Capital strategy

Resources available to finance capital investment

Below are the main sources of funding which are available to us to finance our capital investment. Individual projects may be financed solely by one of these or by a combination of a number of them.

Internal

  • Capital receipts in hand
  • Reserves
  • Contribution from revenue account (not currently used)

External

  • Government grants
  • Other grants, for example the Heritage Lottery Fund
  • New capital receipts from asset sales
  • Contributors from partners
  • Other contributions
  • Borrowing (not currently used)
  • Private finance initiative or similar (not currently used)

Capital receipts have been the major source of funding for the capital programme in recent years. The amount of useable capital receipts in hand at 1 April 2014 was £3.4 million. The majority of capital receipts are committed to finance the currently approved capital programme. Additional capital projects may be financed from capital receipts obtained by asset sales or other new capital streams.

A previously significant source of capital receipts has been our continuing right to a share of receipts arising from tenants of Aspire Housing under the Right to Buy legislation. However, Right to Buy sales have diminished from historically high levels, both because of the present depressed property market and there being fewer potential purchasers as time goes by. There was a small increase in sales in 2012-13, which trend continued in 2013-14, probably arising from government changes to the rules governing sales and the improving property market.

In addition there are usually some small rece ipts from t he sale of minor pieces of land or property but these are unlikely to be significant in amount over the next few years. Indeed, capital receipts from sales of land and property (including covenant release payments) have been relatively modest in recent times.

The ICT Development Fund is specifically earmarked for meeting the costs of ICT development, both capital and revenue. The balance on the fund at 1 April 2014 was £0.3 million. This balance is fully committed to financing projects included in the current ICT development programme plus certain ongoing revenue costs. Accordingly, the revenue budget provides for an annual contribution of £0.05 million to be made to the fund in order to replenish it. There are no other reserves currently available to finance capital investment.

The use of capital receipts and reserves to finance new capital projects has an effect upon investment income receipts and hence the general fund revenue account. At current investment interest rates of around 0.5%, every £100,000 of such capital receipts or reserve balances used will cost £500 to the revenue account on an ongoing basis. The use of capital receipts and reserves to finance the capital programme 2013-14 to 2014-15 was taken account of in the medium-term financial strategy and in the 2014-15 revenue budget. Any receipts generated from the sale of assets will be invested until they are required to finance capital expenditure.

Wherever government grants are available to meet all or part of the cost of capital projects, we will ensure that these are applied for and used to maximise the amount of investment which can be made and the benefit which will result from that investment. Currently our policy is to apply New Homes Bonus grant partly in support of the revenue budget and partly to finance housing capital projects included in the housing investment element of the capital programme, the respective proportions depending on the relative needs of the capital programme and revenue budget.

Wherever possible and appropriate, funding will be sought towards the cost of capital projects from external parties. These will include property developers, government agencies, funding from the European Union (normally channelled via a UK government department), funding bodies such as the National Lottery or the Football Foundation, and partner organisations that may join with us to bring forward particular projects of mutual benefit. In the current climate, however, we may find such sources of funding to be limited compared with previous years.

There remains the potential for us to introduce a community infrastructure levy. This may provide funding for capital investment required as a result of a development taking place, for example new roads or footpaths. It will partially replace 'section 106' contributions payable by developers as a condition of being granted planning permission.

As a result of changes to the treatment of business rates collected by councils (as implemented by the Local Government Finance Act 2012), which allow part of the amount collected to be retained by them, a Stoke on Trent and Staffordshire business rates pool has been established to pool retained rates relating to a number of Staffordshire authorities, including ourselves. This has benefits with regard to maximising the total amount retained, with the additional amount gained by pooling being available to participating authorities in a number of ways. One of the features of the pooling arrangement is the establishment of an investment fund to finance projects which will contribute to economic regeneration within the areas of the participating authorities.

We are presently debt-free, having no long term loans outstanding. Our current policy, expressed in our treasury management strategy for 2014-15, approved by Council on 26 February 2014, is that it is not intended to utilise borrowing to fund the capital programme in view of us currently possessing sufficient reserves and useable capital receipts to finance capital expenditure from those sources. It is stated that borrowing may become an option in future years if these resources become sufficiently depleted that they are insufficient to finance proposed capital expenditure and, if the costs of borrowing compare favourably with those of alternatives such as using unapplied capital receipts, i.e. if in fact there is a sufficient business case to do so. It is possible that for a period of time during the span of the capital strategy, capital resources will be depleted to the extent that they are insufficient to finance further significant capital investment, including projects necessary to ensure operational continuity. In considering the 'Funding the Council’s Capital Programme' report (see annex C) on 15 October 2014, the Cabinet resolved that known capital programme needs will in the first resort be met through the proceeds of land disposal.

There is no intention to charge any capital investment directly to the general fund revenue account.

We do not presently intend to consider the use of private finance initiative type arrangements or tax increment financing to meet the cost of capital investment.

The Executive Director (Resources and Support Services) will prepare estimates of the resources which are presently in hand plus those likely to be available in future to finance capital investment. He will keep these estimates up to date and periodically report upon them to Cabinet and Council, particularly when the capital programme is being considered. We will decide on the appropriate form of financing for projects included in the capital programme based on advice from the Executive Director as to availability and the consequences and costs of use of the various options.

The need to have available liquid funds to be used to pay for capital projects will be borne in mind when drawing up our treasury management strategy. An appropriate limit will be placed on long term investments based on predictions of the capital spending profile over the period covered by the strategy so that there are likely to be enough readily available easily cashable investments to meet requirements.