Agenda item

To inform Finance, Economic Development and Corporate Services Overview and Scrutiny Committee of the Council’s forecast 2022/23 financial position as at the end of October 2022. The report covers the following areas:                                     

·                            General Fund Revenue Budget

·                            Housing Revenue Account Budget

·                            Capital Programmes – General Fund and Housing Revenue Account

 The Chief Finance Officer presented the third Finance Update Report of the year that monitored and forecasted the projected spend against the backdrop of the current economic conditions that were facing the Council.  The Financial Risk Register continued to be updated to reflect the current risk. 

The General Fund budget set by Council on 3 March 2022 was £18.247m.

The deficit forecast was primarily due to the inflationary increases on electricity (£200k), fuel (£200k), projected workshop cost pressures due to outsourcing of specific repairs (£82k), material costs (£200k) required for the maintenance of the Councils fleet and removal of the salary vacancy factor forecasts (£446k) which was proving challenging to achieve due to the use of temporary staff where there were key vacancies. The vacancy factor was to continue to be monitored throughout the remainder of the financial year, with an additional £168k of in year vacancies being forecast as at the end of October.  A projected net increase from the commercial waste service and an increase in interest rates receivable on investments was to be used to partially offset the forecasted inflationary increases (£400k).  Members were reminded that the net cost of budget included an efficiency saving of £500k for the corporate restructure. This would be achieved in 2022/23.

The budget set by Council on 3 March 2022 for the 2022/23 General Fund Capital programme was £19.608m.

The budget set by Council on 3 March 2022 for the 2022/23 HRA Revenue Budget was £6.116m. The budgeted surplus was fully utilised to fund future investment in stock growth and property maintenance.

There was a reduced surplus for the HRA of £4.305m compared to a budgeted surplus of £4.402m. The increased surplus, partly due to an increase in interest rates receivable on investments, was to be used to partially offset the forecasted inflationary increases (£600k). This was offset by increased repairs and maintenance costs (£170k) and removal of the salary vacancy factor forecasts (£136k) which would be monitored throughout the remainder of the financial year.

The budget set by Council on 3 March 2022 for the 2022/23 HRA Capital programme was £16.353m.

Since the budgets were prepared last Autumn and approved by Council in March 2022, there had been an unprecedented and completely unforeseen increase in inflation and energy costs. This context along with potential pressures on the salary budgets was causing concern that the budget framework for 2022/23 would come under pressure as the year progressed.   As part of the outturn report, an inflation reserve of £500k was created for the General Fund to absorb any potential cost pressures during the current financial year.  Whilst this would provide some short-term funding support, there would be a funding pressure going into 2023/24 which would need to be considered as part of the budget setting process.

Fuel usage was approximately 625,000 litres per annum and the budgeted price per litre was set at £1.10. The latest bulk purchase unit price paid was £148.75 and continued to be monitored on a weekly basis.  The General Fund budget for electricity for 2022/23 is £517k which included a budget increase of 17% compared to 2021/22.  The HRA budget for 2022/23 is £155k which was an increase of 36% when compared to 2021/22.

The current cost of living pressures were resulting in an increased number of Council Tax Direct Debit cancellations causing delays to receipt of payments.  There was also difficulty in measuring the Business Rates target due to variances in business rates over the last 3 years.

During discussion, Members raised the following points:

·            The deficit has reduced substantially from £417,000 to £159,000.  What biggest factor contributed to that?  Was it a reflection of dipping into our reserves?

·            Should Business Rates be recorded as a higher risk than medium, given the economic uncertainty?

·            Could the Council be assured that next year’s Housing Programme could still be achieved despite budgetary pressures?

·            Why was the Council underspending on new build investment when there was an intention to build more housing?

The Chief Finance Officer informed Members that there had been no use of the reserves to reduce the deficit.  Many factors contributed to the projected deficit forecast.  As the Council proceeded through the financial year, the forecast became more accurate.  Investment income continued to change as markets fluctuated throughout the year.  The salary vacancy factor was where a certain level of vacancies were assumed within the organisation and as the months progressed there were more underspends demonstrated through salary vacancies and staff turnover.  There was an inflationary reserve established at a level of £500,000 to respond to the budgetary pressures which the Council would hope not to use.

The Officer stated that the collection of Business Rates remained a volatile area.  The Government had recently carried out a revaluation of the Rating List which would impact on the Business Rates bills for 2023/24.  Transitional relief would be introduced to reduce the financial impact on any changes to the rates payable for businesses affected by rateable value changes.   The Housing Programme was vulnerable to delays caused by the current market and the availability of contractors.  Procurement and identification of contractors was proving to be difficult.  There were supply chain and market issues as all Councils were looking for contractors to carry out similar works.  The delays were certainly not due to a lack of momentum from the Council.  The Council had a duty of care to tenants and tax-payers to always secure best value.

The Leader of the Council added that allowances had to be made for the large area of work undertaken around the Stock Condition Survey.  It was essential that the Council was able to identify where investment was required, what needed to be replaced and how it could support the residents.

A Member raised a further question that the budget report to be presented to Council in March 2023 would seek approval to use reserves to achieve a balanced position.

The Chief Finance Officer informed that the budget report had not been finalised for 2023/2024.  The provisional settlement for 2023/24 was not to be announced until 19 December 2022 and therefore it was not possible at the current time to confirm the 2023/24 financial outlook.    It was confirmed that a balanced position had to be presented in March 2023 and if the settlement received was to be low, reserves may be required in the short-term to achieve this. 

Prior to the meeting a Member submitted a written set of questions in relation to the Finance Update Report.  Information was requested on the matters below:

·       Transfers of Revenue Reserves

·       Clarification on the Local Priorities Reserve and Inflationary Reserve

·       Confirmation in reference to a renovation project at Stamford Arts Centre that had completed ahead of the expected time

·       Terms and Conditions of Empingham Road, Stamford S106 monies

A verbal response to each of the questions was provided at the meeting by the Chief Finance Officer and a written response was provided to the Member after the meeting.  (These are attached under Appendix A).

ACTION 2:

That the Director of Growth and Culture respond to Question 6 of the written submission:

‘In Appendix A, in the table headed Growth & Culture, a forecast variance is shown for the net budget. What are the forecast variances for income and the forecast variances for expenditure for each of the Arts venues?’

Comments made by Members following the written submission of the questions were as follows:

·            What could be done to reduce energy and fuel costs, were there any suggestions?

·            Was the Deepings Leisure Centre funding sourced entirely from borrowing with nothing allocated from reserves?

·            At one stage was it not considered that the Deepings Leisure Centre was to be partly funded from the receipts from St Martin’s Park?

The Chief Finance Officer confirmed that in reference to reducing energy and fuel costs, reserves may be required.  There were several suggestions and many choices for Members to make through a number of reports to different committees such as more cost-effective street-lighting which was due to be heard at the Environment Committee on 23 November 2022.  The Officer also confirmed that Deepings Leisure Centre was always to have been funded through borrowing due to the scale of the project and there was never a formal decision made to fund from the receipts from St Martin’s Park.

It was proposed, seconded, and AGREED:

That the Finance Economic Development and Corporate Services Overview and Scrutiny Committee:

a)             Reviewed and noted the forecast 2022/23 outturnposition for the General Fund and HRA Revenue and Capital budgets as at the end of October 2022 and identify any variances that require action or investigation.

b)             Recommended no specific actions or interventions that should be considered in order to reduce the General Fund forecast deficit.