Agenda item

The Leader introduced the next report to colleagues, this was the quarter three revenue update presented to Cabinet explaining the current forecast position of the Authority as at December 2022.

 

The report highlighted the current forecast position on the Council’s revenue budget and the financial risks and opportunities that presented themselves.

 

Cabinet were asked to:

 

(i)                Note the overall budget forecast position resulting from the issues included in this report and the outstanding uncertainties and risks still present.

 

(ii)               Agree 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. 

 

(iii)              Note the key risks identified throughout the report, particularly in relation to homelessness and social care placements.

 

(iv)             Note the overall position in relation to schools, when compared to previous years, but also note the risk that deficit positions could emerge in the future if good financial planning and management was not undertaken.

 

(v)               Note the forecast movements in reserves.

 

(vi)             Approve allocation of the 2021/22 underspend that remained unallocated at outturn as set out in section 4 of the report, noting the resulting level of the Council’s general and earmarked reserves.

 

Against a net budget of £343 million, the December revenue position currently forecasted an underspend of £1.1million, which represented less than 0.4% variance against budget. This underspend 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 these budget contingencies for the 2022/23 year to deal with covid legacy issues, there was significant overspending in some key demand areas and other emerging risks within service areas.

These were offset by savings against (i) revenue budget contingencies which were made available to the Council (ii) Council tax reduction scheme and (iii) other non-service budgets as set out within the report.

 

The forecasted position improved by £2.5 million since the last Cabinet update primarily from one off grant funding received from Welsh Government in respect of Elimination of profit funding for children’s social care and No One Left Out Approach funding to support homelessness.  Whilst the additional grant funding was welcomed, Cabinet was mindful to note the key areas of overspending within service areas as set out in the report and its appendices.

 

The key areas contributing to the £5million forecast overspend within service areas included:

 

§     Increased demand across key social care areas including children’s out of area and emergency placements.  These two areas alone contributed an overspend of over £4 million to the overall service position.

 

§     The impact of the 2022/23 NJC pay award, the average increase for Council staff would be in the region of 6.4% compared to only 4% provision in the budget.  This represented a forecasted overspend of £2.4million for non-school based staff.

 

§     Significant pressures were evident within Housing and Communities, in relation to homelessness. An overspend of £1.9million was forecasted after the additional in year grant funding was awarded.

 

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).

 

§     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 £496k overspend due to higher operator costs due to inflation and £340k car parking income shortfall.  The anticipated overspend in these areas of emerging risk was expected to be over £800k 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.

 

§     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.

 

The Leader was pleased to note, however, that all undelivered savings were expected to be delivered in full next financial year or proposed to be dealt with as part of the draft budget.

 

§     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 almost £1million forecasted saving against the council tax reduction scheme budget.

 

Schools were separately projected to overspend by £5.3million, a proportion of which was planned, and would reduce 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 moved 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 did, 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. 

 

As the Council was nearing the end of the financial year, many of the significant areas of overspending were known with reasonable certainty and the values attributed were realistic. As always, however, there was potential for the position to change and these areas continued to be monitored in the final months of the financial year.

 

Whilst the service area position improved following confirmed additional funding from Welsh Government, given the challenges that were likely to manifest themselves in the 2023/24 budget, there was a need to reduce service area overspending further, especially in the key areas set out.  In addition, any new pressures needed to be managed within existing resources as much as was practicable.

 

As well as having a focus on the in-year position, it was important for services to understand any longer-term impacts of the challenges being faced and identify strategies for minimising those impacts. This was because there was already a challenging outlook for the medium term. Any further financial issues would only add to that challenge. 

 

Comments of Cabinet Members:

 

§  Councillor Marshall felt that this was a welcome addition and thanked staff for their hard work and contribution, as Newport was the only Council in Wales to receive the funding.

 

§  Councillor D Davies referred to the education portfolio in relation to the use of reserves, where £5.3M was intended to be spent on capital projects and the huge delay due to covid, materials and planning permission. With this in mind, this did not mean that it would not be monitored closely by schools in the future, who also needed to be prudent in relation to this.

 

§  Councillor Batrouni made two points; overall it was a positive revenue, but we should not be complacent, as there were some pressures in areas such as housing and children services and there was no short-term fix.  This was grant funding from WG and was not an ongoing provision, we therefore needed to be prudent to ensure that the long-term issues were being addressed, not only in Newport but every council across the country.  Secondly, in relation to the overspend on the pay budget, however, as Cabinet, we were proud that we gave on average a 6% rise in relation to inflation and giving one of the best pay settlements to Council employees.  Leader valued Councillor Batrouni’s comments and expressed the Cabinet’s commitment to public servants within Newport.

 

Decision:

 

That Cabinet

 

§  Noted the overall budget forecast position resulting from the issues included in this report and the outstanding uncertainties and risks still present.

§  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 key risks identified throughout the report, particularly in relation to homelessness and social care placements.

§  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.

§  Noted the forecast movements in reserves.

§  Approved allocation of the 2021/22 underspend that remained unallocated at outturn as set out in section 4 of the report, noting the resulting level of the Council’s general and earmarked reserves.

 

Action by Cabinet Members / Head of Finance / Executive Board:

 

§  Chief Executive and Executive Board continued to review the issues resulting in the current service area position and, with Heads of Service, continued to take robust action to manage overall forecasts in line with available core revenues budgets.

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

§  Heads of Service delivered 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 Service promoted and ensured robust forecasting throughout all service areas.