Agenda item

Purpose of Report

To update the Executive on the likely challenges ahead in preparing for the 2019/20 and future years budget, to set out the parameters within which the Council would prepare these budgets and to confirm the Council’s approach to development of the budget and the Medium Term Financial Strategy.

Decision

The Executive:

(1)       Noted the significant financial challenges that the Council faced.

(2)       Noted the projected budget parameters for 2019/20 and future years and noted the planning assumptions, as set out in Appendix A.

(3)       Noted the budget, strategic and service planning preparation programme, as set out in Appendix B.

Alternative Options Considered and Rejected

None.

Reason for Decision

The financial landscape for local government over the medium term period posed a significant challenge to the Council due to the volatility, complexity and uncertainty about future funding. Significant national decisions were still to be made by the government about future departmental spending through the spending review, the allocation of this funding to local government through the fair funding review and the implementation of the 75% business rates scheme, all of which impacted the Council’s Medium Term Financial Strategy.

The Council’s financial positon needed to be viewed in the wider context of continued public sector austerity and the impact this was having upon the financial resilience and sustainability of local authorities. A number of local authorities were taking measures to restrict expenditure to core, statutory services.

Although the potential increase in savings required would be substantial, it was not unprecedented and the Council should have some confidence that it had a track record of delivering strong financial discipline and that it could rise to the challenge once again. This successful financial planning to date had enabled the protection of core services for the people of Lincoln, whilst at the same time allowing for significant investment in the city, its economy and delivery of the Council’s Vision 2020. The Council would continue to adopt this approach, carefully balancing the allocation of resources to its strategic priorities whilst ensuring it maintained a sustainable financial position.

Further information relating to the spending review, the fair funding review, the 75% business rates retention scheme and business rates retention pilots, local government financial resilience and the social housing green paper and right to buy consultation was set out in the body of the report.

In terms of the Council’s financial monitoring for the current year, the following updates were noted:

General Fund

The financial monitoring report for the first quarter of 2018/19 forecast a significant overspend for the general fund at the year-end of £717,343. The key variance was the shortfall of car parking income against its budget target of £1,141,000.

The shortfall in car parking income was the continuation of a trend that began to emerge towards the end of 2017/18 and reflected a reduction in demand for shopper car parking spaces. This was in line with a reduction in footfall in the city centre and the general decline in high street shopping and the fragility of the retail sector. Longer term there was predicted to be an increase in demand for city centre parking through developments such as the Cornhill Quarter, direct trains to London and further expansion of the University.

However, in the short to medium term there would continue to be a shortfall in car parking income against its budget targets. In response to this the car parking income generation strategy had been accelerated in order to boost demand for the Council’s car parks.

In addition to the shortfall in car parking income, there were a number of other key variances including increased costs and loss of income for the control centre, a loss of income on the apprenticeship scheme, increasing cost provision of the Christmas Market and a reduction in income from housing benefit overpayments. Beyond the current financial year there were also emerging pressures around the central markets lettings income levels and the level of crematorium income should the development of a new facility in a neighbouring district go ahead.

Housing Revenue Account

The financial monitoring report for the first quarter of 2018/19 forecast an overspend for the Housing Revenue Account at the year-end of £37,243. The key variances were in relation to an overachievement of rental income, offset by increased expenditure in respect of repairs and maintenance costs for void properties. Both of these variances were as a result of the number of new build properties that were due to be released during the year and were one-off variances. In addition, it was noted that there were a number of vacancies within the service and within the housing repairs service, from which the surplus was repatriated to the housing revenue account.

Capital Programme

The general investment programme was currently forecasting to have a surplus of capital receipts of £2.845 million subject to completion of a number of schemes. In addition, subject to the completion of the final account there was an anticipated underspend on the contingency budget from the transport hub project of approximately £700,000. There were a number of competing demands for the allocation of capital resources including demands to maintain existing assets, particularly income generating assets, and claims or disputes from third parties that may require additional resource. A number of strategic capital schemes were also in line with the Vision 2020 that did not yet have capital resources allocated, as well as consideration of invest to save schemes.

The housing investment programme, decent homes and the new build programme continued to progress in line with the current budget expectations, with a significant level of expenditure to be incurred during the third quarter of 2018/19 as the purchase of the new build properties were completed. There still remained a significant budget allocation as part of the new build scheme, with approximately £4.1 million along with the land acquisition budget of £1.2 million which were yet to be allocated to specific schemes in year. Further details in relation to the Council’s new build strategy were set out in paragraph 4.10 of the report.

With regard to the preparation of the budget and the Medium Term Financial Strategy, it was noted that this would be based on assumptions for a number of key variables such as business rates, government grants, council tax levels, inflation rates and interest rates. These assumptions were revised on a continual basis in light of the most recent intelligence available and it was reported that these would be subject to change as the development of the budget progressed. Changes to some of these assumptions created both unavoidable budget pressures as well as the opportunity to realise savings. Main changes at this moment in time related to inflation, council tax, new homes bonus and the car parking income shortfall which were detailed in Appendix A of the report.

In relation to the reduction in car parking income the Chief Executive explained that there had not been a drop in income, it was solely that the amount of income generated from car parking had not increased as much as originally estimated. This meant that car parking income was underperforming based upon the agreed budget rather than there being an actual drop in the income received from car parking. The Chief Executive therefore emphasised the point that the Council had still generated growth in car parking income.

Discussion ensued on the Christmas Market and it was noted that the Council would generate a surplus but that there would be additional costs to take into account, mainly as a result of new security requirements.

The Deputy Leader, reflecting on the Chancellor of the Exchequer’s budget speech announced earlier in the day, asked whether the Council’s proposed budget and Medium Term Financial Strategy would need to be revised as a result of his speech. It was noted that there were no major changes required against the budget proposed in the report.

Discussion ensued on Universal Credit and whether the impact of is introduction had been taken into account as part of the budget proposals. It was noted that the housing rents collection rate target had been reduced from 99% to 98% in response to Universal Credit. The Chancellor to the Exchequer had announced that additional resources would be made available to support implementation of Universal Credit and it was noted that further information on this issue would be reported back to the Executive in due course.