Agenda item

The Director of Corporate Services/Treasurer presented the draft capital programme 2017/18 – 2021/22. 

 

Capital Budget Strategy

 

The Authority’s capital strategy was designed to ensure that the Authority’s capital investment:-

 

·        Assisted in delivering the corporate objectives;

·        Supported priorities identified in asset management plans;

·        Ensured statutory requirements were met, i.e. Health and Safety issues;

·        Supported the Medium Term Financial Strategy by ensuring all capital investment decisions considered the future impact on revenue budgets;

·        Represented value for money.

 

Capital Requirements

 

Capital expenditure was expenditure on major assets such as new buildings, significant building modifications and major pieces of equipment/vehicles.

 

The Service had developed asset management plans which assisted in identifying the long-term capital requirements. These plans, together with the operational equipment register had been used to assist in identifying total requirements and the relevant priorities.  The report set out the detailed capital programme as summarised in the table below: -

 

	2017/18	2018/19	2019/20	2020/21	2021/22	TOTAL
	£m	£m	£m	£m	£m	£m
Vehicles	1.659	1.806	2.814	0.962	1.070	8.311
Operational Equipment	0.420	0.350	1.550	0.250	0.435	3.005
Buildings	4.750	4.000	-	-	-	8.750
IT Equipment	1.350	0.545	0.720	0.210	0.200	3.025
Total	8.179	6.701	5.084	1.422	1.705	23.091

 

Vehicles

The Fleet Asset Management plan had been used as a basis to identify a vehicle replacement programme which had been adjusted to remove peaks in the number of vehicle replacements in any one year for a number of years now.  This had inevitably resulted in some vehicles being replaced marginally ahead of or behind schedule in the past, but provided a better basis for longer term replacement strategies.  As a result of this only one support vehicle due for replacement in the period of the programme would be delayed by one year. 

 

The mobile fire station replacements related to two vehicles at the end of their current asset lives, however a review of requirements for these appliances was planned to commence shortly in order to determine a final design and hence costing estimate for approval.

 

Several vehicles provided and maintained by CLG under New Dimensions (6 Prime Movers and 1 Incident Response Unit), which would be due for replacement during the period of the programme had not been included in the replacement plan as it was understood that CLG would issue replacement vehicles if they were beyond economic repair, or if the national provision requirement changed.  Should there be a requirement to purchase replacement vehicles, a grant from CLG might be available to fund them.

 

Operational Equipment

The budget plan allowed for the replacement of items at the end of their current asset lives, based on current replacement cost.  In addition a further ongoing provision of £1m allowed for innovations in future firefighting equipment after the £1m budget allocated in 2016/17 had been fully utilised by the end of 2017/18.

 

Buildings

The current level of backlog maintenance had reduced significantly, reflecting the investments the Authority had made in its building stock.  Following completion of works budgeted during 2016/17, the Authority would only have Preston fire station classed as in poor condition.  In addition, the Emergency Cover Review (ECR) planned for completion during 2017/18 may highlight the requirement to make changes to stations; hence a sum of £7.5m spread over two financial years had been included to give scope for these changes once known. In addition to this a further sum of £1.25m had been included in the programme to allow for investment in training assets at two specific service delivery locations at the Training Centre in order to maximise the efficiency and consistency of staff training, in particular Retained Duty System staff.  Further work was underway to identify the exact requirement and scope for these hence this sum was an estimate and would be refined prior to seeking Member approval for any large scale projects within it.

 

ICT

The sums identified for the replacement of various ICT systems were in line with the software replacement lifecycle schedule incorporated into the ICT Asset Management Plan.  All replacements identified in the programme would be subject to review, with both the requirement for the potential upgrade/replacement and the cost of such being revisited prior to any expenditure being incurred. Of particular note were the anticipated replacements for the operational communications assets most of which were affected by the national Emergency Services Mobile Communications Project (ESMCP) to deliver a replacement for Airwave (the wide area radio system currently used for mobilising by all blue light services).  The ESMCP had now signed the main contracts with EE and Motorola for the network and network equipment respectively.  Since the signing of the contract, there had been considerable work done by the suppliers, central programme team and emergency services in the regions.  However, there were still some areas that needed to be resolved, and therefore the original go live for the North West (the first region to go live) had moved on 3 months to January 2018.  As there were still further details to be added to the national project plan, all Services awaited the final programme dates, and the regional programme team would update Services as soon as information was received.  It was anticipated that all costs would be met by the government which were reflected in the figures presented to Members.

 

Capital Funding

 

Capital expenditure could be funded from the following sources:

 

Prudential Borrowing

The Prudential Code gave the Authority increased flexibility over its level of capital investment and much greater freedom to borrow, should this be necessary, to finance planned expenditure.  However, any future borrowing would incur a financing charge against the revenue budget for the period of the borrowing. Given the financial position of the Authority, there had been no need to borrow since 2007 and based on the draft capital programme this position would not change.

 

Capital Grant

Capital grants were received from other bodies, typically the Government, in order to facilitate the purchase/replacement of capital items.  Capital funding included an assumed £0.8m capital grant relating to the ESMCP.  To date no other capital grant funding had been made available for 2017/18, nor had any indication been given that capital grant would be made available in future years and hence no allowance had been included in the budget as now presented.

 

Capital Receipts

Capital receipts were generated from the sale of surplus land and buildings, with any monies generated being utilised to fund additional capital expenditure either in?year or carried forward to fund the programme in future years.  The Authority currently held £1.5m of capital receipts following the sale of surplus site at Chorley.  It was not anticipated using any of this over the life of the programme.

 

Capital Reserves

Capital Reserves had been created from underspends on the revenue budget in order to provide additional funding to support the capital programme in future years. Following completion of the 2016/17 capital programme, and allowing for the transfer of the year end underspends, the Authority expected to hold £12.1m of capital reserves. Over the life of the programme it was anticipated using £10.6m, leaving a balance of £1.5m by the end of 2021/22.

 

Revenue Contribution to Capital Outlay

Any revenue surpluses may be transferred to a Capital Reserve in order to fund additional capital expenditure either in?year or carried forward to fund the programme in future years.  The revenue contribution reduced from £2.0m in 2017/18 to £1.75m for the remainder of the programme.

 

Drawdown of Earmarked Reserves

The programme allowed for the use of £0.049m of earmarked reserves related to the provision of training facilities at STC, and was linked to a donation received from a member of the public.

 

Drawdown of General Reserves

Previous versions of the capital programme had shown the Authority utilising all its capital reserves and receipts by the end of the 5 year period, meaning that any longer term capital requirements would need to be met from either capital grant, revenue contributions or from new borrowing.  Potentially this would leave a problem in future years as the on-going revenue contribution of £1.75m was insufficient to meet the vehicle and ICT replacement programme, let alone any other capital requirements.  As such it was proposed to utilise £2.6m of general reserves over the 5 year programme, resulting in the Authority still holding £3.0m of capital receipts and reserves at the end of the period, and therefore being in a stronger position to meet recurring capital requirements. 

 

Total Capital Funding

 

The report set out the level of capital funding available as summarised in the table below: -

 

	2017/18	2018/19	2019/20	2020/21	2021/22	TOTAL
	£m	£m	£m	£m	£m	£m
Capital Grant	0.800	-	-	-	-	0.800
Capital Receipts	-	-	-	-	-	-
Capital Reserves	2.730	4.951	3.334	(0.328)	(0.045)	10.642
Revenue Contributions	2.000	1.750	1.750	1.750	1.750	9.000
Earmarked Reserves	0.049	-	-	-	-	0.049
General Reserves	2.600	-	-	-	-	2.600
	8.179	6.701	5.084	1.422	1.705	23.091

 

Summary Programme

 

The summary of the programme, in terms of requirements and available funding, are set out below: -

 

	2017/18	2018/19	2019/20	2020/21	2021/22	TOTAL
	£m	£m	£m	£m	£m	£m
Capital Requirements	8.179	6.701	5.084	1.422	1.705	23.091
Capital Funding	8.179	6.701	5.084	1.422	1.705	23.091
Surplus/(Shortfall)	-	-	-	-	-	-

 

The programme was currently balanced over the next 5 years of the capital programme however, it was noted that the funding assumptions could change as follows:-

 

·      Operational Communications replacements (ESMCP) were subject to a great deal of uncertainty in terms of both timing and costs as they related to a national replacement project, in addition there may be grant funding available for this which was also unknown at this time;

·      Buildings budgets were subject to uncertainty until the outcomes of the stock condition survey, the forthcoming Emergency Cover Review, and the review of training assets were known;

·      Capital grant may be made available in future years, in order to assist service transformation and greater collaboration;

·      Replacement of both the Mobile Fire Stations and Aerial Ladder Platforms were subject to a review and vehicle requirements could be amended;

·      New Dimensions vehicle replacements were expected to be carried out by the Government, however this position may change;

·      All operational equipment item replacements were at estimated costs, and would be subject to proper costings nearer the time;

·      ICT software replacements were based largely on the ICT asset management plan, and were subject to review prior to replacement, which had led in the past to significant slippage.

 

The programme was balanced, and as such considered prudent, sustainable and affordable. Although it was recognised that future funding levels, both in terms of revenue and capital, would inevitably impact upon the achievability of the programme as identified.

 

Impact on the Revenue budget

 

It was noted that the capital programme and its funding directly impacted on the revenue budget in terms of capital financing charges and in terms of the revenue contribution to capital outlay. Based on the provisional 4 year funding settlement the position in respect of the revenue contribution appeared sustainable until at least March 2020. Dependent upon the future funding position the revenue contribution to capital may come under increased pressure.

 

Prudential Indicators

 

The Authority was required to calculate various prudential indicators to demonstrate that the proposed capital programme was affordable, prudent and sustainable.   It was noted that these had not yet been calculated, but would be included in the Authority report in February 2017.

 

RESOLVED:-

 

(i)      That the draft Capital Programme 2017/18 - 2021/22 be noted;

 

(ii)     That the Authority authorise consultation with representatives of non-domestic ratepayers and Trade Unions on the budget proposals;

 

(iii)    That the Authority gives further consideration to the capital budget at their next meeting on 20 February 2017, in light of the consultation process.