Decision details

Financial Performance-Quarterly Monitoring

Decision status: Recommendations Approved

Is Key decision?: No

Is subject to call in?: Yes

Decisions:

Purpose of Report

 

To present the second quarter’s performance (up to 30 September 2022) on the Council’s General Fund, Housing Revenue Account, Housing Repairs Service and Capital Programmes, and to seek approval for changes to the capital programmes.

 

Decision

 

1.               That the financial performance for the period 1 April 2022 to 30 September 2022  and the projected outturns for 2022/23 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) of the officer’s report be noted.

 

3.               That the changes to the General Investment Programme and Housing Investment Programme as approved by the Chief Finance Officer and Lincoln Town Board as detailed in paragraphs 7.3, 7.4, 7.5 and 7.12 of the officer’s report be noted.

 

4.               That the changes to the Housing Investment Programme, as detailed in paragraph 7.9 of the officer’s report, be approved.

 

Alternative Options Considered and Rejected

 

None.

 

Reason for Decision

 

The Council approved a balanced budget earlier in 2022, but much had changed since that point.  Spiralling inflation, soaring energy prices and nationally agreed pay agreements were set to add significant cost pressures to the Council’s budget.  These were in the main part caused by national issues, beyond the Council’s control, and were impacting all Councils.  In addition, the current cost of living crisis had the potential to increase demand for the Council’s services by those who relied on the safety net provided by local government.  These unforeseen and unavoidable pressures had seriously impacted the assumptions that underpinned the MTFS.  As a result of these pressures, the General Fund was currently forecasting a significant financial shortfall for 2022/23, with cost pressures also in the Housing Revenue Account and Housing Repairs Service.

 

The impact of these new financial pressures the Council was facing could not be underestimated and were not solely related to 2022/23.  These inflationary increases would permanently increase the cost base of the Council and would have implications for the Medium-Term Financial Strategy and, in the absence of additional financial support from Central Government, would have implications for the range and level of services that the Council could continue to provide.

As a result, the Council was developing a range of mitigation actions, as part of a financial recovery programme, to ensure it retained a sustainable financial position in 2022/23 and in the medium-term.  Alongside this the Council was continuing to lobby Central Government for funding to support councils through these inflationary pressures, and for long-term sustainable funding settlements for local government.

 

As in recent years, there would continue to be a need for strong budgetary control in this financial year to balance expenditure and income within budget.

 

Whilst there were a significant number of planning variables which were subject to unprecedented levels of uncertainty, based on the latest set of assumptions as at the end of the second quarter (up to 30th September 2022) the forecast financial position of the Council was detailed at paragraph 2.6 of the officer’s report.

 

Updates were reported as follows:

 

General Fund Revenue Account

 

For 2022/23 the Council’s net General Fund revenue budget was set at £8,907,490 including a planned contribution to balances of £60,700 (resulting in an estimated level of general balances at the year-end of £2,262,761 (after allowing for the 2021/22 outturn position).

 

The General Fund Summary was currently projecting a forecast overspend of £912,511 (Appendix A provided a forecast General Fund Summary), resulting in general balance at the year-end of 1,350,250.  This would result in balances being below the prudent minimum of c£1.5-£2m.  The use of earmarked reserves to maintain balances above the prudent minimum would be further considered in the third quarters financial performance report.

 

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.

 

In addition, other service costs and income were subject to fluctuation during the year as the cost-of-living crisis and external economic factors impacted both directly and indirectly on households and businesses.  This could lead to: an increased demand for council services, as the more vulnerable in the City looked to the Council for support; and a reduction in both income for services and collection rates as household and business incomes became under pressure.

 

Despite the high level of uncertainty, it was clear that the General Fund faced a significant financial shortfall for 2022/23. In response to this a range of options and mitigations were currently being explored and developed.  These focussed on both short-term measures to ensure a balanced budget could be maintained for 2022/23, as well as looking at more medium-term options to ensure the Council’s ongoing financial sustainability.  Given the timescales in delivering many of these mitigations it was inevitable that the General Fund would need to draw upon earmarked reserves and general balances in order to maintain a balanced position for 2022/23.  The third quarter’s financial performance report would set out proposals for which reserves would be called upon.  It should be noted though, that the use of earmarked reserves brought financial risks in terms of the depletion of reserves and increased future exposure, etc, in the short term however the Council had little other options.

 

Alongside the development of these mitigations, the Council would continue to lobby the Government and call upon them to increase local government funding in recognition of the unprecedented and unavoidable pressures that local government was facing.  The Council had already written to the Secretary of State setting out the significant financial strain it was facing.  The Council would also support sector campaigns/lobbying regarding sustainable funding mechanisms and medium-term financial settlements for local government.

 

Earmarked Reserves

 

Details of the General Fund and HRA Earmarked Reserves were set out in paragraph 6 of the officer’s report and Appendix G.

 

Towards Financial Sustainability Programme

 

The savings target included in the MTFS for 2022/23 was £1,050,000.  Total savings secured and brought forward from last financial year were £716,410 leaving an in-year target of £333,590.  Progress against this target, based on quarter 2 performance showed that secured savings totalled £65,190 for the General Fund and plans were in place to achieve the remaining balance.

 

A summary of the specific reviews that had contributed to this target were shown in Appendix K of the officer’s report.

 

Housing Revenue Account

 

For 2022/23 the Council’s Housing Revenue Account (HRA) net revenue budget was set at a £38,670 use of balances, resulting in an estimated level of general balances at the year-end of £1,063,872, after allowing for the 2021/22 outturn position.

 

The HRA was currently projecting a forecast overspend of £173,049 (Appendix C provided a forecast Housing Revenue Account Summary), which would decrease the General Balances to £890,823 at the end of 2022/23.  This would result in balances being below the prudent minimum of circa £1m.  The use of earmarked reserves to maintain balances around £1m, would be further considered in the third quarter’s financial performance report.

 

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 in Appendix D of the report.

 

The HRA was currently forecasting an overspend at the end of the financial year, with significant variances in relation to repairs and maintenance costs. This was as a direct result of the issues that were currently being experienced in the Housing Repairs Services (HRS), as set out in Section 5 of the officer’s report. This had led to a significant reduction in the level of repairs that were being undertaken and a consequent reduction in expenditure recharged to the HRA. This was in part offset by the large forecast deficit by HRS, as seen in the repatriation variance detailed within the officer’s report, due to a reduction in rechargeable works.  The HRA and HRS were working hard to address these issues, continuing to implement a range of previously agreed actions.

 

There was also a significant variance in relation to the level of depreciation charged to the HRA as a result of the latest revaluation exercise. This has been offset by a reduction in the amount of direct revenue financing charged to the account.

 

The other major variances were as a direct result of the inflationary pressures the Council was facing, which the HRA was also impacted by. These included an estimate of pay inflation, over and above the assumptions included within the MTFS, based on the national pay agreement, alongside an increase in inflation on utilities as a result of the escalating cost of gas and electricity supplies and contract price increases

 

At this stage no additional mitigations, other than those currently being implemented in response to the issues faced by the HRS were recommended. The use of earmarked reserves to maintain HRA balances in line with the prudent minimum would be considered at quarter three. Strong budgetary control did though remain a focus in this financial year to ensure expenditure and income were balanced within budget.

 

Housing Repairs Service

 

For 2022/23 the Council’s Housing Repairs Service net revenue budget was set at zero, reflecting its full cost recovery nature.. 

 

At quarter 2 HRS ware forecasting a deficit of  £573,908 in 2022/23 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 still the ongoing recruitment and retention issues, which were being felt across the industry, this resulted in a reliance on the use of sub-contractors. The cost of subcontractors was more expensive than the HRS’s own workforce, due to the ongoing impact of Covid19, the current inflationary crisis and a reduced pool of contractors from which to secure services. These additional costs were therefore not fully offset by the vacancy and material savings achieved by not carrying out the work internally. Furthermore, the increased subcontractor costs were not reflected in the service hourly rate and resulted in an under recovery of costs from the HRA, coupled with a reduction in jobs being carried out and the ability to recoup overhead costs.

 

The forecast deficit also included an estimate of pay inflation, over and above the assumptions included within the MTFS, based on the latest pay offer made by the National Employers (this was not yet agreed for Craftworkers), alongside an increase in the hourly rate recharge for the final quarter of the year to reflect this. The forecast also included increased inflation on utilities as a result of the escalating cost of gas and electricity supplies.

 

It should be noted that due to the interconnection of the HRS and HRA, the consequential costs in the HRA were also greatly reduced (as noted earlier in the report) and therefore financial picture for the Directorate was not unhealthy.

 

General Fund Investment Programme

 

The revised General Investment Programme for 2022/23 amounted to £32.342m following the quarter 1 report. At quarter 2 the programme has been reduced by £2.186m to £30.156m

 

There were no changes over the approved limit requiring Executive approval for the second quarter. However, there had been changes to projects arising from the Lincoln Town Deal which had been approved by the Town Deal Board, under a separate governance framework, and were now included within the capital programme, the Council being the Accountable Body for the grant funding, as detailed at paragraph 7.3 of the report.

 

The financial changes delegated to the Chief Finance Officer for approval for the second quarter 2022/2023 were detailed at paragraph 7.4 of the officer’s report.

 

The overall spending on the General Investment Programme for the second quarter of 2022/23 was £2.2m, which was 8.8% of the 2022/23 active programme (excluding externally delivered schemes), as detailed further at Appendix I of the report.

 

Although this was a low percentage of expenditure at this stage of the financial year, further expenditure was expected in quarter 3 on Disabled Facilities Grants, Town’s Deal Schemes, HAZ, and various capitalised maintenance schemes. There would however be a reprofile of the Western Growth Corridor Phase 1a budgets required, this would be subject to a separate report to the Executive in quarter 4.

 

Housing Investment Programme

 

The original Housing Investment Programme for 2022/23 in the MTFS 2022-27 amounted to £21.72m. This was increased to £23.17m following approvals and year end re-profiles as part of the 2021/22 outturn. This has been further adjusted to £23.25m during the first quarter of 2022/23 and then £22.13m in quarter 2.

 

The financial changes over the approved limit requiring Executive approval for the second quarter 2022/2023; were detailed at paragraphs 7.9-7.10 of the officer’s report. All new projects were subject to Executive approval. There had been no new projects considered recently by the Executive during Quarter 2.

 

The financial changes delegated to the Chief Finance Officer for approval for the second quarter 2022/2023 were detailed at paragraph 7.11 of the officer’s report.

 

The overall expenditure on the Housing Investment Programme for the second quarter of 22/23 was £3.835m, which was 17% of the 2022/23 revised programme. A further £0.46m had been spent as at the end of October 2022. This was detailed further at Appendix J.

 

Although this was a low percentage of expenditure at this stage of the financial year, works had been constrained by the availability of contractors and materials however new contracts were in place and spend was expected to increase in future periods.

Publication date: 22/11/2022

Date of decision: 21/11/2022

Decided at meeting: 21/11/2022 - Executive

Effective from: 30/11/2022

Accompanying Documents: