Appendix B
Prudential Indicator Monitoring Period 6 (September) 2011/12
The 2011/12 prudential indicators were calculated based on the Council’s existing
commitments, current plans for revenue and capital as recommended in the 2011/12
budget report to 14 February 2011 Cabinet. The 2010/11 outturn figures were
reported to Cabinet on 6 June 2010.
A
AFFORDABILITY
A1
Ratio of financing costs to net revenue stream
The outturn for 2010/11 along with the estimates and revised position for 2011/12
for the ratio of financing costs to net revenue stream are as follows:
Non HRA
2010/11
2011/12
2011/12
2011/12
Actual
Estimate
Rev Est (P4)
Rev Est (P6)
%
%
%
%
(3.38)
(3.83)
(3.83)
(3.26)
The HRA ratio has been removed since 2007/08 due to the transfer of the housing
stock under Large Scale Voluntary Transfer (LSVT), which took place on 13 February
2006. Consent was given for the council to close the HRA from 1st April 2007. The
ratio has reduced slightly from P4 due to the updated forecasts in relation to the
interest receivable estimates for 2011/12 which are not now anticipated to be as high
as originally predicted.
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 2011/12
based on a Band D property. This is a purely notional calculation designed to show
the effect of changes in capital investment decisions.
Band D
2010/11
2011/12 to
2013/14
2011/12 to
2013/14
2011/12 to
2013/14
Actual
Estimate
Rev Est (P4)
Rev Est (P6)
£
£
£
£
0.25
2.28
1.98
1.35
The reduction in this indicator between P4 and P6 is due to the impact of receiving
the £1.34m receipt in respect of Lockerbie flats, although this has been slightly offset
by interest rates in future years being lower than originally anticipated.
A3
Estimates of the impact of capital investment decision on Housing
Rents
The code requires the impact of alternative capital investment decisions on the level
of Housing Rents to be calculated. However, as the council no longer operates a
Housing Revenue Account this indicator is no longer relevant.
A4
Affordable Borrowing Limit
Appendix B
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 and
rent levels is acceptable.
The limit includes both external borrowing and other forms of liability, such as credit
arrangements (see note C2 below regarding debt redemption).
Affordable Borrowing Limit
B
2010/11
2011/12
2011/12
2011/12
Outturn
Estimate
Rev Est (P4)
Rev Est (P6)
£,000
£,000
£,000
£,000
9,100
9,325
9,325
9,325
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 2010/11. 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 capital expenditure estimates for the 2011/12 financial year for non-HRA takes
into account current plans and future commitments as updated in the Final Accounts
2010/11 report as presented to Cabinet in June 2011, and the revised estimate
therefore takes account of any slippage from the 2010/11 programme.
Non HRA
2010/11
2011/12
2011/12
2011/12
Actual
Estimate
Rev Est (P4)
Rev Est (P6)
£,000
£,000
£,000
£,000
2,765
8,672
12,450
12,433
The minor adjustment between P4 and P6 relates to the removal of budgets for 2
schemes that were no longer required.
Appendix B
C2
Capital Financing Requirement
2010/11
2011/12
2011/12
2011/12
Actual
Estimate
Rev Est (P4)
Rev Est (P4)
£,000
£,000
£,000
£,000
0
0
0
0
Non HRA
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.
Members should note that the Council repaid the principal element of its external
debt on 17th May 2006 by using part of the receipt from the LSVT, effectively making
the Council ‘debt free’. This repayment of debt has had the effect of reducing the
CFR to zero.
D
EXTERNAL DEBT
D1
External Debt – Authorised Limit
The figures below 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
2010/11
2011/12
2011/12
2011/12
Actual
Estimate
Rev Est (P4)
Rev Est (P6)
£,000
£,000
£,000
£,000
9,100
9,325
9,325
9,325
The limit set for 2011/12 gives the Authority flexibility to borrow to finance possible
short-term cash flow fluctuations and borrowing in advance of need if required.
D2
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
2010/11
2011/12
2011/12
2011/12
Actual
Estimate
Rev Est (P4)
Rev Est (P6)
£,000
£,000
£,000
£,000
5,100
5,328
5,328
5,328
The limits for D1 and D2 will need to be reviewed in the future if the Authority decides
to enter into any long-term borrowing.
D3
Actual External Debt
The Council’s actual external debt as at 31 July 2011 was zero, as highlighted in C2
above. This reflects the position at one point in time and is therefore not directly
comparable to the authorised limit and operational boundary.
Appendix B
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
Interest Rate Exposure – Variable Rates
It was recommended that the Council set an upper limit on its variable interest rate
exposures for 2011/12 of 100% of its net outstanding principal sums (100% 2010/11).
As the Authority is currently debt free and is not intending to enter into any long-term
borrowing in the near future this indicator is not currently relevant.
E3
Interest Rate Exposure – Fixed Rates
It was recommended that the Council set an upper limit on its fixed rate exposures
for 2011/12 of 100% of its net outstanding principal sums (100% 2010/11). However,
as with E3 above, this indicator is not relevant at the present time.
E4
Maturity Structure of Borrowing
It was 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%
These rates reflected the continuation of current practice but again the Authority’s
debt free status makes this indicator irrelevant at present.
E5
Total principal sum invested for period longer than 1 year.
The indicator for the upper limit for longer-term investments is set at £15m for
2011/12. As at the end of September 2011 the Council had £6.0m invested for
periods longer than 1 year.