Appendix H
PRUDENTIAL INDICATORS 2011/12 – 2013/14
All of the prudential indicators for the period 2011/12 to 2013/14 have been
calculated based on the Council’s existing commitments, current plans for revenue
and capital as recommended in the 2011/12 budget report included elsewhere on this
agenda which is due for approval by Full Council on 23 February 2011.
A
AFFORDABILITY
A1
Ratio of financing costs to net revenue stream
The actual for 2009/10 and estimates for 20010/11 to 2013/14 for the ratio of
financing costs to net revenue stream are as follows:
Non HRA
2009/10
2010/11
2011/12
2012/13
2013/14
Actual
Estimate (P9)
Estimate
Estimate
Estimate
%
%
%
%
%
(4.57)
(3.43)
(3.83)
(3.64)
(3.67)
The ratio of financing costs to net revenue streams is currently forecast to remain
fairly constant over the next 3 years. Although there is a forecast reduction in the
average amount available to invest year-on-year, this is offset by an anticipated
improvement in investment returns as the economy starts to recover.
As this ratio is negative it still represents a very healthy position for the Council as it
reflects the fact that interest receivable exceeds interest payable.
A2
Estimates of the impact of capital investment decision on Council Tax
The code requires the impact of alternative capital investment decisions on Council
Tax to be calculated, and reflects the incremental impact of new capital decisions
proposed over and above the capital investment decisions that have already been
taken in the past by the Council, and therefore relates only to the new resources to
be committed. These indicators take into consideration the effects of self-financing
and the effects of government support, along with any associated impact on interest
receivable/due as a consequence of the financing methods used. They also reflect
the revenue implications of capital schemes other than financing costs, such as
additional support contracts for new computer systems. The table below indicates
the incremental impact of the capital investment decisions proposed for the period
2011/12 to 2013/14 based on a Band D property. This is a purely notional calculation
designed to show the effect of changes in capital investment decisions.
2011/12 to 2013/14
Estimate
Band D
A3
£
£2.28
Estimates of the impact of capital investment decision on Housing
Rents
Not applicable as the Council no longer operate a Housing Revenue Account.
Appendix H
A4
Affordable Borrowing Limit
Section 3 of the Local Government Act 2003 requires the Council to determine and
keep under review how much it can afford to borrow. The amount determined is
termed the “Affordable Borrowing Limit”.
The Council must ensure when setting this limit that its capital investment plans
remain within sustainable limits, and that the impact upon its future council tax levels
is acceptable. The Council is proposing that the limit is set at the Authorised
Borrowing Limit (D1), which reflects a continuation of current practice.
The limit includes both external borrowing and other forms of liability, such as credit
arrangements, and must be set for the forthcoming financial year and two successive
years.
2011/12
2012/13
2013/14
Estimate
Estimate
Estimate
£,000
£,000
£,000
9,325
9,556
9,792
Affordable Borrowing Limit
B
PRUDENCE
B1
Net borrowing and the Capital Financing Requirement
The capital financing requirement measures the Council’s underlying need to borrow
for a capital purpose. The Code states the following as an indicator for prudence:
“In order to ensure that over the medium term net borrowing
will only be for a capital purpose, the local authority should
ensure that net external borrowing does not, except in the
short term, exceed the total of capital financing requirement in
the preceding year plus the estimates of any additional capital
financing requirement for the current and next two financial
years.”
The Council met this indicator for 2009/10. It should be noted that, following the
repayment of the council’s borrowing, the CFR has been reduced to zero.
C
CAPITAL EXPENDITURE
C1
Capital Expenditure
The actual capital expenditure for 2009/10 and the estimates for current and future
years take into account current plans and future commitments as set out within the
budget report included elsewhere on this agenda. The expenditure includes growth
bids which are subject to approval.
Non HRA
2009/10
2010/11
2011/12
2012/13
2013/14
Actual
Estimate (P9)
Estimate
Estimate
Estimate
£,000
£,000
£,000
£,000
£,000
3,500
6,433
8,672
5,584
100
Appendix H
C2
Capital Financing Requirement
Non HRA
2009/10
2010/11
2011/12
2012/13
2013/14
Actual
Estimate (P9)
Estimate
Estimate
Estimate
£,000
£,000
£,000
£,000
£,000
0
0
0
0
0
The estimated capital financing requirement takes into account capital expenditure,
the application of useable capital receipts, direct charges to revenue for capital
expenditure, the application of capital grants and the use of third party contributions
towards project costs. In summary, an increase in the capital financing requirement
will reflect capital expenditure which is not resourced immediately representing an
increase in the underlying need to borrow for capital purposes. Likewise a reduction
in the capital financing requirement will reflect future applications of capital receipts
or grants and contributions or future charges to revenue.
The repayment of Councils debt in 2006/07 resulted in the Capital Financing
Requirement being reduced to nil. There are currently no plans to undertake future
long-term borrowing.
D
EXTERNAL DEBT
D1
External Debt – Authorised Limit
It is recommended that the Council approve the following limits for its total external
debt gross of investments. The estimates are based on assumed actual borrowing,
new supported debt, maturing and replacement debt. In addition headroom for
temporary borrowing and borrowing in advance of need has been incorporated.
Authorised
Limit
D2
2009/10
2010/11
2011/12
2012/13
2013/14
Actual
Estimate (P9)
Estimate
Estimate
Estimate
£,000
£,000
£,000
£,000
£,000
9,100
9,100
9,325
9,556
9,792
External Debt – Operational Boundary
The operational boundary is based on the same estimates as the authorised limit but
reflects a more prudent additional headroom figure.
Operational
Boundary
D3
2009/10
2010/11
2011/12
2012/13
2013/14
Actual
Estimate (P9)
Estimate
Estimate
Estimate
£,000
£,000
£,000
£,000
£,000
5,100
5,100
5,328
5,458
5,592
Actual External Debt
The Council’s actual external debt at 31 March 2010 was nil. This reflects the
position at one point in time and is therefore not directly comparable to the authorised
limit and operational boundary.
Appendix H
E
TREASURY MANAGEMENT
E1
Adopt the CIPFA Code of Practice for Treasury Management
The Council has adopted the CIPFA Code of Practice for Treasury Management in
the Public Services.
E2/3
Upper Limits for Fixed/Variable Interest Rate Exposure
These indicators allow the Council to manage the extent to which it is exposed to
changes in interest rates.
It is recommended that the Council set an upper limit on both fixed and variable
interest rate exposures (on both debt and investments) for 2011/12, 2012/13 and
2013/14 of 100% of the outstanding principal sums. This will mean both Indicators
will be set at 0 on a net basis (100% debt less 100% investments at fixed/variable
rates). This is a continuation of current practice enabling all investments (and any
new debt) to be at fixed or variable rates, giving the Council maximum flexibility over
the forthcoming years.
Interest Rate
Exposures
2010/11
2011/12
2012/13
2013/14
Revised
Estimate
Estimate
Estimate
%
%
%
%
0
100
100
100
100
Upper limit on
investments
(89.5)
(100)
(100)
(100)
(100)
Net Fixed Exposure
(89.5)
0
0
0
0
0
100
100
100
100
Upper limit on
investments
(10.5)
(100)
(100)
(100)
(100)
Net Variable Exposure
(10.5)
0
0
0
0
Existing
level at
31/3/10
Estimate
%
Fixed Interest Rates
Upper limit on debt
Variable Interest Rates
Upper limit on debt
E4
Maturity Structure of Borrowing
It is recommended that the Council set upper and lower limits for the maturity
structure of its borrowings as follows:
Amount of projected borrowing that is fixed rate maturing in each period as a
percentage of total projected borrowing that is fixed rate
Upper Limit
Lower Limit
Under 12 months
100%
0%
12 months and within 24 months
100%
0%
24 months and within 5 years
100%
0%
5 years and within 10 years
100%
0%
10 years and above
100%
0%
Appendix H
The upper limits recommended above have again been set to allow the Council
maximum flexibility. However this indicator is not currently relevant due to the
Councils debt free status.
E5
Total principal sum invested for period longer than 1 year.
The indicator for the upper limit for longer-term investments is recommended to be
£15 million for 2011/12 onwards, which is a continuation of current practice.
Conclusions
The prudential indicators for the period 2011/12 to 2013/14 for approval are shown
above and will continue to form part of the overall budget monitoring process for
2011/12.
The ratio of financing costs to net revenue expenditure remains at acceptable levels
with the forecasts showing that investment income still exceeds borrowing costs
(hence the negative ratio shown for the General Fund financing costs under indicator
A1 above).
A number of the treasury management indicators reflect the fact the Council is
currently debt free and assumes no plans to undertake any long term borrowing.
The capital programme remains both affordable and manageable. The Authorised
Limit provides a realistic and prudent limit which the Council must ensure
is
not
exceeded, whilst the Operational Boundary gives the Council the flexibility to borrow
to finance future capital schemes if required.