Medium Term Financial Strategy 2017/18 Onwards - Capital Programme


18 JANUARY 2017

Is the final decision on the recommendations in this report to be made at this meeting?





Final Decision-Maker


Lead Head of Service

Director of Finance and Business Improvement

Lead Officer and Report Author

Director of Finance and Business Improvement


Public Report

Wards affected




This report makes the following recommendations to this Committee:


1.    That the Committee agrees the strategy’s principles as set out in paragraphs 2.5 to 2.10;

2.    That the Committee agrees the capital funding projection set out in Appendix B to this report;

3.    That the Committee agrees the capital programme 2017/18 onwards as set out in Appendix C to this report;

4.    That the Committee notes that in agreeing recommendations 2 and 3 above the Committee will set a prudential borrowing limit of £29,002,870 over the period of the programme which will be recommended to Council as part of the Treasury Management Strategy 2017/18 by the Audit, Governance & Standards Committee.



This report relates to the following corporate priorities:

The medium term financial strategy and the budget are a re-statement in financial terms of the priorities set out in the strategic plan. It reflects the Council’s decisions on the allocation of resources to all objectives of the strategic plan.


The Capital Programme identifies key projects requiring long term funding to improve assets and regenerate the borough.






Policy & Resources Committee

17th January 2017

Policy & Resources Committee

15th February 2017


1st March 2017








1.1        To determine the strategy for developing the future capital programme, for 2017/18 onwards, as part of the consideration of the medium term financial strategy.


1.2        To consider and approve the amount and allocation of capital resources for the delivery of the objectives of the strategic plan and other key strategies.






2.1        The capital programme plays a vital part in delivering the Council’s strategic plan, since it is only through long term investment that our ambitions for the borough can be realised.  This report develops the outline of the capital programme which was set out in the Medium Term Financial Strategy, approved by Council in September 2016.

2.2        The capital programme is a rolling five year programme.  The existing capital programme for the years 2016/17 to 2020/21 is set out in Appendix A and totals £59 million over five years.  Major schemes include the following:

        Housing investments

        Brunswick Street redevelopment

        Union Street redevelopment

        High Street regeneration (including Gabriel’s Hill)

        Maidstone East

        The Mall – purchase of Granada House


Finally, unallocated resources of £3 million were identified for funding infrastructure development envisaged in the Local Plan.


2.3        Since the approval of the current capital programme, Policy and Resources Committee has agreed at its meeting on 23 November 2016 to broaden the scope of the housing and regeneration agenda.  Sites at Brunswick Street and Union Street had already been identified for redevelopment; the proposed new capital programme for 2017/18 to 2021/22 envisages 2 – 3 further developments per annum along similar lines in subsequent years.

2.4        In recommending a new capital programme, Policy and Resources Committee needs to consider:

-       the principles underlying development of the programme

-       how the programme is to be funded

-       the specific schemes proposed for the capital programme.


Each of the above issues is described in more detail below.  Details of funding available for the capital programme are provided in Appendix B and specific scheme proposals are shown in Appendix C.


Medium Term Financial Strategy Principles

2.5        It is appropriate to re-state the principles underlying inclusion of schemes within the capital programme.  Schemes may be included in the capital programme if they fall within one of the four following categories:

-       Required for statutory reasons, eg to ensure that Council property meets health and safety requirements;

-       Self-funding schemes focused on strategic plan priority outcomes;

-       Other schemes focused on strategic plan priority outcomes; and

-       Other priority schemes which will attract significant external funding.


2.6        All schemes within the capital programme are subject to appropriate option appraisal. Any appraisal must comply with the requirements of the Prudential Code and the following locally set principles:

a) Where schemes fit within a specific strategy and resources are available within the capital programme for that strategy, such as the Asset Management Plan, the schemes would also be subject to appraisal and prioritisation against the objectives of that strategy.  These schemes must be individually considered and approved by the relevant service committee.

b) Where schemes can be demonstrated to be commercial in nature and require the use of prudential borrowing, a business case must first be prepared.

2.7        Where schemes do not fit within the criteria above but an appropriate option appraisal has been completed, they may still be included within the programme if they fall within one of the four categories set out at paragraph 2.5 above.

2.8        If, following all considerations, there are a number of approved schemes that cannot be accommodated within the current programme, a prioritised list of schemes that can be added to the programme as future resources permit will be created and approved by Policy and Resources Committee, thus allowing officers to focus funding efforts on delivering schemes that are next in priority order.

2.9        The MTFS requires the Council to identify actual funding before commencement of schemes.  Accordingly, while schemes may be prioritised for the programme, ultimately commencement of any individual scheme can only occur once all the necessary resources have been identified and secured.

2.10     The MTFS principles require that the Council will maximise the resources available to finance capital expenditure, in line with the requirements of the Prudential Code, through:

a) The use of external grants and contributions, subject to maintaining a focus on the priority outcomes of its own strategies;

b) Opportunities to obtain receipts from asset sales as identified in the asset management plan and approved for sale by Policy and Resources Committee;

c) The approval of prudential borrowing when the following criteria also apply to the schemes funded by this method:

i. they are commercial in nature;

ii. the outcome returns a financial benefit at least equal to the cost incurred by borrowing to fund the schemes;

iii. after covering the cost of funding, a further financial or non-financial benefit accrues to the Council that directly or indirectly supports the objectives of the strategic plan or the medium term financial strategy.

d) The use of New Homes Bonus for capital purposes in line with the Council’s strategic plan priorities;

e) The implementation of a community infrastructure levy (CIL) and the management of its use, along with other developer contributions (S106), to deliver the objectives of the infrastructure delivery plan.

Funding the Capital Programme

2.11     The Medium Term Financial Strategy takes a flexible approach to funding the capital programme. Before 2008, many local authorities relied heavily on capital receipts to fund their capital programmes.  However, in recent years they have increasingly relied on prudential borrowing.

2.12     Maidstone Borough Council has so far not borrowed to fund its capital programme, instead relying primarily on New Homes Bonus to fund the capital programme.

2.13     The Council has however approved the use of prudential borrowing provided that it meets the criteria set out in the MTFS principles (see paragraph 2.10 above).  Accordingly, prudential borrowing may be used for:

          1) Acquisition of commercial property;

          2) Acquisition of property to alleviate homelessness;

          3) Action to enable stalled development to progress;

4) Self-funding developments that supports the objectives of the Council’s Strategic Plan and the Medium Term Financial Strategy.

2.14     The use of prudential borrowing is subject to an approved business case that evidences a benefit above that required to repay any debt over the life of the activity. The additional benefit may be financial or non-financial but must support the objectives of the strategic plan.

2.15     Due to uncertainty of future funding the Council maintains a principle of prior funding of schemes. Although commitment to a scheme is given by its inclusion in the programme the strategy requires that funding is identified in advance of formal commencement of the work. The quarterly monitoring of the capital programme enables Policy and Resources Committee to take effective decisions based on current levels of funding before major projects commence.

2.16     The funding assumptions made in the development of the future capital programme are essential to the development of the budget.  Specific detail in relation to each source is set out in the paragraphs below.

          New Homes Bonus

2.17     It has been a principle of the Council’s capital programme that New Homes Bonus receipts are used to support the capital programme.  The draft Local Government Finance Settlement for 2017/18 , announced in December 2016, included a reduction of the period for which New Homes Bonus would be paid from six years to five in 2017/18 and then to four in 2018/19.  The reduction takes immediate effect, such that it affects six year payments already being received.

2.18     An allowance will also be made in calculating New Homes Bonus for the natural growth in housing from ‘normal’ levels of development.  This means that New Homes Bonus will now only be paid on growth in excess of 0.4% per annum.

2.19     The impact of this for Maidstone is that New Homes Bonus will be £750,000 less in 2017/18 than previously anticipated.  In future years the impact will be around £1.5 million per annum.

2.20     The New Homes Bonus grant is considered to be a revenue grant and its use for capital expenditure is a local decision by this Council. It is therefore properly accounted for as revenue support to the capital programme.

Capital Grants and Contributions

2.21     Many of the grants that were available to the council for funding capital projects in the past no longer exist. However, recent projects have received support through grants and contributions, eg the Museum, Mote Park, and the High Street. Some government grants are annual sums, such as the disabled facilities grant, but the majority of sums are one-off and scheme specific.

2.22     At present most of the balance of government funding is being directed through Local Enterprise Partnerships (LEP). Proposals must therefore be submitted as bids to the South East LEP if the resources are to be directed towards Maidstone initiatives. The Council has had some success in gaining funding for infrastructure schemes through bids to government by the SELEP.

2.23     The estimated grant for disabled facilities grants is set in the programme at £800,000 per annum. This is the only grant assumed to be received in the future.

2.24     External contributions have been received from a number of sources, such as Kent County Council, previously.  These are included in the capital programme to the extent that they can be quantified.  At this stage, there are no schemes amongst those proposed in the capital programme where it is possible currently to assume a specific contribution.  However, regeneration projects in particular are likely to depend on partnership funding.

          Developer Contributions (S 106) and Community Infrastructure Levy

2.25     The Council may seek to secure benefits to an area or restrict uses or activities related to a proposed development through the negotiation of a ‘planning obligation’ with the developer. Such obligations, authorised by section 106 of the Town and Country Planning Act 1990, generally either improve the quality of the development, or overcome difficulties which would otherwise result in planning permission being refused. A planning obligation must be:

          (a) necessary to make the development acceptable in planning terms;

          (b) directly related to the development; and

          (c) fairly and reasonably related in scale and kind to the development.

2.26     The Council may therefore receive funds to enable it, or the relevant public authority, to undertake works arising from these planning obligations. Examples of the use of planning obligations are:

-       Improved transport facilities

-       Education Provision

-       Health Provision, eg GP facilities

-       Social and Community Infrastructure, eg community facilities

-       Utilities, eg waste water treatment

-       Green and Blue Infrastructure, ie open space and recreation facilities or river enhancement

-       Flood Prevention and Mitigation

-       Other Public Services.


2.27     Amongst these works, many will be delivered by Kent County Council or the NHS.  However, S 106 monies are available to fund schemes within Maidstone’s capital programme, particularly in the area of parks and open spaces.

2.28     Local Authorities in England and Wales can now charge Community Infrastructure Levy (CIL) on new developments in their area. The levy is designed to be fairer, faster and more transparent than the previous system of agreeing planning obligations between local Councils and developers under S 106.  Members and the public have been consulted in relation to the levy and a draft charging schedule was approved by Council at its meeting on 7 December 2016.

2.29     In areas where a CIL is in force, land owners and developers must pay the levy to the local Council.  The charges are set by the Council, based on the size and type of the new development and the money raised from the community infrastructure levy can be used to support development by funding infrastructure that the Council, local community and neighbourhoods want, such as new or safer road schemes or park improvements.  No assumptions about the availability of resources from a CIL have been included in the Capital Programme proposals at this stage.

          Prudential Borrowing

2.30     The Council has the power to borrow to finance capital expenditure subject to the guidance set out in the Prudential Code. This code of practice is published by the Chartered Institute of Public Finance and Accountancy and covers the full range of capital planning not just borrowing.

2.31     Compliance with the code is a statutory requirement and the Council’s MTFS has been developed to ensure compliance. In summary the key objectives of the code are:

          a) To ensure within a clear framework that capital expenditure plans are affordable, prudent and sustainable;

          b) That treasury management decisions are taken in accordance with good professional practice;

          c) That local strategic planning, asset management planning and proper option appraisal are supported; and

          d) To provide a clear and transparent framework to ensure accountability.

2.32     In 2012 the Council approved in principle the use of prudential borrowing, but it has not yet needed to undertake any.

2.33     The proposals set out in this report suggest a need to consider up to £29,002,870 of prudential borrowing over the life of the programme. This level of borrowing would be subject to the principles set out in paragraph 2.13.

2.34     In considering the Treasury Management Strategy 2016/17, for recommendation to Council, the Audit Governance & Standards Committee has been made aware of the potential for the level of prudential borrowing that would arise from the approval of the recommendations in this report.

Internal Borrowing

2.35     To date the Council has not borrowed to finance the capital programme, as the value of borrowing was outweighed by the benefit of using the Council’s own resources.  So long as the Council is holding cash balances, there is no merit in borrowing externally, given the variance between borrowing and lending rates of interest.  This is termed ‘internal borrowing’.  It is anticipated that the Council will continue to be able to rely on internal borrowing in the short term.

          Overall Funding Level

2.36     The resource available for the capital programme, based on the detail above, is given in Appendix B. The appendix shows total resources expected in the period 2017/18 to 2021/22 as £60,412,870.

Capital Programme Proposals by Committee

2.37     Appendix C to this report sets out a recommended programme, based on the proposals that have been developed to date, as set out below.  The proposals are supported by submissions from scheme sponsors and have been subject to review and challenge by the Corporate Leadership Team.

Communities, Housing and Environment

2.38     Housing and Regeneration - £20.0 million

The updated Commercialisation Strategy agreed by Policy and Resources Committee at its meeting on 23 November 2016 envisages a focus on housing and regeneration schemes.  By building up our existing asset base, the Council can secure a long term, stable revenue stream that will support core services in the medium to long term.  By investing specifically in housing, the Council can address the shortage of good quality homes for market rent in Maidstone, whilst generating an attractive financial return.  By focussing upon building new homes (rather than acquiring second hand stock) the Council will help to regenerate the borough.  It will also, by developing some new homes of its own, be making an active contribution to the delivery of the emerging Local Plan.  The draft capital programme includes five indicative self-funding schemes costing £4 million each over the remainder of the five year capital programme planning period.

2.39     Brunswick Street and Union Street - £8.0 million

These schemes are in the existing capital programme and are currently in the design phase.  It is estimated for the purposes of the capital programme that the total cost of each scheme will be £4 million.  As with the schemes outlined above, these schemes will be self-funding.  More detailed figures will be reported to Members in due course.

2.40     Temporary Accommodation – £6.3 million

MBC will invest up to £4.5m over the next two years to acquire 15 further homes for use as temporary accommodation, which will bring the portfolio to around 50 units, which is anticipated to be sufficient to meet the foreseeable need. This investment is reflected in the new Temporary Accommodation strategy which was considered by the Communities Housing & Environment Committee on 13 December 2016.  To allow for potential further acquisitions, an amount of £600,000 per annum has been included thereafter.

2.41     Disabled Facilities Grants – £4.0 million

Assistance under this budget is not funded by the Council but is funded from the Department of Health Better Care Fund (BCF) as a specific capital grant.

2.42     Housing incentives - £1.976 million

In addition to the direct provision of temporary accommodation, the Council will need to increase access for homeless households to the private rented sector and the number of nominations made to housing associations.  This budget provides funding for this purpose.

2.43     Flood Defences - £1.0 million

The existing capital programme includes a relatively small (£50,000) annual amount for flood defences, which has been used to pay for consultancy on the development of new schemes.  The actual cost of such schemes is much more significant and would be likely to be funded jointly with the Environment Agency and Kent County Council.  To allow MBC to make a meaningful contribution to joint funding, it is proposed to increase the capital funding by a total of £750k in 2018/19 and 2019/20, which would represent MBC’s contribution to partnership funding of flood defences.

2.44     Public Realm capital improvements - £250,000

With an increasing population and new development and growing pressure on the public realm, there is a need to upgrade equipment such as litter bins and mechanical sweepers, above and beyond the normal end-of-life replacement of existing assets.  This will improve help the Council maintain the public realm efficiently and well, and will improve the quality of the public realm.

2.45     Commercial waste expansion - £180,000

The commercial waste service has proved to be successful in generating income for the Council.  In particular, it provides a valuable service to small businesses that do not have access to nationwide waste collection contracts.  In order to expand the service an additional refuse collection vehicle is required at a cost of £180,000, which would be funded through the additional income generated.

Heritage, Culture and Leisure 

2.46     Mote Park Centre - £2.2 million

An allowance has been made in the capital programme for a visitor centre in Mote Park to replace the existing café.  Work is currently under way developing proposals and a business case for the Centre.

2.47     Mote Park and Other Parks Essential Improvements - £1.066 million

These works are to update aging infrastructure.  They include a figure to improve the management of water flow into Mote Park Lake from the River Len, which is work that has been identified by the Reservoir Panel Engineer responsible for Mote Park Lake.

2.48     Continued improvements to play areas - £940,000

The rationale of this project is to establish a standard for play across the borough, such that ‘most residents will live within 12 minutes’ walk of a good quality play area’.  As some of these strategically important play areas are owned by parish councils it is proposed that these parishes be offered a £10,000 grant towards improving their play areas. The total cost of this grant would be £200,000.  S106 money is available to be used towards improving play areas.

2.49     Mote Park Adventure Zone and Parking Improvements - £629,000

The Adventure Zone forms part of the current capital programme.  It is linked to improvements intended to increase parking capacity within the park.

2.50     Museum Development Plan - £546,000

As part of the ongoing development of the museum, a number of projects are envisaged including the following:

- Refurbishment of Egyptian Gallery into an Ancient Civilisations Gallery

- Upgrade Old Education room to form a modern classroom

- Install an external lift for access to three galleries

- Create a new Visitor Information point.

The projects will be considered in the context of the governance review for the Museum which is currently in progress.

Policy and Resources

2.51     Infrastructure Delivery Plan - £3.0 million

It is expected that infrastructure schemes as outlined in the Local Plan will be funded directly from the benefits gained from the development.  However, viability assessments of expected developments suggest that there will be a funding gap. The Council is prepared to support that infrastructure need in order to deliver its strategic priorities.  Accordingly, £3 million has been set aside within the capital programme to contribute towards a range of schemes, to be identified in due course, to provide local infrastructure.

2.52     Town Centre Public Realm improvements - £2.8 million

Following Phases 1 and 2 of the High Street regeneration, further improvements are proposed for the North End of Week Street and Gabriels Hill.  There is potential for further investment if a £2 million bid to the Heritage Lottery Fund’s Townscape Heritage Initiative is successful.

Not included in the above sums is any allowance for similar works in Earl Street.  The potential to fund such works will remain under review.

2.53     Acquisition of Commercial Assets - £1.5 million

The Council has a successful track record of acquiring commercial assets, which generate a return that has helped to support the revenue budget.  The capital programme includes a fund of £1.5 million which is intended to give the capacity to bid for commercial opportunities that would provide a return of 7% or more.

2.54     Asset Management / Corporate Property - £875,000

The Property Services section carries out a 5 year cycle of condition surveys of Council property which provide a costed programme of essential replacement or refurbishment of building elements to ensure the proper, compliant and efficient operation of the buildings in accordance with the Asset Management Plan.    There is no financial return from the projects, but they do eliminate the accumulation of a backlog of maintenance, reduce the risk of failure and interruption of service and the cost of reactive maintenance.

2.55     Software / PC replacement - £550,000

This is for replacement of hardware and software within the remit of Maidstone Borough Council (MBC). It is used wholly for MBC assets and is not available to any other partner within the MKS ICT shared service. It may however be used to pay a proportion of costs (related to MBC) for a shared service initiative.

2.56     Maidstone East - £500,000

The agreed priority over the next 3-6 months is to execute the short term holding strategy (creating c.250 temporary car parking spaces and letting of existing buildings for charity use, subject to all necessary consents) in order to mitigate holding costs, meet strategic car parking requirements for KCC and to generate a positive income stream for both Councils.  In parallel to the short term plan, the Councils will be procuring a multidisciplinary Master Planning Team to support the design, project management and delivery of the long term objectives in order to create a commercially viable comprehensive mixed use redevelopment of the Maidstone East area.  The capital programme contains an allowance for the cost of these short term initiatives.

2.57     Feasibility Studies - £100,000

An allowance has been included in the capital programme for feasibility works on schemes that are not yet ready to be included in the main programme.  These include the following:

Hazlitt Theatre - The Hazlitt Theatre is operated by Parkwood Leisure Limited under an agreement which runs through to 2023.   The potential of the theatre is constrained by the condition and layout of the buildings.  There may be an opportunity through investment to improve the theatre offer and reduce the cost of subsidy.

Invicta Barracks - The Ministry of Defence announced in November 2016 its intention to close Invicta Barracks by 2027.  The Council will seek to play an active part in developing plans for the site.

King Street car park - MBC’s King Street car park is allocated for retail and mixed use in our emerging Local Plan. Subject to financial viability, it is our intention to take forward the development of this site ourselves, in accordance with our recently refreshed Commercialisation Strategy.

Lenham - The rural service centre of Lenham is identified as a broad location in our emerging Local Plan for up to 1,500 dwellings towards the end of the Local Plan period (ie post 2026). Initial feedback from the Inspector suggests that this scheme should be brought forward within the plan period. In order to facilitate this, MBC may need to invest in specialist consultancy services so that we can positively work with the landowners to fully exploit the potential of this broad location.





3.1        Option 1: the Committee could choose to confirm the recommendations proposed in this report.


3.2        Option 2: the Committee could choose not to approve a capital programme at this time, leaving the decision to February’s Committee meeting when the programme is included in the final decision on the 2017/18 budget recommendations to Council. This option is not advised as considering the programme at this time and revisiting that decision in February allows all Councillors adequate opportunity to raise concerns and questions to ensure they are prepared for the final decisions at this Committee’s meeting in February 2017 and Council in March 2017.


3.3        Option 3: the Committee could amend the principles, programme or funding levels. The option is not recommended as the proposals set out in this report have been developed on the basis of fit to the Council’s strategic priorities, overall delivery of the full programme and represents the best information available at this time.





4.1        Option 1 is the recommended option. The amendments to the principles of the medium term financial strategy regarding capita projects are essential as they reflect he governance changes already in place. The funding proposals are based upon best estimates given current knowledge about government’s proposals. The programme has been developed by officers and approved by service committees as meeting the needs of their services in full awareness of the principles that must be met.





5.1        The other service committees will consider their element of the capital programme at their meetings in January 2017.



5.2        Audit Committee was due to consider the Treasury Management Strategy, which deals with how the Capital Programme is to be funded, at its meeting on 16 January 2017.





6.1        The decision of this Committee will form part of the final report on the medium term financial strategy and budget for 2017/18. This will be considered by this Committee at its meeting on 15 February 2017 and the committee will formulate its recommendations to Council on the budget for 2017/18 and the level of Council Tax at that time.









Impact on Corporate Priorities

The medium term financial strategy and the budget are a re-statement in financial terms of the priorities set out in the strategic plan. It reflects the Council’s decisions on the allocation of resources to all objectives of the strategic plan.


The Capital Programme identifies key projects requiring long term funding to improve assets and regenerate the borough.

Director of Finance and Business Improvement

Risk Management

Matching resources to priorities in the context of the significant pressure on the Council’s resources is a major strategic risk.


The proposed capital programme as set out in this report supports the council’s strategic priorities and the medium term financial strategy.

Director of Finance and Business Improvement


The MTFS impacts upon all activities of the Council. The future availability of resources to address specific issues is planned through this process.


The prudential borrowing proposed in this report is governed by the Prudential Code for Capital Finance in Local Authorities and is governed by a number of principles that are set out in the Council’s published medium term financial strategy.

Director of Finance and Business Improvement


No specific impact.

Director of Finance and Business Improvement Head of Finance & Resources


The Council has an obligation under Part 1 of the Local Government Act 2003 to have regard to the Prudential Code for Capital Finance in Local Authorities. Under the code the Council has an obligation to ensure that all borrowing is affordable and this is publically reported through the indicators that form part of the Council’s Treasury Management Strategy.


Subject to the decision of the Committee on this report the Treasury Management Strategy has been considered and approved by Audit Governance and Standards Committee for recommendation to Council. Their concerns relating to risk have been raised in this report.

Director of Finance and Business Improvement Head of Finance & Resources

Equality Impact Needs Assessment

The objective of the MTFS is to match available resources to the priorities set out in the Strategic Plan. Delivery of those priorities should enable delivery in line with the impact assessment of the strategic plan.

Director of Finance and Business Improvement Head of Finance & Resources

Environmental/Sustainable Development

None identified

Director of Finance and Business Improvement Head of Finance & Resources

Community Safety

None identified

Director of Finance and Business Improvement Head of Finance & Resources

Human Rights Act

None identified

Director of Finance and Business Improvement Head of Finance & Resources


None identified

Director of Finance and Business Improvement Head of Finance & Resources

Asset Management

Resources for management and maintenance of the Committee’s assets are included within the proposed programme.

Director of Finance and Business Improvement Head of Finance & Resources




The following documents are to be published with this report and form part of the report:

·               Appendix A: Current Capital Programme 2016/17 to 2020/21

·               Appendix B: Estimated Capital Resources 2017/18 to 2021/22

·               Appendix C: Proposed Capital Programme 2017/18 to 2021/22