Decision details

Financial Performance - Quarterly Monitoring

Decision status: Recommendations Approved (subject to call-in)

Is Key decision?: No

Is subject to call in?: Yes

Purpose:

To present to Executive the second quarter’s financial performance 2021/22

Decisions:

Purpose of Report

 

To present the second quarter’s performance (up to 30 September 2021) on the Council’s General Fund, Housing Revenue Account, Housing Repairs Service and Capital Programmes, and to seek approval for changes to both the revenue and capital programmes.

 

Decision

 

1.           That the financial performance for the period 1 April 2021 to 30 September 2021 and the projected outturns for 2021/22 be noted.

 

2.           That the underlying impact of the pressures and underspends identified in paragraphs 3.3 (and Appendix B), 4.3 (and Appendix D), and 5.2 (and Appendix F) be noted.

 

3.           That the proposed contributions from earmarked reserves, as set out in paragraph 3.6 and paragraphs 4.9 and 4.10 of the report be approved.

 

4.           That the changes to the General Investment Programme and the Housing Investment Programme, as detailed in paragraphs 7.4, 7.10 and 7.11 of the report be approved.

 

5.           That the changes to the General Investment Programme, as detailed in paragraph 7.4 of the report, be approved.

 

Alternative Options Considered and Rejected

 

None.

 

Reason for Decision

 

Following the unprecedented impact of Covid-19 on the Council’s finances in 2020/21, budgets for 2021/22 had been revised as part of the Medium Term Financial Strategy (MTFS) 2021-26, based on a number of assumptions around the speed and extent of the national and local recoveries particularly in relation to income budgets.  Whilst in many cases these assumptions had reflected the actual position to date, there were still some areas where the rate of recovery was impacting adversely on the Council’s finances.

 

In addition, the impact of Covid-19 was still being felt throughout the authority in relation to service delivery both in terms of backlogs of outstanding work, but also due to the current economic operating conditions in terms of supply chain issues, escalating costs and availability of labour.  Whilst these issues were being addressed, they were likely to continue into the medium term and impact on the Council’s finances.  Furthermore, the imposition of any new national restrictions over the winter period would adversely affect the forecast outturns provided within this report. Close monitoring of the position and implementation of mitigating actions over quarters 3-4 would be key to ensuring the Council maintained a balanced budget position for 2021/22.

 

Updates were reported as follows:

 

General Fund Revenue Account

 

For 2021/22 the Council’s net General Fund revenue budget was set at £978,410 including a planned contribution from balances of £477,240 (resulting in an estimated level of general balances at the year-end of £2,193,359, after allowing for the 2020/21 outturn position).

 

The General Fund Summary was currently projecting a forecast overspend of £46,366 (Appendix A provided a forecast General Fund Summary), resulting in general balance at the year-end of £2,146,993. 

 

There were a number of forecast year-end variations in income and expenditure against the approved budget; as detailed at paragraphs 3.3- 3.4 of the report, with the main variances provided in Appendix B to the report.

 

Although the forecast outturn for the General Fund was a deficit of £46,366 at this stage, the forecast outturn remained difficult to predict due to volatility, and uncertainty, particularly around the imposition of any future national restrictions over the winter period.

 

Included in the forecast outturn overspend of £46,366 were proposed additional contributions to/from earmarked reserves as detailed at paragraph 3.6 of the report, with further details of the General Fund earmarked reserves set out in paragraph 6 and Appendix G of the report.

 

Towards Financial Sustainability Programme

 

The savings target included in the MTFS for 2021/22 was £850,000.  Progress against this target, based on quarter 2 performance had shown that secured savings totalled £514,400, with a summary of the specific reviews that had contributed to this target shown at Appendix N of the report.

 

Housing Revenue Account

 

For 2021/22 the Council’s Housing Revenue Account (HRA) net revenue budget was set at a £14,910 use of balances, resulting in an estimated level of general balances at the year-end of £1,059,743, after allowing for the 2020/21 outturn position.

 

The HRA was currently projecting an in-year variance of a £156,480 overspend, which would decrease the General Balances to £918,173 at the end of 2021/22.

 

There were a number of forecast year-end variations in income and expenditure against the approved budget, as outlined at paragraph 4.3 of the report, with full details of the main variances provided at Appendix D of the report.

 

The financial pressures that the HRA was facing, and the HRS (set out further in the report), was a direct result of the ongoing impacts of Covid19 and the current economic position in the UK.

 

The largest variance for HRA was the current forecast underspend on Repairs and Maintenance.  This was due to the ongoing impact of Covid-19 affecting the ability to carry out repairs, the current reduction in charges from HRS (detailed in section 5 of the report) and the lack of tradespeople to carry out the repairs required.  HRA and HRS were working hard to address these issues and so this underspend may be reduced over the remainder of the year.  In part this was offset by a large overspend forecasted by HRS due to a reduction in rechargeable works and inability to recover the overhead costs of HRS (details of which were contained within section 5.2 of the report).

 

In addition, there was a forecast reduction in dwelling rental income of £317,163, due to increased voids, a reduction in leasing income and lost rents from RTB sales.  Void properties were currently on the increase due to a lack of labour force in the HRS and as a result of the designated Voids contractor having entered into administration at short notice leaving the service without a key resource to respond to growing void numbers.

 

Void numbers had increased due to a backlog created over the last 18 months as national restrictions were imposed.  This had then been compounded by a high level of tenancies having ended as a result of; people now seeking to move post pandemic, an unprecedented number of deaths in Council properties and people leaving due to other more restrictive reasons, such as being detained in prison by the courts.  In addition, as a result of the successful bids for the Next Steps and Rough Sleeping Accommodation Programmes, the HRA had acquired a number of units of move-on accommodation across the City to alleviate the pressure on temporary accommodation and negate the use of bed and breakfast facilities.  Whilst this had been successful and consequently saved the general fund huge costs, the pressure had fallen on Housing Repairs Service (HRS) to bring these units up to letting standards before they could be occupied.  This had added to the numbers being managed through the void process.  At budget setting, voids were budgeted at 1% of the current housing stock, however, currently voids were closer to 1.7% of the current housing stock.  Should this percentage be maintained throughout the rest of the year there was a potential for a further overspend of approximately £50,000.

 

This was further compounded by a loss of income from the termination of one of our main contractors resulting in a loss of income of approximately £280,000 from the admin recharge.

 

Included in the forecast underspend of £153,634 were proposed additional contributions to/from earmarked reserves as detailed at paragraph 4.9-4.10 of the report, with further details of the HRA earmarked reserves set out in paragraph 6 and Appendix G of the report.

 

Housing Repairs Service

 

For 2021/22 the Council’s Housing Repairs Service net revenue budget was set at zero, reflecting its full cost recovery nature. 

 

At quarter 2 HRS was forecasting a deficit of £811,418 in 2021/22 as detailed within the forecast HRS summary at Appendix E, with full details of the main variances provided in Appendix F of the report.

 

The main contributory factor for this deficit was the ongoing impact of Covid-19. The loss of one of the main sub-contractors locally (due to administration) and the inability to recruit to the workforce (The HRS currently had a 20% vacancy rate) was causing problems with repairs scheduling and void turnarounds. Repairs numbers were down at a time of high demand, as a result lower recharges were being made to the HRA due to less work being carried out by the Council’s workforce.

 

Although the reduction in staffing costs offset the reduction in income recharged to the HRA, the overhead cost of the repairs service, which was ordinarily charged in addition to the service hourly rate was not being recovered due to the reduction in internal jobs, this was creating the majority of the forecast overspend.  In addition, in order to try and fill the productivity gap, local sub-contractors were being utilised however, they were struggling with the same labour shortages.  Any contracts awarded to help alleviate the system were now at hugely inflated prices which reflected the sector as a whole. This use of more expensive subcontractors had increased costs, which at this stage were not reflected in the service hourly rate and therefore also contributed to the forecast overspend.

 

The forecast overspend reflected the national position in relation the construction industry. A significant number of companies were going into liquidation for many reasons. This was putting huge pressure on those remaining in the sector, contract prices were increasing significantly reflecting increasing material and labour costs. Qualified and skilled labour was becoming increasingly hard to recruit. Locally, as evidenced in recruitment, the Council was not immune from this environment and HRS were in a difficult “trading position”.

 

In response to the financial and service delivery challenges that the HRA/HRS were facing the Housing Management Team had instigated a range of measures aimed at combating the areas and issues that the Council had some control or influence over as detailed at paragraph 5.5 of the report.

 

It was noted that consequential costs in the HRA were also greatly reduced (as noted earlier in the report) and therefore the financial picture for the directorate was not as unhealthy as the HRS position alone implied. Surpluses from HRS had been repatriated to the HRA over the last few years and as such healthy reserves remained within the HRA. These reserves were increased at the end of last financial year to allow for HRS to catch up with any back log of repairs that had built up due to Covi19 restrictions. 

 

Details of earmarked reserves and their forecast balance as of 31 March 2022 were outlined at paragraphs 6.1 and Appendix G of the report.

 

General Fund Investment Programme

 

The revised General Investment Programme for 2021/22 amounted to £17.451m following Quarter 1 report. At quarter 2 the programme had been increased by £2.947m to £20.398m.

 

Included in the budget changes for approval were Town’s Funds schemes considered by the Town’s Fund Board. The Town’s Fund was considered by Executive in February 2021 and external schemes would be added to the general investment programme following delegated approval by the Chief Finance Officer and the Town’s Fund Investment Board. Schemes that were to be delivered directly by the Council, but with funding through the Town’s Fund would still require separate Executive approval of the scheme prior to inclusion in the GIP. The changes related to the Town’s Fund reflected in the second quarter were detailed at paragraph 7.3 of the report.

 

Financial changes delegated to the Chief Finance Officer for the second quarter 2021/2022, together with those requiring Executive approval were detailed at paragraphs 7.3-7.4 of the report.

 

The overall spending on the General Investment Programme for the second quarter of 2021/2022 was £3.111m, which was 15% of the 2021/22 programme and 15% of the active programme, as detailed further at Appendix J of the report.

 

Although this was low percentage of expenditure at this stage of the financial year, further expenditure was expected on Disabled Facilities Grants, Boultham Park Lake, the Crematorium, HAZ Schemes, Towns Fund schemes and various capitalised maintenance schemes.

 

Housing Investment Programme

 

The Housing Investment Programme for 2021/22 following the Quarter 1 report amounted to £29.047m. This had been further adjusted to £30.248m during the second quarter of 2021/22.

 

Financial changes delegated to the Chief Finance Officer for the second quarter 2021/2022, together with those requiring Executive approval were detailed at paragraphs 7.9-7.11 of the report.

 

Expenditure against the HIP budget to the second quarter was £5.339m, which was 17.65% of the revised programme. A further £0.96m had been spent as at the end of October 2021, as detailed further at Appendix L of the report.

 

Although this was a lower percentage than would be expected at this stage of the financial year, works had been constrained by the ongoing issues arising during the Covid-19 pandemic and the availability of contractors to carry out works to properties following the cessation of the planned maintenance contract. 

 

Report author: Jaclyn Gibson

Publication date: 25/11/2021

Date of decision: 22/11/2021

Decided at meeting: 22/11/2021 - Executive

Date comes into force if not called in: 03/12/2021

Call-in deadline date: 02/12/2021

Current call-in Count: 0

Accompanying Documents: