Agenda item

Agenda item

Capital Programme - Impact of Recent Market Changes and Budget Process

Report of the Deputy Chief Executive and City Treasurer.


This report provides members with an update on the impact of recent changes in financial and construction markets on the capital programme and provides an update on the proposed capital budget process for 2023/24.



The Committee considered a report of the Deputy Chief Executive and City Treasurer which provided an update on the impact of recent changes in the financial and construction markets on the capital programme and provided an update on the proposed capital budget process for 2023/24.


Key points and themes within the report included:


·         The current forecast for the approved capital programme over this year and the next 3 years is £1,037.8m;

·         The Council has seen costs rise across the programme since the start of 2022 and some projects have sought budget increases given the severity of the cost increases;

·         Whilst the forecast over the medium term is for inflation to subside, the price increases are not expected to reverse;

·         The cost of debt available to the Council from the Public Works Loan Board has on average more than doubled since December 2021, resulting in increased ongoing revenue costs associated with additional borrowing;

·         The current approved programme remains affordable and the Council has budgeted for capital financing costs across a number of years and built up a capital financing reserve from funding including underspends in the historic annual capital financing budget to smooth the effects of potential increases in interest rates;

·         A set of principles were proposed to ensure that the limited capital resources are prioritised to achieve best value for money. Projects should demonstrate that they support corporate priorities, including both low carbon and social value, and will be supported to proceed if:

o   the project is fully funded by external grants and contributions;

o   the project generates additional capital receipts to the Council, so the impact on resources is minimal; or

o   the project will generate a robust net income stream or revenue savings that is sufficient to meet the associated capital financing costs and therefore be funded on an invest to save basis

·         Additional borrowing will only be considered for funding a project as a last resort, if there are no other funding sources available and the project is of critical importance to the Council;

·         Proposed changes to the approval process for capital expenditure, to ensure it remains fit for purpose, reflects best practice and provides a strategic top-down as well as bottom-up approach to the development of the future programme;

·         Proposals would continue to be developed and would form part of the Capital Strategy to go to Executive in February 2023.


In introducing the item, the Chair informed the committee that he had recently undertaken a tour of the Town Hall, which was undergoing renovation, and encouraged other members to do the same.


The key points and queries that arose from the committee’s discussions included:


·         The proposed changes to when key decisions are taken on capital expenditure, and the impact this would have on the call-in process;

·         Requesting an update on the progress of the Council’s Levelling Up Funding (LUF) bid;

·         If the Council was intending on taking a tougher line on Section 106 payments given the necessity of this revenue stream;

·         Expressing concern over a suggestion that S106 monies could be used to fund projects which were not in the area of the awarding development, and how local members would be involved in the process;

·         How the implementation of a due diligence template would facilitate a more robust decision-making process; and

·         Seeking clarification as to the amount of additional borrowing required to fund the capital programme.


The Deputy Chief Executive and City Treasurer explained that the capital programme existed in a more constrained environment given the increased cost of borrowing and inflation rate. The current capital programme had facilitated significant investment in Manchester and highlighted the parameters for future programmes.


In response to a query from the Chair regarding the proposal to amend the Constitution to allow key decisions for capital expenditure to be taken at the point that the budget increase is approved, the Deputy City Treasurer confirmed that this would allow the call-in process to begin at the time that the budget is set, as opposed to when a contract is awarded. This would improve transparency and the role of the Scrutiny Committee.


The Deputy City Treasurer advised members that the Council was successful in the first round of Levelling Up Funding and a bid had been submitted within the second round for the regeneration of Wythenshawe district centre. Any funding would be capped at £20 million and a decision was anticipated before Christmas.  He also acknowledged the need for the Council to only apply for grants and funding which is relevant to the corporate priorities.


It was clarified that any S106 monies would continue to be linked to the schemes to which they are associated and that the proposed changes to the capital approval process were aimed to bring funding streams together to maximise resources and target priorities.  The Deputy Chief Executive and City Treasurer stated that the report highlighted the importance of maximising all income streams, including S106, and making sensible decisions around the capital programme.


With regards to the proposed due diligence template, the Deputy City Treasurer explained that this would form an initial ‘sense test’ for projects to ensure they fit with the Council’s priorities, whether it could generate external funding, budget implications and deliverability.  


The Deputy City Treasurer also explained that the capital programme would cost c£1 billion over 5 years with the Council borrowing around half of this. This amount had not yet been borrowed fully but Members were assured that the Council had the budget and means to repay this.




That the report be noted.

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