Agenda Document Pack - South Lanarkshire Council - 26/02/2025
South Lanarkshire Council · 26 February 2025
Back to South Lanarkshire Council — 26 February 2025 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
Page 1
Council Offices, Almada Street Hamilton, ML3 0AA Tuesday, 18 February 2025 Dear Councillor South Lanarkshire Council The Members listed below are requested to attend a special meeting of the Council to be held as follows:- Date: Wednesday, 26 February 2025 Time: 12:30 (or immediately following the meeting of the Housing and Technical Resources Committee, whichever is the later) Venue: Hybrid - Council Chamber, Council Offices, Almada Street, Hamilton, ML3 0AA The business to be considered at the meeting is listed overleaf. Yours sincerely Paul Manning Chief Executive Members Margaret Cooper (Provost), Bert Thomson (Depute Provost), Alex Allison, John Anderson, Ralph Barker, John Bradley, Walter Brogan, Robert Brown, Archie Buchanan, Mathew Buchanan, Janine Calikes, Andy Carmichael, Maureen Chalmers, Ross Clark, Gerry Convery, Poppy Corbett, Andrea Cowan, Margaret Cowie, Maureen Devlin, Colin Dewar, Mary Donnelly, Monique Equi, Joe Fagan, Allan Falconer, Grant Ferguson, Gladys Ferguson-Miller, Elise Frame, Alistair Fulton, Ross Gowland, Geri Gray, Lynsey Hamilton, Celine Handibode, Graeme Horne, Mark Horsham, Martin Hose, Cal Johnston-Dempsey, Gavin Keatt, Susan Kerr, Ross Lambie, Martin Lennon, Richard Lockhart, Eileen Logan, Katy Loudon, Hugh Macdonald, Julia Marrs, Ian McAllan, Catherine McClymont, Kenny McCreary, Lesley McDonald, Elaine McDougall, Mark McGeever, Davie McLachlan, Richard Nelson, Carol Nugent, Norman Rae, Mo Razzaq, Kirsten Robb, John Ross, Graham Scott, David Shearer, Helen Toner, Margaret B Walker, David Watson, Kirsty Williams 1
Page 2
BUSINESS 1 Declaration of Interests Item(s) for Decision 2 Overall Position of Revenue Budget and Level of Local Taxation for 2025/2026 Report dated 6 February 2025 by the Executive Director (Finance and Corporate Resources). (Copy attached) 3 - 52 3 2025/2026 Capital Programme Update Report dated 6 February 2025 by the Executive Director (Finance and Corporate Resources). (Copy attached) 53 - 64 4 Prudential Indicators, Treasury Management Strategy and Annual Investment Strategy 2025/2026 Report dated 7 February 2025 by the Executive Director (Finance and Corporate Resources). (Copy attached) 65 - 90 Urgent Business 5 Urgent Business Any other items of business which the Provost decides are urgent. For further information, please contact:- Clerk Name: Susan Somerville Clerk Telephone: 07557323097 Clerk Email: susan.somerville@southlanarkshire.gov.uk 2
Page 3
Report Agenda Item Report to: South Lanarkshire Council Date of Meeting: 26 February 2025 Report by: Executive Director (Finance and Corporate Resources) Subject: Overall Position of Revenue Budget and Level of Local Taxation for 2025/2026 1. Purpose of Report 1.1. The purpose of the report is to: update the Council on the 2025/2026 Budget Settlement position, and the 3 Year Budget Strategy. This report will also present the Revenue Budget for 2025/2026, including the base budget allocations to Resources, for consideration and approval. 2. Recommendation(s) 2.1. The Council is asked to approve the following recommendation(s): (1) that the revised 3 Year Budget Gap of £37.584 million including the impact of the Local Government Settlement (section 4.12) and the Use of the Loans Fund Review /Service Concessions (section 4.7), be approved; (2) that the 2025/2026 Budget Gap of £5.264 million (section 4.12), be noted; (3) that the amount of savings and the level of Council Tax to be used to balance the 2025/2026 Budget (detailed in section 5), be considered; (4) that the options for use of one-off Investment monies in the 2025/2026 Budget (detailed in section 6), be considered; (5) that the assumptions detailed at paragraph 7.2, used to arrive at the Budget presented in section 7, be noted; (6) that the budget figures detailed at section 7 (based on the assumptions in section 7.2) are to be updated following agreement of the Budget, be noted; (7) that the potential impact of savings beyond 2025/2026 (section 9), be noted; (8) that the Revenue Budget for 2025/2026, including the base budget allocations to Resources, as shown in Appendix 4 be approved, subject to Members’ decision on recommendations 3 and 4, and (9) that the Council has considered and given due regard to the assessments contained in the Integrated Impact Assessments relating to the proposals in this report, and the outcomes of the associated public consultation (section 14), be noted. 3. Background 3.1. A report titled 2025/2026 to 2027/2028 Revenue Budget Strategy was presented to the Executive Committee in June 2024. This paper focussed on financial outlook for the next 3 years, highlighting a Budget Gap of £77.275 million. The Budget Gap relating to financial year 2025/2026 was £22.355 million. 2 3
Page 4
3.2. Subsequent to this, update papers have been presented to Members, including the 2025/2026 Revenue Budget Gap and Savings (Executive Committee, 13 November 2024), and most recently, the 2025/2026 Revenue Budget Gap and Savings – Local Government Settlement Update (Executive Committee, 12 February 2025). This latest paper revised the three-year Budget Gap to £39.317 million. This position reflects the impact of the 2025/2026 Local Government Settlement received in December 2024. 3.3. This report will cover the main elements of the Budget Process to date including an update to the 2025/2026 Revenue Budget Strategy including the impact of the Local Government Settlement (section 4), options to address the Budget Gap for 2025/2026 (section 5) and Funds Available for One-Off Investment (section 6). Section 7 details the Revenue Budget Summary and a proposal for a balanced budget for 2025/2026. 3.4. Thereafter, the report will provide details of the Budget Bill and Local Government Finance Order (section 8) and section 9 provides information on the potential impact of savings beyond 2025/2026. 4. 2025/2026 Revenue Budget Strategy – inc. Local Government Settlement 4.1. The Local Government Settlement received in December 2024 allowed an update to the Budget Gap to be reported to the Executive Committee in February 2025 (link provided in section 3.2). An extract is included in Appendix 1 for ease and is summarised in sections 4.2 to 4.6. 4.2. This February update report noted that the base grant position for 2025/2026 was a cash increase of £53.451 million compared to 2024/2025. However, to give a like for like, year on year comparison, adjustments need to be made and in simple terms, the cash increase is £53.541 million but the adjustments take this to a year on year / like for like increase in grant of £22.626 million (3.04%). The Council’s Budget Strategy assumed a Grant reduction of £1.600 million in 2025/2026 therefore the increase in grant of £22.626 million is a benefit of £24.226 million to the Budget Strategy. 4.3. As well as the position on Grant, there are other budget issues that require to be considered when looking at the overall position of the Budget. These are summarised in Table 1 with the detail provided in Appendix 1. Table 1: Potential Impact on the Budget Gap £m £m Local Government Settlement 2025/2026 24.226 Less: Other Budget Issues Identified Potential Employer National Insurance Contributions Shortfall (8.000) Cost of Maintaining Teacher Numbers (4.200) Share of Additional Teachers funding 2.600 Increase in 2025/2026 Pay Award Assumption (5.900) Remove 2026/2027 Grant Assumption (5.868) (21.368) Potential Impact of Local Government Settlement Across 3 Years 2.858 4.4. Table 1 shows that the impact of the Settlement on the 3-year Budget Gap is a recurring benefit of £2.858 million (taking into account the other budget issues referred to in section 4.3). All of the budget issues identified impact the 2025/2026 budget with the exception of the 2026/2027 grant assumption of £5.868 million which impacts on 2026/2027. There would therefore be the ability to use £5.868 million 4
Page 5
of budget, on a one-off basis, in 2025/2026, without impacting on the overall Budget Gap. 4.5. To illustrate the impact of the Settlement on each year of the Budget Strategy, Table 2 takes the Budget Gap for each year (reported to the June 2024 Executive Committee and updated at the Executive Committee in November 2024) and shows the initial impact of the Settlement on the Budget Gap. Table 2: Revised Total Budget Gap After Local Government Settlement 2025/26 £m 2026/27 £m 2027/28 £m Total £m Budget Gap (Executive Committee, June 2024) 22.355 24.515 30.405 77.275 Reduction for Council Tax and Utilities (5.900) - - (5.900) Budget Gap for Information – before Loans Fund Review / Service Concessions 16.455 24.515 30.405 71.375 Loans Fund and Service Concessions Savings (6.600) (6.000) (3.600) (16.200) Use of Loans Fund Review Underspends - - (13.000) (13.000) Budget Gap after Loans Fund Review 9.855 18.515 13.805 42.175 Recurring Benefit of Settlement (2.858) - - (2.858) Revised Budget Gap Position – before Savings and Council Tax 6.997 18.515 13.805 39.317 4.6. Table 2 presents a three-year Budget Gap of £39.317 million. This is the position before any savings are taken and also makes no assumption of an increase in Council Tax in any of the years. 4.7. Loans Fund Review / Service Concessions: The three-year Budget Gap of £39.317 million (Table 2) includes the benefits from Loans Fund Review proposals that were presented to Members at the November Executive Committee and will be subject to Members’ agreement on the Budget. Details of the Loans Fund Review and Service Concessions previously presented to Members in November 2024 can be found in Appendix 2. This explains how we would realise the benefit over the 3-year period from 2025/2026 to 2027/2028. The additional £0.661 million underspend realised in 2024/2025 (as reported to the Council’s Executive Committee, 12 February 2025) would be available to support the Budget Strategy in 2027/2028 to 2029/2030. 4.8. Table 1 above re-presents the position as noted in the report to Executive Committee on 12 February 2025. 4.9. Update to the Local Government Settlement: Subsequent to drafting the paper to the Executive Committee (12 February 2025), the Scottish Government’s Budget has been progressing through the Stages of the Parliamentary approval process. As a result, changes are anticipated to the Council’s Settlement position. Further information has been received in relation to funding for the increase in Employer National Insurance Contributions. These are taken in turn below. 4.10. Scottish Government Grant Allocations: Following publication of the Local Government Settlement in December 2024, the checking process has continued, and the Scottish Government Budget is making its way through the stages of the Budget process. As a result, some changes have been made to the distribution of grant, as well as some previously non-distributed monies now having an agreed distribution 5
Page 6
methodology. These changes will not be confirmed until the Finance Order is approved on 27 February 2025, however this paper includes what is considered to be a reasonable estimate of what these changes will mean for the Council’s grant allocation for 2025/2026. As outlined at 4.2, the like for like increase in grant was previously £22.626 million. The anticipated update to the Settlement increases this to £23.459 million. This is an increase of £0.833 million in terms of supporting the Budget Gap. 4.11. Employer National Insurance Contributions Update: As outlined in Table 1 and Appendix 1, the potential Employer National Insurance Contributions shortfall in Council funding was estimated at £8.0 million. As part of the Stage One debate of the Finance Budget Bill, it has been announced that Local Government will be provided with their allocation of the national funding available, in order to provide some certainty for councils for budget setting. It is anticipated that the income from the Government will be approximately £8.3 million rather than the £7.4 million previously estimated. While this still leaves a shortfall of £7.1 million, this as an improvement of £0.9 million in terms of supporting the Budget Gap. 4.12. Table 2 shows the Budget Gap for the 3 years is £39.317 million and the Budget Gap for 2025/2026 is £6.997 million. Taking into account the updated information in relation to the Scottish Government Budget (sections 4.10 and 4.11), the Budget Gap for the 3-year period is now £37.584 million. The 2025/2026 Budget Gap is revised to £5.264 million. Again, this is the position before any savings are taken and also makes no assumption of an increase in Council Tax for that year. It does assume benefit of the Loans Fund Review / Service Concession proposals. This is illustrated in Table 3 below. Table 3: Revised Total Budget Gap After Budget Bill Stage 1 2025/26 £m 2026/27 £m 2027/28 £m Total £m Revised Budget Gap Position – before Savings and Council Tax (Table 2) 6.997 18.515 13.805 39.317 Scottish Government Grant Allocations (section 4.10) (0.833) - - (0.833) Employer National Insurance Contributions Update (section 4.11) (0.900) - - (0.900) Revised Budget Gap After Budget Bill Stage 1 – before Savings and Council Tax 5.264 18.515 13.805 37.584 4.13. Lanarkshire Valuation Joint Board (LVJB) – Requisition Payments: As reported to the Executive Committee in February 2025, as part of the budget setting exercise for the LVJB, consideration was given to the increased use of Reserves for financial year 2025/2026. The benefit to the Council in 2025/2026 would be £0.282 million however, that would require to be reinstated in 2026/2027, therefore there was no overall benefit to the three-year Budget Gap. There is therefore the ability to use £0.282 million of budget, on a one-off basis, in 2025/2026, without impacting on the overall Budget Gap. 4.14. Summary of Budget Strategy / Settlement Update: Following updates in relation to the Scottish Government Budget (sections 4.9 to 4.11), the three-year Budget Gap is £37.584 million. The Budget for 2025/2026 is £5.264 million. Options to address the 2025/2026 Budget Gap are covered further in section 5. 6
Page 7
4.15. As covered at sections 4.4 and 4.13 there is the ability to use £5.868 million (future year grant assumption) and £0.282 million (LVJB Requisition) on a one-off basis in 2025/2026, without impacting on the overall Budget Gap. The utilisation of these monies is covered further in section 6. 4.16. Social Work Integrated Joint Board (IJB): The Council’s proposed Revenue Budget for 2025/2026 includes a Budget for Social Work Resources. This includes budget for the delegated services of the IJB (Adults and Older People), as well as non-delegated services such as Children and Families. 4.17. As Members have previously been advised in relation to 2024/2025, the actuarial valuation of Strathclyde Pension Fund meant that the level of Employer Pension Contributions will be reduced for 2024/2025 and 2025/2026. As is the case for the Council, this means that for 2025/2026, the IJB’s costs for pension contributions will remain at a level that is lower than previously budgeted for. The total Social Work Resources Budget for 2025/2026 will remain the same, but funds released as a result of the reduced pension contributions for the IJB in 2025/2026 (£7.7 million) can be used to contribute towards continued pressures in Children and Families. This adjustment would be made between the delegated IJB budget and the Children and Families budget, on a temporary basis in 2025/2026. This is the same as the treatment employed in 2024/2025. 5. Options to Address the Budget Gap for 2025/2026 5.1. In order to address the 2025/2026 Budget Gap of £5.264 million (section 4.14), there are options available for Members’ consideration: • to approve savings proposals from the savings package presented in the 2025/2026 Revenue Budget Gap and Savings (section 5.3 and included in Appendix 3 for ease), and • to consider the Band D Council Tax level (sections 5.4 to 5.6). 5.2. Each of these is taken in turn. 5.3. Savings Proposals: Budget savings totalling £10.663 million had been proposed for Members’ consideration as detailed in the 2025/2026 Revenue Budget Gap and Savings. This total includes Approved Savings of £0.500 million, Management and Operational Savings of £3.769 million along with Resource savings proposals of £6.394 million for consideration. 5.4. Council Tax: As previously detailed in the Budget Strategy report to Executive Committee on 12 February 2025, each 1% increase in Band D would generate successive amounts of £1.580 million, towards meeting the 2025/2026 Budget Gap. In arriving at the Budget Gap (section 4.14), no account has been taken of any increase in Council Tax. 5.5. Table 4 shows the impact of a range of Council Tax increases that could reduce the Budget Gap. 7
Page 8
Table 4: Council Tax Increases Percentage Increase Band D £ Annual Increase £ Monthly Increase (over 10 payments) £ Decrease in Budget Gap £m 0% 1300.81 - - - 1% 1313.81 13.00 1.30 1.580 5% 1365.85 65.04 6.50 7.900 10% 1430.89 130.08 13.00 15.800 5.6. It should be noted that South Lanarkshire continues to have the lowest level of Band D council tax in mainland Scotland at £1,300.81. The average for mainland Scotland is £1,428.36. 6. Funds Available for One-off Investment 6.1. Section 4.4 notes that there is £5.868 million of budget (in relation to the grant for future years), which can be used on a one-off basis, in 2025/2026, without impacting on the overall Budget Gap. 6.2. In addition, there is also the £0.282 million from the 2025/2026 LVJB Requisition payment (sections 4.13) which can be used on a one-off basis, in 2025/2026, without impacting on the overall Budget Gap. 6.3. 2024/2025 Probable Outturn Underspend: In addition to the amounts above, the Executive Committee report on the 2024/2025 Revenue Budget and Outturn (12 February 2025) noted an in-year underspend of £5.820 million in 2024/2025. The underspend reflected a marginal increase on the position previously reported. The Utilities and Council Tax position remained unchanged (£5.300 million), and there was an additional underspend in procurement savings of £0.520 million. It was agreed that this £5.820 million would be set aside to support the Budget Strategy which could include the 2025/2026 Revenue Budget. 6.4. Taking account of these one-off monies means there is the ability for Members to consider options for one-off investment totalling £11.970 million. This is available for both Revenue or Capital expenditure. These monies are one-off and are therefore not available for recurring investments. 7. Total Revenue Budget Summary 2025/2026 and Council Tax 7.1. Taking into account the Government Grant allocated to the Council through the Settlement and assuming no year-on-year increase in Council Tax (section 5.4), means that the total proposed Budget for 2025/2026 is now £1,003.845 million. 7.2. For the purposes of this paper, in arriving at this position, the following has been assumed: that the use of Loans Fund and Service Concessions savings to reduce the Budget Gap are agreed (section 4.7), that savings and Council Tax have been used to balance the Budget, that this position includes £5.868 million (in relation to the grant assumption for future years) earmarked for one-off investment in 2025/2026 (section 6.1), that this position includes £0.282 million (in relation to the LVJB Requisition) 8
Page 9
earmarked for one-off investment in 2025/2026 (section 6.2), and that the £5.820 million from the 2024/2025 Probable Outturn underspend remains available for one-off investments in 2025/2026 (section 6.3). 7.3. In the absence of any decision being taken by the Council in relation to the savings, it is proposed that the full package of savings is taken. 7.4. The detailed allocation of the budget to each Resource is shown at Appendix 4. The main figures from Appendix 4 are summarised below: Summary of Council Budget 2025/2026 Current Year Base Budget £m 2025/2026 Proposed Budget £m 1,230.515 Total Services’ Gross Expenditure (Appendix 4, page ii) 1,253.246 (335.687) Deduct: Total Services Gross Income (Appendix 4, page ii) (328.848) 894.828 Net Service Spending 924.398 55.898 - 17.153 - Add: Loan Charges Add: CFCR Add: Corporate Items inc. Service Concession Add: One-off Investments Less: 2025/2026 Savings 50.598 - 27.963 6.150 (5.264) 967.879 Net Expenditure 1,003.845 7.5. Table 5 shows how this 2025/2026 budget is funded, resulting in the net Sum Funded by Council Tax, £162.343 million. Table 5: Net Sum Funded by Council Tax Indicative Budget for 2025/2026 (Appendix 3) £1,003.845m Deduct: Government Grant (£823.867m) Deduct: Use of Reserves / Underspends in the Budget Strategy (£17.635m) Resultant Net Sum to be Funded Locally from Council Tax £162.343m 7.6. The 2025/2026 net Council Tax figure comprises the 2024/2025 budget of £158.043 million, increased to reflect the additional property numbers included in the Strategy (£1.400 million) and from the full year impact of additional new properties between September 2024 and March 2025 (£1.900 million), as well as any further new properties in 2025/2026 (£1.000 million). It assumes no year-on-year increase in Council Tax Band D (section 7.2). 7.7. The Net Sum Funded by Council Tax (£162.343 million) is detailed in Table 6, showing the Council Tax Budget for the year 2025/2026. Table 6 also shows the estimated amount of income for each £1 of Gross Council Tax. Table 6: 2025/2026 Council Tax Budget Gross Council Tax 2025/2026 £185.887m Deduct: Council Tax Reduction Scheme (£23.544m) Resultant Net Sum to be Funded Locally from Council Tax £162.343m Estimated Product of £1 Gross Council Tax at 97.125% collection £142,880 9
Page 10
7.8. Should the Council approve the budget for 2025/2026, then the Band D Council Tax for 2025/2026 will be applied at the figure decided and necessary billing and collection mechanisms will be set in motion. The ten monthly Council Tax instalments will commence in April. Appropriate scrutiny will continue to ensure the process of reviewing budgetary performance is continued. 7.9. The level of Council Tax is property based. All houses are classified into eight bands, A to H, with band H properties paying more than three times the level of band A. The Council’s declared tax is for band D and all other rates are fixed using the following scale (Table 7): Table 7: Property Ranges and Proportion of Band D Payable Property Ranges in South Lanarkshire for Council Tax Property Value Range Band Proportion of Band D Tax Payable Proportion of South Lanarkshire Property in each band January 2025 £27,000 and under A 67% 22.52% £27,001 to £35,000 B 78% 19.32% £35,001 to £45,000 C 89% 16.94% (Total A to C: 58.79%) £45,001 to £58,000 D 100% 14.17% £58,001 to £80,000 E 131% 13.19% £80,001 to £106,000 F 162% 8.94% £106,001 to £212,000 G 196% 4.55% Over £212,000 H 245% 0.37% 7.10. The Council’s declared tax will be at the Band D level but only around 22,700 properties (14.17%) are in band D. Over the past few years, there has been an upward movement in the valuation of properties. However, approximately 58.79% of properties still remain in Bands A, B and C, so the effect of any increase in Council Tax is reduced by 33%, 22% and 11% respectively for most properties. 7.11. The number of houses in the tax base for South Lanarkshire exceeds 157,700 as advised by the Assessor for the Lanarkshire Valuation Joint Board. From this figure, an allowance is deducted for single person discounts, students, disabled, vacant premises etc. to produce an estimated yield for £1 on a Band D basis at 100% collection of £147,109. 7.12. The Council must set an appropriate level allowing for non-collection. Council Tax collection rates have improved markedly in recent years due to the number of changes initiated by the Council. 7.13. A yield of £142,880 for £1 tax at Council Tax Band D has been used in the 2025/2026 budget (an increase on 2024/2025 due to an increase in the number of properties). At an assumed 97.125%, this represents a continuation of the collection rate performance achieved in recent years. 8. Local Government Finance Order / UK Spring Budget 8.1. As has been the case in previous years, although the Council received its grant settlement on 12 December 2024, the level of grant may change as the Finance Budget Bill progresses through Parliament to the Finance Order, with Stages 1 to 3 of the Finance Budget Bill being presented to Parliament between 4 to 24 February. The final Debate on the Local Government Finance Order takes place on 25 February 10
Page 11
2024. Any update from this debate will be provided verbally to Members on the day of the Council meeting. 8.2. The Council has a statutory requirement to set its Council Tax by 11 March 2024. While the Council has not yet received final confirmation of its Budget as a result of the Finance Order, it can set its Budget for the coming year using the settlement information received to date, and it can set its Council Tax. 8.3. As noted in section 8.1, this budget paper is based on the Local Government Settlement received on 12 December 2024. As the Budget Bill process continues, there may be changes to the level of grant allocation. However, at the date of writing it is not anticipated that this will change the Council’s Budget position. 8.4. For Members’ information, the UK Spring Budget is set for 26 March 2025. There is no information available on this at present. Any impact on the Council’s financial position will be brought back to Members. 9. Position Beyond 2025/2026 – Impact of Savings 9.1. This paper focuses on financial year 2025/2026, however 4 savings presented in Appendix 1 totalling £1.477 million would have an impact on future years’ financial position: APP01 Waste Permits (£0.875 million), CER13 Building Cleaning (£0.250 million), EDR03 Primary School Breakfast Clubs (£0.210 million) and HTR01 Sheltered Housing – Housing Support Funding to Registered Social Landlords (£0.392 million). In addition, CER10 Business Support (£0.353 million) would require reinstatement in 2028/2029. 10. Employee Implications 10.1. Any employee implications arising from the savings proposed in Appendix 3 will be managed within Resources, with any staffing implications dealt with through a combination of anticipated turnover and redeployment through SWITCH 2. 10.2. A full analysis of the proposed savings has taken place in relation to potential areas at risk and potential areas where employees can be redeployed to through the SWITCH2 process. Detail has also been gathered around current vacancies and any posts filled on a temporary basis to aid redeploying employees. 11. Financial Implications 11.1. As detailed within this report. 12. Climate Change, Sustainability and Environmental Implications 12.1. As agreed at the Climate Change and Sustainability Committee (20 September 2023), a Sustainability Impact Assessment has been completed in respect of the Revenue Budget process. This assessment was incorporated in the overall Integrated Impact Assessment carried out on the Budget and Savings proposals and issued to members in advance of the November Executive Committee (refer section 14). 13. Other Implications 13.1. The financial strategy is a way of managing a number of key risks which directly impact on the funding available to deliver Council outcomes. As detailed in the report, the Strategy is based on a number of assumptions including pay award, and also the finalised Government Grant allocations. 13.2. Requirement to Set a Budget: Under statute and internal governance rules, Council Members have duties around setting budgets. Failure to set a balanced budget would have serious implications, not just for the Council but also potentially for individual 11
Page 12
members who could incur personal responsibility for failure to comply with their statutory duty. 13.3. Any failure to set a balanced budget would almost certainly provoke intervention by Scottish Ministers and the Accounts Commission who have legislative powers to carry out investigations and make recommendations which could result in Scottish Ministers issuing binding directions to the Council. Under the Local Government (Scotland) Act 1973, special reporting processes exist (Section 102) which, if the Controller of Audit is not satisfied with the Council’s steps to remedy such an issue, then he/she can make a special report to the Accounts Commission on the matter. 13.4. The Commission can then recommend that Scottish Ministers direct the Council to rectify the issue. Individual members who unreasonably contribute to the failure or delay in setting a budget could be ultimately censured, suspended or disqualified from standing for election for a prescribed period of time by the Standards Commission. 13.5. If a new budget is not set, then the Council could not enter into any new unfunded commitments, including contracts, and spend would be restricted to meeting existing liabilities. As the Council’s current position is that there is a budget shortfall that requires to be met through identified solutions, without Council agreement on a 2025/2026 budget, a gap in our budget would remain that has to be addressed before the start of the financial year. 13.6. Expenditure Subject to External Influences: Whilst the budget for 2025/2026 can be set with certainty, there are areas of expenditure that are subject to external influences which we will continue to monitor as the year progresses. Most significantly, this includes the impact of potential pay awards. While the 2025/2026 Budget Strategy assumes an anticipated increase in costs for pay, the actual position will not be known into the new financial year. No pay deal has been agreed for 2025/2026 as yet. 14. Integrated Impact Assessment and Consultation Requirements 14.1. Integrated Impact Assessments prepared in November 2024 have been updated to reflect the outcomes of the public consultation. Integrated Impact Assessments have been undertaken for the individual Savings and the Budget as a whole. These initial assessments were issued to Members to assist in the decision-making process and have been re-issued to include the outcome of the Budget Consultation exercise carried out across November through January 2025. The Council has therefore considered and given due regard to the assessments contained in the Integrated Impact Assessments relating to the proposals in this report, and the outcomes of the associated public consultation. The updated Integrated Impact Assessments are available online. The Integrated Impact Assessment is available online. Jackie Taylor Executive Director (Finance and Corporate Resources) 6 February 2025 Link(s) to Council Values/Priorities/Outcomes Accountable, Effective, Efficient and Transparent 12
Page 13
Previous References Executive Committee, 26 June 2024 Executive Committee, 13 November 2024 Executive Committee, 12 February 2025 List of Background Papers Local Government Finance Circular 10/2024 Contact for Further Information If you would like to inspect the background papers or want further information, please contact: Jackie Taylor, Executive Director, Finance and Corporate Resources Ext: 4637 (Tel: 01698 454637) E-mail : jackie.taylor@southlanarkshire.gov.uk 13
Page 14
Appendix 1 Impact of the Local Government Finance Settlement and Other Budget Considerations (Extract from Executive Committee report on 2025/2026 Revenue Budget and Savings, 12 February 2025) 5. Local Government Settlement – Impact on Revenue Budget Strategy 5.1. The Council received the Local Government Settlement on 12 December 2024. This formally details our grant allocations for 2025/2026. While the Settlement is still under review and further updates may be received which change the Council’s position, it is the best information available at this point. 5.2. The base grant position for 2025/2026 was a cash increase of £53.451 million compared to 2024/2025. However, to give a like for like, year on year comparison, adjustments need to be made. These adjustments remove funding from 2024/2025 that we do not yet have for 2025/2026. The adjustments also need to reduce the 2025/2026 Grant by any new funding received which has new responsibilities or received during 2024/2025 after the base budget was set. 5.3. In simple terms, the cash increase is £53.541 million but the adjustments take this to a year on year / like for like increase in grant of £22.626 million (3.04%). The Council’s Budget Strategy assumes a Grant reduction of £1.600 million in 2025/2026. Taking this into account means that the increase in grant of £22.626 million is a benefit of £24.226 million to the Budget Strategy. However, there are other budget issues that require to be considered. 5.4. Other Budget Issues: There are a number of areas of uncertainty that need to be considered alongside the Settlement, when looking at the overall budget position for the Council. These are taken in turn below. 5.5. Employer National Insurance Contributions: The Council’s Employer National Insurance Contributions are due to increase from 6 April 2025. It is estimated that this will cost the Council approximately £15.4 million. This includes an allocation for the Integrated Joint Board. Current indications are that the national monies being made available fall significantly short of public sector requirements. Against the estimated cost of £15.4 million, it is anticipated that this could result in a shortfall in Council funding of £8.0 million. This estimate is based on figures from the Scottish Government stating that there is an estimated impact of £549 million increase in costs for staff directly employed by the Scottish Public Sector against indications from the Treasury that funding may be only £295 to £330 million. The actual position will not be known until into the new financial year. To ensure we have sufficient funding to cover costs, an additional £8 million of budget is required. Potential Impact on the 3 Year Budget Gap: Cost of (£8.000 million) 5.6. Teacher Numbers: Correspondence from the Scottish Government noted that Local Government and the Scottish Government are committed to working together to restore teacher numbers to 2023 levels. Funding has been provided in the Settlement with the purpose of meeting the additional costs associated with maintaining teachers (that is, to reflect the higher salary costs). This should have been windfall for the Council and is covered in section 5.7. In addition, as we know, the Council’s teacher numbers reduced by 65 between Census 2023 and Census 2024. As previously reported, we believe we have mitigation in place as to why the number of teachers reduced. The government have not advised us on whether our 14
Page 15
mitigations are accepted. If mitigations are not accepted, and the Council had to restore teacher numbers to 2023 levels, this would cost the Council £4.200 million. Potential Impact on the 3 Year Budget Gap: Cost of (£4.200 million) 5.7. In addition, the Scottish Government had recognised that maintaining teacher numbers is costing Local Government more than before. In order to support this increase in costs, the Scottish Government have increased the funding available to local government by £41 million (to £186.5 million) in 2025/2026. The Council’s share of the additional £41 million is estimated at £2.6 million and was expected to be windfall to the council. Potential Impact on the 3 Year Budget Gap: Gain of £2.600 million 5.8. The Council’s assumptions around the figures at 5.6 may be impacted by any movement around class contact time reduction. The Scottish Government had pointed to wanting meaningful discussions as part of the 2025/2026 budget agreement on reducing class contact time. Depending on any agreements reached, and the timing of this, extra costs to the Council could be £5.3m to bring in sufficient additional teachers to cover reduced class contact time. This would be in addition to current levels of additionality teachers which are in place beyond core teacher allocations within our school establishments. 5.9. The funds detailed in 5.6 (£4.2 million for restoring teacher numbers) could be required to be used to meet the extra teachers required for class contact, and there would still be a requirement to add a further £1.1 million to the budget (in 2027/2028). This would, however, mean that our strong mitigation for not restoring teacher numbers, whilst still valid, could be superseded by a requirement to bring in more teachers to cover reduced class contact time. We will continue to update Committee as discussions with the Government progress on this. 5.10. Additional Support for Learning: There was also a national amount of £28 million to “develop” the Additional Support for Learning (ASL) workforce. The Council’s share is expected to be around £1.6 million. While COSLA have advised that there are live discussions ongoing regarding the ask against these monies, and clarity is still required as to what that might mean, the budget position being presented in this paper assumes that there is a requirement to spend this money on the ASL workforce. 5.11. Pay Award Assumptions: The Council’s budget for 2025/2026 to 2027/2028 includes an initial pay award assumption for non-teachers from 1 April 2025 and for teachers from mid-August 2025. The intention of COSLA and the Scottish Government is to get an early agreement on the Local Government Pay Award for 2025/2026, and it is suggested that we consider augmenting the Council’s budget to allow us to be ready for that agreement. At this point, it is uncertain whether the Scottish Government will provide any additional funding to meet a Local Government Pay Award as they have done in previous years. It is proposed that the pay assumptions are increased to contribute to the 2025/2026 Pay Award costs. This would cost £5.9 million for 2025/2026. Potential Impact on the 3 Year Budget Gap: Cost of (£5.9 million) 5.12. Grant assumptions for future years: The Council’s Budget Strategy assumed a Grant increase of £5.868 million for 2026/2027. This was based on a national increase of £100 million in 2026/2027, as noted in the Scottish Government’s 15
Page 16
Resource Spending Review in 2022. Recent communication with COSLA pointed to the UK Government’s Autumn Budget which suggested frontloading of resourcing. As we have had a better than anticipated Settlement for 2025/2026, this may mean that we will not get the grant increase initially expected in 2026/2027. It is deemed prudent to no longer assume that we will see that increase and a result, the Council’s Budget Gap for 2026/2027 would increase by £5.868 million. Potential Impact on the 3 Year Budget Gap: Cost of (£5.868 million) 5.13. Table 2 summarises the potential impact of the Local Government Settlement on the Budget Gap (section 5.1 to 5.3). It also shows the other areas for consideration (detailed in sections 5.4 to 5.12). Table 2: Potential Impact on the Budget Gap £m £m Local Government Settlement 2025/2026 24.226 Less: Other Budget Issues Identified (section 5) Potential Employer National Insurance Contributions Shortfall (section 5.5) (8.000) Cost of Maintaining Teacher Numbers (section 5.6 and 5.8 / 5.9) (4.200) Share of Additional Teachers funding (section 5.7) 2.600 Increase in 2025/2026 Pay Award Assumption (section 5.11) (5.900) Remove 2026/2027 Grant Assumption (section 5.12) (5.868) (21.368) Potential Impact of Local Government Settlement across 3 Years 2.858 5.14. Table 2 shows that the impact of the budget settlement on the 3-year budget gap position is a recurring £2.858 million (taking into account the other implications and assumptions detailed in sections 5.5 to 5.12). All of the budget issues identified impact the 2025/2026 budget with the exception of the 2026/2027 grant assumptions (as outlined at section 5.12 - £5.868 million). There would therefore be the ability to use £5.868 million of budget, on a one-off basis, in 2025/2026, without impacting on the overall budget gap. 6. Impact of Settlement on the Budget Gap 6.1. Table 1 in this report showed what the budget gap could move to if all savings presented at that time were accepted – this was presented to Committee in November 2024. Table 2 above (Section 5.13) shows that there could be a £2.858 million benefit from the Local Government Settlement on the Council’s budget gap. 6.2. To better illustrate the impact of the Settlement on each year of the Budget Strategy, Table 3 below takes the budget gap for each year (from Table 1) and shows the impact of the Settlement on the Budget Gap. This is the position before any savings are taken. The benefits from Loans Fund Review proposals that were presented to Members at the November Executive Committee are also included in this table and will be subject to Members’ agreement on the Budget. 16
Page 17
Table 3: Revised Total Budget Gap After Local Government Settlement 2025/26 £m 2026/27 £m 2027/28 £m Total £m Budget Gap for Information (Table 1) – before savings / Loans Fund review 16.455 24.515 30.405 71.375 Loans Fund and Service Concessions Savings (6.600) (6.000) (3.600) (16.200) Use of Loans Fund Review Underspends - - (13.000) (13.000) Budget Gap after Loans Fund review 9.855 18.515 13.805 42.175 Recurring benefit of settlement (Table 2) (2.858) - - (2.858) Revised Budget Gap Position – before savings and Council Tax 6.997 18.515 13.805 39.317 6.3. Table 3 shows that the budget gap over the three years of the strategy would be £39.317 million. This is before any savings are agreed for 2025/2026, or before any increase in Council Tax. As covered at section 5.14, as the proposal to remove the 2026/2027 grant assumption (£5.868 million) impacts in 2026/2027, this means that there is the ability to use £5.868 million of budget, on a one-off basis, in 2025/2026, without impacting on the overall Budget Gap. 6.4. Council Tax: The figures above do not take account of any assumed increase in Council Tax. Section 7 provides further information on Council Tax. 6.5. 2024/2025 Utilities and Council Tax Underspend: The Executive Committee of 13 November 2024 also noted the in-year underspend in the Pay Award consequential monies from the UK Government. This is being used to mitigate future year pay award shortfalls across the three-year Strategy period. It also noted the £5.3 million of underspends from Utilities and Council Tax in 2024/2025, and that these were to be considered alongside the Settlement when it is received. As the 2024/2025 Probable outturn has now been completed (presented in a separate report to this Committee), the £5.3 million has now increased to £5.8 million. The figures in Table 3 do not include the use of these 2024/2025 underspends as there is no overall benefit across the 3 years: any use of these Reserves would be one-off, with reinstatement required in the following year. 6.6. Lanarkshire Valuation Joint Board (LVJB) – Requisition Payments: As part of the budget setting exercise for the LVJB, consideration was given to the increased use of Reserves for financial year 2025/2026. The benefit to the Council in 2025/2026 would be £0.282 million however, that would require to be reinstated in 2026/2027, therefore there is no overall benefit to the three-year Budget Strategy gap. There is the ability to use £0.282 million of budget, on a one-off basis, in 2025/26, without impacting on the overall Budget Gap. 6.7. Packaging Extended Producer Responsibility (Packaging EPR): The implementation of Packaging EPR will shift the cost of collecting, managing, recycling and disposal of household packaging waste from the public purse to producers. Correspondence from the Scottish Government and the Department for Environment, Food and Rural Affairs (DEFRA) refers to an amount of £7.8 million of funding for the Council into 2025/2026. 17
Page 18
6.8. While the letter states the value of funding to the Council, there are a number of unknowns regarding the scheme and its rollout: there is a significant degree of uncertainty regarding the value of funding allocated to the Council as this will be reviewed at least twice before final confirmation is received. In addition, the scheme administrator has only recently been announced and while the aim of the scheme is to maximise recycling of packaging materials, the additional investment required to achieve the aims of the scheme have not yet been concluded. Due to this uncertainty, it is deemed prudent that we do not include this indicative sum at this point in the Budget considerations. 18
Page 19
Appendix 2 Cross-Cutting Review: Loans Fund and Service Concessions (Extract from Executive Committee report on Revenue Budget and Savings, 13 November 2024) 1. Introduction 1.1. As reported to the Executive Committee in June 2024, as part of the Transformation programme to help address the £77.275 million Budget Gap over the next 3 years, the Council has embarked on a number of cross-cutting reviews. One of these reviews looks at the Council’s Loan Charges budget, and the repayment of debt through Service Concessions. 1.2. Loan charges form a significant element of the Council’s revenue budget. How these charges, in particular the repayment of debt, are calculated and accounted for can have a material impact on the amounts charged to the Council’s Revenue Budget. 1.3. The review has looked at two areas where there is some flexibility in how we account for loan charges / debt repayments, and that could lead to savings to contribute to the Revenue Budget Strategy going forward: 1. Loans Fund Review / Additional Voluntary Repayments 2. Service Concessions (PPP Contractor Payment) and IFRS16 (Statutory Charge for Repayment of Debt) 1.4. Sections 2 and 3 will focus on the Loans Fund Review and the options available in relation to Additional Voluntary Repayments. This is detailed in Sections 2 to 3. Section 4 considers the options available in relation to Service Concessions payments as a consequence of implementing IFRS16. 2. Loans Fund Review/Additional Voluntary Repayments 2.1. In 2019 a review of the loans fund was carried out which looked at how the borrowing from the Loans Fund to fund the capital programme was repaid. By extending the period over which the borrowing was repaid and applying this revised approach, it was identified that £68 million of loans fund advances had been repaid earlier than it would have been under the revised approach. In addition to the historic overpayment, by repaying advances over a longer period of time, the annual charge in future years was also reduced with a further potential benefit of £198 million to 2046/2047 in reduced principal repayments. 2.2. While the Council could repay the advances over a longer period of time, this meant that additional interest costs would be incurred as the debt outstanding would remain higher for longer. An alternative approach was identified that would allow the Council to limit the benefit to the £68 million that had been historically overpaid. This approach involved making additional voluntary repayments of debt totalling £198 million which in turn reduced the additional interest costs. This was the approved position in June 2020 (Executive Committee). 2.3. Given the further budget pressures being faced by the Council in the coming years, this paper revisits the additional voluntary repayments with a view to lowering the loan charges spend across the medium term which means savings can be made. The impact on interest payments has also been considered as part of this review. 19
Page 20
2.4. It is noted that 5 years on from the start of the original Loans Fund Review, and following changes to the phasing of borrowing for the General Fund capital programme, the profile of additional voluntary repayments has changed from that reported to Committee in 2020. The planned voluntary repayments now total £193.555 million from 2025/2026 to 2046/2047. 2.5. The voluntary repayments are used by the Loans Fund to repay external debt, so not making these repayments means that the Council’s external debt will not be repaid as quickly as it would have been, resulting in additional interest costs. The additional interest costs have been calculated as £185.637 million over the period from 2025/2026 to 2061/2062 and these are included in the Strategy proposed. The profile of these interest repayments is provided in Annex A (column c). For information, the interest costs total £185.637 million across the years 2025/2026 to 2061/2062, and these are included in the Strategy proposed. At today’s prices, this equates to £97 million. 2.6. By no longer making these voluntary repayments, then the costs incurred by the Council will be lower. The result of this is that we will underspend in our Loan Charges budget. The in-year underspends across years are also shown in Annex A (Column a). This takes account of the recalculated loan charge payments, the removal of the additional voluntary repayments and importantly, the impact of the removal of the voluntary repayments on the interest costs incurred (as referred to in 2.5). The recalculations present an underspend of £18.849 million in 2025/2026 but this underspend decreases into future years to accommodate the profile of debt repayments and consequent interest charges, as shown in Annex A. 2.7. The option to remove voluntary repayments is only available from 2025/2026 onwards due to the fact that they were originally programmed to start in that year. 3. Loans Fund Review / Additional Voluntary Repayments – Savings Options 3.1. As noted in Section 2.6, Annex A shows the savings achievable in each financial year. However, as noted, while the savings / underspend starts at £18.849 million in 2025/2026, the level of savings each year thereafter reduces over time therefore, we cannot take this higher level of savings on a permanent basis. Instead, it is proposed that we take a 3-year view of the savings achievable from the review, given the magnitude of the savings required, and we spread the benefit over the 3 years from 2025/2026 to 2027/2028. 3.2. It is therefore proposed that a total saving of £14.600 million be taken and spread across 2025/2026 to 2027/2028. The proposed phasing of these savings is shown in Table 1 within Annex B, spreading the savings across the Medium-Term Budget Strategy. By smoothing the savings across the years, it avoids having to reinstate budget into the later years of the Medum-Term Strategy. 3.3. These budget reductions of £14.600 million would help address the Budget Gap across the years 2025/2026 to 2027/2028. This would have no impact on services delivered. 3.4. There will still be a requirement to increase loan charge budgets after 2027/2028 (as shown in Table 1, Annex B), but the benefit of £14.600 million can be taken over the 3 years of the Revenue Budget Strategy. Reinstatement of the budget is required in 2028/2029 (£1.0m) and 2029/2030 (£0.5m) however this can be included in future years budget plans and will be offset by anticipated benefits from Service Concessions (as outlined in Section 4). 20
Page 21
3.5. To reiterate, these figures include the additional interest costs incurred from not repaying the voluntary repayments (as referred to in Section 2.5). The interest costs total £185.637 million across the years 2025/2026 to 2061/2062. 4. Service Concessions/IFRS16 (Statutory Charge for Repayment of Debt) 4.1. In 2022/2023, the Council applied flexibilities regarding how the debt element of PPP payments are charged to revenue. These flexibilities arose from accounting regulations which removed the restriction that we have to account for these costs over the life of the contract rather than the life of the asset. This is different from how we account for other non-PPP transactions. By charging debt to the Revenue Budget over the life of the asset, rather than the contract period, significant one-off retrospective savings were realised, as well as permanent budget savings. 4.2. IFRS16 is an accounting standard that councils have to implement in 2024/2025. The consequence is that there are changes in how the Council accounts for leases in its Annual Accounts. This standard also applies to how we account for the Council’s PPP. By applying this standard, there is a reduction in what is charged to the Revenue Budget over the medium term, allowing further savings to be made. 4.3. Officers from Finance Services have been working with the Council’s Treasury Management advisers to quantify the impact of this change in accounting treatment. 4.4. Based on the work done to date, estimated savings of £1.600 million have been identified across the 3 years of the Budget Strategy from 2025/2026 to 2027/2028. This work will continue to be developed. 4.5. Savings: It is proposed that the budget reductions of £1.600 million, which are the result of a change to accounting guidance, are used to help address the Council’s Budget Gap across the years 2025/2026 to 2027/2028. There are also additional savings available in 2028/2029 (£1.3 million) and 2029/2030 (£1.7 million). The profile of the savings across the coming years is shown in Table 2 within Annex B. 5. Loans Fund Review – In-Year Underspends 5.1. As the proposal is to take the Loans Fund Review savings across the 3 years of the Medium-Term Budget Strategy (2025/2026 to 2027/2028), there will also be in-year underspends that could be used to further support the Budget Strategy itself. Table 5 within Annex B shows the in-year underspend resulting from the review and removes the proposed savings from the review (sections 3.2 and 4.5). This leaves a resultant underspend each year. 5.2. In addition, work on the review and on the loan charges projection for the current year has identified an in-year underspend of £7.246 million in 2024/2025. This is the result of a reduction in repayments of external debt due to the timing of the original Loans Fund Review being implemented, and also reflects reduced costs as a result of the timing of borrowing required for various projects within the Capital Programme. 5.3. The total underspend available across the 4 years (2024/2025 to 2027/2028) is £26.495 million. There is the option to use these underspends to support the Budget Gap, on a one-off basis across the years, being mindful of the fact that the use of these underspends needs to be reinstated into the next year. These underspends are illustrated in Table 5 within Annex B and total £26.495 million across the years 2024/2025 to 2027/2028. 5.4. Table 6 within Annex B shows how we can use £13.000 million of the loan charges underspends to assist in managing the Budget Gap across the 3 years of the Budget 21
Page 22
Strategy. This reduces the Medium-Term Budget Gap to £48.075 million. 5.5. Assumptions have been made on the base Budget Gap for 2028/2029 to 2030/2031 for illustration purposes. Table 7 in Annex B shows the impact of reinstating the use of £13.000 million of the underspend in the medium term, and how that can be managed in the next years, until 2030/2031, by using the remainder of the loan charges underspend (£13.495 million). Table 7 shows that the Budget Gap remains the same before and after the use of the loan charges underspends. The benefit of these underspends is to smooth the savings requirement across years. 6. 2028/2029 and Beyond 6.1. As outlined in Section 3.4, reinstatement of the budget of £1.500 million is required in 2028/2029 and 2029/2030 from the Loans Fund Review / Additional Voluntary Payments. 6.2. It is proposed that this is offset by the additional savings of £3.000 million available in 2028/2029 and 2029/2030 from the accounting treatment of Service Concessions (IFRS16) (section 4.5). 6.3. This takes the total benefit over the five-year period to £17.700 million. This is illustrated in Annex B, Table 3. 7. Financial Implications 7.1. The financial implications of the Loans Fund review have been identified in Sections 2 to 6 and summarised below: • Savings of £14.600 million from the loans fund review are proposed across the 3- year period of the Budget Strategy (2025/2026 to 2027/2028) (Section 3.2). This reduced the Budget Gap in 2025/2026 by £5.500 million. • The work on Service Concessions is detailed in Section 7 and the financial impact has identified savings of £1.600 million across the period 2025/2026 to 2027/2028 (Section 4.5). This reduces the Budget Gap in 2025/2026 by £1.100 million. • Additional in-year underspends from the Loans Fund Review total £26.495 million (detailed in section 5). There is the option to use the in-year underspends from the Loans Fund Review to help address the Budget Gap, on a one-off basis across the years, being mindful of the fact that the use of these underspends needs to be reinstated into the next year. It is proposed that £13.000 million is used to help address the Budget Gap in 2027/2028. This needs to be restated in 2028/2029. 7.2. The overall implications of the proposals on the current Budget Gap for the years 2025/2026 to 2027/2028 are summarised in Table 1. 22
Page 23
Table 1 – Impact on the Budget Gap 2025 / 2026 £m 2026 / 2027 £m 2027 / 2028 £m Total £m Original Budget Gap 2025/2026 to 2027/2028 (June 2024, Executive Committee) 22.355 24.515 30.405 77.275 Less Council Tax and Utilities (Table 1 / Section 4.8) 5.900 - - - Revised Budget Gap 16.455 24.515 30.405 71.375 Less: Loans Fund and Service Concessions Savings (Annex B, Table 4) (6.600) (6.000) (3.600) (16.200) Use of One-off Underspends - - (13.000) (13.000) 7.3. Table 1 shows that following the review, the Loans Fund and Service Concession savings could help address the Revised Budget Gap across the 3 years of the Medium-Term Budget Strategy and the Budget Gap over these 3 years could be reduced to smooth the requirement for savings. The majority of this saving is generated by the Loans Fund Review and the removal of the voluntary repayments – this option is only available from 2025/2026 onwards due to the fact that the Additional Voluntary repayments were originally programmed to start in 2025/2026. This proposal would not any impact on service delivery. 7.4. Beyond the period of the Medium-Term Strategy, Table 2 shows how the remainder of the £26.495 million of the underspends could be used to manage the Budget Gap in the medium term highlighting that the estimated total Budget Gap is the same before and after the use of the loan charges underspends. Table 2 – Beyond 2027/2028 2027 / 2028 £m 2028 / 2029 £m 2029 / 2030 £m 2030 / 2031 £m Revised Budget Gap (Table 1) (later years for Illustration) 30.405 10.000 10.000 10.000 Less Loans Fund Review / Service Concessions (IFRS16) (3.600) (0.300) (1.200) - Budget Gap after Loans Fund and Service Concessions 26.805 9.700 8.800 10.000 Use of Underspends (13.000) (9.000) (4.495) 0.000 Reinstatement of Underspends - 13.000 9.000 4.495 Budget Gap after Use of Underspends 13.805 13.700 13.305 14.495 7.5. Table 2 shows how we can use the underspends to help address the Budget Gaps in the years beyond the Medium-Term Strategy, and again, smooth the requirement for savings. 7.6. Net additional savings in 2028/2029 and 2029/2030 from both the Loans Fund Review and Service Concessions of £1.500 million, bring the total benefit over the five-year period to £17.700 million (Section 6). Section 6 notes that reinstatement of the loan charges budget will be required, however, this can be managed by additional savings from Service Concessions. 23
Page 24
24
Page 25
Annex A Loan Charge Projections Across Years (Over)/Under Spend (inc. Additional Interest) (a) £m Saving/ (Negative Budget Impact) (b) £m Additional Interest (included in column a) (c) £m 2025/2026 18.849 18.849 0.234 2026/2027 17.017 (1.832) 0.723 2027/2028 14.583 (2.434) 1.244 2028/2029 13.594 (0.989) 1.805 2029/2030 13.046 (0.548) 2.376 2030/2031 11.927 (1.119) 2.939 2031/2032 10.592 (1.335) 3.483 2032/2033 8.977 (1.615) 4.021 Interest from 2033/2034 to 2061/2062 168.812 Total Interest 185.637 25
Page 26
Annex B Table 1: Loans Fund Review – Proposed Savings 2025 / 2026 £m 2026 / 2027 £m 2027 / 2028 £m 2028 / 2029 £m 2029 / 2030 £m Loans Fund Review 5.500 5.500 3.600 (1.000) (0.500) Cumulative Savings 5.500 11.000 14.600 13.600 13.100 Table 2: Service Concessions – Proposed Savings 2025 / 2026 £m 2026 / 2027 £m 2027 / 2028 £m 2028 / 2029 £m 2029 / 2030 £m Service Concessions 1.100 0.500 - 1.300 1.700 Cumulative Savings 1.100 1.600 1.600 2.900 4.600 Table 3 – Total Savings from Review (Loans Fund and Service Concessions) 2025 / 2026 £m 2026 / 2027 £m 2027 / 2028 £m 2028 / 2029 £m 2029 / 2030 £m Loans Fund Review 5.500 5.500 3.600 (1.000) (0.500) Service Concessions 1.100 0.500 - 1.300 1.700 Total Savings 6.600 6.000 3.600 0.300 1.200 Cumulative 6.600 12.600 16.200 16.500 17.700 Table 4 – Impact of the Review Savings on the Budget Gap 2025 / 2026 £m 2026 / 2027 £m 2027 / 2028 £m Total £m Original Budget Gap 2025/2026 to 2027/2028 (June 2024, Executive Committee) 22.355 24.515 30.405 77.275 Less Total Loans Fund and Service Concessions Savings (from Table 3) (6.600) (6.000) (3.600) (16.200) Resultant Budget Gap (after Loans Fund and Service Concessions Savings) 15.755 18.515 26.805 61.075 26
Page 27
Annex B (contd) Table 5: Loans Fund Review – In-Year Underspends 2024 / 2025 £m 2025 / 2026 £m 2026 / 2027 £m 2027 / 2028 £m In-Year Underspend from Loans Fund Review (Annex A, Column a) 7.246 18.849 17.017 14.583 Less: Loans Fund Review Savings for Budget Strategy (Table 1) - 5.500 11.000 14.600 Resultant In Year Underspend 7.246 13.249 6.017 (0.017) Cumulative Underspend 7.246 20.495 26.512 26.495 Table 6 – Use of Underspends to Support the Budget Gap 2025/2026 to 2027/2028 2025 / 2026 £m 2026 / 2027 £m 2027 / 2028 £m Total £m Resultant Budget Gap (Table 4) 15.755 18.515 26.805 61.075 Use of Underspends - (13.000) (13.000) 15.755 18.515 13.805 48.075 Table 7 – Use of Underspends to Support the Budget Gap Beyond 2027/2028 Table 2 – Beyond 2027/2028 2027 / 2028 £m 2028 / 2029 £m 2029 / 2030 £m 2030 / 2031 £m Original Budget Gap (June 2024) (For Illustration) 30.405 10.000 10.000 10.000 Loans Fund Review / Service Concessions (3.600) (0.300) (1.200) - Revised Budget Gap 26.805 9.700 8.800 10.000 Use of Underspends (13.000) (9.000) (4.495) 0.000 Reinstatement of Underspends - 13.000 9.000 4.495 13.805 13.700 13.305 14.495 27
Page 28
Appendix 3 Approved Savings Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m APP01 Facilities, Waste and Grounds Waste Permits The Executive Committee, on 26 June 2024, approved the proposal to introduce a charge for the uplift of burgundy bins containing garden waste. The cost of the permit is £45 per annum and will allow a resident to present one burgundy bin containing garden waste on each scheduled collection day until the end of that financial year. Net income, after deducting costs of the Service, is £0.500 million in 2025/2026 with an additional income in 2026/2027 of £0.875 million. - 0.500 Total Approved Savings - 0.500 28
Page 29
Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m M&O01 All Procurement This proposal sees efficiencies and savings generated through a focus on demand management opportunities (buying less or not at all), alternative product specifications and new routes to market. Opportunities have been identified for inclusion in the 2025/2026 budget strategy outlined below: The total savings proposed for 2025/2026 is £0.955 million. - 0.955 M&O02 All Overtime Resources have been working in conjunction with Personnel Services to prepare action plans to meet the outcomes associated with reducing overtime across the Council. Through removing enhanced overtime expenditure and reducing and containing plain time overtime expenditure, savings of £0.364m can be realised in 2025/2026. This is summarised across Resources in the table below. Resource / Service 2025/2026 Saving Community and Enterprise £0.125m Finance and Corporate £0.030m Housing and Technical £0.150m Social Work £0.059m Total £0.364m - 0.364 29
Page 30
Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m M&O03 All Management Structures This proposal considers spans of control across all Resources in order to review the number of management and supervisory posts. This is to ensure consistency in the balance of managers and front-line staff as well as to identify and remove any anomalies with direct Grade to Grade reporting. Services were identified which currently operate with lower spans of control than what is recommended by the Preferred Operating Model. In these service areas, efficiencies can be realised by aligning more closely with the model, while also ensuring consistency across Resources in terms of management workload and responsibility. This will realise savings totalling £1.000m in 2025/2026. It is anticipated that this will affect 16.85 FTE. 16.85 1.000 M&O04 Property Reduce Corporate Accommodation The closure of Montrose House has allowed savings of £0.250m to be realisable in 2025/2026 from property costs associated with the building. In addition, efficiencies will be realised in 2025/2026 from the lease agreement with NHS for occupation of Brandongate, Hamilton. A saving of £0.112m is achievable from the lease terms including income from a share of rent, service charges and cleaning costs. The total savings proposed for 2025/2026 is therefore £0.362 million. - 0.362 M&O05 All Salary Sacrifice Shared Cost Additional Voluntary Contributions (SCAVCs) Local Government Pension Scheme (LGPS) members are currently permitted to contribute to a standard Additional Voluntary Contribution (AVC) scheme and receive Income Tax relief on their contributions. An employer can also decide to contribute to the employee’s AVC arrangement, this is known as a shared cost AVC (SCAVC). There are financial benefits to introducing a salary sacrifice SCAVC - 0.088 30
Page 31
Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m scheme as both the employee and the employer make savings on National Insurance (NI) contributions. Based on the current number of employees who pay AVCs, there will be a net saving to the Council of £0.088m per annum from adopting the scheme from 2025/2026. M&O06 All South Lanarkshire Leisure and Culture Utilities Recent information has suggested a downward trend in prices in 2024/2025. The Council is a member of the buying consortium who purchase wholesale energy in advance, on behalf of ourselves and other public sector bodies. The price indications specifically for electricity purchased for the next couple of years indicates further price reductions beyond that assumed for 2024/2025. This allows an estimated saving of £1.000 million in 2025/2026 in relation to South Lanarkshire Leisure and Culture utility costs. - 1.000 Total Management & Operational Savings 16.85 3.769 31
Page 32
Savings for Approval Council Wide Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m COR01 All Council Charges The cross-cutting review of Council charges has looked at all charges made by the Council and the basis for their charge, specifically those not recovering their costs. It has also, considered whether the increase in our charges over recent years has kept in line with the trend in inflation. This exercise identified that where an inflationary rise has been applied over the last 5 years this has not followed actual UK inflation. In general, we have applied around 16.8% whereas inflation across the UK has been closer to 33.6%. To bring us in line approximately 14.4% would be required to be applied in a single year. It is therefore proposed to apply an inflationary increase of 14.4% across all charges that are not statutory or covered by other reviews plus 1.5% year on year inflation to calculate new charges for 2025/2026. This would generate £0.190m of additional income. In addition, it is proposed to apply an inflationary increase across parking tariffs from 80p to £1 for the lower charge and rising by an equivalent percentage increase across longer stay parking tariffs and season tickets. This would generate £0.185m of additional income. The total savings proposed for 2025/2026 is therefore £0.375 million. - 0.375 Total Council Wide - 0.375 32
Page 33
Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m CER01 Enterprise and Sustainable Development Christmas Events (Re-presented) This option would see a budget reduction due to removing the Christmas Switch-On events. The Council currently supports six switch-on events across South Lanarkshire, in Hamilton, East Kilbride, Rutherglen, Cambuslang, Lanark and Carluke. This proposal would remove the events programme. There would be no council provided Christmas events in town centres. This savings proposal would remove all the budget for this area (£0.045m). - 0.045 CER02 Enterprise and Sustainable Development Christmas Trees and Lighting (Re-presented) The proposal is a budget reduction to rationalise trees and festive lighting to eight main geographical areas: Hamilton, East Kilbride, Rutherglen, Carluke, Blantyre, Cambuslang, Larkhall and Lanark. This savings proposal would remove all the budget for this area (£0.037m). - 0.037 CER03 Grounds Weedkilling (Re-presented) This proposal will reduce weedkilling from 2 applications to one per annum. The reduction applies across all current areas of hardstanding, shrub beds and grass edges. There will be greater weed growth over the growing season. This will affect 15 employees (14.5 FTE). 14.5 0.510 CER04 Grounds Support for Gala Days (Re-presented) This proposal would see the removal of grounds staff supporting gala days. This includes costs of bunting and the costs of overtime for staff supporting gala days. - 0.055 33
Page 34
Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m CER05 Streets Mechanical Sweeping – Small (Re-presented) There would also be a reduction in the number of smaller Swingo vehicle used on footpaths, shop fronts and town centres and some roads within housing areas and industrial estates. (27% reduction in vehicles). This will mean less street sweeping. Remaining vehicles will be targeted to high footfall areas. Smaller fleet will mean means less resilience in ad hoc / urgent response situations. This will affect 6 employees (6 FTE). 6.0 0.285 CER06 Streets Litter collection (Re-presented) This proposal would see a 10% reduction in litter picking and bin emptying. The saving would include staffing and fleet vehicles. Bin infrastructure is being looked at to reduce numbers of bins but increase capacity. This will affect 10 employees (10 FTE). 10.0 0.255 CER07 Roads, Transportation and Fleet Precautionary Footway Gritting We currently treat ‘precautionary’ footways ahead of freezing conditions. Beyond that our approach is reactive, treating ‘accessibility’ and ‘other’ routes during periods of extended severe weather as resources allow. Currently, we treat 3.38% of our footways on a precautionary basis and this proposal would involve a cessation of the current practice to instead involve reactive footway treatment only in response to severe conditions. There would be potentially increased risks of accidents occurring due to potential falls on slippery pavements. - 0.300 34
Page 35
Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m It is understood that several other Scottish local authorities take this approach including Renfrewshire, North Ayrshire, Inverclyde, Moray, Argyll & Bute, West Lothian, Fife, and Perth & Kinross. CER08 Roads, Transportation and Fleet Carriageway Gritting The Council’s core carriageway gritting service treats our ‘precautionary’ routes prior to the forecast onset of freezing conditions or snow. Currently, low season routes are treated during winter low season (normally October and April), with more comprehensive high season routes being treated from November to end of March. High season routes equate to circa 49% of the road network and low season routes equate to circa 30% of the road network. The Scottish average is 45% and indicates that we presently deliver an above average level of service. This proposal would be to move to the Scottish average. A change to treating only the Scottish average during high season would inevitably see some roads removed from our routes leading to an associated risk of increased accidents, however we would still be treating 45% of the network (a reduction of 4%). - 0.130 CER09 Roads, Transportation and Fleet Grit Bins The provision of grit bins has a limited effectiveness on snow and ice clearance, however, to facilitate self-help we provide over 3,000 grit bins across our communities. In severe weather these bins empty quickly and demands for refilling peak. Refilling exercises are a substantial operation and frequently require successive visits across locations. This is a laborious, costly, and very resource intensive operation. The Service feel that this is not the most productive of the winter service provision. This proposal would be to reduce / rationalise the number of grit bins by 25% across our communities through the development of tighter criteria for the placing of grit bins. These criteria will continue to take account of the following factors: roads below a specified gradient won’t qualify for a grit bin, and the distance from the nearest grit bin will also be taken into consideration. - 0.065 35
Page 36
Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m CER10 Enterprise and Sustainable Development Business Support One-off income relating to Business Support activity has been identified amounting to £2.251m. It is proposed that this income is used to fund revenue costs for a re-aligned Business Support Team including four existing posts within Enterprise and Sustainable Development Service where funding comes to an end in March 2025. The income streams will also fund Business Growth Grants, Expert Help Consultancy and Inward Investment for a 3-year period. The Business Support Team will undertake activities in a different way where Expert Help Consultancy Support will be provided via Business Gateway which together with the cessation of Micro Business Grants, will provide a saving of 1 x Grade 3 post (currently vacant). The criteria for Business Growth Grants have also been strengthened to ensure the Grants achieve maximum outcomes. The Property Advisory Service will be undertaken by the newly integrated Inward Investment Team. There is also a potential income stream from Business Loans Scotland (BLS). The Scottish Government has advised that there will be no funding for 2024/2025 and an available option for Local Authorities is to withdraw from BLS. For South Lanarkshire Council, this option would release at least £0.500m. The Review has identified that a saving of £0.409m can be made from core funding on a temporary basis (3 years). The one-off income can be used to cover the cost of the revised service delivery model. Reinstatement of £0.353m will be required in 2028/2029. When the one-off income comes to an end, the Service will be required to align ongoing activities to accommodate this. This relates to inward investment and business growth grants and identifying additional funding to support the wider Enterprise and Sustainable Development posts. 1.0 0.409 36
Page 37
Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m CER11 Facilities, Waste and Grounds Grounds / Grass Cutting This proposal would see a reduction in the grass cutting specification for low and high amenity areas. The Grounds Service maintains all Council owned open space - 55 public parks, including 11 District Parks. Grounds maintenance work is seasonal and grass cutting is undertaken during the summer months. The proposal is to reduce the frequency of grass cutting as per the table below: High Amenity Low Amenity 14 cuts (from 18) 7 cuts (from 14) Low amenity areas include public open space, residential grassed areas and industrial areas. This category has the vast majority of land at approximately 11 million m2. Grass is cut in low amenity areas 14 times per year and collection only occurs in a small number of these areas. High amenity areas cover approximately 635,000 m2 and include cemeteries, high footfall areas, public buildings, sports pitches and country park lawn areas. These areas are cut 18 times per year and the grass is collected as part of the service. This proposal does not include cemeteries. This will result in a saving of £1.020m in 2025/2026. It will mean that grass will be much longer between cuts and the general maintenance appearance will differ from current specification. Grass arisings will be left on the surface of those areas cut as grass collection will only remain in cemeteries. This saving will mean an estimated reduction of 36 FTE (impacting up to 72 employees). 36.0 1.020 37
Page 38
Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m CER12 Facilities, Waste and Grounds School Meals This proposal would see Primary School and Secondary School meal charges rise by 21% and 18% respectively for the year 2025/2026. In 2023/2024, the Service delivered 2.9 million Primary School meals and 1.4 million Secondary School meals. Over recent years, school meal prices have been subject to small inflationary increases; however, South Lanarkshire Council’s charges, which are amongst the lowest in Scotland, haven’t kept up with the level of increases experienced in food costs and other operational costs. Based on 2023.2024 actual costs, the cost of production of a Primary School Meal is £3.52, and £3.69 for Secondary Schools. South Lanarkshire Council currently charges £2.17 for Primary School meals and £2.40 for Secondary School meals. In addition to this, in August 2021, Universal Free School Meals (UFSM) was introduced for P4 and in January 2022 extended to P5 primary school pupils. Further roll out of the UFSM programme will continue in February 2025 to pupils in P6/P7 who are in receipt of the Scottish Child Payment. It is unclear when UFSM will be rolled out to remaining primary school pupils. In order to minimise the impact of necessary increased charges, the proposed price increases would be implemented from 2025/2026 as shown overleaf: Current Charge Proposed Charge Primary £2.17 £2.62 Secondary £2.40 £2.83 It is anticipated that this proposal will generate additional income of £0.400 million in 2025/2026. There is the option to increase charges further in future years to better reflect the cost of delivering the service. - 0.400 38
Page 39
Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m A summary of school meal pricing across Scotland is shown in the table below. SLC Scottish average Highest Lowest Primary £2.17 £2.30 £3.25 £1.08 Secondary £2.40 £2.45 £3.30 £1.08 Full details of school meal prices for 2024 are detailed in Appendix 3A. CER13 Facilities, Waste and Grounds Building Cleaning (Schools) This proposal concerns reducing the cleaning specification for schools. Facilities Services provides a building cleaning service to all nursery, primary and secondary schools on behalf of Education Resources. 717 (314 FTE) employees deliver the cleaning service across the school estate based on a cleaning specification consisting of a number of tasks and appropriate frequencies. The Service is a member of APSE Building Cleaning performance network and participates in an annual benchmarking exercise across Scotland and the broader UK. One of the key measures is the cleaning productivity rates and in 2022/23, South Lanarkshire Council scored the third highest rate in Primary Schools and second highest in Secondary Schools within the family group, demonstrating that resources are being utilised efficiently. APSE data is shown in the table below with the productivity rate measure in square metres cleaned per hour. South Lanarkshire Family Group National Primary school 208 174 190 High school 246 205 197 25.0 0.250 39
Page 40
Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m A summary of the proposed reductions is shown in the table below. Task/ area Current frequency Proposed frequency Damp dusting 4 days per week 2 days per week High level dusting 4 weekly Monthly Spot cleaning of walls 5 days per week Monthly Electrostatic spraying Weekly Monthly Staff bases, meeting rooms, medical rooms 4 full cleans per week One full clean per week with daily check clean It is anticipated these reductions in cleaning specification would generate a financial saving of £0.500m phased over a 2-year period (£0.250m in 2025/2026 and £0.250m in 2026/2027), reflecting the implementation from August 2025. This would see a reduction of 25 FTE (62 employees). The reduction in cleaning specification will mean a reduction of 925 cleaning hours across all schools. This will likely require reprofiling/changing hours across the whole estate and potentially affect 717 cleaning employees. 40
Page 41
Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m CER14 Facilities, Waste and Grounds Income Generation (Bereavement) This proposal would see the implementation of an above inflationary price increase of 10% across all Bereavement Service charges. The Grounds Bereavement Service provides a dignified and sensitive burial and cremation service, which over recent years, has seen Service charges subject to inflationary increases. In order for pricing to remain competitive and appropriate, a benchmarking exercise was carried out for the year 2024/2025, reviewing Scottish Bereavement Service charges. The table below, shows how the current and proposed service charges compare to the average price charged by 5 of South Lanarkshire Council’s neighbouring authorities for the year 2024/25. Service Line SLC Price (2024/2025) SLC Proposed Price (2025/2026) Neighbouring Council Average Price (2024/2025) Cremation £857 £943 £953 Right of Burial £1,387 £1,526 £1,316 Coffin Internment £1,013 £1,114 £1,230 Given the level of proposed increase, an assumed small reduction in demand has been factored into the overall additional income. The proposed increase of 10% would generate additional income of £0.250. - 0.250 Total Community and Enterprise Resources 92.5 4.011 41
Page 42
Education Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m EDR01 Early Years/ Primary/ Secondary/ ASN Per Capita / Devolved School Management Spend (Re-presented) This saving proposes a reduction in the per capita allocation to Early Learning and Childcare (ELC) / primary and secondary schools (i.e. the amount we provide to establishments to spend per pupil). Total “per capita” spend is £3.5m. This allowance has been subject to savings in recent years, particularly as part of procurement efficiencies. The consequences would be that the ability for establishments to spend on classroom materials and resources would be reduced. A 14% reduction in per capita allocation of £0.480m will give a per pupil allocation of £21.81 primary, £90.90 secondary, £723.55 ASN and £74.69 ELC based on census 2023 pupil numbers. - 0.480 EDR02 Secondary Mentoring and Learner Journeys The South Lanarkshire Council Enhanced Personalised Support Programme (EPSP) operates across all 17 mainstream Secondary schools and Kear Campus School. Its purpose is to support vulnerable young people in S1-S4 to attain and to remain in education beyond S4 and to move into a positive destination. The EPSP currently has 4 mentors (4.0FTE) each working one day per week per school to provide personalised support for identified young people with their learning and pathways. There have been recent changes to the existing MCR Pathways model, with coordinators able to work across more than one school. As a result of these changes, the EPSP programme can be removed on the basis that the reduction in service is mitigated by the extension of the MCR programme. A saving of £0.191m is achievable in 2025/2026. 4.0 0.191 42
Page 43
Education Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m EDR03 Support Primary School Breakfast Clubs Within South Lanarkshire, primary school breakfast club provision operates from 8.15am to 8.45am and is currently universally free of charge to all. This allows children the opportunity for a healthy breakfast and a good start to the school day. It is recognised that for many parents this service also acts as childcare allowing them to get to work. The majority of other councils who operate breakfast clubs charge a fee. It is proposed that in order to retain the service, rather than to reduce or remove it, that a charging policy is implemented. The proposal is to charge a flat rate of £1.50 per child, with an exemption being applied where the child is entitled to free school meals by financial assessment. This would potentially generate income of up to £0.590m in a full year. However. this would require the introduction of an administrative process, administered by 1 FTE Grade 1, costing £0.030m. The full year net annual saving would then equate to £0.560m, however if implemented from August 2025, there will be a part year saving of approximately £0.350m in 2025/2026 with a further saving of £0.210m in 2026/2027. (1.0) 0.350 EDR04 Secondary Instrumental Music Service (IMS) The Instrumental Music Service, a non-statutory service, provides music tuition for young people in South Lanarkshire schools. The service is funded from core Council budget and external funding from both Creative Scotland and Scottish Government. It is proposed to reduce the current establishment of 29.5 FTE music instructors by 3 FTE (10%) realising a saving of £0.184m per annum. 3.0 0.272 43
Page 44
Education Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m In addition, a 40% reduction in materials budget is proposed yielding a saving of £0.088m per annum. The loss of instrumental teaching days will be achieved through a wholesale realignment of IMS provision allocated to learning communities and a restructure of IMT timetables. Existing school music resources will be utilised to accommodate the reduction in materials. EDR05 Early Years Charging for Early Years (Nursery Fees) This proposal considers increased Early Learning and Childcare Service (ELC) fees, out with the statutory levels of childcare provision. The Council currently allows parents to purchase extra hours where there is availability within an ELC establishment at a current cost of £3.76 / hr. This may be in relation to wrap around hours in nursery classes, hours in excess of the 1140 hours in standalone establishments and non-exempt 0–3-year-olds. ELC fees are increased annually in line with the Council charging policy which increases fees in line with the level of inflation. This proposal is to increase fees from April 2025 to align with other local authorities based on a benchmarking exercise (Table 1), following the increase already applied from April 2024. - 0.217 44
Page 45
Education Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m Table 1 – West Partnership 2023/24 ELC Fees (inc. SLC) Local Authority £ph 2023/24 East Renfrewshire 3.40 South Lanarkshire 3.76 Renfrewshire 3.85 North Lanarkshire 4.16 Glasgow 4.50 Inverclyde 4.50 East Dunbartonshire 4.68 Average hourly rate of 6 Western Partnership authorities 4.18 Based on an increase aligned to the Western Partnership average rate of £4.18 per hour, the financial implication of a change to the charging policy would result in increased income of £0.217m in 2025/2026. A costing exercise, carried out to understand the unit cost per hour of ELC provided by the Council, shows that a rate of £4.18 would still be subsidised as the current cost of Service provision has been calculated to be £5.33 / hr. Total Education Resources 6.0 1.510 45
Page 46
Finance and Corporate Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m FCR01 Admin, Legal and Licencing Voluntary Grants, Community Grants, Gala Grants and Civic Hospitality Following the setting of the Council’s Budget in February 2024, a saving of £0.270 million was agreed and the Council invested £0.270 million as transitional funding for 2024/2025, on a one-off basis, to delay implementation of the revised saving until the 2025/2026 financial year. Further savings of £0.180 million have been identified, taking the total savings achievable from 2025/2026 to £0.450m. At present, unused grant funding is held within the Council’s Reserves with a total of £0.313 million anticipated to be held at the end of 2024/2025. It is proposed to utilise the reserves of £0.313 million to delay implementation of the revised savings further until the 2026/2027 financial year. As a result, a reduction in grants budget of £0.137 million will be implemented for 2025/2026. Appendix 3 shows the way that the reserves can be used to minimise the impact of last year’s savings and this year’s additional proposed saving by using reserves. Only 7 organisations would see a reduction in funding into 2025/2026 and it is considered that withdrawal of funding from these organisations is likely to have only a moderate negative impact on service users, and that alternative funding sources are available. The full reduction in grants of £0.450 million will be realised from 2026/2027. The proposals for that year will reduce the level of voluntary grants, gala grants, community grants and civic hospitality. A full list of those grants affected in both 2025/2026 and 2026/2027 is provided in Appendix 3B. - 0.180 Total Finance & Corporate Resources - 0.180 46
Page 47
Housing & Technical Resources Reference Service Name and Brief Description of Saving FTE (25/26) Saving 25/26 £m HTR01 Housing Sheltered Housing – Housing Support Funding to Registered Social Landlords (RSLs) The Council currently provides housing support funding to two RSLs, Hanover Housing Association and Trust Housing Association. Removal of direct funding to RSLs, in line with the national trend over the past 15 years, would secure efficiencies of £0.692m from 2025/2026. This will be achievable across two financial years with £0.300m available in 2025/2026 and £0.392m in 2026/2027. - 0.300 HTR02 Housing Community Safety Partnership Contribution The South Lanarkshire Community Safety Partnership (CSP) is a collaboration of public services and voluntary organisations that work together to keep people and communities safe. An annual contribution to the partnership is provided by the council, with funding received directed through the partnership’s Safer South Lanarkshire Board. In 2024/25 this funding predominantly contributed to the costs of three partnership posts: • Assistant Police Liaison Officer • Victim Support Scotland Support Co-ordinator • Partnership Analyst This proposal would see the Council’s contribution to the partnership reduced by £0.018m to £0.037m in 2025/26, generating a saving of £0.018m for the council. Allocation of this contribution will continue to be determined by the Safer South Lanarkshire Board. - 0.018 Total Housing & Technical Resources - 0.318 47
Page 48
Savings for Approval FTE £m Council Wide - 0.375 Community & Enterprise Resources 92.50 4.011 Education Resources 6.00 1.510 Finance & Corporate Resources - 0.180 Housing & Technical Resources - 0.318 Social Work Resources - - Savings for Approval (before Council Tax) 98.50 6.394 Approved Savings - 0.500 Management & Operational Savings 16.85 3.769 Total Savings (before Council Tax) 115.35 10.663 48
Page 49
Appendix 3A School Meal Prices 2024 Authority Primary £ Authority Secondary £ North Lanarkshire 3.25 North Lanarkshire 3.30 West Dumbartonshire 3.04 West Dumbartonshire 3.04 Orkney Islands 2.70 Aberdeenshire 2.85 Aberdeenshire 2.65 Edinburgh, City of 2.80 East Renfrewshire 2.50 Orkney Islands 2.80 East Dumbartonshire 2.43 Shetland Islands 2.75 Fife 2.40 East Renfrewshire 2.70 Moray 2.40 Renfrewshire 2.70 Scottish Borders 2.40 Aberdeen City 2.65 Aberdeen City 2.35 Highland 2.55 Ediburgh, City of 2.35 East Dumbartonshire 2.54 Falkirk 2.35 Dundee City 2.50 Renfrewshire 2.35 East Lothian 2.50 South Ayrshire 2.35 Scottish Borders 2.50 Argyll & Bute 2.30 Stirling 2.50 Highland 2.30 South Ayrshire 2.45 Shetland Islands 2.30 West Lothian 2.43 Stirling 2.30 Argyll & Bute 2.40 East Lothian 2.25 Fife 2.40 Clackmannanshire 2.20 Midlothian 2.40 West Lothian 2.20 South Lanarkshire 2.40 South Lanarkshire 2.17 Perth & Kinross 2.30 Dundee City 2.15 Angus 2.20 Perth & Kinross 2.15 Falkirk 2.05 Angus 2.10 North Ayrshire 2.05 Midlothian 2.10 Dumfries & Galloway 2.00 North Ayrshire 2.05 Glasgow City 2.00 Dumfries & Galloway 1.90 Moray 1.70 Glasgow City 1.90 Inverclyde 1.50 East Ayrshire 1.08 Clackmannanshire 1.35 Inverclyde Free East Ayrshire 1.08 49
Page 50
Appendix 3B Grants Information Grant Awarded 2024/2025 Grant Award 2025/2026 (1) Proposed Grant Award 2025/2026 (2) Proposed Grant Award 2026/2027 Voluntary Organisations Spell £28,263 £14,130 £28,263 £0 Cash for Kids £19,570 £0 £0 £0 East Kilbride Community Transport £5,552 £2,780 £5,552 £0 Lanark YMCA £5,451 £0 £0 £0 Cargill House Club £5,047 £0 £0 £0 Coalburn Miners Welfare £2,060 £0 £0 £0 Thornton Road Community Centre £7,066 £0 £0 £0 Family Mediation £6,561 £3,280 £6,561 £0 Particip8 Overton £3,000 £1,500 £3,000 £0 Lanarkshire Cancer Care Trust £7,571 £3,790 £7,571 £0 Lanarkshire Rape Crisis Centre £7,167 £3,580 £7,167 £0 Childcare in the Community £2,221 £1,110 £2,221 £0 Eastfield Physically Disabled Club £404 £0 £0 £0 Hamilton Churches Drop In £505 £0 £0 £0 Milan Centre Social Club £2,019 £1,010 £2,019 £0 Parent Action Group £3,028 £1,510 £3,028 £0 Special Needs Adventure Playground (SNAP) £3,533 £1,770 £3,533 £0 Clydesdale CAB £52,118 £46,900 £52,118 £39,089 East Kilbride CAB £52,118 £46,900 £52,118 £39,089 Hamilton CAB £54,539 £49,090 £54,539 £40,904 Rutherglen CAB £52,530 £47,280 £52,530 £39,398 Hamilton Information Project for Youth £56,650 £28,330 £56,650 £0 Lightburn Elderly Association Project £55,368 £27,680 £55,368 £0 Unspent in 2024/25 £97,159 £0 £0 £0 Total Voluntary Organisations £529,500 £280,640 £392,238 £158,480 Gala Grants Lanark Lanimer Day £4,635 £3,360 £4,635 £2,318 Rutherglen Landemar Day £4,223 £3,000 £4,223 £2,112 All other Gala Grants £15,842 £0 £15,842 £0 Total Gala Grants £24,700 £6,360 £24,700 £4,430 Community Grants Community Groups/Playscheme Grants £103,000 £103,000 £103,000 £58,100 Total Community Grants £103,000 £103,000 £103,000 £58,100 Civic Hospitality Civic Events £22,600 £22,600 £22,600 £11,300 Civic Gifts £5,000 £5,000 £5,000 £2,500 Total Civic Hospitality £27,600 £27,600 £27,600 £13,800 TOTAL £684,800 £417,600 £547,538 £234,810 Movement Year on Year (24/25 to 25/26) £267,200 Movement Year on Year (25/26 to 26/27) £182,790 (1) 2025/2026 Grant after 2024/2025 saving approved, (2) Use of Reserves of £0.313m in 2025/2026 50
Page 51
Appendix 4 Page (i) South Lanarkshire Council 2025/2026 Revenue Budget Summary 2024/25 Base Budget 2025/26 Rollover 2025/26 Proposed Base Budget £m £m £m Community and Enterprise Resources 130.547 0.064 130.611 Education Resources 465.379 26.729 492.108 Finance and Corporate Resources 41.668 (1.571) 40.097 Housing and Technical Resources 13.926 (0.177) 13.749 Social Work Resources 241.406 4.798 246.204 Joint Boards 1.902 (0.273) 1.629 Total of all Resources plus Joint Boards 894.828 29.570 924.398 Other Budget Items: Loan Charges 55.898 (5.300) 50.598 CFCR - - - Corporate Items inc. Service Concession 17.153 10.810 27.963 2025/2026 One-Off Investments - 6.150 6.150 2025/2026 Savings - (5.264) (5.264) Total Base Budget 2024/2025 967.879 Total Proposed Budget 2025/2026 35.966 1,003.845 The 2024/2025 base budget includes adjustments approved during 2024/2025. 51
Page 52
Appendix 4 Page (ii) South Lanarkshire Council 2025/2026 Revenue Budget Summary 2024/2025 Base Budget 2025/2026 Proposed Base Budget £m £m Budgetary Category Employee Costs 627.293 640.054 Property Costs 66.685 67.549 Supplies and Services 62.760 62.964 Transport and Plant Costs 44.561 49.026 Administration Costs 16.020 15.679 Payments to Other Bodies 69.387 71.402 Payment to Contractors 269.594 271.658 Transfer Payments (Housing & Council Tax Benefit) 71.865 72.132 Financing Charges (Leasing Costs) 2.350 2.782 Total Expenditure 1,230.515 1,253.246 Total Income (335.687) (328.848) Net Expenditure 894.828 924.398 Other Budget Items: Loan Charges 55.898 50.598 CFCR - - Corporate Items inc. Service Concession Annual Benefit 17.153 27.963 2025/2026 One-Off Investments - 6.150 2025/2026 Savings - (5.264) Total Base Budget 2024/2025 967.879 Total Proposed Budget 2025/2026 1,003.845 52
Page 53
Report Agenda Item Report to: South Lanarkshire Council Date of Meeting: 26 February 2025 Report by: Executive Director (Finance and Corporate Resources) Subject: 2025/2026 Capital Programme Update 1. Purpose of Report 1.1. The purpose of the report is to:- Provide the Council with a proposed General Services Capital Programme for financial year 2025/2026, reflecting the spend requirements identified by Resources and the availability of funding. 2. Recommendation(s) 2.1. The Council is asked to approve the following recommendation(s):- (1) That the 2025/2026 proposed Capital Programme totalling £60.216m (Section 5.16) and detailed in Appendix 4 be approved, and (2) that the Council has considered and given due regard to the assessments contained in the Integrated Impact Assessments relating to the proposals in this report, and the outcomes of the associated public consultation (section 11), be noted. 3. Background 3.1. A proposed capital programme for 2025/2026 has been drafted for consideration by Members. This is based on the level of funding available in-year which is covered at Section 4 and includes details of the Council’s grant allocations received as part of the Local Government Finance Settlement received on 12 December 2024 and updated on 4 February 2025. 3.2. The proposed programme itself is presented in section 5 and takes consideration of programmes of work and priorities as well as incorporating the programme moves and additions from financial year 2024/2025. 3.3. Finally, section 6 provides an update on the principles underpinning the Capital Investment strategy in line with the main requirements of the Prudential Code. 4. 2025/2026 Capital Programme – Funding Available 4.1. The starting point for developing a capital programme is identification of the funding available. For 2025/2026, the Council has been advised of an indicative level of General Capital Grant funding of £25.062 million and Specific Capital Grants of £1.967 million. This will be confirmed as the Local Government Finance Settlement is approved by Parliament and forms the core funding of the programme and will be used as the starting point for the funding package for 2025/2026. 4.2. As part of the Local Government Settlement, an allocation of £40 million nationally has been provided for Climate Emergency Funding. The Council’s share of this funding is 3 53
Page 54
£2.198 million and is included in the General Capital Grant funding of £25.062 million noted at section 4.1. We have now been advised that the purpose of this funding is to scale up existing projects such as renewable energy, public transport and active travel networks. Now that the Council’s share of this funding has been confirmed, consideration of the potential projects for this funding will be finalised and brought back to Members for approval at the June 2025 Executive Committee. 4.3. The Scottish Government have an allocation of £79 million nationally earmarked for Flood Prevention. This has not yet been distributed to Councils. This is not included in the General Capital Grant funding of £25.062 million quoted at section 4.1. Any funding received would be specifically for Flood Prevention. Further information is anticipated on this in April / May 2025 and will be advised to Members as information becomes available. 4.4. In addition to the General Capital Grant (£25.062 million) and Specific Capital Grant (£1.967 million) funding, Capital Receipts totalling £0.700 million have been identified as well as other funding identified for 2025/2026 for projects previously approved of £14.508 million. This includes existing borrowing and Levelling Up Funding. 4.5. There are also projects that have slipped from 2024/2025 into 2025/2026 totalling £17.979 million (refer section 5.12 and Appendix 3) that have various funding streams attached to them. 4.6. A detailed breakdown of the overall funding package is included in Appendix 1. The total funding available is £60.216 million. This forms the funding package for the 2025/2026 Capital Programme. 5. Proposed 2025/2026 Capital Programme 5.1. In establishing a Capital Programme for financial year 2025/2026, consideration needs to be given to the level of spend required, against the funding available. Each of these areas of spend is taken in turn below. 5.2. Core Projects: There are a number of core projects that have formed the basis of Council Capital Programmes. These core projects include Roads Carriageways and Infrastructure, Planned Asset Management, Lifecycle Replacement Schools, Prioritised Urgent Investment, Private Housing Scheme of Assistance, Schools ICT and IT Infrastructure. These projects are reflected in the proposed programme which is shown in Appendix 2. 5.3. Roads Carriageway and Associated Infrastructure: The total proposed allocation for 2025/2026 is £11.371 million. This is a slight increase on the £11.300 million allocation for 2024/2025. This includes the £0.700 million underspend on the 2024/2025 Capital Programme (Executive Committee, December 2024). 5.4. Larkhall Leisure Centre: This proposed Capital Programme includes a 2025/2026 allocation of £5.824 million for Larkhall Leisure Centre in line with the estimated profile of expenditure for the project which totals £23.9 million. 5.5. Other Projects: Other projects proposed include allocations to allow the implementation of the Ash Die Back action plan (£0.200 million), to continue compliance with the inspection programme and subsequent remedial works for Headstones (£0.200 million), to continue our previous support in relation to the Clyde Gateway Regeneration Programme (£0.800 million) and a contribution towards the Clyde Cycle Park Project (£0.200 million) – a project that is creating a high-quality 54
Page 55
combination of cycle circuits on the River Clyde in Cambuslang to promote community, commuter and competition cycling. 5.6. Play Parks: An allocation of £1.493 million is included in the General Capital Grant for 2025/2026. This funding is to be used to support the renewal of play parks. 5.7. Shawfield Remediation and Development: Levelling Up Funding totalling £14.638 million was awarded to the Shawfield Remediation and Development project, which is being led by Clyde Gateway Urban Regeneration Company (URC). This money will come to the Council to be passed to Clyde Gateway. £5.4 million was included in the 2024/2025 budget and the remainder of £9.238 million is included in the 2025/2026 programme. 5.8. SWIS Plus Replacement: An allocation of £0.146 million is included in the 2025/2026 programme for the completion of the project to replace the system. 5.9. The projects outlined above in sections 5.2 to 5.8 form the base Capital Programme for 2025/2026 totalling £38.072 million with details provided in Appendix 2. 5.10. Specific Capital Projects (£1.967 million): The Local Government Finance Settlement received on 12 December 2024 allocated £1.967 million of grant funding for specific projects. This includes specific grants for Vacant and Derelict Land (£0.528m) and Cycling, Walking and Safer Routes (£1.439m). These projects have also been included in the expenditure requirements for 2025/2026. 5.11. Climate Emergency Funding Projects (£2.198 million): As outlined in section 4.2, as part of the Local Government Settlement, an allocation of £40 million nationally has been allocated for Climate Emergency Funding. The Council’s share of this funding is £2.198 million. The purpose of this funding is to scale up existing projects for example renewable energy, public transport and active travel networks. This has been included within the Capital Programme as an overall project, however, now that the Council’s share of this funding has been confirmed, consideration of the potential projects will be finalised and brought back to Members for approval at the June 2025 Executive Committee. 5.12. 2024/2025 Movements (£17.979 million): In addition to the projects identified at sections 5.2 to 5.11 above, there were project movements from 2024/2025 into 2025/2026 which were approved by Executive Committee throughout the year, up to and including the meeting on 11 December 2024. These movements total £17.979 million and reflect the 2024/2025 budget not required in that year. A breakdown of these projects is included in Appendix 3 and will be included in the programme for 2025/2026. 5.13. Glasgow City Region City Deal: There are a number of projects which are being progressed as part of the Glasgow City Region City Deal Programme. The proposed programme includes elements of project movements from 2024/2025 relative to the City Deal programme of works (refer section 5.12). 5.14. Further work will take place with Resources over the coming months to identify further expected expenditure anticipated to be incurred on Glasgow City Region City Deal projects in 2025/2026. This will be included in the consolidated programme to be provided to the June 2025 Executive Committee. 5.15. Part of this additional City Deal expenditure will be the Council’s element of a new regional Enabling Commercial Property project which will be funded by the Council’s 55
Page 56
share of City Deal grant monies. The Council’s allocation and its projects will be confirmed by Glasgow City Region Cabinet in February and thereafter, information will be brought back to Members through Capital monitoring reports. 5.16. 2025/2026 Capital Programme Summary: Taking into account the proposals covered in sections 5.2 to 5.15 a budget of £60.216 million is required in 2025/2026. A full list of the projects which make up this £60.216 million is detailed in Appendix 4. 6. Key Highlights from the Capital Investment Strategy 6.1. The revised Prudential Code for Capital Finance in Local Authorities 2017 requires councils to produce a Capital Strategy. 6.2. The key issues and risks that will impact on the delivery of the Capital Strategy, how the Capital Strategy and Treasury Management Strategy are aligned, and the governance framework required to ensure the Capital Strategy can be delivered have been updated for financial year 2025/2026 and are detailed in Appendix 5. 6.3. The Long-Term Capital Investment Strategy will be reviewed during 2025/2026. 7. Employee Implications 7.1. There are no employee implications as a result of this report. 8. Financial Implications 8.1. Section 4 details the funding available in-year of £60.216 million with a breakdown included in Appendix 1. 8.2. A Capital Programme for financial year 2025/2026 totalling £60.216 million has been proposed in this report. Details as to how this Programme has been arrived at are shown in Section 5. 9. Climate Change, Sustainability and Environmental Implications 9.1. Any implications for climate change, sustainability or the environment in terms of the information contained in this report are noted as part of the Integrated Impact Assessment outlined at section 11. 10. Other Implications 10.1. The main risk associated with the Council’s Capital Programme is an overspend. The risk has been assessed as low given the detailed project management plans prepared and monitored for each project. The risk of overspend is managed through four weekly Investment management meetings. 11. Integrated Impact Assessment and Consultation Arrangements 11.1. An Integrated Impact Assessment has been undertaken for the overall Council Capital Programme for 2025/2026. The Council has therefore considered and given due regard to the assessments contained in the Integrated Impact Assessment relating to the proposals in this report, and the outcomes of the associated public consultation. The Integrated Impact Assessment is available online. Jackie Taylor Executive Director (Finance and Corporate Resources) 6 February 2025 56
Page 57
Link(s) to Council Values/Priorities/Outcomes Accountable, Effective, Efficient and Transparent Previous References Executive Committee, 11 December 2024 - Capital Budget 2024/2025 and Monitoring for Period 8 - 1 April 2024 to 1 November 2024. List of Background Papers None Contact for Further Information If you would like to inspect the background papers or want further information, please contact: Lorraine O’Hagan, Head of Finance (Strategy) Ext: 5637 (Tel: 01698 455637) E-mail: lorraine.o’hagan@southlanarkshire.gov.uk 57
Page 58
Appendix 1 2025/2026 Capital Programme – Funding Available (section 4) Funding Source Total Funding Available (£m) General Capital Grant (including Play Parks and Climate Emergency Funding) 25.062 Specific Capital Grant – Vacant and Derelict Land 0.978 Specific Capital Grant – Cycling, Walking and Safer Routes 1.439 Capital Receipts 0.700 Existing Borrowing – Previous Years (Approved) 20.346 Developer Contributions 1.965 Partners Funding 0.450 Levelling Up Funding 9.238 CFCR / Reserves 0.038 Total Funding Available 60.216 58
Page 59
Appendix 2 2025/2026 Capital Programme – New (section 5.9) Project Name and Description 2025/2026 Base Programme (£m) Schools ICT Development 1.300 IT Infrastructure 0.300 Private Housing Scheme of Assistance 1.000 Planned Asset Management 4.300 Prioritised Urgent Investment in Property Assets 1.200 Lifecycle Replacement - Schools 0.500 Road Carriageways and Infrastructure (core and 24/25 underspend) 9.571 Road Carriageways and Infrastructure (24/25 budget) 1.800 Larkhall Leisure Centre 5.824 Ash Die Back 0.200 Headstone Remedial Works 0.200 Clyde Gateway 0.800 Clyde Cycle Park Project 0.200 Play Parks 1.493 Shawfield Remediation and Development 9.238 SWIS Plus Replacement 0.146 Total 2025/2026 Capital Programme (New) 38.072 Scottish Government – Other Grant Funded Projects Vacant and Derelict Land (section 5.10) 0.528 Cycling, Walking and Safer Routes (section 5.10) 1.439 Climate Emergency Funding (section 5.11) 2.198 Total Scottish Government – Other Grant Funded Projects 4.165 59
Page 60
Appendix 3 2024/2025 Project Movements into 2025/2026 (section 5.12) Project Name and Description 2024/2025 Budget Slippage (£m) Community and Enterprise Resources Larkhall Leisure Centre 1.027 Leisure and Culture Transformation Fund 4.900 Priory Changing Pavilion, Blantyre 0.236 Lanark Library 0.442 Vacant and Derelict Land Fund - Langlands West 0.450 Clyde Bridge 0.192 Hairmyres Station Park and Ride (incl Active Travel Infrastructure) 1.450 Roads - GSO Redwood Drive 0.048 Roads - Pedestrian Crossings - Eaglesham Road 0.089 Glasgow City Region City Deal: - Secondary School Estate – Holy Cross High School 3.458 - Hamilton Junctions Upgrade 3.333 - Lanark Road Signalisation 0.040 - Cathkin Bypass 0.066 Total Community and Enterprise Resources 15.731 Education Resources Secondary School Estate – St Andrew’s and St Bride’s 1.603 Total Education Resources 1.603 Housing & Technical Resources Alarms (Analogue to Digital) Fire Alarm System Upgrade 0.607 2024/2025 Central Energy Efficiency Fund (CEEF) 0.038 Total Housing & Technical Resources 0.645 2024/2025 Budget Setting Movements into 2025/2026 17.979 60
Page 61
Appendix 4 2025/2026 Summary of Capital Programme Expenditure (section 5.16) Project Name and Description 2025/2026 Budget Community and Enterprise Resources (£m) Roads Carriageway and Infrastructure 11.371 Larkhall Leisure Centre 6.851 Ash Die Back 0.200 Headstone Remedial Works 0.200 Clyde Gateway 0.800 Clyde Cycle Park Project 0.200 Play Parks 1.493 Shawfield Remediation and Development 9.238 Vacant and Derelict Land Fund 2025/2026 0.528 Cycling, Walking and Safer Routes 2025/2026 1.439 Climate Emergency Funding Projects 2025/2026 2.198 Leisure and Culture Transformation Fund 4.900 Priory Changing Pavilion, Blantyre 0.236 Lanark Library 0.442 Vacant and Derelict Land Fund - Langlands West 0.450 Clyde Bridge (Retention) 0.192 Hairmyres Station Park and Ride (incl Active Travel Infrastructure) 1.450 Roads - GSO Redwood Drive 0.048 Roads - Pedestrian Crossings - Eaglesham Road 0.089 Glasgow City Region City Deal: - Secondary School Estate 3.458 - Hamilton Junctions Upgrade 3.333 - Lanark Road Signalisation 0.040 - Cathkin Bypass 0.066 Total Community and Enterprise Resources 49.222 Education Resources Schools ICT Development 1.300 Secondary School Estate 1.603 Total Education Resources 2.903 Finance and Corporate Resources IT Infrastructure 0.300 Total Finance and Corporate Resources 0.300 Housing & Technical Resources Private Housing Scheme of Assistance 1.000 Planned Asset Management 4.300 Prioritised Urgent Investment in Property Assets 1.200 Lifecycle Replacement - Schools 0.500 Alarms (Analogue to Digital) Fire Alarm System Upgrade 0.607 2024/2025 Central Energy Efficiency Fund (CEEF) 0.038 Total Housing & Technical Resources 7.645 Social Work Resources SWIS Plus Replacement 0.146 Total Social Work Resources 0.146 Total Proposed 2025/2026 Capital Programme 60.216 61
Page 62
Appendix 5 Principles underpinning the Capital Investment Strategy 1. Key issues and risks that will impact on the delivery of the Capital Investment Strategy and other long-term liabilities The Prudential Code requires the Council to identify the long-term implications, both financial and operational, and the potential risks to service delivery through non- investment in our assets. The Council’s appetite for risk is taken into account in establishing the Capital Strategy. There are no proposals in this report which would impact on the Council’s long-term liabilities that have not been considered, such as long-term borrowing, or provisions. 2. The Alignment of the Capital Strategy and Treasury Management Strategy The Prudential Code requires that the Council’s Capital Strategy be aligned with the Treasury Management Strategy which is approved by the Executive Committee annually as part of the budget setting process. This Treasury Management report is also being presented to this Meeting for approval. The capital programme determines the borrowing need of the Council, the Treasury Management process essentially monitors the longer-term cash flow planning, to ensure the Council can manage its capital spending obligations. The Capital Strategy details the Council’s debt position, including the anticipated level of debt and the authorised borrowing limit. 3. Governance Framework It is important that the appropriate Governance framework be in place when considering capital investment. In order to mitigate some of the risks associated with poor governance, there is appropriate governance arrangements in place in terms of the Capital Programme and Treasury Management processes. These are detailed below. i) Capital Programme Governance: The Capital Programme is prepared following an exercise to prioritise projects in line with the Council priorities and links to Asset Management Plans and is subject to approval by the Executive Committee or Council. Any changes to the programme will be agreed by the Executive Committee. The Head of Finance (Strategy) and Head of Property Services monitors the delivery of the capital programme on a monthly basis. This is reported to elected members via the Executive and Resource Committees, along with the Financial Resources Scrutiny Forum. The Capital Programme is subject to Internal and External Audit Review. ii) Treasury Management Governance: The Council’s treasury activities are regulated by the Local Government (Scotland) Acts 1975 and 2003, and a professional code of practice (the CIPFA Treasury Management in Public Services Code of Practice – revised December 2017). It is a requirement of this Code, and the financial regulations of South Lanarkshire Council, that a Treasury Management Strategy is approved by Committee every year. A key requirement of this strategy it to explain both the risks and the management of these risks associated with the treasury function. The Council employs Link Asset Services as its Treasury Management Advisors. Treasury Management 62
Page 63
is also subject to Internal and External Audit review. 4. Knowledge and Skills The employees responsible for monitoring the Council’s capital programmes, asset management, and treasury management have the appropriate skills and knowledge to ensure the successful delivery of capital investment. 5. Capital Programme Summary The Future Capital Investment Strategy (November 2018) provided an estimate of potential capital investment and funding package. This was based on the information available at that time and will be subject to further refinement when the ongoing works to develop each of the projects / programmes is complete. As an update to the Capital Strategy, this report provides a proposed programme for 2025/2026. 63
Page 64
64
Page 65
Report Agenda Item Report to: South Lanarkshire Council Date of Meeting: 26 February 2025 Report by: Executive Director (Finance and Corporate Resources) Subject: Prudential Indicators, Treasury Management Strategy and Annual Investment Strategy 2025/2026 1. Purpose of Report 1.1. The purpose of the report is to:- [purpose] provide members with the Prudential Code indicators for 2025/2026 to 2027/2028, provide members with the Treasury Management Strategy for 2025/2026, and provide members with the Annual Investment Strategy for 2025/2026. [1purpose] 2. Recommendation(s) 2.1. The Council is asked to approve the following recommendation(s):- (1) that the Prudential Code indicators for 2025/2026 to 2027/2028 are approved (section 4) (2) that the 2025/2026 Treasury Management Strategy is approved (section 5); and (3) that the Annual Investment Strategy is approved (section 6) 3. Background 3.1. Through guidance and regulation, the Council is required to produce Prudential Indicators, a Treasury Management Strategy and an Annual Investment Strategy. It has been cited as best practice to combine the information in one document. This paper will therefore cover: Prudential Indicators (Section 4) Treasury Management Strategy (Section 5) Annual Investment Strategy (Section 6) 4. Prudential Code Indicators 4.1. The Prudential Code for Capital Finance in Local Authorities was introduced through the Local Government (Scotland) Act 2003 with the aim of supporting strategic planning for capital investment at a local level. 4.2. The key objectives of the Code are to ensure, within a clear framework, that the capital expenditure plans of local authorities are affordable, prudent and sustainable; and that treasury management decisions are taken in accordance with good professional practice and in full understanding of the risks involved and how these risks will be managed to levels that are acceptable to the organisation. 4 65
Page 66
4.3. The Prudential Indicators for 2025/2026 to 2027/2028 are shown in Appendix 1 along with explanations for each indicator. An updated position for 2024/2025 is also included. 4.4. Through these Prudential Indicators we are laying out what our expectations are for the coming year, and setting limits based on these expectations. A report will be presented to Committee later this year showing actual achievement against the 2024/2025 indicators. 4.5. The first three indicators show details of capital expenditure, how this will be funded and set limits for external borrowing. The fourth indicator demonstrates the financial impact of the expected borrowing and that this is affordable. 4.6. Capital Expenditure and Asset Management: The Prudential Indicators includes estimates of capital expenditure. It was through the introduction of the Code that councils are now able to take responsibility for deciding an affordable level of borrowing to fund capital expenditure. This moves away from the previous regime through which central government gave councils consent to borrow defined amounts for capital expenditure. The Prudential Indicators show the level of borrowing required. 4.7. An update to the General Fund capital programme for 2025/2026 was presented to this meeting earlier in the agenda. This allows for investment across priorities consistent with the objectives of the Council Plan. 4.8. The capital expenditure for 2025/2026 included in our indicators is based on the aforementioned report, while for 2026/2027 and 2027/2028 estimates have been made. It includes the General Capital Grant funding allocated by the Scottish Government and projects which will be funded by Specific Capital Grants from the Scottish Government. 4.9. The HRA capital programme for 2025/2026 is also presented to this meeting, following its endorsement by the Executive Committee on 12 February 2025. For financial years 2026/2027 and 2027/2028, estimated capital programmes based on the HRA business plan have been included. 4.10. Housing capital expenditure reflects investment priorities of maintaining and improving the housing stock to meet national housing quality and energy efficiency standards. The programme also includes projects to increase the supply of council housing as well as environmental works and legislative compliance programmes to ensure that all safety requirement standards are met. 4.11. The Prudential Code also recognises that in making capital investment decisions the authority should be informed by sound asset management planning and options appraisal. 4.12. When considering potential capital investment, the Council ensures that the objectives of capital investment fit within the Council strategic plans and that the investment is informed through the asset management planning process. The following asset management plans were updated for 2024 and approved by the relevant Resource Committees. 2024/2025 Information and Communication Technology (ICT) Asset Management Plan presented to Finance and Corporate Resources Committee on 22 May 2024 66
Page 67
Roads Asset Management Plan – 2024 Update presented to Community and Enterprise Resources Committee on 17 September 2024 4.13. An update to the Property Asset Management Plan is due to go the next meeting of the Housing and Technical Resources Committee on 7 May 2025. 4.14. Work to fully develop the Fleet Asset Management Plan is ongoing with a full review planned for 2025/2026, however transformational activity and work to review the fleet has taken place during 2024/2025 and reported to CMT. 5. Treasury Management Strategy 5.1. The Council’s treasury activities are regulated by statute, and a professional code of practice (the CIPFA Treasury Management in the Public Services Code of Practice). It is a requirement of this Code, and the financial regulations of South Lanarkshire Council that a Treasury Management Strategy is approved by Committee every year. 5.2. The Treasury Management Strategy for 2025/2026 is detailed at Appendix 2. The main areas covered by the Strategy are: Debt and Investment Projections Expected Movement in Interest Rates Borrowing Strategies Statutory Repayment of Loans Fund Advances 5.3. The level of borrowing required to fund the Council’s Capital programme, together with the variable nature of interest rates increases the risks associated with the treasury management function. As a result, the Council will take a cautious approach to its Treasury Strategy by setting treasury management indicators to contain the activity of the treasury function within certain limits, thereby managing risk and reducing the impact of adverse movements in interest rates. 5.4. Key details included in the Indicators include total net external debt which is expected to reach £1,277.096m by the end of 2024/2025. 5.5. External debt includes the liability of £164.646m that is included on the Council’s balance sheet for the Secondary Schools and finance leases under International Financial Reporting Standards. It should be noted that while these liabilities are to be classed as external debt, there is no requirement to borrow these amounts and there is therefore no impact on borrowing costs. 6. Annual Investment Strategy 2025/2026 6.1. The Local Government Investments (Scotland) Regulations 2010 provides a formal investment framework for councils. It provides greater autonomy for local authorities in their investment activities but with this greater freedom comes greater responsibility and the onus is on local authorities to act prudently with regard to their investment and treasury management activities. 6.2. The Council can decide what investment tools it will class as permitted investments in the coming year. The Regulations require an Annual Investment Strategy detailing the permitted investments to be approved by the Council. 6.3. The Annual Investment Strategy for 2025/2026 has been included at Appendix 3. 67
Page 68
6.4. The two fundamental principles of the Investment Regulations are that: Councils are required to manage their investments and deposits in a way that minimises the risk to the capital sum and optimises the return on the funds consistent with those risks. Security should be considered first, then liquidity, and lastly the yield or return. Councils are able to determine what investments they may make, including both the type and duration of the investment. 6.5. The Annual Investment Strategy is considered to be central to the Regulation. The Council is required to prepare an Annual Investment Strategy prior to the start of the financial year. 6.6. The Regulations require the Council to consider its investment activity as a whole. This includes a range of investments, which covers the depositing of temporary surplus funds with banks and similar institutions, shareholdings in companies or joint ventures, loans to group undertakings and third parties. It also covers investment properties. 6.7. The Council is required to set out in the strategy the types of investment that it will permit in the financial year. These will be known as “permitted investments”. The strategy also limits the amounts that may be held in such investments at any time in the year. 6.8. After consideration of the Council’s requirements to manage funds and our approach to risk, no changes have been made to the permitted investments previously agreed for 2024/2025. 6.9. The Executive Director of Finance and Corporate Resources will ensure that the strategy is adhered to at all times. The Council can only make an investment if that type of investment is detailed in this Strategy. 6.10. Responsible Investing. The Annual Investment Strategy includes a section on Responsible Investing. 6.11. While there have been some developments in the assessment of ESG credentials it is still an evolving picture. Unlike credit ratings which are a well-established method of assessing the creditworthiness of an organisation, there is still no widely accepted measure of assessing an organisation’s approach to climate change and sustainability. 6.12. The Council has no need to hold any deposits in banks, however it does need to manage liquidity risk and that it has access to funds to meet any unexpected expenditure. The Council will therefore continue to minimise its deposits with banks while managing Treasury Management risks. 6.13. Deposits with banks will be limited to instant access call accounts which meet the Council’s liquidity requirements. As banks are required to hold capital in reserves to cover these deposits, they cannot use the council’s money to invest in any projects. 6.14. Borrowing in Advance:- Borrowing in advance of need increases the level of funds which require to be invested or deposited. Scottish Ministers therefore require local authorities to set out within their Annual Investment Strategy, their approach to borrowing in advance. 68
Page 69
6.15. The CIPFA Prudential Code is clear that the Council must not borrow more than, or in advance of needs purely in order to profit from the investment of the extra sums borrowed. 6.16. The Council needs to be able to demonstrate that borrowing is for a legitimate purpose such as the exercise of day to day cash management or the management of borrowing for capital purposes. 6.17. The regulations do not prevent borrowing in advance of need but for it to be allowed the Council must detail its policy for borrowing in advance in the strategy. 6.18. The Executive Director of Finance and Corporate Resources will ensure that borrowing is taken at the most appropriate time to ensure best value and that the requirements of the Prudential Code are met. 7. Employee Implications 7.1. None 8. Financial Implications 8.1. There are no direct funding implications arising from the production of the Prudential Indicators, Treasury Management Strategy or Annual Investment Strategy. 8.2. The financial impact from treasury activity and borrowing for capital expenditure has been built into the long-term revenue budget strategy. 9. Climate Change, Sustainability and Environmental Implications 9.1. Section 6.10 of this report and Section 10 of the Annual Investment Strategy provides information on our approach to responsible investing and how we will ensure that our deposits with banks are not used to fuel the climate and ecological crises. 10. Other Implications 10.1. South Lanarkshire Council recognises that any treasury management activity will carry an element of risk. It is important that risk is identified, and controls put in place to limit those risks. 10.2. The preparation and approval of Prudential Indicators and the Treasury Management Strategy set a framework for treasury management activities and limits on debt to mitigate risks. 10.3. The CIPFA Treasury Management Code of Practice adopted by the Council, places Credit and Counterparty risk at the forefront of treasury risks. 10.4. South Lanarkshire Council recognises that any investment activity will carry an element of risk. It is important that risk is identified, and controls put in place to limit and manage those risks. 10.5. Section 5 of the Annual Investment Strategy details how South Lanarkshire Council will manage these risks. 11. Equality Impact Assessment and Consultation Arrangements 11.1. This report does not introduce a new policy, function or strategy or recommend a change to an existing policy, function or strategy and, therefore, no impact assessment is required. 69
Page 70
11.2. There is no requirement to undertake any consultation in relation to the content of the report. Jackie Taylor Executive Director of Finance and Corporate Resources 7 February 2025 Link(s) to Council Values/Priorities/Outcomes Value: Accountable, effective, efficient and transparent Previous References None List of Background Papers None Contact for Further Information If you would like to inspect the background papers or want further information, please contact:- Lorraine O’Hagan, Head of Finance Ext: 5367 (Tel: 01698 455367) E-mail: lorraine.o’hagan@southlanarkshire.gov.uk 70
Page 71
Appendix 1 Prudential Indicators 2024/25 – 2027/2028 The Prudential Indicators are shown below and are split into 2 categories: • Capital Expenditure and External Debt • Affordability Indicators 1 to 3 show statements of the expected borrowing requirement for the years 2024/2025 to 2027/2028 and attributes limits for external borrowing. Indicator 4 demonstrates the financial impact of the expected borrowing for the years 2024/2025 to 2027/2028 and that this borrowing is affordable. After year end, the actual position for the Indicators will be reported to the Executive Committee. Capital Expenditure and External Debt Indicators 1. Prudential Indicator 1 – Capital Expenditure 1.1. This indicator states the capital expenditure plans for the years 2024/2025 through to 2027/2028. The indicator takes account of the anticipated spend for 2024/2025 and 2025/2026. For 2026/2027 and 2027/2028, the Capital Strategy has been used as the basis, adjusted to reflect anticipated spend and funding. 2024/25 Estimate £ m 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m General Fund Capital Expenditure 69.832 60.216 62.208 56.628 Funded by: Borrowing 17.560 20.346 24.338 18.758 Capital Receipts and Grants 51.353 39.832 37.870 37.870 Contributions from Reserves 0.919 0.038 0.000 0.000 Revenue Contributions 0.000 0.000 0.000 0.000 Total Funding 69.832 60.216 62.208 56.628 HRA Capital Expenditure 72.106 85.948 80.213 35.633 Funded by: Borrowing 18.221 25.380 22.550 0.000 Capital Receipts and Grants 20.379 24.935 22.030 0.000 Revenue Contributions 33.506 35.633 35.633 35.633 Total Funding 72.106 85.948 80.213 35.633 1.2. The table overleaf shows how the borrowing required for the capital programmes and to use the benefit from the service concession flexibility are adjusted for loans fund principal repayments, maturing debt, use of cash balances and reserves and borrowing carried over between financial years to derive the borrowing requirement for the Council in each financial year. 71
Page 72
2024/25 Estimate £ m 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m Borrowing for GF Capital Expenditure 17.560 20.346 24.338 18.758 Borrowing for HRA Capital Expenditure 18.321 25.380 22.030 0.000 Total Borrowing for Capital Expenditure 35.881 45.726 46.368 18.758 Less Loans Fund Principal Repayments (3.735) (8.618) (18.476) (19.459) Funding for Capital Programmes 32.146 37.108 27.892 (0.701) Funding for Service Concession Flexibility 4.587 4.645 4.480 3.768 Movement in CFR 36.733 41.753 32.372 3.067 Maturing Debt 53.770 261.842 401.164 513.167 Use of Cash Balances and Reserves (132.000) 10.000 10.000 10.000 External Borrowing Requirement (41.497) 313.595 443.536 526.234 Reprofiling of Service Concession Flexibility (19.490) 17.455 (0.480) 0.232 Borrowing carried over from previous years. 202.676 0.000 0.000 0.000 Adjusted External Borrowing Requirement 141.689 331.050 443.056 526.466 Actual/Planned Borrowing 141.689 331.050 443.056 526.466 Borrowing carried over to future years. 0.000 0.000 0.000 0.000 1.3. No long term borrowing has been taken so far in the current financial year as interest rate forecasts show an expectation that rates will decrease over the next two to three years. Instead, short term borrowing has been taken to ensure that the Council has sufficient cash available to meet its Revenue and Capital expenditure requirements. 1.4. The interest rate forecast provided by the Council’s treasury adviser, MUFG Corporate Markets Treasury Ltd, shows a reduction in PWLB rates from an average of 5.100% in June 2025 to 4.200% in December 2027. It would therefore be more expensive to take long term borrowing in 2024/2025, 2025/2026 and 2026/2027 than wait until 2027/2028. 1.5. The borrowing strategy assumes that borrowing taken in 2024/2025, 2025/2026 and 2026/2027 is short term borrowing at rates equivalent to base rate. This means that the borrowing requirement for these years rolls over and increases the borrowing requirement in the following years. 1.5. The borrowing identified above, and associated costs have been included in the Council’s Financial Strategy. 1.6. Finance Services will continue to regularly review our forecast for loan charges, taking into account the most up to date interest rate forecasts. This will allow us to consider options for borrowing including the timing, source and period over which we borrow to minimise our borrowing costs and ensure our capital expenditure plans remain affordable. 2. Prudential Indicator 2 – Council’s Borrowing Need (the Capital Financing Requirement) and Gross Debt 72
Page 73
2.1. The Council’s Capital Financial Requirement (CFR) is the total outstanding capital expenditure which has not yet been paid for from either revenue or capital resources. It is essentially a measure of the Council’s underlying need to borrow for past and present capital expenditure. 2.2. The Council is required to pay off an element of the accumulated balance of borrowing every year through a charge to the revenue account. 2.3. In order that over the medium-term debt will only be for a capital purpose, the Council needs to ensure that debt does not, except in the short term, exceed the total of the Capital Financing requirement (CFR) in 2024/2025 plus the estimates of any additional CFR for 2025/2026 and the following two financial years. This allows some flexibility for limited early borrowing for future years but ensures that borrowing is not undertaken for revenue purposes. 2.4. The projected Capital Financing Requirement and Gross Debt is shown in the table below. 2024/25 Estimate £ m 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m General Fund Capital Financing Requirement 1,113.053 1,126.246 1,138.761 1,145.172 HRA Capital Financing Requirement 325.533 346.493 358.756 348.364 Total Capital Financing Requirement 1,438.586 1,472.739 1,497.517 1,493.536 Gross Debt 1,287.906 1,348.704 1,383.002 1,389.254 Difference 150.680 124.035 114.515 104.282 2.5. It can be seen that the estimated gross debt levels for the period 2024/2025 to 2027/2028 do not exceed the forecast CFR at the end of 2027/2028, demonstrating that borrowing will only be undertaken for capital purposes. 2.6. This indicator sets out the expected CFR based on the capital plans shown at Indicator 1. Actual CFR for 2024/2025 will be presented to committee following year end. 3. Prudential Indicator 3 – Limits to Borrowing 3.1. The Operational Boundary for external debt is based on the expected maximum external debt that could be faced in the course of the year. It is set to accommodate the borrowing requirements as detailed at Prudential Indicator 1, and also includes sufficient scope to allow for changes to the capital programme throughout the year and to borrow for the following year should this be considered appropriate. This limit is permitted to be breached during the year. This would be reported in the Prudential Indicators report presented to Committee after year end. 3.2. The Authorised Limit for External Debt represents a limit beyond which external debt is prohibited. It represents the level of external debt which could be afforded in the very short term, but is not sustainable in the longer term without consideration to revenue budgets. This limit needs to be set or revised by the full Council who should also be advised if the limit is exceeded or is expected to be exceeded. Again the limits include scope to borrow for the following year should this be considered appropriate. 73
Page 74
2024/25 Estimate £ m 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m Operational Limit for debt 1,460.000 1,570.000 1,650.000 1,720.000 Operational Limit for other liabilities 180.000 170.000 160.000 160.000 Operational Limit 1,640.000 1,740.000 1,810.000 1,880.000 Authorised Limit for debt 1,480.000 1,590.000 1,670.000 1,740.000 Authorised Limit for other liabilities 180.000 170.000 160.000 160.000 Authorised Limit 1,660.000 1,760,000 1,830,000 1,900.000 Affordability Indicators 4. Prudential Indicator 4 – Ratio of Financing Costs to Net Revenue Stream 4.1. This indicator focuses on the extent to which the Council’s net revenue budget is used for servicing debt. This is shown for both General Fund and HRA. The figures for General Fund include the reduction in the PPP/Finance Lease Liability as a financing cost. 2024/25 Estimate £ m 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m General Fund Ratio of Financing Costs to Net Revenue Stream (expressed as %) 3.91% 4.31% 4.88% 5.18% HRA General Fund Ratio of Financing Costs to Net Revenue Stream (expressed as %) 8.58% 14.64% 17.71% 17.57% 4.2. While the Council has prepared a Financial Strategy for 2025/2026 to 2027/2028, at the time of writing this report, we have not been advised of our General Revenue Grant funding beyond 2025/2026. The indicators have been calculated using the assumptions regarding reductions in grant levels built into the Financial Strategy for 2026/2027 and beyond. 4.3. For the HRA, estimates of rental income in each financial year have been used in the calculation. Prudential Indicator 5 – Ratio of Net Income from Commercial and Service Investments to Net Revenue Stream 4.4. The Prudential Code for Capital Finance in Local Authorities 2021 introduced a new indicator – The Ratio of Net Income from Commercial and Service Investments to Net Revenue Stream. 4.5. The Code defines Commercial Investments as investments taken or held primarily for financial return and not linked to treasury management activity and Service Investments as those directly involved in the delivery of a service, for example, loans to leisure providers, loans to trusts providing services, a shareholding in a shared service vehicle, and investments in local companies for regeneration. 4.6. As the Council has no investments that fall into these categories, there is no requirement to report this indicator. 74
Page 75
Appendix 2 Treasury Management Strategy 2025/2026 1. Foreword 1.1. The treasury management function is an important part of the overall financial management of the Council’s affairs. The treasury management function considers the effective funding of capital investment plans and works toward ensuring that best practice is followed when making decisions on managing Council deposited funds. The Council’s treasury activities are regulated by the Local Government (Scotland) Acts 1975 and 2003, and a professional code of practice (the CIPFA Code of Practice on Treasury Management – revised December 2021). It is a requirement of this Code, and the financial regulations of South Lanarkshire Council, that a Treasury Management Strategy is approved by Committee every year. A key requirement of this strategy is to explain both the risks and the management of these risks associated with the treasury function. A further report will be produced after the year end to report on actual activity during the year. It is a requirement of the Treasury Management Code of Practice that a mid year monitoring report is produced. This will cover the period 1 April 2024 to 30 September 2024 and will be submitted to Committee after that date. This strategy covers: • The Council’s debt and investment projections (Section 2) • The Council’s estimates and limits on future debt levels (Section 3) • The expected movement in interest rates (Section 4) • The Council’s borrowing strategy (Section 5) • Treasury Management Limits on Activity (Section 6) • Statutory Repayment of Loans Fund Advances (Section 7) 2. Debt and Investment Projections 2025/2026 – 2027/2028 2.1 The expected levels of external borrowing and investment for 2024/2025 to 2025/2026 are shown in the table below. An updated position for 2023/2024 is also shown. 2024/25 Estimate £ m 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m External Debt Borrowing £1,122.450 £1,191.657 £1,233.548 £1,246.848 Other long term liabilities £164.646 £157.047 £149.454 £142.406 Debt at 31 March (including PPP/Finance Lease Liability) £1,287.096 £1,348.704 £1,383.002 £1,389.254 Investments Total Investments at 31 March £10.000 £10.000 £10.000 £10.000 75
Page 76
3. Estimates and Limits on Future Debt Levels 3.1 There are a number of key indicators to ensure the Council operates its activities within well defined limits. These are detailed in the Prudential Indicators Appendix 1, paragraphs 2.1 to 3.2. 4. Expected Movement in Interest Rates 4.1. The interest rate forecast provided by the Council’s treasury adviser, MUFG Corporate Markets Treasury Ltd, is reproduced below. Economic and interest rate forecasting remains difficult with so many external influences weighing on the UK. The forecasts below will be liable to further amendment depending on how economic data and developments in financial markets transpire over the next year. Medium Term Interest rates - Annual Averages 4.2. Since the start of 2022, movement in gilt yields and hence PWLB rates have been volatile while steadily increasing. As shown in the table above, our advisers are forecasting a steady, but slow, fall in both Bank Rate and PWLB. It is expected that there will be periods of volatility around this decrease in rates. 4.3. The differential between investment earnings and debt costs remains high and is expected to continue in 2025/2026. This “cost of carrying” needs to be considered if borrowing is taken before our cash flow requires funds as returns on deposits will be lower than the rate paid on borrowing. 5. Borrowing Strategy 5.1. The Council is currently maintaining an under-borrowed position in comparison to its Capital Financing Requirement, using its cash balances rather than borrowing to fund capital expenditure. This strategy is prudent as investment returns remain low in comparison to the rates at which we can borrow, medium and longer dated borrowing rates are expected to fall from their current levels and counterparty risk is still an issue that needs to be considered. 5.2. The Council’s borrowing strategy will be to minimise borrowing costs over the medium to long term by considering the borrowing requirement arising from the capital programmes along with expected interest rates and the level of existing cash balances and reserves. 5.3. In conjunction with advice from its treasury adviser, the Council will keep under review the options it has in borrowing from the PWLB, the market and other sources up to the available capacity within its CFR and Authorised Limit. 5.4. One of the options to finance capital borrowing is the issuance of Bonds. In the right circumstances, Bonds could be appropriate for the Council but are dependent on the level of borrowing, the repayment period and the mix of other funding sources to fund a large-scale capital programme. To date, their use has not been considered appropriate or necessary given the amount the Council requires to borrow and the Base Interest Rate 5 year PWLB 10 year PWLB 25 year PWLB 50 year PWLB 2025/26 4.000% 4.600% 4.825% 5.250% 5.050% 2026/27 3.688% 4.250% 4.425% 4.850% 4.650% 2027/28 3.500% 3.967% 4.167% 4.533% 4.333% 76
Page 77
repayment period of the borrowing. Moving forward, they will remain an option and will be considered along with other sources of borrowing as required. 5.5. Alongside fixed rate maturity borrowing, other options such as variable rate or short- term borrowing or EIP (equal instalments of principal) loans that help mitigate the impact of the cost of carry are all active considerations. 5.6. The Council will consider debt rescheduling where appropriate to make savings in interest costs or to amend the profile of maturing debt to reduce any inherent refinancing risks, however opportunities will be limited due to the premium that is charged by the PWLB for the early repayment of debt. 5.7. The overall strategy for borrowing will be to monitor interest rates, undertake planned borrowing at the best time, whilst investigating opportunities where possible to improve the structure of our existing loan portfolio. 5.8. The expected borrowing is detailed in the Prudential Indicators Appendix 1, paragraphs 1.1. to 1.2. and is summarised below. 2024/25 Estimate £ m 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m Expected Borrowing 141.689 331.050 443.056 526.466 6. Treasury Management Limits on Activity 6.1. The Treasury Management in the Public Services - Guidance Notes for Local Authorities details treasury management indicators that are to be reported within the Treasury Strategy. The update in 2021 introduced a new indicator – The Liability Benchmark which is covered in Section 6.3 to 6.8. 6.2. The purpose of the Treasury Management Indicators is to contain the activity of the treasury function within certain limits, thereby managing risk and reducing the impact of an adverse movement in interest rates. However, if these are set to be too restrictive, they will impair the opportunities to reduce costs/improve performance. The indicators are detailed below. Treasury Management Indicator 1 – Liability Benchmark 6.3. The liability benchmark is a comparison of the existing loan portfolio against committed and planned borrowing needs, while taking into account how reserves, cash balances and the need for short-term liquidity affect the future borrowing requirement. 6.4. The liability benchmark is included in Annex 1 to this strategy. The top line shows the projected loans capital financing requirement. This is the total outstanding capital expenditure that has not been paid for from either revenue or capital resources and is funded by borrowing. 6.5. The dotted line shows the net loans requirement which takes the loans CFR and adjusts it for reserves and cash balances that are available to use in lieu of borrowing. 77
Page 78
6.6. The solid line is the liability benchmark which is equal to the net loans requirement plus a short term liquidity requirement. The three shaded areas at the bottom of the chart shows the maturity profile of our actual loan debt outstanding split between LOBOs, PWLB and temporary borrowing. 6.7. The Treasury Management Code requires that any mismatches between actual loan debt outstanding and the liability benchmark are explained. The years where actual loans are less than the benchmark indicate a future borrowing requirement while any years where actual loans outstanding exceed the benchmark represent an overborrowed position which will result in excess cash requiring investment. 6.8. The liability benchmark for the Council shows a future borrowing requirement. The Council manages the risks inherent in this by having a view of the future course of interest rates and a borrowing strategy that aims to minimise borrowing costs and ensure that these are affordable. The financial impact of borrowing for capital expenditure has been built into the long-term revenue budget strategy. Treasury Management Indicator 2 – Maturity Structure of Borrowing 6.9. By setting limits on the maturity structure of borrowing, the exposure to large concentrations of debt needing to be replaced at the same time in the future at currently unknown rates can be limited. This effectively places a limit on exposure to longer term interest rate movement. The upper and lower limits for the maturity structure of borrowing is shown in the table overleaf. Maturity Structure of Borrowing Upper Limit Lower Limit Under 12 months 50% 0% 12 months and 24 months 50% 0% 24 months and 5 years 50% 0% 5 years and 10 years 55% 0% 10 years and 20 years 60% 0% 20 years and 30 years 70% 0% 30 years and 40 years 80% 0% 40 years and 50 years 90% 0% 50 years and above 100% 0% Treasury Management Indicator 2 – Investments Greater Than 364 Days- 6.10. Limits on the total principal sums invested for greater than 364 days protects against potential loss that we would suffer if we required to get our money back earlier than the full term of the investment. 6.11. This Council will, at any one time, have no more than £10m invested for periods greater than 364 days, subject to a maximum period of 5 years. Interest Rate Risk 6.12. As there is no longer a specific recommended indicator in respect of interest rate exposures, councils are asked to explain their strategy for managing interest rate risks. 78
Page 79
6.13. Interest rate risk is the risk that movements in interest rates create an unexpected or unbudgeted burden on the organisation’s finances, against which the organisation has failed to protect itself adequately. 6.14. The Council manages this risk by having a view of the future course of interest rates and a borrowing strategy that aims to minimise borrowing costs and ensure that these are affordable. The financial impact of borrowing for capital expenditure has been built into the long-term revenue budget strategy. Credit Risk 6.15. There is no specific recommended indicator in relation to credit risk, although the Treasury Management Code states that authorities may wish to design and set their own indicators in relation to this. 6.16. Details of how South Lanarkshire Council manages credit risk are included in the Annual Investment Strategy 2025/2026 which is included in Appendix 3 of this report. 7. Statutory Repayment of Loans Fund Advances 7.1 The Scottish Government introduced The Local Authority (Capital Financing and Accounting) Scotland Regulations 2016 with effect from 1 April 2016. These regulations require the statutory loans fund to be administered in accordance with the 2016 Regulations, proper accounting practice and prudent financial management. Policy for the Statutory Repayment of Loans Fund Advances 7.2. The Council is required to set out its policy for the statutory repayment of loans fund advances prior to the start of the financial year. The repayment of loans fund advances ensures that the Council makes a prudent provision each year to pay off an element of the accumulated loans fund advances made in previous financial years. 7.3. A number of options are available to councils so long as a prudent provision is made each year. The Council is recommended to approve the following policy on the repayment of loans fund advances:- The policy for the repayment of loans fund advances will be to use the most appropriate method of repayment for individual capital schemes or projects from the following methods. 1. Asset life method – loans fund advances will be repaid with reference to the life of an asset on an annuity basis. 2. Funding / Income profile method – loans fund advances will be repaid by reference to an associated income stream. 7.4. For loans fund advances repaid using the annuity basis, the annual repayment will be calculated using an appropriate interest rate based on an average cost of funding capital advances to services. 7.5. The Council’s strategy for managing debt includes making additional voluntary repayments. These repayments will be used as a tool to reduce interest costs in the short to medium term by lowering the Council’s need to borrow. These additional voluntary repayments will be retained and used to offset higher loans fund repayments in the long term. All of this helps to ensure that charges to the revenue account remain prudent and affordable in the long term. 79
Page 80
Repayment of Loans Fund Advances 7.6. Borrowing to fund the capital programmes result in new loans fund advances and create a liability to repay those advances from future years’ budgets. The Council is required to report on the commitment to repay loans fund advances. This is shown in the following tables. General Fund Opening Balance New Advances Repayments Closing Balance 2024/25 859.048 17.560 -3.730 872.878 2025/2026 872.878 20.346 -4.198 889.026 2026/27 – 2029/30 889.026 43.096 -27.332 904.790 2030/31 – 2034/35 904.790 0.000 -53.053 851.737 2035/36 – 2039/40 851.737 0.000 -107.230 744.507 2040/41 – 2044/45 744.507 0.000 -102.334 642.173 2045/46 – 2049/50 642.173 0.000 -130.605 511.568 2050/51 – 2054/55 511.568 0.000 -166.687 344.881 2055/56 – 2059/60 344.881 0.000 -176.395 168.486 2060/61 – 2064/65 168.486 0.000 -112.135 56.351 2065/66 – 2069/70 56.351 0.000 -35.568 20.783 2070/71 – 2074/75 20.783 0.000 -15.087 5.696 2075/76 – 2079/80 5.696 0.000 -5.696 0.000 Housing Revenue Account Opening Balance New Advances Repayments Closing Balance 2024/25 307.204 18.321 -0.005 325.520 2025/2026 325.520 25.380 -4.420 346.480 2026/27 – 2029/30 346.480 22.030 -30.916 337.594 2030/31 – 2034/35 337.594 0.000 -54.755 282.839 2035/36 – 2039/40 282.839 0.000 -53.459 229.380 2040/41 – 2044/45 229.380 0.000 -48.054 181.326 2045/46 – 2049/50 181.326 0.000 -53.113 128.213 2050/51 – 2054/55 128.213 0.000 -50.685 77.528 2055/56 – 2059/60 77.528 0.000 -40.183 37.345 2060/61 – 2064/65 37.345 0.000 -30.081 7.264 2065/66 – 2069/70 7.264 0.000 -7.264 0.000 80
Page 81
ANNEX 1 81
Page 82
Appendix 3 Annual Investment Strategy 2025/2026 1. Background 1.1. Local authority investment activity is regulated by statute. In Scotland the legislation that local authorities rely on to make investments had consisted of the Trustee Investments Act 1961 and the Local Government (Scotland) Act 1973. 1.2. In response to representation from local authorities that the existing regulation was too prescriptive, provision was made in the Local Government in Scotland Act 2003 for Scottish Ministers to introduce a new regulatory framework. 1.3. Section 40 of the Local Government in Scotland Act 2003 provides local authorities with the power to invest money. This power may be exercised in accordance with regulations made by Scottish Ministers under this section. 1.4. Scottish Ministers have, through Consent and Regulations, provided a formal investment framework, namely The Local Government Investments (Scotland) Regulations 2010 which came into force on 1 April 2010. 1.5. The new regulatory framework introduced by regulations made by Scottish Ministers under Section 40, provides greater autonomy for local authorities in their investment activities. With this greater freedom comes greater responsibility and the onus is on local authorities to act prudently regarding their investment and treasury management activities. 1.6. Local authorities are required to manage their investments in a way that minimises the risk to the capital sum and optimises the return on the funds consistent with those risks. 1.7. Local authorities are required to prepare an Annual Investment Strategy before the start of the financial year. 2. Investment Policy and Strategy 2.1. Scottish Ministers have identified two CIPFA Codes of Practice which local authorities must have regard to in managing their investments: • Treasury Management in the Public Services: Code of Practice and Cross- Sectoral Guidance Notes (Fully Revised Second Edition 2009) • The Prudential Code for Capital Finance in Local Authorities (Fully Revised Second Edition 2009) 2.2. The first Code referenced covers the whole range of treasury management issues including the fundamental principles for making and managing investments. The second Code deals with capital investment but also includes guidance on Treasury Management. 2.3. This Council in its Treasury Management Policy Statement defines its Treasury Management Activities as: The management of the organisation’s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks. 82
Page 83
2.4. The main objective when investing surplus funds will therefore be the security of the transaction. The Council must also meet its liquidity requirement and only invest for the period of time that is prudent. Finally, and only after consideration of security and liquidity, the yield that will be gained from the investment will be considered. 3. Treasury Management Risks 3.1. The CIPFA Treasury Management Code of Practice adopted by the Council includes a section on Managing Treasury Management Risks, placing Credit and Counterparty risk at the forefront of treasury risks. 3.2. South Lanarkshire Council recognises that any investment activity will carry an element of risk. It is important that risk is identified and controls put in place to limit those risks. 3.3. Risks when carrying out investment activities can broadly be categorised as follows: Credit Risk: failure to receive back the principal and interest on an investment in full and on the due date Liquidity Risk: the maturity or terms of the investment are such that insufficient cash is available in the short term Market Risk: the effect of market prices on the value of the investment 4. Permitted Investments 4.1. Local authorities are required to list and document all types of investments that they will permit in the financial year. These will be described as the permitted investments for that local authority. 4.2. Local authorities are required to state the limits for the amounts which at any time during the year may be invested in each type of permitted investments, such limit being applied when the investment is made. 4.3. For each type of permitted investment, the objectives of that investment are to be identified along with the associated treasury risks and the controls that will be put in place to limit those risks. 4.4. The permitted investments that South Lanarkshire Council have identified for the financial year 2025/2026 are detailed in Annex 1 to this strategy and listed below: • Deposits with the Debt Management Account Deposit Facility • Deposits with UK Local Authorities • Deposits with Banks and Building Societies • Certificates of Deposit with Banks and Building Societies • UK Government Gilts and Treasury Bills • AAA Rated Bonds Issued by Multilateral Development Banks • AAA Rated Money Market Funds • Loans to Third Parties Inclusion as a permitted investment simply allows the Council to use that investment if considered to be appropriate. It is not necessarily the case that all permitted investments will be used. 83
Page 84
5. Risk Management 5.1. The CIPFA Treasury Management Code of Practice adopted by the Council includes a section on Managing Treasury Management Risks, placing Credit and Counterparty risk at the forefront of treasury risks. The Code states: Credit ratings should only be used as a starting point when considering credit risk. Organisations should make use of generally available market information, such as the quality financial press, market data, and information on government support for banks including the ability and willingness of the relevant government to provide adequate support. 5.2. In managing credit and counterparty risk the Council will be required to: • Establish a sound diversification policy with high credit quality counterparties • Set clear minimum credit limits for counterparties. • Have regard to the credit ratings issued by all three rating agencies and make decisions based on the lowest rating • Consider country, sector and group limits • Regularly review credit ratings and other creditworthiness indicators as outlined in 5.6 below and act upon forward looking rating warnings Deposits with the Debt Management Account Deposit Facility 5.3. Deposits with the Debt Management Office Account Deposit facility provided by HM Treasury will be continued. This facility offers the highest security for investments and deposits will be subject to a maximum period of six months which is the maximum time allowed by the DMO and no maximum deposit size. Deposits with UK Local Authorities 5.4. Deposits with UK local authorities will be permitted subject to a maximum period of three years and a maximum deposit size of £20m for up to 364 days and £10m beyond this. 5.5. Before placing a deposit with a local authority, an internet search will be carried out to ensure that there are no financial concerns regarding the local authority that may cause reputational damage to this Council through association. Deposits and Certificates of Deposit with Banks and Building Societies 5.6. The following minimum thresholds will be applied to all deposits with banks and building societies, including Certificate of Deposits. Rating Agency Long Term Rating Maximum Deposit Fitch A- £20m Moody’s A3 £20m Standard and Poors A- £20m 5.7. Prior to depositing funds with any bank or building society, checks will be made with the Council’s treasury adviser, Link Asset Services, that the institution is considered safe and that any deposit conforms to their recommended time duration as determined by their Rating Methodology. This methodology uses credit ratings, rating watches and outlooks and credit default swap (CDS) prices to establish a suggested time duration for deposits. 84
Page 85
5.8. Currently all deposits are with UK institutions. Non-UK banks would only be considered if they meet our strict criteria and are recommended by our advisers. Any one foreign country would carry a limit of £20m deposits. 5.9. If two or more organisations in the same group meet the criteria detailed in 5.5. then a group limit of £20m will be applied. 5.10. Deposits with banks or building societies will be restricted to 364 days. 5.11. The existing Counterparty policy sets out a sound approach to depositing cash in normal market circumstances. Whilst this policy still stands, the Executive Director of Finance and Corporate Resources may consider temporarily restricting deposits to those counterparties considered of higher credit quality than the minimum criteria set out in the policy. 5.12. Examples of these restrictions would be greater use of higher rated institutions; increased use of the DMO account and restricting the term of deposits as appropriate. 5.13. Operational banking will continue with our contracted provider. Any deposits with banks or building societies will continue to meet the criteria set in 5.6. UK Government Gilts and Treasury Bills 5.14. UK Government Gilts and Treasury Bills are bonds issued by HM Treasury. Purchasing these bonds is a means of investing in the UK Government. The UK Government has never failed to make interest or principal payments on these bonds. 5.15. Investments in UK Government Gilts and Treasury Bills carry very little credit risk as they are investments in the UK Government. Gilts and Treasury Bills are marketable, and the price fluctuates from day to day. There is therefore the potential of capital loss if sold ahead of maturity. Gilts and Treasury Bills will be bought by the Council with the intention of holding them to maturity thereby mitigating market risk. There will be no maximum limit to the amount that will be invested in UK Gilts or Treasury Bills for maturities of less than one year. For Gilts with maturities in excess of one year a limit of £10m will be applied and no maturity will exceed five years. AAA Rated Bonds Issued by Multilateral Development Banks 5.16. These are bonds issued by supranational institutions such as the World Bank or the European Investment Bank. 5.17. Investments in AAA rated bonds issued by Multilateral Development Banks carry very little credit risk as they are backed by several Sovereign States. These bonds carry market risk as their price fluctuates from day to day. There is therefore the potential of capital loss if sold ahead of maturity. These bonds will be bought by the Council with the intention of holding them to maturity, thereby mitigating market risk. The maximum amount that will be invested in AAA rated bonds issued by Multilateral Development Banks is £10m with a maximum period of five years. 5.18. Any investments in these bonds would only be undertaken after careful consideration and with advice from our advisers to ensure security of our investments. 85
Page 86
AAA Rated Money Market Funds 5.19. Investments in Money Market Funds will be limited to those funds rated as AAAmmf by Fitch, Aaa by Moody’s or AAAm by Standard and Poor’s. In the event that the Money Market Fund is rated by more than one credit rating agency, each rating must meet the set criteria. 5.20. In addition to the credit rating, Money Market Funds will also be assessed for suitability on fund size, the strength of the custodian and the stability of invested capital. 5.21. Selection of suitable Money Market Funds will be undertaken in consultation with our advisers. 5.22. Investments in Money Market Funds will be restricted to 0.5% of the Money Market Fund size and to no more than £10m in any individual Money Market Fund. 5.23. Investments in Sterling Government Money Market Funds which only invest in Sterling denominated debt securities issued by the UK Government will be restricted to 2% of the Money Market Fund size and to no more than £10m in any individual Money Market Fund. Loans to Third Parties 5.24. Any new types of loans to third parties should be approved by The Finance and Corporate Resources Committee with full consideration of the service rationale behind the loan and the likelihood of partial or full default and the impact that this will have on service budgets. Liquidity Risk 5.25. In order to manage liquidity risk, the Council will endeavour to maintain a minimum balance of £5m in bank accounts and money market funds with instant access (same day notice account). This is dependent on these facilities continuing to be provided by the banks and subject to our minimum lending criteria. 5.26. In addition to retaining a balance of deposits on instant access, South Lanarkshire Council will maintain an appropriate overdraft facility. 5.27. Longer term investments will only be considered where the Council’s liquidity requirements are ensured and an assessment of liquidity risk has been carried out. No more than £10m of investments at any one time will be for a period in excess of 364 days. 6. Borrowing In Advance 6.1. Borrowing in advance may be taken if it is considered appropriate, for example if interest rates were expected to increase significantly. 6.2. The Council will not borrow more than or in advance of its needs purely in order to profit from the investment of the extra sums borrowed. Any decision to borrow in advance will be within forward approved Capital Financing Requirement estimates and will be considered carefully to ensure that value for money can be demonstrated and that the Council can ensure the security of such funds. 86
Page 87
6.3. The risks of holding increased levels of deposits and investments would be managed in accordance with section 5 above. The Council has unlimited access to using the DMO Deposit Facility where necessary. This facility offers the highest security for investments. 7. Investment Projection 2025/2026 7.1. It is estimated that the level of investments during 2025/2026 will be minimal as reserves and working capital are used to reduce the Council’s borrowing requirement. 7.2. Regardless of the level of deposits, the main consideration when investing surplus funds will be the security of the transaction. The Council must also meet its liquidity requirement and only invest for the period of time that is prudent. Finally, and only after consideration of security and liquidity, the yield that will be gained from the investment will be considered. 8. Prudential Indicators 8.1. The regulations require that the Annual Investment Strategy contains details of the relevant prudential indicators for investments. 8.2. The Treasury Management Code requires local authorities to set an upper limit for each forward financial year period for investments longer than 364 days. The purpose is to contain the exposure to the possibility of loss that might arise as a result of having to seek early repayment of principal sums invested. 8.3. No more than £10m may be invested for periods in excess of 364 days and that the maximum period for any investment is 5 years. 9. Common Good Investments 9.1. The regulations require local authorities to identify separately the permitted investments relating to the Common Good. 9.2. All investments relating to the Common Good funds administered by South Lanarkshire Council are cash investments in South Lanarkshire Council. These investments are not considered to have any significant risk attached. 10. Responsible Investing 10.1. Until there is an established methodology that can be used to assess an organisation’s approach to climate change, sustainability and the environment, the Council will continue to minimise its deposits with banks while managing Treasury Management risks. 10.2. Deposits with banks will be limited to instant access call accounts where the council’s money cannot be used for investment in any projects. 87
Page 88
ANNEX 1 Permitted Investment Treasury Risks Mitigating Controls Limits Deposits with the Debt Management Account Deposit Facility This is a deposit with the UK Government and so credit risk is very low. Liquidity risk has to be considered as deposits can only be broken with the agreement of the counterparty and penalties may apply. There is no market risk as the principal sum invested is not affected by market prices. There are no mitigating controls required. There is no maximum monetary limit. A maximum term of deposit of six months as set by the Debt Management Office. Deposits with UK Local Authorities and other bodies defined as local authorities in the Local Government Scotland Act 2003 (And Equivalent English Act) These are considered to be quasi UK Government investment and as such credit risk is very low. Liquidity risk has to be considered as deposits can only be broken with the agreement of the counterparty and penalties may apply. There is no market risk as the principal sum invested is not affected by market prices. There are no mitigating controls required. The maximum deposit with any local authority will be £20m for deposits less than one year. Deposits in excess of one year will be subject to a maximum term of deposit of three years and be limited to £10m. Deposits with Banks and Building Societies These tend to be low risk but credit risk will be higher than deposits placed with the DMO or UK local authorities. Liquidity risk has to be considered as deposits can only be broken with the agreement of the counterparty and penalties may apply. There is no market risk as the principal sum invested is not affected by market prices. The counterparty selection criteria restricts lending only to high quality counterparties, measured initially by credit ratings from Fitch, Moody’s and Standard and Poors. Additional indicators of creditworthiness will also be considered prior to placing any deposits. Liquidity risk can be controlled by the use of instant access call accounts. The maximum deposit with any bank or building society will be £20m. A maximum term of deposit of 364 days. 88
Page 89
Certificates of Deposit with Banks and Building Societies These are short to medium term dated marketable securities issued by financial institutions. These tend to be low risk investments but credit risk will be higher than deposits placed with the DMO or UK local authorities. Liquidity risk is lower than placing a deposit with a Bank or Building Society as these can be sold on the market. There is a risk of capital loss arising from selling ahead of maturity. The counterparty selection criteria restricts lending only to high quality counterparties, measured initially by credit ratings from Fitch, Moody’s and Standard and Poor’s. Additional indicators of creditworthiness will also be considered prior to using this type of instrument. Market risk would be mitigated by holding the instrument to maturity. The maximum investment with any bank or building society will be £20m. A maximum period of investment of 364 days. UK Government Gilts and Treasury Bills These are marketable securities issued by the UK Government and as such credit risk is very low. Liquidity risk is very low as there is a huge market for Gilts and Treasury Bills There is a risk of capital loss arising from selling ahead of maturity. There are no mitigating controls required for credit risk as the investment is with the UK Government. Market risk would be mitigated by holding the instrument to maturity. There is no maximum limit to investments in UK Gilts or Treasury Bills for maturities less than one year and a limit of £10m for maturities greater than one year. The maximum period of investment will be five years. AAA Rated Bonds Issued by Multilateral Development Banks These are bonds issued by supranational bodies such as the European Investment Bank or World Bank and as a result are backed by several sovereign states and as such credit risk is very low. Liquidity risk is very low as there is a large market for Supranational Bonds. There is a risk of capital loss arising from selling ahead of maturity. As the investment is effectively spread across a number of sovereign states, the Council will mitigate the credit risk of holding such bonds by considering the sovereign rating of the underlying sovereign states and only holding bonds that have a AAA rating. Market risk would be mitigated by holding the instrument to maturity. The maximum amount that will be invested in AAA Rated Bonds issued by Multilateral Development Banks is £10m. The maximum period of investment will be five years. 89
Page 90
AAA Rated Money Market Funds Money market funds are pooled funds that invest in short-term money market instruments and other debt instruments. The underlying investments are diversified and Credit risk, liquidity risk and market risk are all very low. Investments in these MMFs are highly liquid (same day liquidity). Money Market Funds will only be used where they have obtained a AAA rating from the credit rating agencies. In addition to the credit rating, Money Market Funds will also be assessed for suitability on fund size, the strength of the custodian and the stability of invested capital. Investments in Money Market Funds will be limited to 0.5% of the Money Market Fund Balance and to no more than £10m in any one Fund. Investments in Sterling Government Money Market Funds which only invest in Sterling denominated debt securities issued by the UK Government will be restricted to 2% of the Money Market Fund size and to no more than £10m in any individual Money Market Fund. Loans to Third Parties These are service investments which may exhibit credit risk and are likely to be highly illiquid. Any new types of loans to third parties should be approved by Members through the appropriate Committee with full consideration of the service rationale behind the loan and the likelihood of partial or full default and the impact that this will have on service budgets. 90