Agenda item

Purpose of Report

 

To present the provisional 2022/23 financial outturn position on the Council’s revenue and capital budgets, including General Fund, Housing Revenue Account, Housing Repairs Service and Capital Programmes.

 

This report provided the Executive with a summary of actual income and expenditure compared to revised budget and how any surpluses had been allocated to reserves.

 

Executive should note that the financial outturn was still subject to Audit by Mazars, the Council’s external auditors.

 

Decision

 

1.           That the provisional 2022/23 financial outturn for the General Fund, Housing Revenue Account (HRA), Housing Repairs Service and Capital Programmes as set out in sections 3-7 of the officer’s report, and in particular the reasons for any variances, be noted.

 

2.           That the proposed transfer to General Fund and HRA earmarked reserves as detailed in paragraphs 3.6 and 4.6 of the officer’s report be noted.

 

3.           That the General Fund carry forward requests as detailed in paragraph 3.7 of the officer’s report be approved.

 

4.           That the financial changes to the General Investment Programme and Housing Investment Programme as approved by the Chief Finance Officer detailed in paragraphs, 7.3, and 7.10 of the officer’s report be noted.

 

5.           That the financial changes to the General Investment Programme and the Housing Investment Programme that were above the limit delegated to the Chief Finance Officer, as detailed in paragraphs 7.4 and 7.11 of the officer’s report, be approved.

 

Alternative Options Considered and Rejected

 

None.

 

Reason for Decision

 

The Council approved a balanced budget earlier this year, however, 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 was creating rising demands 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 budget and MTFS. As a result of these pressures, when reporting the forecast position at the end of the first two quarters of the year, the General Fund, Housing Revenue Account and Housing Repairs Service all forecasted significant cost pressures.

 

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 change to the MRP Policy, which had released significant savings in the medium term, whilst still maintaining a prudent provision. The net saving in 2022/23 was £789,989.

 

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 at the end of Quarter 3, with an estimated budget shortfall of £39,548. The forecast position on both the Housing Revenue Account and Housing Repairs Service had also improved at the end of Quarter 3.

 

During the last quarter of 2022/23, the position on the General Fund, Housing Revenue Account and Housing Repairs Service had improved further (primarily as a result of additional income received in the quarter) with budget surpluses achieved across all three funds at the end of the financial year.

 

Despite this positive outturn position the Council continued to face escalating cost pressures, above those already factored into the MTFS. Strong financial discipline and delivery of the significant savings targets underpinning the MTFS would remain critical in ensuring the Council maintained a sustainable financial position in the medium term.

 

A summary of the financial position of the Council for the financial year 2022/23 was outlined at paragraph 2.8 of the officer’s report, together with the detailed financial position shown in sections 3-7 and accompanying appendices to 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).

 

The financial performance quarterly monitoring report for the 3^rd quarter predicted an overspend against the revised budget of £39,548 (before carry forward requests). The provisional outturn for 2022/23 now indicated an improvement of £196,636, resulting in an overall budget underspend of £157,088 (including additional transfers to earmarked reserves and carry forward requests). This represented a variance against the revised budget of 7%.

 

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

 

Earmarked Reserves

 

The provisional outturn of a £157,088 budget underspend included a number of additional transfers to earmarked reserves in addition to those transfers to/from earmarked reserves already approved and budgeted for. These further contributions to earmarked reserves were detailed at paragraph 3.6 of the officer’s report.

 

Financial Procedure Rules allowed Assistant Directors to carry forward any budget provision not utilised during the financial year, subject to their Directorate as a whole not being overspent. Following confirmation of the final cash limited outturn for each Directorate in 2022/23, a list of requests (which would be transferred from the surplus to earmarked reserves for drawdown in future years) totalled £186,270, as detailed at paragraph 3.7 of the officer’s report:

 

All of the proposed carry forward requests were reflected in the provisional outturn of £157,088 budget underspend.

 

Further details of HRA Earmarked Reserves were set out at Appendix G of the officer’s report.

 

Towards Financial Sustainability Programme

 

The savings target included in the MTFS for 2022/23 was £1,050,000. Progress against this target, based on the provisional outturn performance showed that secured savings totalled £996,400. This resulted in an under-achievement of the target in 2022/23 by £53,600. Despite this under-achievement, the General Fund had out-turned in an overall positive position. A summary of the specific reviews that had contributed to this target were shown in Appendix K.

 

Housing Revenue Account

 

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

 

The financial performance quarterly monitoring report for the 3^rd quarter predicted an underspend of £961. The provisional outturn for 2022/23 now indicated an improvement of £119,614, resulting in an overall budget underspend of £120,575 (including additional transfers to/from earmarked reserves). This would result in HRA balances as at 31^st March 2023 of £1,184,447.

 

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

 

The provisional outturn of a £120,575 budget underspend included four additional transfers to earmarked reserves, in addition to those transfers to/from earmarked reserves already approved and budgeted for as detailed at paragraph 4.6 of the officer’s report.

 

The level of each of the current earmarked reserves, as at 31^st March 2023 attached at Appendix G, took account of the contributions to earmarked reserves agreed as part of the revised budget and the drawdown of funding to cover expenditure, together with the additional transfers set out in para. 4.6 of the officer’s report.

 

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. 

 

The outturn for 2022/23 showed a trading deficit of £221,845, a movement of £198,439. The movement was as a result of the delay in billing of void jobs as highlighted at Quarter 3, which made forecasting the outturn position difficult

 

The net trading deficit of £221,845 was the result of several year-end variations in income and expenditure against the approved budget. The main over and underspends included within the provisional outturn were detailed in Appendix F, while the key variances were summarised at paragraph 5.3 of the officer’s report.

 

The main contributory factor for this deficit was 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.

 

As the increased subcontractor costs were not reflected in the service hourly rate and overhead recovery was not recouped on sub-contractors, this resulted in an under recovery of full costs from the HRA. Despite this, the overall level of rechargeable income was overachieved due to the volume of voids works being undertaken (of both a capital and revenue nature), albeit at a higher cost, compensating for a reduction in responsive repairs works.

 

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.

 

The deficit of £221,845 had been recharged to the HRA, as the major service user and reflected in the HRA outturn within the officer’s report.

 

Earmarked Reserves

 

Details of HRA Earmarked Reserves were set out at Appendix G of the officer’s report.

 

General Fund Investment Programme

 

The last quarterly report approved a General Fund Investment Programme for 2022/23 of £17,860,202. Movements in the programme since revised budget approval decreased actual capital expenditure in 2022/23 to £10,817,844. A summary of the budget changes was detailed at paragraph 7.2 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 7.3 of the officer’s report.

 

The one financial change over the approved limit requiring approval by the Executive. was detailed at paragraph 7.4 of the officer’s report.

 

New projects added in quarter 4 had already received Executive approval as detailed at paragraph 7.5 of the report

 

A summary of the provisional outturn position for the General Investment Programme as at 31 March 2023 was shown at paragraph 7.6 of the officer’s report.

 

Overall spending on the General Investment Programme, excluding externally delivered schemes, for 2022/23 was £8,602,314, which was 57.6% (including externally delivered schemes overall with spending of £10,817,967, which was 60.57%) of the revised 2022/23 programme as per the MTFS 2023-28.

 

Housing Investment Programme

 

The last quarterly report approved a Housing Investment Programme for 2022/23 of £20,498,524. Movements in the programme since approval of the revised budget decreased actual capital expenditure to £12,647,269 in 2022/23.

 

The financial changes delegated to the Chief Finance Officer for approval for the final quarter 2022/2023 were detailed in Appendix J, being primarily reprofiles of budgets between financial years.

 

The financial changes over the approved limit requiring Executive approval for the final quarter 2022/2023; were detailed at paragraphs 7.10 - 7.11 of the officer’s report.

 

The overall expenditure on the Housing Investment Programme for 2022/23 was £12,647,269, which was 61.7% of the revised 2022/23 programme as per the MTFS 2023-28.

 

The main reason for the underspend on the programme against the MTFS  was due to delays in appointed contractors for the schemes. The majority of these budgets had been re-profiled into future years for when the contractors were appointed.

 

The new build programme budgets were also largely underspent in the year, as a result of the development of schemes not yet at delivery stage as well as lower than budgeted acquisitions for buy backs for the housing stock. These underspends had been re-profiled into future years to accommodate these underspends