Draft Robustness of Budget Estimates and Adequacy Reserves
Report of the Interim Head of Finance
The Interim Head of Finance and S151 Officer presented the report and highlighted the key points. Firstly, it was noted that the Council would be facing significant inflationary pressures and secondly there was a lack of certainty with regard to government funding levels over the medium term within the General Fund.
Officers informed the meeting that business rates growth had benefitted the council in recent years, however that it would not be prudent to continue to rely on this as a source of income due to the potential for changes from the government in the future. It was observed that this year the budget process had been more robust and intense than in previous years.
It was noted that financial strategies and policies were guiding principles and it would be important to follow these, and to use business rates growth for ‘one off’ funding and capital projects, as opposed to relying on it as a source of income for on-going costs.
With regards to capital strategy, it was observed that the improvements proposed to governance and the management of schemes through their project life cycle were in line with best practice.
With regards to treasury management strategy, it was observed that the improvements proposed would be in line with national guidelines.
In relation to the general fund, it was suggested that the council would need to start planning ahead as the government would be giving consideration to changing how local government would be financed. The earliest any changes would be implemented would be in 2025/26.
The budget key risks were noted, along with specific actions required to mitigate or minimise these risks. Primarily, it was highlighted that the medium term financial plan would need to be implemented.
Officers emphasised the fact that a positive opinion could be provided with regards to the robustness of budget estimates and adequacy of reserves provided that the actions set out in the report were undertaken.
A member expressed concerns that the HRA budget featured reference to taking action to reduce the forecast overspend in 2022/23 and asked what the impact of this would be to tenants and enquired how the council would be making provision for it. It was asserted that there was no clear functional savings plan in place. Concern was voiced that no impact assessment had been carried out and if the potential for negative impact should the scope of repairs be reduced as a consequence.
Officers responded that in terms of setting any budgets for the future it would be important to consider the pressures that the council is experiencing in the current year, and therefore to factor the underlying causes for the overspend in the current year into the budget for the next year. Some of the key reasons for the overspend in the current year were outlined. Officers explained that with both the HRA and the general fund, it would be necessary to minimise the overspend as far as possible, however this would not lead to decisions which would put housing stock or the vulnerable at risk. Members were assured that an impact assessment would be carried out as part of the process of formulating a medium term financial plan, however that this was not a part of the budget which would be considered at the current meeting. It was noted that for the HRA it would be necessary to maximise value for money, in order to reinvest back into the council’s housing stock.
A member asked whether the forecast overspend had been factored into the draft budget position or if it was assumed to be reduced/mitigated. Officers advised that there had been an assumption drawn from Quarter 2’s overspend which had reduced reserves, however if and when the outturn position improved, this would provide more money for the HRA.
A member enquired if the £1m operating balance which had been retained in reserve would be secure in the future. Officers responded that it is considered good practice to have a minimum level of reserves and following assessments, it was considered that £1m in reserve would be a minimum in order to counter any unforeseen circumstances. The importance of reviewing and monitoring finances to identify and respond to risks was highlighted.
A member expressed concerns that money in excess of £1m would be used for capital spending and repayments and noted that there appeared to be a large increase in the level of borrowing to finance the capital programme and asked if officers were confident that the debt would be serviceable from the HRA. Officers advised that provision had been made for interest costs for borrowing and also that the policy would be to repay the debt by the end of the 30-year business plan and reassured members that the budget would be built on this assumption.
It was asked what the estimates of transitional government funding which had been assumed in the medium term financial plan were based on and how confident officers were on the reliability of these estimates. Officers advised that the further the council looks into the future, the more uncertain the funding becomes, however members were advised that the council employs expertise from Pixel Financial Management who specialise in local government funding formulae. Officers explained to the meeting that Pixel’s modelling is utilised in order to identify the level of potential transitional support. It was noted that the government hadn’t announced that the business rates reset would happen or whether there would be transitional relief. However based on previous changes to local government funding formulae, there had been some sort of transition funding available to the councils most likely to be affected. A member asked why the predicted amount of transitional relief would be markedly higher in this budget than it had been in previous ones. Officers advised that by using Pixel’s latest knowledge, their expertise had been utilised to build into funding forecasts going forwards.
A member stated that they welcomed the introduction of finance specific quarterly reports which would go to Cabinet and enquired why the new finance system had not been fully implemented and if it would be operational by the end of this financial year. Officers replied that work had been actively ongoing with the new system and offered their assurances that it would be going live on 1 April 2023.
A member asked for clarification on the new capital strategy group mentioned in the report and the structure that this would take. Officers advised that this would be an officer group with representations from a number of disciplines across the council, for example Finance, Housing and Legal and would essentially be a group to help develop capital schemes in the early stages of their conception, prior to being considered by Cabinet and Council in accordance with the Constitution.
Corporate Scrutiny Committee provide comments on the Draft Robustness of Budget Estimates and Adequacy of Reserves (Appendix A) for consideration by Cabinet on 10 January 2023.
- Draft Robustness of Budget Estimates and Adequacy Reserves, item 72. PDF 220 KB
- Appendix A - Draft Robustness of Budget Estimates and Adequacy Reserves, item 72. PDF 494 KB