Agenda item

Purpose of Report

 

To present the third quarter’s performance (up to 31 December 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 31 December 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 General Fund carry forward request as detailed in paragraph 3.12 of the report be approved.

 

4.           That the changes to the General Investment Programme and Housing Investment Programme as approved by the Chief Finance Officer detailed in paragraphs, 7.4, and 7.11 of the officer’s report be noted.

 

5.           That the changes to the Housing Investment Programme, as detailed in paragraphs 7.3, 7.9 and 7.10 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 had added 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, when reporting the forecast position at the end of Quarter 2, the General Fund forecasted a significant financial shortfall for 2022/23 of £912,511, with cost pressures also in the Housing Revenue Account and Housing Repairs Service.

 

In response to this forecast position, the Council began developing a range of mitigation actions as part of a financial recovery programme in order to ensure it retained a sustainable financial position in 2022/23 and also in the medium-term (the impact of these inflationary pressures were not isolated to 2022/23 and had permanently increased the cost base of the Council).

 

Included within these actions was a review of the Council’s Borrowing, Investment and Minimum Revenue Provision (MRP) strategies. This review had resulted in a proposed change to the current MRP Policy, which if approved would generate significant savings in the medium term, whilst still maintaining a prudent provision. The net saving in 2022/23 was £749,000.

 

As a result of this proposed reduction in capital financing costs, along with other actions taken during the year, including an in-year increase in some fees and charges and temporary recruitment measures, the General Fund was forecasting a significantly improved position for 2022/23, with a current estimate of a £70,358 budget shortfall. The forecast position on both the Housing Revenue Account and Housing Repairs Service had also improved since quarter 2.

 

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 third quarter (up to 31 December 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 £39,548 (Appendix A provided a forecast General Fund Summary), resulting in general balance at the year-end of £2,223,213.

 

There were a number of forecast year-end variations in income and expenditure against the approved budget; as detailed at paragraphs 3.3- 3.5 of the report, with the main variances provided in Appendix B to the report.

 

Whilst the contractual cost increases, pay settlement and utility increases were now known with certainty, there remained some uncertainty surrounding other budget assumptions, particularly in terms of service demands and income forecasts. The potential for further change during the fourth quarter therefore still remained.

 

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.

 

In addition to the MRP review, further actions had been taken during the last six months to implement control of expenditure and to seek to increase income. This included an in-year increase to fees and charges for car parking and the crematorium. These had resulted in a further positive impact on the forecast position.

 

As a result of the in-year actions taken the General Fund was forecasting a significantly improved position for 2022/23, with a current estimate of a £39,548 budget shortfall, an improvement of £872,962 from the quarter two forecast. This improved forecast did still assume the use of the inflation reserve of £150,000.

 

There still remained a number of variables in the forecast assumptions, and as such the final outturn position for the year was still subject to further change. At this stage though there were no further mitigations recommended, however, as always, there would continue to be a need for strong budgetary control in this financial year to ensure expenditure and income remain balanced within the budget. 

 

Earmarked Reserves

 

Reasons for the carry forward request were detailed at paragraph 3.12 of the officer’s report, resulting in the forecast outturn for the General Fund being a budget overspend of £70,358, subject to Executive approval

 

Further 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 3 performance showed that secured savings totalled £191,530 for the General Fund with a further £90,970 identified, leaving a forecast shortfall of £51,090

 

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 £961 (Appendix C provided a forecast Housing Revenue Account Summary), which would increase the General Balances to £1064,833 at the end of 2022/23. This would result in balances being above the prudent minimum of circa £1m.

 

There were a number of forecast year-end variations in income and expenditure against the approved budget as outlined at paragraph 4.3-4.5 of the report, with full details of the main variances provided in Appendix D of the report.

 

As set throughout this report, there still remained a number of variables in the forecast assumptions, and as such the final outturn position for the year was still subject to further change. At this stage no additional mitigations, other than those currently being implemented in response to the issues faced by the HRS and in response to void levels were recommended. Strong budgetary control should continue to be a focus in this financial year to ensure expenditure and income remain 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 3 HRS was forecasting a deficit of £420,284 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. These increased costs were further compounded by increased demands resulting from the higher level of voids currently being experienced, although this was partially offset by a reduction in responsive repairs works being requested.

 

The forecast deficit also included the impact of the nationally agreed pay award implemented in December, which was significantly over and above the assumptions included within the MTFS, and the impact of increased inflation on utilities as a result of the escalating cost of gas and electricity supplies as outlined in both the General Fund and HRA variances.

 

It should be noted that due to the interconnection of the HRS and HRA, the consequential costs in the HRA were ordinarily reduced, and therefore offset any repatriated deficit. However due to the increased usage of more expensive sub-contractors and increased volume of works, primarily due to the levels of void properties, this was not the case this financial year as detailed above, and there was a significant additional cost for repairs and maintenance of the housing stock being incurred by the HRA. This additional cost was though, set against the overall HRA position.

 

General Fund Investment Programme

 

The revised General Investment Programme for 2022/23 amounted to £30.156m following the quarter 2 report. At quarter 3 the programme had been reduced by £12.296m to £17.860m

 

All changes over the approved limit requiring approval by the Executive. for the third quarter were detailed at paragraph 7.3 of the officer’s report

 

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

 

The overall spending on the General Investment Programme for the third quarter of 2022/23 was £5.9m, which was 39.8% 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 4 on Disabled Facilities Grants, Town’s Deal Schemes, HAZ, and various capitalised maintenance schemes. There was now expected to be further budget re-profiles to 2023/24 during quarter 4.

 

Housing Investment Programme

 

The revised Housing Investment Programme for 2022/23 amounted to £22.133m following the quarter 2 report. At quarter 3 the programme had been decreased by £1.634m to £20.499m, as detailed within paragraph 7.8 of the officer’s report.

 

The financial changes over the approved limit requiring Executive approval for the third 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 one new project considered recently by the Executive during Quarter 3.

 

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

 

The overall expenditure on the Housing Investment Programme for the third quarter of 2022/23 was £7.566m, which was 37% of the 2022/23 revised programme. A further £1.18m had been spent as at the end of January 2023. 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.