The investment programme contains major projects to provide and maintain the operational assets used to deliver services and investment in revenue generating assets. Expenditure charged to the investment programmes produces an asset which is called capital expenditure.
This expenditure can be funded from various sources including capital grants, capital receipts from the sale of assets, and contributions from developers. We also plan to borrow money to finance these projects.
The cost of the borrowing is the interest payable on the sum borrowed together with an amount to repay the principal sum over the life of the asset. Together these are known as financing costs.
The financing costs are treated as revenue costs (just as you meet your mortgage payments from current income) and are built into the housing revenue account and general fund budgets, and are met from the income credited to these accounts. By building these costs into the budget and the forward financial plan, we demonstrate that we have the ability to service the borrowing and repay amounts borrowed.
Borrowing for investment in assets is comparable to taking a mortgage on a property which enables individuals to purchase a property for a period of time, say 25 years, by meeting the interest on the borrowing and repaying some of the principal each year from ongoing income. It is important to recognise the difference between borrowing to finance long term assets, just as many households have mortgages to finance their homes, and borrowing for consumption, such as overdrafts or credit card borrowing.
We borrow for long term assets which meet the current and future needs of the community. In many cases assets that are obtained through investment supported by borrowing will generate future revenue for the community in excess of that required to pay the interest on the loan and repay the capital sum when due. This additional income allows us to keep Council Tax to the minimum without placing any extra burden on residents. Through this strategic approach we have been able to invest in the future of the borough.
We will only continue to borrow provided we are satisfied that we have, and will have in the future, the ability to service the borrowing and repay the amount borrowed when due without impacting on Council Tax payers.
We undertake long term borrowing for capital purposes only. This means the expenditure which is to be financed by borrowing needs to be of a long term nature and related to a tangible asset. In other words, this is a long term investment in the future of the borough.