Reviewed Capital Programme For Highland council to be brought back in December

31st October 2022

Members have considered and discussed the latest impacts of the ongoing financial crisis on the Capital Programme at their Council meeting today, 27 October.

A range of factors, including the pandemic, Brexit, the war in Ukraine, and related impacts on cost and inflation continue to affect the Council and communities across Highland.

Key challenges affecting the current approved Capital Programme, include cost pressures arising from inflation levels, shortage of products and materials, and lack of availability of contractors and sub-contractors. The recent unforeseen rises in interest rates have had a further significant impact on the affordability of the Programme, along with the rising costs of materials and labour costs.

Rising interest rates pose a risk to future revenue budgets for decades to come.

Interest rates continue to be volatile and it is therefore difficult to predict the future trend with any degree of certainty.

Members agreed the capital programme is brought back to December Council meeting following a full review.

Leader of The Highland Council, Cllr Raymond Bremner reiterated: "We can't underestimate the wider impacts of the profound financial crisis we find ourselves in. When the current Programme was set in December 2021, interest rates continued to remain at historically low levels - these rates have gone from under 2% to around 5%.

“We want to be ambitious. There is much in the Capital Programme we need and want to progress, especially the real and pressing needs to upgrade our older schools. However, it is imperative that we have a full understanding of the long-term consequences of any decisions we make in this period of uncertainty. We will engage with members in the review and development of the revised Capital Programme."

As an example, to illustrate the impact of these factors, the total cost payable for a primary school project financed by borrowing costing £15m at a 2% interest rate would have been £22.9m. If the capital cost of that project has now risen to £20m and with interest rates now approximately 5% the overall project cost increases to £50.7m, an increase of £27.8m, and more than double the original payback cost.