Issue - items at meetings - Capital Strategy 2022/2023 - Incorporating Treasury Management Strategy and Asset Investment Strategy

Whilst it is a statutory requirement for local authorities to produce an annual Capital Strategy it is also a best practice approach to longer-term strategic planning and investment to ensure the Council’s long-term priorities can be delivered as well as the day-to-day provision of services.

The Capital Strategy (Item 1) brings together the Council’s detailed policies, procedures and plans relating to capital expenditure, capital financing and treasury management activity. It incorporates the Treasury Management Framework, Prudential Indicators and Asset Investment Strategy.

It also gives an overview of how associated risk is managed and the implications for future financial sustainability.

Recommendation

It is recommended that the Executive, after considering comments from the Policy Overview & Scrutiny Committee, makes the following recommendations to Council:

1. The 5-year Capital Strategy for 2022/2027, incorporating the Treasury Management Strategy, Prudential Indicators and Asset Investment Strategy, for approval.

2. That Full Council delegate authority to the Executive for the financial year 2022/23, subject to a positive recommendation from the Asset Investment Advisory Board and agreement from the Chief Executive and Strategic Director:

a. to bid, negotiate and complete on property acquisitions and investments in land and buildings with a total individual cost of up to £10m, subject to the decision fully satisfying all criteria and process requirements set out in this Strategy; and

b. to determine a funding strategy for the acquisition or investment in line with the Treasury Management Strategy; and

c. to appoint advisors and undertake appropriate due diligence for each property acquisition and investment proposal as necessary; and

d. to complete the legal matters and signing of contracts to execute the transactions referred to above.

RESOLVED

That the Executive, after considering comments from the Policy Overview & Scrutiny Committee, recommends to Council:

1. The 5-year Capital Strategy for 2022/2027, incorporating the Treasury Management Strategy, Prudential Indicators and Asset Investment Strategy, for approval.

2. That Full Council delegate authority to the Executive for the financial year 2022/23, subject to a positive recommendation from the Asset Investment Advisory Board and agreement from the Chief Executive and Strategic Director:

a. to bid, negotiate and complete on property acquisitions and investments in land and buildings with a total individual cost of up to £10m, subject to the decision fully satisfying all criteria and process requirements set out in this Strategy; and

b. to determine a funding strategy for the acquisition or investment in line with the Treasury Management Strategy; and

c. to appoint advisors and undertake appropriate due diligence for each property acquisition and investment proposal as necessary; and

d. to complete the legal matters and signing of contracts to execute the transactions referred to above.

Reason: The Capital Strategy is a whole organisation approach to capital investments (expenditure) and overall strategic planning. It has historically been seen as a finance responsibility but should be steered by the leadership of the Council and is a responsibility of all.

The Chartered Institute of Public Finance and Accountancy (CIPFA) have issued guidance on the aims and requirements of a Capital Strategy focusing on a whole organisation approach to prudent, sustainable, and resilient local government investment.

CPFA have also issued two professional Codes of Practice to which the Council is required to “have regard to”. These give frameworks designed to support local strategic planning, local asset management planning and proper option appraisal:

· The Prudential Code – developed to support local authorities in taking decisions around their capital investment programmes. The objectives of the Prudential Code are to ensure, within a clear reporting framework, that a local authority’s capital expenditure plans and investment plans are affordable and proportionate; that all external borrowing and other long-term liabilities are within prudent and sustainable levels; that the risks associated with investments for commercial purposes are proportionate to their financial capacity; and that treasury management decisions are taken in accordance with good professional practice.

· The Treasury Management Code - Treasury Management is defined as ‘The management of the organisation’s borrowing, investments, and cash flows, including its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks’.

Both codes have been out to consultation in 2021 in response to a rise in local authorities undertaking commercial investments, purchasing property solely to make a return, with concerns where these investments have been financed by borrowing. Proposals outlined in the consultations address that borrowing for yield only is a risk to prudent investment. CIPFA hopes that these strengthened Codes will alleviate further government intervention in the Prudential Framework and ensure local decision making is protected.

The new Codes were published in December 2021.

[This ... view the full decision text for item 85

Councillor Merryweather presented the report which was a Council wide approach to capital investment and expenditure; and overall strategic planning. The Strategy was reviewed on an annual basis and the main change was the replacement of the Property Investment Strategy with the Asset Investment Strategy. He thanked the members of the Overview and Scrutiny Committee for their constructive comments and the recommendation had been modified to address their concerns.

Councillor Hyman spoke on the item and asked if guidance had been received from the Government on investments for yield. In response, Councillor Merryweather advised that guidance received from the Public Works Loan Board was that borrowing would not be available for any investments solely for yield. This advice had been made available in 2021, but would be circulated to Councillor Hyman for his information. He gave a detailed explanation of the calculation of minimum revenue provision and the constraints on the Council.

Councillor Mulliner made a brief comment on the external borrowing figures and asked Councillor Merryweather to address how these will be funded as part of his presentation to Council.