Capital and Investment Strategy 2022/23 - Cornwall Council
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Information Classification: PUBLIC Capital and Investment Strategy 2022/23
Information Classification: PUBLIC Contents 1. Introduction 2. Background and Council priorities 3. Prioritisation policy 4. Governance, Scrutiny and Assurance process 5. Capital Programme 6. Loans, guarantees and non-treasury investment 7. Capital Indicators 8. Asset Management 9. Risk Management 10. Knowledge and Skills Appendices 1. Capital Programme (by Outcome) 2. Capital Financing 3. Capital Expenditure
Information Classification: PUBLIC
CORNWALL COUNCIL CAPITAL STRATEGY 2022/23 – 2025/26
1. Introduction
1.1 The capital strategy sets out the direction for the Council’s capital programme
management and investment decisions in support of our outcomes. It sets out
the principles for prioritising our capital investments, the governance, scrutiny
and assurance process. It also provides an overview of the asset management
process and approach to risk management.
1.2 The requirement for councils to prepare a capital strategy is set out in the
Prudential Code for Capital Finance in Local Authorities (2017), and this
document has been produced in accordance with the latest guidance.
1.3 The Prudential Code is changing, with formal requirements to be applied from
2023/24. Through 2022/23 the changes can be viewed as guidance allowing
for a transition period. As the capital programme is forward looking for several
years it is advisable to take on board the guidance and incorporate into this
year’s strategy. The changes are explained further in section 5.6. In line with
updated guidance the Capital Strategy sets out plans to align investment
activity to support Cornwall Council’s functions, identify the borrowing
requirement and not invest for purely commercial return.
1.4 The capital strategy forms an integral part of the Council’s medium to long term
financial and service planning and budget setting process as it can assist with
invest to save activity and will impact the revenue budget through the debt
repayment. It is also fundamental to the Treasury Management Strategy in
relation to investment requirements and decisions.
1.5 Due to several factors including geographical location, the state of the
economy, the supply chain and grant conditions, the ability to deploy capital
expenditure within the county does have a limit and it is imperative that the
Council has a well planned capital investment programme which is deliverable
and allows the supply chain to plan accordingly.
2. Background & Council Priorities
2.1 Historically the Council had a very bottom up approach to capital with individual
schemes being the driver for the overall programme, regardless of size or
scope. This created limitations and did not focus on the level of investment that
the Council can prudently afford, realistically deliver, and support the delivery
of outcomes. In 2021/22 the Capital Strategy introduced a more strategic
approach through a portfolio approach.
Information Classification: PUBLIC
2.2 The Council Business Plan has focused delivery through four priority outcomes.
The management of the capital programme will mirror this with a portfolio for
each outcome. Alignment of the capital programme to Council priorities will
ensure that schemes are approved which clearly demonstrate delivery of key
objectives. There will be a consistent approach across the Council in relation to
scheme approval and funding. The capital programme can support the
development of the capital public works supply chain and the Council’s
commitment to increase spend with local suppliers.
2.3 A portfolio is defined as a grouping of programmes and projects to deliver an
organisation’s strategic objectives. In this year’s capital strategy the portfolio
approach is strengthened to support the four business plan outcomes:
2.3 Each portfolio will consist of individual projects or groups of projects managed
on a programme basis. Portfolio boards will be required to manage programmes
and projects through a clear and transparent phased approach that is
consistent with best practice and the Treasury green book. The portfolio
management will be designed in line with the Outcome Delivery Plans
Example Portfolio structureInformation Classification: PUBLIC
2.4 The Outcome focus that the Council has adopted is also to maximise value for
money and remove silo working. In terms of the capital programme this
approach may create the opportunity for previously siloed service projects to
benefit from wider engagement. As with all aspects of the Council’s finances
the capital programme also needs to work efficiently. In this regard the Council
will have clear and affordable prudential indicators set as targets to frame the
size of future capital programmes to ensure the programme is affordable in the
short and long term.
2.5 This approach will require programmes and projects to be developed to a higher
level of detail before they progress to full approval and enter into the
construction phase. In doing so business cases need to be prepared with
reference to:
• HM Treasury Green Book (Green Book)
• Construction playbook
• Best practice project management
• Internal audit findings
3. Prioritisation Policy
3.1 When there are limited resources, not all proposals can be supported and
delivered. To assist the prioritisation of limited resources new proposals will
need to consider their outcomes against the following criteria:
• Strategic fit, delivery of Council outcomes;
• Climate change implications;
• Impact on the Council’s revenue budget;
• Deliverability;
• Project risk;
• Safeguarding of existing assets;
• Health and safety implications;Information Classification: PUBLIC
• Funding (including external funding leverage) and affordability.
3.2 Portfolios will need to assess new projects and prioritise within existing
resources. For 2022/23 the Council has no provision for additional borrowing.
• No new projects to start that requiring Cornwall Council resources
• Priority need identified that is not already in the programme requires
reallocation from existing portfolio resources. This will require other
projects to stop or find alternative external funding.
• Projects applying for external grants that require Cornwall Council match
resources must identify the match element from existing portfolio
budget prior to submitting the grant bid. If the match is not identified
and agreed through Outcome Delivery Boards prior to submission the
grant application will not be supported by the S151 Officer. This will
result in the project not progressing and the grant being returned to the
funding body.
• Projects with 100% external funding, requiring no match from Cornwall
Council, will be assessed and approved through standard governance.
• Grant funded projects carry the risk of cost over run and scope changes
that the Council is liable for. Any project costs due to contract, inflation
or project scope changes will need to be met from the portfolios existing
budget.
4. Governance, Scrutiny and Assurance Processes
4.1 Governance processes are in place to ensure capital investment decisions
(including loans and grants) are made legitimately, transparently and deliver
the priorities of the Council. No capital expenditure can be incurred without
formal approval and inclusion in the capital programme.
4.2 The capital programme is agreed annually by Full Council as part of the budget
setting process. Full Council will set the size of the capital programme, based
on the affordability indicators. Allocation to Outcome capital portfolios will be
set as part of the budget process. This will include the activity of the Council’s
Group of Companies.
4.3 Projects and programmes will need to be assessed through a business case by
the Outcome Delivery Board. The Outcome Delivery Board will be responsible
for allocating the portfolio capital budget to projects and programmes to
support the Outcome Delivery Plan. Review, prioritisation and allocation of
capital portfolio resources will be ongoing through each financial year.
4.4 The process is the same for Treveth and other Council companies. The Business
Plan will be approved by Cabinet. Any capital requirement will be reported to
Full Council for approval into the capital programme. Due to the timing of the
group of companies’ business planning cycle if the capital requirements are notInformation Classification: PUBLIC
fully assessed for inclusion in the February budget report they will be presented
to Cabinet in March, and to Full Council in the next capital report for inclusion
in the capital programme. The Outcome Delivery Board responsible for
commissioning the activity from the group company will review business cases
and approve allocation of budget to individual projects or programmes.
4.3 The capital programme will consist of two separate categories and scheme will
progress through the categories in line with the gateway process highlighted
above. The two categories are:
• Approved schemes: these are projects / programmes that are already
in delivery or ready to be delivered;
• Indicative schemes: these are projects / programmes that have been
approved at Full Council, which demonstrate alignment with the Council
Outcomes but only have a strategic or outline business case. Additional
work is still required to demonstrate that they are deliverable and
affordable. These schemes can’t progress to the ‘approved’ category of
the capital programme until a detailed business case has been approved
by ICB. Indicative scheme development needs to be funded from
revenue resources and be planning for future years (e.g. 2024/25 on).
4.3 Proposals will follow a gateway process, ensuring Treasury Green Book
compliance, and must be successful at each gateway to proceed to the next
before they achieve full approval to the capital programme, and are allowed to
commence delivery. The Investment and Commercial Board (ICB) will manage
this gateway approval process. The table below sets out the different phases
of activity and gateways:
Project Phase Opportunity Policy Delivery Phase Managed and Completion
Phase Formulation Construct Phase
Phase (Phase 3) (Phase 4)
(Phase 2)
(Phase 1)
HM Treasury Strategic Outline Outline Business Full Business Case
Green Book Case Case
Procurement Idea Define Procure/ IDA Manage Complete
LifecyleInformation Classification: PUBLIC
Types of Opportunity Business Delivery – Contract and Close
activities framing phase Justification publication, Implementation
selection, • Deal with
• Development evaluation, and • FBC to be defects period
of business award. approved • Close contract
Pipeline need (transition and move to
activity •
• Articulation Sourcing between operational
of outcomes Strategy Phase 3 and stage
• Category (make, do, Phase 4) • Handover
Strategy and buy) • Award and process and
should costs • Specification, sign asset transfer
• Pre tender contracts • Project /
engagement documents underpinning Programme
with the and delivery close and benefit
market contracts. approach realisation
• SOC and • Market • Manage and
formally engagement monitor
added to the • OCB and performance
pipeline preferred • Alignment
• Budget option and reporting
approval identified through the
• Set up of • Refinement project,
project, of budget programme,
programme assumptions. portfolio
governance • Enact governance
to deliver procurement to deliver.
/ IDA/ other
delivery
route process
• Prepare FBC
following
outcome of
the delivery
route
Governance ICB – Gateway ICB – Gateway ICB – Gateway ICB – Project Close
gateway Approval of SOC Approval of ICB Approval of FBC
approval (Officer
Governance)
Cabinet (Political
Approval of the
SOC andInformation Classification: PUBLIC
incorporation into
the MTFP)
Relationship Pipeline SOC required for Refinement of Full draw down of
with the schemes approval in the assumptions in funds in the MTFS
Budget developed MTFS. outcome portfolio for the
process into SOC. budgets. implementation
SOC only included
if affordable
Outcome within Outcome
board to portfolio total.
prioritise
within budget New borrowing
resources. and external
grant increases
New projects managed through
exceeding the Headroom
Outcome budget.
budget to be
considered for
Headroom
allocation
4.4 The gateway process will need to align with other Council processes and the
management of the capital programme. This is set out in the diagram below:
4.5 The capital financing budget will take into account the capital programme
(approved and indicative) funding requirements.
4.7 The capital programme will be governed by Outcome Delivery Board. The
Outcome Delivery Board should meet to review the additions, reductions,Information Classification: PUBLIC
movements and delivery of their capital programme portfolio on a regular basis
proportionate to the size, scope and risk of their delivery plan. The function of
the Outcome Delivery Board in relation to the capital programme will be to have
oversight, stewardship, provide strategic direction and approve the inclusion of
new schemes supported by a business case. They will be responsible for
prioritising and challenging the delivery of individual projects and programmes
by:
• ensuring that risks are managed and mitigated;
• spend is in line with the approved budget and pressures identified;
• deliver the programmes and projects in accordance with the detailed
business case;
• recommend the reallocation of approved capital budget in line with
emerging priorities if required.
• take mitigating action to stop or slow projects in order to operate
within the approved portfolio target.
4.8 The Outcome Delivery Board will also have challenge and input into new capital
projects. No capital project should be considered for the gateway process
without the support of the Outcome Delivery Board.
4.9 Investment and Commercial Board (ICB) will be responsible for the gateway
approval process outlined above.
4.10 Capital Oversight Group (COG) will take senior ownership of the capital
strategy. The focus of COG will be to ensure that resources are used to best
effect, review pipeline development in advance of the budget process, monitor
the impact of the programme on debt indicators, capital receipts and
affordability.
4.11 The responsibilities of the Outcome Delivery Board and COG do not detract
from the individual accountabilities of those officers responsible for the
development, implementation, and completion of the projects within the capital
programme. On completion of significant capital projects or programmes, the
Senior Responsible Officer should undertake a post scheme evaluation. They
should assess if the project has delivered its objectives and outcomes,
suitability of design and construction, affordability, identify good practice and
lessons learnt.
4.12 Annually as part of the budget setting process, all projects and programmes
will be reviewed to ensure they continue to contribute to the Council’s Priorities
and remain affordable. Any that fail to satisfy these conditions will be removed
from the programme with the residual budget allocated to the Council
headroom capacity.Information Classification: PUBLIC
4.13 A quarterly capital report will be update Cabinet and Full Council on the
progress and delivery of the approved capital programme and any variations
for which agreement is sought.
5. Capital Programme
5.1 Cornwall Council’s approved capital programme and funding set out by
portfolio below:
Summary of existing Capital Programme
2025/26
2021/22 2022/23 2023/24 2024/25 Total
& Beyond
(£m) (£m) (£m) (£m) (£m)
(£m)
Existing programme
Empowering and enterprising Council 7.277 13.161 12.784 10.460 10.099 53.782
A thriving, sustainable Cornwall 275.138 349.674 299.820 170.584 106.957 1,202.172
A brilliant place to be a child and grow up 25.973 42.769 15.736 10.119 - 94.597
Vibrant, safe, supportive communities 4.135 9.819 11.749 5.024 7.010 37.737
Total existing programme 312.523 415.423 340.089 196.187 124.065 1,388.288
Existing programme - Funding
Revenue 5.686 5.055 4.647 4.732 5.740 25.860
Prudential Borrowing 167.543 210.436 202.934 116.555 83.251 780.718
Capital Receipts 11.359 17.884 11.895 2.595 6.687 50.420
Specific Reserves 34.563 47.483 29.098 19.630 19.854 150.628
Grants & Contributions 93.372 134.565 91.515 52.675 8.534 380.662
Total existing programme 312.523 415.423 340.089 196.187 124.065 1,388.288
5.2 The table illustrates how the Council proposes to direct c£1.4bn of capital
resource towards its strategic objectives over the life of the Medium-Term
Financial Plan.
5.3 As the Council transitions to operating through Outcome Delivery Plans
alignment of activity will release further resources to create £50m headroom
capacity to support new starts and provide a contingency allowance. This will
be allocated through the annual budget process.
5.4 There is no further capacity in the programme for new projects that require
prudential borrowing in 2022/23. Outcome capital portfolios are expected to
operate within their approved budget and will require projects to be prioritised.
5.5 It is expected that projects with 100% external funding will be added to the
programme once business case requirements are met:
• Strategic fit
• Investment appraisal
• Financial impacts
• Commercial approach
• Management resources
5.6 External funding should only be applied for to support identified priorities and
activities in the Outcome Delivery Plan. On this basis any external fundingInformation Classification: PUBLIC
awarded to support existing projects and priorities will require the Outcome
capital portfolio to release Council resources equivalent to the external funding
value to the Council Headroom budget. The Outcome capital portfolio will have
the same allocation to deliver the identified and agreed projects, only the
funding will change. This will allow the Council to build up additional headroom
for forward planning and annual allocation to Outcomes Delivery Boards in line
with revised Delivery Plans.
Capital Council Council
Revised
Capital Portfolio Programme Resource Resource
Programme
£m £m £m
£m
Outcome Portfolio 1,000 800 1,000 795
Council Headroom 50 50 55 55
Total 1,050 850 1,055 850
5.5 Projects that are income generating or provide an invest to save option will be
considered on the basis that the income or saving created offsets the cost of
borrowing.
5.6 The Capital Strategy reflects the categorisation of investments in line with
the Prudential Code.
• Service delivery investment is the primary function of the Council’s
capital programme to deliver public services such as housing,
regeneration and local infrastructure. In some instances, these
investments may generate a small return, which can be used to help
pay for borrowing. Service investments are made with statutory
powers and service outcomes as the first requirement. These
investments are from budgeted Council resources e.g. capital or
revenue.
▪ Asset build and refurbishment
▪ Financial instruments e.g. an investment fund that supports
housing or shares in a regeneration project
▪ Loans
▪ Grants
▪ Non – Treasury investments. Linked to Service delivery but
utilise the Council’s cash balances. Non-Treasury investments
can include loans to community organisations for cash flow
assistance while waiting for grants to be paid to them.
• Treasury management investments utilise the Council’s cash
balances and are governed by the Treasury Management Strategy. The
aim of Treasury investments is to ensure there is sufficient cash for the
Council to operate and when the Council needs to take out borrowing.Information Classification: PUBLIC
• Commercial return given the level of risk associated with commercial
investments and the update to the Code the Council has not, and will
not, invest for purely commercial return.
6. Loans, guarantees and non-treasury investments
6.1 The Council may consider some investments that fall into a non-treasury
investment category. The Council has the power to lend monies to third
parties subject to a number of criteria. These are not treasury type
investments, rather they are service delivery policy investments e.g. to
support local business, for regeneration and economic development.
6.2 Loans of this nature will be approved in line with the Council’s Financial
Regulations and only after relevant due diligence has been undertaken. There
are a number of instances where this may occur, and it is deemed good
practice that there are is a framework and criteria that the Council sets and
uses to manage these arrangements.
6.3 Non-Treasury investments utilise the Council’s cash balances, but the
organisations invested in do does not meet the Treasury investment criteria for
risk rating, liquidity or security.
6.4 The type of loans/investments covered by this framework are:
• Parish & Town Council Loans not covered by Treasury Strategy (i.e. over
5 Year)
• Council Owned Companies Loans
• Council Owned Companies Equity
• Charity and not for Profit Community Interest Companies
• Local Businesses
• National Businesses as part of a service provision contract or partnership
The framework should set the requirements relating to:
• Criteria for Assessment
• Security
• Financial Limits
• Method of Interest Rate Calculation
Criteria for Assessment
6.5 All proposals will need to be assessed and a risk or rating category allocated.
In most cases it is unlikely that the organisation involved will hold a formal
credit rating as issued by one of the three credit rating agencies, hence the
assessment will need to be manual and based on a financial analysis of the
organisations financial status which will involve analysis of recent accounts andInformation Classification: PUBLIC
credit ratings. The assessment will need to identify whether the organisations
financial position is:
• Strong
• Good
• Satisfactory
• Weak
• Bad/Financial Difficulty
Security
6.6 In all instances security should be sought as this is a form of collateralisation
that ensures the Council is protected in the event of a default. Security should
be a first charge against the asset and should be against an asset that can be
made liquid fairly quickly and without significant effort. Security will not be
obtainable in all instances, and in these cases the rating category set out above
becomes increasingly important. In addition, the level of security is a factor in
setting the interest rate.
Financial Limits
6.7 The financial limits will be based on both an individual organisation, the type of
organisation and the Council’s overall risk appetite. In terms of an individual
organisation’s limit this will be generic for all organisations in terms of total
exposure, there will need to be part of the assessment process an analysis of
an acceptable level for each specific application if it’s within the overall total.
Interest Rate Calculation
6.8 Interest Rates chargeable will need to reflect base and market rates and will
always vary. For short term loans (< 3 years) the rate can be fixed for the
duration of the loan and should be calculated on the forecast rate at the halfway
duration period. For loans of a longer duration there should be a clause built
into the loan agreement to review rates on a periodic basis and should be
calculated based on the rate at the commencement of the loan.
6.9 The rates set should take into account the Council’s cost of securing similar
length duration money as this is the opportunity cost of using the Council’s
surplus cash, the risk and level of security that is obtained and a 25bps margin
added on to cover the cost of administration and potentially providing for
defaults. The table below sets out the framework for calculating interest rates:Information Classification: PUBLIC
Loan Rates per annum
Financial Rating / Rating
Security
Category
High Moderate Low
75 -100% 25-74% 60%)
59%)
Strong (AAA-A) 60 75 100
Good (BBB) 75 100 220
Satisfactory (BB) 100 220 400
Weak (B) 220 400 650
Bad/Financial Difficulties (CCC
400 650 1000
& Below)
LGD is the Loss Given Deafault - expected loss in % terms of the debtors exposure
taking into account recoverable amounts from collateral and the bankruptcy of
assets (Inverse of Collateral/ security)Information Classification: PUBLIC
6.11 The reference rate is published by the European Commission and is based on
each individual Countries IBOR (Interbank Offered Rate). For example, if IBOR
was 1% and an organisation was deemed to have normal collateralisation but
a weak credit rating then 400bps would be added to the IBOR rate giving a
minimum interest rate of 5% p.a.
Criteria and Limits
6.12 The table below sets out the limits and criteria for the making of loans or
investments that are non-treasury. As this is the first attempt at introducing
such a framework it will need to be kept under review to see if it delivers the
outcomes required (the table has been updated to reflect the lending to Treveth
as part of the updated financial model)
Maximum Total
Total Exposure
Organisation Rating Criteria Security Period
Exposure per to
Organisation Category
Parish & Town Councils Manual Assessment N/A £250,000 5 - 25 years £10m
Council Owned Companies
See Treasury Management Strategy
(Cash Flow revolving Loans)
Council Owned Companies
Manual Assessment N/A £250M Upto 50 Years £300m
(Term Loans)
Council Owned Companies
Manual Assessment N/A £50m N/A £100m
(Equity)
Charity & not for profit High £5m Up to 7 Years
Financial Rating /
Community Interest
Manual Assessment Medium £2m Up to 5 Years £15m
Companies
Low £1m Up to 2 Years
High £2m £15m
Financial Rating /
Small Local Business (SME)
Manual Assessment Medium £1m
Low £500,000
Length of Contract
National High £10m
or 7 years
Organisations/Contractor
Financial Rating / Length of Contract
(only as part of Medium £5m £25m
Manual Assessment or 5 years
Procurement
Contract/partnership) Length of Contract
Low £2.5m
or 3 years
(Changes in bold)
6.13 Financial Regulations All loans and investments must comply with the
Council’s financial regulations, for ease the approval limits for loans covered
by the financial regulations are:
• For amounts up to £1m, the Section 151 Officer can authorise where
there is no adverse impact on Council Policy or service delivery and
can be funded from approved budgets.
• For amounts over £1m and funded from existing resources the
Cabinet.
• For amounts of £1m to £5m which are not funded from existing
resources the Cabinet.Information Classification: PUBLIC
• For amounts over £5m and not funded from existing resources the
Cabinet can authorise but only after Council has made specific
provision in the capital programme/budget
7. Capital Indicators
7.1 The overall size of the capital programme is in part driven by third party funding
from grants and contributions that align with the Council’s priorities. In addition
to external funding the Council needs to set targets for the level of borrowing
it can afford to ensure that short term and long term debt repayments are
affordable at a rate that allows the Council to continue to invest, maintain and
develop new and existing assets into the future.
7.2 A further consideration is that a proportion of the programme funded by
borrowing relies on income generated by the project to repay the debt; in the
main this relates to Treveth housing and employment space investments but
may include other areas such as low carbon initiatives. To ensure compliance
with the prudential code for capital it is important that some control is exercised
around the proportion of debt that is being serviced from income. The debt will
continue to need to be serviced for many years, hence there is a need to ensure
income streams are robust, sustainable and manageable if there is downturn
in income.
7.3 The capital strategy therefore outlines that the following indicators are adopted
for the general fund:
7.4 The current Council asset to debt ratio is 1.7x (as at 31 March 2022) and will
continue to be monitored as part of the regular review of the capital strategy.
7.5 The capital programme can also be funded by capital receipts, generated from
the sale of assets. Capital receipts are a valuable resource as it removes the
need for borrowing and the associated cost and long-term commitment.
Ensuring that all capital receipt opportunities are fully captured is a critical
element of managing the Council’s capital programme. Therefore, as part of
introducing a new approach to capital for the Council, a capital receipt target isInformation Classification: PUBLIC
to be set as part of the capital strategy. The target is currently set at £10m and
will be reviewed at 6 month intervals.
7.6 The Housing Revenue Account (HRA) and Investment Programme will be
included in the calculation of the Council limits above, but also have separate
criteria and indicators which will be assessed through their governance and
approval process.
8. Asset Management
8.1 Cornwall Council’s Asset Management practices are to balance costs,
opportunities and risks against the desired performance of our assets to
achieve corporate objectives, and optimise the delivery of value.
8.2 The objective of Cornwall Council Asset Management approach is to apply a
systematic approach to the governance and realisation of value from the
tangible assets (physical objects such as buildings or equipment) and to
intangible assets (such as human capital, intellectual property and/or financial
assets).
8.3 Cornwall Council recognises the benefits and objectives of Asset Management
to include:
• Enhanced satisfaction from improved performance and control of non-
performance;
• Improved health, safety and environmental performance;
• The ability to demonstrate coherent and sustainable planning and
investment decisions;
• Demonstrate evidence of controlled processes to meet legal,
regulatory and statutory requirements alongside strong returns on
investment; and
• Improved risk and opportunity management with corporate
governance and clear audit trials.
8.4 A process of physical asset management has started by forming an initial
systematic base line approach to developing, operating, maintaining, upgrading
and disposing of physical assets in the most cost-effective manner.
Real Estate
8.5 The Council has a real estate portfolio of around 15,000 assets of land and
buildings (including Council dwellings), with a book value of c£1.4bn that are
held mainly for operational service requirements and administrative buildings.
8.6 Under the Estate Transformation Programme the Council is developing the
strategic approach for managing the portfolio of estate assets. To achieve a
robust and sustainable cycle of real estate asset management and achieve
strategic alignment with corporate objectives, a corporate landlord real estate
management approach has been developed.
8.7 The aim of corporate landlord is to guide the future shape and direction of the
property estate management to ensure that the portfolio of land and buildings
is optimally structured to perform and deliver corporate and service aims.Information Classification: PUBLIC
8.8 By applying an effective real estate asset management strategy, the benefits
will include:
• Assets aligned with financial objectives and service aspirations and
customer needs;
• Devolution of services to the locality with community asset transfer
where appropriate;
• Ensuring the right mix of property interest to provide both flexibility
and surety;
• Integrated service delivery through co-location with partner
organisations, improving property efficiency, choice and accessibility
for customers;
• Cooperative estate service provision driving economies of scale;
• Improving the sustainability of the corporate estate;
• Better targeting of funding by reducing revenue cost and identifying
long term capital investment needs;
• Challenging the retention of assets, introducing innovative non-asset
dependent service delivery models; and
• Ensuring appropriate long-term investment in maintenance and
statutory property compliance.
Real Estate Asset Management
8.9 The role of asset management is in essence to become a service property
partner to implement a centralised and standardised asset management
practice across all service estates to ensure there is alignment of estates to
services’ priorities, corporate estate financial targets, and RICS Public Sector
Asset Management guidelines and standards across the full estate.
8.10 The primary aim of asset management will be to act as property partners for
directorates, to set five year service estate improvement plans that drive better
use of space for each service, whilst managing estate in line with the overall
estate financial plan, and to ensure properties are managed to industry
recognised standards.
8.11 The Asset Management Group (AMG) undertakes the co-ordination of
purchases, reallocations, and disposals of properties.
Capital Projects Team
8.12 The Capital Projects Team, part of the Finance & Commercial Service, is the
main delivery route for major construction and infrastructure projects within
the Council. This team provides support and assistance in all aspects of
planning and delivering major projects from inception and feasibility through
to the final handover, including the management of risk and project budgets.
8.13 Early engagement with the team is imperative to ensure planned projects are
viable and robust.Information Classification: PUBLIC
Roads and Highways
8.14 Cornwall Council adopts an Asset Management approach to the management
of its highways assets that:
• demonstrates a systematic approach to highways maintenance which
takes a long-term view of treatments
• applies lifecycle planning and costing in the consideration and
determination of the most appropriate maintenance treatments over the
life of highway assets; this is to inform the optimal treatment at each
stage of the asset’s life.
• considers customer expectations and defined levels of service - as
outlined in the Highways Maintenance Manual and aligned, as far as
reasonable practicable, to the national code of practice.
• optimises and prioritises works based on assessed needs derived from
the defined levels of service
8.15 All of the above, when implemented in a formalised framework approach,
enables better decision making which takes account of the relationship between
cost and performance.
8.16 The Highways Maintenance Manual (HMM) sets out how Cornwall Council
manages and risk assesses the maintenance of its highways to fulfil its
statutory obligations and deliver a safe, serviceable and resilient highway
network. Taken as a whole the HMM sets out how the Council complies with the
objectives and recommendations set out in national guidance documents and
in particular the UK Roads Liaison Group Code of Practice “Well Managed
Highway Infrastructure” published in October 2016. The manual is regularly
review to ensure ongoing best practice is reflected.
8.17 The Local Transport Plan includes details and plans for the authority’s
transportation and infrastructure assets.
Other
8.18 Local Authorities have a statutory duty to ensure a sufficient supply of primary
and secondary school places, including suitable provision for vulnerable
children and those with additional needs. The Pupil Place Planning Strategy sets
out the how the Council aims to deliver the required provision and forms the
basis for the development and implementation of the Schools Capital
Programme.
8.19 Vehicle, Plant and Equipment replacement policies and asset registers are
maintained and managed by Cornwall Fire & Rescue Service. The Council’s
Information Technology assets and their development are managed within the
Council’s IT Service.
9. Risk Management
9.1 A key investment principle is that all investment risks should be understood
with appropriate strategies to manage those risks. Major capital projects and
programmes require careful management to mitigate the potential risks whichInformation Classification: PUBLIC
can arise. The effective monitoring, management and mitigation of these risks
is a key part of managing the capital programme.
9.2 In managing the overall programme of investments there are inherent risks
associated such as change in interest rates, credit risk of third party
contributors, global economy (e.g pandemics). Accordingly, the Council will
ensure that robust due diligence procedures cover capital investment decisions
and where possible contingency plans will be identified and enacted when
necessary.
9.3 No project should be approved where the level of risk is determined to be
unacceptable to the Council.
10. Knowledge and Skills
10.1 The capital strategy has been developed by Officers of the Council, who have
relevant knowledge and technical skills. In addition, external advice and
management is employed by the Council procuring and appointing suitably
qualified advisors and consultants to support the development, operation and
design of the programmes and project.
10.2 Appropriate training is provided to all individuals with investment
responsibilities. This includes all those making investment decisions such as
officers of portfolio boards as well as members with scrutiny and governance
responsibilities. Training is either provided as part of the meeting or by
separate ad hoc arrangement.
10.3 The Council’s property portfolio is managed by its Property Services Team. The
team has extensive knowledge of the Cornwall property market and experience
in dealing with a mix of property types and professional works (including
professional services, landlord and tenant, statutory valuations, acquisitions
and disposals, commercial and residential property management).
10.4 The Council’s asset valuation for the financial statements are assessed on an
agreed five year programme covering the whole property portfolio. The Council
also has internal building surveying resource to advice on construction, repair
and maintenance, and statutory compliance across its property portfolio.Information Classification: PUBLIC
Appendix 1: Capital Programme (by Portfolio Board)
Existing programme
Summary of existing Capital Programme
2025/26
2021/22 2022/23 2023/24 2024/25 Total
& Beyond
(£m) (£m) (£m) (£m) (£m)
(£m)
Existing programme
A secure home for all 159.734 170.645 201.106 100.013 77.666 709.163
A decent income for all 23.858 16.930 8.852 6.903 9.167 65.710
A great environment for all 91.546 162.099 89.862 63.668 20.124 427.299
A thriving, sustainable Cornwall 275.138 349.674 299.820 170.584 106.957 1,202.172
A brilliant place to be a child and grow up 25.973 42.769 15.736 10.119 - 94.597
Empowering and enterprising Council 7.277 13.161 12.784 10.460 10.099 53.782
Vibrant, safe, supportive communities 4.135 9.819 11.749 5.024 7.010 37.737
Total existing programme 312.523 415.423 340.089 196.187 124.065 1,388.288
Existing programme - Funding
Revenue 5.686 5.055 4.647 4.732 5.740 25.860
Prudential Borrowing 167.543 210.436 202.934 116.555 83.251 780.718
Capital Receipts 11.359 17.884 11.895 2.595 6.687 50.420
Specific Reserves 34.563 47.483 29.098 19.630 19.854 150.628
Grants & Contributions 93.372 134.565 91.515 52.675 8.534 380.662
Total existing programme 312.523 415.423 340.089 196.187 124.065 1,388.288Information Classification: PUBLIC
Appendix 2: Capital Financing
1.1 The level and availability of capital funding determines the size of the overall
capital programme. There are largely two main funding streams, external
(including grants & contributions) and direct funding from the Council. The
Council seeks to utilise a wide range of funding to support its capital
programme, maximising external funding opportunities and limiting internal
resources in the most efficient way to deliver its priorities.
1.2 The current capital programme is funded as shown below:
Types of Funding:
Internal / Type of Funding Detail
External
Internal Prudential Local Authorities are permitted to undertake
Borrowing borrowing to finance capital expenditure. In
planning for long term capital investment, it is
essential the long term revenue financing cost
is affordable. There are close links between the
Capital Strategy and Treasury Management
Strategy and Local Authorities must manage
their debt responsibly with decisions made in
consideration of prudent treasury management
practice, as outlined in the Council’s Annual
Treasury Management Strategy.Information Classification: PUBLIC
This type of borrowing has revenue implications
in the form of financing costs:
• interest payable to external lenders;
• minimum revenue provision (MRP), and
amount set aside for repayment of the
principal debt. (Note: the charge in the
first year will consist of interest only and
will be based on the amount borrowed
for a full year. However, there will be no
principle (MRP) element payable in the
first year and this will commence in the
year following completion.)
The Council has set capital indicators for
borrowing. Over the medium term the costs of
borrowing and minimum revenue provision
(MRP) must not exceed 11.0% of the net
revenue budget and borrowing must not
exceed 2.6 times the annual net revenue
budget.
Capital Receipts The sale of capital assets generates a capital
receipt. These receipts are ring-fenced, by
statute, and can only be used to fund capital
expenditure. Receipts under £10,000 are de
minimis and classed as revenue. All capital
receipts are pooled, allocation and use is
determined as part of the overall capital
programme requires.
However, there are the following exceptions:
• Cornwall Council Farms Estate; 40% of
any receipt is retain for maintenance and
improvement of the Farms Estate.
• Housing; in accordance with legislation
HRA derived proceeds are ring-fenced
for reinvestment in housing projects.
• Cornwall Land Initiative; receipts will be
reinvested / recycled for further
advancement of this scheme.
• Revolving Loan Initiatives.
• Langarth Garden Village; any receipt
from sale of assets associated with the
Langarth scheme will be reinvested /
recycled to fund further investment to
ensure delivery of the master plan.
• Where the sale of an asset has been
specifically approved by Cabinet to be
ring-fenced to fund further development
of that site or associate project.
• Where the sale of an asset leads to the
requirement to repay capital grant, then
the first call on the capital receipt will be
for this purpose.
• Where otherwise explicitly approved by
Cabinet.Information Classification: PUBLIC
Revenue The Council can use revenue resources to fund
capital projects on a direct basis. However,
given the pressures on the revenue budget it is
unlikely that the Council will choose to
undertake this method of funding if other
sources are available.
Reserves The Council will regularly review its reserves to
identify resource that can be used to deliver
Council priorities including, if appropriate,
funding of capital investment. (The Place based
and Capital Financing Reserve are the Council’s
main reserves set aside for financing future
capital investment.)
Leasing Services may enter into finance leasing
agreements to fund capital expenditure.
However, a full options appraisal and
comparison of other funding sources must be
made and the Council’s Section 151 Officer
must be certain that leasing provides the best
value for money method of funding the
scheme. Finance leasing agreements are
included within the overall borrowing levels
when considering prudence and affordability
and calculating the capital indicators.
External Grants Grant funding is one of the largest sources of
financing the capital programme. This could be
from central government departments (such as
Department for Transport and Department for
Education) or other organisations such as
Environment Agency (EA), Homes England
(HE), Heritage Lottery Fund (HLF).
These will be applied to specific projects /
programmes in accordance with their grant
conditions.
S.106 / Significant developments across the County are
Community often liable for contributions. They are provided
Infrastructure by developers towards provision of public
Levy (strategic infrastructure required as a result of the
element) development.
These will be applied to suitable and relevant
expenditure according to
Private Sector / Any other contribution from an external
Other External organisation (e.g. Town or Parish Councils),
Contribution often contribution to a jointly beneficial
scheme.
2. Optimising Council Resources
2.1 Whilst prudential borrowing is the main source of internal Council capital
resource, it is not the only source. Direct revenue funding, reserves and capitalInformation Classification: PUBLIC
receipts can all be used to fund capital expenditure. However, whilst revenue
and reserves can be used, it is not recommended to use these sources
particularly when there is insufficient budget available to fund the Council’s
ongoing revenue budget.
2.2 The Council can borrow to fund capital investment, but unlike central
government cannot borrow to fund day to day revenue expenditure, therefore
whilst there is a shortfall in revenue funding it is not strategically good practise
to use revenue for something the Council can borrow for.
2.3 Capital expenditure will be funded from capital resources when prioritising
funding and not use revenue linked resources until all available capital
resources have been utilised.
3. Minimum Revenue Provision (MRP)
3.1 The minimum revenue position (MRP) is the amount set aside for the
repayment of debt as a result of borrowing made to finance capital
expenditure. The Council sets its MRP Policy annually as part of the Treasury
Management Strategy. MRP charges reflect the economic benefit the Council
gets from using the asset to deliver services over its useful life. This ensures
the Council Tax payers are being charged each year in line with the asset
usage and prevents future Council Tax payers being burdened with ‘debt’ and
the costs of that debt, relating to assets that are no longer in use.
3.2 As a guide, borrowing incurs a revenue cost burden of approximately 4.1% of
the loan each year i.e. for every £1 million of borrowing, this will incur
revenue costs of approximately £41,000 per annum. This is calculated as
follows:
3.3 Exact costs will depend upon the asset life associated with the particular
capital investment and available interest rates. These are in addition to any
ingoing maintenance and running costs associated with the investment.Information Classification: PUBLIC
3.4 Local authorities must manage their debt responsibly and decisions about
borrowing are made in consideration of prudent treasury management
practice, as detailed in the Council’s Annual Treasury Management Strategy.
4. Flexible use of Capital Receipts
4.1 In February 2021 final settlement it was confirmed that the flexible use of
capital receipts was extended for a further 3 years. The details and impact
are still being assessed by government and guidance is yet to be issued.
4.2 There are no current plans for the Council to use capital receipts under the
flexibility directive. Following guidance from government the Council will
assess the need for use of capital receipts and incorporate into an updated
Capital Strategy during the financial year.Information Classification: PUBLIC
Appendix 3: Capital Expenditure
1.1 Capital expenditure is the acquisition, creation or enhancement of fixed assets
with a long-term value to the Council or on those assets of its partners.
1.2 If expenditure falls outside of this definition, it will be charged to the revenue
account during the year that the expenditure is incurred; this is the default
position. It is therefore crucial that expenditure meets the definition above
before being included in the capital programme to avoid unexpected revenue
charges within the year. Definition of capital expenditure is provided below,
relating to some of the more complicated capital rules.
Allowable Capital Expenditure
Item of Capital or Detail
expenditure Revenue
Feasibility Revenue, but Until a specific solution has been decided
studies could be capital if upon, costs cannot be directly attributable
conditions met to bringing an asset into working condition.
This includes costs incurred whilst
deliberating on an issues, scoping potential
solutions, choosing between solutions and
assessing whether resources will be
available to finance a project. However,
feasibility studies can be capitalised if they
occur after a decision has been made to go
ahead with a capital project (i.e. if they are
directly attributable in bringing an asset
into use, or enhance the value) as long as
they have been included in the approve
project costs.
Demolition of an Revenue, but Demolition would usually be an act of
existing building could be capital if destruction that would be charged to
conditions met revenue; However, if the costs incurred are
necessary in preparing a site for a new
scheme, it can be argued that they are an
integral part of the new project.
Cost of buying Revenue Does not enhance the asset or extend the
out sitting asset life.
tenants of
existing building
Initial delivery Capital As long as directly required to deliver the
and handling asset or bring an asset into use.
costs
Costs of renting Revenue Considered to be a cost of delivering the
alternative regular Service, does not directly deliver
accommodation the asset.
for staff during
building works
Site security Revenue Does not enhance the asset or extend the
during asset life.
constructionInformation Classification: PUBLIC
Installation and Capital As long as required to deliver the asset or
assembly costs bring an asset into use.
Testing whether Capital As long as required to deliver the asset or
the asset is bring an asset into use.
functioning
properly
Rectification of Capital As long as required to deliver the asset or
design fault bring an asset into use.
Liquidated Revenue Does not enhance the asset, relates to a
damages breach of contract.
Furniture and Capital (subject Subject to de-minimis expenditure level.
fittings to de-minimis
level)
Training and Revenue These are revenue as it is training to use
familiarisation of the asset, not costs incurred with getting
staff the asset into a usable state.
NB: Cloud based systems are not capital as
we do not own the asset but purchase a
licence to use it.
Professional fees Capital As long as required to directly deliver the
asset or bring an asset into use.
Borrowing costs Revenue There is currently no provision for
borrowing costs to be eligible for
capitalisation within the Council.
Internal staff Revenue, but Usually these are revenue, but if costs
costs could be capital if /time can be identified that have directly
conditions met contributed to the delivery and getting the
asset into working condition and are
dedicated to that asset then this could be
capitalised, subject to agreement and
funding. General overhead and
apportionment of managerial costs are not
capital.
1.3 Contributions and grants to external organisations / individuals (i.e. not on
the Council’s own assets) can be capital expenditure as long as the ultimate
use of the funds meets the Council’s definition of capital above.You can also read
