Agenda item

DRAFT - 2020/19 BUDGET REVIEW

 

Summary:             Options considered:	This report presents for consideration the draft 2020/21 budget. It is being provided to the Overview and Scrutiny Committee for initial consideration and pre-scrutiny discussion ahead of the final budget papers being presented to Cabinet and Full Council in February 2020.   The budget for the forthcoming financial year must be set annually.  Whilst there are options around the individual budgets presented for approval i.e. what is included in the budget for 2020/21, these will be considered in more detail in February.
Conclusions:	The Council’s budget is set for approval each year in February; since last year it has been presented to Overview and Scrutiny for pre-scrutiny before going to Cabinet, with recommendations then being made to Full Council for approval. The report currently presented provides a draft of the 2020/21 budget position for consideration and discussion by the Overview and Scrutiny Committee. The draft budget to date has been produced based on a number of assumptions as detailed within the main body of the report and now reflects the provisional finance settlement announced on 20 December 2019. The report is for information and discussion.
Recommendations:           Reasons for Recommendations:	It is recommended that the Overview and Scrutiny Committee note the contents of the report and the ongoing work to support the preparation of the 2020/21 budget and make any recommendations to Cabinet as required.   N/A

LIST OF BACKGROUND PAPERS AS REQUIRED BY LAW

(Papers relied on the write the report and which do not contain exempt information)

 

Outturn Report 2018/19, Medium Term Financial Strategy 2020/21 – 2023/24, 2019/20 budget monitoring reports.
Cabinet Member(s): Cllr Eric Seward	Ward(s) affected All

Contact Officer, telephone number and email: Duncan Ellis, 01263 516330, duncan.ellis@north-norfolk.gov.uk

 

 

Cllr E Seward – Portfolio Holder for Finance introduced the report and informed Members that pre-scrutiny was the start of the budget setting process, and that it was helpful to hear early views on the budget. It was noted that last year, a deficit of approximately £2m had been predicted, and whilst there was now a surplus predicted for the year ahead, this relied on a certain level of support from Central Government that was not expected in future years. Cllr E Seward added that there was still a deficit of approximately £2m predicted for the 2021/22 financial year, and that it was difficult to plan services without knowing what resources would be available. It was noted that this issue was not unique to North Norfolk, with local authorities across the country facing the same pressures.

 

Cllr E Seward informed Members that Council would decide on setting the level of Council Tax and the future of community funds such as the Big Society Fund (BSF), that required ongoing revenue. It was stated that a Council Tax increase had been assumed within the draft budget, and Cllr E Seward wished to make it clear that the NNDC increase was just under £5, whereas NCC’s was approximately £50. Furthermore, it was reported that for every £1 of Council Tax, just 8 pence was retained by NNDC.

 

Cllr E Seward stated that going forward, he would likely ask officers to prepare a zero base budget, in order to ensure all spending aligned with the Council’s corporate objectives. He added that whilst the Council still had healthy reserves, these were in the process of being unwound, and as a result, there were also plans for a review of the Council’s fees and charges.

 

Is summary, Cllr E Seward noted that responsibility for adequately managing the Council’s finances rested with all Members, and examples such as Northamptonshire County Council had been exacerbated by Councillors paying little attention to the budget setting process.

 

Questions and Discussion

 

The HFAM thanked Members for attending budget training, then explained the key financial issues facing the Council. He stated that whilst he was happy to present a balanced budget for the next financial year, there would still be challenges in the years ahead, with deficits of £1.8m-£2m predicted, though the Finance Team were looking to plan up to five years ahead. It was suggested that the Council’s reserves would fall from their current position of approximately £22m, down to £17m, then finally to £10m, as several projects were completed. This was still seen to be a good level of reserves, that many local authorities did not have.

 

As previously noted, the HFAM stated that budget calculations had assumed that the maximum £4.95 increase of Council Tax would be approved. Furthermore, it was suggested that Central Government would assume as part of its fair funding review, that all Councils would take the appropriate steps such as raising Council Tax, to raise revenue.

 

The HFAM stated that in total, the budget included approximately £500k of savings and additional income for the 20/21 financial year. He added that some digital transformation savings in excess of £300k had been removed from the budget, as there was no detailed plan as to how they would be delivered. It was noted that the Council did have a good track record of delivering its savings plans, but these required detailed plans to be realised.

 

It was reported that investment income remained positive, with income for the next year predicted to be approximately £1.3m, which was a good return for the current economic climate. The HFAM stated that 3% returns had been predicted, though this had not quite been achieved due to lower returns received from short-term overnight investments.

 

With regards to a financial settlement, the HFAM informed Members that all Central Government spending reviews had been delayed as a result of Brexit, and whilst this slippage had allowed for some additional income from the new homes bonus, it had delayed other funding uncertainties further. On business rates, the Council was still part-way through a pilot retention scheme, and the true benefit would not be known until the end. It was noted that rumours of 100% business rates retention had circulated, and it was hoped that more would be known soon.

 

The Chairman stated that the budget was the most complex report of the Committee’s annual cycle, and whilst certain aspects such as the delivery plan were still missing, the Committee needed to consider the report at a strategic level. As a result of missing information from the yet to be completed delivery plan, action plan and performance framework, the Chairman suggested that the Committee also had to be realistic in what it could achieve at this early stage of pre-scrutiny. He suggested that in order to remain focused, it would be helpful to break down discussion of the budget into four constituent parts of; the revenue budget, capital budget, reserves, and risks savings efficiencies and compliance.

 

Revenue Budget Discussion:

 

The Chairman noted that the Council usually arrived at a budget underspend, and asked to what extent, if any, the corporate plan (CP) themes had been reflected in the revenue budget. The HFAM replied that the CP themes were not yet reflected in the budget, but they would be in the delivery plan. He added that it was possible that these could be funded by reserves, but it could also lead to borrowing, and that one of the key themes was financial sustainability, that would lead to savings and efficiencies as opposed to increased spending.

 

The HFAM informed Members that some additional costs still had to be met within the revenue budget, such as the continuation of the BSF, and whilst it had been assumed that the fund would continue, it was a decision for Cabinet and Council. In terms of additional income, it was suggested that the business rates pilot could collectively generate up to £10m, and whilst this income would not be recognised until the pilot settlement was complete, it could return several hundred thousand pounds to the Council.

 

In response to a question from the Chairman, the HFAM confirmed that at this stage, the budget should be considered as being at an intermediate stage of development.

 

Cllr T Adams thanked Cllr E Seward and the HFAM for their introductions, and noted that he couldn’t comment on the impact of service budgets at this stage, he asked if there would be any changes in existing income streams, and referred to temporary accommodation as an example. The HFAM replied that whilst temporary accommodation was a demand-led service, it was still one that the Council was required to provide. It was noted that the Council did receive funding from Central Government for this service, but it was capped at a certain level. The HFAM added that there was a £170k provision within the budget to meet the expected additional costs not covered by the grant. It was also suggested that some work was underway as part of the CP to offer a more permanent solution to issues with temporary accommodation. On other income streams, the HFAM stated a fundamental review of the Council’s fees and charges was planned, as a better understanding of the cost base was required. It was anticipated that this review would lead to an increase of income for the Council.

 

It was confirmed, following a request for clarification from Cllr J Rest, that no CP costs were contained within the draft budget that was being discussed, however the HFAM added that no savings identified within the CP had been included either. Cllr J Rest referred to earmarked reserves on page 28, and asked if anything had been removed and why, then noted that external interest payments had risen from £10k to £358k, and asked for an explanation of the dramatic increase. The HFAM noted for clarification, that not everything due to be included in the delivery plan would be new or additional expenditure, as some projects would be ongoing, meaning that costs were contained within the budget already. With regards to external interest payments, the HFAM explained that the borrowing costs for Splash had been included, in which case the Council had sought to get the best value for the taxpayer. In addition, it was reported that borrowing costs for the purchase of the waste contract vehicles had been included, which brought with it a number of benefits such as decreased contract costs and ownership of the vehicle fleet.

 

Cllr P Bütikofer thanked officers for the budget training, and asked whether the £1m of grant funding from the future high streets fund had been included in the budget. The HFAM confirmed that the £975k grant and the match funding had been included in the budget.

 

Cllr H Blathwayt asked if the officers setting the budget had taken into account the drop in the base rate, and whether there was any indication of cash flow anywhere in the report. The HFAM replied that there was a very detailed cash flow model for the next four years, though this was not usually included as part of the budget report it could be considered in the future. In regards to the change in the base rate, the HFAM stated that the Council did receive advice on its investments, and that to some extent the Council was protected from the change due to its investments in the LAMIT property fund.

 

Cllr N Housden asked if the Splash project featured in a previous Corporate Plan and whether the interest from borrowing had been included in the project costings. The HFAM replied that interest had been included in the overall cost of the project, and that the £1m funding from Sport England had now been received.

 

Capital Budget Discussion:

 

The Chairman noted that the capital budget identified costs for five of the CP expenditure themes within the 20/21 budget, and asked if this was correct or whether this money would be spread over the remaining term of the Council. He added that the combined spending figure was approximately £26m, and asked where the funding would come from, and what was the anticipated level of borrowing. The HFAM replied that details of the combined £26m were included in the appendix on pages 45-46, and that this figure was for the 20/21 year only, and that there would be further spending in future years. He added that some of this funding was the result of grant contributions totalling approximately £6.6m, and that some would be capital or reserves spending. The Chairman asked for clarification on the £12m of identified borrowing, to which the HFAM replied that this would split between internal and external borrowing. The Chairman suggested that the Council had enjoyed reasonable comfort from its lack of borrowing in previous years, and stated that it would be helpful to know the split between internal and external borrowing.

 

Cllr J Rest noted that within the capital budget, there had been a £1m provision for property investment that had risen to £3m, and asked where the additional funding had come from. The HFAM replied that the additional funding was taken from reserves, and that it had been included in the reserves budget. He added that as yet the budget did not include any potential revenue returns from the project

 

It was confirmed, following a question from Cllr H Blathwayt that the compulsory purchase of the Shannocks hotel would be a capital receipt, as identified on page 45.

 

In reference to the quality of life theme, Cllr P Heinrich noted the financial commitment to a proposed artificial football pitch in North Walsham, and asked whether it was realistic for the budget provision to remain, whilst the project was in doubt. The HFAM replied that the provision would be kept in at this point, but could be used elsewhere if the project did not go ahead. Cllr E Seward added that there was still demand for an all-weather football pitch in North Norfolk, with 50% of the project’s funding being granted by the Football Association. He noted, for the benefit of those that were not aware, that the project had stalled due to the potential for night-time noise issues, and whilst further enquiries were being made, the project would go ahead if the noise regulations could be complied with. Cllr V Gay sought to endorse the comments of Cllr E Seward, and stated that there was need for the facility and that Cabinet wanted to see it go ahead.

 

Cllr T Adams referred to property investment, broadband and EV charging points, and asked if there would be a strategy put in place for these projects going forward. The HFAM replied that the broadband reserve had now been spent, and the project being led by NCC was well underway. On property investment, it was stated that work was underway, but it was important to ensure that the business case was robust. Finally, on EV charging points, it was reported that the first points had been installed at the NNDC car park, and that the external points were out to tender. It was suggested that once this work was complete, the success of the first scheme would be reviewed before going further.

 

Cllr L Shires referred to coastal adaption and erosion assistance funding, and asked whether there were any plans for additional funding to support this work. The HFAM replied that the Council was always looking to secure additional funding, and whilst the pathfinder bid had successfully secured £2m, with a small balance still remaining in reserve, lobbying would continue. Assets such as the Cromer Pier were noted to require continued funding for maintenance purposes, and this did create a challenge to balance funds across the entire district. The CD (SB) stated that the capital programme on page 45 outlined funds for Cromer and Mundesley that would go to improving existing coastal defences. It was suggested that whilst most of the £3m pathfinder grant had gone to Happisburgh, the Council was looking to promote community benefit projects for any funding made available from offshore wind developments.

 

The Chairman stated that whilst the revenue and capital budgets generally aligned with the CP, it was apparent that further work was needed to give an accurate representation of the related costings.

 

Reserves Budget Discussion:

 

The Chairman asked if an in-depth review of the Council’s earmarked reserves could be undertaken, in order to determine whether the £20m accounted for would be subject to change. The HFAM replied that the capital budget of £3m outlined for property investment could be used to fund multiple projects, and that he would continue to review all reserves prior to the budget being agreed. He went on to suggest that the main reserve should increase above £2m, and that whilst some reserves had been put in place to cover certain issues, ultimately all reserves could be moved, such as the benefits reserve which was reviewed by GRAC. The HFAM stated in reference to the business rates reserve, that it looked as though the initial case on the NHS looked to have gone in favour of Local Government.

 

The Chairman noted that the budget suggested that the Council’s reserves would fall from £22m to £10m, and asked whether the impact this would have on investments had been considered. He then suggested that there had to be a link with the budget and future updates, and asked whether the MTFS had been considered. The HFAM replied that the Finance Team would look at cash inflows and outflows to model balances, and noted that it was much more beneficial for the Council to make medium-term investments. As a result, it was suggested that there was a balance to be struck between cash flow and investment, and in some cases, short-term borrowing allowed for better medium-term investments. With regards to the MTFS, it was noted that the document had been slightly refocused to concentrate on higher-level issues such as key income streams and expenditures.

 

The Chairman asked what would happen with regards to the £2m funding gap in years ahead, and stated that the Committee had to remain mindful of this.

 

Cllr N Housden asked whether the Council’s reserves were ring-fenced, or whether they could under any circumstances be called upon, by NCC for example. The HFAM replied that these funds were not available to other Council’s, and any financial support would be at the discretion of NNDC. The CD (SB) added that the Council’s decision to support the NCC project for better broadband was a choice that had allowed for significant improvements to be made across the district. The HLS stated that the only situation under which NNDC funds could be made available, was if a unitary model was implemented.

 

Cllr T Adams asked what had been done to lobby NCC on community reserves, e.g. the BSF, which had made a significant positive impact. Cllr E Seward replied that the Leader had written to NCC to ask that they consider returning some second homes funds to support the BSF, however this request had been wholly rejected.

 

Savings, Efficiencies, and Risk Discussion:

 

The Chairman noted that many issues relating to savings, efficiencies and risk had already been discussed, and asked whether a Brexit reserve had been created. The HFAM replied that advice had been taken on the issue and whilst the outcome was still very much unknown, the main reserve would act as a buffer. The Chairman replied that the impact of Brexit would be felt over a number of years, and should be considered. The CD (SB) reported that NNDC was a member of the Norfolk Resilience Forum, and it had been determined that the geography of North Norfolk meant that Brexit related issues were not a significant cause for concern, though this would be kept under review.

 

The Chairman stated that it was clear that the risk appetite of the Council was still unknown, and that work must be undertaken on stress testing and the resilience of the budget. He added that reviewing the budget at this stage was pre-scrutiny, and asked if the Committee needed to review it again once this missing information was available. The HFAM stated that much of the missing costings would be included in the delivery plan which would be reviewed at the February meeting. Cllr N Pearce stated that there was a clear scope of responsibility for Members to review the budget, and that he expected that the budget monitoring workload would increase as a result of the predicted deficits. He thanked the Finance Team for their efforts in preparing the budget. Cllr J Rest referred to identification of the Council’s risk appetite, and informed Members that GRAC was planning an in-depth look at this issue, and he would hope to identify this soon. The HLS stated that the Council’s reserves were now being unwound, and that in order to maintain the current levels of service, a certain level of risk may be necessary, and as a result a risk workshop would be run on 6^th February. She added that budget monitoring could be re-aligned to focus more on corporate objectives and performance.

 

The Chairman suggested that he had a sense that there would be recommendations on process though it may take some time to pick these out from the discussion notes. It was therefore proposed by Cllr N Dixon and seconded by Cllr N Pearce that a summary of the discussion and recommendations on the budget could be formulated after the meeting and agreed via email.

 

RESOLVED

 

That the Committee note the contents of the report and the ongoing work to support the preparation of the 2020/21 budget and that any recommendations to Cabinet are agreed via email.

 

 

MINUTES APPENDIX A – BUDGET DISCUSSION

 

To avoid delaying the meeting, Members agreed that a summary of discussion and recommendations on the budget could be formulated and agreed via email.

 

Please see below:

 

The Committee pre-scrutinised the revenue and capital budgets, the reserves and the range of risks and saving challenges. However, the pre-scrutiny wasn’t able to conduct a high level holistic review of all the components comprising the budget setting process, principally because the accurate revenue and capital costs for five CP themes, CP delivery/action plans and the performance framework have yet to be developed. To that extent the Committee was not able to comment on the funding metrics to deliver the CP, or the degree of integration of between the vital components. Moreover, there was little evidence of effective linkage with the MTFS at this stage, as that work has yet to be done. With those limitations and caveats in mind, the Committee makes the following process recommendations to Cabinet.

 

RESOLVED

 

1.  That the revenue and capital implications for funding the CP themes be developed to calculate accurate values, in order to populate the revenue and capital budgets to align with the implementation of the delivery plan.

 

2.  That the full extent of internal and external borrowing to fund the CP be identified, and that the impact of this spending on the Council’s investment income and future savings demands be reflected in the MTFS.

 

3.  That an in-depth review of the earmarked reserves is undertaken to verify whether these are still required and whether the values are still appropriate, in order to determine whether any reserves may be released for use elsewhere.

 

4.  That work to identify the Council’s risk appetite is undertaken to assess the resilience and robustness of the 2020/21 revenue and capital budgets, the reserves, and the medium term funding challenges for 2021/22/23.

 

5.  That the budget monitoring model be amended to integrate financial  monitoring with the MTFP, and performance monitoring, to present higher level holistic updates rather than low level line by line variances.