Agenda item

The Leader presented the report, which explained the current forecast position on the Council’s revenue budget and the financial risks and opportunities that presented themselves within the November update.

This was the third revenue monitor presented to Cabinet this financial year and reflected an underspend of £2.523m, which is a £1m reduction on the September figures. The change is mainly due to increased costs in relation to homelessness and temporary accommodation. 

This position considered the contingency budget and the anticipated in-year underspend against capital financing budgets.

Whilst an overall underspend is projected, it should be noted that service areas are collectively forecast to overspend by £4.7m, excluding schools.

This update provided confirmation that some of the known risks, as at the start of the year, had materialised and were causing significant overspend, especially within Children’s Services and Housing. As anticipated, however, it was currently proving possible to offset service area overspends with the general contingency and underspends within capital financing.

The key variances contained within the overall 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 £3.9m to the overall service position.

(ii)               Increased demand within adults residential and non-residential service also contributed £1.5m to the overall service position. This, however, was offset by the overachievement of community care income as a result of an increased number of users contributing to their care.

(iii)              Significant pressures were evident within Housing and Communities, in relation to homelessness. Despite the Council allocating a significant budget increase for 2023/24, to address the ongoing impact of the overspend incurred last year, costs further increased and an overspend of £2.4m is projected. This area saw a significant increase in costs over the last two years, following the Welsh Government’s policy aim to dramatically reduce homelessness. This policy led to an unprecedented upturn in demand for temporary accommodation, for which the costs were not fully covered by service user contributions or housing benefit, leaving the Council to incur the net cost.

The Leader noted that the Chancellor for the UK Government made an announcement in his Autumn Statement regarding financial support in terms of Local Housing Allowance.

Demand for housing and homelessness services are at unprecedented levels due to the cost-of-living crisis, continued austerity, the expansion of statutory homelessness duties and, most recently, the Home Office Streamlined Asylum Process.

High demand, coupled with low supply of accommodation in the social and private rented sector, meant that the Council was reliant on expensive forms of temporary accommodation such as bed and breakfasts, high street hotels and specialist temporary accommodation providers. In context, the shortfall for a family with a two-bed need in a hotel was £65 per night or the equivalent of c.£23k per year. Further to this, the Council was required to employ additional staff to meet its expanded statutory duties and currently runs accommodation with security for people with complex needs due to the lack of supported housing in the city.

(iv)             There were forecasted underspends against non-service budgets, specifically the general contingency and capital financing. Savings in these areas, as set out within the report, were more than offsetting the net service area overspends, resulting in an overall underspend for the whole Council.

(v)               There was an anticipated shortfall against the delivery of 2023/24 and prior year savings of over £1.1m. The two services responsible for the majority of the shortfall were Adult Services and Housing and Communities. Within Housing and Communities, it has not been possible to evidence achievement of this saving, especially given the overall overspend in this area. Within Adult Services, whilst some proposals are proving difficult to currently achieve, it was hoped that ultimately it would be possible to deliver these in full.

As school variances are managed through individual schools’ balances, the overall underspend of £2.5m does not include the schools’ position. Schools are collectively forecasting an overspend against budget of £4.6m which would see balances reduce from £14.4m to £9.8m by the end of the financial year.

Considering the significant level of savings that schools need to deliver during 2023/24 and the level of recurring expenditure included within the £4.6m overspend (which amounted to circa £2.3m), officers continued to closely monitor school balances over the medium term as part of the Council’s deficit avoidance and prevention strategy.

Whilst the financial year is in its final quarter, the risk that the position could worsen between now and March remains. These risks mainly relate to demand-led services, which are volatile in nature and could result in costs increasing very rapidly, as evidenced by the recent increase in the Housing overspend.

Considering the risk that this position could change, efforts continued to be made to mitigate overspending within service areas to bring the service area position back towards a balanced position by the end of the year.

Part of the reason for ensuring an underspend was achieved is because of the current constraints upon capital resources and the Transformation Fund. A revenue budget underspend is one way of assisting with this challenge.

Comments of Cabinet Members:

§  Councillor Davies referred to the overspend in school reserves which reduced to £4.6m. There was a risk that certain schools might set a deficit budget, support was being provided to ensure this did not happen. Many schools where reserves are depleted are at risk of setting a deficit budget in coming financial years.

§  Councillor Batrouni mentioned that the report and the previous item showed that people wanted to work and live in Newport, with growing pressures on schools, adult services, and housing reflecting that demand. 

Decision:

That Cabinet

·        Noted the overall budget forecast position outlined within this report, which was comprised of service area overspending, offset by underspends against non-service budgets.

·        Noted the risks identified throughout the report and in the Head of Finance comments, such as in relation to demand issues being faced.

·        Noted the overall shortfall in the delivery of savings accepted as part of the 2023/24 revenue budget.

·        Noted the forecasted movements in reserves.

·        Noted the overall position in relation to schools’ budgets, acknowledging the risk that some individual deficit positions could emerge by the end of the financial year.