Agenda item

Budget Overview - The Council's Financial Strategy

Meeting of Executive, Wednesday, 12th February, 2020 10.00 am (Item 12.)

The report of the Deputy Chief Executive and City Treasurer is now attached.

Minutes:

A 2020/21 budget overview had been considered in January (Minute Exe/20/7). A report was presented to this meeting by the Chief Executive and the Deputy Chief Executive and City Treasurer to show how the various components of the proposed 2020/21 budget (including the Medium Term Financial Plan, the Capital Strategy, the Housing Revenue Account) would jointly continue to reflect the priorities identified in the three-year budget strategy 2017-20, and in the Council’s Corporate Plan that had been updated to include action required to address the climate emergency declared by the Council. This report explained the progress with implementing the strategy. It also provided a summary of the financial position and the required assessment of the robustness of the proposed budget.

The summary of the proposed budget was:

	2019/20 Original £000	2019/20 Revised £000	2020/21 Proposed £000
Resources Available
Business Rates Related Funding	314,653	314,653	339,547
Council Tax	166,507	166,507	174,465
Other non-ring fenced Grants	54,426	65,752	66,717
Dividends and Use of Airport Reserve	62,390	62,390	62,890
Use of other Reserves	12,859	12,859	21,481
Total Resources Available	610,835	622,161	665,100
Resources Required
Corporate Costs
Levies / Statutory Charge	69,990	69,990	71,327
Contingency	1,600	850	860
Capital Financing	44,507	44,507	44,507
Transfer to Reserves	7,067	18,393	18,338
Subtotal Corporate Costs	123,164	133,740	135,032
Directorate Costs
Additional Allowances and other pension costs	10,030	10,030	9,580
Insurance Costs	2,004	2,004	2,004
Inflationary Pressures and budgets to be allocated	9,945	1,764	10,271
Directorate Budgets	465,692	474,623	508,213
Subtotal Directorate Costs	487,671	488,421	530,068
Total Resources Required	610,835	622,161	665,100
Shortfall / (surplus)	0	0	0

The proposals continued to show the ways that the Council was seeking to mitigate the funding gaps that had arisen over the previous years. The Council was continuing to invest more money into adult social care and children’s services, both areas that continued to show the most significant budget pressures as demonstrated by the report on the 2019/20 budget (Minute Exe/20/10 above).

The report examined the future funding uncertainties facing the Council. The 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 identified in the report as being:

Risk	Mitigation
Non Delivery of Savings	A detailed review of social care related savings which were not delivered in 2019/20 and the impact for 2020/21 has been carried out with revised proposals contained within the budget. As outlined above robust monitoring arrangements are in place to enable early corrective action to be taken. Such action in 2019/20 has successfully reduced the overspend position.
Increasing demand for social care, impact welfare reforms and rising homelessness is higher than budget assumptions	Additional government funding of c£13m in 2020/21 for Social Care and Council resources have been used to provide more funding in these areas based on a reassessment of demand. Funding received in 2019/20 has been smoothed over three years with a reserve to cover future demand.
Volatility of resource base including business rates	As the Council becomes more reliant on locally raised resources and commercial income it is more susceptible to any downturn in the economy. To mitigate the risk the majority of the airport dividend is used a year in arrears and a business rates reserve has been established. The position on all these income streams is closely reviewed each month and reported to the Senior Management Team and Executive Members.
Delivery of a balanced budget beyond 2020/21	Longer term scenario planning has started to address the uncertainty beyond 2020/21. In addition, the 2019/20 budget established specific reserves to fund social care over a three-year period, to avoid cliff edges and provide time to plan dependant on the outcome of the national funding changes and BREXIT impact. It is expected that changes to the financial settlement will be supported through transition funding to avoid significant annual reductions.
Impact of Brexit	The potential effects of Brexit on the Council are currently un-quantified but could impact on revenue budgets, capital projects, treasury management and the pension scheme. As the risks associated with BREXIT are so difficult to quantify the approach, in line with a number of local authorities is to build up the level of the business rates reserve and protect the level of the General Fund reserve to help mitigate any adverse impact. More detailed planning and risk assessments for the different scenarios are being carried out within GM and Manchester.
Overspend on significant capital projects	The Capital Strategy has been developed to ensure that the Council can take capital expenditure and investment decisions in line with Council priorities and properly take account of stewardship, value for money, prudence, risk, sustainability and affordability. There are strong governance arrangements underpinning the decision making process, all capital investment decisions have a robust business plan that set out any expected financial return alongside risk and deliverability implications. The capital programme is monitored monthly, with quarterly reports to Executive. There are specific programme and risk management arrangements in place to assess individual projects and to oversee their completion. The Strategic Capital Board receives monthly updates from each directorate board on each board’s part of the capital programme, detailing financial forecasts, risks, and expected outcomes. By reviewing projects regularly, such monitoring can be used to support future actions, including the estimation of future costs and mitigations as necessary.

It was the opinion of the City Treasurer that any significant budget risks to the General Fund and the Housing Revenue Account had been identified and that suitable proposals were being put in place to mitigate against those risks where possible. The Council’s Budget Monitoring procedures would continue to monitor high level risks and volatile budgets. An assessment of anticipated business rates income had been carried out and provision had been made for outstanding appeals. There was considered to be a prudent provision.

The City Treasurer also considered that the assumptions on which the budget had been proposed, whilst challenging, were manageable within the flexibility allowed by the General Fund balance. That balance, and other reserves that the Council holds could be called on if necessary. The City Treasurer was therefore confident that overall the budget position of the Council could be sustained within the overall level of resources available. However, there would be a need for further savings to be identified if the planned budget savings were not achieved in a timely manner, and reserves were called on to achieve a balanced position.

The General Fund balance was held to meet costs arising from any unplanned event. It also acted as a financial buffer to help mitigate against financial risks and could be used to smooth-out expenditure across years. It was estimated that the balance on 1 April 2020 would be £21.4m. That was considered to be prudent given the level of volatility in Council funding as business rates and general uncertainty over the future levels of funding available. The expected level of the General Reserve was therefore considered to be the minimum level required to be held to protect the Council from the financial risks inherent within the proposed budget strategy.

Decision

To note the report.

Supporting documents:

Budget Overview 202021, item 12. PDF 538 KB