Agenda item

A verbal report of the Strategic Director; Environmental and Corporate Services updating the Panel on the Government financial settlement.

A verbal update by the Strategic Director, Environmental and Corporate Services, was made updating the panel on the Government Financial Settlement issued on 16^th December 2021.

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

Summary, key points of discussion:

• From the spending review in 2021 it was ascertained that the total amount given to the Local Government sector was £1.6 billion excluding social care.
• The settlement was broadly in line with the Medium-Term Financial Strategy (MTFS); however, it was only a one-year settlement as opposed to a multi-year settlement.  This meant that the information within this year’s spending review could not be relied upon as guidance for subsequent years.
• The Fair Funding review had not yet materialised, and it was noted that in the time since it had been proposed there had been a general election and a change in government ministers looking at the Levelling-up Agenda.  One of the key premises of the previous Fair Funding work had been the 75% business rate pilot, however, it was now thought that the current secretary of state was not likely to continue with it.
• With regard to the retained National Non-Domestic Rate (NNDR), it was thought that it was more likely to be around £5.2 million rather that the £4.9 million that was previously estimated to be based on the projected 2021/22 outturn.  The Council would be due due additional grant compensation due to indexation of business rates not increasing.
• It was likely Council tax would increase by 2% or £5, as is the maximum allowed without a referendum.
• Regarding the New Homes Bonus, in addition to the £1 million legacy funding, there was a single one-off payment of £0.6 million.  This was lower than the £1 million typically generated in previous years due to lower housing completions.
• The single-year grants for Revenue Support, Services and Lower-tier Services could not be relied on to continue in subsequent years.
• Risks included inflation, the ongoing Covid-19 pandemic, and interest rates.
• It was thought that Business Rate retention would be £5.2 million.

In response to questions, the panel were advised that:

• There were no specific contingencies for inflationary risks, however, the pay-settlement for Council staff had been estimated and as such more money had been placed into the payroll budget.  It was stressed that it was still unknown as to what the final settlement would be, although it was noted that each 1% added to the payroll would cost the Council £150k.  Furthermore, contracts (estimated to be worth £8-9 million) were noted to be an inflationary risk.  This was seen as a challenge for the MTFS as it was necessary to strike a balance between prudence and unrealistic optimism.  It was added that 4.9% had been added on to the Serco contract for next year’s budget.  This was above the MTFS figures, so the risk had been built into the 2022/23 budget – but future years price increases remain uncertain.  Regarding Salary inflation it was added that a 1.75% increase had been built in for this financial year and 2% for the next financial year, and then a further lump sum contingency had been included within the draft budget figures. As such it was hoped that enough contingency had been built in.
• With regard to Council tax base growth, a standard government return was completed by the Council, however there was some volatility surrounding it.  Officers were aware that the base was likely to be lower as numbers had been down when the current MTFS had been completed.  It was hoped that his was an anomaly rather than a downward trend.  It was clarified that this was a challenge to the MTFS rather than the budget.
• The single year and transitional grants were not ringfenced and were part of the Levelling-up Agenda. The Lower Tier Services Grants would benefit district councils and could potentially be regarded as £1.1 million in transitional relief funding this financial year, but it could not be relied upon for the next financial year.
• For NNDR, the government gave the Council a Settlement Funding Assessment (SFA) and a tariff.  The Council received business rates and retained an initial 40% and then had to pay the tariff to the government.  The revenue retained through the SFA depended on how much was collected on business rates although 92.5% of the FSA is set by the government as a ‘safety’ net’. Section 31 grant was also given to cover small business relief and transitional relief.  In the current financial year, the Council had also received money for retail, hospitality and leisure COVID reliefs for business.  Additionally, some of the Section 31 money covered the difference between RPI and CPI.  The final figure for 2022/23 would be known until the NNDR3 return is completed in May 2023.  It was further added that the Council had worked with CIPFA who had come up with the business rate retention figure of £5.2 million based on forecast figures from the Capita system.  Capita still needed to complete the exercise and figures would come out within a week.  In terms of risk, officers were satisfied with £5.2 million and this would bring down the £0.5 million in unspecified savings needed.  It was noted that while Council tax had variability, it was less volatile than business rates. 
• There was no uncertainty about when money would be coming and the cash flow was positive.  Council tax came in on a regular basis and government grants would come in the early part of the financial year.  It was clarified that January was the peak in Council tax income as some people paid over 10 months.

RESOLVED that the report be noted

Reason

To acknowledge the Panel’s consideration of the matter.