Appendix B
Introduction
1. The Chartered Institute of Public Finance and Accountancy (CIPFA) Prudential Code for Capital Finance in Local Authorities establishes a framework that supports local strategic planning, asset management and appropriate options appraisal.
2. The objectives of the Code are to ensure that the capital plans of an organisation are affordable, prudent, and sustainable and the treasury management decisions are taken in accordance with good professional practice and in full understanding of the risks involved.
Definition
3. To utilise the full extent of the Code and its framework, it is essential that there is a clear understanding of what capital expenditure is. Unless expenditure qualifies as capital it will normally fall outside the scope of the Code and its framework and be charged to revenue in the period in which the goods or services were received. If expenditure does qualify as capital, there are opportunities to finance such spend from any capital receipts held or to spread the cost over future years in line with the life of the asset(s) purchased/created.
4. In the main, expenditure must meet one or more of the following conditions for it to be classified as capital:
· Spend results in the acquisition, construction, or enhancement of an asset (tangible or intangible) in accordance with ‘proper practices’.
· Spend meets one of the definitions specified in regulations made under the 2003 Local Government Act.
· The Secretary of State makes a direction that the expenditure can be treated as capital.
Context
5. The capital expenditure plans are largely limited to replacing and upgrading essential operational assets (e.g. Estate Facilities, Vehicles, Equipment, Communications Infrastructure).
6. This Capital Strategy forms part of our financial strategies, these are one of six core strategies that set out how we will provide services in line with the following priorities in our five-year Community Risk Management Plan (CRMP):
· Valuing our people.
· Preventing fires.
· Protecting people and property.
· Responding to fires and other emergencies.
· Delivering value for money.
7. The Authority is committed to having rolling medium term revenue and capital plans (summarised in a Medium Term Financial Strategy – MTFS) that extends for up to five years. The plans are drawn up, reassessed, and extended annually and if required re-prioritised to enable the Authority to achieve its aims and objectives established in the CRMP.
9. The Authority has not utilised borrowing to fund its capital programme and thus has one of the lowest levels of borrowing of all fire services in the country. However, the necessary investment in the estate cannot be delivered without borrowing.
10. Key focuses of the Capital Programme plans, all aligned to achieving the Authority’s priorities are:
· To ensure the property estate remains fit for purpose, identifying opportunities to streamline assets and develop the estate infrastructure, maintaining core sites and improving core training facilities.
· The replacement of other core assets where necessary, e.g., vehicles, operational equipment, and communication infrastructure.
· Development of improved capability.
· To ensure provision is made for ICT to maintain and develop the existing infrastructure and invest in the core technologies required to provide innovative and efficient digital services.
· Invest to Save Schemes.
11. The plans must consider the constrained financial position of the Authority and the need to maximise both the available financial resources and the capacity that the Service has to manage change projects.
Governance
12. The annual budget setting process is an ongoing process managed by the Authority’s Executive Board. Capital projects are considered by the Executive Board, they include a business case that identifies the organisational requirement, rationale, deliverables, benefits, links to the Authority’s priorities and costs in terms of both capital investment and ongoing revenue consequences.
13. The delivery of capital projects is over overseen by the Capital Projects Programme Board (CPPB) and reported to the Service Management Team – Corporate Programme Board (CPB). Capital budget monitoring reports are presented to the Resources Committee to monitor progress.
14. A Member Capital Projects Working Group has also been established to oversee the development and delivery of our major capital projects and progress is also reported to the Resources Committee that considers any slippage, variances and accelerated spend.
15. An updated MTFS and Capital Strategy, including a recommended Capital Programme for the next year, is then presented to the Authority, providing views on affordability, potential funding issues and options.
16. To evaluate the success and outcomes of capital projects, a post project review is carried out. The depth of this review is proportionate to the scale of the project and the benefits set out in the initial Project Initiation Documentation. This review focuses on the outcomes achieved, the extent to which the benefits claimed are being realised, the actual costs, both revenue and capital, and the impact of other funding and partnership working. This information can then be used to learn lessons and make any improvements during subsequent projects. The post project report is reviewed by the CPPB and escalated to the CPB if required.
Funding Streams
17. Capital expenditure can be funded from a number of sources as set out below:
· Government Grants – these are either general grants which can be used to fund any capital spend approved by the Authority or specific grants which can only be used to fund specific projects in line with any conditions placed with the grant. The Authority has not received an annual government capital grant allocation since 2014/15.
· Capital Receipts – when an asset held by the Authority is sold, the proceeds are held in reserve to be used either to fund future capital expenditure or to repay debt. They cannot be used to fund revenue expenditure.
· Reserves – funds can be set aside and held in earmarked reserves if known expenditure is to be incurred at a future date. These reserves can then be used to fund such expenditure be it capital or revenue. In terms of capital expenditure, it may be known that a specific asset may need replacing in 10 years and therefore funds are set-aside each year to build up the reserve to fund the replacement. Details of the reserves held are found within the Authority’s Reserves Strategy.
· External Contributions – these are funds or grants provided by external organisations such as collaboration partners or local authorities for specifically agreed capital expenditure.
· Borrowing – the Authority is permitted in law to take out loans or financing to fund capital expenditure. The Prudential Code sets out the requirements under which such borrowing must be undertaken including affordability, prudence, and cost effectiveness. Any borrowing will incur costs for interest payable and the need to set-aside sufficient funds to repay the loan. These costs impact on the revenue budget.
Capital Programme
18. The Authority has a ten-year capital programme, from 2024/25 to 2033/34. This reflects the Authority’s capital aspirations in the Fleet, Estates, and ICT strategies. The first five years of the strategy are more detailed, but work is ongoing to develop a more detailed ten-year strategy, in particular with detailed condition surveys across our estate.
19. The table below shows the Authority’s first five years of the Capital Programme and how it is anticipated that it will be funded. The detailed ten-year capital programme is set out in Appendix 1 of this paper.
|
£m |
24/25 |
25/26 |
26/27 |
27/28 |
28/29 |
|
Vehicles |
3.2 |
1.6 |
1.6 |
1.6 |
2.1 |
|
Operational Equipment |
1.3 |
1.0 |
0.9 |
0.4 |
0.6 |
|
Buildings |
3.5 |
15.4 |
15.4 |
7.9 |
10.8 |
|
ICT |
2.2 |
2.3 |
0.6 |
0.2 |
0.5 |
|
10.2 |
20.3 |
18.5 |
10.0 |
13.9 |
|
|
Funding |
|
|
|
|
|
|
Revenue Contributions |
2.5 |
2.0 |
3.0 |
3.5 |
4.0 |
|
Capital Reserve |
7.7 |
11.1 |
0.0 |
0.0 |
0.0 |
|
Capital Receipts |
0.0 |
0.0 |
0.0 |
5.0 |
0.0 |
|
Grants |
0.0 |
1.0 |
0.0 |
0.0 |
0.0 |
|
Borrowing |
0.0 |
6.2 |
15.5 |
1.5 |
9.9 |
|
Total |
10.2 |
20.3 |
18.5 |
10.0 |
13.9 |
20. The 2023/24 five-year capital programme approved by the Authority in February 2023 included three major projects; Headquarters relocation (£15m), Training Centre Props (£5m) and Preston replacement station (£10m). Together with the Member Capital Working Group, officers have been reviewing the scope of the projects, costings to reflect changes in prices and timings for these three major capital projects. The key changes considered by the working group is reflected in the updated 2024/25 capital programme proposed, these include:
· Headquarters relocation – The business case for the relocation of Headquarters recommended the value for money option of building a new Headquarters at the Training Centre. Alongside this the working group also considered the future of Lancaster House at the Training Centre given the age and maintenance liabilities. The updated project is for a combined Headquarters and Training Facility at the Training Centre, replacing the current Headquarters at Fullwood and office / teaching space in Lancaster House. This will provide modern office and training facilities that meet current environmental and design requirements. It will also ensure that our people have the best facilities to support health and wellbeing by providing a safe and positive work environment. The costings were updated during the year to reflect the latest inflation forecast and an estimate of £18m is included in the programme between 2024/25 and 2026/27.
o The relocation of Headquarters necessitates the need to invest in a new station to replace Fulwood either on the existing site or at an alternative location. This forms part of the Preston review considered below but is included in the programme at an estimate of £7m in 2027/28 that is part funded by a capital receipt from the sale of land at the Fulwood site.
· Training Centre Props – A modern and progressive service requires high quality facilities to help in the initial training and ongoing maintenance of competency requirements across a broad spectrum of operational activities. The existing facilities were reviewed alongside more modern facilities in the region. The review identified that greater investment is required to meet our requirements and an estimate of £10m is included in the programme between 2024/25 and 2026/27.
· Preston replacement station – A review of emergency cover in Preston has commenced. The aim of the review is to create a new, modern station either in the same place or another location that serves both our staff and the local community well. To date, 25 sites have been considered and further work is ongoing, however many of these sites have been discounted due to unavailability. The budget remains at £10m and is programmed for the final year of the five-year programme however, work is required in the short term on the current station, particularly on the welfare facilities and training area, and this has been included in the capital programme. The budget for the replacement remains at £10m and is programmed for 2028/29.
21. Whilst we have sequenced the projects as detailed, the Authority should remain flexible, and the years that the projects are delivered may change due to opportunities of land and other matters, details of which will be discussed with the Working Group and approvals sought as required.
22. To fund the Capital Programme, table four shows that in addition to utilising the Capital Reserve and revenue contributions, £31m of additional borrowing is required. The long-term revenue costs of this borrowing, based on the latest borrowing forecasts, is approximately £2.5m per annum which is included in the MTFS.
Affordability
23. Capital expenditure plans are a key driver of treasury management activity. The funding of such plans impacts on cash balances and borrowing requirements in the short and longer terms. The on-going consequences of these decisions have a direct impact on the annual revenue budget. As such, having regard to the CIPFA Prudential Code for Capital Finance in Local Authorities, the Authority sets and reviews a number of prudential indicators providing context for proposed capital expenditure plans: how they are to be funded, the impact on the organisation’s finances; and their affordability in terms of the impact on revenue budgets.
24. Full details and commentary on the prudential indicators are found within the Authority’s Treasury Management Strategy 2024/25. Along with controls and limits relating to levels of capital expenditure and resulting borrowing requirements, these prudential indicators also include a specific affordability indicator, shown below, which provides an indication of the impact of the above capital expenditure plans and their financing proposals on the overall finances.
Risk Management
25. Risk is the threat that an event or action will adversely affect the Authority’s ability to achieve its desired outcomes and ability to execute its strategies successfully. Risk management is the process of identifying risks, evaluating their potential consequences, and determining the most effective methods of managing them and/or responding to them. It is both a means of minimising the costs and disruption to the organisation caused by undesired events and of ensuring that staff understand and appreciate the elements of risk in all their activities.
26. The aim is to reduce the frequency of adverse risk events occurring (where possible), minimise the severity of their consequences if they do occur, or to consider whether risk can be transferred to other parties. The corporate risk register sets out the key risks to the successful delivery of corporate aims and priorities and outlines the key controls and actions to mitigate and reduce risks or maximise opportunities.
27. To manage risk effectively, the risks associated with each capital project need to be systematically identified, analysed, influenced, and monitored. It is important to identify the appetite for risk for each scheme and for the capital programme, especially when investing in complex business change programmes. Where greater risks are identified as necessary to achieve desired outcomes, the organisation will seek to mitigate or manage those risks to a tolerable level. All key risks identified as part of the capital planning process are considered for inclusion in the corporate risk register.
28. The Treasurer will report on the deliverability, affordability and risk associated with this Capital Strategy and the associated capital programme. Where appropriate they will have access to specialised advice to enable them to reach their conclusions.
· Credit Risk - The risk that an organisation with which we have contracted to deliver capital projects becomes insolvent and cannot complete the agreed contract. We will ensure that robust due diligence procedures cover the appointment of partners and contractors relating to capital programme delivery. Where possible contingency plans will be identified at the outset.
· Liquidity Risk - This is the risk that the timing of any cash inflows from a project will be delayed, for example if other organisations do not make their contributions when agreed. There is also a risk that the cash inflows will be less than expected, for example due to the effects of inflation, interest rates or exchange rates. Our exposure to this risk will be monitored via the revenue and capital budget monitoring processes and mitigating actions taken promptly where appropriate.
· Interest and Exchange Rate Risk - This is the risk that interest rates or exchange rates will move in a way that has an adverse effect on the value of capital expenditure or the expected financial returns from a project. Rates will be reviewed as part of the on-going monitoring arrangements to identify such adverse effects. As far as possible, our exposure to this risk will be mitigated via robust contract terms and when necessary, contract re-negotiations.
· Inflation Risk - This is the risk that rates of inflation will move in a way that has an adverse effect on the value of capital expenditure or the expected financial returns from a project. Rates of inflation will be reviewed as part of the ongoing monitoring arrangements to identify such adverse effects. As far as possible our exposure to this risk will be mitigated via robust contract terms and when necessary, contract re-negotiations.
· Legal and Regulatory Risk - This is the risk that changes in laws or regulation make a capital project more expensive or time consuming to complete, make it no longer cost effective or make it illegal or not advisable to complete. Before making capital investments, the Authority will understand the powers under which the investment is made. Forthcoming changes to relevant laws and regulations will be kept under review and factored into any capital bidding and programme monitoring processes.
· Fraud, Error, and Corruption - This is the risk that financial losses will occur due to errors or fraudulent or corrupt activities. Officers involved in any of the processes around capital expenditure or funding are required to follow the agreed Code of Corporate Governance. Cheshire Fire Authority has a strong ethical culture which is evidenced through its values, principles, and appropriate behaviour. This is supported by a Code of Ethics and detailed policies such as Anti-Fraud and Corruption and processes such as that in relation to declaration of interests.
Future Actions
29. This Capital Strategy looks ahead over the next 10 years to 2034 and will be refined considering emerging and changing issues, circumstances, and priorities.
Appendix 1
Capital Programme – 2024/25 – 2033/34
|
24/25 |
25/26 |
26/27 |
27/28 |
28/29 |
29/30 |
30/31 |
31/32 |
32/33 |
33/34 |
TOTAL |
|
|
Vehicles |
|||||||||||
|
Aerial Ladder Platform |
0.251 |
0.251 |
|||||||||
|
Fire appliance |
0.750 |
0.750 |
1.250 |
1.000 |
1.000 |
1.000 |
1.250 |
0.880 |
0.440 |
1.000 |
9.320 |
|
Climate change Vehicle |
0.150 |
0.500 |
0.650 |
||||||||
|
Water tower |
1.100 |
0.550 |
1.650 |
||||||||
|
Foam Pod |
0.029 |
0.029 |
0.059 |
0.029 |
0.146 |
||||||
|
Prime Mover |
0.297 |
0.297 |
|||||||||
|
Car - Small |
0.060 |
0.040 |
0.040 |
0.120 |
0.060 |
0.320 |
|||||
|
Car - Medium |
0.115 |
0.069 |
0.023 |
0.207 |
0.138 |
0.552 |
|||||
|
Car - Large |
0.054 |
0.027 |
0.081 |
||||||||
|
Car - Flexible Duty Officer |
0.224 |
0.028 |
0.083 |
0.248 |
0.110 |
0.028 |
0.083 |
0.802 |
|||
|
People Mover |
0.091 |
0.091 |
|||||||||
|
Double Cab Van |
0.054 |
0.081 |
0.054 |
0.054 |
0.054 |
0.297 |
|||||
|
Lorry |
0.045 |
0.045 |
|||||||||
|
Pick up |
0.023 |
0.138 |
0.161 |
||||||||
|
Telehandler |
0.045 |
0.045 |
|||||||||
|
Rescue Team Van |
0.123 |
0.114 |
0.237 |
||||||||
|
Mini bus |
0.028 |
0.028 |
|||||||||
|
Van - Catering Unit |
0.030 |
0.030 |
|||||||||
|
Van - Dog Unit |
0.055 |
0.055 |
|||||||||
|
Van - Large |
0.034 |
0.034 |
0.034 |
0.067 |
0.067 |
0.067 |
0.302 |
||||
|
Van - Small |
0.023 |
0.023 |
0.045 |
||||||||
|
Subtotal |
3.169 |
1.556 |
1.558 |
1.594 |
2.121 |
1.291 |
1.795 |
0.880 |
0.440 |
1.000 |
15.403 |
|
Operational Equipment |
|||||||||||
|
Breathing Apparatus sets & telemetry |
1.000 |
0.900 |
0.320 |
2.220 |
|||||||
|
Breathing Apparatus compressor |
0.053 |
0.018 |
0.018 |
0.053 |
0.063 |
0.018 |
0.071 |
0.018 |
0.310 |
||
|
Road Traffic Collision Cutting Equipment |
0.750 |
0.750 |
|||||||||
|
Ballistic Vest & Helmet |
0.250 |
0.250 |
|||||||||
|
Flow Meters & 22mm Hose Reels |
0.144 |
0.144 |
|||||||||
|
Drone |
0.030 |
0.030 |
0.030 |
0.090 |
|||||||
|
General |
0.250 |
0.250 |
0.250 |
0.250 |
0.250 |
1.250 |
|||||
|
Disposable Gastight Suits |
0.042 |
0.500 |
0.542 |
||||||||
|
Subtotal |
1.269 |
1.018 |
0.900 |
0.368 |
0.553 |
0.313 |
0.298 |
0.321 |
0.268 |
0.250 |
5.556 |
|
Buildings |
|||||||||||
|
Wylfa Training Prop |
0.125 |
0.500 |
0.625 |
||||||||
|
Blackpool Dormitory |
0.835 |
0.835 |
|||||||||
|
Drill tower replacements |
1.155 |
0.600 |
0.600 |
0.600 |
2.955 |
||||||
|
Estate Improvement Provision |
0.349 |
0.250 |
0.250 |
0.250 |
0.250 |
0.250 |
0.250 |
0.250 |
0.250 |
0.250 |
2.599 |
|
Upgrade Preston facilities |
0.500 |
0.500 |
|||||||||
|
Replacement Preston Station |
10.000 |
10.000 |
|||||||||
|
Headquarters relocation |
9.000 |
9.000 |
18.000 |
||||||||
|
Fulwood replacement |
7.000 |
7.000 |
|||||||||
|
Training Centre Props |
5.000 |
5.000 |
10.000 |
||||||||
|
Stock condition and decarbonisation surveys |
0.130 |
0.130 |
|||||||||
|
Wider Estate Planned Maintenance & Improvement Works |
0.100 |
1.646 |
1.158 |
2.049 |
2.542 |
2.000 |
9.495 |
||||
|
Development & Land Acquisition |
0.340 |
0.500 |
0.500 |
1.340 |
|||||||
|
Subtotal |
3.533 |
15.350 |
15.350 |
7.850 |
10.750 |
1.896 |
1.408 |
2.299 |
2.792 |
2.250 |
63.478 |
|
Information and Communication Technology (ICT) |
|||||||||||
|
Performance Management System |
0.500 |
0.500 |
|||||||||
|
Personal Protective Equipment asset tracking System |
0.200 |
0.200 |
|||||||||
|
Stock System |
0.200 |
0.200 |
|||||||||
|
Asset Management (Tranman) upgrade |
0.100 |
0.100 |
|||||||||
|
Development of rota management system for Retained Duty System. |
0.100 |
0.100 |
|||||||||
|
Storage Area Network (SAN) |
0.200 |
0.090 |
0.290 |
||||||||
|
Geographic Information System development |
0.100 |
0.100 |
|||||||||
|
Wide Area Network telecommunications |
0.450 |
0.450 |
|||||||||
|
Wi-Fi |
0.135 |
0.135 |
|||||||||
|
Incident Recording System |
0.050 |
0.050 |
|||||||||
|
Airwave replacement |
1.000 |
1.000 |
|||||||||
|
Incident ground radios |
0.230 |
0.230 |
|||||||||
|
Retained Duty System Alerters |
0.065 |
0.065 |
|||||||||
|
Uninterruptible Power Supply (UPS) System |
0.060 |
0.060 |
|||||||||
|
Server replacement |
0.135 |
0.135 |
|||||||||
|
Facilities Management System |
0.100 |
0.100 |
|||||||||
|
Replacement Public Switched Telephone Network |
0.070 |
0.070 |
|||||||||
|
Further digitisation of the appliances |
0.085 |
0.085 |
0.085 |
|
|
|
|
|
|
|
0.255 |
|
NWFC Computer Aided Design Capital Contribution |
0.692 |
0.561 |
0.561 |
1.814 |
|||||||
|
ICT Indicative Future Development & Replacement Budget |
0.500 |
0.500 |
0.500 |
0.500 |
0.500 |
2.500 |
|||||
|
Firefighting Robot |
0.048 |
0.048 |
|||||||||
|
Subtotal |
2.225 |
2.336 |
0.646 |
0.195 |
0.500 |
0.500 |
0.500 |
0.500 |
0.500 |
0.500 |
8.402 |
|
TOTAL CAPITAL REQUIREMENT |
10.196 |
20.259 |
18.454 |
10.006 |
13.924 |
4.000 |
4.000 |
4.000 |
4.000 |
4.000 |
92.840 |
|
Funding |
|||||||||||
|
Revenue Contributions |
2.500 |
2.000 |
3.000 |
3.500 |
4.000 |
4.000 |
4.000 |
4.000 |
4.000 |
4.000 |
35.001 |
|
Capital Reserve |
7.696 |
11.102 |
18.798 |
||||||||
|
Capital Receipts |
5.000 |
5.000 |
|||||||||
|
Grants |
|
1.000 |
|
|
|
|
|
|
|
|
1.000 |
|
Borrowing |
|
6.157 |
15.454 |
1.506 |
9.924 |
|
|
|
|
|
33.041 |
|
Total |
10.196 |
20.259 |
18.454 |
10.006 |
13.924 |
4.000 |
4.000 |
4.000 |
4.000 |
4.000 |
92.840 |
Note: The 2024/25 capital programme includes slippage from the 2023/24 capital programme approved by the Resources Committee during the year and the following additional slippage items due to timing delays: Fire Appliance £0.3m, Wylfa Prop £0.1m, Blackpool Dormitory £0.5m, Drill Tower replacements £0.6m and Estate Improvements £0.1m. These will be delivered in the first quarter of the 2024/25. The resulting revised capital programme for 2023/24 is £7.6m