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 budget proposals for 2022/23 based on the outcome of the Final Local Government Finance Settlement, which had been released on 7 February 2022.

 

The budget report considered at the 17 November 2021 meeting of Executive set out the funding proposals for unavoidable cost pressures to cover the rising costs of inflation and specific service pressures that had been identified, resulting in  £7.7m of efficiency measures required to deliver a balanced budget.  Of these measures £4,017m relates to new savings proposed, these were listed at Appendix 1 of the report.  A further £3.716m related to the following mitigations:

 

·                The Adult Social care budget had been adjusted by £2m for the overestimated impact of the pandemic on care home places. There remained £9.3m to meet the estimated costs of ongoing COVID-19 related demand.

·                Homelessness - It was not expected that the planned £1.7m per annum demand increase that was originally budgeted for 2022/23 would be required and this had now been removed from the budget assumptions, although the position would be kept under review.  To manage risk in this area a £1.5m homelessness contingency reserve remained as well as the £7m which was added to the initial 2021/22 budget to reflect the additional impact of COVID-19 on demand for homelessness services, in anticipation of the impact of the removal of the universal credit uplift and the tenant eviction ban ending.

 

Whilst the Provisional Finance Settlement was at the positive end of expectations and enabled a balanced budget to be proposed, the funding for local government was ‘front loaded’ with all the funding announced as part of the spending review being received in 2022/23 with no further increases in line with inflation or demographic pressures for the following two years.  This put further pressure on 2023/24 and 2024/25 financial years and significant budget cuts would need to be delivered over the Spending Review period to set a balanced budget:-

 

Impact of settlement announcements on budget gap
	2022/23	2023/24	2024/25
	£,000	£,000	£,000
Forecast Shortfall / (surplus) reported to Executive 17 November 21	(60)	57,139	78,204
Net Changes following settlement	(479)	(16,209)	(16,607)
Application of additional smoothing		(4,076)	(4,000)
Revised forecast Shortfall / (surplus) to Executive 17 January 22	(539)	36,854	57,597

 

The report to 17 January 2022 Executive set out that the funding announced for 2022/23 made available £12m to fund additional pressures, emerging risks and new priorities, and that, in line with the previously agreed approach, this was used across a three-year period  In addition, the draft budget position reflected a tighter estimated financial position and included £7.8m efficiencies and funding for unavoidable and specific budget pressures only. The following reflected these pressures, resident priorities and those in the updated Corporate Plan:-

 

Summary of proposed Investments
	Total 22/23	Total 23/24	Total 24/25
	£’000	£’000	£’000
Improving basic services and street cleaning	700	1,700	1,700
Investment in Youth Provision	500	500	500
Zero Carbon investment	800	800	800
Neighbourhood Priorities	700	700	700
Support to Residents	700	700	700
Preventing Violence Against Women and Girls	200	200	200
Talent & Diversity Team	200	200	200
Contribution to GMCA for new protect duty	20	20	20
Total proposed investments	3,820	4,820	4,820

 

In addition to the investment proposals set out above there were a number of

other changes to be reflected in the final budget position:-

 

Proposed changes since Executive meeting on 17 January 2022
	2022/23	2023/24	2024/25
	£'000	£'000	£'000
Forecast Shortfall / (surplus) reported to Executive 17 January 22	(539)	36,854	57,597
Remove unallocated investment funding	(4,000)	(4,000)	(4,000)
Add total proposed investments	3,820	4,820	4,820
Collection Fund Key Decisions	(4,131)	(760)	(518)
Increase inflation contingency	700	700	700
Revisions to Airport reserve use	4,494	(717)	(918)
Other changes	(344)	(116)	(134)
Total proposed changes	539	(73)	(50)
Current Position	0	36,782	57,547

 

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 table below summarised the Medium-Term budget position after the

impact of the settlement announcements, Collection Fund decisions and a full

review of all the resources available and expenditure commitments.

 

Summary budget position
	Revised 2021/22	2022/23	2023/24	2024/25
	£'000	£'000	£'000	£'000
Resources Available
Business Rates Related Funding	260,465	235,553	323,847	341,840
Council Tax	176,857	208,965	206,620	217,197
Grants and other External Funding	120,243	104,533	87,374	85,374
Use of Reserves	184,667	141,548	31,510	16,491
Total Resources Available	742,232	690,599	649,351	660,902
Resources Required
Corporate Costs:
Levies / Statutory Charge	66,580	67,871	69,862	74,500
Contingency	600	1,060	860	860
Capital Financing	39,507	39,507	39,507	39,507
Transfer to Reserves	117,594	24,638	0	0
Sub Total Corporate Costs	224,281	133,076	110,229	114,867
Directorate Costs:
Additional Allowances and other pension costs	8,316	7,316	7,316	7,316
Insurance Costs	2,004	2,004	2,004	2,004
Inflationary Pressures and budgets to be allocated	4,551	28,212	37,656	51,808
Directorate Budgets	503,080	519,991	528,928	542,454
Subtotal Directorate Costs	517,951	557,523	575,904	603,582
Total Resources Required	742,232	690,599	686,133	718,449
Shortfall / (surplus)	0	0	36,782	57,547

 

The report presented in more detail the main elements that had been part of the Local Government Finance Settlement, which had been outlined in the January report.

 

The assumption on the Council Tax was that the Council would apply a 1.99% Council Tax increase in the basic amount, and a further 1% increase to provide extra funding for Adult Social Care, equating to a 2.99% Council Tax increase overall.

 

The assumption for the Council Tax collection rate had been increased from 94.5% to 95.5% in 2022/23 increasing forecast income by £1.9m. By 2023/24 collection was assumed to be back at the usual pre-pandemic level of 96.5%.

 

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 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, and the reliefs provide to business badly affected by the measures to control the COVID-19 pandemic.

 

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.

 

Non Ring-Fenced Grants and Contributions
	Revised 2021/22	2022/23	2023/24	2024/25
	£'000	£'000	£'000	£'000
COVID-19 related unringfenced grants	32,419	0	0	0
Better Care Fund (Improved)	30,815	31,748	31,748	31,748
Children's and Adult's Social Care Grant	23,877	31,924	31,924	31,924
Market Sustainability and Fair Cost of Care Fund	0	1,800	1,800	1,800
2022/23 Services Grant	0	12,324	12,324	12,324
Settlement Risk	0	0	(6,000)	(8,000)
Lower tier services grant	1,236	1,328	0	0
New Homes Bonus Grant	8,330	9,857	0	0
Loan Income	14,901	6,913	6,913	6,913
Contribution from MHCC	4,000	4,000	4,000	4,000
Education Services Grant	1,200	1,200	1,200	1,200
Housing Benefit Admin Subsidy	2,514	2,514	2,514	2,514
Council Tax Support Admin Subsidy	856	856	856	856
Care Act Grant - Prison only from 16/17	95	95	95	95
Total Non Ring-fenced Grants	120,243	104,559	87,374	85,374

 

The report also examined the use of resources and the proposed revenue expenditure by the Council in 2022/23. The forecast of levy payments the Council would have to make to other authorities in 2022/23 was:-

 

Levy Payments and Payment to GMCA
	Revised 2021 / 22	2022 / 23	2023 / 24	2024 / 25
	£'000	£'000	£'000	£'000
GMCA -  Waste Disposal Authority*	28,731	29,956	31,747	32,704
Transport Levy	37,525	37,573	37,773	37,973
Statutory Charge to GMCA	0	0	0	3,481
Environment Agency	230	248	248	248
Port Health	78	84	84	84
Probation (residuary charge for debt)	7	7	7	7
Magistrates (Residual debt)	9	3	3	3
Net Cost of Levies	66,580	67,871	69,862	74,500

 

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 2021/22 levy costs were to increase by £1.225m, due to changes in costs, recycling rates and market prices for recyclates and energy. The budget had been uplifted to reflect the increased costs. The final amount would be confirmed following the meeting of the GMCA on 11 February 2022.  As such, a contingency provision of £1.69m was being proposed, which included:-

 

·                £0.6m as an unallocated contingency to meet future unforeseen expenses.  This was deemed to be reasonable amount and should be considered in conjunction with the Council’s policy on reserves.

·                £460k in relation to risks associated with the waste levy, the estimated tonnages submitted to inform the levy were based on 7% above pre-COVID levels. Any increase above this would result in the council being liable for a higher charge.

 

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 2022/23 the forecast breakdown included:-

 

·                Interest costs of £31.3m;

·                Minimum Revenue Provision (MRP) of £33.0m, 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 the Capital Fund Reserve of £25.9m

 

Specific transfers to reserves totalling £13.545m in 2020/21 and £24.638m in 2021/22 were also proposed

 

Allowances of £8.316m 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 £4,551 for 2022/23, broken down into:-

 

Inflationary pressures and budgets to be allocated
	Revised 2021/22	2022/23	2023/24	2024/25
	£'000	£'000	£'000	£'000
Non Pay Inflation	0	10,804	14,235	18,235
Sales Fees & Charges Inflation	0	(2,000)	(2,000)	(2,000)
Electricity Inflation	0	7,200	5,500	5,500
Pay Inflation	3,302	10,929	18,611	26,531
Pension Contribution Increase 1% estimate	0	0	0	2,200
Apprentice Levy (0.5%)	999	1,029	1,060	1,092
Digital City work	250	250	250	250
Total	4,551	28,212	37,656	51,808
Year on year Impact	(1,544)	23,661	9,444	14,152

 

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 fundamental review of all the reserves held had been carried out as part of the budget setting process and the planned use of reserves in 2022/23 to support revenue expenditure was as follows:-

 

Use of reserves supporting the revenue budget
	2021/22	2022/23	2023/24	2024/25
	£'000	£'000	£'000	£'000
Reserves directly supporting the council wide revenue budget:
Business Rates Reserve	155,632	109,609	7,036	0
Budget smoothing reserve	11,266	0	15,590	7,481
Bus Lane (supporting Transport Levy)	5,092	4,092	4,092	4,092
Capital Fund - Supporting the revenue budget	7,763
General Fund		2,970	0	0
Airport Dividend Reserve	4,913	24,851	4,792	4,918
Sub Total	184,666	141,522	31,510	16,491
Reserves directly supporting directorate budgets
Adult Social Care	3,350	9,834	4,815	0
Children’s Social Care	7,446	2,095	0	0
Anti Social Behaviour Team	540	0	0	0
Our Manchester Reserve	1,654	1,403	0	0
Sub Total	12,990	13,332	4,815	0
Bus Lane and Parking reserves	4,650	5,091	4,400	4,400
Other Statutory Reserves	197	197	197	197
Balances Held for PFI's	84	368	191	251
Reserves held to smooth risk / assurance:
Transformation Reserve	333	333	335	1
Other Reserves held to smooth risk / assurance	4,077	11,195	24,939	1,549
Reserves held to support capital schemes:
Capital Fund	13,826	20,000	29,886	20,000
Investment Reserve	906	1,463	1,876	1,504
Manchester International Festival Reserve	1,060	1,107	1,154	1,204
Eastlands Reserve	5,173	5,118	4,389	2,550
Enterprise zone reserve	1,061	1,061	1,061	668
Reserves held to support growth and reform:
Better Care Reserve	5,682	9,295	0	0
Town Hall Reserve	2,383	2,330	3,699	3,984
Other Reserves to support growth and reform	639	221	30	0
Grants and Contributions used to meet commitments over more than one year	32,152	1,493	1,825	0
Small Specific Reserves	1,070	566	766	288
School Reserves	6,920	0	0	0
	277,870	214,692	111,073	53,087

 

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 £141.5m in 2022/23 (or £31.9m after the impact of the S31 grants carried forward in reserves to offset the deficit in 2021/22 is considered).

 

No new Airport Dividend from the Manchester Airport Group was being budgeted for in 2022/23.  The reserve balance from previous years receipts was £44m at the start of 2021/22 and it was proposed that this was used over five years, to partly mitigate the loss of dividend income.

 

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/22/19 to 22/23 below). The overall position was:

 

Directorate budgets
	2021 / 22		2022 / 23
	Net Budget	Gross Budget	Net Budget	Gross Budget
	£'000	£'000	£'000	£'000
Children Services	118,701	151,932	129,020	162,251
Adults Services	219,031	225,562	227,094	233,625
Corporate Core	82,895	331,348	84,535	332,988
Neighbourhoods (Incl. Highways)	91,486	227,880	89,094	225,488
Growth and Development	(9,033)	38,737	(9,752)	38,018
Total	503,080	975,459	519,991	992,370

 

The budget assumptions that underpinned 2022/23 to 2024/25 included the commitments made as part of the 2021/22 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 is budget set which reflects ongoing cost and demand pressures.

 

Although a balanced budget could  be delivered for 2022/23, the future financial position remained challenging, and the resilience of the Council had been reduced by the need to use its reserves to support the budget position.  The focus going forward would be on identifying savings and mitigations to keep the Council on a sustainable financial footing. It was proposed that budget cuts and savings of £60m over the next three years would developed for member consideration and £30m of risk-based reserves had been identified as available to manage risk and timing differences.

 

Decisions

 

The Executive:-

 

(1)      Note that the financial position has been based on the final Local Government Finance Settlement announced on 7 February together with any further announcements at that date.

 

(2)      Note the anticipated financial position for the Council for the period of 2022/23 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 2022/23 to 2024/25 have been presented alongside this report (Minute Exe/22/25 below).

 

(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 2022/23:

 

·                an increase in the basic amount of Council Tax (i.e., the Council’s element of Council Tax) by 1.99% and Adult Social Care precept increase of 1%;

·                the contingency sum of £1.060m;

·                corporate budget requirements to cover levies/charges of £67.853m, capital financing costs of £39.507m, additional allowances and other pension costs of £7.316m and insurance costs of £2.004m;

·                the inflationary pressures and budgets to be allocated in the sum of £23.661m; and delegate the final allocations to the Deputy Chief Executive and City Treasurer in consultation with the Executive Leader; 

·                the estimated utilisation of £9.183m in 2022/23 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 etc.

 

(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 which will be considered by Executive in March 2022.

 

(9)       Delegate authority to the Deputy Chief Executive and City Treasurer and Chief Executive in consultation with 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 (Appendix 3).

 

(10)     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. In addition, reference must be made to the recently announced £150 rebate scheme on the 2022/23 Council Tax demand notice, and in the accompanying council tax leaflet, in line with Government regulations.

 

(11)     Recommend that Council approve and adopt the budget for 2022/23.