Council capital spending to hit five-year high in post-Covid rebound

Local government capital spending is expected to peak in five years this fiscal year as councils borrow to launch projects in the wake of Covid delays.

Total investment spending on advice in England is expected to be £ 30.7bn in 2021-2022, up £ 6.9bn (29%) from 2020-21, when they stood at £ 23.8 billion, according to figures released by the Department for Housing, Communities and Local Government.

This brings capital spending to a five-year high, even when the amounts are adjusted for inflation. Using 2020-2021 prices, total capital spending this year is expected to be 20% above its level of £ 25.2 billion in 2016-17.

It follows a lull in capital spending in 2020-2021, when it was down 11% from the previous year in real terms.

More than half of the planned capital expenditure for this year (£ 18bn) is expected to be spent on new builds, conversions and renovations. In real terms, this represents a 10% increase in the municipalities’ planned spending in this area for 2020-2021, and a 25% increase in their actual spending.

Authorities planning to increase spending by over £ 100million in this category include the North London Waste Authority (£ 162million), Newham LBC (£ 159million), Sheffield City Region CA (126 million pounds), Enfield LBC (121 million pounds) and West Midlands CA (just over 100 million pounds).

The services with the highest capital spending forecast for this year are motorways and transport (£ 8.5bn) and housing (£ 9.2bn).

A significant share of housing spending comes from London Boroughs, which plan to increase their housing investment spending by £ 3.4bn to reach £ 5.5bn in 2021-2022.

Much of the increase is believed to reflect the timing of the current affordable housing program, which has made £ 4.8bn of public funds available to build homes for Londoners.

Darren Rodwell (Lab), executive member of the London Councils for Housing and Planning, said this year was the last of the program’s current funding period, meaning “housing spending will be at its highest before the end of program “.

Cllr Rodwell added that “2020-2021 was also exceptional in terms of how councils spend their budgets, due to the immediate need to respond to the Covid-19 pandemic, hence spending in certain areas in 2021-22 will now be higher than the previous ones. year”.

Advice capital receipts – which include income from assets sold – have declined in real terms since the pandemic. At 2020-21 prices, they are expected to rise to £ 2.4bn this fiscal year, down £ 478m (17%) from their level last year and 1.6bn pounds sterling (40%) less than forecast for 2020-21.

The main source of funding for capital spending remains prudential borrowing, which is also at its highest level in five years after falling last year. Using 2020-21 prices, prudential borrowing to fund capital spending was £ 11.7bn in 2019-2020, £ 9.4bn in 2020-21 and is expected to reach £ 13.1bn in 2019-2020. pounds sterling in 2021-2022.

In 2016-2017, grants (£ 11.0m) were a larger source of capital funding than borrowings (£ 7.4m) – but this trend reversed for the next five years , with grants to fund £ 9.6 billion in capital spending. year.

Karen Sanderson, director of public finance management at the Chartered Institute of Public Finance & Accountancy, told LGC: “Capital spending was down in 2020-2021 as Covid impacted local government spending plans . Spending for 2021-2022 reflects a rebound from this position and a recovery from delayed projects. “

She said the level of borrowing “increases with the larger investment program,” and is also likely to have been affected by the decline in capital receipts.

Ms Sanderson added that uncertainty over Public Works Loans Board lending terms until a change announced in November of last year may have resulted in “borrowing being deferred for the past six months.”

She suggested that the councils could also seek to ‘lock in’ fixed debt this year, with indications that central bank interest rates could rise soon as well as an expected rise in gilt yields – both of which would rise. PWLB rates.

Paul Dossett, public sector insurance manager at Grant Thornton, expressed concern that some authorities were not taking sufficient amounts from their revenue budgets each year to repay the external loans that had allowed the growth of capital expenditure.

“Some tips do not provide enough [minimum revenue provision] in my opinion, “he said.” It pushes the box on the road for future generations – someone will have to pay for it in the end. “

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