Agenda item

To receive the fifth 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.

Cabinet considered the fifth monitoring report outlining the 2022/23 financial position.  It provided an indication of the expected revenue and capital financial position of the Authority as at 31 March 2023.

The report covered the forecast outturn of the Authority’s General Fund and Housing Revenue Account (HRA) revenue budget including management mitigations where issues had been identified; the delivery of 2022/23 approved budget savings plans; and an update on the Capital Investment Plan, including details of variations and reprogramming, that was recommended for approval.

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, which included £7.257m of savings to be achieved in year.

The Authority’s finances were complex in any year given the range of services that were delivered; the picture this financial year was even more volatile given the national and global economic challenges.  At a Service level, before the application of planned contingencies and central funding, the gross pressure would be £22.872m.  However, the budget for the year included contingencies of £6.752m and other central funding of £1.006m.  As a result, the total forecast year-end pressure for the General Fund reduced to £15.114m.  Table 1 sets out the initial variation summary across the General Fund, with a detailed commentary of variances included in Annex 1.

Included within the position for Central Items is £6.752m of contingencies.  Whilst held in Central Items, its use was identified as: £3.116m to offset the pressures in Children’s Social Care; £1.301m was supporting the under achievement of savings targets; and £2.325m to support the inflationary pressures being faced by the Authority.  In September’s report, a £0.316m saving was included reflecting the part year reversal of the national insurance increase along with a £4.927m of Minimum Revenue Provision (MRP) savings following the conclusion of External Audit work into the methodology change; these items remained in the forecasts. In 2021/22 these savings were set aside in a new MRP reserve, which remained on the balance sheet, but it was likely that the in-year saving would be required to support the bottom-line position in 2022/23, so was currently included in the forecast position.  Since the last report to Cabinet, the Authority had received a one-off contribution of £0.405m relating to the Levy Account surplus.  This gave a total underspend for Central Items of £13.407m.

Table 2 added further detail to the information in Table 1.  The top half of table 2 breaks down the forecast £15.114m pressure into the main factors of covid legacy, utility, other inflation, and other pressures. The covid pressures of £7.757m arose primarily from fees and charges income not yet returning to pre-pandemic levels and additional fixed term staff employed to cover increased demand or to enable front-line service provision to continue. 

The lower half of Table 2 included details of funding set aside to support known pressures.  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, with the remaining £1.800m supporting the overall corporate pressure.

In addition, £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 corporate pressure. Within the 2022-2026 MTFP, £0.150m was identified as planned use of the Insurance Reserve to support additional Repairs and Maintenance costs, as set out in Table 2. A further £1.300m of contingencies that had not been applied to specific service areas / central items, so could support the overall corporate position.

Following the on-going review of provisions, the Authority had been able to release provisions of £0.728m (of which £0.300m related to 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 now approved at £1,925 for every full-time equivalent employee.  Despite this additional allocation, the cost of the pay award was higher than the funding set aside and was reflected in the overall forecast for the year, which was reflected in individual service areas (Table 2).

The Authority carried forward £2.962m of Covid-19 related central Government grants from 2021/22.  Of this £1.562m has been committed and was reflected in the £15.114m position (Table 1). The remaining balance of £1.400m is available to support on-going Covid-19 legacy pressures and was reflected in the revised position (Table 2). Taking all of the above into account, the result was a forecast year-end pressure of £8.086m, which was an improvement of £0.539m since the previous Cabinet report.

The main service areas facing forecast overspends were those most exposed to the new, emerging pressures, which were impacting on top of the residual covid-impacts. Environment, which included Sports and Leisure activities, was experiencing income shortfalls from fees and charges, which continued to be at lower than pre-pandemic levels.  That Directorate was significantly affected by energy costs, given it included streetlighting, leisure centres and customer first centres which were all energy intensive activities.  In addition, higher inflation rates were significantly impacting on the waste management contract.

Children’s and Adults’ Services were forecasting significant pressures, as the impact of Covid-19 had seen the need to increase staffing levels to manage increases in both the complexity and volume of demand for services.  This was also resulting in increased payments to external providers.  This was not unique to North Tyneside and was being seen across the region and nationally.

Commissioning & Asset Management was forecasting overspends in catering supplies and the cost of Home to School Transport, with the cost of supplies and fuel rising rapidly in this period of high inflation.

The Resources directorate was experiencing overspends in Legal Services, associated with the level of locum solicitors dealing with a combination of increased demand and job vacancies, which was being addressed by a restructure that was underway, with increased resources included as part of the 2023/24 budget setting process.  There was also an ongoing impact of the recovery of benefit overpayments in the Revenues and Benefits Service on the directorate position, although this had improved by £0.063m since the last report.

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 – need and cost assumptions; High needs/SEND pressures; Adults Social Care – need and cost assumptions; Unachieved savings targets; Commissioning & Asset Management – Impact of schools’ service level agreement reductions; 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 continue to improve over the remaining months of the financial year as planned remedial actions begin to impact on both expenditure and income.  However, at this stage of the year it was certain that some level of overspend would need to be supported from the Strategic Reserve, significantly reducing the level of un-ringfenced reserves the Authority had available.  The recently agreed 2023/24 budget and MTFP included the replenishment of this reserve in the period through to 2026/27.

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 section 1.5.3 of the report, with more detail included in the regular reports on this topic to Overview Scrutiny and Policy Development Committee.

The new savings of £4.720m were combined with £2.537m of brought forward targets that still required a permanent solution from previous years, meaning the overall target to achieve in 2022/23 is £7.257m.  These savings were shown separately in section 1.5.3 and in Tables 1 and 2.

In terms of the efficiency savings programme 2022/23, Adults Services were

projecting to achieve the full £0.950m target.  Within the Children, Young

People and Learning (CYPL) pressure of £14.635m reported earlier, £2.600m

related to the non-achievement of savings targets.  In the previous financial year these savings had 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 these CYPL savings to remain unachieved in 2022/23.

Within Commissioning & Asset Management, £0.400m of cross-cutting

2022/23 Savings were held with £0.100m projected to be achieved and

£0.100m of the Procurement saving projected to be achieved to date by in

year actions, with work on-going across the Authority to achieve the balance

by the year end.  The unachieved savings were included in the forecast

pressure in Table 1.  All savings in the other service areas were forecasted to

beachieved.

Revenue grants received during December 2022 and January 2023 were set out in section 1.5.4 of the report (Table 4).

Schools were required to submit their rolling three-year budget plan by 31 May each year and as reported previously the total planned in-year deficit for 2022/23 is £5.533m. 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.

The first set of monitoring for the 2022/23 year is complete, with schools overall showing a £1.145m improvement against budget plans prior to the impact of pay award on staffing costs.  The position with the pay award costs included is a deficit of £7.453m.  This represents a decrease in balances of £1.920m.

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 £4.416m reflecting continued demand for special school places, producing a cumulative deficit balance of £17.927m. The Authority submitted a final DSG Management Plan on 3 February 2023 to the Department for Education (DfE).  This was to agree a package of reform for the Authority’s high needs system that would bring the Dedicated School Grant (DSG) High Needs overspend under control.  The Authority was required to demonstrate lasting sustainability, effective for children and young people, which included reaching an in-year balance within five years. The Authority engaged with partners across SEND to co-create the DSG Management Plan.  On 16 March 2023 the Authority received confirmation that the submission had been successful and an award of £19.5m of additional funding will flow over the next 5 years subject to compliance with specific conditions set out in the Safety Valve Agreement (link included within background papers).  This included the requirement for the High Needs Block to move into an in-year surplus by 2026/27.  £7.8m of additional DSG would be received in the current financial year, reducing the cumulative deficit on the High Needs Block, with the remainder paid over the period to 2027/28 if those conditions were met.

The Housing Revenue Account (HRA) was now forecast to have year-end balances at 31 March 2023 of £3.316m.  This reflected an in-year improvement against the budget of £0.248m, with £0.187m relating to a forecast under-spend against the budget which was set at £0.371m, and £0.061m relating to an improvement in brought-forward balances.

Universal Credit was fully implemented across North Tyneside on 2 May 2018.  As of the end of January 2023, 4,086 North Tyneside Homes tenants had moved on to Universal Credit and a team was working proactively with tenants to minimise arrears.  This position continued to be closely monitored to identify adverse impacts on the Budget position.

The approved 2022-2027 Investment Plan totalled £332.385m (£92.733m in 2022/23) and was detailed in table 20 of the Annex.  The Annex to the report also set 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 had resulted in proposals for variations of £1.521m and reprogramming of £6.938m in 2022/23, of which more details were set out in Section 4 of the Annex to this report.  After total adjustments of £18.963m, the revised Investment Plan stands at £351.348m (£87.316m for 2022/23) and to the end of January 2023 spend of £53.366m had been incurred which represented 61.12% of the revised plan.

The Investment Plan continued to face significant inflationary pressure and Senior Officers within the Authority had undertaken a review of the expected financial impact on approved schemes with the relevant project managers.  The review had confirmed that for the majority of schemes there had been an ability to re-profile planned works to future years given supply issues and rising costs.  However, in some cases it was proposed to utilise the Authority’s contingency allocation within the Investment Plan in order to maintain delivery plans.  The use of the contingency was managed as part of the Investment Programme Board governance arrangements.  The corporate risk register includes risks for such inflationary pressures to the investment plan and the position was monitored on an ongoing basis.

The 2021-2025 Our North Tyneside Plan (Council Plan) sets 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. 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 included on the agenda for this meeting as a separate item.

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 31 January 2023 (Annex sections 1, 2 and3), be noted;

(2) the receipt of £1.192m new revenue grants (as outlined insection 1.5.4 of the report), be approved;

(3) the Authority’s Investment Plan spend of £53.366m to 31 January 2023 and the financing of the Plan to the end of the year (Annex Section4), be noted;

(4) variations of £0.151m and reprogramming of (£6.938m) for 2022/23 within the 2022-2027 Investment Plan (Annex Section 4), be approved; and

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

(Reasons for decision: 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.)