A capital idea
How can the council possibly have to save £100m when it’s got £400m to spend on capital projects across the city?
Capital money is separate to what we spend day to day on running services and paying wages. These operating costs are known as the revenue budget, and this is where we have to save £100m. We cannot use capital money to avoid making cuts to services.
Our capital money has to be spent on fixed or physical assets like buildings, schools, council owned housing and includes things like superfast broadband and preparing land an transport links for new investment sites, for example in Scotswood, around Central Station and at Science Central.
The main source of capital money comes from our ability to borrow – it’s not money sitting in our account ready to spend on day to day activities. We are able to borrow money where we can demonstrate that it will lead to a long term return on our investment on behalf of the city. By investing up front, we can often demonstrate that spending will reduce in later years because the investment generates income, or because it helps make services more efficient.
Whilst we face some tough decisions about cuts to services, we’ll still be doing our bit to invest in the jobs and infrastructure our city needs to be ambitious and lead the region’s economic recovery. Our capital investment plays an important role in improving economic opportunities across all parts of Newcastle.
Why are you investing capital monies in the Civic Centre but not in the City Pool?
Capital spending is financed by commercial return on assets, for example rental income, or savings we can secure on our revenue budget by investing up-front in assets to reduce our costs.
We will cut costs by closing council buildings and moving staff into three offices, one of which is the Civic Centre. The Civic Centre is a high-cost environment for a modern organisation, with high energy costs and inefficient use of space. Following detailed analysis, we will implement plans for an investment programme to increase the capacity of the Civic Centre by 800 people, allowing us to bring the majority of our staff together in one place. This will save energy and maintenance costs.
Two other, smaller sites will be maintained in Allendale Road and Westgate College. This means that 13 other office buildings can, over a three year period, be reused for other purposes or sold with the receipts used for reinvestment. If we make the capital investment now, the overall accommodation costs should fall by around £2.1m by 2016. If we do not make the capital investment, then the building running costs will continue to increase, making our overall budget position worse.
The City Pool is difficult to sustain in the current financial environment. It has decreasing attendance and income, and currently requires an annual subsidy of £360k. Substantial additional investment is likely to be required for safety reasons in the near future. The repair and maintenance costs to bring the City Pool up to standard are estimated at £2.5 million, and a further £0.5m is estimated for works to make the pool more accessible. The usage of the City Pool has decreased which has had a direct impact on income to a point where we would not be able to repay the capital investment required.
Paul Woods is Director of Finance and Resources at Newcastle City council.