Agenda Document Pack - South Lanarkshire Council - 25/02/2026
South Lanarkshire Council · 25 February 2026
Back to South Lanarkshire Council — 25 February 2026 and its agenda
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Council Offices, Almada Street Hamilton, ML3 0AA Tuesday, 17 February 2026 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, 25 February 2026 Time: 10:00 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
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BUSINESS 1 Declaration of Interests Item(s) for Decision 2 Recommendations Referred by Executive Committee - Housing Revenue and Capital Account Budget 2026/2027 Report dated 4 February 2026 by the Chief Executive. (Copy attached) 3 - 8 3 Overall Position of Revenue Budget and Level of Local Taxation for 2026/2027 Report dated 4 February 2026 by the Executive Director (Finance and Corporate resources). (Copy attached) 9 - 40 4 2026/2027 Capital Programme Update and Future Capital Investment Strategy Report dated 10 February 2026 by the Executive Director (Finance and Corporate Resources). (Copy attached) 41 - 52 5 Prudential Indicators, Treasury Management Strategy and Annual Investment Strategy 2026/2027 Report dated 29 January 2026 by the Executive Director (Finance and Corporate Resources). (Copy attached) 53 - 80 Urgent Business 6 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
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Report Agenda Item Report to: South Lanarkshire Council Date of Meeting: 25 February 2026 Report by: Chief Executive Subject: Recommendations Referred by Executive Committee – Housing Revenue and Capital Account Budget 2026/2027 1. Purpose of Report 1.1. The purpose of the report is to:- [purpose] allow consideration of the recommendations of the Executive Committee of 4 February 2026 in relation to the Housing Revenue and Capital Account Budget 2026/2027 2. Recommendation(s) 2.1. The Council is asked to approve the following recommendation(s):- [recs] (1) that the following recommendations from the Executive Committee of 4 February 2026, having had due regard to the assessments contained in the Integrated Impact Assessments relating to the proposals in relation to the Housing Revenue and Capital Account Budget 2026/2027 and the outcomes of the associated public consultation, as referred to at Section 8 of this report, be approved:- Housing Revenue and Capital Account Budget 2026/2027 that the proposed rent increase of 6.50% to be applied in 2026/2027 to all council houses, Gypsy/Traveller sites, lock-ups and garage sites and the revenue estimate proposals for the Housing Revenue Account (HRA), as detailed in Appendix 1 to the report to the Housing and Technical Resources Committee, be approved; that the proposed increase in charges applied for the provision of close cleaning and laundry services of 6.50% in 2026/2027 be approved; that the proposal that a 15% premium be added to all new build rent charges that were let either on, or after, 1 April 2026, reflecting the increased energy efficiency measures within those properties and to support the continuing new build programme, as detailed in paragraph 3.6 of the report to the Housing and Technical Resources Committee, be approved; and that, based on the rent increase of 6.50%, the 2026/2027 Housing Capital Programme of £90.434 million, as detailed in Appendix 2 to the report to the Housing and Technical Resources Committee, be approved [1recs] 2 3
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3. Background 3.1. Recommendations Referred by Executive Committee – Housing Revenue and Capital Account Budget 2026/2027 – Extract of Minute A report dated 21 January 2026 by the Chief Executive was submitted on recommendations referred to this Committee by the Housing and Technical Resources Committee at its special meeting held on 21 January 2026 in relation to the Housing Revenue and Capital Account Budget 2026/2027. The recommendations were as follows:- that the proposed rent increase of 6.50% to be applied in 2026/2027 to all council houses, Gypsy/Traveller sites, lock-ups and garage sites and the revenue estimate proposals for the Housing Revenue Account (HRA), as detailed in Appendix 1 to the report to the Housing and Technical Resources Committee, be endorsed and referred to the Council for approval that the proposed increase in charges applied for the provision of close cleaning and laundry services of 6.50% in 2026/2027 be endorsed and referred to the Council for approval that the proposal that a 15% premium be added to all new build rent charges that were let either on, or after, 1 April 2026, reflecting the increased energy efficiency measures within those properties and to support the continuing new build programme, as detailed in paragraph 3.6 of the report to the Housing and Technical Resources Committee, be endorsed and referred to the Council for approval that, based on the rent increase of 6.50%, the 2026/2027 Housing Capital Programme of £90.434 million, as detailed in Appendix 2 to the report to the Housing and Technical Resources Committee, be endorsed and referred to the Council for approval The Executive Director (Housing and Technical Resources) wished to record his thanks to the Budget Scrutiny Group and the Tenant Participation Co-ordination Group for their valued input to the process. Officers responded to members’ questions in relation to various aspect of the report. The Committee recommended to the Council: (1) that the proposed rent increase of 6.50% to be applied in 2026/2027 to all council houses, Gypsy/Traveller sites, lock-ups and garage sites and the revenue estimate proposals for the Housing Revenue Account (HRA), as detailed in Appendix 1 to the report to the Housing and Technical Resources Committee, be approved; (2) that the proposed increase in charges applied for the provision of close cleaning and laundry services of 6.50% in 2026/2027 be approved; (3) that the proposal that a 15% premium be added to all new build rent charges that were let either on, or after, 1 April 2026, reflecting the increased energy efficiency measures within those properties and to support the continuing new build programme, as detailed in paragraph 3.6 of the report to the Housing and Technical Resources Committee, be approved; and (4) that, based on the rent increase of 6.50%, the 2026/2027 Housing Capital Programme of £90.434 million, as detailed in Appendix 2 to the report to the Housing and Technical Resources Committee, be approved. [Reference: Minutes of the special meeting of the Housing and Technical Resources Committee of 21 January 2026 (Paragraph 2)] 4
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3.2. A link to the report submitted to the Housing and Technical Resources Committee of 21 January 2026 is provided for information. 4 Employee Implications 4.1 None. 5. Financial Implications 5.1. All financial implications have been highlighted as part of the original report to the meeting of the Housing and Technical Resources Committee. 6. Climate Change, Sustainability and Environmental Implications 6.1. The impact which capital investment will have upon climate change and sustainability is appropriately considered through Housing and Technical Resource’s approach to project design, procurement, project management and delivery. Works will be progressed in such a way to support a positive impact on the environment. Details will be captured within the Integrated Impact Assessment (section 10), with appropriate mitigation actions noted where any potential negative impact is identified. 7. Other Implications 7.1. The risks associated with this report are in relation to the Council’s ability to collect rents and charges following the increases. These risks have been assessed and added to the Resource Risk Register. 7.2. Social landlords, such as the Council, are required to submit an Annual Assurance Statement to the Scottish Housing Regulator. This provides assurance that the organisation is compliant with the relevant requirements of Chapter 3 of the Regulatory Framework, all relevant standards and outcomes in the Scottish Social Housing Charter and all relevant legislative duties. The content of this report will contribute to the evidence to support this Statement. 8. Integrated Impact Assessment and Consultation Arrangements 8.1. An Integrated Impact Assessment has been completed for the Housing Revenue and Capital Account Budget 2026/2027 which included assessing potential impact of the proposed rent levels for 2026/2027. The Integrated Impact Assessment can be accessed via this link. 8.2. In addition, an Integrated Impact Assessment has also been completed as part of the development of the South Lanarkshire Strategic Housing Investment Plan 2026- 2031. The Integrated Impact Assessment can be accessed via this link. It identified that increasing the provision of additional affordable homes (including those built and funded by the council) will:- have a positive or neutral impact in relation to protected characteristics have a positive socio-economic impact have a positive impact on child poverty have a neutral environmental impact through the increase in number of homes with increased energy efficiency and zero direct emission heating systems 8.3. The Budget Scrutiny Group (BSG) provides the main vehicle for discussion between the Council and tenant representatives on the housing budgetary process and the financial challenges and opportunities facing Housing Services. Each year, the Council and the BSG work together to develop and co-ordinate the consultation programme on setting council rent levels for the year ahead. 5
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8.4. This year’s consultation programme followed a similar approach to previous years, with the main focus on an on-line survey, open to all Council tenants and widely promoted via the South Lanarkshire View, the Housing news digital newsletter and through the Council’s social media channels. In addition, other engagement opportunities were held including, focus group meetings with homelessness service users, engagement with tenants living in sheltered housing developments, Gypsy/Traveller residents and contact with tenants via email and text, seeking views and encouraging completion of the survey. A ‘Conversation Café’ event, facilitated by the South Lanarkshire Tenant Development Support Project, was also held in the Town House, Hamilton on 9 December 2025, providing the opportunity for tenants to discuss the rent proposal and investment priorities in more detail. 8.5. During the consultation, the BSG and Tenant Participation Co-ordination Group (TPCG) participated in open discussions with senior Council Officers on key issues and challenges facing the Council, including the ongoing economic uncertainty and impact of the cost-of-living-crisis, increased costs associated with delivering front line services and the Council’s commitment to ensuring rents remain affordable. 8.6. A summary of the feedback received from the TPCG/BSG is provided below:- the range of challenges facing the Council in delivering services was recognised it was recognised that the continuing economic uncertainty presents challenges for the Council in relation to delivering investment and new build programmes the group were supportive of the proposed 6.5% rent increase being applied for the second year and of the Council’s commitment to rents remaining affordable the group were also supportive of the introduction of a 15% premium on new build properties let on, or after 1 April 2026 the group welcomed the ongoing range of supports available from the Council to tenants experiencing financial difficulties 8.7. Feedback received from the engagement that took place with tenants and the on-line survey is set out below:- 1,801 surveys were completed during the consultation there was strong agreement from respondents that the proposed investment priorities are the right ones the BSG and those who took part in focus groups and other engagement opportunities were broadly supportive of a 6.5% rent increase for the third year. 55% of respondents to the on-line survey supported the rent level to be increased by 6.5%, in line with the commitment to the 3-year agreement 57% of respondents were supportive of the proposal to add a 15% premium to new build rent levels, effective from 1 April 2026 Paul Manning Chief Executive 4 February 2026 Link(s) to Council Values/Priorities/Outcomes Good quality, suitable and sustainable places to live Accountable, effective, efficient and transparent 6
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Previous References Executive Committee of 4 February 2026 and Housing and Technical Resources Committee of 22 January 2026, Housing Revenue and Capital Account Budget 2025/2026 Housing and Technical Resources Committee of 17 December 2025, Strategic Housing Investment Plan 2026 to 2031 List of Background Papers None Contact for Further Information If you would like to inspect the background papers or want further information, please contact:- Susan Somerville, Administration Manager Ext: 4197 (Tel: 01698 454197) E-mail: susan.somerville@southlanarkshire.gov.uk 7
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Report Agenda Item Report to: South Lanarkshire Council Date of Meeting: 25 February 2026 Report by: Executive Director (Finance and Corporate Resources) Subject: Overall Position of Revenue Budget and Level of Local Taxation for 2026/2027 1. Purpose of Report 1.1. The purpose of the report is to: update the Council on the 2026/2027 Budget Settlement position, and the 3 Year Budget Strategy. This report will also present a Revenue Budget for 2026/2027, 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 3 Year Budget Gap of £41.301 million including the impact of the Local Government Settlement (section 4.11), be noted; (2) that the amount of savings and the level of Council Tax as detailed in section 5, be considered; (3) that the options for use of one-off Investment monies in the 2026/2027 Budget (detailed in section 6), be considered; (4) that the assumptions detailed at paragraph 7.2, used to arrive at the balanced Budget presented in section 7, be noted; (5) 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; (6) that the potential impact of savings beyond 2026/2027 (section 9), be noted; (7) that the Revenue Budget for 2026/2027, including the base budget allocations to Resources, as shown in Appendix 2 be approved, subject to Members’ decision on recommendations 2 and 3, and (8) 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 2026/2027 to 2027/2028 Revenue Budget Strategy was presented to the Executive Committee in June 2025. This paper focussed on the medium-term Strategy in place covering the years 2026/2027 and 2027/2028, highlighting a Budget Gap of £24.273 million which could increase to £42 million due to assumed pay award estimates at that point. 3 9
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3.2. Subsequent to this, an update report on the 2026/2027 to 2027/2028 Revenue Budget Gap and Savings Proposals for 2026/2027 was presented to Members (Executive Committee, 5 November 2025), which revised the 2-year Budget Gap to £36.315 million. 3.3. On Tuesday 13 January 2026, the Council received its grant settlement for Revenue and Capital (the Local Government Settlement). This will impact on the Budget Strategy for 2026/2027. 3.4. This report will cover the main elements of the Budget Process to date including an update to the 2026/2027 Revenue Budget Strategy including the impact of the Local Government Settlement (section 4), options to address the Budget Gap for 2026/2027 (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 2026/2027. 3.5. 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 2026/2027. 4. 2026/2027 Revenue Budget Strategy – inc. Local Government Settlement 4.1. The Council received the Local Government Settlement on 13 January 2026. A further update was provided on 30 January 2026 reflecting agreed distribution changes. This formally detailed our grant allocations for 2026/2027. While the Settlement is still under consideration by Parliament, and further updates may be received which change the Council’s position, it is the best information available at this point. 4.2. The base grant position for 2026/2027 was a cash increase of £52.417 million compared to 2025/2026. However, to give a like for like, year on year comparison, adjustments need to be made. In simple terms, the cash increase is £52.417 million but the adjustments take this to a year on year / like for like increase in grant of £12.912 million. The Council’s Budget Strategy assumed a Grant reduction of £2.000 million in 2026/2027 therefore the increase in grant of £12.912 million is a benefit of £14.912 million to the Budget Strategy. 4.3. As well as the position on Grant, there are other budget areas that require to be considered when looking at the overall position of the Budget. These are taken in turn below: 4.4. Strathclyde Partnership for Transport (SPT) 2026/2027 Requisition: In line with the 2026/2027 General Revenue Grant Increase, the SPT Requisition for 2026/2027 will increase (permanent increase of £0.148 million from 2026/2027). 4.5. Local Growth Fund: The Council has been notified of its Revenue Budget allocation of Local Growth Fund (LGF) monies for the years beyond 2025/2026. This Revenue allocation will be used to fund projects previously funded by the Shared Prosperity Fund, which included a number of the Council’s employability programmes. From 2026/2027, the LGF Revenue allocation is lower than the previous year’s funding by £1.150 million. Using the LGF money as well as budget carried forward from 2025/2026, we are able to maintain the 2026/2027 programme of works, including employability, at the same level as before. However, in order to keep spend at the same level into future years, an allocation of £1.150 million has been added to the budget in 2027/2028. 10
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4.6. The Council’s Capital allocation of the Local Growth Fund will be decided at a City Region level. Members will be advised when this is confirmed by the Glasgow City Region. 4.7. Breakfast Clubs: The Scottish Government budget includes an allocation of additional funding to expand breakfast provision in schools (national allocation of £15 million in 2026/2027 rising to £44 million in 2027/2028). This has not yet been allocated to councils, but the Council could expect to receive an estimated £0.900 million in 2026/2027. 4.8. While the policy ask has not yet been confirmed, the Council already offers breakfast clubs in all primary schools, therefore it is proposed that the Council could take advantage of the full amount expected in 2026/2027. This would improve the Budget position by £0.900 million in 2026/2027. Any additional funding in 2027/2028 will be considered when that is confirmed. 4.9. Real Living Wage: Following engagement with COSLA, the Scottish Government have announced their intention to amend the Budget Bill at Stage 2, and to allocate a further £20 million of funding to the Local Government Settlement. This will take the total funding allocated to the level required to fully meet the uplift in the Real Living Wage across adult social care, children’s social care and early learning and childcare. 4.10. The Council has not been made aware of any allocations as yet, and Members will be advised when these are received. At present, this has no impact on the Budget proposed. 4.11. To illustrate the impact of the Settlement on each year of the Budget Strategy, Table 1 takes the Budget Gap for each year (reported to the Executive Committee in November 2025) and shows the initial impact of the Settlement and related adjustments on the Budget Gap. The 2028/2029 indicative Budget Gap has also been added to show the position over the next three years (also reported in Appendix 2 to the Executive Committee in November 2025). Table 1: Revised Total Budget Gap After Local Government Settlement 2026/27 £m 2027/28 £m 2028/29 £m Total £m Budget Gap (Executive Committee, November 2025) 14.146 22.169 19.500 55.815 2026/2027 Settlement Benefit (14.912) - - (14.912) 2026/2027 Increased SPT Requisition 0.148 - - 0.148 2026/2027 Breakfast Club Funding (0.900) - - (0.900) 2027/2028 Local Growth Fund (Revenue) - 1.150 - 1.150 Revised Budget Gap / (Surplus) – before Savings and Council Tax (1.518) 23.319 19.500 41.301 4.12. Table 1 presents a three-year Budget Gap of £41.301 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 3 years. 4.13. Social Work Integrated Joint Board (IJB): The Council’s proposed Revenue Budget for 2026/2027 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. 11
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4.14. The 2026/2027 Settlement includes the impact of a number of Social Care distribution changes. The Settlement Benefit of £14.912m (section 4.2) is after we have taken into account the net impact of these distribution changes which has resulted in an allocation of £2.3 million to the IJB for 2026/2027. 5. Options to Balance the Budget in 2026/2027 5.1. Table 1 shows a Surplus position of £1.518 million for 2026/2027, however assuming flat cash moving forward as indicated in the Scottish Government Spending Review published on 13 January 2026, there is a significant Budget Gap across 2027/2028 and 2028/2029 (£23.319 million and then £19.500 million respectively). This is before any savings have been approved or any increase in Council Tax. 5.2. Given the Budget Surplus in 2026/2027, Members are able to consider investment opportunities to that level (£1.518 million). The Budget proposed by officers assumes that this is used for one-off investment and that this Surplus is used to reduce the Budget Gap into 2027/2028. 5.3. There are other options available for Members’ consideration which could allow further investment and where we can prudently consider the Budget Gap in the longer term, especially when we are in an environment of flat cash funding moving forward: • to approve savings proposals from the savings package presented in the 2026/2027 to 2027/2028 Revenue Budget Gap and Savings Proposals for 2026/2027 (section 5.5 to 5.8), and • to consider the Band D Council Tax level (sections 5.9 to 5.11). 5.4. Each of these is taken in turn. 5.5. Savings Proposals: Budget savings totalling £8.314 million had been proposed for Members’ consideration as detailed in the 2026/2027 to 2027/2028 Revenue Budget Gap and Savings Proposals for 2026/2027. 5.6. An additional £0.242 million of Procurement savings have since been identified through the ongoing Procurement Review. 5.7. In addition, as a result of additional funding to expand breakfast provision in schools (section 4.5 and 4.6), saving EDR02 which proposes introducing charging for Primary School Breakfast Clubs, and which totals £0.350 million in 2026/2027 and a further £0.210 million in 2027/2028, can be removed from the pack as this service is now being funded by the Scottish Government. 5.8. Revised budget savings of £8.206 million for 2026/2027 are therefore proposed for Members’ consideration in Appendix 1. This total includes Management and Operational Savings of £3.938 million along with Resource savings proposals of £4.268 million for consideration. These savings would help reduce the Budget Gap over the longer term, be used for further investment in services or allow for more one-off expenditure. 5.9. Council Tax: As previously detailed in the Budget Strategy report to Executive Committee on 5 November 2025, each 1% increase in Band D would generate successive amounts of £1.718 million, towards meeting the 2026/2027 Budget Gap. In arriving at the Budget Gap (section 4.7), no account has been taken of any increase in Council Tax. 12
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5.10. The impact of a range of percentage increases is shown in Table 2, as an illustration. Table 2 – Council Tax Increases Percentage Increase Band D Council Tax £ Annual Increase £ Monthly Increase (over 10 Payments) £ Decrease in Budget Gap £m 0% 1,378.85 - - - 1% 1,392.64 13.79 1.38 1.718 5% 1,447.79 68.94 6.89 8.590 6% 1,461.58 82.73 8.27 10.310 8% 1,489.16 110.31 11.03 13.740 10% 1,516.74 137.89 13.79 17.180 12% 1,544.31 165.46 16.55 20.620 5.11. It should be noted that South Lanarkshire has the lowest level of Band D Council Tax in Scotland at £1,378 for 2025/2026. The Scottish Average for Band D in 2025/2026 is £1,543, meaning the Council is 12% below the Scottish Average. Moving to the Scottish average over time (based on 2025/2026 levels this would be a 12% increase) could mean additional spending power of over £20 million per annum which could reduce future Budget Gaps, allow for further investment in services or for one off spend. 6. Funds Available for One-off Investment 6.1. As well as the Budget Surplus noted as a one-off investment opportunity (section 5.2), the following one-off funding is available for use for one-off investments or to reduce the Budget Gap from 2027/2028 (with a requirement to re-instate the following year). 6.2. Packaging Extended Producer Responsibility (pEPR) 2026/2027: The release of core Council budget of £7.865 million in 2026/2027 (based on indicative pEPR funding for 2026/2027) means this is available on a one-off basis for that year. No information is known beyond 2026/2027. It is not clear if the future settlement will be reduced in subsequent years. 6.3. Teacher Numbers / Reduction in Class Contact Time (RCCT) 2026/2027: As previously reported (Executive Committee, November 2025), the £4.2 million of Council budget that had been earmarked to manage the cost of reinstating teacher numbers to the 2023 level was no longer required. This funding is still available in the Council’s Budget. 6.4. National discussions on RCCT are ongoing and reducing the amount of time that a teacher is in the classroom would mean a requirement for additional teachers to be brought into the system. This would have financial implications for councils including South Lanarkshire Council. Cosla and local government are engaged with the Scottish Government on this matter, and local government have made it clear that funding would have to be provided by the Scottish Government. If the Scottish Government do not fully fund the cost of RCCT then the savings that the Council has to make are higher that they would be if funding is provided. Timescales and expectations for RCCT are still to be confirmed but the core budget held by the Council (£4.2 million) can be taken as a one-off benefit in 2026/2027. 13
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6.5. 2025/2026 Core Funding Underspend (due to pEPR): On 5 November, the Executive Committee agreed the use of one-off funding of £4.5 million to manage the Budget Gap. It could be used to support the Budget Gap. 6.6. 2025/2026 Probable Outturn Underspend: As part of the Revenue Budget Probable Outturn report to Executive Committee on 4 February, there is a general underspend forecast for the year. It was agreed that £1.739 million be transferred to reserves for budget considerations in future years. 6.7. Taking account of these one-off monies means there is the ability for Members to consider options for one-off investment totalling £18.304 million. This is available for both Revenue or Capital expenditure. These monies are one-off and are therefore not available for recurring investments. If savings are taken, and Council Tax increased, they could reduce future Budget Gaps, allow for further investment in services, or be used for further one off spend. 7. Total Revenue Budget Summary 2026/2027 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 (as noted in section 4.12), means that the total proposed Budget for 2026/2027 is now £1,069.307 million. 7.2. For the purposes of this paper, in arriving at this position, the following has been assumed: that no savings or increase in Council Tax have been used to balance the Budget, that this position includes £1.518 million in relation to the 2026/2027 Budget Surplus earmarked for one-off investment in 2026/2027 (section 5.2), that none of the one-off funding (section 6.7) has been assumed. 7.3. The detailed allocation of the budget to each Resource is shown at Appendix 2. The main figures from Appendix 2 are summarised below: Summary of Council Budget 2026/2027 Current Year Base Budget £m 2026/2027 Proposed Budget £m 1,252.834 Total Services’ Gross Expenditure (Appendix 2, page ii) 1,352.300 (329.590) Deduct: Total Services Gross Income (Appendix 2, page ii) (329.846) 923.244 Net Service Spending 1,022.454 54.194 - 22.957 18.750 Add: Loan Charges Add: CFCR Add: Corporate Items inc. Service Concession Add: One-off Investments 48.694 0.310 (3.669) 1.518 1,019.145 Net Expenditure 1,069.307 7.4. Table 3 shows how this 2026/2027 budget is funded, resulting in the net Sum Funded by Council Tax, £173.323 million. 14
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Table 3: Net Sum Funded by Council Tax Indicative Budget for 2026/2027 (Appendix 2) £1,069.307m Deduct: Government Grant (£876.284m) Deduct: Use of Reserves / Underspends in the Budget Strategy (£19.700m) Resultant Net Sum to be Funded Locally from Council Tax £173.323m 7.5. The 2026/2027 net Council Tax figure comprises the 2025/2026 budget of £171.823 million, increased to reflect the additional property numbers included in the Strategy (£1.500 million). It assumes no year-on-year increase in Council Tax Band D (section 7.2). 7.6. The Net Sum Funded by Council Tax (£173.323 million) is detailed in Table 4, showing the Council Tax Budget for the year 2026/2027. Table 4 also shows the estimated amount of income for each £1 of Gross Council Tax. Table 4: 2025/2026 Council Tax Budget Gross Council Tax 2026/2027 £198.099m Deduct: Council Tax Reduction Scheme (£24.776m) Resultant Net Sum to be Funded Locally from Council Tax £173.323m Estimated Product of £1 Gross Council Tax at 97.125% collection £143,670 7.7. Should the Council approve the budget for 2026/2027, then the Band D Council Tax for 2026/2027 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. 7.8. 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 5): Table 5: 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 2026 £27,000 and under A 67% 22.35% £27,001 to £35,000 B 78% 19.19% £35,001 to £45,000 C 89% 16.87% (Total A to C: 58.41%) £45,001 to £58,000 D 100% 14.20% £58,001 to £80,000 E 131% 13.23% £80,001 to £106,000 F 162% 9.13% £106,001 to £212,000 G 196% 4.66% Over £212,000 H 245% 0.37% 15
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7.9. The Council’s declared tax will be at the Band D level but only around 22,900 properties (14.20%) are in band D. Over the past few years, there has been an upward movement in the valuation of properties. However, approximately 58.41% 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. 7.10. The number of houses in the tax base for South Lanarkshire exceeds 161,700 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 £147,923. 7.11. 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. 7.12. A yield of £143,670 for £1 tax at Council Tax Band D has been used in the 2026/2027 budget (an increase on 2025/2026 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 latest update on the grant settlement on 30 January 2026, 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 12 to 20 February. The final Debate on the Local Government Finance Order takes place on 25 February 2026. Any update from this debate will be provided to Members as appropriate. 8.2. The Council has a statutory requirement to set its Council Tax by 11 March 2026. 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 30 January 2026. 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 3 March 2026. 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 2026/2027 – Impact of Savings 9.1. This paper focuses on financial year 2026/2027, however 3 savings presented in Appendix 1 totalling £0.422 million would have an impact on future years’ financial position: M&O03 Organisational and Management Structures Review (£0.124 million), M&O08 Customer Engagement Review (£0.038 million) and CER11 Building Cleaning (Schools) (£0.260 million). 16
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10. Employee Implications 10.1. Any employee implications arising from the savings proposed in Appendix 1 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. 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 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. 14. Integrated Impact Assessment and Consultation Requirements 14.1. The annual Budget Consultation exercise was carried out across November through January 2026. It considered the proposed savings for 2026/2027 as well as the level of Council Tax to be set for the coming year. The results of this Consultation have been passed to Members for their consideration, and will also be published on the council’s website following budget approval. It will be made clear in public communications, including www.southlanarkshireview.scot how the consultation impacted on the decisions that are subsequently taken by Members. 17
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14.2. Integrated Impact Assessments were initially prepared in November 2025 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 referred to in section 14.1. 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 at the following link Plans and policies - South Lanarkshire Council. Jackie Taylor Executive Director (Finance and Corporate Resources) 4 February 2026 Link(s) to Council Values/Priorities/Outcomes Accountable, Effective, Efficient and Transparent Previous References Executive Committee, 25 June 2025 Executive Committee, 5 November 2025 List of Background Papers Local Government Finance Circular 1/2026 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 18
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Appendix 1 Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m M&O01 All Procurement Review 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 2026/2027 budget strategy. The total savings proposed for 2026/2027 is £1.043 million. The opportunities are outlined below: Proposal Savings £m Proposal Savings £m Boilers and Radiators 0.016 Nitrile Gloves 0.016 Postal Services 0.026 Purchase Card Rebate 0.020 Translation Services 0.006 Timber 0.371 Purchase Card Rebate 0.055 Water 0.020 Homeless Property Cleaning 0.090 Disabled Adaptation Products 0.010 Housing Property Cleaning and Clearance 0.120 Street Lighting 0.007 Construction Wallboard 0.022 Education Apps 0.022 Furniture 0.039 Food pricing 0.002 Catering Disposables 0.015 Catering sundries 0.007 Ice Melt 0.004 Purchase Card Rebate 0.027 Electrical Materials 0.029 Lighting Materials 0.040 Electrical Materials (Cable) 0.079 Total 1.043 - 1.043 19
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Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m M&O02 All Overtime Review 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 while considering the approach to service delivery, savings of £0.991 million can be realised in 2026/2027. This is summarised across Resources in the table below. Resource / Service 2026/2027 Saving Community and Enterprise 0.397 Education 0.205 Finance and Corporate 0.056 Housing and Technical 0.277 Social Work 0.056 Total 0.991 - 0.991 20
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Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m M&O03 All Organisational and Management Structures Review 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 £0.900 million in 2026/2027 with a further £0.124 million achievable in 2027/2028. It is anticipated that this will affect 21 employees. 21.0 0.900 M&O04 All Council Charges In line with forecast inflation, a 3.3% increase on all Council charges is proposed. This would generate additional income of £0.290 million and would mean a 3.3% increase on all charges that the Council is able to change (including charges for Adults and Older People Non-residential Services). £0.200 million of the saving will be retained by the Council and the balance of £0.090 million, generated by Adult and Older People Services, will be retained by the IJB and will be used to support the IJB Financial Plan for 2026/2027. - 0.200 21
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Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m M&O05 SLLC South Lanarkshire Leisure and Culture Utilities Recent data shows the continuation of the downward trend in utility prices in 2025/2026. 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 for energy purchased for the next couple of years indicates further price reductions beyond that assumed for 2025/2026. This allows an estimated saving of £0.500 million in 2026/2027 in relation to South Lanarkshire Leisure and Culture utility costs. - 0.500 M&O06 Planning and Regulatory Annual Increase to Planning and Building Warrant Fees Through the realignment of income budgets to reflect current fee income being received a saving of £0.122 million is achievable in 2026/2027. In addition, through a new industry measurement to determine costs of construction works, which then determines the payable fees for Building Warrants, and statutory increases to fees generated through Planning Applications (increase of 3%) and Building Warrants (increase of 10%), income of £0.050 million will be generated in 2026/2027. - 0.172 22
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Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m M&O07 IT Digital Transformation Review This review will generate efficiencies by ensuring resources are suitably deployed to priority projects across Resources. The three key areas of consideration are: - Business Systems & Processes: projects and improvements to key corporate and line of business applications. - Workforce Productivity: focus on enabling and empowering staff to maximise their effectiveness and digital literacy. - Customer Engagement: clear & consistent Council-wide customer engagement. (Separate Review) The majority of savings from this review are anticipated in future years. A saving of £0.030m is achievable in 2026/2027 and is the result of the refresh of the website technology contract. - 0.030 23
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Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m M&O08 Finance - Transactions Customer Engagement Review The organisational structure used to deliver customer services across the Council is being assessed. This will consider opportunities for ways to improve customer service, resilience and the delivery of efficiencies. The review is expected to deliver efficiencies across Resources from improvements expected to be made to customer contact processes and systems across the Council. In addition, the review of service structures is expected to add to the efficiencies. The movement of the Benefits and Revenues call centre to Customer Services and the financial benefits expected to follow from a streamlining of the management structure and a greater pooling of the call handling resource will allow efficiencies to be achieved. 1 FTE call services assistant will be removed from April 2026 and 1 FTE team leader post from January 2027. Savings of £0.048m are therefore achievable in 2026/2027 with a further £0.038m in 2027/2028. A higher level of efficiencies is expected to be generated from the following areas of activity over the medium term: • Structural change • Process review • Review of email usage • Introduction of new technologies • Standardisation 2.0 0.048 24
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Management & Operational Savings Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m M&O09 Personnel Development Team Through a reduction in the staffing structure of the Development Team of 1.4 FTE, savings of £0.054m are achievable in 2026/2027. 1.4 0.054 Total Management & Operational Savings 24.4 3.938 25
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Savings for Approval Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £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. - 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 0.525 26
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Savings for Approval Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m 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 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 0.290 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 0.264 27
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Savings for Approval Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m CER07 Roads, Transportation and Fleet Precautionary Footway Gritting (Re-presented) 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. 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. - 0.300 CER08 Roads, Transportation and Fleet Carriageway Gritting (Re-presented) 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. - 0.130 28
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Savings for Approval Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m 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%). CER09 Roads, Transportation and Fleet Grit Bins (Re-presented) 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 29
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Savings for Approval Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m CER10 Facilities, Waste and Grounds Grounds / Grass Cutting (Re-presented) 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 £1.050m in 2026/2027. 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. 36.0 1.050 30
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Savings for Approval Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m This saving will mean an estimated reduction of 36 FTE (impacting up to 72 employees). CER11 Facilities, Waste and Grounds Building Cleaning (Schools) (Re-presented) 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 employees (314 FTE) 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. 25.0 0.260 31
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Savings for Approval Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m South Lanarkshire Family Group National Primary school 208 174 190 High school 246 205 197 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 £0.520m phased over a 2-year period (£0.260m in 2026/2027 and £0.260m in 2027/2028), reflecting the implementation from August 2026. 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. 32
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Savings for Approval Community & Enterprise Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m CER12 Planning and Regulatory Planning – Introduction of Charges Within the Planning & Regulatory Service, charges will be introduced for a range of new discretionary advice and support services from 1 April 2026 for Planning and Building Standards. These Pre-application advice services will be tailored in the form of tiered packages dependent on scale and complexity of the proposed development based largely on the statutory Hierarchy of Development as defined in legislation and aligning with our adopted Scheme of Delegation. The different packages will include combinations of written responses, meetings and site visits. This approach is considered appropriate to provide income for the pre-application enquiry service, which is currently provided free of charge. The pre application advice will cover requests for advice and support for minor household development through to major applications and charges will range from £0.001m to £0.010m dependant on the level of advice sought. Service Level commitments will be prepared so that potential developers are aware of the charges and the extent to which access would be provided to Council Officers. It is anticipated that additional income of £0.100 million will be generated through these new commercial charges. - 0.100 Total Community and Enterprise Resources 91.5 3.121 33
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Education Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £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 £3.4m. 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 £17.96 primary, £86.35 secondary, £686.67 ASN and £63.19 ELC based on census 2024 pupil numbers. - 0.480 EDR03 Secondary Instrumental Music Service (IMS) (Re-presented) 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. 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. 3.0 0.184 EDR04 YFCL Youth, Family and Community Learning (YFCL) Through its review, the Youth, Family and Community Learning (YFCL) Service has identified service improvements and efficiencies while maintaining high standards of delivery and ensuring equitable access and outcomes for young people, adults, and families. The scope of the review took account of the entire remit of YFCL across South Lanarkshire and the activity of Terminal One in the communities of Blantyre, Burnbank and Hillhouse. The review 9.0 0.465 34
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Education Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m highlighted areas of the service that could be better aligned to locality-based models and areas of the service that were operating with particular success such as Pathfinders. The review also identified a need to enhance the current locality-based models across all YFCL services, strengthening community-based provision. Additional funding from Education will support increased investment and expansion of the Pathfinder model on a permanent basis across all 17 learning communities. A restructure of temporary officer and worker posts will take place with the reduction of temporary 9 FTE across the Service. This will realise efficiency savings for the Service but will also allow for significant investment in Terminal 1 within the Blantyre area, ensuring service provision remains of a high standard within this area. Service provision will continue to align in future years to locality planning models, enhanced by the permanent investment in the Pathfinder model. Total Education Resources 12.0 1.129 35
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Housing & Technical Resources Reference Service Name and Brief Description of Saving FTE (26/27) Saving 26/27 £m HTR01 Housing Community Safety Partnership Contribution (Re-presented) 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 2025/26 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 2026/2027, 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 - 0.018 36
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Total Savings FTE £m Management & Operational Savings 24.4 3.938 Savings for Approval Community & Enterprise Resources 91.5 3.121 Education Resources 12.0 1.129 Finance & Corporate Resources - - Housing & Technical Resources - 0.018 Social Work Resources - - Savings for Approval (before Council Tax) 103.5 4.268 Total Savings (before Council Tax) 127.9 8.206 37
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Appendix 2 Page (i) South Lanarkshire Council 2026/2027 Revenue Budget Summary 2025/26 Base Budget 2026/27 Rollover 2026/27 Proposed Base Budget £m £m £m Community and Enterprise Resources 127.681 18.065 145.746 Education Resources 495.910 42.141 538.051 Finance and Corporate Resources 39.797 8.334 48.131 Housing and Technical Resources 12.182 2.026 14.208 Social Work Resources 246.045 28.398 274.443 Joint Boards 1.629 0.246 1.875 Total of all Resources plus Joint Boards 923.244 99.210 1,022.454 Other Budget Items: Loan Charges 54.194 (5.500) 48.694 CFCR - 0.310 0.310 Corporate Items inc. Service Concession 22.957 (26.626) (3.669) One-Off Investments 18.750 (17.232) 1.518 Total Base Budget 2025/2026 1,019.145 Total Proposed Budget 2025/2026 50.162 1,069.307 38
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Appendix 2 Page (ii) South Lanarkshire Council 2026/2027 Revenue Budget Summary 2025/2026 Base Budget 2026/2027 Proposed Base Budget £m £m Budgetary Category Employee Costs 642.167 721.911 Property Costs 67.484 68.362 Supplies and Services 64.198 62.809 Transport and Plant Costs 47.717 48.738 Administration Costs 14.876 15.533 Payments to Other Bodies 70.372 70.896 Payment to Contractors 270.999 287.982 Transfer Payments (Housing & Council Tax Benefit) 72.480 73.524 Financing Charges (Leasing Costs) 2.541 2.545 Total Expenditure 1,252.834 1,352.300 Total Income (329.590) (329.846) Net Expenditure 923.244 1,022.454 Other Budget Items: Loan Charges 54.194 48.694 CFCR - 0.310 Corporate Items inc. Service Concession Annual Benefit 22.957 (3.669) One-Off Investments 18.750 1.518 Total Base Budget 2025/2026 1,019.145 Total Proposed Budget 2026/2027 1,069.307 39
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Report Agenda Item Report to: South Lanarkshire Council Date of Meeting: 25 February 2026 Report by: Executive Director (Finance and Corporate Resources) Subject: 2026/2027 Capital Programme Update and Future Capital Investment Strategy 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 2026/2027, reflecting the spend requirements identified by Resources and the availability of funding, and Propose a Capital Investment Strategy that will help shape future annual Capital Programmes. 2. Recommendation(s) 2.1. The Council is asked to approve the following recommendation(s):- (1) that the 2026/2027 proposed Capital Programme totalling £105.247 million (section 5.1), and detailed in Appendix 2, be approved; (2) that the long-term major Capital Investment Strategy (Section 6), and detailed in Appendix 3, be noted; (3) that the Council has considered the CIPFA Capital Framework when setting the principles underpinning the Capital Investment Strategy (Section 9 and Appendix 4), be noted; and (4) 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 (section 14), be noted. 3. Background 3.1. A proposed capital programme for 2026/2027 has been drafted for consideration by Members. This takes consideration of the funding available, presented in section 4, and includes details of the Council’s grant allocations received as part of the Local Government Finance Settlement received on 30 January 2026. 3.2. The proposed programme is presented in section 5. This programme includes major capital investment plans funded by Council Investment programme agreed at previous Budget meetings, as well as agreed City Deal/Developer Contribution funded projects, and core projects proposed for 2026/2027. 3.3. Further areas of future capital investment are outlined in section 6. 3.4. Section 7 provides a summary of the proposed 2026/2027 Capital programme with future potential projects detailed in Section 8. 4 41
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3.5. Finally, section 9 provides an update on the principles underpinning the Capital Investment strategy in line with the main requirements of the Prudential Code. 4. 2026/2027 Capital Programme – Funding Available 4.1. The starting point for developing a capital programme is identification of the funding available. The Council has been advised of General Capital Grant funding of £20.951 million. 4.2. To maintain levels of Capital funding for 2026/2027 in line with previous years, we are transferring an amount of £0.311 million from Revenue taking our overall Grant funding to £21.262 million. This reflects the impact of a change in the approach to grant distribution between Revenue and Capital as part of our Settlement. 4.3. As part of the Local Government Settlement, there is still £120.3 million General Capital Grant and £7.6 million Specific Grant, undistributed nationally. This includes the following:- Climate Emergency (£20.0 million) - allocation to be advised Active Travel Tier 1 (£40.0 million) - allocation to be advised Assessors Portal (£2.7 million) - allocation to be advised for Lanarkshire Valuation Joint Board Vacant Derelict Land (£7.6 million) - allocation to be advised, however indicative allocation was £0.528 million. 4.4. The Council’s share of this funding has still to be confirmed, and this is not included in the General Capital Grant funding noted at section 4.1. The Council are likely to receive a share of Climate Emergency Fund, Active Travel Tier 1, Assessors Portal (LVJB) and Vacant Derelict Land monies. At this stage, no assumptions around how this will be spent have been made. 4.5. In addition to the funding from General Capital Grant and CFCR (Section 4.2), Capital Receipts totalling £4.500 million are available to fund 2026/2027 core projects. Previously approved funding for non-core projects includes Investments Funds, City Deal, Developer Contributions and external funding available for mixed-funded projects. This other funding totals £79.485 million. 4.6. The total funding available is therefore £105.247 million, this is shown in Table 1 and detailed in Appendix 1. This forms the funding package for the 2026/2027 Capital Programme. It is noted that this does not include slippage from previous financial years. This will be confirmed once the carry forward position from 2025/2026 is finalised. 42
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Table 1 – Funding Available Funding Source Total Funding Available (£m) General Capital Grant (see Section 4.1) 20.951 Capital Receipts 4.500 Borrowing – (Investments and Roads) 22.030 Borrowing (City Deal Grant – borrowing until grant received) 39.821 2025/2026 Investments – Transfer from Revenue Reserves 9.140 Transfer from Current Revenue (see Section 4.2) 0.311 Developers Contributions 1.912 Partners 6.582 Total Funding Available 105.247 5. Proposed 2026/2027 Capital Programme 5.1. Following identification of the funding, Appendix 2 attached proposes a Capital Programme for 2026/2027 totalling £105.247 million. Further information on these areas is detailed below and outlined in Appendix 2. 2026/2027 Core Projects 5.2. There are several core projects that form the basis of the proposed Capital Programme, as they have in recent years. 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. 5.3. Roads Carriageway and Associated Infrastructure: The total proposed allocation for 2026/2027 is £15.300 million. This is made up of the core programme of £9.5 million and the additional Roads Investment allocations of £1.8 million (in each of years 2024/2025 to 2027/2028 previously approved as part of the 2024/2025 Revenue Budget) and £4 million (in each of the years 2025/2026 to 2027/2028 approved as part of the 2025/2026 Council Capital Budget in February 2025). 5.4. Planned Asset Management: This budget is to maintain all of the Council’s new build General Services facilities (constructed since 2000), in a good condition and to a compliant standard. Projects and works will continue to be prioritised within the respective budget allocations from 2026/2027 and beyond. Planned Asset Management is retained at £4.3 million in 2026/2027. 5.5. Lifecycle Replacement: The first school completed under the Primary School Modernisation Programme opened during financial year 2004/05. This funding will allow the continuation of a programme of replacement for major elements of infrastructure during the next capital programme. The core budget has been increased from £0.5 million to £0.8 million in 2026/2027 to align with the proposed programme of works over the coming year. It is noted that this includes the requirement to replace stage lighting at 15 schools per annum for 8 years (£0.450 million pa), as the equipment is obsolete. They will only be replaced as and when they fail. 43
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5.6. Prioritised Urgent Investment: This a continuation of the previous model to earmark funding to meet any urgent/essential works that arise in Council properties. The budget has been proposed at £1.562 million for 2026/2027 to reflect additional flexibility for requests from Education for school adaptations as a result of the complex needs of children, particularly in the ASN environment. 5.7. Private Housing Scheme of Assistance: Housing provide mandatory grants for disabled adaptations in private homes and to encourage private owners in shared blocks to participate in the Housing Investment Programme of works. 5.8. Schools ICT Development: This represents a contribution towards the costs of delivering the Information and Communications Technology contract to schools. The cashflow for the contract has been reviewed with a greater requirement in earlier years identified given the hardware refresh programme (£2.400 million 2026/2027). While the Council is in a contract with the provider, the Capital programme will require to include the funding requirements each year over the 7 years of the contract. 5.9. IT Infrastructure (including Resources): Essential IT Infrastructure investment has been identified specifically for 2026/2027 and 2027/2028. As documented in the IT asset management plan, this includes infrastructure projects required to maintain business as usual, as well as security projects critical for maintaining operational resilience (£0.400 million per annum). In addition, a project allocation will be required to be considered for the data centre contract renewal (£1.5 million in 2027/2028). 5.10. Larkhall Leisure Centre: This proposed Capital Programme includes 2026/2027 allocation of £10.071 million for Larkhall Leisure Centre, as previously approved, in line with the estimated profile of expenditure for the project which totals £27.8 million. 5.11. Other Core Projects: Other core projects identified include allocations to allow the implementation of the Ash Die Back Remediation action plan, to continue compliance with the inspection programme and subsequent remedial works for Headstones, and an allocation towards the Headquarters Heating Upgrade as reported to Executive Committee on 5 November 2025. The programme also includes the continuation of our previous support to the Clyde Gateway Regeneration Programme. 6. Priority Projects – Growing South Lanarkshire 2022 to 2030 6.1. In addition to core projects, the Council has major capital investment plans for the years to 2030. A graphic representing this investment is attached at Appendix 3 and is entitled ‘Growing South Lanarkshire’. This reflects the Council’s ambitious Capital Investment plans for the coming years. 6.2. The graphic representation shows the projects that are being undertaken over and above the core and priority projects within the Capital programme each year. This illustrates the extent of investment the Council has made and continues to make in our assets. 6.3. Included within the plans is the ongoing Lesure and Culture Transformation Fund of £13 million, funded by Council investment, with South Lanarkshire’s gyms, studios and other facilities undergoing an extensive refurbishment and upgrade programme. 6.4. Also included is Larkhall Leisure Centre at a cost of nearly £28 million, funded mainly through Council investment, which will be the biggest investment in a stand-alone facility the Council has built, outside of secondary schools. 44
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6.5. Other major projects include those utilising City Deal funding such as £30 million for active travel infrastructure improvements to public transport and low carbon vehicle infrastructure at Stewartfield Way and over £50 million for the East Kilbride Town Centre Masterplan with a mix of urban living and civic areas. 6.6. Overall, the plans show total spend of nearly £555 million (including spend on Housing) over the timeframe. As noted above, the graphic does not include the core programme of ongoing works that is approved every year at Council, so this will increase the total spend across these years, when approved. 7. Proposed 2026/2027 Capital Programme Summary 7.1. Taking into account the proposals covered in Section 5 (Core Projects) and the 2026/2027 projects included in the Growing South Lanarkshire 2022 to 2030 programme, a budget of £105.247 million is proposed for 2026/2027. A full list of the projects which make up this £105.247 million is detailed in Appendix 2. 7.2. As noted previously (section 4.6), this programme does not include carry forward projects from 2025/2026. This will be confirmed once the carry forward position from 2025/2026 is finalised following the financial year end. 8. Other Considerations for future Capital Programme 8.1. In addition to the funded and core projects, there are two further key investment areas identified that require to be considered in relation to capital investment in future years. Business cases will be considered as and when further information becomes available to facilitate future investment in these areas. These are taken in turn below. 8.2. Response to Industrial Market Challenges: In March 2022, the Scottish Government published its National Strategy for Economic Transformation. The Strategy’s inclusive growth aims will require investment in high productivity sectors. 8.3. In response to market demand for the supply of commercial land and property in the correct locations, the Council is currently directly delivering one project at Cathcart Road Rutherglen. There is a need to consider additional interventions including targeting existing industrial stock and the creation of services plots or units. 8.4. In light of the challenging funding environment, if the Council wishes to directly intervene in the market, it is likely it will have to finance much of the activity directly. Ideally any capital receipts from the disposal of industrial sites/properties would be recycled to continue to support this programme of investment. 8.5. Business cases will consider funding models. Options include, a ‘spend to save’ approach using borrowing to support the development activities. There is no assumption on this spend in the current capital programme, however, as noted in the February Executive Committee report, the aforementioned business cases will be developed during 2026/2027. 8.6. Investment in ASN Provision: Over the past ten years, there has been a steady increase in the number of children and young people with ASN and in the complexity of need. Almost all secondary aged children and young people with complex needs are educated within Sanderson and Rutherglen High Schools. Capital investment will be required within these schools, and others, to meet the needs of our children and young people with increasingly complex needs. Education Resource is currently reviewing requirements across the main ASN complex needs secondary schools 45
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(Sanderson and Rutherglen High Schools) to quantify the level of additional investment required. 8.7. An additional £0.200 million is included in the Prioritised Urgent Investment budget for 2026/2027 to reflect additional flexibility for requests from Education for school adaptations across schools in relation to external requirements e.g. Care Inspectorate, as a result of the complex needs of children, particularly in the ASN environment. This £0.200 million will allow prioritisation of needs as they arise throughout 2026/2027. 8.8. Further specific proposals for adaptations within ASN Secondary schools are being considered with updates to be provided to Members when available. 9. Key Highlights from the Capital Investment Strategy 9.1. The revised Prudential Code for Capital Finance in Local Authorities 2017 requires councils to produce a Capital Strategy. 9.2. 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 2026/2027 and are detailed in Appendix 4. 10. Employee Implications 10.1. There are no employee implications as a result of this report. 11. Financial Implications 11.1. Section 4 details the funding available in-year of £105.247 million with a breakdown included in Appendix 1. 11.2. A Capital Programme for financial year 2026/2027 totalling £105.247 million has been proposed in this report. Details as to how this Programme has been arrived at are shown in Sections 5 and 6. 12. Climate Change, Sustainability and Environmental Implications 12.1. 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 14. 13. Other Implications 13.1. The main risk associated with the Council’s Capital Investment Strategy is that there is insufficient funding available to undertake all of our investment requirements. 13.2. The Strategy proposed is based on the level of General Capital Grant anticipated for future years and assumes no increase from the current level of funding. Investment requirements, and the timing of that spend, will be aligned with this anticipated funding. 14. Integrated Impact Assessment and Consultation Arrangements 14.1. An Integrated Impact Assessment has been undertaken for the overall Council Capital Programme for 2026/2027. 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 here. 46
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Jackie Taylor Executive Director (Finance and Corporate Resources) 10 February 2026 Link(s) to Council Values/Priorities/Outcomes Accountable, Effective, Efficient and Transparent Previous References N/A 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 47
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Appendix 1 2026/2027 Capital Programme – Funding Available Funding Source Total Funding Available (£m) General Capital Grant 20.951 Capital Receipts 4.500 Borrowing (2024/2025 Investments) (note 1) 1.800 Borrowing (2025/2026 Investments) (note 2) 13.400 Borrowing (prior years carried forward) (note 3) 6.830 Borrowing (City Deal Grant – borrowing required until grant received) 39.821 Transfer from Revenue Reserves (2025/2026 Investments) 9.140 Transfer from Current Revenue (See section 4.2) 0.311 Developers Contributions 1.912 Partners 6.582 Total Funding Available 105.247 Note 1 - 2024/2025 Investments Roads – Approved 2024/2025 budget February 2024 Note 2 - 2025/2026 Investments – Approved 2025/2026 budget February 2025 Note 3 - Previously approved borrowing, carried forward from prior financial years 48
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Appendix 2 Proposed Capital Programme 2026/2027 2026/2027 £m Core and Priority Projects (sections 5.2 to 5.11) Schools ICT Development 2.400 IT Infrastructure 0.400 Private Housing Scheme of Assistance 1.000 Planned Asset Management 4.300 Prioritised Urgent Investment in Property Assets 1.562 Lifecycle Replacement – Schools 0.800 Road Carriageways and Infrastructure (Further Funding in Investment Projects) 9.500 Larkhall Leisure Centre (previously approved) (Further Funding in Other Projects) 4.000 Ash Die Back Remediation 0.200 Headstone Remedial Works 0.200 Clyde Gateway 0.800 Headquarters Heating Upgrade 0.600 Investment Projects (section 6) Estates Investment 12.000 Hamilton Town Centre Masterplan 4.400 Outdoor Pitches – Hamilton Palace Sports Ground 0.600 Overtoun Park Bandstand 0.040 Chatelherault/Calderglen Country Park Masterplans 0.900 Safe Routes 0.500 Lanark Interchange Park & Ride 0.500 Road Carriageways and Infrastructure (Further Funding in Core Projects) 5.800 City Deal/Developer Contributions Funded Projects (section 6) East Kilbride Town Centre Masterplan 11.741 Delivering and Enabling Commercial Space 5.000 Hamilton Junction Improvements 1.700 Secondary Schools 12.346 Stewartfield Way, East Kilbride 6.700 Merryton Roundabout Link Road 1.650 M74 Junction Slip Road Improvements 0.525 Other Multi Year Projects Carried Forward (section 6) Renewal of Play Parks 1.000 Leisure and Culture Transformation Fund 1.430 Three Rivers/Clydesdale Way 3.096 Clyde Gateway – Shawfield 3.486 Larkhall Leisure Centre (Further Funding in Core Projects) 6.071 Total Programme 105.247 Proposed use of 2026/2027 Funding (General Capital Grant, Capital Receipts and Revenue Contribution) Previously Approved Projects 49
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Appendix 3 50
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Appendix 4 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 considered 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 annually by the Executive Committee 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 monitors the longer-term cash flow planning, to ensure the Council can meet its capital spending obligations. The Treasury Management 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 is in place when considering capital investment. To mitigate risks associated with poor governance, there are appropriate governance arrangements in place for both the Capital Programme and Treasury Management processes. These are detailed below. i) Capital Programme Governance: The Capital Programme focusses on projects in line with Council priorities, new ways of working, the changing needs of our population and net zero commitments. The Council has an overarching Corporate Asset Management Plan as well as individual Asset Management Plans that cover our Properties, Information and Communication Technology (ICT), Fleet and Roads. There is a clear link between the Asset Management Plans and the projects included within the Capital Programme such as Estates Investment, Planned Asset Management, Roads and Carriageway Infrastructure, Schools ICT Development and IT Infrastructure. The Council’s governance and accountability arrangements fully support effective asset management. The Capital Programme is subject to approval by the Council and is reported throughout the financial year to the Executive Committee with any changes requiring Executive Committee approval. The Head of Finance (Strategy) and Head of Property Services monitor the delivery of the capital programme on a 4-weekly 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. 51
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The Council has a robust approach to working with partners and communities in managing assets. In relation to Community Asset Transfers, the Council supports and assesses community asset transfer requests and engages with community groups to support them to develop viable proposals. The council assesses requests transparently against criteria and they are reported to and approved by Housing and Technical Resources Committee as required. 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 MUFG Pension & Market Services as its Treasury Management Advisors. Treasury Management 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 Council’s planned capital investment shown in Appendix 3 provides an estimate of capital investment for the years to 2030. This is based on the information available at the time in relation to agreed programmes of work. This will be augmented by core projects as they are approved on an annual basis as part of the Budget Setting process. This report provides a proposed programme for 2026/2027 including the core projects for this year for approval, as well as the element of the previously approved projects (namely City Deal funded programmes of work). 52
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Report Agenda Item Report to: South Lanarkshire Council Date of Meeting: 25 February 2026 Report by: Executive Director (Finance and Corporate Resources) Subject: Prudential Indicators, Treasury Management Strategy and Annual Investment Strategy 2026/2027 1. Purpose of Report 1.1. The purpose of the report is to: [purpose] provide members with the Prudential Code indicators for 2026/2027 to 2028/2029, provide members with the Treasury Management Strategy for 2026/2027, and provide members with the Annual Investment Strategy for 2026/2027. [1purpose] 2. Recommendation(s) 2.1. The Council is asked to approve the following recommendation(s): (1) that the Prudential Code indicators for 2026/2027 to 2028/2029 are approved (section 4). (2) that the 2026/2027 Treasury Management Strategy is approved (section 5) (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. 5 53
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4.3. The Prudential Indicators for 2026/2027 to 2028/2029 are shown in Appendix 1 along with explanations for each indicator. An updated position for 2025/2026 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 2025/2026 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 2026/2027 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 2026/2027 included in our indicators is based on the aforementioned report, while for 2027/2028 and 2028/2029 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 2026/2027 is also presented to this meeting, following its endorsement by the Executive Committee on 4 February 2026. For financial years 2027/2028 and 2028/2029, 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 2025 and approved by the relevant resource Committees. 54
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2025/2026 Information and Communication Technology (ICT) Asset Management Plan presented to Finance and Corporate Resources Committee on 11 June 2025 Roads Asset Management Plan – 2025 Update presented to Community and Enterprise Resources Committee on 7 October 2025 Update on the Property Asset Management Plan 2021 to 2025 presented to Housing and Technical Resources Committee on 14 May 2025. 4.14. Work has commenced on updating the Fleet Strategy / Asset Management Plan. A paper will be presented to a meeting of the Community and Enterprise Resources Committee during 2026/2027. 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 2026/2027 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 £1,332.217m by the end of 2025/2026. 5.5. External debt includes an estimate of the liability of £324.109m that is included on the Council’s balance sheet for PPP programmes and leases under IFRS16 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 2026/2027 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. 55
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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 2026/2027 has been included at Appendix 3. 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 2025/2026. 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. (Section 10). 6.11. Credit Rating Agencies and Fund Management Companies apply Ethical, Sustainable and Governance (ESG) standards to their rating assessments and investments, so a degree of ethical scrutiny is already carried out on banks and money market funds. However, 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 ensure 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. 56
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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. 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. 57
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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. 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 29 January 2026 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 58
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Appendix 1 Prudential Indicators 2025/26 – 2028/2029 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 2025/2026 to 2028/2029 and attributes limits for external borrowing. Indicator 4 demonstrates the financial impact of the expected borrowing for the years 2025/2026 to 2028/2029 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 2025/2026 through to 2028/2029. The indicator takes account of the anticipated spend for 2025/2026 and 2026/2027. For 2027/2028 and 2028/2029, the Future Capital Investment Strategy has been used as the basis for the expenditure. 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m 2028/29 Estimate £ m General Fund Capital Expenditure 67.712 105.247 103.021 47.137 Funded by: Borrowing 19.037 61.851 78.589 18.099 Capital Receipts and Grants 45.687 33.945 24.432 29.038 Contributions from Reserves 0.000 0.000 0.000 0.000 Revenue Contributions 2.988 9.451 0.000 0.000 Total Funding 67.712 105.247 103.021 47.137 HRA Capital Expenditure 87.740 90.434 81.005 69.830 Funded by: Borrowing 21.061 31.389 24.000 18.000 Capital Receipts and Grants 31.046 25.194 24.000 18.000 Revenue Contributions 35.633 33.851 33.005 33.830 Total Funding 87.740 90.434 81.005 69.830 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 59
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borrowing carried over between financial years to derive the borrowing requirement for the Council in each financial year. 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m 2028/29 Estimate £ m Borrowing for GF Capital Expenditure 19.037 61.851 78.589 18.099 + Borrowing for HRA Capital Expenditure 21.061 31.389 24.000 18.000 = Total Borrowing for Capital Expenditure 40.098 93.240 102.589 36.099 - Loans Fund Principal Repayments (11.718) (17.498) (18.818) (27.707) = Funding for Capital Programmes 28.380 75.742 83.771 8.392 + Funding for Service Concession Flexibility 9.148 8.885 7.623 6.994 = Movement in CFR 37.528 84.627 91.394 15.386 + Maturing Debt 353.153 242.615 542.358 711.461 +/- Use of Cash Balances and Reserves (122.000) 10.000 10.000 10.000 = External Borrowing Requirement 268.681 337.242 643.752 736.847 - Reprofiling of Service Concession Flexibility (10.959) (4.885) (3.623) (2.994) + Borrowing carried over from previous years. 237.667 139.889 0.000 0.000 = Adjusted External Borrowing Requirement 495.389 472.246 640.129 733.853 - Actual/Planned Borrowing (355.500) (472.246) (640.129) (733.853) = Borrowing carried over to future years. 139.889 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 5.175% in June 2026 to 4.750% in March 2029. It would therefore be more expensive to take long term borrowing in 2025/2026, 2026/2027 and 2027/2028 than wait until 2028/2029. 1.5. The borrowing strategy assumes that borrowing taken in 2025/2026, 2026/2027 and 2027/2028 is short term borrowing at rates roughly 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. 60
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2. Prudential Indicator 2 – Council’s Borrowing Need (the Capital Financing Requirement) and Gross Debt 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 2025/2026 plus the estimates of any additional CFR for 2026/2027 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. This indicator sets out the expected CFR based on the capital plans shown at Indicator 1. Actual CFR for 2025/2026 will be presented to Committee following year end 2.5. The projected Capital Financing Requirement for Borrowing and Gross Borrowing is shown in the table below. This indicator is based on the capital plans shown at Indicator 1. Actual CFR for 2025/2026 will be presented to committee following year end. 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m 2028/29 Estimate £ m General Fund Capital Financing Requirement for Borrowing 965.621 1,028.574 1,106.383 1,114.749 HRA Capital Financing Requirement For Borrowing 340.336 362.010 375.595 382.615 Total Capital Financing Requirement for Borrowing 1,305.957 1,390.584 1,481.978 1,497.364 Gross Borrowing 1,033.108 1,262.740 1,360.511 1,382.903 Difference 272.849 127.844 121.467 114.461 2.6. The table shows that the estimated gross borrowing levels for the period 2026/2027 to 2028/2029 do not exceed the forecast CFR at the end of 2028/2029, demonstrating that borrowing will only be undertaken for capital purposes. 2.7. Following the introduction of IFRS16, the Council are required to remeasure the PPP liability every year and to include lease liabilities on the Council’s balance sheet. 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. 2.8. While there is no requirement to borrow for the liabilities, they do impact on the Council’s Capital Financing Requirement. Estimates for the Capital Financing Requirement for Lease Liabilities are included in the table overleaf, however it is recognised that the actual impact can only be determined when the liabilities are measured at the financial year end. 61
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2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m 2028/29 Estimate £ m General Fund Capital Financing Requirement for Lease Liabilities 324.109 303.641 284.504 267.609 HRA Capital Financing Requirement for Lease Liabilities 0.000 0.000 0.000 0.000 Total Capital Financing Requirement for Lease Liabilities 324.109 303.641 284.504 267.609 Estimated Lease Liabilities 324.109 303.641 284.504 267.609 Difference 0.000 0.000 0.000 0.000 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. 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m 2028/29 Estimate £ m Operational Limit for debt 1,340.000 1,440.000 1,460.000 1,440.000 Operational Limit for lease liabilities 335.000 325.000 305.000 285.000 Operational Limit 1,675.000 1,765.000 1,765.000 1,725.000 Authorised Limit for debt 1,360.000 1,460.000 1,480.000 1,460.000 Authorised Limit for lease liabilities 335.000 325.000 305.000 285.000 Authorised Limit 1,695.000 1,785,000 1,785,000 1,745.000 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. 62
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2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m 2028/29 Estimate £ m General Fund Ratio of Financing Costs to Net Revenue Stream (expressed as %) 4.86% 5.20% 5.68% 6.69% HRA General Fund Ratio of Financing Costs to Net Revenue Stream (expressed as %) 10.81% 14.98% 16.38% 16.69% 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 2026/2027. The indicators have been calculated using the assumptions regarding reductions in grant levels built into the Financial Strategy for 2027/2028 and beyond. 4.3. For the HRA, estimates of rental income in each financial year have been used in the calculation. 5. Prudential Indicator 5 – Ratio of Net Income from Commercial and Service Investments to Net Revenue Stream 5.1. 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. 5.2. 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. 5.3. As the Council has no investments that fall into these categories, there is no requirement to report this indicator. 63
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Appendix 2 Treasury Management Strategy 2026/2027 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. 1.2. 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. 1.3. 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 2026 to 30 September 2026 and will be submitted to Committee after that date. 1.4. 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 2026/2027 – 2028/2029 2.1 The expected levels of external borrowing and investment for 2026/2027 to 2028/2029 are shown in the table below. An updated position for 2025/2026 is also shown. 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m 2028/29 Estimate £ m External Debt Borrowing £1,033.108 £1,262.740 £1,360.511 £1,382.903 Other long term liabilities £324.109 £303.641 £284.504 £267.609 Debt at 31 March (including PPP/Finance Lease Liability) £1,357.217 £1,566.381 £1,645.015 £1,650.512 Investments Total Investments at 31 March £25.000 £25.000 £25.000 £25.000 64
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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 2026/2027. 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, and while medium and longer dated borrowing rates are expected to fall from their current levels, 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 Base Interest Rate 5 year PWLB 10 year PWLB 25 year PWLB 50 year PWLB 2026/27 3.375% 4.275% 4.875% 5.575% 5.375% 2027/28 3.250% 4.100% 4.700% 5.325% 5.125% 2028/29 3.250% 4.100% 4.625% 5.200% 5.025% 65
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appropriate or necessary given the amount the Council requires to borrow and the 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. 2025/26 Estimate £ m 2026/27 Estimate £ m 2027/28 Estimate £ m 2028/29 Estimate £ m Expected Borrowing 355.500 472.246 640.129 733.853 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. 66
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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 60% 0% 12 months and 24 months 60% 0% 24 months and 5 years 60% 0% 5 years and 10 years 60% 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 3 – 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. 67
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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 2026/2027 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 68
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in the long term. All of this helps to ensure that charges to the revenue account remain prudent and affordable in the long term. 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 2025/26 864.800 19.037 (7.314) 876.523 2026/27 876.523 61.851 (7.782) 930.592 2027/28 – 2030/31 930.592 97.311 (42.426) 985.477 2030/32 – 2035/36 985.477 0.000 (117.430) 868.047 2036/37 – 2040/41 868.047 0.000 (86.601) 781.446 2041/42 – 2045/46 781.446 0.000 (110.527) 670.919 2046/47 – 2050/51 670.919 0.000 (141.063) 529.856 2051/52 – 2055/56 529.856 0.000 (177.662) 352.194 2056/57 – 2060/61 352.194 0.000 (176.710) 175.484 2061/62 – 2065/66 175.484 0.000 (101.232) 74.252 2066/67 – 2070/71 74.252 0.000 (38.721) 35.531 2071/72 – 2075/76 35.531 0.000 (25.702) 9.829 2076/77 – 2080/81 9.829 0.000 (9.829) 0.000 Housing Revenue Account Opening Balance New Advances Repayments Closing Balance 2025/26 323.666 21.061 (4.405) 340.322 2026/27 340.322 31.389 (9.716) 361.995 2027/28 – 2030/31 361.995 42.000 (32.928) 371.067 2030/32 – 2035/36 371.067 0.000 (57.568) 313.499 2036/37 – 2040/41 313.499 0.000 (53.458) 260.041 2041/42 – 2045/46 260.041 0.000 (52.380) 207.661 2046/47 – 2050/51 207.661 0.000 (59.740) 147.921 2051/52 – 2055/56 147.921 0.000 (53.439) 94.482 2056/57 – 2060/61 94.482 0.000 (46.749) 47.733 2061/62 – 2065/66 47.733 0.000 (35.633) 12.100 2066/67 – 2070/71 12.100 0.000 (12.100) 0.000 69
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ANNEX 1 0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400 1,500 1,600 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 2060 2061 2062 £m Financial Year End South Lanarkshire Council - Liability Benchmark LOBOS PWLB Temporary Loans CFR Net Loans Requirement Liability Benchmark 70
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Appendix 3 Annual Investment Strategy 2026/2027 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. 71
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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 2026/2027 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 4.5. 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. 72
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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. 73
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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. 74
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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. 75
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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 2026/2027 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. 76
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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. 77
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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. 78
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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. 79
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