Agenda item

Cabinet Member Ben Callard introduced the report with Jonathan Davies, and they answered the members’ questions with Will Mclean and Deb Hill-Howells.

 

Questions:

 

Six primary schools have deficits of more than £100,000 and only one appears to have reduced its deficit during the year. Are the school recovery plans proving effective, and why are some schools continuing to struggle while others hold significant surpluses?

 

School deficits have been recognised as a significant financial risk for several years and recovery plans were always expected to take a number of years to achieve results. The largest factor affecting school budgets is staffing costs, which make up the majority of school expenditure. Where pupil numbers are lower, schools receive less funding, but many staffing costs remain fixed because classes still require teaching staff regardless of whether there are 20, 25 or 30 pupils. Education and finance officers are working with schools to support the delivery of recovery plans. However, it is disappointing that some deficits are continuing to increase rather than showing a clear downward trend. Schools, governing bodies, education officers and finance teams all have a role in ensuring that spending decisions are prudent and contribute to financial recovery.

 

The financial position is also being affected by wider pressures. Additional Learning Needs (ALN) are creating significant costs across schools, with schools often providing support beyond what can be funded centrally by the local authority. Staffing pressures and workforce volatility are adding further costs, while a small number of schools have experienced exceptional circumstances, including prolonged absences of senior staff, which have generated additional expenditure. In some cases, recovery plans may involve an initial increase in deficits before improvements are realised because of the timing of staffing changes.

 

Are school deficits largely explained by common pressures such as ALN, or are there school-specific factors that explain why some schools are performing differently from others?

 

Additional Learning Needs pressures are a significant common factor affecting many schools and are contributing to rising expenditure. Staffing pressures are also being experienced across the school system and are placing budgets under increasing strain. However, common pressures do not explain all of the variation between schools. Some schools are facing particular local circumstances, including exceptional staffing issues and other factors that have increased costs. As a result, there is no single explanation for the differences in financial performance between schools.

 

Further detailed examination is therefore needed to understand why some schools facing similar pressures are managing to maintain balanced budgets or surpluses while others are experiencing significant and growing deficits. Identifying the relative importance of county-wide pressures and school-specific factors will be an important part of understanding the causes of the largest deficits and the effectiveness of recovery plans.

 

What are the current council tax and business rates collection rates compared with last year, and how are these expected to progress in the coming year?

 

Council tax collection remains a live financial risk for 2026/27. The issue is not solely about collection performance, but also the combined impact of affordability pressures on households, increasing levels of discounts and exemptions, and growing arrears. During 2025/26, the council experienced a pressure of approximately £345,000 in relation to council tax collection, although this was offset by favourable movements elsewhere within the service.

It cannot be assumed that these favourable offsets will continue into 2026/27, and even relatively small changes in collection rates can have a significant impact on council finances because council tax is such an important source of funding. Collection performance and arrears trends will therefore require close monitoring throughout the year. At the same time, recovery action will need to be proportionate and sensitive to the cost-of-living pressures being experienced by residents, particularly in light of new regulations governing debt recovery processes.

 

Are there any budget pressures or services that are currently being sustained by one-off grants or reserves that could create problems in future years?

 

The positive financial position achieved in 2025/26 was supported in part by year-end funding and grant financing. While this has helped the council adapt to a challenging financial environment, underlying service pressures remain and will not disappear when one-off funding ends. There is a need to continue finding ways to address these pressures either through ongoing grant support or through organisational change and transformation programmes. The financial outturn should therefore be viewed in the context of continuing pressures that still need to be managed over the longer term.

 

Are there any emerging financial risks or concerns that are not fully reflected in the report?

 

Social care remains one of the council's most significant areas of financial risk. Demand-led services can experience substantial fluctuations in expenditure, and relatively small changes in the number or complexity of cases can create major budget pressures. The cost of supporting individuals with high levels of need can be particularly significant. In addition to social care, the council continues to monitor risks associated with council tax collection, inflation, pay awards and other demand pressures. Early identification and management of emerging trends will be essential, and financial monitoring reports throughout 2026/27 will be used to assess whether any developing pressures require corrective action.

 

Demand for the Pupil Referral Service (PRS) continues to increase. What proportion of this increase is due to worsening pupil needs, and what proportion reflects mainstream schools being unable to cope?

 

The nature of the PRS has changed significantly since the pandemic. Before the pandemic, the service supported only a small number of pupils, mainly those in Years 10 and 11 who were at risk of permanent exclusion, together with a small number of children unable to attend school because of serious illness or injury. Since the pandemic, demand has increased substantially. One major factor has been a significant rise in the number of pupils who are at risk of permanent exclusion and require alternative provision. The service is also supporting children whose placements in independent specialist schools have broken down because of the complexity of their needs. However, the largest area of growth has been children who are educated other than at school because they are medically unable to attend, particularly those experiencing anxiety and other social, emotional and mental health difficulties.

 

The increase in demand therefore reflects both growing levels of need among pupils and the requirement to provide appropriate education for children whose needs cannot currently be met through existing arrangements.

 

What is the average length of time that a pupil spends in the Pupil Referral Service before successfully returning to mainstream education, and is this improving?

 

The average length of time spent in the PRS was not available at the meeting and officers committed to providing this information subsequently. – ACTION: to provide information on the average length of time pupils spend in the PRS before returning to mainstream education. However, there has been a noticeable improvement over the last two years in returning pupils who are at risk of exclusion back into mainstream education. The service is increasingly operating as a turnaround provision, helping learners re-engage with education before returning to school. Despite this progress, some pupils may remain in the service for extended periods. In certain cases, pupils may enter the provision in Years 7 or 8 and remain there until the end of their compulsory education. This is not the intended purpose of the service, which seeks wherever possible to support children to return to mainstream education.

 

If demand continues to rise over the next two years, what is the service’s capacity limit before standards or statutory duties are put at risk?

 

No specific capacity limit was identified during the discussion. However, the service was described as being under significant pressure due to increasing demand and the complexity of pupil needs. The PRS budget is challenging, and work is underway between education officers and finance colleagues to develop a more sustainable model for the future. The service must continue to respond to a wide range of individual circumstances, including pupils at risk of exclusion, children with highly complex needs and those unable to attend school because of physical or mental health issues. Managing this growing demand while maintaining appropriate provision remains a significant challenge.

 

What are the wider implications of the rise in anxiety and mental health issues among young people, and how are schools responding?

 

Schools are increasingly investing in early intervention and support to help children manage anxiety and other emotional wellbeing issues. This includes nurture provision, small-group support and Emotional Literacy Support Assistants (ELSAs), who are specially trained to support pupils’ emotional needs. Mainstream schools are working to become more inclusive so that a wider range of pupils can be supported within ordinary school settings. However, there is often a tension between providing the intensive support some children need and the financial costs associated with smaller groups and additional staff.

 

Particular challenges arise when pupils move from primary to secondary education. The transition from a familiar primary environment to a much larger and more complex secondary setting can be difficult for some learners. Schools are therefore working more closely together across the primary-secondary transition to minimise disruption and ensure pupils receive appropriate support. The focus is on creating inclusive learning environments that support all pupils, recognising that anxiety and emotional difficulties can affect any child at different points in their education. Officers indicated that providing this support within mainstream schools is a key priority, although it is increasingly challenging in the current financial climate.

 

Appendix 7 shows a surplus balance of approximately £2.668 million for the Welsh-medium school and nursery project. Is this money still available for development of the school or a future site, or is it no longer under local control?

 

The surplus relates to funding that had originally been allocated to support the planned development work involving Ysgol Gymraeg Trefynwy and the provision in Usk. However, following the discovery of significant issues on the proposed site, that particular programme of work will not proceed in its original form. The funding has not been identified as lost; instead, discussions are ongoing with the Welsh Government's Welsh-medium education division regarding how future support for the school can be provided. Any future development proposals will be subject to a further capital funding bid to Welsh Government. As a result, the balance reflects funding associated with the original project, but the next steps for investment will depend on future proposals and discussions with Welsh Government.

 

When a pupil is permanently excluded and moves into the Pupil Referral Service (PRS), does the funding allocated for that pupil follow them into the service?

 

Yes. When a pupil is permanently excluded and moves into the PRS, a proportion of the funding associated with that pupil transfers from the original school. Specifically, the remaining proportion of the pupil's funding for that academic year is allocated either to the new school in the case of a managed move or to the PRS where appropriate. However, this transfer only recovers a relatively small proportion of the actual cost of provision. For example, the funding associated with a secondary school pupil may be around £5,000 per year, but the level of support required by a pupil entering the PRS can be significantly higher than the funding transferred. As a result, the funding that follows the pupil does not cover the full cost of providing.

 

To what extent does the council's reported surplus rely on one-off funding, treasury movements and capital receipts, and what level of dependence does this create on funding that may not be available in future years?

 

The council's positive financial outturn was supported by a combination of one-off grants, grant funding received later in the financial year, favourable treasury management outcomes and corporate budget movements. It is difficult to produce a single figure showing the overall value of this support because grant funding often affects multiple budgets simultaneously. For example, additional late-year funding for Additional Learning Needs was distributed across schools, the PRS and central education budgets rather than benefiting a single service area. The council has sought to maximise the use of grant funding where possible by aligning eligible expenditure with available grants, which has helped protect the core revenue budget. In addition, the council benefited from not having to draw on a contingency budget of just under £900,000 that had been set aside to manage financial risks during the year.

 

While the outturn reflects prudent financial management, it is recognised that some elements of the position were supported by one-off factors. The council therefore continues to work with Welsh Government and other partners to secure greater certainty around funding streams and reduce reliance on short-term or annually allocated grants. The budget for 2026/27 has not been built on the assumption that additional unbudgeted grants will be received during the year. It has been based on known funding allocations. Support from capital receipts continues within the budget, but this is planned to reduce over time. Approximately £2.7 million of capital receipts are being used in 2026/27 to support organisational change, with this funding expected to taper down to zero over the following two to three years. – ACTION: to provide further information quantifying the contribution made by grants, treasury movements, capital receipts and other non-recurring measures to the final outturn position.

 

The report shows an overspend on fleet maintenance of approximately £325,000, while there is also an underspend in the capital budget for vehicle replacement. Why is the council continuing to incur higher maintenance costs on an ageing fleet while not spending all of the available capital funding for fleet replacement?

 

The position reflects the challenges of transitioning the fleet to ultra-low emission vehicles (ULEVs) in line with Welsh Government requirements. The council is replacing vehicles where possible, but for some vehicle types, particularly refuse collection vehicles, leasing arrangements are currently being used rather than purchasing replacements. This is because suitable ULEV alternatives that can operate effectively within Monmouthshire's geography and service requirements are not yet readily available.

 

The transition to low-emission vehicles also involves higher costs, with replacement ULEV vehicles often costing significantly more than conventional vehicles. Delays to the depot redevelopment programme, linked to the Replacement Local Development Plan process, have also affected the timing of some capital expenditure. The maintenance overspend is not solely due to an ageing fleet. Additional costs arise when vehicles are involved in accidents and temporary replacement vehicles need to be hired. There have also been instances where newly purchased vehicles have developed faults and had to be returned to manufacturers, requiring the council to hire replacement vehicles. To address these issues, a Fleet Management Board has been established to examine maintenance costs, vehicle utilisation, fleet size and driver behaviour, with the aim of reducing future expenditure.

 

Is the main issue with introducing ultra-low emission vehicles a lack of vehicle availability, with councils competing for a limited supply of suitable vehicles?

 

The issue is not primarily one of vehicle availability. The main challenge is that the available electric refuse collection vehicles do not currently provide the operational range required to serve Monmouthshire's geography and routes effectively. Welsh Government guidance sets deadlines for transitioning fleets to low-emission vehicles, including a target of replacing heavy goods vehicles by 2030. However, the council's current assessment is that existing electric refuse collection vehicles cannot yet meet operational requirements. Work is therefore being undertaken with specialist consultants to review collection routes and service operations to identify how the council can transition to ULEV-equivalent vehicles in the future.

 

Following the recent Welsh Government supplementary budget, is there any indication of how much additional funding the council is likely to receive?

 

At the time of the meeting, the only clear additional funding identified for local authorities from the supplementary budget related to school maintenance and education capital investment. No further allocations had yet been confirmed. Officers indicated that they were continuing to review the information available and would provide updates should further details emerge about funding that may benefit the council.

 

What is meant by the £45 million of capital slippage reported in the outturn, why has it occurred, and does it indicate that planned projects are not being delivered as expected?

 

The majority of the reported capital slippage reflects the rephasing of approved schemes rather than the loss of funding or failure to deliver projects. Many capital projects are multi-year in nature, and expenditure does not always occur in the year originally profiled. A variety of factors have contributed to the slippage, including grant conditions, external approvals, design and feasibility work, procurement processes, contractor availability and internal capacity constraints. In some cases, budgets were initially phased into a single year and subsequently needed to be carried forward when projects took longer than anticipated.

 

A review was undertaken of the schemes proposed for slippage to ensure they remained realistic, affordable and deliverable. Some proposed carry-forwards, particularly in property maintenance and infrastructure, were not supported because there were concerns about affordability or deliverability, and these schemes will require further assessment before future funding is approved. The focus for 2026/27 will be on improving project delivery, profiling and management to ensure that schemes progress in line with expectations.

 

What is the rationale for using £3.55 million of capital receipts to support revenue expenditure?

 

The £3.55 million has been used under the capitalisation directive to fund organisational change and service transformation activity that would otherwise have needed to be financed from the council's limited revenue reserves. This approach has been used for around six or seven years and supports programmes that are intended to improve service efficiency, transform service delivery and reduce longer-term costs. The expenditure funded in this way is detailed in Appendix 4 of the report.

 

The use of capital receipts is considered an important tool in supporting organisational change. It has allowed investment in transformation activity while preserving revenue reserves, which are relatively low compared with many other authorities. Officers indicated that evidence of success should be seen through more efficient service delivery and reduced costs arising from these transformation programmes.

 

Previous discussions highlighted concerns that major capital projects were not always benefiting from dedicated project management. What progress has been made in introducing project management arrangements for major capital schemes?

 

The council has appointed three dedicated project managers within the Infrastructure service and they are expected to take up their posts during the summer. These officers will lead the delivery of major infrastructure projects, including schemes such as Llanfoist Bridge, Old Dixton Bridge and other significant structures projects. Previously, project management responsibilities were often undertaken by consultants, in-house designers or lead engineers alongside their existing duties. Given the scale and complexity of the capital programme, this was not considered sustainable. The introduction of dedicated project managers is intended to improve project delivery, oversight and communication with members, residents and businesses. Officers advised that an update on the new arrangements is expected to be brought to scrutiny later in the year.

 

You mentioned that the pool of capital receipts is becoming restricted. What does that mean and what are the implications?

 

The council's available capital receipts are projected to reduce significantly over the medium term. As a result, the amount of capital receipts available to support the revenue budget and fund organisational change is becoming more limited. This is why support from capital receipts is being tapered down over the coming years. While additional receipts may become available once the Replacement Local Development Plan is agreed and generates future opportunities, planning assumptions currently rely only on receipts that can already be reasonably anticipated.

 

The declining balance means capital receipts cannot continue to be relied upon indefinitely to support either capital investment or revenue-funded transformation programmes. Consequently, the council is reducing its dependence on this funding source as it plans for future years.

 

Chair’s Summary:

 

Thank you to the Cabinet Member and officers for the report and their responses. Noting the recommendations in the report, the committee has undertaken detailed scrutiny of the key financial issues arising from the report and received significant clarification through the questions and answers provided.