Agenda item

October Revenue Budget Monitor

Minutes:

The Leader introduced the report to colleagues, this was the mid-year revenue update presented to Cabinet and explained the current forecast position of the Authority as at October 2022.

 

Against a net budget of £343million, the October revenue position currently forecasted an overspend of £1.4million, which represented less than 0.5% variance against budget. This overspend was after the use of all revenue budget contingencies of £4.7million included in the 2022/23 revenue budget, as agreed by Cabinet in February 2022.

 

Despite having established sizeable budget contingencies for the 2022/23 year to deal with covid legacy issues, crucially, new issues emerged since the budget was agreed:

 

·        The agreed NJC and teacher’s pay award for 2022/23 is higher than the provision allowed for (average +2.4% higher for NJC and +1% higher for Teachers)

·        Increased demand and therefore overspending on housing budgets specifically in relation to homelessness provision, and

·        Increased demand in Children’s social care specifically in relation to placement costs.

 

As shown in the report and its appendices, coupled with the pay award impact, the current position was explained in the following way:

 

·        There was significant overspending in some key demand areas and other emerging risks within service areas

·        This was partially offset by savings against (i) revenue budget contingencies which was made available to the Council (ii) Council tax reduction scheme and (iii) other non-service budgets.

 

Some areas throughout the Authority were reporting significant overspends against specific activities. These overspends related to demand-led activity areas, such as Social Services, and therefore there was an inherent risk that they may change should demand levels change from current forecasts during the remainder of the year.

 

The key areas contributing to the £1.4million forecast position included:

 

(i)                Increased demand across key social care areas including children’s out of area and emergency placements.  These two areas alone contributed an overspend of almost £3.4million to the overall service position.

(ii)               The impact of the 2022/23 NJC pay award was confirmed.  The average increase for Council staff will be in the region of 6.4% compared to only 4% provision in the budget.  This represented a forecast overspend of £2.4million for non-school based staff.

(iii)              Significant pressures were evident within Housing & Communities, in relation to homelessness. An overspend of £3.1million is forecast.  The main issues were:

 

a.      The large number of individuals/ households accommodated in temporary accommodation, reflecting a continuation of the position from the Covid period.

b.      The lack of suitable accommodation options resulting in significant use of hotel and B&B options at much higher cost than more traditional options.

c.      The cap on Housing Benefit subsidy resulting in only a proportion of these costs being covered by the Department for Works and Pension (DWP).

 

(iv)             In addition to these continued risks, there were also issues that emerged this year that would continue to be closely monitored.  These included, but were not restricted to, Education Special and SEN transport which was forecasting a £370k overspend due to higher operator costs due to inflation and £186k car parking income shortfall.  The anticipated overspend in these areas of emerging risk was expected to be over £500k by the end of the financial year.  Further pressures were evident within fleet maintenance as a product of rising fuel process as well as increasing costs associated with maintenance.

 

(v)               There was an anticipated shortfall against the delivery of 2021/22 and prior year savings of £541k, largely due to delays in progressing the necessary actions, some of which was a result of the pandemic. Whilst the level of unachieved savings in relation to the current financial improved and was lower than in previous years, there remained a need to ensure that all savings were delivered, in full, as soon as possible and officers continued to take action to ensure delivery at the earliest opportunity.

 

(vi)             Underspending against both the core revenue contingency budget and the other temporary contingencies provided mitigation against service area overspending.  The forecast underspend of £4.7million was shown against non-service budgets.  In addition, there was a forecast underspend of £2.3million against capital financing, specifically on PFI interest and over £1million forecast saving against the council tax reduction scheme budget.

 

Schools were separately projected to overspend by £5.6million, a proportion of which was planned, reducing school reserves by that amount. As well as the impact of a higher pay award compared to the budget increase allowed for, schools were drawing down on reserves built up over the previous two years as they move to catch up / strengthen provision after the impacts of Covid and catch up on maintenance/ related improvements. 

 

Robust monitoring needed to be maintained in this area, as whilst no schools have set a deficit budget, there were a couple of schools that entered an in-year deficit position following the impact of the pay award being reflected in individual school forecasts.

 

Overall, the current position on school balances represented an improvement from concerns evident in previous financial years. It does, however, remain necessary to closely scrutinise each position and ensure that recovery plans were in place and being delivered as intended to avoid a return to the previous position.  This must be balanced with trying to avoid a situation whereby balances could be considered excessive and would, therefore, be a key consideration when setting future revenue budgets and reviewing the medium-term financial plan. 

 

Comments of Cabinet Members:

 

·        Councillor Davies added that Cabinet did not anticipate being in this current financial position, however, this was due to the cost of living and energy costs which had increasing demands on council services as a consequence as well as Brexit and the pandemic.  These were unexpected and the councillor Davies was proud that Cabinet was prioritising the Council.

 

·        Councillor Batrouni considered that the pressure in relation to pay increase impacted on the budget however the increase for staff was well deserved considering their efforts over the past decade and more recently during the pandemic.

 

The Leader also mentioned, as we progressed into the second half of the financial year the position continued to be subject to change and new issues and opportunities emerge. At this point, the issues that gave rise to individual significant overspending were known with certainty and the values attributed were realistic.

 

The overspending reported reduced compared to the last Cabinet update but clearly the position currently being reported was concerning.  It was, therefore, important that those efforts to bring the position back towards a balanced position by the end of the year continued.  In an effort to achieve this, services were asked to reduce/ stop non-essential spending wherever possible.

 

Decision:

 

That Cabinet: 

§  Noted the overall budget forecast position resulting from the issues included in this report and the potential for an overspend position to exist at the end of the financial year.

§  Agreed that the Chief Executive and the Executive Board continued to review and challenge service area forecasts in an attempt to manage the overall forecasts within the core revenue budget, including revenue budget contingencies. 

§  Noted the risks identified throughout the report and in the Head of Finance comments, particularly in relation homelessness and the lasting impacts of the pandemic.

§  Noted the forecasted movements in reserves.

§  Noted the overall position in relation to schools, when compared to previous years, but also noted the risk that deficit positions could emerge in the future if good financial planning and management was not undertaken.

 

Action by     

Cabinet Members / Head of Finance / Executive Board:

 

·        Chief Executive and Executive Board continued to review the issues resulting in the current position and, with Heads of Services, continued to take robust action to manage overall forecasts in line with available core revenues budgets, including revenue contingencies.

·        Cabinet Members discussed financial forecasts and issues in their portfolio areas and agreed recommended action to bring those back in line with available budgets, as much as is possible.

·        Heads of Services deliver agreed 2022/23 and previous year budget savings as soon as practically possible, but by the end of the financial year at the latest.

·        Cabinet Members and Heads of Services promoted and ensured robust forecasting throughout all service areas.

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