To recommend to Council for approval the revised capital investment budget and capital strategy for 2026/27 onwards.

Councillor Stoddart, cabinet member for finance and corporate services introduced the report.  It was noted that the capital programme covers investment that provides benefit for more than one year, and that the baseline used was the capital programme approved by Council in February 2025, updated to reflect reprofiling undertaken in line with external audit recommendations.

It was highlighted that fourteen new capital proposals had been identified for 2026/27, totalling £44m.   These proposals support priorities within the Council Plan across People, Place, Growth and Transformation. Key areas of investment included the provision of temporary and emergency accommodation, alternative school provision and Pupil Referral Units, improvements to technology to support service efficiency, infrastructure to support housing growth, resilience measures across school and property assets, improvements to public rights of way, and continued investment in the highway network.

It was reported that £10m had been added to support the delivery of affordable housing, with the intention to fund this through borrowing supported by housing benefit income, reduced temporary accommodation costs, and potential Homes England grants. A further £5m had been allocated to establish an Historic Building Fund to support major heritage assets including the Museum & Art Gallery, Shirehall and Town Hall.

It was noted that a review of the current capital programme had identified projects that were no longer required or that could be funded through alternative sources. As a result, a total of £2.65m had been removed, alongside the removal of additional allocations for employment land, public realm investment, road safety schemes and school transport fleet purchases, now to be funded or managed through other routes.

It was noted that the Government has extended flexibilities allowing the use of capital receipts to fund transformation expenditure to 2029/30. The council intends to make use of this flexibility, with £1m of eligible revenue transformation activity in 2026/27 to be funded from capital receipts, subject to funds being available.

It was emphasised that inclusion in the capital programme did not constitute approval to proceed, and that each scheme will require a detailed business case and separate governance decision. The capital strategy, developed in accordance with CIPFA guidelines, sets out the framework for how capital priorities, borrowing levels and risk appetite are determined.

It was noted that environmental considerations will continue to be assessed during project development, and that monthly budget control meetings and project boards provided assurance regarding delivery, risk management and financial oversight.

In summary it was highlighted that the programme represented an ambitious but deliverable set of proposals aligned to the Council Plan. 

Comments from cabinet members:

Members raised several points in relation to the draft capital budget and strategy.

• It was explained that the capital allocation was intended to address a significant backlog of over 100 public rights?of?way bridges that were currently unusable or in poor condition. Some bridges had been out of action for six to seven years, and the funding will help replace as many as possible.
• It was also reported that £500k from this capital allocation had been directly provided to parish councils over the past two years, enabling repairs to be delivered locally, including notable work such as the Weobley Bridge repairs

Group Leaders were invited to offer their views:

The Independent for Herefordshire Group outlined their views and noted:

• That the national funding formula and wider Government policy continued to disadvantage Herefordshire, and efforts must persist to challenge this unfair situation.

• It was raised that the administration must act prudently and scale back plans to limit the impact on residents and statutory services.
• Concern was expressed that the capital programme lacked prudence, highlighting excessive planned borrowing and insufficient consideration of delaying locally funded schemes while alternative Government funding was pursued.
• It was raised that insufficient provision had been made for the council’s obligations regarding the restoration of listed buildings, including the Shirehall, Town Hall and the Museum & Art Gallery, and noted that further funding will be required.
• Concerns were raised that there was no credible plan to deliver the much?needed county SEND provision following the withdrawal of Government funding.
• There was criticism regarding the removal of funding for employment land in market towns and the lack of progress in bringing forward development on third?party?owned land.
• The administration were challenged regarding its claim that no spending occurs without full business cases, pointing to expenditure linked to the Southern Link Road and Western Relief Road as contradictory.
• It was raised that the current approach to financial governance was inadequate and suggested external auditors should scrutinise it closely.
• It was noted that the capital programme’s proposal for over £122m of borrowing over three years, alongside an existing £84m gap in the medium?term financial plan, did not reflect current realities or residents’ needs and should be urgently revised.

The Green Group outlined their views and noted:

• The significant pressure on the revenue budget was acknowledged, noting that savings were already being made while the capital budget proposes further funding requirements.
• Concern was raised about the additional £5m proposed for the Southern Link Road, stating there was no evidence base to justify its claimed traffic benefits and no confidence that a full bypass will ever be delivered due to a lack of Government funding.
• There was mixed or inconsistent justification for the scheme claimed to support housing growth yet not linked to any clear development evidence.
• There was a need for a full detailed business case, including environmental and transport assessments in line with DfT Transport Analysis Guidance.  It was raised that decisions were being taken prematurely. Concern that residents would be disappointed when they realised a bypass and second river crossing were unlikely, despite additional borrowing.
• It was noted that costs for the Shirehall restoration were now confirmed to exceed the original budget, resulting in additional funding requests.
• Concern was expressed about the removal of £1.2m for the Market Town Investment Strategy, replaced instead with LTP funding.  It was raised that this reduced investment in rural market towns in favour of major Hereford?based projects.
• The strategic housing and emergency accommodation borrowing was welcomed, recognising that increasing council?owned temporary accommodation would reduce long?term revenue expenditure.

The Liberal Democrat Group outlined their views and noted that:

• Some members focused on financial costs without acknowledging the substantial revenue the council will receive from additional housing.
• Highlighted that for every thousand new homes built, the council will gain significant extra income.
• Stated that the council would be in a better financial position had it not been required to repay over £20m due to the previous cancellation of the link road.

In responding to the comments raised, the Cabinet Members noted that:

• The council was disadvantaged due to funded projects previously being cancelled by a former administration, resulting in lost investment, including Government and LEP funding and damaged trust.
• The need for continued economic growth was emphasised, including creating better?paid jobs and affordable homes. 
• Major infrastructure was essential for future growth, housing delivery and long?term planning. It was also crucial for supporting young people, to address the DSG deficit, and enabling economic growth.
• The escalating cost of major projects was highlighted, which reinforced the need to act now.

• Warned against viewing the capital allocation in isolation, highlighting the administration’s wider track record of investment, including the development of Ross?on?Wye Business Park as an example of support for market towns.
• Asserted that the administration invests where it can and has a strong overall capital programme, which should be considered as a whole rather than focusing only on amendments.

• It was clarified that the £1.2m Market Town Investment replacement with LTP/LTG funding was not a cut but a reallocation to use Government funding first.
• Explained that future LTG funding (announced in September 2025) provided £29m, making it appropriate to utilise Government funds ahead of capital budget allocations.

• Highlighted the council’s significant investment in highways, noting £5m for resurfacing this year and over £16m invested since May 2023 across structures and highways. It was confirmed that resurfacing investment was transformational and must be maintained.

• Stressed the importance of prioritising long?term investment over short?term fixes.

• It was stated that investment in restoring heritage assets (Shirehall, Town Hall, Museum & Art Gallery) was essential and long?term. The council’s responsibility as custodians of historic buildings was emphasised.
• Noted that restoration will, in time, generate income through lettings and potential external grants.

The Leader of the Council concluded the discussions by proposing and invited a seconder for the decision before them which is that Cabinet:

Recommendations:

That: Cabinet recommends the following to Council

a)    To approve the revised capital programme for 2026/27 attached at appendix C;

b)    Approve the capital strategy at appendix D; and

c)    Approve the Flexible Use of Capital Receipts of up to £1.0 million in 2026/27, to support transformation to generate ongoing revenue savings and reduce service delivery costs in future years.

The recommendations were unanimously approved.