Agenda item

2022-23 Financial Management Report to 30 September 2022

To receive the third budget monitoring report for the current financial year which reflects the first indication of the potential revenue and capital position of the Authority at 31 March 2023.

 

 

Minutes:

Cabinet considered the third monitoring report outlining the 2022/23 financial position.  It provided an early indication of the expected revenue and capital financial position of the Authority as at 31 March 2023. The view in this report was expected to change over the coming months as the recovery to a pre Covid-19 position continues, the impact of market conditions became clearer, further inflationary factors became apparent and management actions started to take effect.

 

The Budget for 2022/23 was approved by full Council at its meeting on the 17 February 2022. The net General Fund revenue budget was set at £163.512m. This included (£7.257m) of savings to be achieved, of which (£3.113m) related to new business cases included in the 2022-2026 Medium-Term Financial Plan, (£1.607m) of full year effect of prior year business cases and (£2.537m) of savings previously achieved by one-off mitigations and non-permanent solutions.

 

Prior to any mitigation, the Authority’s approved net revenue budget was forecast to outturn with a pressure of £15.500m. Table 1 in section 1.5.2 of the report set out the initial variation summary across the General Fund.

 

The Authoritycontinued totake aprudent approachto forecastingincluding inrelation to theon-going impactof Covid-19,which currentlywas forecastto addpressures of £5.226m to the General Fund in 2022/23. These pressures were primarily where fees and charges income had yet to return to pre-pandemic levels, where additional fixed term staff were employed to cover increased demand or to enable front-line service provision to continue unimpacted by employees needing to self-isolate. In addition to Covid-19, global market pressures existed around the Authority’s supply chain and currentinflation levels,these combinedadded afurther £7.182mto theoverall pressure. The remaining £3.092m related primarily to staffing and other income related pressures across theservices.

 

As part of the 2022-2026 Medium-Term Financial Plan (MTFP) agreed by full Council in February £2.200m was set aside from the Change Reserve to support additional pressures in Home to School Transport (£0.400m), Special Educational Needs (£0.400m), additional children’s social care provision (£1.200m) and for the development of the Customer Relationship Management programme (£0.200m). The (£0.400m) relating to Home to School Transport had now been allocated to Commissioning & Asset Management and was reflected in the services projected position, leaving (£1.800m) to support the overall pressure.

 

In addition to the use of the Change Reserve, £2.000m was also set aside to create a Covid-19 Reserve as part of the 2022-2026 MTFP, this included (£0.650m) to support additional caseloads within Children’s Services, (£0.350m) to support Home to School Transport and (£1.000m) to support reduced fees and charges income following the pandemic. The (£0.350m) relating to Home to School Transport had now been allocated to Commissioning & Asset Management and was reflected in the services projected position, leaving (£1.650m) to support the overall pressure.

 

Within the 2022-2026 MTFP, (£0.150m) was identified as planned use of the Insurance Reserve to support additional Repairs and Maintenance costs within the Authority’s Commissioning & Asset Management Service Area. The use of this funding had been included in Table 2 in section 1.5.2 of the report.

 

Included within the position for Central Items is (£6.752m) of contingencies; of which (£3.116m) was being used to offset the pressures in Children’s Social Care, (£1.301m) was supporting the under achievement of savings targets and (£2.325m) was being used to support the inflationary pressures being faced by the Authority. A further (£0.989m) of central savings was supporting the wider bottom-line position. Additionally, this month (£0.316m)had beenincluded reflectingthe partyear reversalof thenational insurance increase and (£4.927m) of Minimum Revenue Provision savings had been included in the position following the conclusion of External Audit work into the methodology change. These savings followed on from savings made last year due to the switch to the annuity method following the review by Link Treasury Services Limited. In 2021/22 these savings were set aside in a new MRP reserve; however, it was likely the savings would be required to support the bottom-line position in 2022/23 and were available if required.

 

Further to this balance, an additional (£1.300m) was set aside in the 2022-26 MTFP to support anticipated inflationary pressures in 2022/23. With the allocation of this support, the Authority had been able to release a provision of (£0.300m) previously held on the balance sheet to support increased Special Guardianship Order costs.

 

£1.925m of funding previously reported in July had now been allocated to help cover the cost of the Pay Award, which was anticipated to be approved at £1,925 for every full-time equivalent employee. Despite this additional allocation, the cost of the pay award was still likely to be higher than the funding set aside and officers continued to work through the projected figures until a final agreement was announced.

 

The Authority was able to carry forward from 2021/22 (£2.962m) of Covid-19 related central Government grants. Of this (£1.462m) had been committed and was reflected in the £15.500m position reported in Table 1. The remaining balance of (£1.500m) was available to support on-going Covid-19 legacy pressures and was reflected in the revised position shown in Table 2.

 

With the inclusion of the planned support from the 2022-2026 MTFP, the adjusted General Fund position, as shown in Table 2, was a pressure of £8.800m. This reflected the continuing impact of Covid-19 being £2.076m over the support funding allocated. The main areas impacted were within Environment, where Sports and Leisure income from fees and charges continued to be lower than pre-pandemic levels. Initial projections suggested income would be higher than in 2021/22 but still only 80% of the income levels achieved pre-pandemic in 2019/20. Significant pressures also existed in Children’s and Adults’ Services, where the response to the impact of Covid-19 had seen staffing levels increase to manage a significant increase in caseloads and demand for services for both Adults and Children. This was not unique to North Tyneside and was being seen across the region and nationally.

 

The Inflation Rate (Consumer Price Index) had recently reached 10.1% and was much higher than the rate anticipated when Cabinet set aside the allocations in the 2022- 2026 MTFP. This was forecast to add a further £5.882m in respect of non-energy related inflationary pressures. Current projections suggested the funding set aside by Cabinet to support inflationary pressures on utilities would be enough to mitigate that pressure. The majority of the non-energy related inflationary pressures being in Adults Services across the external care market and contractual costs within Commissioning & Asset Management for catering supplies and the cost of Home to School Transport and Environment which included leisure centres, libraires and customer first centres all impacted by utility pressures.

 

The remaining balance of £0.842m was attributable to pressures considered to be ‘Business as Usual’. Finance officers were continuing to work with Cabinet, the Senior Leadership Team and other senior officers across the Authority to review Business as Usual activity as well as challenging and reviewing the current projected risks the authority was facing in a number of key areas:

 

·       Children’s Services – demand and costassumptions;

·       High needs/SENDpressures;

·       Adults Social Care – demand and costassumptions;

·       Unachieved savingstargets;

·       Commissioning & Asset Management – Impact of schools’ service level agreementreductions;

·       Law & Governance Structure – use of locums;and

·       Revenues & Benefits position – review of the level of benefits overpayments and subsequent recovery.

 

The aim of this work would be to ensure actions were in place to bring the outturn forecast for normal activities in on balance and it was anticipated the position would improve over the course of the financial year as planned remedial actions begin to impact on both expenditure and income.  Should any balance remain at year-end then this would need to be supported from the Strategic Reserve, significantly reducing the level of un- ringfenced reserves the Authority had.

 

New savings of (£4.720m) were agreed as part of the Budget approved by full Council in February 2022 taking the total savings the Authority had had to find in the eleven years following the 2010 Comprehensive Spending Review (CSR) to £134.268m.

 

The governance structure of the Efficiency Savings Programme included a monthly review of progress by the Senior Leadership Team (SLT). In addition, in-year budget and performance progress meetings were held between officers and Cabinet Members to consider progress and actions being taken to deliver savings. The variations in relation to the savings were outlined in the report.

 

New savings were proposed for 2022/23 of £4.720m combined with £2.537m of brought forward targets that still required a permanent solution from previous years meaning an overall target to achieve in 2022/23 is therefore £7.257m.

 

Within HECS, Adults Services were projecting to achieve the full (£0.950m) relating to business cases brought forward from prior years and new business cases from 2022/23. Within the CYPL pressure of £13.154m, £3.000m relates to the non- achievementof savingstargets. Inthe previousfinancial yearthese savingshad been significantly impacted by Covid-19 and as such, achievement had been supported by Central Government Covid-19 grants. With these grants not available in 2022/23 and on-going demand-led pressures already impacting the service, current projections were for all CYPL savings to remain unachieved in2022/23.

 

Finance Officers continued to attend meetings with Directors and the Heads of Service across Adult and Children’s Services, and individual managers had been assigned responsibilities to pursue deliverability of existing schemes and to identify alternative proposals during 2022/23.

 

Within Commissioning & Asset Management, £0.400m of cross-cutting 2022/23 savings were held with £0.026m of the Procurement saving projected to be achieved to date, with work on-going across the Authority to achieve the balance by the year end. Of the savings related to prior year business cases, £0.132m was projected to be achieved with a further £0.050m available via management mitigations leaving £0.164m still to be achieved. The planned 15p increase in paid school meals in September 2022 has been implemented but this had not allowed the full savings target to be delivered. Additional catering income had been generated supplementing the achievement by £0.050m. Due to the impact of the Pandemic school meals increases had been delayed for two years, so previous income targets for 2020/21 & 2021/22 were also included in these figures. As a number of schools had left the SLA during that time period this target was only partially deliverable, and an alternative was being explored for the shortfall of £0.089m.

 

The schools leaving the SLA were now confirmed so £0.025m of the 2022/23 element of the savings target for paid school meals and SLA income would not be delivered in the original manner.  Previous years SLA income targets create an additional pressure as targets were based on a greater number of schools in the SLA. A further £0.050m would not now be delivered as planned. In total, £0.075m of this savings target still required a permanent solution.  All savings in the other service areas were forecasted to be achieved.

 

A table containing details of new Revenue Grants received during August and September 2022 was set out in section 1.5.4 of the report.

 

Schools were required to submit their rolling three-year budget plan by 31 May each year. The total planned deficit for 2022/23 is £5.532m. The Authority had been working with schools for a number of years with regard to the long- term strategic issue of surplus secondary places and the associated financial pressures, which continued to be compounded by rising employment costs.

 

Finance officers were working with schools to produce an update on 2022/23 school finances position as reported previously to cabinet. A report of this update would be presented to Cabinet in the next finance report.

 

The High Needs Block ended 2021/22 with a pressure of£13.511m. The forecast of the Budget position for 2022/23 indicated an anticipated in-year pressure of £5.111m reflecting a further rise in demand for special school places, producing a cumulative deficit balance of £18.622m.

 

The Housing Revenue Account (HRA) RA was forecast to have year-end balances at 31 March 2023 of £0.281m. These balances were £0.090m lower than budget which was set at £0.371m.

 

Universal Credit was fully implemented across North Tyneside on 2 May 2018. As of the end of September 2022, 3,999 North Tyneside Homes tenants had moved on to Universal Credit and a team was working proactively with tenants to minimise arrears. This position will be closely monitored as the year progresses to identify any adverse impacts on the Budget position.

 

The approved 2022-2027 Investment Plan totals £329.309m (£116.459m 2022/23) and is detailed in table 19 of the Annex. The Annex to this report also sets out in Section 4 delivery progress to date, planned delivery for 2022/23, reprogramming and other variations identified through the Investment Programme Governance process.

 

An officer led review of the Investment Plan has resulted in proposals for variations of £0.347m and reprogramming of (£13.283m) of which more details are set out in Section 4 of the Annex to this report. The revised Investment Plan stands at £103.523m for 2022/23 and to the end of September 2022 spend of £26.751m had been incurred which represents 25.8% of the revised plan.

 

Significant inflationary pressures are being experienced across the UK, and senior officers within the Authority have undertaken a review of inflationary impact to the Investment Plan. Given supply issues and rising costs on committed schemes within the plan, there may be an impact on the delivery of some planned activity as investment is re-profiled to future years. The corporate risk register includes risks for such inflationary pressures to the investment plan.

 

The 2021-2025 Our North Tyneside Plan (Council Plan) set out the overall vision and policy context within which the Medium-Term Financial Plan and Budget are set. The Council Plan, “Building A Better North Tyneside”, had five key themes as set out. For each theme there was a set of policy outcomes which the Authority was seeking to deliver; these were detailed in the Council Plan. The Authority had plans in place to deliver all elements of the Plan and performance against delivery was carefully monitored.  An update report on the progress of delivering the 2021-2025 Our North Tyneside Plan was taken to Cabinet in September 2022.

 

Cabinet considered the following decision options: to approve the recommendations set out in paragraph 1.2 of the report; or alternatively, to not accept the recommendations.

 

Resolved that (1) the forecast budget monitoring position for the General Fund, Schools’ Finance and Housing Revenue Account (HRA) and as at 30 September 2022 (Annex sections 1, 2 and 3), be noted;

(2) the receipt of (£0.444m) new revenue grants (as outlined insection 1.5.4 of the report), be approved;

(3) the Authority’s Investment Plan spend of £26.751m to 30 September 2022 and the financing of the Plan to the end of the year (Annex Section 4), be noted:

(4) variations of £0.347m and reprogramming of (£13.283m) for 2022/23 within the 2022-2027 Investment Plan (Annex Section 4), be approved;

(5) the information on the Collection Fund (Annex section 6), be noted;and

(6) the information on Prudential Indicators contained in Appendix2, be noted.

 

(Reasons for decision: Cabinet is recommended to agree the proposals set out in section 1.2 of this report as it is important that Cabinet continues to monitor performance against the Budget, especially given the current level of financial pressures faced by the public sector.)

 

Supporting documents: