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Waverley Borough Council Committee System - Committee Document

Meeting of the Executive held on 07/02/2005
Explanation of Prudential Indicators



ANNEXE 1 TO APPENDIX E
EXPLANATION OF PRUDENTIAL INDICATORS

Indicator 1 - Estimates of capital expenditure

These estimates are as included in the capital programme report and, in the case of the 2003/04 actuals, as shown in the Statement of Accounts. The risks section of this report is relevant when considering this indicator.

Indicator 2 - Estimates of the ratio of financing costs to net revenue stream

The net revenue stream is the net amount to be met from Government grant and local taxpayers or, in the case of the HRA, the net amount to be met from housing subsidy and rent income.

Financing costs are the net of any interest on borrowing, interest earned on investments and any amounts made as revenue provision to repay debt.

Indicator 3 -Capital financing requirement

The capital financing requirement measures the underlying need to borrow for a capital purpose. The requirement increases as capital expenditure is incurred or planned, and reduces when financing from capital receipts, grants or revenue is applied. The starting point was calculated at 1st April 2003 from the Council’s balance sheet.

The code requires councils to ensure that, to demonstrate prudence, in the medium term net borrowing must not exceed the total of capital financing requirement in the preceding year plus the estimates of any additional requirement for the current and next two financial years. Net borrowing is defined in the code as total external borrowing less investments less/plus cash held/overdrawn.

For debt-free councils, the capital financing requirement is likely to be zero or negative. If capital programmes are fully funded from sources other than borrowing, the capital financing requirement will not increase significantly over time.

Indicator 4 - Authorised limit for external debt

In accordance with best professional practice, Waverley does not associate its treasury management activities with particular items or types of expenditure. At any point in time, the Council has a number of cash flows both positive and negative and it manages its treasury position in accordance with its approved treasury management strategy. The authorised external debt limit replaces the old statutory borrowing limit that Waverley has been required to set in the past, despite being debt-free.

Indicator 5 - Operational boundary for external debt

The operational boundary for external debt is the most likely, prudent but not worst case scenario, without the additional headroom allowed for in the authorised limit to allow for unusual cash movements.

Indicator 6 - Incremental impact of capital investment decisions

This shows the actual impact of the capital investment decisions on the Council Tax and rent levels. It allows the totality of the Council’s plans to be considered at budget setting time.

COMMS/EXEC/2004-05/413