Agenda item

2022-2026 Financial Planning and Budget Process: Cabinet's Initial Budget Proposals

To consider a report detailing Cabinet’s initial budget proposals and associated matters.



Cabinet considered a report which sought approval for the Cabinet’s initial budget proposals for 2022/23 in the context of the 2022-2026 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 18 February 2021, full Council had approved a Medium-Term Financial Plan (MTFP) for the period 2021/22 to 2025/26, providing a financial framework to support the delivery of the Authority’s priorities as set out in the refreshed 2021-2024 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.


The Our North Tyneside Plan 2021-2025 (the Council Plan) sets out the overall vision and policy context within which the Financial Plan and Budget proposals would operate. The Authority had worked to a clear set of priorities through the Plan and these priorities formed the basis of the framework for COVID-19 recovery in North Tyneside during 2020-21 and the early part of 2021-22.


On 23 September 2021, full Council approved the updated Our North Tyneside Plan, which was refreshed following the Mayoral Election on 6 May 2021 to reflect the policy priorities of the new administration and to consider feedback during the internal and external engagement carried out between 2 July 2021 and 15 August 2021.


The impact of the COVID-19 pandemic had continued throughout the financial year 2021/2022 and it was anticipated there would continue to be implications into future years, as the inequality gap had grown over the period of the pandemic.


As Budget-planning activity progressed, there was a significant amount of uncertainty remaining. The recent announcement of Central Government’s Social Care Reform would have a significant impact for the provision of social care and how it was funded but the scale of new burdens for social care remained uncertain for Local Government.


Throughout the current financial year, the Authority had continued to act and respond to the COVID-19 pandemic; this had 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 has compounded this challenge and as described in the September Financial Management report, the current estimated pressure due to COVID-19 at the end of September is £4.161m for the General Fund.


In addition to delivering business as usual, the Authority had continued to mobilise its workforce to undertake new responsibilities and lead the local response to the pandemic. The COVID-19 Support Hub was specifically 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, this continued during 2021/22. Proactive work had continued to support the care sector to meet the additional operation costs due to COVID-19. The Authority had also had to administer 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. In 2021/22, a further £39.211m of grants had been awarded to the Authority to continue to support the Borough’s recovery from COVID-19.


Some services had to be suspended during the initial escalation of the pandemic due to national lockdown measures. This led to a significant loss of sales, fees and charges income, with school improvement, leisure, cultural and catering services seeing the biggest income losses. On 2 July 2020, the Government announced that financial support would be provided to local authorities for income lost on sales, fees and charges. This income compensation scheme provided support for some of the income lost; however, the Authority was required to cover the first 5% of any budgeted losses. This scheme had been extended into 2021/22 but only to cover losses incurred during April 2021 – June 2021. This was estimated to equate to additional grant support of £1.335m. This area posed a specific risk for 2022/23 and the medium-term as it remained uncertain. Some services were recovering well but 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. Initial concerns with regards to increased levels of unemployment, were realised in the early part of the pandemic where there was a surge in out of work benefit claimants, the pattern in North Tyneside being in line with the regional and national picture. Since that early peak there had been a steady decline in the level of claimants, but this was not at pre-pandemic levels yet. There had been fewer redundancies than expected and what was being seen locally, regionally and nationally were significant skills shortages, with employers reporting difficulty recruiting at the moment.


The risk remained that business rates could be impacted in the event of business closures, increases in the number of properties claiming empty property relief where businesses either cease trading or seek to take advantage of changed working patterns to reduce property costs. However, at this stage the Authority had not seen a material reduction in the rateable value, nor a surge in appeals against rateable values to date.


Over the course of the pandemic a vast range of measures were put in place to support the residents of North Tyneside and in particular the most vulnerable residents. Where residents were being supported due to increasing financial difficulty the Authority saw the numbers of residents and families requiring support increase and a real increase in those residents and families who had never previously come forward for help where the impact of the pandemic had tipped the balance for those residents.


Demand for adult social care had surged at times as a direct result of the pandemic and it was possible that some of the increases in demand would continue into 2022/23. The care market had also experienced increases in operational costs and lost income due to under occupancy in some care homes which the Authority had supported with grants that have been received by the Government. There was a risk that a rise in the underlying costs will impact market prices which would not be covered by additional funding from the Government; this would leave the Authority with increased financial pressures in 2022/23.


In terms of children’s social care services there continued to be significant financial pressure. Whilst the numbers of Looked After Children had remained fairly static the costs associated with looking after those children continued to increase due to complexity of the cases and lack of supply in the market pushing up supplier prices. The Authority had seen significant increases in the numbers of child protection and children in need cases because of the impact of COVID-19 on families. This had led to increased demand on the workforce, and the Authority continued to see the impact of competition across the region for children’s social workers impacting on the ability to retain and indeed recruit staff. All this led to additional financial risk and pressure.


In July 2019, full Council declared a Climate Emergency, setting a target to reduce the carbon footprint of the Authority and the Borough by 50% by 2023 and to become carbon neutral by 2030. The Cabinet agenda today included a report of the ongoing work programme and set out the Authority’s approach to meeting this policy ambition, with the expectation that an updated workplan would be brought back to Cabinet in 2022.


The initial Budget proposals included investment in the capacity needed to respond to the global climate emergency, and it was expected the level of investment required locally and supported nationally would become clearer over the course of 2022.


Despite all this, 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. This was evidenced by the fact that Cabinet had delivered balanced outturns, without the need to use reserves, in each of the last three financial years.


Whilst the approach to Budget-setting this year continued to feel different due to the pandemic 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 2022/23 and a Medium-Term Financial Plan which was based on a reasonable and prudent set of assumptions.


Financial planning had been carried out at a time of continued uncertainty as a result of increasing demand for some services due to Covid-19, the changing needs of the ageing population in North Tyneside and waiting for further details of a Fairer Funding formula. The report set out the key areas of risk and uncertainty and how the Mayor and Cabinet could approach the associated financial risks.


The Authority had continued to engage effectively with its NHS partners and had worked collaboratively with partners across the care sector. Adult Services continued to be heavily impacted by the Pandemic and other external factors. More recently the lack of capacity in the homecare market had seen care providers struggle to recruit and retain staff in a buoyant jobs market. The lack of homecare capacity had contributed to higher levels of short-term placements into residential care. As the NHS dealt with addressing its backlog, Hospital discharges were higher than pre-pandemic leading to service capacity issue and the risk of more short-term placements in care homes which were difficult to change once in place. This had been addressed in the short term through additional provision of Home Care support by the Authority, and through a pilot Home Care project being delivered with NHS colleagues.


During the current financial year, the Authority had continued to work with the care sector, ensuring financial support is being promptly distributed to safeguard services for the most vulnerable residents in the Borough. The Authority had been working to strengthen its approach to commissioning and demand management across the care sector, ensuring that services would meet individuals’ needs, maintaining a sustainable care market and ensuring 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, as stated previously, would be significantly impacted by the Social Care Reform proposals.


The latest estimates of the continued financial impact of the COVID-19 pandemic were set out in the September Budget Monitoring report. Many of the additional costs, lost income and savings not achieved in the current year might continue to have an extended impact on the 2022/23 Budget.  As of September 2021, the total estimated financial impact of COVID-19 was £17.274m. This had been funded by £7.261m of the Local Authority Support Grant, £1.335m of Income Compensation for Sales, Fees and Charges losses and £4.517m of COVID-19 service specific grants, leaving a gap of £4.161m for the Authority to fund. Further details of this were included in the report.


The approach to financial planning included a risk assessment as to where some of the COVID-19 service impacts might continue into 2022/23. 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 progresses.


One of the key approaches to managing the range of financial risks was the ongoing review of the Authority’s reserves and balances and any specific application to be considered.  The Chief Finance Officer, in consultation with the Cabinet Member for Resources and the Senior Leadership Team, proposed to earmark £2.000m from the Strategic Reserve to manage the risk of the financial impact of the pandemic into 2022/23.  In addition, a range of projects identified to mitigate current cost pressures across Adults and Children’s Social Care service would result in the use of over £2.000m of the Change Reserve during 2022/23.


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 2022-2026 Medium-Term Financial Plan (MTFP) had been revised based on national, local and internal information. 


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 2022-2026; 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 £10.852m to be addressed.  Without actions over the four-year MTFP period, the cumulative impact was in the region of £27m.


The Housing Revenue Account (HRA) continued to face financial pressures which had been impacted further by the COVID-19 pandemic.  The continued roll out of Universal Credit and other welfare reforms brought greater pressure on tenants in terms of managing their finances in a time of rising inflation.


Rent increases for next year were based on the Consumer Price Index (CPI) rate, as at September, plus 1%.  The rate announced for September 2021 was 3.1% which led to a proposed rent increase for 2022-23 of 4.1%. This increase would be used to ensure that the 30-year HRA Business Plan could be balanced, whilst meeting all the Mayor and Cabinet’s key objectives, which included maintaining the existing stock, meeting increased Affordable Homes ambitions, and taking steps to respond to the Authority’s Climate Change Emergency, by funding increased sustainability measures and starting to address the decarbonisation agenda.


The 2022/23 budget and 4-year Financial Plan for the HRA were balanced with a small, planned contribution from reserves over the next 4 years, as set out in Table for of the report.


The 2021-2026 Investment Plan totalling £244.333m had been approved by full Council on 18 February 2021.  Delivery of projects within the plan and progress to date had been reported to Council as part of the bi-monthly Financial Management reports.  Reprogramming of £13.469m had been identified as part of the process and this spend was now included in the 2022-2027 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 2022/23.  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 2022.  The local formula had to 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 2021 included a 1.99% general increase in Council Tax and a 3% adult social care precept for 2021/22.  Government expectations included in the SR1 was that Local Government increased Council Tax by up to 1.99% and applied a 1% adult social care precept.  Should Cabinet consider increases in Council Tax, based on current tax base estimates, this would raise approximately £3.100m of additional funding for next year (made up of £2.050m general Council Tax, 1.99%, and £1.081m from the adult social care precept).  The precise final level of any change in Council Tax would be confirmed in February 2022 following a decision by full Council.


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).  The number of children with an Education, Health and Care Plan (EHCP) also continued to increase.  Responding to these increases in needs was creating pressure on the High Needs block of the Dedicated Schools Grant (DSG).  The pressure within High Needs had continued to increase in 2021/22 with a forecast in-year outturn variance of £3.673m, bringing the estimated cumulative pressure to £12.553m.  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.  Where a local authority had an overall deficit on the DSG of 1% or more, it was required to submit a recovery plan to the Department for Education (DFE) setting out how it planned to bring the overall DSG account into balance.  The Authority had a plan that was in place and was working with the DFE to ensure delivery and to bring the DSG back into financial balance over a five-year period.


These initial Budget proposals were subject to further review and consultation before they could be confirmed. The information to be assessed and finalised included:


·      The overall impact of the Spending Review 2021;

·      The Provisional and Final Local Government Finance Settlement announcements for 2022/23, including capital announcements and specific grants, including the Dedicated Schools Grant (DSG);

·      Police and Crime Commissioner for Northumbria and the Tyne and Wear Fire and Rescue Authority Precepts (due February 2022);

·      Levies, including the North of Tyne element of the Newcastle upon Tyne, North Tyneside, and Northumberland Combined Authority Transport Levy (due February 2022);

·      Tyne and Wear Joint Service Budgets (due January/February 2022); and

·      Consideration of the impact of the economic climate on the residents of the Borough and Council Taxpayers.


Therefore, as some external announcements were still to be received, it was recommended that Cabinet authorises the Elected Mayor, in conjunction with the Cabinet Member for Finance and Resources, Deputy Mayor and other Cabinet Members, to work with the Senior Leadership Team to continue their joint review of these proposals.


The Elected Mayor thanked the officers and Cabinet members for their work in producing the initial budget proposals in challenging circumstances.


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 2022/23 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 2022-2027 Investment Plan, including initial prudential indicators for 2022-2026 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 2022-2027 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 2022/23 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 2022/23 rent policy for housing; and the initial Budget proposals in relation to the 2022-2026 Housing Revenue Account budget, and associated Business Plan, including an assessment in relation to the current year’s budget monitoring information (2021/22) be agreed;

(11) the proposed 1.4% rent increase from April 2022 (in line with Government policy), and the initial proposals in relation to housing service charges and garage rents for 2022/23 be noted;

(12) the Director of Resources, in consultation with the Director 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 2022/23 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 Director of Resources be authorised to carry out consultation on changing the backdating rule for new claims to be backdated from 4 weeks to 26 weeks (where appropriate) in the Council Tax Support scheme, be agreed.


(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 2022/23 in relation to the General Fund.  The report would form the basis of Budget engagement and scrutiny over the following two months, but further work would be inevitable before final decisions were made on the budget for next year, hence the authorisation recommendation referred to in paragraph 1.6 of the report).



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