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Reflecting the evolving nature of local authorities, as a result of changes to CIPFA’s Prudential Code, capital strategies must be in place for all local authorities from 1 April 2019. While this might be a new requirement, in many circumstances organisations will have already produced a similar document, but might not have formally recognised it as such.
A capital strategy is intended to give a high level overview of how capital expenditure, capital financing and treasury management activity contributes to the provision of services, along with an overview of how associated risk is managed and what the implications might be for future financial sustainability.
While the strategy should be tailored to the authority’s individual circumstances, it should include capital expenditure, investments, liabilities and treasury management, along with sufficient detail to allow all members to understand how stewardship, value for money, prudence, sustainability and affordability will be secured, and how they will meet legislative reporting requirements.
To help local authorities get their capital strategy into place, my colleague Chris Brain has put together some helpful notes, which I’ve shared below. While these may seem detailed, it is important to note that the Financial Management Code, which supports your capital strategy, takes a principles-based approach.
The Code means each local authority will be able to determine its own prerequisites for their capital strategy, while taking into account any statutory requirements, with this flexibility intended to make the implementation of these important documents more manageable.
Of course the upside of having a capital strategy in place, is it means local authorities will be better positioned to manage risks, and justify their investments through a well-reasoned, and long term vision. With local authorities increasingly needing to take a more entrepreneurial approach, such strategies will become crucial documents.
What would we expect to see in the capital strategy?
In terms of capital expenditure, the capital strategy should include:
The strategy should additionally include:
This article first appeared in Public Finance Magazine.