To recommend to Council for approval the revised capital investment budget and capital strategy for 2025/26 onwards.

The member for finance and corporate services introduced the report.  The capital programme reflects capital investment which generates benefits for the county. It was noted that on 6^th December 2024 at full Council an amendment for several IT projects was approved.  Appendix B set out the approved capital programme, as of December 2024. 

It was confirmed that the proposed capital programme for 2025/26 presented an ambitious programme of capital investment which was aligned to the priorities of the council plan across people, place, growth and transformation. 

It was highlighted that 18 capital investment budget proposals, totalling £58.12m had been identified to be funded by prudential borrowing, capital receipt reserve and reserve revenue reserves. It was also noted that to ensure the council utilised the levelling up fund grant as early as possible and used council match funding last, the Hereford city transport package for the transport hub would increase the grant funding by £2.5m and reduce the amount of council borrowing required.

It was confirmed that a review of all prospective capital funding requests had been completed to ensure the financial impact of the funding requests were taken into account in the Medium Term Financial Strategy.

It was highlighted that as part of the 2016/17 local government finance settlement the government announced new flexibilities which allowed local authorities to use capital receipts to fund transformation expenditure. This was updated in 2025/26 and extended to 2029/30. Therefore £0.6m in 24/25 and £0.6m in 25/26 revenue transformation works would be funded from the use of capital receipts reserve. 

It was confirmed that inclusion in the capital programme was not approval to proceed. Each project would be subject to its own governance, a full business case would be presented to cabinet for approval, where required, and compliance with the council's contract procedure rules. 

It was confirmed that the council is committed to the first phase of the western bypass, and is aiming to be on site to deliver the current scheme to the South of the city in 2026.   Once completed this new bypass connection for the A49 from the South to the North of the city will deliver the western growth corridor creating over 10,000 new homes and over 300 acres of new employment land. It was noted that this project, previously named as the ‘Southern Link Road’, had been renamed in the capital programme to ‘Hereford Western Bypass Phase 1’. The increase in capital budget is proposed to be funded from borrowing, and grants would be sought to reduce the amount of borrowing required.

It was confirmed that social and affordable housing needs across the county remained a high priority for the council. It was noted that the acquisition for housing provision of £5m (which was added to the capital programme in July 2024), was already being used to bring forward schemes to deliver social housing to meet the county’s urgent need. The £5m funding was considered adequate for 2025/26.  However, should other opportunities come forward, council approval would be sought to add additional borrowing to the current capital programme. 

It was noted that the proposed additions at appendix A totalled £58.12m over the next four years. £56.12m will be financed from potential borrowing, of which £45.72m is an addition to the amount available through current levels of corporate funded borrowing.  £1m is refunded from the use of the capital receipts reserve and £1m from the revenue reserve specific for the use at College Road campus.

It was highlighted that the 18 projects include; the playground investment of £1m, the IT system upgrades and server replacements of £500k, the public realm services fleet of £1.54m, public realm mobilisation of £450k, property investments in care homes Phase 2 of £604k, estates building improvement programme 2025/27 of £4.304m, building works from the 2022 condition surveys of £1.715m, Yazor Brooke £260k, school route planning software £50k, resurfacing Herefordshire highways of £5m, road safety schemes of £3m, the highways infrastructure investment of £5m, City and Market Town public realm investment of £1.2m, CCTV equipment upgrades of £89k, Shirehall refurbishment phase two of £1m, council school transport fleet £350k, Herefordshire flood risk mitigation of just over £2m and lastly the Hereford Western Bypass Phase 1 of £30m. It was confirmed that Appendix E contained the outline business cases for each project.

It was confirmed that the corporate revenue implications of securing the new borrowing was included in the current Medium Term Financial Strategy and Treasury Management Strategy which had always allowed for £6.7m of new prudential borrowing per annum over the strategy period. The additional borrowing requirement was reflected in an update to the treasury management strategy, with actual borrowing secured as cash funding at the optimal interest rate available at that time. The table at paragraph 24 showed borrowing above the annual funding each year and this will have an impact on future revenue budgets when the repayments have to be made. These additional costs are reflected in the table at paragraph 25.  This is calculated over a 40-year period and therefore £2.2m repayments will continue until fully repaid.

It was confirmed that individual capital scheme resourcing implications will be detailed in the ‘approval to proceed decision’.

It was noted that the budget setting document would not detail specific environmental impacts.  However, considerations will always be made in minimising waste and resources used in line with the council's environment policy. 

It was confirmed that monthly budget control meetings take place for all capital projects.  These provide assurance on the robustness of budget control and monitor to highlight key risks and to identify any mitigation to reduce the impact of pressures on the council's overall position.  It was also confirmed that individual project reporting and project boards were in place to mitigate risks.

Comments from cabinet members. 

It was highlighted that this was not a conservative budget, but it was a council budget and it was hoped that all members could support it. 

Group leaders gave the views of their groups.

There was some support for the Western Bypass Phase 1. It was raised that the council should be clear about its intention, and it was raised that rigorous value for money should be applied. 

There was support regarding affordable housing and it was positive that the budget reflected such a clear commitment to this. 

It was also positive that roads, their condition and repair were a priority in the budget.  However, reassurance was sought in respect of the borrowing period and the time period matching. 

Investment in play areas was welcomed and there was support for this.  It was raised if this was now an opportunity to share the maintenance and upkeep of these.   

A query was raised regarding Appendix D, the council’s capital strategy, it was queried how the cabinet weighs up the need for instant cash, which can only be used once, against the council’s responsibility to preserve its assets. 

Concern was raised regarding Appendix E and the strategic business case for the Hereford Western Bypass Phase 1.  In respect of the risks, it was noted that external funding may not be forthcoming, and the council could be required to fully fund the project.  Also, if phase 2 was not progressed then the full potential benefits of phase 1 may not be realised.  It was noted that a full business case for phase 1 to demonstrate value for money will be developed and this was awaited. 

Concern was raised that ambitious capital programmes were put forward, but they failed to deliver at the pace intended.  It was raised if a more measured approach and amended delivery profile would be more realistic, rather than adjusting expectations in year.

Concern was raised that the capital strategy was more of a delivery plan for the existing programme. 

In response to the query regarding disposal of assets, it was confirmed the asset base would continue to be reviewed and it was not the council’s intention to dispose of any assets unless there was a strong business case to do so. 

In respect of the key aspects of the capital strategy and the intention to establish the capital allocation for delivery of the first phase of the Western Bypass and the important housing provision.  It was noted the importance of having a strategic joined up approach to provide housing to residents.

Regarding delivery of capital projects and phasing of them, it was confirmed that 50% more of capital projects had been delivered than last financial year. 

Councillor Stoddart proposed the recommendations, and it was unanimously resolved that the following be recommended to Council

That: Cabinet recommends the following to Council

a) To approve the revised capital programme for 2024/25 attached at appendix C;

b) Approve the capital strategy at appendix D; and

 c) Approve the Flexible Use of Capital Receipts of up to £0.6million in 2024/25 and £0.6million in 2025/26, to support transformation to generate ongoing revenue savings and reduce service delivery costs in future years