Agenda item

A report of the Head of Finance and Property Services setting out the draft Medium Term Financial Strategy 2020-23, to be considered by Cabinet on 19th September 2019, for scrutiny by the Panel.

Scrutiny to include a review of the underlying assumptions and the implications of the calculations for efficiency plans and future budgets, together with the policy background to and the rationale behind the MTFS being proposed (in particular, what scenarios have been considered, for example a strategy based on statutory requirements, a strategy based on maintaining services or a strategy based on providing additional services to meet the Corporate Plan, and the reasons for the option chosen).

Possible outcomes of Panel discussion are recommendations to Cabinet regarding changes to the Medium Term Financial Strategy (to be considered when the final version of the Strategy is submitted following consultation) or recommendations to Cabinet regarding preparation of the draft budget 2020/21.

Considered a report of the Strategic Director of Corporate Services setting out the draft Medium Term Financial Strategy (MTFS) 2020-23, to be considered by Cabinet on 19th September 2019, for scrutiny by the Panel (item 5 on the agenda filed with these minutes).

Assisting with consideration of the report: The Cabinet Lead Member for Finance and Property Services, the Strategic Director of Corporate Services, the Head of Finance and Property Services.

The Cabinet Lead Member briefly set out the key issues and risks for the MTFS 2020-23, highlighting in particular the value of having put aside reserves, the uncertainty of the environment in which the Council was operating and the need for transformation/efficiency plans to deliver.  He considered that the MTFS was as accurate as it could be based on the information currently available.

For context, the Chair referred to there currently being considerable activity taking place in the area of the Council’s finances, including the new Capital Plan for 2020-23 due to be considered by Cabinet (and this Panel) in December 2019 and the Investment Strategy agreed by Cabinet in September 2019 that and the Treasury Management Strategy for 2019/20 (part of Capital Strategy) agreed by Council in February 2019, both of which were of crucial importance and included changes in approach.  All illustrated a new environment in which to manage and move forward with the Council’s finances, taking as a starting point the position stated by the Cabinet Lead Member that the Council wished to maintain front line services.  The role of this Panel was to scrutinise the budget being proposed to achieve that. 

Councillor Baines arrived at 6.10pm.

Summary, key points of discussion:

(i)           All suggestions to assist the Council with achieving the outcome needed were welcomed by the Cabinet Lead Member.

(ii)          Agenda page 9, reference to proposed use of £1.1m of reserves in 2020/21 assuming delivery of £0.5m of transformation and delivery savings.  Confirmed that this was a separate matter to the proposed request for funding of £220,000 from the Reinvestment Reserve to facilitate the mobilisation of the Council’s Transformation Programme that had recently been notified by a General Exception Notice.  The latter was a new request, further explanation of the funding for which was provided.    

(iii)      Reference to the challenge presented in finding required savings, together with the concern expressed by the Corporate Services Scrutiny Committee at its last meeting when considering the 2019/20 Period 4 revenue position that budgeted for managed savings were not yet being achieved.  Very important to continue to monitor the position in that respect.

(iv)      The settlement from the Government for 2020/21 had not yet been confirmed.  Brief discussion regarding the uplift anticipated, together with the likely direction towards adult social care and children’s services. 

(v)       Agenda page 17, reference to MTFS assuming maximum permitted annual increase in Council Tax of 2%.  If the Council did not have reserves, that increase would not be sufficient to maintain front line services.  Question as to whether consideration had been given to establishing the position of residents on a higher increase.  In response, that had been considered, but would require a referendum, the cost of which would likely exceed any increase in income.  The Cabinet Lead Member did not consider such an approach to be appropriate, rather the Council needed to work towards transformation to reduce costs and increase income over the period of the MTFS.

(vi)      Representation could be made to the Government department or local Members of Parliament that district council funding was not sufficient, either by the Council if it so wished, or by individual councillors.  Representation on the issue was being made by the Local Government Association, also via the District Councils’ Network.  In respect of the latter, reference to discussion regarding a possible relaxation of the capping limit on district councils to 2% or £12.  Any £12 increase would be a decision for the Council but would be of considerable financial assistance.  This was currently only being discussed and the assumption should be that this would not be an option.     

(vi)      The Council had put aside reserves for the purpose of the resilience now needed.

(vii)     View that residents may not be averse to an increase in charges if that allowed good local services to be maintained.

(viii)    Agenda page 18, reference to expected increase in (Council) tax base of 1.9% year on year for the period of the MTFS and the number of properties that represented?  In response, stated as between 1,500-1,700 a year.  View that developments around the Borough seemed to involve more than that, noted that time lag to properties being completed and on the Council Tax Register.

(ix)      Agenda page 20, question regarding the level of risk associated with outstanding business rates appeals?  In response, explanation was provided of the likely risk, knowledge held on the matter and the substantial provision held by the Council in that respect, the conclusion being that the provision for both the 2010 and 2017 valuation lists was at a sufficient and realistic level.  The provision could be seen in the Council’s Statement of Accounts and was available should it be required (as a provision rather than cash).  Hoped that that represented an over-provision that would realise a windfall in the future.

(x)       Agenda page 20, confirmed that £450,000 from 75% Business Rate Retention pilot represented a one-off income in 2019/20 and was not included in the 2019/20 budget.  It could not be used towards budgeted for managed savings, rather for spend to save initiatives and public realm works in line with the pilot bid.

(xi)      Agenda page 20, reference to Empty Property costs (business rates) for which reliefs could not be claimed back, estimated at £500,000 each year from 2020/21.  That was a cost to the Council.  While the Council was able to claim back some reliefs, that was not the case in respect of Empty Properties.  The estimated cost was considered to be realistic and prudent, based on detailed consideration of the position with business rates and a recognition of an increase in empty properties.  The position was being monitored regularly as an important area of risk, also revised for the final MTFS if needed.

(xii)     Agenda page 20, question regarding whether business rate income growth factor of 3% per annum was realistic given number of shops closing?  In response, this was based on information from the Council’s financial consultants looking at national trends.  Many other, less visible businesses were trading successfully, for example logistics and warehousing, such that 3% was not unrealistic.  The position would be monitored.  A similar growth rate had been applied last year.

(xiii)    Agenda page 22, question as to why the housing growth forecast in the New Homes Bonus calculation and the housing growth projections by the Council’s Planning Service differed?  Noted that that question had been asked by the Cabinet when it had considered the draft MTFS and that a more detailed explanation therein might be useful.  In summary, the key difference was a Government termed “deadweight” which assumed, in calculating the New Homes Bonus, a 0.4% growth anyway, which added approximately 300 homes.

(xiv)    Agenda page 27, concern regarding the Government proposal that councils provide a garden waste collection service free of charge, given the effect that would have on the income to the Council from its current service, which was substantial.  In response, the Cabinet Lead Member and officers present confirmed that they were aware of the issue/risk at this stage, but that the proposal was unlikely to be realised within the period of this draft MTFS.  No action could be taken until further information was available on the proposal. The likelihood of compensation for councils that would lose income was briefly discussed.

(xv)     Agenda page 29, question as to whether work had started to identify the efficiencies required by the draft MTFS and the process for that, particularly the £0.5m required in 2020/21?  In response, reference made to Table 25 in the MTFS (agenda page 34), that set out proposals for £300,000 of the £467,000 in 2020/21, some of which were firmer than others at this stage.  Efficiencies required in years 2 and 3 of the MTFS presented more of a challenge and required a more rigorous identification approach.  Reference to the focus on transformation by the Council’s new Chief Executive, such that efficiencies to be made would be increasingly firmer.  In terms of keeping councillors informed, significant service changes would require Cabinet approval and would be available for scrutiny.  The Chair concluded discussion of this issue by stating that it was incumbent on the Panel to consider whether the savings promised were delivered as time progressed.  To that end, he hoped that membership of the Panel would be a constant, also to enable the Panel’s knowledge and understanding to increase.

(xvi)    The Head of Finance and Property Services provided a brief outline of how the draft MTFS would form the basis of the 2020/21 budget working papers and the role of Heads of Service in finding percentage reductions.

(xvii)   Agenda page 30, reference to the Investment Strategy agreed by Cabinet in September 2019 and the £10m stated therein to expand the Council’s commercial property portfolio.  It was explained that that represented a statement of intent to invest the amount and financing of that would be based on professional advice as to the best way to do so at the time (borrowing or internal funds or a mix of the two).             

(xviii)  The Cabinet Lead Member referred to financial parameters and checks in place, including Minimum Revenue Provision and capital ratios which could not be exceeded, also the stringent due diligence that would be undertaken where significant investment was proposed.  Brief discussion regarding risk appetite, being risk aware not risk averse.

(xix)    Agenda page 33, view that the Council should be looking to more shared service arrangements with other district councils to achieve back office cost savings.   Net loss on Building Control trading activities could not be afforded, particularly non-statutory elements.  Recent move to shared service arrangement for Internal Audit.  Shared arrangements sometimes needed for resilience rather than saving.

(xx)     Agenda page 35, reference to stated shortfalls in Housing Rent Allowance budgets and the reason for that as stated in the MTFS.  In response, this was a national trend, expected to further increase and was demand-led (the driving cost was Supported Living Allowance and the Borough had two major providers/centres), further details of which were outlined.  The Council could only work to monitor the position. The final version of the MTFS would look to more accurately reflect what was expected in relation to this risk.  This was a key area of concern.

(xxi)    Agenda page 36, Table 26, question as to why planning fee income risk was stated as zero?  In response, based on limited information currently available and experience to date (the income was currently on target at Period 4, 2019/20, would review position for final MTFS.

(xxii)   Agenda page 38, reference to the interest and principal payable on loans for commercial investment being an ongoing ‘revenue’ charge to the Council.  Minimum Revenue Provision would ensure that an appropriate charge was made in the accounts for such repayments, further information on which was briefly outlined, including how that provided for replacement assets. 

(xxiii)  Agenda page 41, it would be useful if Table 28 could also provide the information referred to in the note to that table, as the balances brought forward were calculated based on that information, to better understand the history of the matter.

(xxiv)  Agenda page 42, the Chair referred to his observation, in relation to the draft MTFS and other Council financial documents referenced earlier in the meeting, that reserves had been put aside to meet a more challenging financial environment, but a more stringent/aggressive approach was now needed to secure future finances.  He reiterated this Panel’s role in helping to achieve that.

(xxv)   Agenda page 43, housing rents, question as to whether there was a further 1% reduction in rents required for 2020/21, or whether rents would stay the same or increase, as that would affect the Housing Revenue Account position?  That was not known at this meeting.

In respect of (xxiii) above, the Head of Finance and Property Services agreed to include that information in the next version of the MTFS.

In respect of (xxv) above, the Head of Finance and Property Services agreed to send a response by email to members of the Panel.

RESOLVED that the draft MTFS 2020-23 and the Panel’s scrutiny of the matter, summarised above, be noted.

Reason

To acknowledge the Panel’s consideration of the draft MTFS 2020-23 as part of its budget scrutiny role.