.4 The changes to the estimates approved in February are relatively small over the period as a whole.

2.5 The unsupported borrowing included in the capital financing requirement relates to the following projects:

At 31 March	2005 Actual £m	2006 Estimate £m	2006 Actual £m	2007 Estimate £m	2008 Estimate £m	2009 Estimate £m
Local Govt Reorganisation	1.3	0.8	0.8	0.3	-	-
Local PSA	2.2	2.1	-	-	-	-
Nursing Care	19.1	19.2	19.2	18.5	17.7	17.0
Calshot	-	0.2	0.1	0.2	0.2	0.2
IT Services	-	-	-	0.6	0.6	0.6
Chiltern	-	1.7	1.7	-	-	-
Crestwood	-	1.1	2.1	2.8	-	-
John Hunt	1.1	1.1	1.7	10.1	-	-
Nightingale	0.2	0.7	0.8	-	-	-
Blackfield	-	0.1	-	0.9	-	-
North Popley	-	-	-	-	2.4	3.2
Waterside	-	-	0.2	0.9	-	-
Capital House	-	5.2	5.2	5.0	4.8	4.6
Ashburton C't	-	0.5	0.2	3.1	8.1	15.0
Kings Copse	-	-	0.6	1.8	4.1	4.1
Shamblehurst	-	-		0.1	0.5	0.6
Freegrounds	-	-		0.1	0.5	0.6
Dowd's Farm	-	-	0.6	0.6	0.6	0.5
Temporary in advance of general capital receipts	-	9.3	1.9	-	4.0	11.9
Total	23.9	42.0	35.1	45.0	43.5	58.3

Ratio of capital financing costs to net revenue stream

2.6 The ratio of financing costs to the net revenue stream shows the estimated annual revenue costs of borrowing (interest payable on debt plus the minimum revenue provision for repaying the principal less interest on balances) as a percentage of the amount in the draft revenue budget to be met from central government grant and by local taxpayers. Actual figures for 2004/05 and 2005/06 are set out in the table below, along with adjusted estimates for 2006/07, 2007/08 and 2008/09.

	2004/05 Actual £m	2005/06 Estimate £m	2005/06 Actual £m	2006/07 Estimate £m	2007/08 Estimate £m	2008/09 Estimate £m
Financing costs	29.4	37.4	33.9	43.2	46.5	48.2
Net revenue stream	1,052.3	1,107.4	1,107.4	568.4	592.7	617.0
Ratio	2.79%	3.38%	3.06%	7.60%	7.84%	7.81%

2.7 The ratio in 2005/06 is lower than the estimated 3.38% because of lower net financing costs due to higher interest on balances. The ratio in 2006/07 is very marginally lower than originally forecast as a result of the financing costs arising from lower unsupported borrowing in 2005/06.

Actual external debt

2.8 Actual external debt at 31 March 2006 was £405.8m. Total external borrowing rose by £25.4m during 2005/06. However, this was accompanied by a fall of £10.6m in the level of temporary investments. The reasons for the increase in external borrowing of £36.0m over the year are set out in paragraph 2 of Appendix 5 to this report. The operational boundary for 2005/06 was £450m and actual external debt did not exceed this level during the year.

Recommendation

1 That the Cabinet approve the updated prudential indicators set out in this report.

											Annex
Summary of Prudential Indicators					2004/05	2005/06	2005/06		2006/07	2007/08	2008/09
					Actual	Estimate	Actual		Estimate	Estimate	Estimate
Prudential indicators for capital expenditure
Capital expenditure				£m	208.4	186.4	184.8		175.3	168.4	152.6
Capital financing requirement				£m	510.4	548.1	540.3		576.9	596.9	633.7
Prudential indicators for affordability
Ratio of financing costs to net revenue stream *				%	2.79	3.38	3.06		7.60	7.84	7.81
Prudential indicators for external debt
Actual external debt				£m	380.4	n/a		405.8	n/a	n/a	n/a

* The net revenue stream is based on the County Council's budget requirement, which is substantially lower in 2006/07 and later years as a result of the introduction of specific grant funding for schools, thus causing this ratio to increase significantly from 2006/07. The 2006/07 estimate would have been 3.65% under the previous funding arrangements.