Report of the Deputy Chief Executive and City Treasurer attached

The Executive considered a report of the Deputy Chief Executive and City Treasurer, which set out the strategic and financial context which supported the 2023/24 Budget based on the outcome of the Final Local Government Finance Settlement.

 

The report went on to set out the strategic and statutory context for setting the budget, which included:-

 

·                     The Our Manchester Strategy;

·                     Progress to date on delivering the Our Manchester Strategy, building on the recent State of the City analysis;

·                     The Corporate Plan;

·                     A summary of the financial position and context;

·                     The required statutory assessment of the robustness of the proposed budget and adequacy of proposed reserves;

·                     Other fiduciary and statutory duties; and

·                     Financial Governance.

 

The Medium-Term Financial Strategy (MTFS) report to Executive in February 2022 recognised that significant budget cuts would need to be delivered over the Spending Review period to set a balanced budget in future years. When the three-year MTFS was presented in February 2022 the budget gap was forecasted at £37m, in 2023/24, increasing to £58m by 2024/25, reflecting the flat cash funding position set out in the spending review. 

 

Since then, the national funding outlook for Local Government has become more volatile.  A review of the Council’s budget assumptions was undertaken in August 2022 followed by an emergency financial statement delivered by the new Chancellor, on 17 October 2022, which reversed the majority of the tax changes announced on 23 September 2022.  An updated position was reported to Executive on 16 November 2022, based on the latest Government position and updated for the 2022/23 pay award and increased inflationary pressures which projected a revised forecast gap of £28m in 2023/24 increasing to £69m in 2024/25 and £96m by 2025/26.

 

Savings options had been developed consisting of £21.1m for 2023/24r increasing to £42.3m by 2025/26, alongside the proposed application of more than £48m of smoothing reserves to support the spending position.  This reduced the forecast gap to £7m in 2023/24, rising to £37m in 2024/25 and £54m by 2025/26.  The financial settlement had provided some additional flexibility and headroom, with savings being reviewed and it was now proposed that savings options of £36.2m are progressed, a reduction of £6.1m overall

 

Directorate	Amount of Saving				Indicative  FTE impact
	2023/24	2024/25	2025/26	Total
	£’000	£’000	£’000	£’000
Adults Services	4,142	2,200	2,200	8,542	-
Public Health	730	-	-	730	3
Children’s Services	4,411	3,920	3,394	11,725	-
Neighbourhoods	545	1,135	1,772	3,452	3
Homelessness	1,244	2,070	1,332	4,646	-
Corporate Core	3,365	677	1,089	5,131	27
Growth and Development	959	170	815	1,944	1
Total profiled savings options	15,396	10,172	10,602	36,170	34

 

Taking into account the above changes to the financial assumptions; the impact of the Autumn Statement and final Finance Settlement; the setting of the Council Tax and Business Rates base and Collection Fund surplus and the changes to savings and investment proposals, the forecast budget position was:-

 

	Revised 2022 / 23	2023 / 24	2024 / 25	2025 / 25
	£'000	£'000	£'000	£'000
Resources Available
Business Rates / Settlement Related Funding	235,553	374,725	380,005	386,872
Council Tax	208,965	217,968	228,087	237,279
Grants and other External Funding	104,559	126,439	127,968	116,055
Dividends	0	0	0	0
Use of Reserves	141,522	17,087	31,861	28,372
Total Resources Available	690,599	736,219	767,921	768,578
Resources Required
Corporate Costs:
Levies / Statutory Charge	67,871	70,060	75,463	74,646
Contingency	600	600	600	600
Capital Financing	39,507	39,507	39,507	39,507
Transfer to Reserves	24,638	1,335	0	0
Sub Total Corporate Costs	132,616	111,502	115,570	114,753
Directorate Costs:
Additional Allowances and other pension costs	7,316	8,566	8,566	8,566
Insurance Costs	2,004	2,004	2,004	2,004
Inflationary Pressures and budgets to be allocated	(7,169)	22,586	38,060	78,102
Directorate Budgets	555,832	591,561	603,721	605,545
Subtotal Directorate Costs	557,983	624,717	652,351	694,217
Total Resources Required	690,599	736,219	767,921	808,970
Shortfall / (surplus)	0	0	0	40,392

 

The report explained that the Council's net revenue budget was funded from five main sources: Business Rates, Council Tax, government grants, dividends, and use of reserves. In recent years the on-going reductions in central government funding had increased the importance of growing and maintaining local income and local funding sources, which was now integral to the Council’s financial planning.  The total resources available to support the Council’s net budget position was as follows:-

 

	Revised 2022 / 23	2023 / 24	2024 / 25	2025 / 26
	£'000	£'000	£'000	£'000
Resources Available
Business Rates / Settlement Related Funding	235,553	374,725	380,005	386,872
Council Tax	208,965	217,968	228,087	237,279
Grants and other External Funding	104,559	126,439	127,968	116,055
Dividends	0	0	0	0
Use of Reserves	141,522	17,087	31,861	28,372
Total Resources Available	690,599	736,219	767,921	768,578

 

The report went on to present in more detail the main elements that had been part of the Local Government Finance Settlement,

 

The assumption in regards Council Tax was that the Council would apply a 2.99% Council Tax increase in the basic amount, and a further 2% increase to provide extra funding for Adult Social Care, equating to a 4.99% Council Tax increase overall.

 

	2022/23 C’Tax	2023/24 C’Tax	Proposed Increase		Increase per week
	£	£	£	%		£
Manchester City Council - Band D	1,541.34	1,618.25	76.91	4.99%		1.48
Manchester City Council - Band A	1,027.56	1,078.84	51.28	4.99%		0.99
Band A receiving CTS at 82.5%	179.82	188.80	8.97	4.99%		0.17

 

It was also reported that Council Tax collection rate had been increased from 95.5% to 96.5% in 2023/24 increasing forecast income by £1.9m.

 

The report examined the future funding uncertainties facing the Council. The Deputy Chief Executive and City Treasurer had examined the major assumptions used within the budget calculations and had carried out sensitivity analysis to ascertain the levels of potential risk in the assumptions being used. The key risks identified to the delivery of a balanced budget and their mitigation were set out in the report.

 

The details of the Business Rate calculations, forecasts and assumptions were set out in the report, as well as the financial changes arising from the business rate related grants and funding the government had provided to support businesses.

 

The report provided a breakdown of the other non-ringfenced grants and contributions included in the budget. The most significant grants and contributions were described in detail in the report.

 

	Revised 2022 / 23	2023 / 24	2024 / 25	2025 / 26
	£'000	£'000	£'000	£'000
Better Care Fund (Improved)	31,748	31,748	31,748	31,748
Children's and Adult's Social Care Grant	31,924	50,695	57,645	57,645
Market Sustainability and Fair Cost of Care Fund	1,800	6,243	9,348	9,348
Adult Social Care Discharge Fund		4,451	7,420	7,420
Services Grant	12,324	7,230	7,230	7,230
Lower tier services grant	1,328	0	0	0
New Homes Bonus Grant	9,857	6,637	0	0
Loan Income from Airport	6,913	6,913	6,913	0
Contribution from GM Integrated Care Board	4,000	4,000	4,000	4,000
Education Services Grant	1,200	1,055	1,055	1,055
Housing Benefit Admin Subsidy	2,514	2,514	2,514	2,514
Council Tax Support Admin Subsidy (rolled into RSG from 2023/24)	856	0	0	0
Care Act Grant - Prison only from 16/17	95	95	95	95
Proposed share of £20m waste rebate		4,498
Proposed share of further £2m waste rebate		360	0	0
Settlement Risk	0	0	0	(5,000)
Total Non Ring-fenced Grants and Contributions	104,559	126,439	127,968	116,055

 

The report also examined the use of resources and the proposed revenue expenditure by the Council in 2023/24. The forecast of levy payments the Council would have to make to other authorities in 2023/24 was:-

 

	Revised 2022 / 23	2023 / 24	2024 / 25	2025 / 26
	£'000	£'000	£'000	£'000
GMCA - Waste Disposal Authority	29,956	30,632	32,164	33,643
Transport Levy	37,573	39,076	39,467	40,651
Contribution to Bus Reform	0	0	3,481	0
Environment Agency	248	258	258	258
Port Health	84	94	94	94
Probation (residuary charge for debt)	7	0	0	0
Magistrates (Residual debt)	3	0	0	0
Net Cost of Levies	67,871	70,060	75,463	74,646

 

The waste disposal levy was paid over to Greater Manchester Combined Authority (GMCA) and this contributed towards their costs of funding Greater Manchester Waste Disposal Authority (GMWDA).  Based on figures provided by GMCA the 2023/24 levy costs were to increase by £0.7 inclusive of changes in costs, recycling rates and market prices for recyclates and energy, as well as one off reserve rebates.  The final amount would be confirmed following the meeting of the GMCA on 10 February 2023:-

 

The proposed Insurance costs of £2.004m related to the cost of external insurance policies as well as contributions to the insurance fund reserve for self-insured risks.

 

The capital financing budget of £39.507m was to cover the costs of borrowing. For 2023/24 the forecast breakdown included:-

 

·                     Costs of £92.7m as follows:

·                     Interest costs of £40.7m,

·                     Minimum Revenue Provision (MRP) of £37.2m, being the provision for the repayment of debt incurred to fund an asset, spread over the useful economic life of the asset,

·                     Debt Management Expenses of £0.2m, and

·                     Contributions to investment projects and capital financing reserves of £14.6m. 

·                     Partly offset by interest receivable of £53.2m.

 

Allowances of £8.566m had also been made for retired staff and teachers’ pensions to meet the cost of added-years payments awarded to former employees.

 

The report explained the main assumptions that had been made when calculating provision to be made for inflation and other anticipated costs. These could not, at this point in time, be allocated to Directorate or other budgets. They would instead be allocated throughout the coming year. The total provision being proposed was £7.169m for 2023/24, broken down into:-

  

	Revised 2022 / 23	2023 / 24	2024 / 25	2025 / 26
	£'000*	£'000	£'000	£'000
Non Pay Inflation	(1,240)	6,476	10,818	13,807
Electricity Inflation	0	2,400	2,400	2,400
Pay Inflation	(6,958)	15,600	26,700	38,000
Reduced Pension Contribution	0	(2,950)	(2,950)	(2,950)
Apprentice Levy (0.5%)	1,029	1,060	1,092	1,124
Social Care Reforms	0	0	0	25,721
Total	(7,169)	22,586	38,060	78,102

 

The report explained that the Council held a number of reserves, all of which, aside from the General Fund Reserve, had been set aside to meet specific future expenditure or risks. A full review of all the reserves held had been carried out as part of the budget setting process and the planned use of reserves in 2023/24 to support revenue expenditure was as follows:-

 

	2022 / 23	2023 / 24	Spend supported by the reserve
	£'000	£'000
Reserves directly supporting the council wide revenue budget:
Airport Dividend reserve	24,851	1,073	Used in arrears to support the revenue budget position.
General Fund	2,970	0	To support the 2022/23 budget position.
Business Rates Reserve	109,609	7,166	Business rates relief provided over the pandemic and funded by Government.  Applied to offset Collection Fund deficit in arrears.
Use of St Johns growth reserve to support revenue budget	0	1,156	Growth in business rates income in the St Johns footprint, used to support the budget.
Adult Social Care budget for New Care Models	0	1,300	An investment to sustain the social work infrastructure and reablement capacity, supporting care models covering Crisis, Discharge to Assess and Manchester Case Management.
Bus Lane and Parking reserves	4,092	6,392	To support transport infrastructure and operations through the TfGM transport levy.
Sub Total	141,522	17,087
Earmarked reserves:
Bus Lane and Parking Reserves	5,188	7,044	To support costs associated with transport provision and highways / environmental improvements.
Balances Held for PFI's	433	33	Held to meet costs across the life of the PFI schemes
Managing economic and commercial risks	14,208	1,020	A significant part of the Planning Reserve will be required to support the development of the Local Plan.
Insurance Fund	500	500	Insurance fund reserve to meet uninsured risks, amount required is estimated each year.
Capital Fund Reserve	39,862	20,112	Contribution to schemes which are supporting employment and growth, future carbon reduction investments and high priority strategic development opportunities.
Investment Reserve	1,828	2,189	To fund £400k per Annum for North Manchester regeneration strategy, £0.7m over two years to support This City, and posts in Growth and Development.
Manchester International Festival Reserve	1,927	1,250	10 year grant agreement from 20
Eastlands Reserve	5,118	4,389	This reserve reflects the contribution from Manchester City Football Club and will be used for various projects including English Institute of Sport.
Town Hall Reserve	1,765	3,124	To fund revenue costs from Our Town Hall including decant costs.
Enterprise Reserve	75	99	Enterprise Reserve
Highways Commuted Sum	89	89	Highways Commuted Sum
Medium Term Financial Plan Risk Reserves	25,869	5,816	Includes funding for Our Manchester Voluntary Sector Grants) and Supporting Families reserve for Thriving Families initiative.
Reserves held for accounting purposes	7,664	7,439	Grants used over more than one year.
Making Manchester Fairer	0	2,430	To fund kickstarter schemes supporting the Making Manchester Fairer ambition
Adult Social Care Reserve	4,268	5,010	To support Adult and Social Care Improvement Plan
Other Specific Reserves	636	1,037	Includes Community Safety, Primary School Catering and Social Value Fund
Total	250,952	78,668

 

Where reserves were used to support the Council’s overall budget position or corporate expenditure such as levies, these were shown gross as part of the Resources required. The use of these reserves totalled £17m in 2022/23.  Of this £7.2m related to Business Rates grant, £1m airport reserve, £1.3m for New Care Models and £6.4m supporting the transport levy.

  

The proposals for the Directorates’ cash limit budgets were detailed in the Directorate Budgets 2022/23 reports that were also being considered at the meeting (Minute Exe/23/16 to 23/26 below). The overall position was:-

 

	2022 / 23 Revised		2023 / 24
	Net Budget	Gross Budget	Net Budget	Gross Budget
Directorate	£'000	£'000	£'000	£'000
Children Services	132,052	528,598	138,234	601,822
Adults Services	191,197	258,615	211,947	268,300
Public Health	42,685	45,989	41,955	47,059
Corporate Core	98,321	316,569	104,496	322,861
Neighbourhoods (Incl. Highways and Homelessness)	100,351	242,991	104,662	253,461
Growth and Development	(8,774)	35,577	(9,733)	35,548
Total	555,832	1,428,339	591,561	1,529,051

 

The budget assumptions that underpinned 2023/24 to 2025/26 included the commitments made as part of the 2022/23 budget process to fund ongoing demand pressures, as well as provision to meet other known pressures and investments. Whilst this contributed to the scale of the budget gap it was important that a realistic budget was set which reflected ongoing cost and demand pressures.

 

The Council remained committed to the priorities within the Our Manchester strategy and to the delivery of the Council’s Corporate Plan. The budget presented was based on the best information available to date, however there would be potential changes arising from other government funding announcements, such as the Public Health Grant.  Overall, the Finance Settlement announcements had been better than anticipated.  The 2023/24 budget gap has been closed without the need for further cuts and an opportunity to consider the quantum and phasing of the cuts and savings options alongside a small level of additional targeted investment and the 2023/24 budget contained reduced savings of £15.4m

 

While the final settlement had given some breathing space it did not provide a sustainable long term funding solution for Local Government. The difficult financial decisions had been pushed back to 2025/26 and it was highly likely that further significant budget cuts would be required at that point.  Officers had estimated the future resources available based on the information available.  This resulted in a forecast gap of £40m in 2025/26, after the use of £17m budget smoothing reserves.  The focus would now return to identifying medium term cuts and savings and continued working with central government to inform the planned reforms and obtain a fair funding settlement for the City. 

 

Councillor Leech sought clarification on the proportion of bus lane reserves to be used and how much would be left.

 

Decisions

 

The Executive:-

 

(1)          Note that the financial position has been based on the final Local Government Finance Settlement announced on 6 February together with any further announcements at that date;

 

(2)     Note the anticipated financial position for the Council for the period of 2023/24 which is based on all proposals being agreed

 

(3)          Note the resources available are utilised to support the financial position to best effect, including use of reserves and prior years dividends; consideration of the updated Council Tax and Business Rates position; the financing of capital investment, and the availability and application of grants.

 

(4)     Note that the Capital Strategy and Budget 2023/24 to 2025/26 has been presented alongside this report.

 

(5)          Note the Deputy Chief Executive and City Treasurer’s review of the robustness of the estimates and the adequacy of the reserves.

 

(6)          Recommend to Council to approve, as elements of the budget for 2023/24

 

·                an increase in the basic amount of Council Tax (i.e., the Council’s element of Council Tax) by 2.99% and Adult Social Care precept increase of 2%;

·                the contingency sum of £0.6m (para 6.61);

·                corporate budget requirements to cover levies/charges of £70.060m, capital financing costs of £39.507m, additional allowances and other pension costs of £8.566m and insurance costs of £2.004m;

·                the inflationary pressures and budgets to be allocated in the sum of £22.586m; and delegate the final allocations to the Deputy Chief Executive and City Treasurer in consultation with the Executive Member for Finance and Human Resources; 

·                the estimated utilisation of £13.146m in 2023/24 of the surplus from the on-street parking and bus lane enforcement reserves, after determining that any surplus from these reserves is not required to provide additional off-street parking within the district; and

·                The planned use of, and movement in, reserves after any changes are required to account for final levies.

 

(7)          Approve the gross and net Directorate cash limits.

 

(8)          Approve the in-principal contribution to the Adults aligned budget, subject to the extension of the S75 Agreement with Manchester Foundation Trust, which will be considered by Executive in March 2023.

 

(9)     Approve the in-principal contribution to the Better Care Fund (BCF), subject to the extension of the BCF S75 Agreement with Manchester ICS, which will be considered by Executive in March 2023.

 

(10)     Delegate authority to the Deputy Chief Executive and City Treasurer and Chief Executive in consultation with the Executive Member for Finance and Human Resources and the Leader of the Council to draft the recommended budget resolution for budget setting Council in accordance with the legal requirements outlined in this report and to take into account the decisions of the Executive and any final changes and other technical adjustments;

 

(11)     Delegate authority to the Deputy Chief Executive and City Treasurer and Chief Executive in consultation with the Executive Member for Finance and Human Resources to administer the Council Tax Support Fund, Household Support Fund and Energy Bill Support Scheme: Alternative Funding Grant.

 

(12)     Note that there is a requirement on the authority to provide an itemised council tax bill which, on the face of the bill, informs taxpayers of that part of any increase in council tax which is being used to fund adult social care;

 

(13)     Recommend that Council approve and adopt the budget for 2023/24.