Report of Head of Finance.

The committee received a report of the Head of Finance. The Head of Finance     introduced the report. This paper provided an update to members regarding government policy and regulations.

Since 2020 there had been a number of reviews and reports that commented on the adequacy of the capital finance framework and in July 2021 the Ministry of Housing, Communities and Local Government (subsequently renamed the Department for Levelling Up, Housing and Communities - DLUHC) published a policy paper titled ‘Local authority capital finance framework: planned improvements.’

The paper set out the actions proposed to address the perceived inadequacy through a ‘lines of control’ model. The model could be found in the Capital Finance Framework, paragraph 4.1.5 and the planned actions that underpinned the model were as follows:

·       Improving the role of DLUCH as an effective steward of the local government capital finance system (detect and manage)

·       Improving local practices and capability (detect and manage)

·       Putting in place appropriate tools to intervene with local authorities where necessary (manage)

·       Ensuring that the Capital framework is fit-for-purpose to constrain financial risk and drive sound decision making (prevent)

Full details could be found in the Capital Finance Framework, paragraph 4.1.6.

There were also proposed updates to the Prudential and Treasury Management Codes of Practice. This included proposals to amend reporting requirements, including increasing the required frequency of reporting on prudential indicators to members from at least twice a year to quarterly and the reinforcement of existing Treasury Management guidance that required cash to be managed as ‘one pot’. The latter point was supported by the creation of new Treasury Management prudential indicator – the ‘Liability Benchmark.’ The draft guidance for calculating the ‘Liability Benchmark’ had been seen by the Head of Finance and would form part of the Treasury Management Strategy and the Capital Investment Strategy which would go before Cabinet in January 2022.

Public Works Loans Board lending terms and conditions had been updated in November 2020 along with guidance for applicants. The guidance was later revised in August 2021; key points are as follows:

·       The revised terms and conditions prevented the use of PWLB borrowing to finance investments made on a debt for yield basis; any income must be invested in causes specifically linked to the core functions of the local authority.

·       Any local authority’s capital expenditure after 26 November 2020 must comply with the revised terms or lose access PWLB borrowing, even if funded from other resources.

·       Selling an existing investment to acquire another investment asset would result in access to PWLB being withdrawn; however, authorities with commercial property may invest in the repair, renewal and updating of their existing commercial properties.

·       Investment in an asset for regeneration purposes would be allowed but any surplus income must be invested in causes linked to the core functions of the local authority.

Under the Capital Finance and Accounting Regulations 2003, local authorities must set aside MRP for the repayment of debt.  This is an annual charge to the revenue account.          A consultation was  ...  view the full minutes text for item 20