Agenda item

Report of the Corporate Director of Finance and Resources (S151 Officer). To be presented by the Cabinet Member for Finance & Corporate Services

DECLARATIONS OF INTEREST MADE FOR THIS ITEM:

None

RESOLVED:

That Cabinet:

1.    Noted the proposed Capital Strategy 2026–2036 (Appendix A) and agree to recommend that Full Council approve and adopt the strategy as the Council’s overarching framework for capital investment, financing and governance.

2.    Noted that the Strategy would be reviewed annually alongside the MTFS and TMSS and reported to Cabinet and Full Council.

3.    Endorsed the Capital Framework and governance arrangements.

Reasons for decision

The Capital Strategy set out the Council’s statutory responsibility to define a clear approach for capital investment and financing. The 2026–2036 strategy built on previous iterations to reinforce affordability, prudence and sustainability in line with the CIPFA Prudential Code. It underpinned financial resilience by aligning the Council’s strategic objectives with the Treasury Management Strategy to provide a coherent framework supporting investment in delivering the Borough Vision 2035 outcomes through the Capital Programme.

The Strategy provided a framework for long?term investment, setting out an evidence?led approach to allocating limited capital resources to projects that fulfilled the Council’s legal and health and safety obligations, met contractual commitments and, where affordable, delivered its strategic priorities. It responded to significant financial challenges, including:

Rising inflation and higher interest rates, which had significantly increased the cost of borrowing and future debt?servicing pressures.
Continuing growth in demand for housing, adult social care and temporary accommodation.
Limited government funding, alongside the use of Exceptional Financial Support (EFS), which was used to fund immediate budget pressures but increased long?term revenue commitments through higher capital financing costs and long?term debt for the Council.

In this context, the Capital Strategy set out a disciplined approach to capital investment, prioritising schemes essential for the delivery of statutory services, health and safety compliance and the reduction of long?term revenue pressures. A significant proportion of the capital programme was funded through borrowing, and the year?on?year increase needed to be reversed to protect the Council’s financial sustainability and ensure affordability within prudential limits.

The Strategy brought together the Housing Revenue Account and the General Fund into a single strategic portfolio view for governance and reporting, while fully maintaining statutory and ring?fencing requirements.

It embedded robust business planning, risk management and benefits?realisation arrangements, strengthening transparency and confidence in decision?making. By prioritising affordability while retaining flexibility, the Strategy supported long?term financial sustainability and enabled the Council to respond effectively to changing economic conditions and strategic priorities.

Financing and Affordability

The Capital Strategy, alongside the Treasury Management Strategy Statement (TMSS) and the Medium Term Financial Strategy (MTFS), set the parameters for a financially sustainable capital programme. Borrowing had to remain within approved prudential limits, with the Council prioritising external grant funding, ringfenced Housing Revenue Account resources and capital receipts before undertaking prudent borrowing in accordance with the Prudential Code. The Council remained within its approved prudential limits set out in the Treasury Management Strategy Statement elsewhere on the agenda, but debt levels were high compared to others, and the capital financing costs of the capital programme alone amounted to £55m for the General Fund and £32m for the HRA.

The use of Exceptional Financial Support (EFS) was a measure that increased future debt?servicing costs. The Strategy therefore sought to reduce reliance on EFS over time and prioritised investment in schemes mitigating longer?term revenue pressures, such as housing delivery to reduce temporary accommodation costs and energy?efficiency measures to lower utility expenditure.

All capital schemes were required to demonstrate affordability on a whole?life basis, including robust revenue implications, realistic contingency provision and sensitivity analysis. Clear mitigation or reprofiling options needed to be identified where affordability was affected by funding changes, cost inflation or delivery risk, ensuring the overall programme remained affordable, prudent and sustainable.

Governance, Assurance and Delivery

Delivery of the Strategy was supported by the Council’s Capital Delivery Framework and capital governance model, adopted in July 2025, which provided a consistent approach to business?case development, approval, monitoring and benefits?realisation across the General Fund and Housing Revenue Account programmes.

Cabinet held overall strategic oversight of the Capital Strategy and Capital Programme. Regular scrutiny and due diligence were provided through quarterly capital monitoring reports to the Corporate Leadership Team, Cabinet and Scrutiny, enabling Members to oversee affordability, delivery performance, risks and alignment with corporate priorities. Operational oversight was exercised through the Strategic Capital Board and Directorate Capital Boards, which managed programme delivery, interdependencies and escalation.

Assurance was provided through a layered monitoring and reporting framework, including:

Monthly project and programme monitoring, providing detailed performance, financial and risk oversight at Capital Programme Board level; and
Quarterly portfolio?level capital monitoring and assurance, providing Members with a consolidated view of spend, forecast, risks, benefits and compliance with prudential indicators and governance requirements.

Risk Management

The Council maintained a low?risk appetite for borrowing and exposure to market volatility, reflecting financial context and the need to safeguard long?term financial resilience. Capital investment decisions were informed by robust risk assessment and mitigation planning at both scheme and portfolio level.

Key risks and mitigating actions included, but were not limited to:

Interest rates and inflation: Use of prudent financial assumptions, regular benchmarking and realistic contingency allowances.
Legislative and policy change: Horizon scanning and early compliance planning to mitigate cost and delivery impacts.
Capital receipts and grant dependency: Conservative forecasting, active disposals management and strict compliance with grant conditions.
Delivery capacity and supply chain: Investment in internal project?management capability, robust procurement and due?diligence processes and risk?sharing contract forms.

Where affordability or deliverability was challenged, the Council took early action to reprofile or pause lower?priority schemes, while protecting statutory compliance and projects already in delivery to avoid sunk costs and reputational risk.

Alternative options considered

Do Nothing – Not Recommended
Failing to adopt a Capital Strategy would have undermined compliance with the CIPFA Prudential Code, which required local authorities to maintain an up?to?date capital strategy. It would have increased the risk of uncoordinated and unaffordable investment decisions and reduced transparency and assurance in the public interest. In the context of sustained financial pressure, this would have significantly heightened the risk of an unsustainable capital programme, adversely affecting the Council’s financial resilience and its ability to deliver outcomes for residents.