Agenda item

(To receive a report by Michelle Grady, Assistant Director – Finance, which invites the Board to consider a report on the Capital Budget Monitoring Report 2021/22 – Quarter 2 to 30 September 2021 which is due to be considered by the Executive on the 7 December 2021. The views of the Board will be reported to the Executive as part of their consideration of this item)

Consideration was given to a report by the Assistant Director – Finance, which invited the Board to consider a report on the Council’s Capital Budget Monitoring for 2021/22, which was due to be considered by the Executive on 07 December 2021.

The Council was currently forecasting an underspend of £33.9m, a breakdown of which could be found in Appendix A to the report.

The largest underspend to the Capital Programme was currently for contingency planning, with £7.5m being allocated for contingency plans. The main variances across projects related to some of the major highways schemes, in particular the Spalding Western Relief Road which had been subject to some delays in land acquisition and design requirements.

The Board considered the report and during the discussion the following points were noted:

·       In relation to the Government’s financial settlement, it was announced in October 2021 that £4.8bn would be spread fairly evenly over the three years of the spending review period. There were some specific funding announcements such as around supporting families and cyber security, and once these had been taken into account, the remaining amount was around £1.4bn. The Council usually received around 1% of the national funding announcement which would equate to about £14m.

·       There were numerous cost pressures facing the Council, which included Adult Care cost pressures of between £7m and £9m per year, increase in inflation which was expected to peak at around 5% in 2022, and the potential ending of the public sector pay freeze. In addition, the Secretary of State for Housing, Communities and Local Government had recently started to indicate potential changes such as moving away from the localised business rates system which could open the door for a potential fairer funding review which the Council had lobbied for over the last six years due to the County’s rural and sparse nature. Different factors, such as deprivation, would need to be taken into account in a distribution formula. The general levels of reserves held by councils might also impact on a fairer funding distribution formula.

·       A lot of the capital programme expenditure was reliant on Government grants coming from the Department for Transport (DfT) and the Department for Education (DfE). These grants often did not line up with the Government’s announcements on the financial settlement which made it difficult to plan for these areas. The financial settlement for Highways maintenance in 2021/22 was reduced leading to the shortfall being backfilled with local money. There were currently no announcements in relation to the DfT’s settlement for 2022/23 but it was expected to be similar to the current year’s settlement.

·       The United States $1 trillion Infrastructure Bill could have a huge impact on global supply issues and inflation if agreed by the Senate. There were already supply issues impacting on the construction industry and IT, which was already leading to long waiting times for items such as cars and laptops due to the supply issues with chips. There was then the issue of the delivery of the supply and finding tradespeople to undertake the work. If there was a significant increase in demand anywhere globally, this would impact negatively on global supply which was already insufficient to meet current demand. This would have an impact on the UK and possibly lead to increased inflation as well. There was currently no direct data about the potential US impact on supply but the Council was monitoring the impact on individual programmes from a corporate perspective to understand what those impacts were. The market was also being analysed to try to understand the impact, and currently supply was beginning to slightly even out in some areas but was still very short in other areas. Costs were plateauing but at a higher level, and there was very little expectation that these costs would drop back to previous levels.

·       The capital programme was being monitored regularly including what impact any slippage would have. This was being looked at project by project and programme by programme to see what the overall impact would be on budget setting in future years. The key point was that the whole life budget position was roughly on target. However, it was too early to understand the full impact on the capital programme from inflation pressures and potential changes in interest rates. There was a need to reach a settled position before making any changes to the capital programme, but the Council would need to absorb some post Covid-19 costs into the capital programme. New intelligence would be fed in as it became available.

RESOLVED:

1. That the recommendations as set out in the Executive report be supported;
2. That a summary of the comments made be reported to the Executive for its consideration.