Capital and Investment Strategy 2022 to 2023

5.1
There are a number of potential sources of financing for the capital programme. These can be described as follows:

5.1.1
Grant Funding - often specifically for capital purposes and also often from central government, but they may come from, or through, other agencies.

5.1.2
Capital Receipts - receipts arising from the disposal of existing assets are constrained to only be useable for the purposes of funding new assets. Such funds when generated are held in a Capital Receipts Reserve until such time as used. The use of surplus land to deliver additional council priorities such as affordable housing, key worker housing, supported living etc can have an impact on the residual capital receipt value to the Council. These impacts will be reflected in the financial implications of reports and there is close monitoring of the delivery of capital receipts to ensure they are in line with the capital programme funding assumptions.

5.1.3
Developer Contributions - S106 agreements and/or the Community Infrastructure Levy (CIL) effectively impose a tax on new development in order to fund infrastructure required as a consequence of the development. S106 agreements tend to relate to specific capital investment projects, but where it is more generic, the Council will use this funding to meet its capital investment priorities where these satisfy the conditions of the s106 agreement. CIL funding is more flexible in its use and the element that is retained by the Council (15% or 25% is given to the parish/town council depending upon whether they have a neighbourhood plan) will be used to fund the Council’s capital investment priorities in the Capital Programme that are able to be funded by CIL.

5.1.4
Partner Contributions - some projects may be jointly funded between the Council and other agencies, such as schools, other councils, or the Buckinghamshire Local Enterprise Partnership (BLEP). Under current arrangements the Council is the accountable body for the BLEP and thus capital expenditure on behalf of the BLEP is included in the Council’s Capital Programme and funded by resources available to the BLEP.

5.1.5
Prudential Borrowing - the Council is able to borrow in order to fund its capital expenditure provided that the revenue financing costs of such borrowing are affordable and sustainable. Prudential borrowing will be considered as a source of capital funding in accordance with the Government’s guidelines and with regard to the CIPFA Prudential Code for Capital Finance in Local Authorities.

5.1.6
Revenue Contributions to Capital - the Council is able to use its revenue resources to fund its capital expenditure, but obviously this then reduces the funding available for recurrent expenditure.

5.1.7
Use of Earmarked Reserves - essentially this is just a mechanism for deferring the application of one of the sources listed above, for example revenue contributions, or capital receipts. A typical example is the use of a Repairs and Renewals Fund.

5.1.8
Leasing - essentially this is a specialised form of borrowing linked directly to the rental of an asset.

5.2
The choice of funding for the capital programme and projects within it will depend upon the overall availability of resources and any constraints applicable to particular sources.

• Wherever possible external resources such as partner contributions, or grants will be the first preference for funding projects. It is likely that developer or partner contributions will only be available for specific projects. It is also possible that some grant funding is ring-fenced for specific purposes, although this tends not to be the case in recent times.
• Prudential borrowing will be the second choice of funding but will only be used where there is a strong business case offering an appropriate rate of return. The use of the £100m Prudential Borrowing allocation approved by Council as part of the MTFP Capital Programme, will only be released following approval of a business case by Cabinet.
• Finally, the Council’s own resources (capital receipts and revenue contributions) will be used where available and affordable.

5.3
The Council will consider arranging borrowing via the Municipal Borrowing Agency (MBA) or other alternatives, providing it is prudent to do so and a rate below PWLB rates can be achieved. This borrowing route will be subject to approval by Cabinet before it is undertaken.

5.4
The Council will aim to maximise its funding for capital expenditure by bidding for grant funding, disposing of surplus assets, seeking to maximise its leverage with partners in respect of joint funding opportunities, etc. Indeed, the ability to respond to the very substantial growth agenda will be heavily dependent upon the ability to attract additional resources. This may come in the form of additional funding from Government, such as Housing Infrastructure Fund (HIF), developer contributions, or working in partnership with other bodies for example the BLEP, other public bodies, or the business community. A Location Asset Strategic Review (LASR) was carried out which identified opportunities to reduce the overall public property estate and thus generate capital receipts. However, this will need to be continually reviewed as there may be longer term strategic reasons to hold on to assets, improve the operational efficiency and/or repurpose to generate income as part of the consideration.

5.5
Although the Council will continue to bid for all the resources it can, the Government’s austerity measures are leading to a tightening of grant funding and the levelling up agenda may place Buckinghamshire as a lower priority area than the rest of the country.

5.6
Historically the Council has provided a reasonable level of revenue contributions to fund the capital programme. However, as part of measures to keep the revenue budget in balance in the face of reduced funding and increasing service pressures the capacity to do this has been reduced to a relatively low level.

5.7
A £1m feasibility revenue budget has been identified and there are earmarked reserves available for feasibility work, but the Council may want to look at opportunities to increase the level of feasibility funding available when it has an opportunity to do so, given the increased importance of maximising the revenue earning potential of assets held. Generally, feasibility work is a one-off revenue cost, but it is important to mitigate risk and deliver an optimum investment solution.

5.8
Given the nature and lead in times in relation to regeneration and new road schemes, the Council wants to develop a longer-term strategic capital programme to cover the longer timeframes relating these significant areas of capital investment. Initial work has started on achieving this, but more work needs to be done as the key strategies identified in Section 1.6 above are developed and approved.

5.9
Any capital investment decision which involves prudential borrowing must include the cost of servicing the debt as part of a robust business case. Investment decisions will be approved by Cabinet and will be supported when the cashable cost reductions (or increased income) exceed the financing costs of any borrowing needed to fund the investment over its life, with a reasonable tolerance to cover off risk and scenario sensitivity. Any approval will be subject to appropriate due diligence and relevant surveys being undertaken. There will be an annual post-implementation review of projects that have been approved via the Prudential Borrowing facility to ensure that benefits have been delivered in line with approval and reported back to Cabinet.

5.10
Bids may be made against the prudential borrowing facility to provide loans to our companies or partners such as Consilio, Enterprise Zone, Aylesbury Vale Estates, but will ensure that the business case is robust and there is no risk to the Council.