What we looked at

We looked at how councils plan their capital spending. We focused on councils’ annual capital programme and capital strategies. We considered how well informed these plans are and if they clearly set out their intended outcomes. We also looked to see if they take account of things like current condition of assets and available resources to deliver them. We also looked at how well councils inform councillors on their capital spending to help make sure there is effective oversight. 

We designed our work to provide an overall view of how councils plan their capital spending. We also looked to find any common issues for both councils and the Welsh Government to consider. We used our findings to inform our recommendations to improve the value for money (VFM) councils achieve from their capital planning.

We did not look at the approval or progress of individual capital projects as these are policy decisions for councils to take. We also did not assess the content of councils’ capital programmes, or the merits of their aims and ambitions for the same reason. 

Why this is important

Councils deliver significant numbers of new assets for their areas every year. Capital spending enables councils to provide a range of services to residents. It pays for both the buildings and land used to host services, and the equipment used to provide those services. It is, therefore, spending that provides the places, spaces and tools for councils to deliver services for residents.

We refer to the results of capital spending as being assets. As councils provide a wide range of services, the type of assets bought or built can vary significantly. Councils can own assets to provide services required by law, like schools, housing, or libraries. They can also own assets to provide discretionary services, like shopping centres, leisure centres, or theatres. Capital spending, therefore, influences both the costs, and income available, to councils. Getting this right is key to councils securing VFM. 

Councils currently face significant financial challenges that make delivering capital projects hard. It means also that delivering VFM is especially important.  We recognise that the costs of capital spending are hard to balance with day-to-day spending (known as revenue spending). Costs can include the interest costs of borrowing money or contributing to projects from revenue budgets. Revenue spending can often help councils to meet some challenges more quickly, including helping to manage demand for services.  Capital projects can typically take longer to complete, which can make them harder to justify when faced with increased demands for day-to-day services. 

However, not spending money on capital plans, can potentially lead to higher costs over time. For example, from high maintenance costs for older assets instead of building new ones. Inflation in the costs of construction can also mean delaying spending costs more in the long term. It can also mean worse outcomes if current assets are no longer suitable for delivering modern services. All of this can also mean higher costs in the future and put further pressure on already challenging budget positions for councils. 

Getting this balance right is both difficult but important to ensure VFM both now and over the longer term. We recognise this is a difficult balance to strike for councils.  

What we found

Councils have a long track record of delivering significant capital projects and have worked hard to maintain assets against a backdrop of increasing financial pressures. We recognise the difficult environment that councils are operating in. In this context, we hope this report will help councils to reflect on their own arrangements and identify opportunities for improvement where relevant.

Overall, we have identified some areas where we think councils could reflect on how they might improve the way they plan their capital spending. Some of the issues we have identified relate to how capital funding is allocated by the Welsh Government. We found that:

• grant funding processes do not always help councils to plan for the longer term or provide VFM;
• the intended outcomes of capital plans are generally not clearly set out by councils;
  the reasons for the need for capital spending are not always clearly set out by councils;
• reports on capital spending do not usually focus on the VFM achieved from that spending.

What we recommend 

We recommend that councils review their capital planning against our checklist. The checklist sets out key aspects of sound capital planning, informed by our audit criteria. As part of this we have recommended that councils focus on training for councillors in capital planning, ensuring that asset condition information is up to date, and routinely assess the effectiveness of capital projects. 

We also recommend that the Welsh Government review its processes around the award of restricted grant funding.