MD1635 GLA Group Borrowing Limits and Prudential Indicators
The Mayor is required under Section 3 (2) of the Local Government Act 2003 (the “2003 Act”) to set an “Authorised Limit” (affordable borrowing limit) for external debt, which includes direct borrowing as well as other long-term liabilities, for the GLA and each functional body. Under sections 3 (3) and 3(4) of the 2003 Act he must consult with the Assembly and each functional body before approving new limits or amending existing approvals. Alongside these limits the Mayor also approves the prudential indicators associated capital financing requirements for the GLA group as required under the CIPFA Prudential Code.
The core GLA and functional bodies’ (the Mayor’s Office for Policing and Crime - MOPAC, the London Fire and Emergency Planning Authority – LFEPA, Transport for London – TfL and the London Legacy Development Corporation - LLDC) capital programmes for 2016-17 to 2018-19 were set out in the Mayor’s capital spending plan published on 25 February 2016 which was approved under Mayoral Decision 1616.
The proposed borrowing limits and prudential indicators for 2016-17 to 2018-19 - which have regard to the capital spending plans and the final budgets agreed for each functional body – including the new Old Oak and Park Royal Development Corporation - and the GLA - are set out in Appendices A and B respectively.
The Mayor consulted the London Assembly and each functional body on the proposed borrowing limits for 2016-17 to 2018-19 as part of his consultation budget issued on 21 December 2015. Each functional body supports the limits and indicators being proposed for approval and the Assembly raised no specific objections to the proposed limits submitted to them for consideration as part of the 2016-17 budget consultation process.
The Mayor is requested to agree:
The Authorised borrowing Limits (Appendix A) and Prudential Indicators (Appendix B) for 2016-17 to 2018-19 for the GLA and for each functional body.
Part 1: Non-confidential facts and advice
1.1 The Mayor is required, under section 122 of the Greater London Authority Act 1999 (“the GLA Act”, as amended), to prepare a capital spending plan for the GLA’s functional bodies. The final 2016-17 GLA Group capital spending plan was approved under Mayoral Decision 1616 and published on the GLA website on 25 February 2016 at: The Mayor's budget | London City Hall
1.2 The Mayor is also required under Section 3 (2) of the Local Government Act 2003 (“the 2003 Act”) to set an Authorised Limit (or affordable borrowing limit as it is described in the 2003 Act) for external debt, which includes direct borrowing as well as other long-term liabilities, for each of the functional bodies and the GLA which has regard to the approved capital spending plans. Under section 3 (3) of the 2003 Act he must consult with the London Assembly before approving new limits or amending existing approvals. The objective in setting the limits is to ensure that these are consistent with each organisation’s plans for capital expenditure and financing (i.e. the GLA group capital spending plan); and with its treasury management policy statement and practices. The Local Government (Capital Finance and Accounting) (England) Regulations 2003 (“2003 Regulations”) require each functional body and the GLA to have regard to the Chartered Institute of Public Finance and Accountancy (CIPFA) Prudential Code for Capital Finance in Local Authorities in (“the Prudential Code”) exercising their functions under Part I of the 2003 Act, including the determination of the Authorised Limit.
1.3 Local authorities can borrow on the basis of need and affordability, which they have to demonstrate through compliance with the Prudential Code developed by CIPFA and given statutory force by 2003 Regulations. The Prudential Code has a central role in capital finance decisions, including borrowing for capital investment. Its key objectives are to provide a framework for local authority capital finance that will ensure for individual local authorities that capital expenditure plans are affordable; all external borrowing and other long-term liabilities are within prudent and sustainable levels; and that treasury management decisions are taken in accordance with good professional practice.
1.4 Two borrowing limits are set under the Prudential Code. The Authorised Limit – the formal limit approved under the 2003 Act - is the expected maximum borrowing needed by each functional body with headroom provided for each functional body for unexpected developments such as unusual cash movements. The operational boundary for external debt is based on the same estimates as the authorised limit. However it reflects an estimate of the most likely, prudent but not worst case scenario. It equates to the maximum level of external debt projected by the agreed capital spending plan and excludes any headroom included within the authorised limit. There are two elements to these limits – the limit on actual borrowing and that on any long term liabilities included on each authority’s balance sheet (e.g. Finance leases).
1.5 Alongside the borrowing limits the Mayor is required to approve Prudential Indicators for the GLA Group under the Prudential Code which assess the affordability and prudence of the capital spending plans. Under the Code local authorities are also required to calculate a capital financing requirement (CFR) - the estimated underlying need for an authority to borrow having regard to its capital spending plan and financing from other sources such as capital receipts and government grants. Treasury management indicators on interest rate exposures and the expected maturity structure of borrowing are also approved under the Code.
2.1 This Mayoral Decision requests the Mayor to approve the affordable borrowing limits (the ‘Authorised Limit’), prudential indicators and capital financing requirements for the GLA and each functional body for 2016-17 to 2018-19 having regard to the above statutory requirements. These limits have regard to the Mayor’s capital spending plan for 2016-17 which was published on 25 February 2016 (Mayoral Decision 1616) following the statutory consultation on the draft plan issued on 21 December 2015.
Changes from the proposed borrowing limits for 2016-17 to 2018-19 set out in the Mayor’s Consultation Budget published in December 2015
2.2 The proposed borrowing limits for MOPAC set out in this document have changed from those that were consulted upon in the Mayor’s consultation budget and reflected in his Final Draft Consolidated Budget. The total Authorised Limit and Operational Boundary for 2018/19 have increased by £130.1m due to revisions made to MOPAC’s Capital Spending Plan in the Mayor’s final approved budget.
2.1 TfL’s proposed borrowing limits set out in this document have changed from those that were consulted upon in the Mayor’s consultation budget and reflected in his Final Draft Consolidated Budget – the total Authorised and Operational Boundaries for external debt have reduced by £19.8m in 2016-17, and increased by £3.6m in 2017-18 and by £6.1m in 2018-19. These reflect changes to the long term liabilities element reflecting an update to the assumptions on the timing of settlement of the Crossrail property provision.
2.2 The limits for LLDC are altered, increasing by £20m in 2017/18 and £40m in 2018/19. These movements are due to revisions made to LLDC’s Capital Spending Plan in the Mayor’s final approved budget.
2.3 The limits for GLA and LFEPA are unchanged from those published in the Final Draft Consolidated Budget.
3.1 As public bodies, the GLA and the functional bodies must comply with section 149 of the Equality Act 2010, which provides for the “public sector equality duty”. This duty requires each body to have due regard to the need to eliminate unlawful discrimination, harassment and victimisation, to advance equality of opportunity, and to foster good relations between people who share a protected characteristic and those who do not. The protected characteristics covered by section 149 are: age; disability; gender reassignment; pregnancy and maternity; race; sex; religion or belief; and sexual orientation. Observance of the duty may involve, in particular, removing or minimising any disadvantage suffered by those who share a relevant protected characteristic, taking steps to meet the needs of such people and encouraging them to participate in public life or in any other activity where their participation is disproportionately low, including tackling prejudice and promoting understanding. In limited circumstances this may involve treating people with a protected characteristic more favourably than those without the characteristic.
3.2 There is no direct impact on the GLA group’s public sector equality duty arising from the approval of borrowing limits, prudential indicators and capital financing requirements set out in this Mayoral Decision and its appendices with regard to the Mayor’s final capital spending plan for 2016-17 (Mayoral Decision1616). Part 3 to the Mayor’s final draft consolidated budget provided detailed advice on the equalities implications of the Mayor’s final draft budget relevant to their proposed capital spending plans and section 3 of Mayoral Decision 1616 provided advice on the equalities implications of the Mayor’s final GLA group capital spending plan 2016-17.
Old Oak Common and Park Royal Development Corporation
4.1 The Old Oak Common and Park Royal Development Corporation (OPDC) was established as a functional body on 1 April 2015. The Mayor’s Final Draft Consolidated Budget (i.e. his revenue budget) published on includes revenue funding for the OPDC. Mayoral Decision 1616 – GLA group capital spending plan for 2016-17 - published on 25 February 2016 confirms that no capital expenditure for OPDC is assumed in the GLA capital spending plan for 2016-17. As OPDC was established on 1 April 2015 the Mayor is required to set borrowing limits for it; these are nil because the CIPFA Prudential Code requires the borrowing limits to be set with regards to capital expenditure plans and there is currently no such data on which to base the limits. The OPDC is therefore excluded from all the tables in Appendices A & B.
Consultation responses in regards to the Mayor’s 2016-17 GLA group consultation budget
4.2 The Mayor consulted on the 2016-17 budget - including the capital spending plan and borrowing limits - with the London Assembly, London boroughs, the Corporation of London and other key stakeholders between 21 December 2015 and 12 January 2016. No items of specific direct relevance to the borrowing limits and prudential indicators were raised.
4.3 There are no further implications for risk management as these have been addressed as part of the budgetary process.
5.1 The Mayor consulted with the Assembly on the proposed borrowing limits for the GLA and the functional bodies and consulted each functional body on the proposed borrowing limit for that body, set out in his draft capital spending plan issued on 21 December 2015.
5.2 The final 2016-17 capital spending plan was issued on 25 February 2016 at The Mayor's budget | London City Hall and approved in Mayoral Decision 1616. The borrowing limits (the ‘Authorised Limits’) and prudential indicators for 2016-17 to 2018-19 which are being submitted for approval are consistent with the final 2016-17 capital plan with the following exceptions:
LFEPA’s capital expenditure plan for 2016/17 is lower by £19.4m, primarily due to works being completed in 2015/16. The plan is also slightly higher in 2017/18 by £2.7m, due to slippage on specific programmes.
TfL capital expenditure estimates for 2016/17 have been amended following the publication of its Budget 2016/17 and Business Plan to take account of TfL’s latest capital expenditure assumptions as included in TfL’s approved Business Plan. The TfL capital expenditure estimates for 2016/17 set out in this document are consistent with figures submitted as part of the budget document submitted to TfL’s Board for approval on 17 March 2016. Capital expenditure estimates for 2017/18 and 2018/19 are consistent with figures submitted as part of the detailed 2014 Business Plan approved by TfL’s Board on 26 March 2015.
5.3 The borrowing limits along with the capital financing requirements and prudential indicators submitted here for approval have been determined in line with the provisions of the Local Government Act 2003 and relevant accounting codes.
5.4 The Treasury Strategy for the core GLA is being approved under a separate Mayoral Decision. The capital financing requirements and prudential indicators submitted here for approval are consistent with the strategy set out in that document. The indicators for the functional bodies are consistent with those approved as part of their internal decision making processes.
6.1 The Mayor is required under section 122 of the GLA Act to prepare, for each financial year, a capital spending plan for the functional bodies. The 2016-17 capital spending plan was approved under Mayoral Decision 1616 in February 2015 and included the capital spending plans for the four functional bodies and the GLA.
6.2 The Mayor is also required under section 3(2) 2003 Act to determine how much money the GLA and each functional body can afford to borrow. This is the ‘Authorised Limit’ (or affordable borrowing limit). The limit determined for TfL under the 2003 Act concerns the borrowing of TfL as a body corporate established under s154(1) of the GLA Act and not the TfL Group (which includes TfL and its subsidiary companies).
6.3 Under sections 3(3) and 3(4) of the 2003 Act, before making any determination under section 3(2) in respect of the GLA, the Mayor has to consult the London Assembly, and before making any determination in respect of a functional body, the Mayor has to consult that functional body. Regulation 2 of the 2003 Regulations requires the Mayor, in complying with his duty to determine the affordable borrowing limit for the GLA and the functional bodies, to have regard to the Prudential Code published by CIPFA. The Mayor agrees the Prudential Indicators for each functional body and the GLA for the purposes of complying with the Prudential Code. For TfL the Prudential Indicators recommended for approval are for the TfL Corporation and (where stated) the TfL Group (i.e. including its subsidiaries).
7.1 This decision has not been considered by the Investment and Performance Board as it does not relate to the approval of a specific GLA programme or project. However the Mayor’s capital spending plan and the proposed limits have been consulted on and approved in line with the statutory process set out in the GLA Act and the Local Government Act 2003.
8.1 Once the Mayor has approved this request for Mayoral decision he will have discharged his responsibility under Section 3 (2) of the Local Government Act 2003 (“the 2003 Act”) and the Local Government (Capital Finance and Accounting) (England) Regulations 2003 to set borrowing limits and prudential indicators for the forthcoming and following years.