PO12.1(1) - Community Investment Fund - Annual Update
North Lanarkshire Council · 29 September 2022
Back to Policy and Strategy Committee — 29 September 2022 and its agenda
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North Lanarkshire Council Report Policy and Strategy Committee Does this report require to be approved? ☐ Yes ☒ No Ref EK/GT Date 29/09/22 PO12.1 (1) – Community Investment Fund – Annual Update From Elaine Kemp E-mail kempe@northlan.gov.uk Telephone 01698 302408 Executive Summary In September 2018, the ‘We Aspire – A Shared Ambition for North Lanarkshire’ report presented to Policy and Resources Committee outlined proposals for the establishment of the Community Investment Fund (CIF). The ambition was to target the creation of additional resources of £500m over a 10 year period to support new capital expenditure in North Lanarkshire’s communities. The investment would be funded through ring-fencing elements of future council tax income associated with the growth in housing and top-slicing an element of future council tax increases. The previous update presented to Policy and Strategy Committee in December 2022 highlighted a revised estimate of the potential funding available of £534.604m over the 10 year period. This position was reflective of economic uncertainty associated with the Covid- 19 health pandemic and has been incorporated into the Council’s resource planning for the Strategic Capital Investment Programme approved at Policy and Strategy Committee in March 2022. This report provides an earlier than planned update to reflect Council Tax growth over the last year and the impact of recent rises in the Bank of England base interest rate which will have an impact on the level of CIF borrowing that can be achieved. As a result of these factors, a prudent estimate of available CIF resources over the 10-year period is now £492.364m, a reduction of £42.241m from the previous assessment. It has been particularly important to update the CIF projections in this accelerated timeframe given the impact of inflationary pressures on the capital programme. The combined impact of inflation and updated CIF projections will require the Council’s Strategic Capital Delivery Group to manage the consequences on delivery of the Council’s capital programmes. Recommendations It is recommended that Committee: (1) Acknowledges the updated assumptions highlighted in the report and the reduction in available CIF resources of £42.241m over the 10-year period, (2) Acknowledges the impact on resources available within the current 5-year capital planning period (reduction of £22.076m), and
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1. Background 1.1 In September 2018, the ‘We Aspire – A Shared Ambition for North Lanarkshire’ report presented to Policy and Resources Committee outlined proposals for the establishment of the Community Investment Fund (CIF). The ambition was to target the creation of additional resources of £500m over a 10 year period to support new capital expenditure in North Lanarkshire’s communities. The investment would be funded through ring- fencing elements of future council tax income associated with the growth in housing and top-slicing an element of future council tax increases. 1.2 The CIF aims to support the Council’s aspiration to make North Lanarkshire the place to Live, Learn, Work, Invest and Visit, with a shared ambition for inclusive growth and prosperity for all. Investment linked to CIF will be targeted towards tackling the barriers to growth by unlocking the potential in the most deprived areas, breaking the cycle of poverty and opening up opportunities to create more equal communities. 1.3 The new investment aims to accelerate the delivery of ambitious plans for community investment and service delivery underpinned by community involvement and partnership whilst supporting the generation of future budget savings and supporting economic regeneration activity throughout North Lanarkshire. 1.4 Several updates have been presented to Policy and Strategy Committee with the most recent update provided in December 2021. That update highlighted a revised estimate of the potential funding available of £534.604m over the 10 year period. The position at that time was reflective of economic uncertainty associated with the Covid-19 health pandemic and the decision of Council to freeze Council Tax for the 2021/22 financial year. This position has been incorporated into the Council’s resource planning for the Strategic Capital Investment Programme approved at Policy and Strategy Committee in March 2022. 1.5 Successive Council budgets for 2019/20, 2020/21, 2021/22 and 2022/23 have set aside the equivalent of 1% of Council Tax increases to support CIF ambitions. 2. Report 2.1 As previously highlighted, the Community Investment Fund has two main forms of funding: forecast growth in Council Tax income which is directly linked to the Council’s ambition for economic growth; and the ring-fencing of 1% of future Council Tax increases. Ring-fenced Council Tax 2.2 The decision of the Council to increase Council Tax by 3% for 2022/23 was in line with previous CIF assumptions. Therefore, there has been no change in the underlying assumptions of CIF income generated through ring-fenced Council Tax. (3) Acknowledge that the Council’s Strategic Capital Delivery Group continues to assess the impact of the reduction of funding available, particularly in light of the impact of inflationary pressures on the capital programme. The Plan for North Lanarkshire Priority Improve North Lanarkshire's resource base Ambition statement (21) Continue to identify and access opportunities to leverage additional resources to support our ambitions
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2.3 The Council’s approved Medium Term Financial Plan (MTFP) continues to assume that 1% of future Council Tax rises will be set aside to support CIF. However, the MTFP also highlights a significant funding gap from 2023/24 to 2027/28 which will require Elected Members to make difficult decisions to obtain balanced budgets in the years ahead. Council Tax Growth 2.4 In assessing the potential for future CIF resources, Financial Solutions uses a variety of tools to assess potential Council Tax growth. The following is a summary of the current analysis: Council Tax Monitoring 2.5 Financial Solutions produces monthly monitoring information on the movement in the Council Tax base using data from the Council Tax system on the numbers of properties at each band, adjusted for any exemptions and discounts applied. For ease of comparison, the total number of properties is represented as Band D equivalents. 2.6 As at August 2022, there has been more limited growth in the Council Tax base than previously assumed in the CIF assumptions over the past twelve months. In the December 2021 CIF projections, Band D growth for the current financial year was assumed to be 955, but the latest figures indicate lower growth of only 556. After taking into account the £1.000m additional income required to support the Council’s Medium Term Financial Plan assumptions, there is no additional funding to support the CIF investment programme for 2022/23. New Build Development Monitoring 2.7 The Planning and Regeneration service continues to develop a new build development monitoring approach which considers the volume of planning applications granted, the numbers of building warrants granted by Building Standards (approval for construction) and the number of completion certificates issued by Building Standards. 2.8 It is worth noting that the trends in these areas would not ordinarily lead to an amendment of projected housing growth in the CIF modelling but could provide a sense of confidence in the housing market in North Lanarkshire. 2.9 The Housing Land Audit (HLA) can provide an indication of the confidence of housebuilders in the numbers of units they’re likely to complete over a seven year period. A like for like comparison in the expectations of overlapping years of the 2019 and 2021 HLAs (i.e. 2021/22 to 2025/26) currently indicates an overall reduction in anticipated completions of 414 (8%) in the five year period. However, the most significant reductions are indicated for 2021/22 and 2022/23 which are essentially already built into the Council Tax Monitoring position above but projections for the remaining years exceed the expectations outlined in the 2019 HLA. Effective Programming 2021-22 2022-23 2023-24 2024-25 2025-26 Total 2019 HLA 2,224 2,477 1,916 2,041 1,534 10,192 2021 HLA (draft) 1,265 1,993 2,138 2,379 2,003 9,778 Increase / (decrease) (959) (484) 222 338 469 (414) (Extracted from Housing Land Audit 2019 and 2021 [in draft])
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2.10 With housebuilders continuing to project that there will be annual completions above 2,000 units for the remainder of the current 5 year cycle there is not sufficient evidence at this time to suggest that the current pessimistic scenarios for future growth built into CIF modelling should be amended but, as always, all these factors will continue to be monitored closely. Investment Factor 2.11 As outlined in previous CIF update reports, one of the key factors in determining potential funding available is the investment factor. This investment factor is determined by considering the prevailing interest rates available to the Council and the length of time the borrowing is repaid. 2.12 In March 2020, the assumptions were updated to reflect the UK Treasury’s decision to increase the interest rate for Public Works Loans Board (PWLB) borrowing of 1.0%. The assessment at that time was that the Council’s overall borrowing would trend towards 3.25% resulting in an investment factor of 22.2084 (£1m of revenue expenditure would equate to £22.208m of capital expenditure). 2.13 That assessment was made at a time when the Bank of England base rate was at just 0.10% and the Council was continuing to be able to reduce the cost of new borrowing. However, given the significant inflationary pressures on the economy the Bank of England agreed on 4 August 2022 to increase the base rate to 1.75%. The impact this will have on PWLB rates is yet to be seen, however, at this stage it has been deemed prudent to assume that new borrowing may increase from the 3.25% previously assumed to 3.75% going forward. 2.14 This impacts on the investment factor, reducing it to 20.5510 meaning that £1m of revenue resources can now support £20.551m of capital expenditure. Impact on Capital Resources 2.15 In summary, with no change to assumptions around ring-fenced Council Tax receipts, reduced Council Tax growth for 2022/23 and the reduction in the investment factor, the overall change to CIF resources is a reduction of £42.241m over the 10-year period. 2.16 The Council’s Strategic Capital Delivery Programme is based on a 5-year period from 2021/22 to 2025/26 with £264.412m of CIF funding. These updated projections reduce funding available over the 5-year capital planning period by £22.076m with a further reduction in resources available over the 2026/27 to 2029/30 period of £20.164m. This can be summarised in the following table: 2019/20 to 2025/26 £000 2026/27 to 2029/30 £000 Total £000 Agreed model for inclusion in the Strategic Capital Investment Programme 264,412 270,192 534,604 Updated assumptions (reflected in Appendix 1) 242,336 250,028 492,364 Increase / (Decrease) (22,076) (20,164) (42,241) 2.17 Clearly with the reduction in resources available to support the current capital investment programme, the Council’s Strategic Capital Delivery Group will be required to reassess priorities with a view to reducing the programme to match funding available.
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This is further complicated by the ongoing impact of inflation where there is currently significantly less purchasing power associated with capital budgets. Sensitivity Analysis 2.18 Given the number of variables affecting CIF modelling there are a number of risks and uncertainties associated with the various assumptions being made. A significant deviation from any of these assumptions could have an impact on the level of resources available. The following analysis illustrates the impact of changes in each of the factors: • Future increases in Council Tax To date, the Council has formally agreed to set aside 1% of Council Tax increases for financial years 2019/20, 2020/21, 2021/22 and 2022/23. The setting aside of Council Tax increases is dependent on future decisions of the Council. A Council decision not to set aside 1% for CIF in 2023/24 would reduce available funding by £32.137m over the 10 year planning period, rising to a £38.373m reduction for not setting aside 1% for CIF in 2029/30. • The level of future housing growth The level of new housing development is significantly influenced by the strength of the economy. With the current cost of living crisis and the UK widely expected to experience a recession later this calendar year that may last until the end of 2023, there is a significant risk that the increase in new housebuilding following the Covid- 19 dip may not be sustained. No Council Tax growth across the CIF planning period above the £1.000m required to support the Medium Term Financial Plan would reduce available resources across the 10-year planning period by £137.231m (which includes £34.119m in the current 5 year capital planning period). • Prudential borrowing factors The model assumes an average interest rate of 3.75% will apply over the lifetime of the fund. This will be subject to a degree of volatility linked to the health of the economy, the availability of borrowing at PWLB rates (generally more attractive than the external market) and the ability for the Council to continue to proactively manage the its loan debt profile. An increase in the average rate of borrowing to 4.75% would reduce overall funding available by £64.896m. Alternatively, a reduction to 2.75% would increase CIF resources by £82.100m 3. Measures of success 3.1 Success will be evidenced through the development of projects and programmes of activity funded through the Community Investment Fund and their impact on the communities of North Lanarkshire.
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4. Supporting documentation Appendix 1 – Community Investment Fund model – updated August 2022 Elaine Kemp Head of Financial Solutions
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5. Impacts ( http://connect/report-template-guidance ) 5.1 Public Sector Equality Duty and Fairer Scotland Duty Does the report contain information that has an impact as a result of the Public Sector Equality Duty and/or Fairer Scotland Duty? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? If Yes, has an assessment been carried out and published on the council’s website? https://www.northlanarkshire.gov.uk/your-community/equalities/equality-and-fairer- scotland-duty-impact-assessments Yes ☐ No ☐ 5.2 Financial impact Does the report contain any financial impacts? Yes ☒ No ☐ If Yes, have all relevant financial impacts have been discussed and agreed with Financial Solutions? Yes ☒ No ☐ If Yes, please provide a brief summary of the impact? The financial impacts are outlined throughout the report. There will be a requirement for the Council’s Strategic Capital Delivery Group to reassess the current 5 year capital plan to reflect updated projections of funding available. 5.3 HR policy impact Does the report contain any HR policy or procedure impacts? Yes ☐ No ☒ If Yes, have all relevant HR impacts have been discussed and agreed with People and Organisational Development? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.4 Legal impact Does the report contain any legal impacts (such as general legal matters, statutory considerations (including employment law considerations), or new legislation)? Yes ☐ No ☒ If Yes, have all relevant legal impacts have been discussed and agreed with Legal and Democratic Solutions? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.5 Data protection impact Does the report / project / practice contain or involve the processing of personal data? Yes ☐ No ☒ If Yes, is the processing of this personal data likely to result in a high risk to the data subject? Yes ☐ No ☐ If Yes, has a Data Protection Impact Assessment (DPIA) been carried out and e- mailed to dataprotection@northlan.gov.uk Yes ☐ No ☐
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5.6 Technology / Digital impact Does the report contain information that has an impact on either technology, digital transformation, service redesign / business change processes, data management, or connectivity / broadband / Wi-Fi? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? Where the impact identifies a requirement for technology, has an assessment been carried out (or scheduled) by the Enterprise Architecture Governance Group (EAGG)? Yes ☐ No ☐ 5.7 Environmental / Carbon impact Does the report / project / practice contain information that has an impact on any environmental or carbon matters? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.8 Communications impact Does the report contain any information that has an impact on the council’s communications activities? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.9 Risk impact Is there a risk impact? Yes ☒ No ☐ If Yes, please provide a brief summary of the key risks and potential impacts, highlighting where the risk(s) are assessed and recorded (e.g. Corporate or Service or Project Risk Registers), and how they are managed? The sensitivity analysis outlined in the report highlights the impact of significant variations in the assumptions underpinning the CIF model. The governance and monitoring arrangements put in place will ensure that risk is managed across CIF programmes, including through the Council’s revenue budget, capital planning and treasury management strategies and consideration by the Council’s Strategic Capital Delivery Group.
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Appendix 1 Community Investment Fund model – Update Assumptions: 1. “As is” Growth – historically, the Council Tax Band D equivalent properties has averaged around 1,700 per annum. This model assumes this growth will reduce by 5% per annum 2. Growth from ambition – modelling assumes that additional housebuilding linked to the Plan for North Lanarkshire will be 300 (Band D equivalent) in Year 2, rising by an additional 10% per annum. 3. Reductions in growth applied to reflect anticipated slowdown associated with COVID-19, Brexit and Cost of Living economic impacts. 4. Council Tax will rise by 3% per annum, with 1% ring-fenced to support CIF but this is subject to future Council decisions. In addition, this also assumes there are 5. Council Tax collection rate assumed to be 97%. 6. Investment Factor assumed to be 20.5510 based on and interest rate of 3.75% over 40 years Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 Total Raised from Ambition - Growth in Band D Equivalents: "As is" Growth 1,700 1,619 1,542 1,469 1,399 1,332 1,269 1,208 1,151 1,096 Growth from ambition 300 330 363 399 439 483 531 585 643 Impact of economic slowdown (856) (912) (1,316) (750) (598) (461) (338) (230) (136) Increase in Band D equivalents 844 1,008 556 1,081 1,200 1,311 1,414 1,510 1,599 1,739 12,262 Council Tax Charge for Band D (assume 3% increase pa) 1,221 1,221 1,258 1,296 1,335 1,375 1,416 1,458 1,502 1,547 Total Additional Council Tax Income from growth (£000) 1,031 1,231 699 1,401 1,601 1,802 2,002 2,202 2,402 2,690 17,061 Less assumed 3% non-collection (£000) (31) (37) (21) (42) (48) (54) (60) (66) (72) (81) (512) Less amount assumed in Long Term Financial Plan (£000) (1,000) (1,000) (678) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (9,678) Amount available for Community Investment Fund (£000) 0 194 0 359 553 748 942 1,136 1,330 1,610 6,871 Raised from Council Tax increases: Additional income from assumed 3% increase pa on 19/20 Council Tax base 4,293 4,422 4,555 4,691 4,832 4,977 5,126 5,280 5,438 5,602 49,217 Amount available for Community Investment Fund (£000) - 1% set aside 1,431 1,474 1,518 1,564 1,611 1,659 1,709 1,760 1,813 1,867 16,406 Total estimated additional income for Community Investment Fund (£000) 1,431 1,668 1,518 1,923 2,164 2,407 2,651 2,896 3,143 3,477 23,277 Investment Factor (revenue funding converted to capital) 20.5510 Total Capital Funding Available 14,000 29,410 34,271 31,205 39,519 44,474 49,457 54,471 59,515 64,590 71,452 492,364 CIF Resources Assumed for 5-year Capital Programme 14,000 31,782 37,035 37,383 42,706 48,061 53,446 58,864 64,314 69,799 77,215 534,604 Difference 0 (2,372) (2,764) (6,178) (3,187) (3,587) (3,989) (4,393) (4,800) (5,209) (5,762) (42,241) (22,076) (20,164)2021/22 to 2025/26 Impact 2026/27 to 2029/30 Impact