Agenda item

Hedd Vaughan-Evans, Portfolio Director to present report.

To agree to establish a Cost Inflation Reserve for 2026/27 and provide an initial £3.96m of Growth Deal funding to this reserve.

To approve the criteria set out for the Cost Inflation Reserve and the delegated decision matrix.

The report was presented by the Portfolio Director.

DECISION

To agree to establish a Cost Inflation Reserve for 2026/27 and provide an initial £3.96m of Growth Deal funding to this reserve.

To approve the criteria set out for the Cost Inflation Reserve and the delegated decision matrix.

REASONS FOR THE DECISION

To propose the establishment of a Cost Inflation Reserve to support approved projects (Business Justification Case or Full Business Case approval) with increased costs that cannot be mitigated in order to ensure that projects move into delivery during 2026-27. An initial £3.96 would be allocated to the Cost Inflation Reserve (to be reviewed in six months' time) leaving £28m of unallocated funding available to Reserve List projects.

DISCUSSION

It was explained that the purpose of the report was to establish a Cost Inflation Reserve to assist the development of projects throughout the financial year, following affordability challenges as noted earlier within this meeting. It was considered that setting up this fund would ensure that the pace of delivery for projects could be maintained and momentum gained into the future as more Business Cases were approved. It was noted that the establishment of this fund stemmed from experiences gained when projects had been delayed following the war in Ukraine, and to prevent such a delay in future.

It was proposed that £3.96 million of unallocated funding from the Reserve be allocated to establish the fund, with this to be reviewed in six months. It was emphasised that £28 million would remain available for the Reserve List.

It was confirmed that specific criteria would be used to determine if projects were eligible for a budget. It was noted that the fund targeted projects that were already partially developed, with procurement phases completed and a supplier identified. It was elaborated that projects would be required to conduct negotiations with suppliers to reduce costs where possible, in order to qualify for funding from this reserve. It was emphasised that any allocation from the reserve to a project must directly lead to the successful delivery of that project.

It was reported that the Growth Deal contribution towards the additional funding would be capped at the existing percentage intervention rate, where the Growth Deal was a minority funder in the project. In contrast, where the Growth Deal was the majority funder in a project, the Growth Deal contribution towards the additional funding from this reserve would be capped at 50% of the additional funding required. It was emphasised that these constraints had been very valuable in the past to ensure that project costs were shared with project sponsors, and were a successful means of ensuring that projects developed effectively.

It was explained that procedures would be in place to delegate decisions on the expenditure of the reserve to officers, in cooperation with the Chair, Vice-Chair and statutory officers.

During the discussion, the following observations were made:-

There was concern that the use of this reserve would lead to the extension of projects that might have been rejected within a better economic climate, noting that this would remove budgets from those projects where there was a certainty they would become operational. It was noted that risk management was necessary to ensure that money was not wasted.

Comments were received from the Non-Executive Adviser who highlighted that acting quickly in times where the economic climate was challenging, as cost inflation occurred gradually over time, would negate its effects.

The members expressed their thanks for the report.