Over the last 24 months, many councils across the UK have been busy preparing a series of interventions that form a core part of their investment plans. These include government programmes such as the Future High Streets Fund, Towns Fund and UK Shared Prosperity Fund.
But a key question remains: how do councils ensure that these projects can effectively align with other projects that are part of their wider strategy?
A capital strategy could be the solution. Let's take a deeper look at how an effective capital strategy can support place-based ambitions but also the challenges councils face in the near future.
Capital strategies are developed by local authorities to support the planning around capital programme delivery. But they also articulate the ambition of a place and how it wishes its residents to live, work and play in the area.
The approach needs to move beyond being purely strategic, however. It needs to to set the blueprint for how projects interrelate, how the council will manage the progression of projects, and address the financial opportunities and risks forecasted to arise from these aspirations.
It’s also important that the capital strategy isn't solely focused on the council as an accountable body. Its governance needs to be focused on wider stakeholders and potential external delivery partners. Bringing out those interdependencies between the council and these partners will help give a full holistic picture, which is more useful to the public and external interested parties.
The Chartered Institute of Public Finance and Accountancy (CIPFA) Prudential Code requires councils to produce a capital strategy. It should demonstrate how capital expenditure, capital financing and treasury management activity contribute to the provision of desired outcomes and also take account of stewardship, value for money, prudence, sustainability and affordability. The supporting CIPFA guidance on capital strategy steers local authorities to take a whole organisation approach when meeting this requirement.
What does this mean and where do local authorities start?
Capital strategies prepared by local authorities have a common tendency to become large and cumbersome. While detail is important, the strategy needs to be clear, concise and to the point. Broadly speaking, a strategy should incorporates the following:
1 One page story / executive summary – evidencing need for investment based on national and local data analysis and introducing supporting funding programmes
2 Council priorities – including the levelling up transformation, which remains a core theme for consideration
3 Strategic planning framework and other key technical elements
4 Medium-term financial strategy (MTFS) and the impact of the wider economic environment on the capital strategy
5 Capital investment plan and asset management plan
6 Internal capacity to deliver (ie, including governance and risk) and relationships with external parties to deliver
Interestingly, the one-page story can often be something councils find difficult to tell. It’s important that the author can summarise the 'Who, What, When, Where, Why and How', however. For the strategy to be compelling, an interested stakeholder needs to be able to clearly understand the driving force behind the strategy, ie, what are we trying to achieve? They need to see how the projects will come together to deliver impact that is greater than the sum of the parts. Remember, the capital strategy is about the portfolio of all projects and not just individual schemes, which will have their own detailed business cases.
The priorities of the council should be clear as it’s easy to be consumed by individual projects that start to dominate the strategy. Hence if the priorities are “to move more people down to the promenade, spend more time in the town centre or reduce traffic on the ring road”, it’s important that this golden thread remains at the heart of the strategy.
The last three points (4-6) are all interlinked. The medium-term financial strategy is important in that its success depends on robust financial management and a clear understanding of the impact of capital projects on the revenue budget and reserve levels.
We work with a lot of councils in this area and it's critical to understand the level of reserves available, headroom in the capital financing requirement and appetite to prudentially borrow within the regulations. Finance (in particular, treasury management) has a major role in working with project/regeneration teams. It can translate the implication of these areas for non-financial users and help arrive at a balance between ambition and financial realism.
Explaining the role of the private sector in delivery both at a capital and asset management level is also vital. A strategy is not just about the building phase but how assets are managed going forward and making sure this is sustainable too. Again, that team working between different parts of the council is vital in ensuring there is capacity to manage the risks and opportunities that the council face from a wider portfolio perspective.
A strategy will often consist of projects with a mixed position in terms of viability. It’s therefore important to address this and present back if there is an assumption of a group of more viable projects subsidising projects which carry greater risk.
This is a likely scenario if place-shaping is at the heart of a capital strategy – we all know that challenging projects will exist. This is where the capital strategy should set out an approach to show how managing the portfolio collectively will avoid delivery of only the best opportunities and give confidence that the full programme can be delivered. It should also reference value for money and prudence to ensure that one project does not skew a wider strategy in terms of the overall risk that the strategy carries.
A final area of consideration surrounds intended recipients. The capital strategy can act as a marketing piece, showcasing the place's aims and ambitions. Branding the approach appropriately and presenting the strategy in an easy-to-read format will help create a more compelling and engaging read.
In summary an effective capital strategy can:
To discuss any of these topics further, contact Wayne Butcher.