Agenda item

The financial landscape for local government presented an unprecedented challenge to the Council. The Covid-19 pandemic was having immediate effects on the Council’s budgets as a result of increases in spending on local services and plummeting income from sales, fees and charges and commercial activities. Beyond the immediate impact, the crisis would cast a longer term shadow on the Council’s finances. The Government had pumped billions of pounds into the economy to support the response phase of the pandemic and to protect jobs and services. In the medium-term the levels of additional national borrowing and the United Kingdom’s budget deficit would need to be managed down at the same time as meeting ongoing needs to invest in recovery to achieve the growth required to repay the national deficit. The Government’s strategy to address this challenge was not yet known, nor what it would mean for local government funding more generally. Furthermore, there remained potential longstanding impacts on the Council’s local income sources if behaviour, working practices and spending patterns in the city continued to change. 

The Council’s reliance on local income streams had increased significantly in recent years as Government funding had reduced through austerity measures and new funding mechanisms introduced, resulting in the Council having to be more self-sufficient and secure its own funding sources. Historically, less than 20% of the Council’s funding sources were subject to any level of volatility. For 2021/22, 90% was now subject to volatility and emphasised the financial risk that the Council faced from its income streams. In addition, the Council faced further financial uncertainty surrounding significant national reforms to the allocation of funding to local government though the Fairer Funding Review, the implementation of the 75% Business Rates Retention scheme and Business Rates reset, all of which would affect the Council’s Medium Term Financial Strategy. These reforms, intended for implementation in 2021/22, had now been delayed with no firm date set.

In this current exceptionally difficult financial situation, faced with volatility, complexity and uncertainty, the Council’s overriding financial strategy had been, and would continue to be, to drive down its net cost base to ensure it maintained a sound and sustainable financial position.  The key mechanism for carrying out this strategy was through the Towards Financial Sustainability Programme, which sought to bring service costs in line with available funding and, alongside this, to use the Council’s influence and direct investment to create the right conditions for the city’s economy to recover and once again grow.

Although there was a significant level of uncertainty about future funding, based on what was currently known, or could be reasonably assumed, there still remained a current projected budget gap of £1,750,000 which the Council had to close to ensure its financial sustainability.  Although closing a gap of this size was a huge challenge, it was not unprecedented and the Council should have the confidence that it had a track record of delivering strong financial discipline and that it could rise to the challenge once again. However, as a result of the previous level of savings delivered and with a reduced number of alternatives from which to deliver reductions, the Council was left with little option but to revert to a more traditional cost cutting measures approach in order to deliver the scale of reductions required within the short lead in time.  It would also require the careful use reserves and balances in the short term.

The Council would ultimately have to make some difficult decisions over the next twelve months as it prioritised which services it could afford to continue to deliver. The Council would continue to build on its successful financial planning to date and seek to protect the core services for the people of Lincoln, whilst at the same time allowing for significant investment in the city, and its economy, and delivery of the Council’s vision.  Adopting this approach would ensure that it carefully balanced the allocation of resources to its vision and strategic priorities, whilst ensuring it maintained a sustainable financial position.

Prior to submission of the Medium Term Financial Strategy 2021-2026 and budget and council tax proposal for 2021/22 to Full Council on 23 February 2021, this initial draft, as appended to the report, would be subject to public consultation and member scrutiny.

Specific details relating to the following aspects of the Medium Term Financial Strategy were set out in the report:

·         The General Fund:

-       provisional finance settlement 2020/21;

-       Revenue Support Grant;

-       Business Rates retention;

-       Council Tax;

-       other specific grants;

-       Covid-19 support;

-       fees and charges;

-       spending plans;

-       the Towards Financial Sustainability Programme;

-       robustness and adequacy of the budget and reserves.

·         The Housing Revenue Account:

-       housing rents;

-       financing the capital programme;

-       robustness and adequacy of the budget and reserves.

·         The General Investment Programme;

·         The Housing Investment Programme;

·         The Capital Strategy.