Report of the Deputy Chief Executive and City Treasurer attached

The Executive considered a report of the Deputy Chief Executive and City Treasurer, which outlined the capital outturn position for 2022/23 including total expenditure and funding, confirmed that funding sources had been managed to best utilise resources available to fund the capital programme; and presented a revised capital programme for the 2023/24 financial year after taking into account the final outturn position as reported.

The outturn for the Council’s Capital Programme in 2022/23 was £403.6m.  This represented one of the largest deliveries of capital spend in the Council’s history and was much higher than in previous years. It represented the continued significant investment in Manchester with over 220 live projects progressing during the year.

The Deputy Executive Member for Finance and Resources advised that the main variances to the Capital Budget related to Our Town Hall, The Factory, Housing Infrastructure Fund, Carbon Reduction Programme and Public Sector Decarbonisation and This City Housing. Details of these variances were contained in the report.

In regard to any unused grant, it was reported that, subject to conditions, these had been carried forward into 2023/24 and would be matched against future spend. The programme was managed to ensure that any grant with a risk of claw back due to time constraints or other factors was fully utilised in 2022/23. Similarly, any external contributions that have not been used will be carried forward into 2023/24. 

The balance of available capital receipts carried forward from 2021/22 was £114.4m.  A further £95.7m receipts were received in 2022/23 including pooled receipts from the sale of Council housing. Drawdown from capital receipts was £56.1m leaving a balance for use in future years of £154.0m, of which £94.3m relate to Housing.  Any new receipts generated in 2023/24 would be available for use in future programmes and added to the amount available. The Housing receipts were expected to support the achievement of the Council’s housing strategy and plans for their use would come forward in due course.

Insofar as revenue contributions to capital expenditure, these had been used to finance expenditure of £5.0m, including works on the Factory Public Realm (being a contribution from business rates income from the area), House of Sport, various Highways projects and the HR and Finance System replacement project. 

In relation to the HRA Capital programme, long term borrowing of £224.6m has been used to fund this. This borrowing figure represented the amount to be funded by borrowing in the long term and was not necessarily borrowed in year.  The Council’s approach to actual borrowing drawn down in year was governed by its Treasury Management strategy which had taken into account the volatility of interest rates and the base rate rises. A total of £120m of long-term external debt was borrowed in 2022/23.  The Council had to set aside part of its revenue budget for the repayment of its long term debt, this was known as the minimum revenue provision (MRP).  The MRP for 2022/23, excluding PFIs and leases, was £32.7m, and had been funded from the Council’s capital financing budget.

It was noted that inflation in the UK in the 12 months to April 2023, as measured through CPI, was currently 8.7%, down from 10.1% in March and from a recent peak of 11.1% in October 2022. Whilst this showed a downward trend which is expected to continue, the figure remains elevated.  The contingent budget now stood at £7.6m which was unlikely to cover the inflationary pressures felt. As such, it was proposed to increase the inflation budget to £30m, requiring a budget increase of £22.4m, funded from borrowing. This would be equivalent to c. 3.7% of the approved capital budget for 2023/24 onward.

Unlike the Revenue Budget the Capital Budget was subject to change as new schemes and /or external funding was received.  The budget was prepared in February each year on the best estimate of the start date and spend profile for each scheme and was refreshed in June for the Outturn Position.  Most capital schemes covered multiple years and as schemes developed the spending profile across financial years changed to reflect the agreed start on site date and delivery of the work packages.  Based on the monitoring information, it was proposed that the capital programme budget was re-phased to reflect the planned delivery of projects in 2023/24 to 2026/27 which would be reviewed throughout 2023/24 to reflect changes to the proposed profile of spend.

In addition, it was reported that there were schemes that had been developed or had received external funding that were now ready for inclusion in the Capital Programme.  The proposals which required Council approval were those which were funded by the use of reserves above a cumulative total of £10 million, where the use of borrowing was required or a virement exceeded £1m. These included the following proposed changes:-

·                ICT - Council Chamber AV Equipment.  A capital budget increase of £0.520m was requested, funded by borrowing, to replace the existing specialist Audio Visual (AV) equipment in the Council Chamber.

·                Contingency – Inflation.  As noted above, it was proposed to increase the inflation contingency by £22.4m, funded by borrowing, to reflect the persistent inflationary pressures that the capital programme was continuing to experience.

The proposals which only required Executive approval were those which were funded by the use of external resources, use of capital receipts, use of reserves below £10.0m, where the proposal could be funded from existing revenue budgets or where the use of borrowing on a spend to save basis is required.  The following proposals required Executive approval for changes to the City Council’s capital programme:-

·                Growth and Development – Shared Prosperity Fund (SPF) – Communities and Place.  A budget increase of £4.3m was requested, funded from external contributions to deliver specific projects (subject to approval) which will be designed to improve and enhance district and local centres across the city, making them better places to live, work and visit and to create the conditions for further public and private investment.

·                Highways Services – Victoria North Eastern Gateway Walking and Cycling Scheme.  A budget increase of £5.7m was requested, funded from an External Contribution via the Mayors Challenge Fund to complete the construction of a new bridge over the Ashton Canal and two Cyclops junctions at junction of Rochdale Road/ Thompson Street and Oldham Road/Thompson Street with a segregated cycle lane along Thompson Street.

·                Private Sector Housing - Disabled Facilities Grant (DFG).  A budget increase of £8.483m was requested, funded from Government Grant for home adaptations for people with disabilities.

·                Corporate Estates – Family Time Refurbishment.  A capital budget increase of £1.2m was requested funded from Capital Receipts, and a virement of £1.5m from the approved Asset Management Programme budget to deliver significant service improvement for the Family Time Service which oversees family contact.

·                Children’s Services – Education Basic Needs.  A budget increase of £23.865m was requested, funded from Government Grant to be used to address condition needs identified in the Council’s maintained schools which included community, voluntary controlled and foundation schools.

·                Private Sector Housing – Local Authority Housing Fund.  In March 2023, Council approved a £6.675m budget in the capital programme to utilise £3.267m Government Grant, match funded by the Council up to £3.408m funded by Borrowing. The scheme aimed to acquire and refurbish 30 family homes (2 to 4+ beds) for families who have arrived in the UK via Ukrainian and Afghan resettlement and relocation schemes. At the time the budget was established the expectation was this would be a temporary accommodation model, but it has been agreed that it can be permanent accommodation and will form part of the Council’s housing stock and must sit within the HRA.  A capital funding switch of £3.408m was therefore being requested, reducing borrowing and funding from HRA Reserves.

Within the Capital Strategy agreed by the Council in March 2023 as part of the budget, financing principles for new capital investment proposals were agreed including that if a project would generate a robust net income stream or revenue saving that is sufficient to meet the associated capital financing costs and it can be funded from borrowing on an invest to save basis, then it should be supported.   There was a risk that, given the agreed funding principles, the capacity to add invest to save schemes to the programme in a timely manner would be utilised quickly and therefore further full Council approvals would be needed. In the current financial environment of rising interest rates this could impact on the Council’s ability to act quickly where there were opportunities or requirements to undertake investment where the associated capital financing costs could be funded from additional income that the proposed asset would provide.  It was also agreed that the Deputy Chief Executive and City Treasurer could approve and add spend to save projects to the capital budget up to a maximum of £5m per annum, in consultation with the Executive Member for Finance and Human Resources. This was a long-standing delegation which had not been increased in line with rising capital costs, designed to support agile decision making where the risk to the Council is relatively low.

It was therefore proposed to delegate authority to the Executive to add qualifying invest to save projects to the capital budget of a further £10m per annum. This would provide a total delegated power of £15m per annum, with any approvals taken under it being reported to Council as part of the regular capital monitoring reports.

Councillor leech sought clarification in relation to the underspend within the Highways budget and whether this had been included in the 2023/24 budget for highways and whether officers were confident that the project reduction in this budget would be sufficient to dela with anticipated highway issues.  He also sought clarification as to whether there was any inflationary impact by not spending all of the proposed 2022/23 capital budget and whether the proposal to add qualifying invest to save projects to the capital budget by a further £10m per annum was in line with other Local Authorities.

Decisions

The Executive:-

(1)       Recommend that the Council approve the virements over £0.5m between capital schemes to maximise use of funding resources available to the City Council set out in Appendix C.

(2)       Recommends that the Council approve the following changes to Manchester City Council’s capital programme:-

·                ICT - Council Chamber AV Equipment.  A capital budget increase of £0.520m, funded by borrowing.

·                Contingency – Inflation.  An increase to the inflation contingency by £22.4m, funded by borrowing.

(3)       Approves the following changes to the City Council’s capital programme:-

·                Growth and Development – Shared Prosperity Fund (SPF) – Communities and Place.  A budget increase of £4.,3 funded from external contributions

·                Highways Services – Victoria North Eastern Gateway Walking and Cycling Scheme.  A budget increase of £5.7m funded from an External Contribution via the Mayors Challenge Fund.

·                Private Sector Housing - Disabled Facilities Grant (DFG).  A budget increase of £8.483m funded from Government Grant.

·                Corporate Estates – Family Time Refurbishment.  A capital budget increase of £1.2m funded from Capital Receipts, and a virement of £1.5m from the approved Asset Management Programme.

·                Children’s Services – Education Basic Needs.  A budget increase of £23.865m, funded from Government.

·                Private Sector Housing – Local Authority Housing Fund.   A capital funding switch of £3.408m, reducing borrowing and funding from HRA Reserves.

(4)       Approve the proposed additional delegation of £10m for invest to save schemes

(5)       Note the outturn of capital expenditure 2022/23 is £403.6m.

(6)       Note the changes to the outturn attributable to movement in the programme that occurred after the previous monitoring report to Executive in February 2023.

(7)       Note the decisions of the Deputy Chief Executive and City Treasurer regarding the funding of capital expenditure in 2022/23 including the use of £94.6m Grants and Contributions, £56.2m Capital receipts, £28.3m Revenue funding and £224.6m Borrowing.

(8)       Note the continued inflationary pressures being experienced across the construction industry and the requirement to increase the inflation contingency by £22.4m from the remaining £7.6m to £30m, funded from borrowing.