Contact: Jon Pittam, (01962) 847400, e-mail: [email protected]

1 Summary

1.1 The Cabinet at its meeting on 18 December 2006 confirmed the guidelines for the capital programme previously agreed in September 2006. Executive members were asked to submit proposals for:

· a locally resourced capital programme for the four-year period from 2007/08 to 2010/11 within the guidelines of the current programme, adjusted for inflation

· a programme of schemes supported by Government grants and scheme- or programme-specific supported borrowing allocations for 2007/08 and those expected to be supported in 2008/09, 2009/10 and 2010/11, subject to limits restricting the take-up of Government supported borrowing allocations

· the use of unsupported borrowing in accordance with the County Council's policy on prudential borrowing.

1.2 This report explains the background to the proposed capital programme. It collates the service programmes prepared by executive members and shows that, by 2011/12, the programme will be fully funded if the forecast levels of resources are obtained. It will be necessary to borrow temporarily in 2006/07 and in 2008/09 and 2009/10 to smooth out the timing of those resources.

1.3 The proposed programme complies with the requirements of the Prudential Code for Capital Finance in Local Authorities. The prudential indicators are included in Appendix 12 of the report on this Agenda on the Revenue Budget 2007/08 and Medium Term Financial Plan 2008/09 and 2009/10.

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 2006, together with schemes supported by Government grant and borrowing allocations, although the executive member for the Environment has proposed a local transport programme that requires additional external resources of £4.4m to be identified between 2008/09 and 2010/11

· unsupported borrowing will be required to finance school building schemes in advance of capital receipts and developers contributions, in addition to the temporary borrowing necessary to balance the cashflow of capital expenditure and resources. For the County Council in total, loans outstanding for unsupported borrowing will peak at £68.3m in 2008/09. The bridging loans included in this total are forecast to be fully repaid by 2012/13

· capital receipts continue to be a major source of finance for the capital programme. In particular, the financing plan depends on over £60m being obtained in 2007/08 to finance expenditure in the year and to repay some of the unsupported borrowing

· the total value of the programme over the four-year period is £515m.

2 Expenditure and resources cashflow - summary

2.1 Table 1 shows the annual capital expenditure flows from the proposed capital programme, compared with the financing resources available.

2.2 Table 1 shows that capital expenditure will exceed resources by £4.864m at the end of 2006/07. It is proposed that this shortfall is met by temporary borrowing, adding to the £1.861m of temporary borrowing to meet a similar shortfall in 2005/06 agreed by Cabinet in June 2006 when the final accounts for 2005/06 were considered. These amounts are expected to be repaid in 2007/08 if the forecast level of capital receipts is obtained.

2.3 Further temporary borrowing will be required in 2008/09 (£8.825m) and 2009/10 (£1.469m). This is forecast to be repaid in 2010/11 and 2011/12.

2.4 This represents an improvement in the funding position for the capital programme compared with the position reported in February 2006 when the programme was forecast to move into surplus in 2012/13 with a balance in the Capital Reserve at the end of that year of £1.6m. This improvement is primarily a result of a £4m increase in the level of capital receipts available to fund the capital programme over the period.

2.5 Temporary borrowing to smooth out the cashflow profiles of capital expenditure and resources at the level proposed is manageable and is compliant with the Prudential Code for Capital Finance under the Local Government Act 2003. No action is necessary to reduce or delay the proposed capital programmes for 2007/08 to 2010/11. However, repayment in the timescales indicated is dependent on capital receipts being obtained at the level currently forecast, including over £60m in 2007/08. Specific disposals have been identified to achieve the forecasts, but this level of capital receipts is more than twice the amount that the County Council has achieved in a single year since before 1990, although rising land values since then should help towards this challenging target. Additional invest-to-save funding of £310,000 per annum for a two-year period has been included in the Property Services budget in recognition of the substantial disposal programme. The Director of Property Business and Regulatory Services will report to Cabinet at a forthcoming meeting on the need for some flexibility in his deployment of resources and consultants to make sure that the capital receipts target is achieved.

2.6 Progress on all capital payments and resources will be closely monitored and reported to the Leader and Cabinet during 2007/08. Executive members will also review progress on their capital programmes at regular intervals during the year.

2.7 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.

3 Unsupported or `prudential' borrowing

3.1 In November 2003, Cabinet agreed a framework 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. The framework, as updated by Cabinet in February 2006, 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, provided that the cost of interest and the statutory minimum revenue provision is met by services in the years that such costs are incurred

· capital investment by business units

· limited borrowing for corporate priorities.

3.2 Subject to approval by Cabinet of proposals by the executive members for Children's Services and Recreation and Heritage for further unsupported borrowing for the 2007/08 to 2010/11 programmes of up to £26.5m (details in paragraphs 7.15 and 10.1), the amount of unsupported borrowing will be as summarised in Table 2, before any repayments.

3.3 The schemes funded by these advances are listed in Appendix 3. Most of the unsupported borrowing is `bridging loans' in advance of capital receipts or developers' contributions. All these bridging loans will be fully repaid by 2012/13. The sources of repayment are summarised in Appendix 4. For bridging loans raised since the beginning of 2006/07, services have been required to meet the annual cost of interest and principal repayment from their revenue budgets or existing capital programmes or by setting aside part of their shares of other capital receipts. This eliminates the strain on the County Council's annual revenue budget which would otherwise have to be met by savings elsewhere or be charged to the council tax.

3.4 In deciding whether the level of unsupported borrowing set out in Table 2 is appropriate, Cabinet should consider whether the overall level of unsupported and Government-supported borrowing complies with the requirements of the Prudential Code for Capital Finance in Local Authorities. The prudential indicators used as part of the process of assessing compliance are included in Appendix 12 of the report on this Agenda on the Revenue Budget 2007/08 and Medium Term Financial Plan 2008/09 and 2009/10.

4 Background to the guidelines for the capital programme

4.1 The guidelines for the locally resourced programme confirmed by Cabinet in December 2006 were based on the existing programme limits, plus an allowance for inflation. Adjustments were made to reflect the revised programme for Adult Services agreed by Cabinet in July 2006, the consolidation in the programme of the ring-fenced sum (£2.989m per annum) for the maintenance of minor roads and footways and a re-profiling of the provision for capital repairs recommended by the Buildings, Land and Procurement Panel and agreed by the Executive Member for Policy and Resources in April 2006, together with a number of minor virements.

4.2 `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.

4.3 The guidelines for each service are shown in Table 3.

4.4 Guidelines were also confirmed by Cabinet in December 2006 for the capital programme supported by Government borrowing allocations. These guidelines limit the take-up of borrowing allocations following the Government's decision not to provide full revenue grant support towards the loans raised by the County Council on the basis of the so-called `supported' borrowing allocations. Cabinet may wish to continue to lobby the Government to recognise the cost new supported borrowing in the calculation of the revenue grant floor or provide full support by capital grants. The Government will have an opportunity to reconsider its approach when the results of its Comprehensive Spending Review are announced in the summer of 2007.

4.5 The guidelines for programmes supported by Government borrowing allocations are summarised in Table 4.

5 The programmes submitted

5.1 The total starts value of the four-year programme submitted by executive members is £515m, as shown in Table 5. It includes £406m of schemes supported by Government funding.

5.2 The proposed programmes are in line with the guidelines set in December 2006. A reconciliation between the guidelines and the proposed programme is included in Appendix 1.

5.3 The capital expenditure flows from these programmes and from the works currently in progress are summarised in Appendix 2, together with the resources available to finance those expenditure flows. The programmes themselves are set out in detail in the yellow pages in Appendix 5.

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

6 Adult Services

6.1 The proposed programme for Adult Services in Appendix 5 is in line with the guidelines for the locally resourced programme, which were increased by Cabinet in July 2006 after a review of the Service's capital expenditure needs and the resources available.

6.2 The proposed programme for 2007/08 also includes schemes supported by the Government for:

· improving information management (grant of £0.367m)

· Mental Health (borrowing approval of £0.241m, reduced from £0.336m in line with Cabinet's decision not to take-up in full Government borrowing allocations)

· improving the care home environment for older people (one-off grant of £1.370m).

6.3 Arrangements for using the grant for improving the care home environment for older people will be developed with partners in health, social care and the voluntary and independent sectors to make sure that grant conditions are met and that the County Council's corporate priorities for extra care housing receive the appropriate level of funding either directly or indirectly.

7 Children's Services

7.1 The proposed programme for Children's Services of £208.9m over the next four years is supported primarily by the Government with capital grant and supported borrowing allocations, as Table 6 shows.

7.2 The proposed programme includes schemes costing £19.496m which the executive member for Children's Services wishes to defer from the 2006/07 starts programme to 2007/08, together with matching resources. The schemes are listed in Table 7.

New Deal for Schools

7.3 As in previous years, the Government's New Deal for Schools (NDS) allocations have been divided between modernisation works (included in the Children's Services capital programme) and condition works (included in the Policy and Resources capital programme) using the 46% : 54% split agreed by the executive members in July 2003.

7.4 The Government has made available a further £11.837m of grant funding for the NDS programme in 2007/08 as an advance equivalent to 50% of the County Council's indicative allocation for 2008/09. This advance will be recovered by deductions from the allocations for the three years from 2008/09 to 2010/11. This advance has also been divided between modernisation and condition works using the 46% : 54% ratio.

7.5 The amounts are shown in Table 8.

7.6 The indicative allocations for the last three years of the capital programme, 2008/09 to 2010/11, are subject to decisions by the Government in its Comprehensive Spending Review in 2007.

Building Schools for the Future

7.7 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. The Department for Education and Skills (DfES) has confirmed that the earliest that Hampshire secondary schools could be included in the BSF programme is 2011.

7.8 The County Council has been included by the Government, however, as one of 23 authorities nationally in a pathfinder programme for a new capital funding stream for the improvement of primary schools and primary age special schools. A capital grant of £6.5m has been allocated to the County Council in 2008/09 for major improvements to schools in the Andover area, including the complete replacement of Abbots Ann Primary School. The pathfinder programme will develop strategies and good practice for the use of the new resources, which will be available nationally in 2009/10 and will continue for up to 15 years.

Capital funding for early years and childcare

7.9 The Government has made available capital grant of £19.775m over 2006/07 and 2007/08 to support the provision of children's centres, childcare through extended schools and the expansion of childcare in areas not covered by children's centres. Phase 1 has already been added to the capital programme for 2006/07 at £10.226m and it is now proposed to add the Phase 2 allocation of £9.549m to the 2007/08 programme. With the use of other resources, the funding available in the capital programme for early years and extended schools is summarised in Table 9.

7.10 The Government's support for overall capital investment in Children's Services in Hampshire for 2007/08 in the form of capital grant and borrowing approvals exceeds £75m including the allocations for condition, as Table 10 shows. This is higher than the £62m allocated by the Government for 2006/07, primarily as a result of the advance of NDS allocations to 2007/08.

7.11 As explained in paragraph 4.4, Cabinet agreed in December 2006 to restrict the take-up of Government supported borrowing allocations. The impact on the Children's Services, is summarised in Table 11 below.

7.12 The reduced take-up of supported borrowing in 2007/08 has been more than matched by the Government's £11.837m advance of NDS grant in 2007/08, referred to in paragraph 7.4. This advance has been allocated between NDS Modernisation (£5.445m) and NDS Condition (£6.392m).

7.13 It is anticipated that the DfES will seek to resolved the issue of supported borrowing from 2008/09 onwards by allocating more of its support as capital grant, after the Comprehensive Spending Review announcement in summer 2007. If that proves correct, a further report on the funding position will be made to Cabinet.

Unsupported borrowing for the Children's Services capital programme

7.14 The Children's Services capital programme for 2007/08 to 2010/11 will be partly funded from capital receipts and developers' contributions but, for a number of schemes, the works are required in advance of the receipts and contributions. Such schemes include school amalgamations, for which investment in new buildings is required before existing sites can be sold, and new school places for housing developments required in advance of the receipt of contributions from developers. This approach of providing the school places in advance of the receipt of funding makes sure that they are available at the appropriate time and in the right location to meet demand from new housing, minimising the pressure on other schools and the need for pupils to travel.

7.15 The executive member proposes using unsupported borrowing to fund the schemes listed in Table 12. It includes four schemes for which the use of unsupported borrowing was approved by Cabinet in February 2006 but are included in the schemes that Cabinet is recommended to carry forward from 2006/07 to 2007/08 (paragraph 7.2).

7.16 All the borrowing listed in Table 12 will be repaid by no later than 2012/13. In accordance with the County Council's policy on using unsupported borrowing for `bridging loans', the executive member for Children's Services has set aside part of the capital programme for each year to fund the annual loan charges arising from the borrowing so that no costs will fall to be met by the council tax during the bridging period.

7.17 Excluding the proposals in Table 12, Cabinet has so far approved unsupported borrowing for Children's Services schemes totalling £16.6m, to be repaid from capital receipts. In addition, the School Balances Loan Scheme has been used to borrow a further £5.0m from school balances, also to be repaid from capital receipts and developers' contributions. No repayments have yet been made on any of these loans but all the expected receipts are on target to be obtained in 2006/07, 2007/08 and 2008/09. Proposals will be brought forward to use the School Balances Loan Scheme in preference to unsupported borrowing once the repayments to the Scheme have been made.

7.18 It is suggested that the Children's Services capital programme is approved for submission to County Council on the basis that the new schemes involving unsupported borrowing are subject to the normal arrangements for specific approval of the borrowing by Cabinet on a case-by-case basis.

Pressures on the Children's Services capital programme

7.19 If the proposals for the unsupported borrowing are agreed, the executive member for Children's Services has sufficient resources to fund all the schemes which need to start in 2007/08. The position in later years remains tight with considerable uncertainty until the Government announces the results of its Comprehensive Spending Review in July 2007. The proposed programme includes new primary schools in areas of major housing development. These schemes will be partly funded by developers' contributions but the remaining costs will leave no leeway for other schemes from within the currently estimated allocations from the Government for new pupil places allocations. The amount of new housing planned currently and that likely to proceed after 2010/11 suggests that significant pressures on the capital programme will continue for several years.

8 Environment

8.1 The resources available to fund the Environment capital programme are summarised in Table 13.

8.2 The executive member for the Environment has proposed a capital programme for 2007/08 that is fully funded, but the programmes for 2008/09 to 2010/11 exceed the resources available by a total of £4.444m, as shown in Table 14 below. The executive member expects that additional external resources will be identified to meet this shortfall of £4.444m and it is suggested that the programme should be approved on the basis that those resources are found or equivalent reductions made in the programme.

8.3 It has been possible to largely offset the reductions required in the Government supported programme as a result of Cabinet's decision to reduce the take-up of Government borrowing allocations (by £5.588m in 2007/08). This has been achieved by:

· a £2.6m increase in capital grant from the Government for local transport schemes, in recognition of a `very good' assessment by the Government for the County Council's first LTP Delivery Report and an `excellent' rating for its second LTP

· using additional developers' contributions in 2006/07 which will allow resources of £1.7m to be carried forward to help fund the 2007/08 programme

· using £1.140m of an additional Government grant for road safety of £2.640m for 2007/08, after funding the safety camera partnership. A similar level of grant has been assumed for 2008/09 to 2010/11

· using £0.2m of the Local Public Service Agreement (LPSA) reward grant to fund the capital programme for 2007/08.

8.4 In addition, schemes wholly or partly funded by developers' or other contributions are included in the proposed programme, including £11.5m in 2007/08. Schemes have only been named where there is reasonable confidence in the security of funding and programme dates. An exercise to accelerate the use of developers' contributions continues and additional schemes will be added to the programme.

Major transport schemes

8.5 No provision has been made in the proposed four-year programme for any new major schemes. A number of schemes are in preparation for possible bids for Government funding, including the Chickenhall Lane Link Road in Eastleigh and Access to Gosport schemes.

Household waste recycling centres

8.6 The previously agreed provision of £1m per annum has been included in the proposed four-year capital programme to improve the County's household waste recycling centres, in line with the proposals agreed by Cabinet in July 2004. The programme will be funded by Environment's share of capital receipts and by using the Waste Performance and Efficiency Grant from the Government. 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.

8.7 A scheme to relocate the site at Andover is at an advance stage of preparation. The potential for improvements at the Casbrook site are being investigated following a review of a possible development in Romsey. Other sites being assessed include Marchwood, Fair Oak, Waterlooville, Aldershot, Hartley Wintney and Somerley.

Environment locally resourced programme - structural maintenance of non-principal roads

8.8 The £3m per annum provision to address specific concerns about the condition of footways and rural carriageways identified from recent opinion polls which has been added to the Environment programme in recent years on a one-off basis has now been consolidated in the 2007/08 to 2010/11 programme.

9 Policy and Resources

9.1 The allocation between schemes of the proposed programme for 2007/08 to 2010/11 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. Phasing of the capital repairs provision between years reflects decisions by the Buildings, Land and Procurement Panel.

9.2 Cabinet agreed in July 2006 that the Policy and Resources capital programme for feasibility studies should be increased from 2007/08 by up to £0.5m per annum, but an increase in the overall Policy and Resources guideline is dependent upon the availability of additional capital receipts to fund an increased capital programme. It is now proposed that this increase in the annual capital programme guideline of £0.5m should be confirmed on the basis of an equivalent increase in the target for capital receipts to support the locally resourced capital programme.

9.3 An addition has been made to the programmes for 2007/08 for investment by the Hampshire Transport Management business unit in the development of workshop facilities in Bishops Waltham. The cost of £0.607m will be financed from the business unit's reserves.

9.4 Also included is the annual provision of £0.9m for advance and advantageous purchases of land.

9.5 Work is now underway on the refurbishment of Ashburton Court offices in Winchester. The Director of Property, Business and Regulatory Services and the County Treasurer will report to a later meeting of Cabinet reviewing progress and costs.

10 Recreation and Heritage

10.1 The executive member for Recreation and Heritage has proposed adding to the programme for 2007/08 a scheme for urgent repairs works at the Royal Victoria Country Park Chapel, costing £150,000. The executive member proposes that the scheme should be funded by using unsupported borrowing to advance £100,000 from Recreation and Heritage's capital guideline for 2010/11 to 2007/08. The remaining £50,000 would be funded from a capital receipt of £50,000 that the executive member for Policy and Resources has already agreed can be retained by Recreation and Heritage.

10.2 Although the proposed use of unsupported borrowing falls outside the policy agreed by Cabinet in November 2003, as amended in February 2006, it is suggested that the proposal is agreed without establishing a precedent. As this is `bridging loan', in effect, the executive member will finance the loan charges from the Recreation and Heritage revenue budget between 2007/08 and 2010/11. As £11,000 of the loan will have been repaid during those years, the reduction required in the capital programme for 2010/11 is £89,000.

11 Private finance initiative (PFI)

11.1 Following the submission of an expression of interest by the County Council, the Department of Transport has invited the County Council to prepare an outline business case for PFI support for the replacement of street lighting columns.

11.2 No other specific PFI schemes have been identified by executive members at this stage for inclusion in the 2007/08 to 2010/11 capital programme.

12 Further review

12.1 In recent years, the capital programme has been the subject of a mid-year review, sometimes in conjunction with the annual review of the County Council's overall capital strategy in July or when feasibility work on significant major projects has reached completion. The Director of Property, Business and Regulatory Services plans to bring forward in spring 2007 a report on:

· the implementation of the current programme

· the development of major land and capital receipts for the period from 2010 onwards

· a range of procurement initiatives to quicken the disposal process and the design and construction times associated with the programme.

12.2 Other issues for review later in 2007 may include:

· the outcome of the Government's Comprehensive Spending Review in July 2007 including whether the Government has changed its policy on providing revenue grant towards loan charges arising from its supported borrowing allocations

· progress on obtaining the capital receipts of over £60m in 2007/08 that are required to fund capital expenditure in 2007/08 and repay the unsupported borrowing that will have used to fund expenditure in 2006/07 and earlier years.

13 Recommendations

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

Section 100D Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have 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 2006/07 and subsequent years.

Appendix 1

Capital Programmes 2007/08 to 2010/11 Proposed by Executive Members

1 Summary of the proposed programmes

1.1 The proposed four-year programme of £515m can be reconciled with the guidelines set by the Cabinet in December 2006, as the Table 15 shows.

1.2 The starts value of schemes supported by Government grant and supported borrowing approvals, £351m, represents 68% of the four-year programme. This is similar to the proportion (71%) supported by the Government in the existing capital programme approved in February 2006. The Government's contribution of 68% 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 also includes a number of local transport schemes supported wholly or in part by developers, totalling £54m over the four years. The individual schemes are identified in the Environment capital programme in Appendix 5. Contributions from developers will directly fund £1.3m of the Children's Services programme for 2007/08 and a further £17.9m of contributions will be used to repay part of the proposed unsupported borrowing, if approved.

Appendix 2

Capital Expenditure Flows and Financing Resources 2006/07 to 2010/11

1 Capital expenditure flows

1.1 The level of capital expenditure flows 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 Expenditure flows in 2006/07 and the following four years will result from works in progress (schemes started in 2006/07 and earlier years) plus those arising from the proposed programme for 2007/08 to 2010/11, as the Table 16 below shows.

1.3 In practice, expenditure flows in the years after 2007/08 may be higher than suggested by the table if more funding allocations are announced by the Government, particularly after the results of the Comprehensive Spending Review are announced in July 2007. Further developer contributions and lottery grants are also likely to be received in the future which will result in additional expenditure.

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, or

- ringfenced SCE(R), which has to be used for specified schemes or programmes.

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. However, as outlined in the main report, the County Council will not in practice receive any additional grant as its revenue support grant is determined by the grant floor criteria rather than the formula.

· 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 3.4 of this report and on the revenue budget

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

· contributions from other bodies, which can include developers, the health service, other local authorities 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 expenditure.

1.3 In total, the Government's support for the 2007/08 starts programme announced so far in the form of borrowing allocations and capital grants is £113m. This is 14.6% higher than the level reached in 2006/07 (£99m).

1.4 Total capital receipts are expected to reach £27.3m in 2006/07, £61.1m in 2007/08 and £27.2m in 2008/09, including receipts to be used for in/out schemes and to repay unsupported borrowing and amounts borrowed under the School Balances Loan scheme.

1.5 Contributions from the revenue budget to fund capital payments will be £22.2m in 2006/07 and £29.4m in 2007/08. These contributions provide support towards the capital repairs of buildings (£18.6m in 2007/08, including £10.9m for school capital repairs funded by the revenue dedicated schools grant) and highway structural maintenance (£14.0m).

1.6 Revenue contributions over the period from 2004/05 to 2008/09 have been supplemented by the redeployment of the savings of £9.1m achieved from SAP Benefit Realisation, repaying the capital resources used to fund the investment in SAP.

1.7 The balance in the Capital Reserve will remain at nil until capital resources are forecast to exceed expenditure in 2011/12.

2 Revenue implications

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

2.2 The capital charges represent a 3.5% return on capital employed (4.15% 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.

2.3 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 £14.2m. Apart from the use of unsupported borrowing, these costs should be reflected in the County Council's `relative needs formula' for revenue expenditure and will attract revenue support grant from the Government broadly equivalent to the costs. However, as explained in the main report, this is not currently the case for authorities such as the County Council, that are subject to floor damping of general grant.

3 Debt outstanding

3.1 Table 19 below shows the estimated debt to be financed by the County Council including the new borrowings necessary to finance the proposed four-year programme.

3.2 As the table shows, the amount of debt outstanding at the end of the next few years will fluctuate as the `bridging loans' of unsupported borrowing are repaid by capital receipts and developers' contributions.

Appendix 3

Appendix 4

Unsupported borrowing - sources of repayment for `bridging' loans

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