The Chair, or their nominee, to answer any questions raised by members of the public in accordance with Standing Order 40.
At the time of publication of this agenda no questions were received.
Minutes:
The Chair reported that, under Standing Order 14, two questions had been received from a member of the public.
Question from K Sanders:
“Given recent world events, cost inflation and other economic shocks, how can the Council be sure that costs won't keep spiralling or there won't be any other unfortunate events? E.g. what if the Council can't secure Homes England funding or NHS funding for the Cavell Centre? What if flood risk proves to be an insurmountable issue for Thameside House?
Has the Council already gone past the point of no return on Thameside House and the Oast House developments and is the only hope really to keep borrowing more (and building higher) in the hope that they will eventually come good?”
Response to Question:
“The Council has no control over external forces which impact on inflation and other economic pressures, but what we can do and do well is consider the financial viability of each of our own schemes at key milestone through out the scheme design process. Understanding the viability is an evolving process with the more detail we have as the scheme progresses, meaning greater certainty of the financial end position.
There will always be challenges with new development that the Council needs to overcome. We do this by understanding and utilising all initiatives available to assist with ensuring schemes are deliverable from a financial and operational perspective. This is not only about employing external funding, but value engineering schemes, looking at different funding models including partnership working within the public sector, other private partner ventures, disposals, packaging schemes together to deliver different outcomes where costs and benefits offset each other between the schemes.
Each of these approaches offer differ solutions to tackling the economic and financial challenges we face with the schemes. Every scheme is only moved forward to a commencement on site, when Councillors’ approval is received. Part of the Councillor approval process includes a full understanding of a range of options, which may include where appropriate partnering opportunities, disposals and a range of income options for each scheme. Each option presented is supported with a range of financial information to inform understanding and decision making.
We continue to have positive engagement with Homes England, but if funding is not available for our schemes we will consider utilising the alternative options, just outlined to support the objectives of each development. The Council already has a proven track record with Homes England as it acquired for itself Registered Provider status and obtained grant funding to part fund the Whitehouse homeless hostel and Harper House emergency family accommodation. Indeed at the time Homes England did not have a funding category for homeless hostels and we worked with them to help them create a new funding scheme.
Homes England is extremely keen on supporting our affordable and keyworker delivery pipeline as there is very limited such provision being delivered in this part of the South East and Homes England is struggling to distribute its full allocation of funds. So we are very confident that Homes England will fund our affordable and key worker schemes.
With respect to the Health and Wellbeing Centre (also sometimes referred to as the Cavell Centre) we and our NHS partners are continuing to have active discussions with central government focused on ensuring the fund progresses. However if those discussions do not prove fruitful we will explore alternative options for ensuring that these much need improvements in our health infrastructure are delivered for our residents.
With respect to flood risk - all schemes as part of the planning submission require a robust flood risk assessment with mitigation measures in place as part of the approval and building reg inspection/sign off. It is also worth noting that that mitigation methods for new builds usually result in betterment when compared to existing buildings.
As per the answer to the previous question, the Council will not commence construction on either Thameside nor Oast House until it is comfortable that the schemes are viable on a long term fifty year basis.”
Question from N Rowe:
“The Capital Outturn Report (agenda item 5) is deeply alarming, a catalogue of apparent financial mismanagement and misfortune: huge overspends, a more than doubling of long-term interest rates, Council projects (eg Thameside House and the Oast House) now “financially unviable” … and more. Spelthorne has borrowed more than any other local authority (relative to its annual budget) to fund its property portfolio gambles. What confidence can the community have that Spelthorne will avoid the fate of other authorities that have pursued similar borrowing strategies and are now bankrupt, and avoid having to declare it cannot meet its financial obligations?”
Response to Question:
“The Council’s approach remains to ensure that its Capital Programme is financially sustainable and does exert pressure on its overall financial sustainability.
As the environment in which we are now progressing delivery of affordable and keyworker housing for our residents and regeneration is much more financially challenging, due to the delays in bringing the developments forward and the changing economic externalities. We are proactively appraising the rise in construction costs (running at roughly 20% per annum) plus impact of rising interest rates (long term interest rates for councils more than doubling since the beginning of 2022) which impact on the financial viability of our schemes. The Council is utilising all initiatives available to assist with ensuring schemes are deliverable from a financial and operational perspective.
You may recall the Council held an Extraordinary Council Meeting (ECM) on 2nd February 2023 to highlight to councillors the risks of not progressing schemes and the increased costs. It was agreed the Council would:
· Seek to maximise Homes England capital grant Funding for Affordable and keyworker units at approx. 25% per unit (we are also having discussions with other bodies such as One Public Estate to seek out supplementary grant funding)
· Focus on value-re-engineering schemes to reduce costs
· Accelerate Tothill mixed development including affordable rental
· Switching Benwell P2 and Thameside from affordable to private rental to be retained and managed by the Council rather than its housing management company Knowle Green Estates (KGE)
· Provide a significant capital injection into KGE
Each of these initiatives demonstrates a thought out and proactive approach to tackling the economic and financial challenges we face with the schemes.
Every scheme is subject to continued financial viability testing and is only moved forward to a commencement on site, when Councillors approval is received. Part of the Councillor approval process includes a full understanding of a range of options, which may include where appropriate partnering opportunities, disposals and a range of income options for each scheme. Each option presented is supported with a range of financial information to inform understanding and decision making.
The objective moving forwards is to minimise the proportion of the Capital Programme which requires funding from borrowing. This may also involve us exploring partnership approaches and we may need to consider an element of individual apartment sales (reducing the need for long term borrowing).
Before any scheme is signed off to commence a 50 year viability assessment is undertaken and schemes which are not viable will not be progressed- to ensure that does not expose the Council to future financing pressures. Whilst the Capital Outturn report highlighted a projected (rather than actual) £23m overspend on Thameside relative to the original budget the budget and viability assessment will be reworked to reflect the revised PRS basis of the scheme.
The Council is aware of concerns about height and massing of developments, officers will continue to work collaboratively with councillors to ensure our developments are viable whilst being mindful of community concerns and protecting the Council against financial risk.
Spelthorne’s financial approach is very different to that of Woking BC, utilising a different model and approach to protect our financial position.
Spelthorne has borrowed significantly less than Woking BC. Spelthorne’s outstanding long term borrowing as at 31/3/23 was £1,069m (a reduction of £9m from the previous year) whereas Woking has already borrowed approximately £1,900m. Spelthorne’s financing model is quite different to that of Woking and a number of other councils in that we have always erred on the prudent side in making full Minimum Revenue Provision (MRP) and aligning that MRP with annual debt repayments so that the Council is paying down its loans on a similar basis to a repayment mortgage. The Council’s investment assets rental income continues to cover the full annual financing cost and management costs and generate a £10m per annum net revenue budget contribution to support the Council’s services for residents. This is despite having coming through the economic impact of the worst global down turn for more than 300 years as a result of the pandemic and now the Cost of Living Crisis. In these challenging economic times there has been some churn of tenants and our total occupancy rate dipped below 90% when a significant tenant vacated but this will move back above 90% in July when a new tenant takes that space. It is precisely for this type of scenario, where we have tenants break or not renew leases, that Spelthorne has been building up its earmarked sinking fund reserves every year for the last seven year, from setting aside part of the rental income stream. The earmarked reserves as at 31 March 2023 now stand at £37.8m and act as a safety cushion which can be applied when there are dips in rental income. Spelthorne increased its cash backed reserves at the end of 2023-24 by 10% to £75m. Independent benchmarking by LG Improve indicates that Spelthorne in fact has the highest ratio of usable cash back reserves to net revenue budget of any district or borough council in England. It is acknowledged that we are budgeting to make use of the sinking funds in 2023-24 and 2024-25 but we are then anticipating to replenish and rebuild those reserves thereafter. In summer/autumn of 2023-24 we are undertaking a five yearly review of the sinking funds model.”