Appendix V – Capital Budget Financial Risks

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CAPITAL BUDGET FINANCIAL RISKS APPENDIX V
1 Inflation Whilst inflation has reduced from the previous highs, there is evidence that
inflation may be starting to increase again. Many projects are also subject to
construction inflation affecting labour rates and materials costs, which may differ
from general retail inflation.
2 Interest Rates Higher interest rates mean that borrowing is more expensive, and therefore the
Council can afford to borrow less. If interest rates are higher than the
budgeted/estimated rates over the period of the budget, this means some capital
expenditure funded by borrowing may need to be reviewed.
3 Staff Capacity The ability of Services to deliver the Council’s approved plans may be limited to
the availability of appropriately qualified and experienced staff and their capacity
to deliver the projects in the budgeted timescales. Staff turnover and delays in
recruitment may lead to delays in delivering projects.
4 Changing priorities /
regulations
Changing regulations can affect projects, for example building regulations and
new climate change requirements may require construction projects to be
reviewed and modified to meet the new regulations. This may lead to delays and
increased costs. Also, changes to the local demographics may mean the
Council’s priorities change over time, particularly when considering the Capital
Budget over several years into the future.
5 Capital Grant The Scottish Government Capital Grant allocations are made on an annual basis,
and therefore subsequent years estimates cannot be guaranteed.
6 Developer
Contributions
Developer Contributions are payable into future years, usually in line with house
building rates, and act as a contribution towards infrastructure already delivered
and expensed. These contributions therefore reduce the need for borrowing in
future, with completed infrastructure costs already incurred. There is a risk that
developer plans do not progress as anticipated and this can result in contributions
not materialising. The Developer Contributions income budget is currently
£18.608 million.
7 Compensation
Claims
The cost of completed capital projects can increase in future if claims for
compensation are received from contractors or other persons if land is purchased
or disturbed for projects. Whilst large capital projects include a degree of
contingency, the amounts potentially awarded for compensation can far exceed
this contingency and are not budgeted for.