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 2023/24 to 2027/28 and would be updated in May to reflect the effects of the final level of slippage from the current financial year (2022/23).
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 |
2023/24 |
2024/25 |
2025/26 |
2026/27 |
2027/28 |
|
Pumping Appliance |
13 |
- |
3 |
6 |
11 |
|
Climate Change Vehicle |
2 |
- |
- |
- |
- |
|
Command Unit |
3 |
- |
- |
- |
- |
|
Water Tower |
2 |
- |
- |
- |
- |
|
Aerial appliance |
1 |
- |
- |
- |
- |
|
All-Terrain Vehicle |
1 |
- |
- |
- |
- |
|
Prime mover |
2 |
- |
- |
- |
- |
|
Pod |
3 |
- |
- |
- |
1 |
|
Operational Support Vehicles |
37 |
20 |
12 |
16 |
18 |
|
|
64 |
20 |
15 |
22 |
30 |
|
|
Budget (£m) |
||||
|
Pumping Appliance |
1.930 |
- |
0.660 |
1.320 |
2.420 |
|
Climate Change Vehicle |
0.500 |
- |
- |
- |
- |
|
Command Unit |
0.715 |
- |
- |
- |
- |
|
Water Tower |
1.027 |
- |
- |
- |
- |
|
Aerial appliance |
0.534 |
- |
- |
- |
- |
|
All-Terrain Vehicle |
0.018 |
- |
- |
- |
- |
|
Prime mover |
0.260 |
- |
- |
- |
- |
|
Pod |
0.083 |
- |
- |
- |
0.030 |
|
Operational Support Vehicles |
1.030 |
0.678 |
0.315 |
0.512 |
0.584 |
|
|
6.097 |
0.678 |
0.975 |
1.832 |
3.034 |
It was noted that several of the vehicles shown in 2023/24 had already been ordered and were subject to phased payment, hence the cost shown was the element which is due in 2023/24. Numbers were based on the 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 are agreed.
All vehicles were replacements for existing vehicles although, in the case of the Water Towers and Climate Change vehicles, these were in lieu of standard pumping appliances.
Operational Equipment
With the exception of Body Armour, all requirements were replacements for existing end of life equipment. Each of these groups of assets was subject to review prior to replacement, which may result in a change of requirements or the asset life.
It was noted that the replacement Breathing Apparatus project was in its early stages. Until such time as actual requirements in terms of type, numbers, telemetry and communications were known, it was not possible to produce a more accurate cost or timing projection, however some phasing of the implementation was anticipated, hence costs are spread over 3 years. This may change as the project progressed. Body armour requirements were subject to a trial and hence requirements may change following its outcome.
ICT
The spend was on replacement/upgraded systems. 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.
|
|
2023/24
|
2024/25 |
2025/26 |
2026/27 |
2027/28 |
|
|
£m |
£m |
£m |
£m |
£m |
|
Replace Existing Systems |
|
|
|
|
|
|
Pooled PPE system |
- |
0.100 |
- |
- |
- |
|
Stock Management system |
- |
0.100 |
- |
- |
- |
|
Asset Management system |
0.100 |
- |
- |
- |
- |
|
HFSC referral system |
0.100 |
- |
- |
- |
- |
|
Fire Risk Management System |
0.100 |
- |
- |
- |
- |
|
Rota management package (WT/On call) |
- |
0.100 |
- |
- |
- |
|
Storage Area Network |
- |
0.200 |
0.090 |
- |
- |
|
GIS Risk Info |
- |
0.100 |
- |
- |
- |
|
WAN |
- |
- |
0.450 |
- |
- |
|
IRS/MIS |
- |
- |
0.050 |
- |
- |
|
Firewall |
0.235 |
- |
- |
- |
- |
|
Wi-Fi |
0.135 |
- |
- |
- |
- |
|
New Operational Communications |
|
|
|
|
|
|
Digitisation of Fire appliances - additional VMDS units |
0.254 |
- |
- |
- |
- |
|
Replace Operational Communications |
|
|
|
|
|
|
ESMCP (Airwave replacement – assumed funded by grant) |
- |
- |
1.000 |
- |
- |
|
Incident Ground Radios |
0.230 |
- |
- |
- |
- |
|
UPS |
- |
- |
- |
- |
0.060 |
|
Total ICT Programme |
1.219 |
0.500 |
1.690 |
- |
0.060 |
Buildings
The only new scheme included in the programme was Estate Improvements provision, which was a sum to enable improvements to the estates to be made on an on-going basis.
|
|
2023/24
|
2024/25 |
2025/26 |
2026/27 |
2027/28 |
|
|
£m |
£m |
£m |
£m |
£m |
|
New Schemes |
|
|
|
|
|
|
Estate Improvements |
0.250 |
0.250 |
0.250 |
0.250 |
0.250 |
|
Existing Schemes |
|
|
|
|
|
|
Upgrade WYLFA Prop |
0.125 |
|
|
|
|
|
W30 – Blackpool Welfare |
0.500 |
- |
- |
- |
- |
|
Drill tower replacements (notional 4 per year) |
0.600 |
0.600 |
0.600 |
0.600 |
0.600 |
|
C50 – Preston replacement station |
- |
5.000 |
5.000 |
- |
- |
|
STC Props |
- |
2.500 |
2.500 |
- |
- |
|
SHQ relocation |
- |
- |
- |
7.500 |
7.500 |
|
|
1.475 |
8.350 |
8.350 |
8.350 |
8.350 |
In terms of all the building proposals it was noted that requirements / designs were still being developed hence costings were indicative only.
The replacement of Preston Fire Station was subject to the outcome of a review of response provision within the Preston area and did not include any allowance for acquisition of a new site (should one be required), as it was assumed this would be offset by the sale of the existing site.
The investment in Service Training Centre (STC) Props reflected the need to upgrade/replace some of the training props at STC which were nearing end of life.
The project to replace SHQ had been pushed back to 2026/27, as a definitive decision on the project was required in order to further develop cost and timing. If the relocation did not go ahead, then the existing provision would need to be reviewed and there was a need to undertake improvement works to ensure appropriate accommodation provision for the next 10 years.
The budget did not include any allowance for updating the property infrastructure to meet future Electric Vehicle charging requirements.
Total Capital Requirements
The following table details capital requirements over the five-year period:
|
|
2023/24
|
2024/25 |
2025/26 |
2026/27 |
2027/28 |
TOTAL |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Vehicles |
6.097 |
0.678 |
0.975 |
1.832 |
3.034 |
12.616 |
|
Operational Equipment |
1.325 |
0.792 |
1.000 |
0.900 |
0.320 |
4.337 |
|
IT Equipment |
1.219 |
0.500 |
1.690 |
- |
0.060 |
3.469 |
|
Buildings |
1.475 |
8.350 |
8.350 |
8.350 |
8.350 |
34.875 |
|
|
10.116 |
10.320 |
12.015 |
11.082 |
11.764 |
55.297 |
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 would be offset by capital grant, however this had not been confirmed. To date no other capital grant funding had been made available, 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 2023. This would be fully utilised during the 5-year programme.
It was highlighted that the relocation of SHQ would provide an opportunity to sell part or all of the site, subject to any changes at Fulwood Fire Station, however any sale proceeds would not be realised within the timeframe of this programme.
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 £18.6m of capital reserves as at 31 March 2023. 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 was currently set at £4.0m per year, giving a total funding of £20.0m over the 5 years. This reduced the need to borrow and hence the capital financing charge associated with this.
Drawdown of Earmarked Reserves
£0.4m had been drawn down from the Innovation Reserve / Earmarked Reserve to fund the digitisation of fire appliances project and part of the Wylfa prop upgrade.
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 there was a shortfall of £13.6m:
|
|
2023/24
|
2024/25 |
2025/26 |
2026/27 |
2027/28 |
TOTAL |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Capital Requirements |
10.116 |
10.320 |
12.015 |
11.082 |
11.764 |
55.297 |
|
Capital Funding |
10.116 |
10.320 |
12.015 |
5.197 |
4.000 |
41.648 |
|
Surplus / (Shortfall) |
- |
- |
- |
(5.885) |
(7.764) |
(13.649) |
This showed there was a significant funding gap.
Impact on the Revenue budget
The capital programme showed the Authority utilising all of its capital reserves and receipts part way through 2026/27, 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.
The draft budget as set out showed a need to borrow £13.6m. As there had already been £2.0m of funds set aside, this would entail £11.6m of new borrowing. This had 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. (It was noted that both the interest rate and the life over which MRP was charged were subject to change.)
|
|
26/27 Impact
|
27/28 Impact |
|
Interest per annum |
£88k |
£350k |
|
MRP (MRP is only charged in year after purchase) |
- |
£118k |
|
|
£88k |
£468k |
The cost of this borrowing was incorporated into the revenue budget in future years, but the full year effect of this borrowing would not be felt until 2028/29, where the total cost would be £0.8m.
Summary
Without borrowing, the current programme was not balanced, as such the Authority would need to borrow £11.6m over the life of the programme. The cost of this borrowing was incorporated into the revenue budget however, this only impacted the last year of the Medium Term Financial Strategy. Given this, the Treasurer considered that the programme was prudent, sustainable and affordable in the medium term.
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.
The Chairman commented that HMICFRS inspection outcome evidenced that the Authority had invested in specialist and appropriate equipment (including vehicles, drones and ICT) to ensure the Service had the right equipment at the right time.
The Vice-Chairman added that the majority of capital costs related to the replacement of Preston station and potential relocation of Service Headquarters (as set out on page 149 of the agenda pack). He reminded Members that this had been discussed earlier on the agenda under the Planning Committee item which included a Task and Finish Working Group be established to support these projects.
Resolved: That the Authority approved the: -
i) Capital Strategy;
ii) Capital Budget; and
iii) Prudential Indicators as now presented.
Supporting documents:
PDF 281 KB