Agenda item

To consider a report outlining the process to be adopted for the Authority’s Financial Planning and Budget process for 2021/22 as part of the proposed framework for the four years 2021/22 to 2021-2025.

Cabinet considered a report seeking approval to the proposed 2021-2025 Financial Planning and Budget process including information on the key decision milestones; and as part of the process, the proposed approach to Budget Engagement. 

Whilst this report formed an important part of the Authority’s Budget-setting process for the 2021/22 Budget, it also provided Cabinet with an overview of the potential financial implications of COVID-19, for both the current year and for the period of the Authority’s Medium-Term Financial Strategy (MTFS).  An initial review of the MTFS had been carried out in light of future Government announcements and, as the scale of the financial impact of

COVID-19 became clear, it would need to be updated.

In addition, the report acknowledged the exceptional circumstances in which the 2021/22 Budget would need to be prepared.  The last few years had been uncertain and challenging for local government, but financial planning for 2021/22 was particularly difficult due to the impact of Covid-19 on the organisation’s ability to achieve planned Budget savings and income for 2020/21, its capacity to develop and deliver new Budget proposals for 2021/22, and on a wider Budget position, which was the Budget planning process for 2021/22.  It was almost impossible to predict the ongoing financial impact to the Authority’s resources with any certainty.  In this context, the report also provided a summary of key areas of wider risk and uncertainty for Cabinet’s consideration.  

The new Chancellor of the Exchequer had announced the Spring Budget 2020 on 11 March 2020.  The Budget included various announcements with implications for local authority funding, including a plan to undertake a Comprehensive Spending Review (CSR), due to be completed in July 2020.  As part of the response to COVID-19, the Chancellor had announced on 24 March 2020 that the CSR would be delayed from July to enable the Government to remain focused on responding to the public health and economic emergency. 

On 21 July 2020 the Chancellor had announced the launch of the CSR which would be published in the Autumn 2020; no date had been given for when the review would be concluded.  The review would set UK Government departments’ resource budgets for the years 2021/22 to 2023/24 and capital budgets for the years 2021/22 to 2024/25, and devolved administrations’ block grants for the same period. 

Due to unprecedented uncertainty, the Chancellor had not fixed a set spending envelope, but confirmed that departmental spending (both capital and resource) would grow in real terms across the CSR period and that the Government would deliver on the commitments made at the Spring Budget.

Given the impact COVID-19 had had on the economy, the Chancellor was clear there would need to be tough choices in other areas of spending at the review.  As part of their preparations for the CSR departments had been asked to identify opportunities to reprioritise and deliver savings.  Departments would also be required to fulfil a series of conditions in their returns, including providing evidence they were delivering the government’s priorities and focusing on delivery.

The Government continued to explore the long-term reform of adult social care, the Fair Funding and Business Rates Retention reviews had been pushed back to April 2022 at the earliest, and the future of Government grants such as the Better Care Fund and Troubled Families were also uncertain.  The outcome of these had the potential for a significant impact on local government and, in the absence of any announcements, this only added to the challenge.

The COVID-19 pandemic would also have a significant financial impact on the Authority in 2020/21, with the impact then likely to be felt in future years.  The Authority had begun to experience the impact of the outbreak in March 2020 when a number of front-line services had been closed.  There had been an increase in claims for Local Council Tax Support and a reduction in business rate income due to business closures was expected.  Consequently, the Authority may suffer significant reductions in income in 2020/21 and beyond.

Any consideration of the Authority’s Medium-Term Financial Strategy and Medium-Term Financial Plan must be undertaken in the context of the funding outlook for local government and what that meant for the Authority.  Full details of the funding outlook for local government were included in section 3 of the Medium-Term Financial Strategy.

An initial estimate of the financial impact of COVID-19 on the Authority was included in the COVID-19 - A Recovery Framework for North Tyneside report that had been received by Cabinet on 29 June.  At that time estimates were that the Authority was facing pressures of £24.930m.  Since then, as identified in the 2020/21 Financial Management Report to 31 May 2020, the gross estimated financial impact on the General Fund for 2020/21 was £23.858m. 

In March 2020, the Government had originally provided £6.822m to the Authority to support the response to the COVID-19 pandemic.  Since then, the Government had made two further funding announcements.  On 28 April, the Government had announced a further £5.709m of grant funding and on 2 July a further £1.777m.  These three tranches of funding, totalling £14.308m, had been provided to enable the Authority to deliver its COVID-19 response across all services.  It remained unclear what period this funding was intended to cover.

The Authority had submitted its third return (for June) to the Ministry of Housing, Communities and Local Government (MHCLG) on 19 June.  This response continued to highlight the Authority’s key messages that funding to date appeared inadequate to address currently anticipated cost and income pressures for 2020/21.  The MHCLG had also published a summary of the first and second round returns on 21 June.

The forecast use of the COVID-19 grant identified a shortfall in funding, although there remained a high degree of uncertainty around some of these estimates.  If these costs were to fully materialise, and no additional funding were provided, the Authority would need to seek to mitigate the impact over the remainder of 2020/21.

The Government’s response and decisions about local authority funding in 2021/22 would be hugely significant.  The Government had an opportunity as part of the COVID-19 response to deliver a permanent step change in the recognition of the importance of social care, and to fund local authorities to provide a key contribution as part of the national recovery.

As described in section 1.4.5 of the report, funding announcements were not expected until the Autumn 2020.  Whilst a multi-year settlement was welcomed and would give local authorities some degree of certainty, until the details were released Budget planning for 2021/22 remained extremely challenging.  The Authority would have an opportunity to make representations to HM Treasury to inform policy development for the CSR.  The guidance received for the submission was that it should be based on the priorities of the CSR as set out in the Chancellor’s statement.  The deadline for representations to be submitted was 24 September 2020.

The current Medium-Term Financial Plan (MTFP) covered the period to the end of 2023/24.  Whilst there was a great deal of financial uncertainty, recommended practice suggested that due consideration was given not only to the short-term but to how the Authority would continue to finance its activities in the medium-term.  It was therefore recommended at this stage that the MTFP covered the four-year period 2021/22 to 2024/25.

The report referred to the Authority’s responsibilities under the Equality Act 2010 and Public Sector Equality Duty, part of which was to ensure that the potential effects of decisions on those protected by the Equalities legislation were considered prior to any decision being made.  The effect of the Authority’s budget setting process and decision-making would continually be monitored by using Equality Impact Assessments.

The revised Medium-Term Financial Strategy and the proposed principles for Budget planning for 2021/22, were set out in Appendix A and section 1.5.11 of the report.

Key aspects of the 2021/22 Financial Planning and Budget process timetable were set out at Appendix B to the report. This highlighted key decision milestones in the process.

The Elected Mayor and Cabinet were responsible for formulating the Council Plan and the Authority’s Budget.  The Cabinet Member for Finance and Resources, in close consultation with the Elected Mayor, had been nominated as the lead Cabinet Member for the overarching 2021-2025 Financial Planning and Budget Process.  The Head of Resources would be the project sponsor.

Details of the Budget Engagement Strategy for 2021/2022 were set out at Appendix C to the report. The aim of the Strategy was to reach different sectors of the population through an approach that encompassed engagement with residents as a whole and customers/users of services as well as particular groups of people, including those with protected characteristics.  The approach also ensured reach with particular interest groups and also ensured targeted activity with specific external and internal stakeholder groups. 

Cabinet considered the following decision option: to agree the recommendations as set out in paragraph 1.2 of the report. The Authority‘s Constitution and Budget and Policy Framework Procedure Rules set out the stages to be completed in relation to agreeing the Budget of the Authority.  There were no other options available in relation to this.  The Budget Engagement Strategy formed part of the 2021-2025 Financial Planning and Budget Process.

Resolved that (1) the revised Medium-Term Financial Strategy and the proposed principles for Budget planning for 2021/22, as set out in Appendix A and section 1.5.11 of the report, be noted;

(2) the proposed outline 2021-2025 Financial Planning and Budget process, which incorporates the key decision milestones and dates, as set out at Appendix B to the report, be approved;

(3) Cabinet recognise that there may be a requirement for flexibility within both the Budget-setting process and the assumptions used, as a result of future Government announcements and other developments relating to COVID-19;

(4) the Budget Engagement Strategy as part of the 2021-2025 Financial Planning and Budget Process, set out at Appendix C to the report, be approved; and

(5) the key Budget risks and uncertainties as set out in the Medium-Term Financial Strategy be considered, including the implications of announcements made at the Spring Budget 2020 and subsequently as part of the COVID-19 response be noted.

(Reason for decision:  The recommendations are mainly legal in nature, as stated in paragraphs 2.1 and 2.2 of the report.)