Agenda item

Purpose of Report

 

To present the third quarter’s performance (up to 31 December 2023) 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 2023 to 31 December 2023 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 proposed carry forward requests and transfers to earmarked reserves detailed in paragraph 3.8 and 3.9 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 7.6 and 7.14 of the officer’s report be noted.

 

5.    That the changes to the General Investment Programme and Housing Investment Programme, as detailed in paragraphs 7.3, 7.4, 7.5, 7.11 and 7.12 of the officer’s report, be approved.

 

Alternative Options Considered and Rejected

 

None.

 

Reason for Decision

 

Financial Procedure Rules required members to receive, on a quarterly basis, a report prepared jointly by the Chief Finance Officer and Corporate Management Team commenting on financial performance to date. This report was designed to meet this requirement.

 

Whilst there were still a number of variables which were subject to a level of uncertainty, based on the latest set of assumptions as at the end of the third quarter (up to 31 December 2023), the forecast financial position of the Council for 2023/24 was detailed at paragraph 2.2 of the officer’s report, together with the detailed financial position shown in sections 3-7 and the accompanying appendices.

 

Updates were reported as follows:

 

General Fund Revenue Account

 

For 2023/24 the Council’s net General Fund revenue budget was set at £14,402,660 which included a planned contribution from balances of £191,110 resulting in an estimated level of general balances at the year-end of £2,228,739 (after allowing for the 2022/23 outturn position).

 

The General Fund Summary was currently projecting a forecast underspend of £289,602 (Appendix A provided a forecast General Fund Summary) resulting in general balances at the year-end of £2,518,341. This position maintained balances above the prudent minimum of c.£1.5-2m.

 

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.

 

The cost pressures in relation to the pay award were unavoidable, and the levels of income in relation to development in the city were primarily driven by economic factors, both of which had required the resetting of budgets as part of the MTFS. However, in relation to the increasing cost of housing benefits which the Council was bearing the Corporate Management Team had commissioned a range of responses, these would focus on both manging the demand for temporary accommodation as well as exploring options to increase the supply of suitable accommodation to reduce the reliance on costly bed and breakfast usage. In addition, careful review of all supported accommodation claims was in place to ensure the appropriate levels of housing benefit were awarded.

 

While the forecast outturn for the General Fund was a budget underspend, there still remained uncertainty in terms of service demands and income forecasts. As such the final outturn position for the year was still subject to further change and would continue to be carefully monitored. At this stage no additional mitigations, other than those currently being implemented in response to temporary and supported accommodation costs, were recommended. Strong budgetary control should continue to be a focus to ensure expenditure and income remained balanced within the budget, resulting in a positive contribution to reserves at outturn.

 

Ear Marked Reserves-Carry Forward Requests

 

Financial Procedure Rules stated that Assistant Directors were able to carry forward any budget provision not utilised during the financial year, to be used for the same purpose in future years subject to their Directorate as a whole not being overspent. Based on the forecast outturn as at quarter three, and subject to the final cash limit outturn, for each Directorate in 2023/24 a list of requests (to be transferred from the surplus to earmarked reserves for drawdown in future years) totalled £60,400.

 

In addition to the above carry forward requests, a number of requests for additional transfers to reserves had been made, whereby Directorates had requested a transfer to a new, or existing, reserve for a number of underspent budgets, to be used for alternative purposes or to mitigate risks, in future years, subject to their Directorate as a whole not being overspent. Based on the forecast outturn as at quarter three, and subject to the final cash limit outturn for 2023/24, this list of requests totalled £126,650.

 

These carry forward requests and additional reserve contributions were included in the forecast outturn position.

 

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

 

Towards Financial Sustainability Programme

 

The savings target included in the MTFS for 2023/24 was £185,210.

 

Progress against this target, based on quarter 3 performance, showed that secured savings totalled £126,080 for the General Fund, with a further £121,590 identified, which resulted in an over-achievement of £62,460 in year.

 

A summary of the specific reviews that had contributed to this delivery were shown in Appendix K.

 

Housing Revenue Account

 

For 2023/24 the Council’s Housing Revenue Account (HRA) net revenue budget was set with a planned contribution from balances of £58,930, resulting in an estimated level of general balances at the year-end of £1,125,517, after allowing for the 2022/23 outturn position.

 

The HRA was currently projecting a forecast overspend of £13,787 which would result in HRA balances of £1,111,730 at the end of 2023/24. (Appendix C provided a forecast Housing Revenue Account Summary). This position maintained balances above the prudent minimum of circa £1m.

 

Although the forecast position was an overspend, there were a number of significant 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 detailed 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 Housing Repairs Service (HRS) and to the rising cost of Disrepair claims, were recommended. Strong budgetary control should continue to be a focus in this financial year to ensure expenditure and income remained balanced within budget.

 

Housing Repairs Service

 

For 2023/24 the Council’s Housing Repairs Service net revenue budget was set at zero, reflecting its full cost recovery nature.

 

At quarter 3 the HRS was forecasting a deficit of £552,062 in 2023/24 as detailed within the forecast HRS summary at Appendix E, with full details of the main variances provided in Appendix F, together with a summary of the key variances provided at paragraph 5.2 of the officer’s report.

 

The main contributory factor for this deficit was the ongoing recruitment and retention challenges, which were being felt not just by the council but across the construction industry as a whole. This inability to attract and retain staff resulted in a greater reliance on the use of sub-contractors to ensure that service demands were met. The cost of using sub-contractors was however more expensive than the HRS’s own workforce, due to the ongoing impact of Covid19, inflationary factors and a reduced pool of contractors from which to secure services. These additional costs were therefore not fully offset by the vacancy savings achieved by not carrying out the work internally.

 

As the increased sub-contractor 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.

 

Whilst last year high vacancy levels, and the use of sub-contractors rather than our own workforce, resulted in an underspend on materials for the Council, this year higher than anticipated inflation levels, an industry wide issue, and an expected increase in repair jobs had resulted in an overspend on materials, further compounding the HRS forecast position.

 

The forecast deficit also included the impact of the national pay award, which was significantly over and above the assumptions included within the MTFS, as outlined in both the General Fund and HRA variances. The 2023/24 pay offer, made by the National Employers for Local Government Services earlier this year, was accepted by the Trade Unions for both Red and Green Book employees and was subsequently paid in December. The award reflected the higher of either, a flat rate increase of £1,925, or 3.5-3.8% to all employees, equivalent to a 9.4% increase for the lowest paid members of staff and with the majority of staff receiving pay rises above 5% for a second consecutive year.

 

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 materials, and an increased volume of works, 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 being offset against the overall HRA position.

 

Earmarked Reserves

 

The Council held a number of earmarked revenue reserves over both the General Fund and HRA. These reserves were sums set aside for specific purposes and to mitigate against potential future known or predicted liabilities. Key reserves included income volatility, business rates volatility, IT investment fund, asset sinking funds for future refurbishment etc. A number of these reserves were budgeted for use over the period of the MTFS.

 

The details of all the earmarked reserves and their forecast balance as at 31 March 2024 were attached at Appendix G, and summarised at paragraph 6.2 of the officer’s report, with further details in the MTFS 2023-2028.

 

General Fund Investment Programme

 

The revised General Investment Programme (GIP) for 2023/24 amounted to £24.784m following the quarter 2 report. At quarter 3 the programme had reduced by £9.450m to £15.334m, as detailed at paragraph 7.2 of the officer’s report.

 

Changes over the delegated limits which required approval by the Executive for the third quarter were detailed at paragraph 7.3 of the officer’s report.

 

New projects added to the GIP, which required Executive approval, or recently added and approved by Executive in Quarter 3 were detailed at paragraph 7.4-7.5 of the officer’s report.

 

The financial changes and reprofiles to the budget up to an approved limit, delegated to the Chief Finance Officer for approval for the third quarter 2023/2024 were detailed at paragraph 7.6, with a summary of the projected outturn position provided at paragraph 7.7 of the officer’s report.

 

The overall spend on the General Investment Programme active schemes for the third quarter of 2023/24 was £8.2m, which was 67.57% of the budget (excluding externally delivered schemes), as detailed further at Appendix I of the report.

 

Housing Investment Programme

 

The revised Housing Investment Programme (HIP) for 2023/24 amounted to £16.862m following the quarter 2 position. At quarter 3 the programme had been decreased by £0.742m to £16.120m, as detailed within paragraph 7.10 of the officer’s report.

 

All changes over the approved limit required approval by the Executive. The financial changes over the approved limit which required Executive approval for the third quarter 2023/2024 were detailed at paragraph 7.11 of the officer’s report.

 

All new projects were subject to Executive approval. There had been one new project to be funded from the Major Repairs Reserve which required approval during quarter 2 as detailed at paragraph 7.11 of the officers report.

 

One new project in quarter 3, having been approved under delegation in accordance with the Virtual Asset Management Group, was detailed at paragraph 7.12 of the officer’s report:

 

The financial changes delegated to the Chief Finance Officer for approval as set out under Financial Procedure Rules for the third quarter 2023/2024 were detailed at paragraph 7.13 and a summary of the projected outturn position for the Housing Investment Programme at paragraph 7.14 of the officer’s report.

 

The overall expenditure on the Housing Investment Programme at the end of quarter 3 of 2023/24 was £7.029m, which was 41.85% of the 2023/24 revised programme. This excluded expenditure relating to Western Growth Corridor, which was currently shown on the GIP, to be apportioned at year end (current forecast outturn £1.97m). This was detailed further at Appendix J.

 

A further £0.525m had been spent as at the end of January 2024, although this was still 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 by the end of the financial year. In addition, schemes such as Hermit Street had only recently commenced, and a number of the LAHF acquisitions were currently in progress but not yet complete.