Agenda item

The Leader presented the report, which highlighted the forecast position on the Councils revenue budget and the financial risks and opportunities that presented themselves as at September 2021.

Against a net budget of £316million, the September revenue position currently forecasted an underspend of almost £8million, representing a 2.5% variance against budget. This position was inclusive of the continued financial impact of the COVID-19 pandemic and assumes full reimbursement of all significant costs and lost income for the remainder of the year.  Whilst Welsh Government confirmed the availability of the Hardship Fund for the remainder of the year, revisions were being made to the terms of the Fund as there was an expectation that local authorities and partners would start to move away from reliance upon additional financial support.  As there was a possibility that the terms of the Fund continued to change in the coming months, dependent on the Covid position through the Autumn / Winter, this might require forecasts to change accordingly as and when these changes were known.

As shown in the report and its Appendices, the position was explained in the following way:

§  Whilst service areas were reporting an underspend against budget resulting from difficulties/ delays in recruitment and covid related activities being reimbursed by the Hardship Fund, much of the underspend originated from non-service budgets.

§  The non-service underspend came from savings against the (i) capital financing budget (ii) Council Tax Reduction Scheme and Council Tax collection (iii) the revenue contingency budget which was currently not needed and (vi) some other non-service budgets which were not committed currently. These together produced the £6m underspend.

Despite service areas reporting an overall underspend, there were some individual areas which continued to overspend against specific activities, details of which were set out within the report.  In previous years, these overspends related to demand-led activity areas, such as Social Services, however the last couple of years were not a true representation of the challenges faced in these areas due to the pandemic and the reimbursement of additional costs that was received from the Hardship Fund.  Given the volatility and uncertainty in these areas, there was an inherent risk that in year demand levels might change from current forecasts.

The key areas contributing to the £8million forecast position included:

§  In addition to continued social care risks, there were issues that emerged during the year and would continue to be closely monitored.  These included, but were not restricted to, increased costs in respect of dealing with ‘ash die-back’ and the remedial works required across the commercial and industrial estate.  The anticipated overspend in areas of emerging risk was expected to be more than £600k by the end of the financial year.

§  There was an anticipated shortfall against the delivery of 2021/22 and prior year savings of almost £600k, which was 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 year 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 these were delivered from the earliest opportunity.

§  Underspending against non-service budgets explained the key elements of the forecast.  Firstly, there was a forecast underspend of £2.7million in relation to the Capital Financing budget. As part of the budget setting for 2021/22, the capital financing costs of the current capital programme, which ended in 2022/23, were funded up front. This resulted in a saving within the Minimum Revenue Provision budget and the interest payable costs, as this budget was not yet required.  This underspend was known and understood at the point at which the budget was agreed in March of this year.

§  Savings in the region of £900k were also expected against the council tax reduction scheme budget due to a lower number of council tax benefit claimants than expected and council tax collection.  Clearly, there remained an element of uncertainty in this area surrounding the number of claimants and the impact on collection rates in future given that the furlough scheme had ended.

§  Furthermore, given that an underspend position was anticipated at this stage of the year there was no requirement to utilise the council’s general revenue budget contingency of £1.3million therefore adding to the non-service underspend.

The report also highlighted that, overall, schools were anticipating a net overspend of £2.2million, after allowing for reimbursement of eligible expenditure and lost income from the Hardship Fund.

Whilst schools were expecting to overspend against budget, it was noted that schools carried forward significantly higher balances at the end of the 2020/21 financial year, compared with previous years. This higher level of balances was primarily the product of Welsh Government grants issued towards the end of the last financial year, which offset spending that schools had already budgeted for. As a result, schools carried forward higher than anticipated balances, which, in most individual cases, would be more than sufficient in offsetting the overspends being reported.

In comparison to previous years, only three schools were projecting to hold deficit balances, totalling £879k, with two of those expecting to be smaller than the previous year.

The current position on school balances represented a significant change from the concerns evident in previous financial years. Now that an overall surplus position, projected to total £7.5million, was anticipated, and appeared set to continue for at least the next financial year, it was important that there remained a focus on school budgets, to ensure that, as much as possible, a return to the previous position was avoided. This needed to 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 from Cabinet Members:

Councillor Davies considered that Newport City Council should continue to take a supportive approach to its schools with regard to setting a budget framework in place to help them as well as providing additional funding to ensure teachers had a better understanding of the budget and monitor any potential deficits for the coming years.

There were only two schools in a deficit and it was felt that schools were in a good place, which was as a result of the officers at the council providing that additional support to school staff.

Councillor Cockeram referred to the social services underspend, although the funding from WG was paying for core services.  The Council was not able to progress some packages of care because of the pandemic. 

Looked after children showed a decrease, however there was the potential rise in mental health issues with children and families.

Decision:

That Cabinet:

§   Noted the overall budget forecast position and the potential for an underspend position to exist at the end of the financial year.

§   Noted the continued financial challenges being experienced by certain, demand-led, services and the need for robust financial management in these areas, as well as the level of currently unachieved budget savings.

§   Noted the risks identified throughout the report and in the HoF comments, particularly in relation to future years and the lasting impacts of the pandemic.

§   Noted the forecast movements in reserves.

§   Noted the improved overall position in relation to schools, when compared to previous years, but also noted the remaining deficit positions for some schools and the risk of past issues re-emerging if good financial planning and management was not undertaken.