Councils are scaling back construction projects, as inflation forces a re-evaluation of business cases.
The head of the body representing public sector finance professionals told Construction News that in many cases local authorities “are having to review their capital programmes to see whether or not as much activity is affordable as [was] planned”.
Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, said that over the past decade, councils’ capital spending (on assets such as buildings) had generally been under much less pressure than revenue budgets (for things such as services), but “inflation is changing that position”.
“The supply costs of materials and construction generally mean that councils do not as easily inflate their contract awards,” he said.
“And they’re having to make some difficult decisions on the capital programme, where the same amount of capital perhaps buys a bit less than it did when the scheme was planned.”
David Renard, leader of Swindon Borough Council, agreed that the issue was a “real challenge” and was being faced by many councils.
“Budgets have been allocated in previous cabinet meetings for certain [capital] projects,” he said.
“And then, when the officers go to the market, we find out that the budget doesn’t stretch as far as we originally thought it would. And therefore there needs to be a re-evaluation of the projects.”
He explained that the issue mainly affects projects in development where contracts have not yet been signed: “The contractors who are bidding for the work are coming in, for reasons we understand, at a much higher level than was anticipated. But inevitably that does mean having to look again at what you’re doing with regard to the capital programme.
“Sometimes that’s value engineering, in terms of taking bits out or doing things differently in order to come in within the budget envelope.”
Renard added that for some councils the financial situation “might mean that certain projects are paused or cancelled altogether”.
He said that Swindon had had to review plans for a sports hub involving several national and local partners. “Unfortunately, we can’t quite afford what we thought we could afford […] Some of it can go ahead, but the other bits will have to wait for another day.”
Renard added that reviewing capital programmes may also help councils to relieve pressure on their revenue budgets.
Another local authority revising its plans is Stoke-on-Trent City Council. Its cabinet recently approved a report that recommended reducing the capital programme by £14.5m overall, including cutting £3.3m of planned spending relating to an enterprise zone.
The report said the capital programme was being impacted by “rising inflation and interest rates”.
This had led it to carry out a “detailed and challenging review of the capital programme, excluding schemes that are nearing completion or are fully grant-funded, to potentially reduce or remove schemes”.
The new unitary Somerset Council that will replace five existing local authorities next year also looks set to review its capital spending.
A report to a meeting of Somerset County Council’s executive last week forecast a £38.2m budget gap, even after current savings proposals are carried out, in 2023/24 for the new authority.
Among the “further actions” proposed to close the gap, the report lists the need to “review and reprioritise the existing capital programme to reduce borrowing costs”.
The current capital programme for all Somerset councils includes £107.4m allocated for regeneration.
Last week, CN reported that Dundee City Council was set to slash spending on coastal protection works, sports facilities and sustainable transport after rampant inflation blew a hole in its budget.
Last month, it emerged that soaring interest rates were also causing councils to reconsider schemes, including a Knowsley Council cinema project that was due to be delivered by Morgan Sindall.
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