Medium Term Financial Strategy 2023-24

7. Capital

1. 7.1. This section provides an overview of the capital programme and resources available for financing current and new schemes. A copy of the current capital programme was reported as part of the period 6 budget monitoring report.
2. 7.2. The following sources of funding are available to finance the capital programme:
   • capital receipts - generated from asset disposals (both new and existing within the capital receipts reserve). As part of the ongoing work and review of the asset management plan, there will be opportunities to generate capital receipts that can be used to reduce the need to rely on external borrowing to finance the capital programme. The decisions for asset disposals will also inform revenue savings for example to deliver efficiency savings and remains a priority within the business strategy
   • grants and contributions received from external sources including third parties and government, these include the allocations of Future High Street, Towns Fund and Levelling up
   • revenue - by making a revenue contribution to capital
   • prudential borrowing - financing by external loans eg PWLB
3. 7.3. Prudential borrowing to fund capital expenditure can only be undertaken when an authority can demonstrate the need to borrow through its Capital Financing Requirement, which is driven by the balance sheet of the authority and takes into account reserves (including general and earmarked). Financing costs of the borrowing are charged to the revenue account and therefore any decision to undertake external borrowing would need to take account of the debt costs including interest and the Minimum Revenue Provision (MRP) and should be able to demonstrate affordability.
4. 7.4. As an example, if a £5m capital project is approved the revenue impact from an MRP charge to the revenue account will be made in line with the current MRP Policy - probably over the useful life of the asset - which would amount to £200,000 per annum (assuming a 25 year life).
5. 7.5. If a decision is to be taken to use revenue reserves or capital receipts to finance the expenditure, no MRP charge would be necessary, as the expenditure would be financed immediately by a revenue contribution to capital or the receipt. When considering the financing of the capital programme, the most financial beneficial approach to the financing of the spend will be taken. Furthermore, as future capital receipts are generated, this provides an opportunity to reduce the revenue costs of borrowing.
6. 7.6. Each year the most financial beneficial approach is taken when financing the capital programme. For example, it is more financially beneficial to the revenue account to finance shorter life assets, ie equipment and vehicles from capital receipts and reserves as the MRP over a shorter life increases the impact to the revenue account.
7. 7.7. The 2023/24 approved capital programme totals £61.2 million for the general fund, although there is expected to be a significant amount of slippage to 2024/25. The programme includes schemes within the future high street and town deal programmes which will deliver wider investment in the borough, that will support longer term economic growth.
8. 7.8. The housing revenue account capital programme continues to invest in the stock and provision of new affordable homes, financed by right to buy receipts, borrowing and grants.
9. 7.9. The capital programme currently includes borrowing of £3.4 million against Future high Street Fund (FHSF) and Town Deal projects in 2022/23 and 2023/24. However, it is anticipated that this borrowing would be predicated on business cases being produced to show that this be offset by either the generation of capital receipts or revenue from future income generation as part of the development of the FHSF projects.
10. 7.10. Capital growth bids for 2024/25 and future years will be considered as part of the annual budget setting process, priority will take into account the following criteria:
    • bids accompanied by funding
    • linked to priorities of the business strategy
    • linked to the asset management plan
    • service delivery requirement
    • invest to save proposal.