Agenda item

The Interim Section 151 Officer presented an update on the Medium Term Financial Plan (MTFP) 2023/24 to 2025/26.

 

The Executive Committee was advised that the Council would run the MTFP process in two tranches in the build up to setting the budget in February 2023. The Council set an MTFP every year, which covered a three-year period, with the final Council Tax Resolutions being approved by Council in February. 

 

Work on the budget was being undertaken in a challenging context, due to the following factors:

 

·             Starting the process from an initial deficit position from the 2022/23 MTFP.

·             This being the first year that the Government would start to pay for the Covid-19 pandemic.

·             The cost of living crisis.

·             Changes at a national level, in respect of the Prime Minister and Cabinet.

·             The Council having limited Reserves and Balances.

 

As such, it was considered prudent to split the budget process into two tranches.  The initial tranche would seek to close as much of the deficit as possible using information known as at the end of September 2022 and seeking approval for those savings to be implemented at Council in January 2023.  The second tranche would be considered after the Christmas break, which would be approved in February 2023.  This would take into account the Local Government Settlement, the final detail for which was not due to be known until early January 2023.

 

The starting position for the 2023/24 MTFP, was to consider the three year “gap” that needed to be bridged for the Council’s budget to come back into a balanced sustainable position. The revised gap was because the MTFP had been rolled on a year to include 2025/26.  During the period, the gap was expected to increase from £949,000 in 2023/24 to £1.04 million in 2025/26.  In addition, there were unallocated savings in the existing MTFP.  These would need to be addressed as part of the ongoing 2022/23 budget setting process and would be set out in the Q2 Finance and Performance Report.

 

The emerging national picture, including the expected settlement dates, remained unclear by the date of the Executive Committee meeting.  There was the potential that clarity would be provided in the Chancellor’s statement on the 31^st October 2022.  Should this proceed on this date, it was likely that the Local Government Financial Settlement would be confirmed in the final week before Christmas, like previous years.  There was also uncertainty about whether Councils would be offered a single year settlement or multiple year settlement.  However, in the current national context, it was suggested that it might be better for Councils to have a single year settlement.

 

In reviewing the initial tranche, Officers had made a number of base assumptions, including the following:

 

·             That Council Tax would increase by the maximum 1.99 per cent possible without triggering a local referendum and that there would be the ability to increase this by £104,000 from 2024/25.

·             An assumption that there would be no growth in the business rates base.  Members were asked to note that this was being reviewed in light of the post Covid-19 environment.

·             An assumption that the Council would receive no New Homes Bonus (NHB) funding from 2023/24 onwards.

·             An assumption there would be no local services grant from 2023/24 onwards

·             Assumptions about the Local Government Pension Fund for Worcestershire, taking account of the latest triennial valuation which was received in September 2022.

·             The severe impact of increasing inflation on Council budgets including:

-              the £1,925 proposed increase to staff wages, which would cost the Council an additional £928,000.

-              10% inflation on contracts and transport, which would cost an additional £251,000.

-              An assumption that there would be at least a 200 per cent increase on utilities costs, representing an extra £1.14 million.

·             Assumptions regarding increases to fees and charges of 10 per cent, with some exceptions, to cover increasing costs due to inflation.

From a strategic perspective, the Council had come into the 2023/24 budget process with a number of conflicting issues.  These included:

 

·             An ongoing budget deficit position from the 2022/23 MTFP of £1.0 million.

·             Significant inflationary increases due to the cost of living crisis.

·             Limited reserves to call on to reduce any deficit (the existing MTFP general fund balances were due to fall to £0.228 million by 2025/26 should no action be taken). Earmarked reserves were valued at just under £7 million.

·             Increases in Council Tax had to be limited to 1.99 per cent or £5, which was significantly lower than the rate of inflation.

 

The Council needed to move to financial sustainability over the timescale of the next MTFP.  Given the magnitude of the savings to be made, Members were informed that it was not prudent to expect the movement to sustainability to happen by 2023/24.  However, the level of reserves and balances presently held suggested that moving to sustainability by 2025/26 would be too late and would leave inadequate resources for any emergency situations.  As such, the strategy needed to move the Council to financial sustainability by the 2024/25 financial year. 

 

To get to this position, there would be the need for investment and possibly the requirement to fund redundancies (both from reserves and balances). For both these requirements, there would be outputs from the Council having to implement changes to the way it operated in order to continue to be a viable entity going forward and this would take 18 months to implement fully.

 

Tranche two of the budget would adjust for any funding that the Government would provide and also look at other options to close any deficit should the Government settlement not bridge any resultant gap.  Initiatives that would be assessed in tranche two, for which more time was required to analyse the individual options, included:

 

·             Ensuring grants were maximised.

·             Ensuring agency work reflected the income provided for its delivery.

·             Minimisation of Bed and Breakfast temporary accommodation costs.

·             Reviewing the effectiveness of the Council’s largest contracts.

·             Maximising the efficiency of the Council’s refuse fleet.

·             Reviewing the location and effectiveness of the Council’s depot.

·             Assessing the Council’s leisure and cultural strategy in terms of affordability.

·             Reviewing recharging mechanisms between Redditch Borough and Bromsgrove District Councils for appropriateness.

·             Rationalisation of back office services as the Council increasingly made use of additional technology for service delivery. 

 

Many of these initiatives would require investment, for which the only source of funding was reserves. Key areas of investment would be documentation of processes, investment in automation and robotic processes as well as possible redundancy costs arising from restructures.

 

For tranche one, overall, the Council had identified £1.5 million of savings.  This more than offset the £1.0 million budget deficit.  However, when inflationary pressures, not including utilities costs, were added to the calculations, the Council moved to a deficit position of £599,000 which reduced to £125,000 over the three-year period.  Officers were reviewing utilities costs separately, due to the potential for significant Government support to be made available in future.  Should this not materialise, then the overall deficit position would increase to £1.7 million and then reduce to £1.3 million on present working assumptions.

 

The existing MTFP had anticipated that general fund balances would reduce from £2.292 million to £228,000 by 2024/25, should no action be taken to address the budget gap.  However, this was not a sustainable level of general fund reserves and Members were advised that a level of 5 per cent of gross budget was usually advised, representing £2.5 million for Redditch Borough Council. 

 

The Council also had earmarked reserves which were held for specific purposes. These earmarked reserves were valued at £6.666 million in total.  All reserves would be reviewed for their ongoing applicability.

 

The Council, over a number of years, had not spent its capital programme allocations in year.  A review had therefore been launched of all schemes that had not started, both from 2022/23 and from previous years, as well as schemes that had yet to start.  This would assess deliverability and links to the Council’s revised strategic purposes.  Any scheme that had not yet started, unless this was grant funded or in receipt of S106 funding, would be required to rebid for funds as part of the 2023/24 budget process.  There would be the need to add items to the capital programme (which would be finalised over the following couple of weeks) to include sums for ICT hardware, such as laptops and property maintenance budgets, and significant work was required to ensure energy efficiency compliance.

 

The priority in the capital programme was for the Council to spend its grant funding.  By the date of the Executive Committee meeting, the Council was in receipt of the following capital grant funding:

 

·             Towns Funding of £17.2 million.

·             UK Shared Prosperity Funding (UKSPF) of £2.4 million.

·             A bid had been submitted for Levelling Up Funding of £20 million for the redevelopment of Matchborough and Winyates District Centres.

 

This funding was time limited, and all needed to be spent by 2026, except for funding for the UKSPF, which needed to be spent by 2025.  Therefore, consideration needed to be given to what resources would be available to manage any significant capital spend above these schemes.

 

In terms of the robustness statement for the Council, the MTFP highlighted that the current financial position was untenable without some form of intervention. Whilst a balanced budget for 2022/23 was approved with the use of reserves and balances in February 2022, the Council was forecasting a £1.7 million overspend in 2023/24, due to the additional demands placed on the authority by the present rates of inflation, which in turn would require the Council to utilise the remaining available reserves and balances to fund these pressures unless other action was taken.

 

Given all the uncertainty, Officers had made assumptions based on the best available information to the Council at the time. Work would continue in validating all assumptions, robustly challenging estimates and ensuring the delivery of existing saving plans. Updates would also be included in tranche two of the MTFP and balanced budget setting process.

 

Following the presentation of the report, Members discussed the content and as part of this process commented that developments at a national level were clearly having a significant impact on the Council’s financial position as well as the potential to plan for the future.  The Executive Committee noted that it was the collective responsibility of all Portfolio Holders to work closely with their lead Heads of Service to identify further savings that could be made.  Members also concurred that, given the number of variables and the level of uncertainty, a one year settlement from the Government would be preferable at this time.

 

RESOLVED

 

1)          that the inputs into the Council’s Medium Term Financial Plan as at the start of October 2022, and the associated risks and opportunities, be endorsed;

 

2)          to note that these inputs have been used, along with the 2022/23-24/25 Medium Term Financial Plan agreed by Council in February 2022, to project an initial “gap” to be closed;

 

3)          to note that an initial tranche of savings proposals, as set out in the associated Savings Proposal Document, was published on the 16^th October and any feedback will be considered by Executive Committee in December 2022 and at Council in January 2023; and

 

4)          to note that tranche two of this process will add further information such as the Local Government Settlement to give a final financial position for the Council.