Appendix 4 - Capital Programme Update

1          Background

1.1      Through the Reconciling Policy Performance and Resources (RPPR) process the Capital Strategy and programme are reviewed annually to ensure that they support the Council’s responsibilities and departmental service strategies. To manage investment to a sustainable level, the Capital Strategy focuses on the delivery of targeted basic need for the council to continue to deliver services as efficiently as possible, rather than rationing through prioritisation. This is in recognition that there will be conflicting priorities but that a level of investment is needed across the council in order to deliver the council’s services and react to changes in technology, economy and the environment. Basic need for the purpose of strategic capital planning is provided below: -

·         Place: ensuring we can deliver services by planning for future need.

·         Asset Condition: maintaining our assets to an agreed level.

·         ICT Strategy: ensure that our ICT is fit for purpose for delivering modern council services in a digital era and protecting data.

·         Climate Change: tackling climate change has become part of ESCC core business, investment will be required towards the achievement of carbon neutrality.

1.2      At Full Council in February 2022 the target led basic need capital strategy of 20 years, supported by a 10-year planned capital programme was approved. The strategy provides for the programme being updated annually to maintain this 10-year planning horizon unless there is a compelling reason not to, this will be done as part of the RPPR process.

1.3      The capital programme 2021/22 to 2031/32 reported as part of the Budget in February 2022 had a total programme expenditure of £752.9m. Table 1 below provides details of the funding.

Table 1 - Capital Programme funding (£m)

2021-2032

Formula Grants

(230.4)

S106/CIL target

(24.1)

S106/CIL identified contribution

(14.3)

Specific Funding (inc. grants, partner contributions etc.)

(32.0)

Capital Receipts

(21.0)

Reserves and Revenue set aside

(56.7)

New Homes Bonus

(0.8)

Borrowing

(373.6)

Total Programme Funding

(752.9)

1.4       In addition to the basic need programme the Capital Strategy allows for the Council to consider business cases where a clear payback or funding stream can be demonstrated. Any payback reducing the borrowing in the year it is received and therefore contributing to the ongoing sustainability of the programme.

1.5      As such these projects are not included in the capital programme until their overall impact, including funding implications, have been assessed and approved.      

2          Capital Programme Update

2.1       Table 2 below summarises the gross movements to the approved capital programme since budget setting in February 2022, noting that the first 3 years of the programme to 2024/25 are approved, whilst the remaining years to 2031/32 are indicative to represent longer term planning against priority outcomes for capital investment. The movements reflect the 2021/22 outturn position and other updates in accordance with the approved governance and variation process.

Table 2 - Capital Programme (gross) movements (£m)

2021/22

MTFP Programme

2025/26 to 2031/32

Total

2022/23

2023/24

2024/25

Approved programme at February 2022

88.219

101.899

77.088

78.892

406.781

752.879

Approved Variations (see 2.2)

(2.329)

1.696

(0.500)

0.250

-

(0.883)

2021/22 Net Slippage / Service Reprofiles (2.3)

(10.022)

(7.926)

6.132

4.619

7.197

0.000

2021/22 Underspend (2.3)

(0.275)

(0.081)

-

-

-

(0.356)

2021/22 Covid-19 Related (2.3)

0.326

-

-

-

-

0.326

2021/22 Expenditure (2.3)

(75.919)

-

-

-

-

(75.919)

Total Programme

0.000

95.588

82.720

83.761

413.978

676.047

 

2.2       Net nil approved variations to the programme since Budget in February 2022 total a reduction of £0.883m. This reflects that funded increases to the programme have been offset by a large reduction of £3.5m in the LEP programme due to the Getting Building Fund Fast Track Business Solutions project not meeting conditions attached to the funding award. Funding, therefore, was removed and the project withdrawn from the capital programme.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 3 – Net nil approved variations and programme movements since February 2022

Gross Variation (£m)

Capital Building Improvements – Additional Schools Condition Allocation grant (formula grant)

0.882

Other Integrated Transport Schemes: Additional Grant (formula grant)

0.022

Other Integrated Transport Schemes: Uckfield Bus Station (revenue set aside)

0.150

Peacehaven Library Refurbishment & Conversion (revenue set aside)

0.070

The Keep (revenue set aside)

0.005

Rights of Way Vehicle (revenue set aside)

0.024

Schools Delegated Capital Expenditure 2021/22 (specific grant and schools contributions)

0.788

IT&D Strategy Implementation: Workstyles Technology (specific reserves)

0.152

Flood and Coastal Resilience Innovation Programme (specific grant)

0.445

Emergency Active Travel Fund – Tranche 1 (specific grant)

0.019

Salix Solar Panels (Specific Grant)

0.025

Salix Grant programme 2021/22 outturn (specific grant)

(0.265)

Getting Building Fund: Food Street (Local Enterprise Partnership (LEP) Specific Grant)

0.100

Getting Building Fund: Seven Sisters (Local Enterprise Partnership (LEP) Specific Grant)

0.200

Getting Building Fund: Fast Track Business Solutions (LEP Specific Grant removed)

(3.500)

Programme Movement: Other Integrated Transport Schemes – allocate funding to specific scheme below (formula grant)

(1.100)

Programme Movement: Eastbourne Town Centre Phase 2 (formula grant)

0.900

Programme Movement: A22 Corridor Scheme (formula grant)

0.200

Programme Movement: Community Match Fund – allocate underspend to community focused road safety interventions (capital reserve)

(0.750)

Programme Movement: Community Focused Road Safety Interventions (capital reserve)

0.750

Total Variations

(0.883)

 

2.3       Total 2021/22 capital expenditure was £75.9m against an approved budget of £85.9m (including a net budget reduction of £2.3m of approved variations detailed above), resulting in a variation to budget of £10.0m (compared to net variation estimated of £3.5m forecast at Q3). This variation comprises of slippage of £10.0m which has been reprofiled into future years following a review by services and Capital and Strategic Asset Board, and an underspend of £0.3m on the planned programme. In addition, there is £0.3m of projected COVID-19 related costs that will be funded from COVID-19 specific or tranche funding, thereby having a net nil impact on the Council’s capital programme. Details of this are presented in the Q4 monitoring.

2.4      A detailed programme has been included Annex 1.

3          Funding Update

3.1    At budget setting in February 2022 several announcements regarding future formula grant allocations were still outstanding. Assumptions previously made for planning purposes relating to these were therefore not changed, as levels were considered reasonably prudent. Given that these non-specific grants are used to fund the approved targeted Basic Need capital programme, but not to inform the level of investment. The level of investment being a strategic decision by the Council. Therefore, the Capital Strategy asserts that any additionality is used to reduce the Councils need to borrow.

3.2    The February 2022 report also considered the potential increased burdens of pending planning system reform and the trend of Community Infrastructure Levy contributions to focus on transport infrastructure work (which is added via approved variation as net nil to the programme). Both have increased the risk of achieving the S106/CIL funding target identified in the programme. Additionally, on the 11 May, the Government introduced the Levelling Up and Regeneration Bill into Parliament. Within this Bill are likely to be changes to the mechanism currently used for securing new and improved/expanded infrastructure (i.e. S106 agreements and CIL) with the introduction of a single Infrastructure Levy which continues to increase the uncertainty with regard this funding stream. The capital update approved at Full Council in February proposed that, due to this ongoing uncertainty, any increase in capital formula grant allocations in 2022/23 would look to reduce the Section 106/CIL income target. With the caveat that additional grant over the current assumption for Highways, will first be considered against further capital investment opportunities.

3.3     Considering the above, table 4 provides the capital funding position, updated to reflect the 2021/22 outturn position, approved variations and Government funding announcements.

Table 4 - Capital Programme Funding movements (£m)

As at February 2022

Approved Variations and Programme Updates  (see 2.2)

2021/22 (Under) / Over Spend (2.3)

2021/22 Use (2.3)

Other Funding Changes

Updated Funding

Section 106 & CIL - identified (see 3.8)

14.282

-

-

(5.916)

1.257

9.623

Section 106 & CIL - Target (see 3.4 and 3.8)

24.068

-

-

-

(4.861)

19.207

Other Specific Funding

31.704

(2.632)

-

(10.330)

-

18.742

Capital Receipts (see 3.9)

21.004

-

-

(5.840)

4.136

19.300

Formula Grants (see 3.4)

230.391

0.904

-

(22.916)

12.226

220.605

New Homes Bonus Grant*

0.816

-

-

-

-

0.816

Reserves and Revenue set aside

56.731

0.845

(0.153)

(5.185)

2.089

54.327

Covid-19 Grant Funding

0.250

-

0.326

(0.365)

-

0.211

Borrowing

373.633

-

(0.203)

(25.367)

(14.847)

333.216

Total Programme Funding

752.879

(0.883)

(0.030)

(75.919)

0.000

676.047

* If New Homes Bonus is received in 2023/24 a decision will be made through the RPPR process regarding its potential use for capital.

3.4    More detail of the £12.2m additional funding (2022/23 – 2024/25) from formula grants is provided in table 5 below. Initial proposals, in line with the position presented in February 2022, would reduce borrowing by £8.6m and the S106/CIL target by £3.6m and as set out below:

Table 5 – Changes to Formula Grants

2022/23

2023/24

2024/25

Total

Local Transport Capital Block Funding (3.5)

2.939

0.000

0.000

2.939

School Basic Need capital allocation (3.6)

0.329

2.682

(1.622)

1.389

HNPCA capital allocation change (3.7)

3.275

4.623

0.000

7.898

Total Changes to Formula Grants

6.543

7.305

(1.622)

12.226

Total reduction to borrowing

2.939

7.305

(1.622)

8.622

Total reduction to S106 and CIL target

3.604

-

-

3.604

Total Changes to Funding

6.543

7.305

(1.622)

12.226

 

3.5     Local Transport Capital Funding: On 28 February 2022 the Department for Transport announced the allocation of Local Transport Capital Block Funding (comprising Highways Maintenance Block and including the Potholes Fund) to local authorities for the financial year 2022/23 and indicative allocations for the years 2023/24 and 2024/25 subject to consultation. This represents an increase in funding of £2.939m for 2022/23 compared to assumed grant, currently no increase has been included for the latter 2 years so that a prudent approach can be taken ahead of the outcome of consultation. In line with the principles outlined in the Capital Strategy, the additional allocation announced for 2022/23 is proposed to reduce the required borrowing, supporting the highways maintenance programme, of £53.6m by £2.939m. For prudence, no further reduction to borrowing will be applied for the subsequent two years. Should the outcome of the consultation confirm the additional funding then this would also reduce the borrowing requirement in line with Capital Strategy principles.

3.6     Schools Basic Need Allocation: On 28 March 2022 the Department for Education (DfE) made various announcements with regard to schools’ capital funding to local authorities for the 2022/23 financial year and beyond. With regards to Schools Basic Need capital allocation, the announcement based principally on data collected from local authorities in the 2021 School Capacity Survey (SCA), represents a total increase in funding of £1.389m (£0.329m in 2022/23 and a total of £1.060m in the following two years) compared to assumed grant funding. ESCC allocates this grant to fund the Schools Basic Need capital programme to meet the statutory duty of providing sufficient school places. The programme is also supported by S106/CIL contributions and borrowing. The required level of investment is historically greater than the level of basic need grant received, with a borrowing requirement of £28.0m over the period 2021/22 to 2024/25. It is proposed that the £0.329m increase in 2022/23 will be used to reduce the Section 106/CIL income target in line with the principles agreed in February 2022, and the additional grant in later years would reduce the level of borrowing associated to the Schools Basic Need programme in line with the principles outlined in the Capital Strategy.

3.7    High Need Provision Capital Allocation (HNPCA): The DfE announcement on 28 March 2022 also included allocations for the HNPCA for 2022/23 and 2023/24. The announcement represents a total increase in funding of £7.898m (£3.275m in 2022/23 and £4.623m in 2023/24 compared to assumed grant funding. ESCC allocates this grant to fund the programme of required SEND places. The required level of investment is historically greater than the level of grant received, with a borrowing requirement of £13.9m over the MTFP to 2024/25 (including for provision at Grove Park / Beacon). It is proposed that the £3.275m increase in 2022/23 will support the current investment in SEND, but rather than reduce borrowing, will be used to reduce the S106/CIL income target in line with the principles agreed in February 2022. The additional grant in later years would then reduce the level of borrowing associated to the SEND programme in line with the principles outlined in the Capital Strategy.

3.8    S106 and CIL update: Ongoing work through the cross departmental CIL and S106 working           group has identified a further £1.257m of S106 contributions that can be used to fund basic need programme. This will reduce the S106/CIL funding target identified in the capital programme. There continues, however, to be a risk that the current target for Infrastructure Contributions to support the programme is too high. A detailed review of the risk associated to the income target will be carried out as part of the RPPR process. S106 and CIL funding contributions provide an important source of funding towards basic need requirements and unfunded infrastructure schemes, and can often facilitate leverage of additional external funding. CET had previously identified £27m of transport infrastructure requirements up to 2024 to support the delivery of growth allocations in Local Plans across the County. Work has been ongoing to update this requirement, with latest estimates being a total requirement of £171.5m up to 2030. These schemes are funded by development contributions including S106 and CIL and other external funding sources and, in line with the Capital Strategy, will be approved via variation as funding streams are confirmed and will have a net nil impact on the capital programme.

3.9    Capital Receipts update: Review and refinement of Property Services schedule of capital receipts is undertaken on a regular basis with estimates are based on Property Officers’ professional judgement on a site by site basis. This is supported by the work undertaken recently and successfully getting a number of surplus properties to the point of sale. Following a recent review, it is suggested that anticipated capital receipts can be increased by £4.136m for capital planning purposes.

4          Programme Risks and Pressures

4.1     A £7.5m ongoing risk provision was approved in February 2022 to mitigate against capital programme risks, representing more than 2% of the programme over the MTFP period. This risk provision is a permission to borrow for emerging risks and is managed through ensuring Treasury Management capacity rather than representing funds that are within the Council’s accounts. There are several risks and uncertainties regarding the programme to 2024/25 and beyond which have necessitated holding a risk provision, these risks as reported at Budget 2022 include:

·      Excess inflationary pressures on construction costs

·      Uncertainty about delivery of projects in the programme, e.g. highways and infrastructure requirements

·      Any as yet unquantifiable impact of supply issues and cost increases

·      Any as yet unknown requirements,

·      Residual project provision (previously removed) if required; and

·      Uncertainty regarding the level of government grants and the ability to meet CIL and S106 targets.

 

4.2     There are currently increased uncertainties that exist within the construction industry in terms    of supply chain issues and high-cost inflation. The capital programme includes an element of ‘normal’ level of inflation for ongoing target-based core programmes (as opposed to programmes that have cash limited envelopes) such as Highways of 3% annually, with any increases above this level to be covered by the risk provision.

 

4.3     In addition, it is anticipated that there will be increasing pressures on the current programme due to the climate change agenda meaning additional requirements will need to be incorporated into the current programme, such as emerging environmental planning requirements and low carbon replacements of current assets. Emerging pressures on supply chain and inflation should be reported to Capital and Strategic Asset Board so they can be considered as part of the broader RPPR process.


 

 

5          Programme Update and Review / RPPR Next Steps  

5.1      Work will now be progressed as part of the RPPR process to extend the programme by a further year to maintain a 10-year planning horizon and ensure continued links into, and support of, the Council’s other strategies. As well as adequacy of the risk provision and climate emergency work allocation.

5.2      The Capital Strategy will also be reviewed to ensure it continues to drive investment ambition in line with the Council’s priorities and to continue to include equality impact assessments (EQIAs) as part of the capital RPPR process. Whilst also providing for appropriate capital expenditure, capital financing and treasury management within the context of sustainable, long-term delivery of services. Updates to the Capital Strategy approved in February 2022 included the emerging relevance of Environment, Social and Governance (ESG) considerations.

5.3      Any ongoing pressures and issues that Covid-19 presents will continue to be reviewed as part of the Council’s performance monitoring process and funding options will be considered if specific mitigations are not forthcoming.

5.4       As part of RPPR Service Departments will also, as normal be asked to conduct a general review of their specific investment need. Specific issues arising are set out below: -

·         Highways Maintenance: impact of the highways contract.

·         Special Education Needs and Disability (SEND) School Places: further SEND provision.

·         Schools Basic Need: School Basic need requirements based on SCAP returns and District/Borough council local plans.

·         Workstyles investment: a jointreview of investment need (including on IT&Digital) to support changing workstyles where the impact of the pandemic has provided opportunities to accelerate planned changes of new working practices.

·         Carbon Neutral Commitment: adequacy of provision. 

·         Opportunity to bid for One Off funding from the £5.175m Services Grant allocation set aside as part of the budget in February 2022:this is a separate process.

·         Ongoing business case development outside basic need.

 

6          Conclusion

6.1      This report provides an update on current approved capital programme as part of the annual RPPR cycle. Work will now be progressed as part of the RPPR process to extend the programme by a further year to maintain the 10-year planning horizon and link into and support the Council’s other strategies.  The Capital Strategy and programme will be reviewed, considering other Council strategies as defined in the Capital Strategy, any requirements outside basic need will need to be supported by a business case.

 

 

 

 

 

 

 

 

 

 

 

 

Annex A – Detailed Capital Programme

 

Capital Programme (gross) (£m)

MTFP Programme

2025/26 to 2031/32

Total

2022/23

2023/24

2024/25

Adult Social Care:

 

 

 

 

 

House Adaptations

0.050

0.050

0.050

-

0.150

Greenacres

0.144

-

-

-

0.144

Adult Social Care Total

0.194

0.050

0.050

-

0.294

Business Services:

 

 

 

 

 

Salix Contract

0.350

0.350

0.350

2.450

3.500

Lansdowne Secure Unit – Phase 2

0.075

-

-

-

0.075

Special Educational Needs

1.600

1.589

-

-

3.189

Special Educational Needs – Grove Park / Beacon

2.500

5.000

6.000

5.600

19.100

Special Provision in Secondary Schools

0.120

-

-

-

0.120

Disability Children’s Homes

0.218

-

-

-

0.218

Westfield Land

0.721

-

-

-

0.721

Schools Basic Need

5.416

5.517

15.853

71.737

98.523

Capital Building Improvements (Schools)

5.179

4.182

4.182

29.274

42.817

Capital Building Improvements (Corporate)

3.439

4.520

4.520

31.640

44.119

IT & Digital Strategy Implementation

12.237

13.057

4.928

48.625

78.847

IT & Digital Strategy Implementation - Utilising Automation

0.024

-

-

-

0.024

Business Services Total

31.879

34.215

35.833

189.326

291.253

Children’s Services

 

 

 

 

 

House Adaptations

0.050

0.050

0.050

-

0.150

School Delegated Capital

0.729

1.150

1.150

-

3.029

Conquest Centre Redevelopment

0.015

-

-

-

0.015

Children’s Services Total

0.794

1.200

1.200

-

3.194

Communities, Economy & Transport:

 

 

 

 

 

Broadband

0.911

2.757

2.757

-

6.425

Salix Solar Panels

0.077

-

-

-

0.077

Climate Emergency Works

2.090

1.516

5.922

-

9.528

Flood & Coastal Resilience Innovation Programme

0.250

-

-

-

0.250

Bexhill and Hastings Link Road

0.318

-

-

-

0.318

Bexhill and Hastings Link Road – Complementary Measures

0.167

0.060

-

-

0.227

Economic Intervention Fund – Grants

0.282

0.435

0.300

1.054

2.071

Economic Intervention Fund – Loans

0.497

0.500

0.500

0.473

1.970

Stalled Sites

0.055

0.120

0.104

-

0.279

Upgrading Empty Commercial Properties

-

0.007

-

-

0.007

Community Match Fund

0.100

0.380

-

-

0.480

Community Road Safety Interventions

0.250

0.250

0.250

-

0.750

Newhaven Port Access Road

0.189

0.020

0.776

-

0.985

Real Time Passenger Information

0.074

0.078

0.060

0.061

0.273

Queensway Depot Development

0.175

0.466

-

-

0.641

Hailsham HWRS

0.164

-

-

-

0.164

The Keep

0.132

0.096

0.026

0.823

1.077

Other Integrated Transport Schemes

3.144

5.440

5.209

21.867

35.660

Integrated Transport Schemes – A22 Corridor

0.200

-

-

-

0.200

Exceat Bridge Replacement

2.176

3.733

2.509

-

8.418

Emergency Active Travel Fund – Tranche 2

0.756

-

-

-

0.756

Libraries Basic Need

0.497

0.789

0.449

2.245

3.980

Peacehaven Library Refurbishment and Conversion

0.028

-

-

-

0.028

Libraries Targeted Support

0.211

-

-

-

0.211

Highways Structural Maintenance

21.186

21.147

21.688

168.404

232.425

Bridge Assessment Strengthening

3.022

3.708

1.775

15.519

24.024

Street Lighting and Traffic Signals

3.723

3.792

3.839

10.590

21.944

Street Lighting and Traffic Signals – Salix Scheme

0.650

-

-

-

0.650

Visually Better Roads

5.609

-

-

-

5.609

Rights of Way Surface Repairs and Bridges

0.565

0.565

0.514

3.616

5.260

Communities, Economy & Transport (LEP Funded Schemes):

 

 

 

 

 

Eastbourne Town Centre Phase 2

3.241

-

-

-

3.241

Eastbourne/South Wealden Walking & Cycling Package

2.351

-

-

-

2.351

Hailsham/Polegate/Eastbourne Movement & Access Corridor

0.550

0.409

-

-

0.959

Hastings & Bexhill Movement & Access Package

4.089

0.987

-

-

5.076

Skills for Rural Businesses Post-Brexit

0.915

-

-

-

0.915

Getting Building Fund – Rising Sunbeams

2.477

-

-

-

2.477

Getting Building Fund – UTC Maritime and Sustainable Technology Hub

1.300

-

-

-

1.300

Getting Building Fund – Food Street

0.100

-

-

-

0.100

Getting Building Fund – Seven Sisters

0.200

-

-

-

0.200

Communities, Economy & Transport Total

62.721

47.255

46.678

224.652

381.306

Total Programme

95.588

82.720

83.761

413.978

676.047