Agenda item

The Leader presented the report highlighting the forecasted position on the Council’s revenue budget along with the financial risks and opportunities that presented themselves as at November 2021.

Against a net budget of £316million, the November revenue position currently forecasted an underspend of £10 million, after taking account of a new reserve request, representing a 3% variance against budget. This position was inclusive of the continued financial impact of the COVID-19 pandemic and assumed full reimbursement of all significant costs and lost income for the remainder of the year. This followed confirmation from WG that the Hardship Fund would be available until March 2022. 

The Leader went on to explain that although service areas were reporting an underspend against the budget resulting from difficulties/ delays in recruitment, covid related activities being reimbursed by the Hardship Fund and additional grant income within both Children and Adult Services, much of the underspend originated from non-service budgets, such as savings against:

(i)                capital financing budget,

(ii)               Council Tax Reduction Scheme and Council Tax collection,

(iii)              the revenue contingency budget, which was currently not needed, and

(iv)             some other non-service budgets which were not committed currently. These together produced the £10m underspend.

Some individual areas however, 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 received from the Hardship Fund.  Given the uncertainty in these areas, there was a risk that in year demand levels may change from current forecasts, with a potential for the forecast underspend to increase further.   This did not mean that the Council did not spend the money; but meant it would be spent later.

The key areas contributing to the £10million forecast position included:

(i)                Increased costs in respect of dealing with ‘ash die-back’, increased insurance premiums and the remedial works required across the commercial and industrial estate.  The anticipated overspend in areas of emerging risk was expected to be short of £1 million by the end of the financial year.

(ii)               An anticipated shortfall against the delivery of 2021/22 and prior year savings of almost £600k, largely due to delays in progressing the necessary actions, mostly due to 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.

(iii)              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 ends 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 when the budget was agreed in March of this year. 

(iv)             Savings of approximately £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. 

(v)               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.

Schools were anticipating a net overspend of £2.6million, after allowing for reimbursement of eligible expenditure and lost income from the Hardship Fund.

It was noted however 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 spend 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 four schools were projecting to hold deficit balances, totalling £919k, with two of those expecting to be smaller than the previous year.

The revenue budget monitor pointed to a significant underspend which had the potential to further increase with the level of unexpected grant income that could come our way.  This might allow Cabinet to consider a mixture of much needed one-off investments and provide mitigation for future budget risks as the financial impacts of Covid continue beyond March this year but with no Hardship Fund to support. More details would be announced in the final budget proposals in February.

Comments of Cabinet Members:

§  Councillor Jeavons referred to the Ash Die Back tree removal programme carried out recently and the safety issue which required this spending as the Council continued remove the trees across the city.

§  Councillor Cockeram referred to 2.13 children’s residential services and the potential of approximately £2m savings on placements.  The funding of homegrown foster care for children would make savings in the next year or two moving children from the independent sector.  The Leader thanked foster carers, who were warm and generous individuals for their support in Newport.

§  Councillor Davies referred to the net overspend in schools and the proposed £8M increase to invest in schools, which included the support of Additional Learning Needs (ALN).  It was therefore hoped that this time next year the Council would not be seeing the same issues.

Decision:

That Cabinet:

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

§  Approved the creation of a £563k specific earmarked reserve from this year’s underspend to support increased demand on adult learning disability budgets in 2022/23.

§  Noted and asked the Chief Executive and Directors team to implement currently undelivered savings as soon as was practically possible and appropriate to do so, noting the on-going risks associated with these current delays and the current context.

§  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 Head of Finance 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.

Action by     

Cabinet Members / Head of Finance / Corporate Management Team:

§  Heads of Services continued to keep under review the key risk cost areas and taking action, with Cabinet Members, to move towards balanced positions for those budgets currently projected to overspend.

§  Directors team / Heads of Services delivered agreed 2021/22 budget savings as soon was practically possible.

Heads of Services and budget holders closely monitored the impact of new pandemic related restrictions, the likelihood of their continuation into next financial year and their financial consequence in the absence of a hardship fund.