Agenda item

Report from the Strategic Director of Finance and Customer Services.

Recommendations:

That Cabinet:

1.    Note the current General Fund Revenue Budget forecast overspend of £11.4m.

2.    Note that actions will continue to be taken to reduce the overspend position but that it is expected that the Council will need to draw on its reserves to balance the 2022/23 financial position.

3.    Note the Council’s approach to use of the Homes for Ukraine funding, as detailed in section 2.42.

4.    Note the updated Capital Programme.

Consideration was given to the report which set out the financial position as at the end of July 2022 and was based on the actual costs and income for the first 4 months of 2022/23 and forecast for the remainder of the financial year.

Members noted that financial performance was a key element within the assessment of the Council’s overall performance framework and was essential to achievement of the objectives within the Council’s Policy agenda. The report was the second in a series of monitoring reports for the 2022/23 financial year which would continue to be brought forward to Cabinet on a regular basis.

As at July 2022, the Council currently estimated an overspend of £11.4m for the financial year 2022/23. Whilst the core directorates services have a forecast year-end overspend of £7.4m on the General Fund, there was £4.0m of estimated unbudgeted costs resulting from the wider financial impact of the war in Ukraine, inflation, energy price increases excluding the estimated impact of the 2022/23 pay award. This additional financial challenge had been factored into the current forecast following a review of the impact of the pressures on the current year and Medium Term Financial Planning.

Whilst the energy price rises and inflation would impact the Council’s costs in the provision of services, there would be some mitigation in future years by increased core funding as business rates income was indexed to the rate of inflation. It was currently expected that the period of high inflation would last for around 2 years before returning to a more normal level but the cost increase being experienced would raise the base cost of services on which future inflation was applied meaning a compounding impact.

As such, the Council faced significant financial pressures that would need to be managed and mitigated through the Medium Term Financial Strategy and through significant use of the Council’s reserves. There was no indication as to whether additional funding would be provided to local authorities as part of the financial settlement for 2023/24.

Along with most Council’s across the United Kingdom, the Council had assumed a 2% pay award for staff for 2022/23. However, the current estimated pay potentially provided staff at the bottom of the pay scale with a 10.4% pay award, reduced to 1.1% for the top salary point. The financial impact of the pay award would be £6.5m greater than the budget assumed. Additional pressures included placement pressures within Children and Young People’s Services, Home to School Transport pressures within Regeneration and Environment and pressures relating to longer term recovery from Covid-19 on income generation within Regeneration and Environment.

The Homes for Ukraine Funding Scheme had been launched in March 2022. The Government was providing funding at a rate of £10,500 per person to councils to enable them to provide support to families to rebuild their lives and fully integrate into communities. Initially, the Council had to incur costs in advance of funding being provided but Government had now begun to make the required funding allocations. If all applications were approved (140 potential), the total grant would be £1,470,000. Numbers were being monitored closely, and for prudence, the grant was currently estimated at £1,249,500, being the value of the 119 approved guests. An officer decision would be taken by the Assistant Chief Executive, in consultation with the Leader of the Council, to set out how the fund had been used to date, to meet specific emergency requirements as well as setting out how the Council would provide ongoing wrap around support moving forwards.

The HRA was currently forecast to overspend by £1.8m. The budget had included a contribution to the HRA reserve of £2.037m. The transfer was now forecast at £0.277m to reflect the forecast overspend which would bring the HRA back to a balanced position.

The Capital Programme 2022/23 totalled £188.138m split between the General Fund (£135.310m) and HRA (£52.828m.) This was a decrease of £97.145m to the position as at the end of May reported to Cabinet on 11th July, 2022. The majority of this related to the reprofiling of schemes due to delays caused mainly from Covid-19, inflationary pressures on the programme and the high volume of capital activity taking place nationally that was straining resources from an internal and external delivery point. The movement was based on the latest profiles of expenditure against schemes, both new and revised grant allocations (£1.777m) and slippage and re-profiles (£98.922m).

The Council was progressing to deliver the redevelopment of Forge Island in line with the Town Centre Masterplan, with negotiations with private sector partners now reaching the final stages ahead of construction.

The Council’s development partners have become aware of issues relating to the funding of the Scheme given the very recent volatility of the financial markets and the challenges this may now pose to private funders providing up-front capital within the requirements previously agreed by the Council. As a consequence, before finalising the funding arrangements, the Council was in conversation with the Developer, the Council’s Finance and Legal Teams to ensure that the changes to the financial market did not negatively impact on the delivery of the Project or unnecessarily increase the Council’s liabilities.

A report would be presented to Cabinet on 17th October, 2022, that would present the options available to facilitate delivery. The proposed additional recommendation discussed during the meeting empowered Cabinet to choose from the full range of options for delivery including further supplementing or replacing what was expected to be privately raised capital with the Council’s own borrowing and capital resources.

Such changes could only be agreed by Cabinet if doing so would ensure that the Council could fulfil its best value duty by financing the scheme through the most cost-effective mechanism.

The Cabinet decision was highly time sensitive due to external factors not within the control of the Council, and there were likely to be significant additional cost pressures should Cabinet not be in a position to decide on 17th October.

This report had been considered by the Overview and Scrutiny Management Board as part of the pre-decision scrutiny process. The Board fully supported the recommendations but asked that Scrutiny be provided with a further update on the fleet management vehicle purchase project.

Resolved:-

That Cabinet:

1.    Note the current General Fund Revenue Budget forecast overspend of £11.4m.

2.    Note that actions will continue to be taken to reduce the overspend position but that it was expected that the Council would need to draw on its reserves to balance the 2022/23 financial position.

3.    Note the Council’s approach to use of the Homes for Ukraine funding, as detailed in section 2.42.

4.    That the Cabinet recommends to Council that: Cabinet have authority to approve amendments to the Council’s Capital Programme in relation to the Forge Island leisure development, should this be necessary in order to secure best value for the taxpayer.

5.    Note the updated Capital Programme.

6.    That a further update be provided to scrutiny on the fleet management vehicle purchase project.