Agenda item

Month 9 Budget Outturn Report - Budget monitoring report for monthly scrutiny.


Cabinet Member Rachel Garrick and Jonathan Davies presented the report and answered the members’ questions with Peter Davies, Will Mclean, Frances O’Brien and Ian Saunders.

Ahead of the questions the Chair noted that it is understood that the picture is a complicated one regarding reserves and the council’s underlying picture but residents will want to know what the financial position is that are identified in the report, as one which by the end of the financial year might not be financially sustainable. It would be reasonable to want to understand the impact on the representation of our position being improved by the additional drawdown of reserves, which can’t go on in perpetuity, and the impact of grants that might never be repeated.


Committee members should note that it is unusual to read some things in the report e.g. 3.19, which refers to the potential difficulty in reducing costs and “more extreme measures”. 3.2.0 is also very unusual in stating that measures will be “vital to ensuring that the Council ends the year in a financially sustainable position”. 3.2.1 states that certain savings “will not necessarily bring any further benefit to future years’ budget” – are we cutting out one-off issues that might result in the deterioration of services?

This wording highlights that there has been a need to strike a balance between our ability to instigate very hard measures in-year, while putting plans together for next year at the same time. The package of measures introduced in the current year has responded to a situation that has evolved very quickly. The point about financial sustainability concerns ensuring that we are instigating the necessary level of cost control now; the further deterioration at Month 9 is disappointing. We need to ensure that we are taking steps for there not to be further deterioration, putting us on a sustainable path to work through next year and beyond.

The contradiction between positive spin on one end and negative at the other is a concern, particularly as related to approaching a critical level of reserves. Do we need to examine the reserves position more closely, and the effect on budgeting in future years?

The increased use of reserves is due to examination of the intent to use capital receipts to cover some of those additional realisations of risk. It has become clear that not all of the areas that we had intended in fact qualify under the capitalisation directive and, therefore, we are having to turn to reserves on that particular piece. In terms of usage, we, as an administration, are concerned about the level of available reserves: the Council hasn’t replenished them over the last few years to any discernible level, apart from the point where we had additional funding for Covid. We have the third lowest reserves in Wales. So, we are also paying extreme attention to where our reserves are, and what can be done about that.

But in terms of drawing on reserves to subsidise our revenue expenditure of £6m, £1m more than anticipated, that is separate from the capital receipts directive?

Table 3 is clear: it is a combination of items that goes towards making up the net increase of £1.06m. There’s a shortfall in being able to apply all of the costs that we hoped to at Month 6 to capitalisation – it drops by approx. £500k – and there is the shortfall within the proposals that services came up with at Month 6. There are paragraphs later on about reserve levels, in terms of additional use; note the papers going to Cabinet and Council this week about the robustness of our reserve levels, and their usage for this year and next.

What would the position have been if reserves weren’t drawn down, and/or if there hadn’t been a one-off grant? What is the underlying picture, for us to know the Council’s true position?

It is difficult to unpick, as we have received a number of one-off grants and additional income throughout the year. The bottom line is that our revenue reserves usage is increasing by £1.06m. Effectively, that item, along with the capitalisation directive, are the tools for us to meet the unexpected costs that have arisen. The point is taken, though. For a straight summary of how it has affected our outturn position, the answer is there in Table 3: there has been the increased use of revenue reserves to meet the additional costs that have come through between Month 6 and Month 9, offset by additional funding but not to the full extent. Reserves are at a lower level than we would want, and our budgetary discipline therefore needs to be very firm – we can’t rely on reserves in the medium-term to bail out the council for unforeseen overspends.

The problem is driven largely by increases in social care costs. What is the comparison with other councils? Are they experiencing similar costs pressures in this area?

We were also concerned by the increase in costs of young people’s placements and curious as to how we are faring compared to other councils, with a concern that we are above-average in that area. Our Chief Financial Officer is currently working on that research and information-gathering – the headline from that is that we are around average in our expenditure in this area. It is currently affecting all councils: Wrexham, for example, has seen a 100% increase over the last 5 years in the cost of children’s placements, whereas our increase has been around 50%.

Regarding the “danger of a further 9 schools going into deficit”, what is our approach and what would be the impact on children’s education?

We have moved from 8 to 9 schools in a deficit. Two are at a very low level (less than £10k), so we expect them to recover quickly. One school has had a substantial deficit for a period of time, but working with the Cabinet Members we are looking to provide additional support to smooth its recovery over an extended period of time. The level of the other schools is one that can be recovered over the next 2 years. We will work closely with them to ensure that they have a proper plan in place. The balances coming into the year were artificially inflated due to significant Welsh Government grants, particularly to support learners in their recovery post-pandemic, and that money had to be spent on very specific things in the timeframe. There was also the effect of the schools needing to meet the 2% pay award in-year, which was another £1m. In terms of the impact on learners, we intend to work with schools so that there isn’t any – that the schools recover carefully and consider over time if there are changes to non-pay or pay-based costs that can be made to minimise any potential impact on learners.

Are we getting any indication that there will be a further call on reserves?

We think that we have reached a level of certainty now, so there shouldn’t be. We received some late notification about social care grants, which we were able to put into the forecast, and gives us a level of certainty. The main concern is still the social care position moving towards the end of the year; we will continue looking at cost restraint and value for money considerations.

Is there any scope for more flexibility regarding the capital receipts being used for revenue?

Capitalisation has been used extensively in recent years, where appropriate. We hoped to use it more fully, regarding budget recovery but the feeling is that we are beyond the scope of where we should be in its utilisation. We are in frequent contact with Welsh Government and the Treasurers Association on that, and we believe we are sound in our interpretation. The table in 3.46 notes the forecast in capital receipts balances: £3m projected to the end of 26/27, so we must be mindful that the pot of capital receipts is limited. Therefore, while we could look at further flexibilities, and approach officials about additional usages, we must remember that they are one-off, and utilising them for this purpose limits the ability to draw on them for their traditional purpose to support capital expenditure and the wider capital programme. It comes back to balance, but we acknowledge the suggestion to explore flexibilities, where possible.

What’s the normal percentage of the revenue budget that should be in reserves? What was it in 19/20, 20/21?

It’s not entirely useful to compare where we are with 20/21, due to the additional Covid funding. We are lower than where we would like to be in those areas, at this moment. A chart in 3.31 illustrates the history of our reserve levels as a percentage of net budget over time. It’s important to distinguish between council fund cover, which we have traditionally kept between 4-6%; even with the current year and budgeted use for the next financial year, it remains 4.9%.

In terms of earmarked reserves, we must be mindful that they are for specific use and set up to cover certain transformational objectives and specific risks such as insurance, treasury risk, redundancies, etc. We would expect a level of usage of reserves over time for them to be drawn on for those specific purposes e.g. if we invest in service transformation, we will call on the reserves to drive efficiencies and lower long-term costs.

Given the Social Care overspend, what are the realistic prospects of turning the rising trajectory of those costs to one that sees them coming down?

As we are discussing Month 9 today, we would not go into the overall budget at this juncture.

Could you give more detail about the reduction of £424k in Highways?

That underspend is due to increased income that we are receiving for things like road closures and sustainable urban drainage. We have also received a Welsh Government flooding grant that are covering core service costs.

The Leisure budget has moved through the year from £1m to £1.4m to a forecast outturn of £1.7m – can that be further explained?

This is due to the familiar story of cost-of-living and increasing energy costs. The team has done excellent recent work on promotions to bring income back into the sites. Through this particular period there was huge uncertainty about the cost of living and energy, and issues around whether people would continue their memberships. We have been prudent in what we’ve suggested through the year and are very pleased with the latest upswing. Trying to predict customer numbers in this period has been very challenging.

Chair’s Summary:

We recognise that these are extremely challenging positions. We have scrutinised the report and are satisfied that the responses have been made to the questions raised.


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