Tell us how our savings proposals impact you
Our capital programme
Capital expenditure is about creating new assets or investing in existing ones to maintain their use. This includes council housing, roads, schools, council buildings, council fleet and digital technology.
The things you will see in Midlothian as a result of recent council spending are for example, new council housing, a new primary school in Easthouses, an extension to Woodburn Primary School, new digital technology in schools and devices provided to learners, new cycle paths, pavement upgrades, street lighting LED upgrades and continued investment in replacing essential council vehicles. The Alpine Coaster at Midlothian Snowsports Centre has recently opened and will generate customer income to support the council budget.
The Scottish Government provides funding for capital projects, with some project specific and the rest is a recurring amount of about £8 million. The cost of delivering capital projects is considerably more than that with some funding available from other sources. The balance of funding is provided by the council by means of borrowing which is repayable over a number of years – just like a mortgage for a home you might buy.
In the context of an expanding Midlothian, the impact of the capital programme on the amount the council has had to borrow in recent years is significant. Ten years ago it was £226 million. Now it has increased to £341 million, a £115 million increase of which £38 million relates to the General Fund (excludes council housing as that is funded separately by rent payers).
Midlothian Council’s approved General Services Capital Plan (excluding housing) increases spend, and therefore borrowing, over a wide range of capital projects. This means the cost of borrowing is projected to increase to approximately:
- 2024/25: £5.5m
- 2025/26: £10.1m
- 2026/27: £12.5m
- 2027/28: £12.9m
- 2028/29: £13.7m
Major projects approved in the plan over this period are a school campus for Mayfield and St Luke’s Primary Schools, a replacement for Beeslack Community High School, a refurbishment of Penicuik High School and a replacement for Highbank Intermediate Care.
You will have read in the “About our budget” section there are constraints over what we can and cannot do to change the level of expenditure our budget has to pay for. One option at the discretion of the council is the level of capital expenditure that it chooses to incur.
High and continued growth in Midlothian puts pressure to create essential capital infrastructure like schools and roads. The council is currently working through detail on this with a key factor being affordability. It is inevitable that some further projects will require approval and these will potentially further increase the annual borrowing costs shown in the list above. As a guide, every £1 million borrowed incurs an annual borrowing cost of about £60,000 for 30 years.
We are interested in knowing what you think our capital expenditure priorities should be and ask you below to provide us some feedback.
Why are construction costs so high?
Construction costs have risen sharply in recent years thanks to a range of factors such as Brexit and the invasion of Ukraine. We have also seen a period of higher general inflation.
Interest rates also play a part. For more than a decade, the cost of borrowing money has been very low. In recent years increases in the Bank of England base rate have risen and this means an increased annual cost of borrowing.
There are various costs associated with a building or buying things that will be used over a prolonged period.
Below is an example of a typical capital project to illustrate the financial implications associated with the ongoing capital programme.
There are two costs associated with any capital project:
- The initial cost to construct or acquire an asset (building, vehicle, road etc). This is normally funded by the Council borrowing money and repaying it over a number of years.
- The opening and ongoing operation of the asset. In the case of a school this covers costs such as paying teachers and other staff, heating and lighting costs, ongoing maintenance and other building running costs.
The annual borrowing and operating costs have to be paid out of the council’s revenue budget.
It is not possible to reduce capital expenditure and use that to fund the revenue budget. It is also not permitted to borrow money to fund revenue expenditure. Therefore, choosing to reduce capital expenditure by £10 million does not provide a solution for a £10 million gap in the revenue budget. The annual borrowing costs from reducing capital expenditure would be saved and this would amount, in this example, to reducing the budget gap by approximately £600,000.
Much of the information in this section relates to the General Fund and does NOT include council houses. The council has a separate Housing Revenue Account in which income (mainly rent) and expenditure must be kept.
Example of a Capital Project
Cost of building a primary school (design and construction)
Take, for example, a typical new 2-stream primary school with provision for say 420 pupils, 120 Early Years places and capacity for Additional Support Needs.
Designed and built based on current prices we estimate would cost £25 million.
If all of this money has to be borrowed and paid back over 30 years the annual cost is £1.5 million.
Does the Scottish Government directly fund schools?
The Scottish Government runs a funding programme called the Learning Estate Investment Programme (LEIP) to provide financial support to councils to improve school buildings.
The fund opens for applications periodically and councils make project-based bids. Not all bids are approved.
The programme does not provide funding to pay for the capital costs of a new or extended school. Councils are still required to borrow money for these costs.
Instead, annual revenue funding is provided to support the repair and maintenance and running costs of the school. The funding available considers elements such as the physical condition of the school and its energy efficiency.
The council has LEIP funding awarded for Mayfield and St Luke’s Primary campus, Beeslack High School replacement and Penicuik High School refurbishment.
What are the other costs associated with building a school?
The running costs of a new primary school are approximately £2 million and these are funded from annual revenue budgets.
The most significant cost relates to staffing, predominantly teachers, but also including administrative and facilities management. Other costs include heating and lighting, maintenance costs and other general running costs of the building.
If a new school was a replacement for another school then some of the running costs will already be included in our budget.