Issue - meetings

b)         Capital Strategy

The Capital Strategy was intended to provide a high level, concise overview of how capital expenditure, capital financing and treasury management activity contributed to the provision of the Authority’s services. 

•           Introduced by 2017 edition of the Prudential Code.

•           Capital expenditure was where the Council spent money on assets, such as property or vehicles that would be used for more than one year.

•           Assets below £10,000 were not capitalised.

Capital Financing

All capital expenditure must be financed either from:-

•           External sources such as government grants and other contributions.

•           The Council’s own resources (revenue, reserves and capital receipts) or

•           Debt, which is borrowing and leasing.

When Capital is Financed by Debt

•           Debt is only a temporary source of finance, since loans must be repaid.

•           Therefore it was replaced over time by other financing, usually from revenue, which was known as minimum revenue provision (MRP).

•           Alternatively, proceeds from selling capital assets (known as capital receipts) may be used to replace the debt.

•           The Council’s cumulative outstanding amount of debt finance was measured by the capital financing requirement (CFR).

•           This increases with new debt-financed capital expenditure and reduces with MRP and capital receipts used to replace debt.

The Capital Strategy contained:

•           Capital expenditure plans – summary.

•           Capital expenditure plans – detail.

•           How the capital expenditure would be financed – summary.

•           The revenue implications of capital debt.

•           Estimated capital financing requirements.

•           The minimum revenue provision statement.