Agenda item

To consider a report detailing Cabinet’s initial budget proposals and associated matters (Interim report).  A supplemental (main) report detailing Cabinet’s initial Budget proposals will be circulated to all members of Cabinet as soon as possible after the Budget announcement is made.

Cabinet considered a report which sought approval for the Cabinet’s initial budget proposals for 2021/22 in the context of the 2021-2025 Financial Planning and Budget Process and which had been developed in a period of significant uncertainty for financial planning due to the impact of Covid-19.

 

On 20 February 2020, full Council had approved a Medium-Term Financial Plan (MTFP) for the period 2020/21 to 2024/25, providing a financial framework to support the delivery of the Authority’s priorities as set out in the 2020-2024 Our North Tyneside Plan.  The Budget that had been set was balanced, based on a robust set of assumptions in relation to the resources available, and prudent estimates of the expenditure that was necessary to deliver the Authority’s Services.

 

Whilst the Authority had been aware of COVID-19 at the time of Budget-setting, it would have been impossible to predict the significant escalation of the pandemic which had led to the first national lockdown being implemented by the Government on 23 March 2020, and the subsequent financial implications that would follow this. As Budget-planning activity progressed, there was a significant amount of uncertainty remaining.  Social care continued to be funded by short-term one-off grant allocations and, in the absence of a sustainable funding solution, the Government had continued to allow local authorities to apply an adult social care precept of up to 2%, which left the financial burden of supporting vulnerable adult residents with local taxpayers. 

 

The need for the Authority to take action and respond to the COVID-19 pandemic had undoubtedly adversely impacted the financial position of the Authority.  In a normal year it was challenging to deliver a balanced in-year position against the Budget.  The financial impact of COVID-19 had compounded this challenge and the current estimated pressure due to COVID-19 at the end of September was £4.259m for the General Fund and £2.484m for the Housing Revenue Account.

 

In addition, to deliver business as usual, the Authority had needed to mobilise its workforce to undertake new responsibilities and lead the local response to the pandemic.  The COVID-19 Support Hub had specifically been set up to support and protect the clinically extremely vulnerable residents in the Borough during the first national lockdown when they were required to shield in their homes to protect themselves from the virus.  Proactive work had continued to support the care sector to meet the additional operation costs due to COVID-19.  The Authority had also effectively administered over £34.8m of grants to eligible businesses to help support the local economy, whilst also ensuring that the public and staff were protected by introducing effective control measures to public buildings and open spaces.

 

Some services had to be suspended during the initial escalation of the pandemic and due to national lockdown measures.  This had led to a significant loss of sales, fees and charges income, with school improvement, leisure, cultural and catering services seeing the biggest income losses.  Financial support from by the Government had provided support for some of the income lost; however, the Authority was required to cover the first 5% of any budgeted losses.  This area posed a specific risk for 2020/21 and the medium-term as it remained uncertain how quickly demand for services would recover.  It was likely that the Authority would continue to see reduced income levels in relation to sales, fees and charges in future years. 

 

The impact of COVID-19 posed a significant risk to the local economy, which would influence the Authority’s ability to raise resources.  Increased levels of unemployment, resulting in higher claims for Universal Credit coupled with a suppressed level of growth in new properties, meant that it was highly likely key income sources, including Council Tax, would be under significant pressure in 2021/22. 

 

Business rates were also likely to be impacted in the event of business closures, due to increases in the number of properties claiming empty property relief where businesses either ceased trading or sought to take advantage of changed working patterns to reduce property costs.  Appeals against rateable values may increase where rental values had been impacted.

 

Demand for adult social care had increased as a direct result of the pandemic, and it was possible that some of the increases in demand would continue into 2021/22.  The care market had also experienced increases in operational costs and lost income due to under occupancy in some care homes where the Authority had supported with grants that had been received by the Government.  There was a risk that a rise in the underlying costs would impact market prices which would not be covered by additional funding from the Government; this would leave the Authority with increased financial pressures in 2021/22.

 

There was the potential for additional cost pressures in Children’s Services, linked to surges in demand, particularly in relation to looked after children. In addition, there was a risk that the wider operating environment had changed, which may put pressure on assumptions about traded services with schools.

 

In challenging circumstances the priorities, as set out in the Our North Tyneside Plan, continued to be met and the Authority had a good track record of delivering those priorities within the funding resources that were available.   

 

Whilst the approach to Budget-setting this year felt very different and there was a significant amount of risk and uncertainty, Cabinet would continue to plan for the future listening and focusing on the priorities of residents and businesses.  This included producing a balanced Budget for 2021/22 and a MTFP which was based on a reasonable and prudent set of assumptions. 

 

Whilst there was still a significant level of uncertainty, the Authority would continue to deliver best practice for its residents.  That meant there was a refreshed four-year MTFP for both the General Fund and Housing Revenue Account (HRA) alongside a five-year Capital Investment programme, based on a benchmarked set of assumptions.

 

In 2020/21, a three-year settlement had been announced as part of the Local Government Finance Settlement for the Dedicated Schools Grant (DSG) covering the period to 2022/23.  The final DSG allocation was not expected to be announced until December 2020, therefore financial planning for High Needs and early years would be based on the indicative DSG grant which had been announced in July 2020.

 

The Authority’s reserves and balances continued to be reviewed in light of the changing picture of risk and uncertainty, and that would be reflected in the Chief Finance Officer’s Section 151 Statement, included in the Annex to the report.

 

The Authority had continued to engage effectively with its NHS partners and had worked collaboratively with partners across the care sector.  Cabinet would be considering options over the MTFP period, with a particular focus on a stronger approach to commissioning and demand management across the care sector, ensuring that services would meet individuals’ needs, maintaining a sustainable care market and that all services offered value for money.  This would take account of the changing nature of demand for adult social care services and the challenges facing adult social care nationally.

 

The latest estimates of the financial impact of COVID-19 were set out in the September Budget Monitoring report.  Many of the additional costs, lost income and undeliverable savings in the current year would have an extended impact on the 2021/22 Budget.  As at September 2020, the total estimated financial impact of COVID-19 including the HRA was £27.323m.  This included estimated additional costs of £20.615m, lost income of £13.274m and estimated savings of £6.566m this has been funded by £21.444m of grants leaving a gap of £5.879mm for the Authority to fund.  Further details were set out in the report.

 

A line-by-line review and risk assessment had been performed against all areas that had seen a financial impact.  Consideration had been given to how some of those impacts may continue into 2021/22 and a set of actions had been developed to manage these.  It was prudent to expect that there would be an ongoing financial impact and the report set out areas assessed as medium / high risk which would be closely monitored as Budget-setting activity progressed.

 

The Our North Tyneside Plan 2020-2024 set out the overall vision and policy context within

which the Financial Plan and Budget proposals would operate.  Since 2015, North Tyneside

had worked to a clear set of priorities through the Plan.  These priorities had formed the basis

of the framework for COVID-19 recovery in North Tyneside.

 

The Elected Mayor and Cabinet had worked with the Senior Leadership Team (SLT) since

the summer to prepare the draft Budget proposals.  The Budget assumptions used for the

2020-2024 MTFP had been revised based on national, local and internal changes. 

 

Resources had been revised to take account of the potential impact of COVID-19 on Council

Tax and Business Rates in line with the risks described in the report. The SLT had reviewed

the anticipated growth and efficiency assumptions and where necessary these had been

revised.  Table 3 in the report showed the high level MTFP for 2021-2025; the estimated

resources available did not include any assumptions for an increase in Council Tax. Taking

all the factors into consideration, the draft MTFP for the General Fund indicated a “gap” of

£6.370m to be addressed.  Without actions over the four-year MTFP period, the cumulative

impact was in the region of £56m.

 

The Housing Revenue Account (HRA) continued to face financial pressures which had been impacted further by the COVID-19 pandemic. The impact of the pandemic on the economy had a significant impact for the HRA.  Rent increases for next year were based on the Consumer Price Index (CPI) rate, as at September, plus 1%.  The rate announced for September 2020 was 0.5% compared to the CPI target rate of 2%. This created a reduction in assumed rental income of around £45m over the next 30 years, which would require a package of measures to mitigate the impact on the plan. 

 

The 2020-2025 Investment Plan totalling £244.320m had been approved by Council on 20 February 2020.  Delivery of projects within the plan and progress to date had been reported to Cabinet as part of the bi-monthly Financial Management reports.  Reprogramming of £8.784m had been identified as part of the process and this spend was now included in the 2021/22 planned spend set out in the report.

 

As in previous years, Cabinet would need to determine the local formula to distribute funding to mainstream schools and academies for the financial year 2021/22.  The formula would apply directly to maintained schools for the financial year, and for academies it would form the basis for their funding, distributed by the Education, Skills and Funding Agency, for the year starting 1 September 2021.  The local formula must comply with statutory guidance, but within these confines the final decision on the formula rested with the Authority after consultation with schools and the Schools Forum.

 

The MTFP approved by the Council in February 2020 included a 1.99% general increase in Council Tax and a 2% adult social care precept for 2020/21 only.  At the time of writing, the Government had not announced details of the referendum threshold for core Council Tax, or any further flexibility to raise the adult social care precept for 2021/22.   Should Cabinet consider increases in Council Tax, in line with previous years, based on current tax base estimates, this would raise approximately £4.006m of additional funding for next year (made up of £1.998m general Council Tax, 1.99% and £2.008m from the adult social care precept, 2%).  The precise final level of any change in Council Tax would be confirmed in February 2021 following a decision by full Council.

 

The 2020-2024 MTFP included planned savings for 2021/22 and 2022/23 as set out in the

report.  In addition to the planned savings, the Elected Mayor and Cabinet were developing

options for consideration to balance the General Fund over the next four years of the MTFP. 

The aim was to do this via a range of strategic activity. The options that were being

developed for consideration to balance the Housing Revenue Account and mitigate against

the estimated impact on rental income due to the low rate of the CPI were set out in the

report.  In addition to the agreed 2020-2025 Investment Plan, proposals for the 2021-2026

Investment Plan for consideration as part of Budget-setting were set out in the report.

 

North Tyneside, like many local authorities both regionally and nationally, was experiencing

an increase in the numbers of children with Special Education Needs and Disabilities

(SEND).  Responding to this increase in needs was creating pressure on the High Needs

block of the Dedicated Schools Grant. The pressure within High Needs had continued to

increase in 2020/21 with a forecast in-year outturn variance of £3.457m, bringing the

estimated cumulative pressure to £7.999m.  The indicative funding allocation for High Needs

showed that the Authority would receive an additional £2.974m in 2021/22, however, it was

not sufficient to address the underlying increase in need.  The Authority was currently

preparing a DSG Recovery Plan which would outline actions that would need to be taken to

bring the DSG back into financial balance over a five-year period.

 

Cabinet were informed of the proposed approach to engagement on the budget proposals, which would be undertaken in accordance with COVID-19 guidelines.

 

The Elected Mayor thanked the officers and Cabinet members for their work in producing the initial budget proposals in very challenging circumstances. She also thanked staff for continuing to keep essential services running during the pandemic and referred to the positive feedback she had received from residents.  The Cabinet Members for Finance and Resources and Community Safety and Engagement endorsed the Mayor’s thanks to officers.

 

Cabinet considered the following decision options:  to either agree the proposals set out in the report, or alternatively, to suggest that further / different options were considered by the Senior Leadership Team and be reported back to Cabinet for further consideration.

 

Resolved that (1) that the key principles being adopted in preparing the Medium-Term Financial Strategy for the Authority, subject to an annual review be agreed;

(2) the performance against the Our North Tyneside Plan outcomes be noted;

(3) the initial Budget proposals in relation to the 2021/22 General Fund Revenue Budget and

Dedicated Schools Grant, including the assessment in relation to the current year’s budget monitoring information be agreed;

(4) the proposed 2021-2026 Investment Plan, including initial prudential indicators for

2021-2026 in accordance with the Chartered Institute of Public Finance and Accountancy’s  Prudential Framework and a proposed Minimum Revenue Provision policy in line with capital finance regulations be agreed;

(5) the draft Capital Investment Strategy be noted and it be noted that this Strategy will now be subject to consultation as part of the Budget Engagement Strategy;

(6) it be noted that all approved schemes within the 2021-2026 Investment Plan will be kept under corporate review by the Investment Programme Board;

(7) the initial proposals in relation to the Treasury Management Statement, Annual Investment Strategy for 2021/22 and Treasury Management Practices (TMPs) be agreed;

(8) the formal Reserves and Balances Policy for the Authority, subject to review at least annually, be noted;

(9) the Provisional Statement by the Chief Finance Officer be noted;

(10) the 2021/22 rent policy for housing; and the initial Budget proposals in relation to the 2021-2025 Housing Revenue Account budget, and associated Business Plan, including an assessment in relation to the current year’s budget monitoring information (2020/21) be agreed;

(11) the proposed 1.5% rent increase from April 2021 (in line with Government policy), and the initial proposals in relation to housing service charges and garage rents for 2021/22 be noted;

(12) the Head of Resources, in consultation with the Head of Commissioning and Asset Management, the Cabinet Member for Children, Young People and Learning and the Cabinet Member for Finance and Resources, be authorised to undertake resource allocations to schools for 2021/22 in line with the school funding arrangements set out in the report;

(13) the Elected Mayor, in conjunction with the Cabinet Member for Finance and Resources, Deputy Mayor and other Cabinet Members, be authorised to work with the Senior Leadership Team to continue their joint review of these initial Budget proposals; and

(14) the Chief Executive, in consultation with the Elected Mayor, Cabinet Member for Finance and Resources, Deputy Mayor and the Senior Leadership Team, be authorised to manage the Efficiency Programme and note that progress will be reported to Cabinet as part of the regular Budget monitoring process.

 

(Reason for decision: Due to external information still to be received, Cabinet is not in a

position to finalise setting its proposed Council Tax level for 2021/22 in relation to the

General Fund.  These initial Budget proposals include an assumed general increase to

Council Tax of 1.99% and a social care precept of 2% in 2021/22.  This report will form the

basis of Budget engagement and scrutiny over the next two months, but further work will

inevitably be required before final decisions are made on the budgets for next year, hence

the authorisation recommendation referred to in Resolution (13) above).