Agenda item
Minutes:
The Director of Corporate Services / Treasurer presented the report. The Authority’s capital strategy was designed to ensure that the Authority’s capital investment:
· assisted in delivering the corporate objectives;
· provided the framework for capital funding and expenditure decisions, ensuring that capital investment was in line with 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;
· demonstrated value for money in ensuring the Authority’s assets were enhanced/preserved;
· described the sources of capital funding available for the medium term and how these might be used to achieve a prudent and sustainable capital programme.
Managing capital expenditure
The Capital Programme was prepared annually through the budget setting process and was reported to the Authority for approval each February. The programme set out the capital projects taking place in the financial years 2022/23 to 2026/7 and would be updated in May to reflect the effects of the final level of slippage from the current financial year (2021/22).
The majority of projects originated from approved asset management plans, subject to assessments of ongoing requirements. Bids for new capital projects were evaluated and prioritised by Executive Board prior to seeking Authority approval.
A budget manager was responsible for the effective financial control and monitoring of their elements of the capital programme. Quarterly returns were submitted to the Director of Corporate Services on progress to date and estimated final costs. Any variations were dealt with in accordance with the Financial Regulations (Section 4.71). Where expenditure was required or anticipated which had not been included in the capital programme, a revision to the Capital Programme must be approved by Resources Committee before that spending could proceed.
Proposed Capital Budget
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.
Vehicles
The Fleet Asset Management plan had been used as a basis to identify the following vehicle replacement programme, which was based on current approved lives:-
|
|
No of Vehicles |
||||
|
Type of Vehicle |
2022/23 (inc Slippage) |
2023/24 |
2024/25 |
2025/26 |
2026/27 |
|
Pumping Appliance |
7 |
6 |
5 |
6 |
6 |
|
Command Unit |
2 |
- |
- |
- |
- |
|
Water Tower |
- |
2 |
- |
- |
- |
|
Aerial appliance |
1 |
- |
- |
- |
- |
|
All-Terrain Vehicle |
1 |
- |
- |
- |
- |
|
Prime mover |
2 |
- |
- |
- |
- |
|
Pod |
1 |
- |
- |
- |
- |
|
Operational Support Vehicles |
16 |
16 |
18 |
11 |
12 |
|
|
32 |
22 |
23 |
21 |
18 |
|
|
Budget (£m) |
||||
|
Pumping Appliance |
1.490 |
1.337 |
1.156 |
1.421 |
1.457 |
|
Command Unit |
0.580 |
- |
- |
- |
- |
|
Water Tower |
- |
1.000 |
- |
- |
- |
|
Aerial appliance |
0.750 |
- |
- |
- |
- |
|
All-Terrain Vehicle |
0.016 |
- |
- |
- |
- |
|
Prime mover |
0.215 |
- |
- |
- |
- |
|
Pod |
0.028 |
- |
- |
- |
- |
|
Operational Support Vehicles |
0.359 |
0.459 |
0.504 |
0.260 |
0.353 |
|
|
3.437 |
2.795 |
1.660 |
1.682 |
1.810 |
Numbers were based on anticipated delivery dates, not order date. Several of the vehicles had long lead times, and stage payments, hence the actual timing of spend was subject to change, with any deliveries spanning across years, inevitably resulting in the need to move spend between years, usually this would be in the form of slippage into subsequent years, but occasionally there would be a need to pull budget forward to reflect an earlier delivery / stage completion date. This would be reported to Resources Committee as delivery dates were agreed.
Both the Water Towers and Aerial Appliance requirements had been approved previously by the Authority. With the exception of the these, all other vehicles were replacements.
It was noted that LFRS currently had several vehicles provided and maintained by Government under New Dimensions (5 Prime Movers and 1 Utility Terrain Vehicle), which under LFRS replacement schedules would be due for replacement during the period of the programme. However, it was understood that Government would issue replacement vehicles if they were beyond economic repair, or if the national provision requirement changed. Should LFRS be required to purchase replacement vehicles, grant from Government may be available to fund them. Based on the current position, we had not included these vehicles (or any potential grant) in our replacement plan.
Operational Equipment
With the exception of CCTV on appliances, which was an existing project that had previously been approved, all other requirements were replacements for existing end of life equipment:
ICT
The majority of the spend was on replacement/upgraded systems, with the exception of:-
· Dynamic cover tool, which supported the Service in determining optimum appliance configuration based on available resources;
· Digitisation of Fire appliances – where additional Vehicle Mounted Data Systems (VMDS) units would be provided, to improve connectivity and accessibility for Service Delivery staff outside of the office-based environment.
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.
|
|
2022/23 (inc Slippage) |
2023/ 24 |
2024/ 25 |
2025/ 26 |
2026/ 27 |
|
|
£m |
£m |
£m |
£m |
£m |
|
New Systems |
|
|
|
|
|
|
Data Warehouse |
0.100 |
- |
- |
- |
- |
|
Dynamic Cover Tool |
0.150 |
- |
- |
- |
- |
|
Replace Existing Systems |
|
|
|
|
|
|
Performance management |
0.100 |
- |
- |
- |
- |
|
Hydrant Management system |
0.025 |
- |
- |
- |
- |
|
Incident Command system |
0.100 |
- |
- |
- |
- |
|
Asset Management system |
0.050 |
- |
- |
- |
0.100 |
|
HFSC referral system |
0.100 |
- |
- |
- |
- |
|
Pooled PPE system |
- |
0.080 |
- |
- |
- |
|
Community Fire Risk Management Information System (CFRMIS) |
- |
0.100 |
- |
- |
- |
|
Rota management package (WT/On call) |
- |
- |
0.100 |
- |
- |
|
Storage Area Network |
- |
- |
0.120 |
- |
- |
|
GIS Risk Info (Cadcorp) |
- |
- |
- |
0.100 |
- |
|
WAN (Intrinsic) |
- |
- |
- |
0.450 |
- |
|
IRS/MIS (3TC) |
- |
- |
- |
0.050 |
- |
|
New Operational Communications |
|
|
|
|
|
|
Digitisation of Fire appliances - additional VMDS units |
0.254 |
- |
- |
- |
- |
|
Replace Operational Communications |
|
|
|
|
|
|
ESMCP (Airwave replacement – assumed funded by grant) |
1.000 |
- |
- |
- |
- |
|
VMDS replace existing kit |
0.361 |
- |
- |
- |
- |
|
Incident Ground Radios |
0.180 |
- |
- |
- |
- |
|
Total ICT Programme |
2.420 |
0.180 |
0.220 |
0.600 |
0.100 |
Buildings
The only new scheme included in the above programme was Service Training Centre (STC) Props, which reflected the need to upgrade/replace some of the training props at STC which were nearing end of life. This scheme was at the initial design/feasibility stage with a considerable amount of work required to develop this into a more detailed scheme with more accurate costings.
|
|
2022/ 23 (inc Slippage) |
2023/ 24 |
2024/ 25 |
2025/ 26 |
2026/ 27 |
|
|
£m |
£m |
£m |
£m |
£m |
|
New Schemes |
|
|
|
|
|
|
STC Props |
- |
- |
- |
5.000 |
- |
|
Existing Schemes |
|
|
|
|
|
|
SHQ relocation |
- |
3.250 |
8.750 |
|
- |
|
C50 – Preston replacement station |
0.500 |
7.250 |
- |
- |
- |
|
C52 Fulwood replacement station |
- |
- |
- |
2.500 |
- |
|
W30 – Blackpool Welfare |
0.450 |
- |
- |
- |
- |
|
Drill tower replacements (notional 2 per year) |
0.450 |
0.300 |
0.300 |
0.300 |
0.300 |
|
|
1.400 |
11.050 |
9.050 |
7.800 |
0.300 |
In terms of all the building proposals it was noted that requirements/designs were still being developed hence costings were indicative only. Furthermore, timings had not been agreed pending the ECR and the publication of the Government White Paper on Fire Reform, with the latter pushing back the timeframes for SHQ relocation. As such the costs and timings shown were to provide some context for decision making at this early stage of scheme developments.
Total Capital Requirements
The following table detailed capital requirements over the five-year period:
|
|
2022/ 23 (inc Slippage) |
2023/ 24 |
2024/ 25 |
2025/ 26 |
2026/ 27 |
TOTAL |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Vehicles |
3.437 |
2.795 |
1.660 |
1.682 |
1.810 |
11.385 |
|
Operational Equipment |
1.600 |
0.250 |
0.550 |
- |
- |
2.400 |
|
IT Equipment |
2.420 |
0.180 |
0.220 |
0.600 |
0.100 |
3.520 |
|
Buildings |
1.400 |
11.050 |
9.050 |
7.800 |
0.300 |
29.600 |
|
|
8.857 |
14.275 |
11.480 |
10.082 |
2.210 |
46.905 |
Capital Funding
Capital expenditure can 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 it had not needed to borrow since 2007 and had repaid a large proportion of borrowing in October 2017.
Capital Grant
Capital grants were received from other bodies, typically the Government, in order to facilitate the purchase/replacement of capital items. There was an expectation that the ESMCP project costs carried forwards from 2021/22 would receive £1.0m grant funding which was included in the programme however, it had not been confirmed that LFRS costs would be met from grant. To date no other capital grant funding had been made available for 2022/23, nor had any indication been given that capital grant would be available in future years, and hence no allowance had been included in the budget.
Capital Receipts
Capital receipts were generated from the sale of surplus property and vehicle assets, 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 expected to hold £1.7m of capital receipts as at 31 March 2022. This would be fully utilised during the 5-year programme.
Anticipated sale proceeds of £2m had been included in respect of the potential sale of the existing Fulwood site, reflecting the relocation of SHQ and the development of Fulwood Fire Station.
Capital Reserves
Capital Reserves had been created from under spends on the revenue budget in order to provide additional funding to support the capital programme in future years. The Authority expected to hold £16.7m of capital reserves as at 31 March 2022, after allowing for the transfer of the year end revenue underspend of £0.4m and the transfer of £0.4m of earmarked reserves into this (as referred to in the reserves and balances policy elsewhere on the agenda). Over the life of the programme, it was anticipated utilising all these reserves.
Revenue Contribution to Capital Outlay (RCCO)
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.
As referred to in the Revenue Budget report, elsewhere on the agenda, the revenue contribution to capital in 2022/23 had been increased to £4.0m, with gradual reductions over the remainder of the five-year programme, giving a total contribution of £15.8m over the life of the programme. This reduced the need to borrow and hence the capital financing charge associated with this.
Drawdown of Earmarked Reserves
£0.25m had been drawn down from the Innovation Reserve to fund the digitisation of fire appliances project.
Drawdown of General Reserves
No allowance had been made for the drawdown of any of the general reserve.
Total Capital Funding
The following table details available capital funding over the five-year period:
Summary Programme
Based on the draft capital programme as presented we have a shortfall of £9.5m:
|
|
2022/ 23 (inc Slippage) |
2023/ 24 |
2024/ 25 |
2025/ 26 |
2026/ 27 |
TOTAL |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Capital Requirements |
8.857 |
14.275 |
11.480 |
10.082 |
2.210 |
46.905 |
|
Capital Funding |
8.857 |
14.275 |
6.885 |
2.700 |
4.700 |
37.417 |
|
Surplus / (Shortfall) |
- |
- |
(4.595) |
(7.382) |
2.490 |
(9.487) |
This was a very large funding gap, demonstrating that the programme as set out was not achievable without significant borrowing.
Impact on the Revenue budget
The capital programme showed the Authority utilising all of its capital reserves and receipts part way through 2024/25, meaning that the remainder of the capital programme would need to be met from either capital grant (if available), additional revenue contributions or from new borrowing.
Any borrowing would impact the
revenue budget as capital financing (interest payable and Minimum
Revenue Provision - MRP) charges. As we have already set aside
funds (prepaid MRP) to offset our existing £2.0m of PWLB
borrowing we would need to take out new borrowing of £7.5m.
This has a significant impact on the revenue budget, in terms of
interest payments and setting aside a sum equivalent to the Minimum
Revenue Provision (MRP), as shown in the table below. (Note both the interest rate and the life over
which MRP is charged are subject to change.)
|
|
25 Year |
|
|
2.0% |
|
Interest per annum |
£150k |
|
MRP |
£300k |
|
|
£450k |
The revenue budget, reported elsewhere on the agenda, incorporated £0.4m in future years budgets reflecting the need to borrow.
Summary
Without borrowing the current programme was not balanced, as such the Authority would need to borrow £7.5m over the life of the programme. The cost of this borrowing was incorporated into the revenue budget in future years, which showed a balanced position throughout the medium-term planning period. Therefore, the Treasurer considered that the programme was prudent, sustainable and affordable.
As noted above, should any of the funding assumptions or expenditure items within the programme change, this would have an impact on the overall affordability of the programme.
Prudential Indicators
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, in determining the level of borrowing, the Authority must prepare and take account of a number of Prudential Indicators aimed at demonstrating that the level and method of financing capital expenditure was affordable, prudent and sustainable. These Indicators were set out at Appendix 1 now presented, along with a brief commentary on each. The Prudential Indicators were based on the programme set out above. These indicators would be updated to reflect the final capital outturn position and reported to the Resources Committee at the June meeting.
The main emphasis of these Indicators was to enable the Authority to assess whether its proposed spending and its financing was affordable, prudent and sustainable and in this context, the Treasurer's assessment was that, based on the indicators, this was the case for the following reasons: -
· In terms of prudence, the level of capital expenditure, in absolute terms, was considered to be prudent and sustainable at an annual average of £11.6m over the 3-year period. The trend in the capital financing requirement and the level of external debt were both considered to be within prudent and sustainable levels. Whilst new borrowing was required this only occurred at the tail end of the third year of the programme.
· In terms of affordability, the negative ratio of financing costs was attributable to interest receivable exceeding interest payable and Minimum Revenue Provision payments in each of the three years. This reflected the effect of the previous decision to set aside monies to repay debt.
RESOLVED: - That the Combined Fire Authority approved the: -
i) Capital Strategy;
ii) Capital Budget; and
iii) Prudential Indicators as now presented.
Supporting documents:
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