Agenda item

A report of the Head of Finance advising members of the projected base budget position for 2022/23 including the savings and growth proposals put forward for the year and provide the basis for the budget consultation.

A report of the Head of Finance advising members of the projected base budget position for 2022/23 including the savings and growth proposals put forward for the year and provide the basis for the budget consultation was submitted (item 7 on the agenda).

Assisting with consideration of the report: Lead Member of Finance and Property Services, Strategic Director, Environmental and Corporate Services and Head of Financial Services.

Councillor Parton entered the meeting during the discussion of this item.

Summary, key points of discussion:

• Savings of £1million had been generated in addition to the savings made in 2021/22. 
• The budgets would depend on the Government Settlement and it was anticipated that more information on the settlement would be released on 13^th December 2021.
• There were projected balances of £4.5million at the end of 2022/23 with a commercial income of £886k included int the budget and £200k reserves to cover losses.
• Difficulties faced included the New Homes Bonus being reduced from £3million to £1million in 2022/23 with a further loss of the remaining £1m income in 2023/24.  This and other factors create a major uncertainty in the total government funding that the Council may receive of £2.7million in 2022/23, with a further £1m reduction New Homes Bonus due in 2023/24. 
• However, there was room for cautious optimism within the Spending Review 2021 outlined by the Chancellor in October and it was hoped that total government funding in 2022/23 would be similar to that of 2021/22.
• Other issues which had impacted the budgets included the inflationary pressures which were £700k more than envisaged in the Medium-Term Financial Strategy (MTFS).  All major contracts were linked to inflation.
• If the Government settlement was not what was expected, further measures would need to be taken.
• It was assumed that £2.7m of funding would arise in some form based on funding received in the previous financial year.  Further to this it was hoped that the total precept income would be similar to the £17.6m figure as presented in the draft budget.
• Regarding the savings to be determined of £500k, savings ideas had been discussed by officers, however, it was hoped that these would not be required.
• It was necessary to ensure that the total use of reserves was below £500k, and it was considered that £224k would be a reasonable use of reserves, however, this would depend on the settlement.
• In the context of a minimum working balance of £2m, the £4.563m working balance in the draft budget was considered reasonable.
• The re-investment reserve and Capital Plan reserve were earmarked for spend-to-save.  Revenue reserves could be used to bolster the balance if needed.    Whilst there was no room for complacency, there was a reasonable level of reserves.
• There was a risk surrounding the increase in garden waste collection charges due to the upcoming Environment Bill which was likely to be finalised in March 2022.  There had been lobbying to allow councils to charge for the service and it was thought that money could be raised through garden waste subscriptions in the next financial year.  A small reduction in subscribers due to increased costs had been factored into the draft budget, but it was thought that the increased cost of the service would result in increased revenue.  The estimated amount generated form garden waste collection was calculated by multiplying the number of estimated subscribers with the price increase and calculating the gain.  The charge was based on what was thought reasonable through benchmarking based on what other authorities charge.
• There were necessary pressures surrounding the General Fund.  These did not include inflation in contracts or salaries which were reflected in the increase in the base budget.
• The Housing Revenue Account (HRA) was a key element, however there was more time to plan and react to changes.  The 30-year business plan would be coming forward in the coming months which may address the HRA in more detail.
• The Loughborough Special Expenses would be covered by the Loughborough Area Committee.
• CPI had grown by 3.1% and RPI by 4.9 %.
• Salary inflation of 1.75% and £150k equal to an additional 1% had been built into the budget.  The projections built in regarding salaries had projected a salary increase above what had been assumed when the budget had been drafted.  The employer offer of 1.75% had been rejected by the unions and whilst it was hoped there could be a settlement, meeting the 10% increase asked for by the Unions would be a significant challenge.  The Managed Vacancy saving at Period 7 was £86k ahead of what had been budgeted for, this leaves Period 8 to Period 12 to recoup vacancy savings which would hopefully cover pay awards not budgeted for. 
• Regarding the HRA, there had been £16.4m in expenditure and £22m income.  There was a net balance of £3.1m earmarked as revenue contribution to capital which topped up the HRA Capital Plan each year.  Weekly rent for Council properties was still lower than the Council’s peer group.  There was £9.6m in the HRA financing fund to cover debt repayments in the 30-year business plan.  There was £2.3m in the major repair reserve.
• Heads of Service were working with The Bridge and contributions were reduced but continuing.
• The figure of £2.7m for the Lower Tier Services grant was a balancing figure and it was assumed that the sum of all of the figures on precept income would come to £17.6m.  The New Homes Bonus was £998k, down from £3m in the previous financial year, and it was hoped that at least part of this deficit could be made up.
• Concern was raised that many assumptions were being made.  It was clarified that the draft Budget was a plan that would depend on the Government Settlement.
• The £239k transfer to the General Fund from the working balance revenue reserve was intended to balance income against expenditure.  This figure would depend on government compensation regarding the New Homes Bonus.
• A typographical error in the Budget Summary was noted, the variance in the total balances should read £3,324k.
• An overspend of £200k was projected against the budget and savings made had been reflected in the budget which had been achieved other than those regarding essential car use.  Concern was raised that the £2m balance figure was being approached by the end of 2021/22 before going in to 2022/23.  It was stressed that this was why the use of reserves was such an important figure.
• Of the £929k for MRP, Interest and Commercial Reserve, £200k has been allocated to Commercialisation Reserve, leaving MRP/ interest charge of £729. 
• Commercialisation income had not been budgeted for in the previous financial year.  As such, rents collected had been allocated to make a start on the provision. The yearly additions to the reserve would create the total £1.5m needed to cover the next lease event. There would be a lease event in 3-4 years’ time and a renegotiation of the lease was planned.  If the tenant chose not to renew the lease, the provision was earmarked to cover potential refurbishment costs and the void period.  This property was in a developmentally attractive area and there were good alternative uses for the site.  If the lease was not extended, then the next option was to let it to another tenant or find an alternative lucrative use.
• Due to a prudent approach being taken, provisions into the General Fund were able to be released.  An Enterprise Zone agreement was settled on and benefits were received from the Business Rate Pilot.  The benefit from the pilot had not been budgeted for, however, some had been received.  Along with a group of Leicestershire authorities, the approach to provision within the pilot had been standardised.  The Council had been over-prudent and as such still had substantial reserves and as such the starting position was a lot better.  The Budget projected General Fund reserves of £4.6m would remain at 31 March 2023.  Having made adjustments, the Strategic Director was confident that Council was in a reasonable position base on the current rules.  However, the impact of the settlement was not yet known, and the rules may change, in a worst-case scenario, the Council could be £2.8m short.
• Concern was raised about key risk areas, including the need to deliver on 2021/22 savings, including salary increases and inflation, pressures surrounding the final settlement figures, the impact of the environmental bill on garden waste collection and the need to monitor commercial rents.
• The reduction in opening hours of the Customer Service Centre would create savings in salaries.  This would be a compliant process with appropriate consultation.  Some staff had already expressed a predilection for voluntary redundancy, and for remaining staff it was thought that there would be approximately half an hour’s difference in their working hours.  It was remarked that staff turnover in this department was high.  Work had been undertaken regarding the Customer Service Centre and how to underpin savings and this had been informed by the level and pattern of calls.  There had been a reduction in demand for face-to-face service during the Covid-19 pandemic that had not returned.  More use was being made of the online service and statistics demonstrated that given the number of calls received, a reduction in hours would be more efficient.  The out-of-hours line would be open for emergencies when the centre was not open.  The possibility of sharing the service with another council had been explored, and previously the Council had carried out the service on behalf of Harborough District Council, however, Harborough District Council was now withdrawing from the agreement.  Sharing the service was seen as complex and would not result in a large saving, however, the possibility was not ruled out.
• The Head of Finance would consult the Head of Leisure Service regarding the possibility of renegotiating the contract for the Loughborough Christmas lights to make a saving.
• The HRA was based on Capital Plan requirements and a £5-6m Capital Plan budget was set each year., funding coming mainly from the HRA budget with surplus going into the Capital Plan reserve.  Appropriations were used as a balancing figure.

The Chair remarked that 5% inflation was projected, which was considerably more than the 1.75% pay increase offered and enquired as to how much higher salaries would cost the council.

The Strategic Director clarified that the General Fund Salary budget was £13m-14m, so for every 1% increase it would cost £130k-£140k.  As such an increase in line with the 5% inflation rate would cost approximately £500k.  He added that it may be that the central government conclude they could fund it, and when the settlement was announced the MTFS would need to be done with care.

The Head of Finance added that the budgeted 1% increase added £150k in the budget, plus pension increase on every post.  The current managed vacancy saving budget of £0.5m was reduced due to vacant posts being deleted from the establishment

The Chair expressed concern that whilst not having officers in their posts created savings, it meant that services were not being delivered.

Councillor Seaton left the meeting during the discussion of this item.

RESOLVED to note the report

Reason

Members were satisfied with its reflection on the Draft 2022/23 General Fund and HRA Budgets.