Agenda item

A report of the Head of Financial Services setting out a (draft) revised Capital Plan covering the period (financial years) 2020/21 -2022/23 for scrutiny by the Panel.

Considered a report of the Head of Financial Services setting out details of the revised Capital Plan 2020-23 (item 6 on the agenda filed with these minutes).  It was noted that details in this report had been partially covered during item 5.

Assisting with consideration of the report: the Cabinet Lead Member for Finance and Property Services, Strategic Director of Environmental and Corporate Services, the Strategic Director for Commercial Development, Asset and Leisure and Head of Financial Services.

Summary, key points of discussion:

·         the Environmental Services fleet would be partially funded using reserves earmarked for capital expenditure, allowing the reduction in MRP to create savings of £350K per year.  Previously the Council had stated the funding would be through prudential borrowing, but this was now being applied to other projects.  If the fleet had been funded through prudential borrowing the costs would have depended on the interest rate but could have cost up to £700K a year rather than the proposed £350K costs.

·         the deferral or postponement of pre-existing capital schemes was disappointing as they appeared to relate to local or neighbourhood schemes.  As these projects were the responsibility of the Council, local groups did not require notifying and Heads of Service had reviewed carefully which capital schemes could be deferred.  Schemes under S106 agreements or by Parish councils would not be impacted.

·         the proposed increase of investment in commercial property acquisitions from £10mill to £25mill appeared high risk, particularly as Government rules were likely to change.  The Council would cease operations if regulations required but powers given under 1972 legislation entitled the Council to make commercial property acquisitions.  Issues seen at other local authorities in purchasing commercial property had related to the types of assets acquired and level of due diligence performed.  The Council would mitigate risk by completing due diligence on the property, the tenant and the economic viability before acquisition.  A member briefing would be arranged to inform members on the process and explain further the rationale behind the expansion of funding for commercial property.

·         concerns were raised in relation to recommendation 6 of the Budget Scrutiny Panel 2019-20 report.  ‘Random’ amounts of money were being committed for general as yet unspecified revenue generation and this appeared to be an inappropriate way of proceeding.  It was acknowledged that it was challenging to provide the rationale, risk profiles and detailed strategy for increased funding for the Town Deal, the Enterprise Zone and commercial property acquisition as individual  projects had not yet been identified and  it would be based on conjecture. Any commercial investment by the Council would require a minimum 3.5% net income target to be met.  All potential commercial property purchases would be subject to a robust due diligence process and be available for scrutiny.

·         an explanation regarding the allocation of £15mill to the Town Deal was given.  Although funding was provided nationally by the Government for Town Deals, some projects identified could require match funding or additional funds to be viable commercially.  The Council wished to be ready to take advantage of these opportunities, but submission of a robust business case with risk assessments would be required prior to investment.

·         the 2.4mill deficit was anticipated to be reduced by Service Reviews and commercial investment.  With the appointment of an experienced Strategic Director for commercial development, the Council had the required skills to move forward.

Councillor Parsons momentarily lost his internet connection.

·         it was strongly questioned whether appropriate governance procedures were in place. The increase of borrowing up to £57mill over three years should be scrutinised effectively, to provide confidence of proper use of public funds. Before a commercial property was acquired, the Chair of Scrutiny Commission would be requested to approve the exemption from call-in; this was a statutory requirement of the Local Government Act 1972 (schedule 12a, paragraph 3/5) due to commercial sensitivity.  The Chair and other invited councillors could choose not to approve the exemption if wished.

·         it was important to have a quick robust process as commercial property transactions usually completed within 15 days, unlike domestic property purchases.  Legal assessments and scrutiny by the executive would be undertaken during the 15 days.  It was not possible to fit within usual committee timeframes due to the limited time available, but all delegated decisions would be reported to the next available ordinary Council meeting and the exemption from call-in would no longer apply at this point.  It was noted that the Capital Plan and Strategy could be amended within a financial year.

·         the increase of borrowing from £10mill to £25mill was not linked to the risk appetite of the Council.  Although guidance was lacking, the figure had been calculated by assessing its proportionality to the size of the Council and was considered an appropriately sized fund for the Council’s size, concerns would be raised by the Treasury and CIPFA if the Council were to invest more than was proportionate.  If the Council achieved an average return of 4% from its commercial property portfolio this would generate £1mill towards the general fund.

It was noted that it could be beneficial to provide further information regarding the process undertaken to assess the commercial viability of the first commercial property acquisition with Audit Committee Members at its meeting scheduled in December.

RESOLVED

1.    that the following information be submitted to the Panel at its next meeting:

a.    a breakdown of the benefits, assessment of profit, risks and liabilities, and it impact on council tax rates in relation to the Enterprise Zone and the Town Deal;

b.    the criteria for assessing the suitability of properties, how it is determined that a net income of 3.5% will be achieved, the checks and balances that will be done and its impact on council tax rates in relation to commercial property acquisitions;

c.    an explanation of the rationale behind increased funding that has been allocated for Commercial property acquisition, Enterprise Zone and Town Deal.

2.    that a draft of the proposed Commercial Development training to be scheduled for councillors is submitted to the Panel at its next meeting**

Reasons

1.    The Panel was strongly concerned about the level of prudential borrowing and wished to receive further detailed information to scrutinise the Council’s approach.

2.    The Panel wished to clarify the process for commercial property acquisitions to support its scrutiny of budgetary matters.

** Post meeting note – the proposed commercial development training has been arranged before the next meeting of the Budget Scrutiny Panel (2nd November).