Agenda item

The Director of Finance’s report under section 25 of the Local Government Act 2003 as set out in section 2 of the report which advised the Cabinet of the Director of Finance’s recommendations including the risks when considering the 2022/23 budget was noted and Cabinet agreed to recommend to Council on 10^th March 2022.

The Leader of the Council made some introductory remarks about the budget reports to be considered and the Council’s overall financial position.

The Cabinet noted the letter to the Leader of the Council of 7^th March 2022 from the Minister at the Department of Levelling Up, Housing & Communities (DLUHC), which stated that she was minded to approve capitalisation directions for the period between 2018-19 to 2022-23.  This was contingent on the Authority reporting to the Department the final amounts identified for which it required capitalisation for each year, with the agreement of the Authority’s external auditors and endorsed by the Best Value Commissioners.

The Leader stated that he recognised the seriousness of the financial problems the Council faced and expressed gratitude to DLUHC for the support they were providing to the Council as set out in the letter of 7^th March.  The Cabinet thanked the new finance team for the extensive work they had undertaken in the past year to start to rectify the deficiencies and recognised the role of Commissioners in supporting the Council in its recovery and improvement.  The serious financial issues the Council faced had built up over many years and the Leader acknowledged that the leadership took its share responsibility for the problems.  The Cabinet was committed to resolving the issues over the coming years and the budget in front of Members was a significant milestone on the road to financial recovery.

The Lead Member for Financial Oversight, Council Assets & Performance and the Director of Finance gave a comprehensive overview of all of the budget reports that the Cabinet was requested to recommend to Council on 10^th March 2022.  The reports had been scrutinised by the Overview & Scrutiny Committee on 8^th March 2022 and the directorate savings proposals had all been considered by the scrutiny panels between November 2021 and January 2022.

The Lead Members highlighted the importance of the Section 25 report which set out of the Director of Finance’s recommendations including the risks when considering the 2022/23 Budget.  The Cabinet noted the comments of the Commissioners which stated that the budget reports exposed the “recklessness” of the way the Authority had managed its affairs over the past few years; confirmed that the Budget reports met the requirements of the Directions the Council was under; and emphasised that no variation to the proposals could be made without the prior approval of Commissioners.

The Director of Finance summarised the budget reports.  The Council faced a financial deficit of £223.1m up to the end of the current financial year and a further estimated £84.1m for 2022/23. The current estimates for 2022/23 showed that the budget requirement was 78 per cent greater than sources of funding. It was only with confirmation of significant financial support for the Council from the DLUHC that the Director of Finance could provide members with some assurance on the robustness of the budget estimates and the adequacy of reserves.  The assumptions that underpinned the budget included asset sales and capital receipts of up to £600m in the coming years and an annual savings requirement of £20m.

The capital programme had been scaled back to a minimum in view of the financial position with projects totalling £165m over the next five years, of which £73m were General Fund and £92m Housing Revenue Account.  The Treasury Management Strategy was now properly aligned to the capital programme and a 6 month update would be provided to Cabinet later in the year.  Council Tax was proposed to be increased by a total of 2.99% for 2022/23, which comprised of 1.99% plus a further 1% for the adult social care precept.

The Cabinet also received an update on the significant deficit of the Dedicated Schools Grant (DSG) and the progress that was being made to address the issues.  The Council Tax Support Scheme would remain unchanged other than an annual uprating of 3.1%.

The Lead Member highlighted that all departments would be required to operate to the strict cash limited budgets set.  Work on the 2023/24 budget and the Medium Term Financial Strategy would continue immediately with savings proposals for 2023/24 due to be in identified by the end of May 2022.

The Cabinet then considered each budget report in turn, beginning with the Section 25 report.  An amendment was noted to paragraph 2.3 to clarify that the Cabinet was requested to recommend approval to Council on 10^th March 2022.  This was agreed.

Lead Members asked a number of questions, including whether the Director of Finance was confident that all of the major financial risks and issues had been identified.  The Director of Finance responded that a very comprehensive and rigorous approach had been taken by the range of financial experts brought into the Council, although no guarantee could ever be given that no future issues would be identified.

Councillor Smith was invited to speak and he commented that it was a “high risk budget” and that the Council was only able to be able to set a budget due to Government support.  He said that the capitalisation direction was not confirmed as it relied on each year’s accounts being signed off.  The Leader responded to the points raised and reiterated that he had acknowledged the Government’s support and that the Cabinet was committed to delivering the much more robust financial plan as set out in the detailed and high quality budget papers.  The Director of Finance provided assurance that the Government’s “minded to” support was a standard way of operating in relation to capitalisation directions.

At the conclusion of the discussion the Cabinet agreed to recommend the report to full Council on 10^th March 2022.

Recommended to Council –

On the basis of the risks and issues raised in paragraphs 2.1 and 2.2 and the rest of the report, in the opinion of the Director of Finance, Cabinet recommended to Council to approve the budget on the basis that:

a)  the proposed level of Council reserves were adequate to support the budget for 2022/23 having regard to an assessment of current financial and other risks set out extensively in the report and assuming these risks do not increase beyond those that can be contained by the Council.  It should also be noted that matters would continue to be identified and will change throughout the coming financial year and beyond

b)  the estimates are robust for the calculation of the budget within the confines of the many risks noted throughout the report.  Particular attention was drawn to the following specific conditions and risks:

(i)  the recommended level of general balances, for 2022/23 was £20m, although this was the bare minimum as a percentage of Net Revenue Expenditure, and placed the Council in the lowest quartile in comparison to similar authorities

(ii)  the budget which has levels of contingency and conditions built in to reflect the considerable risks the Council was facing and was predicated on continuing support from DLUHC ;

(iii)  agreement of the Capitalisation Directive for 2022/23 and future years as proposed to DLUHC in February 2022 at estimated figures of £223m to 31/3/22 and £84m for 2022/23

(iv)  agreement by DLUHC that they would agree to capitalisation directions or other support to equal the actual figures for the outstanding, current and forthcoming years as the accounts for the years are closed

(v)  agreement by DLUHC that they would agree to capitalisation directions or other support to equal the estimated figures for future years as the budgets are prepared for these future years

(vi)  agreement by DLUHC that they would agree to capitalisation directions or other support or agreed mechanisms to supplement the level of revenue budget savings that the Council can achieve as discussed and as will be reviewed.  Further that they would agree to finance/support on a recurrent basis any recurrent gap that would arise if the £20m annual level of savings was not achieved in a sustainable manner

(vii)  the current level of Council general reserves outside of the support from DLUHC relating to specific risks and specific initiatives was currently nil.  These reserves would be established and built up over time once a more stable finance base had been created.

(viii)  as at the end of December 2021, the Council had a small amount of earmarked reserves of £14m. The majority of these funds were accumulated during 2020/21 and 2021/22 as part of the Government’s covid response measures to be used for specific purposes such as helping local business and managing the outbreak of covid and cannot be used for general purposes

(ix)  as the Council had no complete and fully accurate accounts since 2015/16 and would not have these complete up to 31/3/22 until well into the financial year 2022/23 the financial position was subject to considerable potential change which may impact on the robustness of the budget

(x)  the Council embed the good practise now being designed but notes that this would take time to fully develop and thus as with the accounts the various estimates would be subject to change

(xi)  the Council had a major dependency on asset sales which would significantly impact on the budget for 2022/23 and beyond and which will thus again affect the level of robustness of the budget