Agenda item

LIST OF BACKGROUND PAPERS AS REQUIRED BY LAW

(Papers relied on to write the report, which do not contain exempt information and which are not published elsewhere)

Cllr E Seward – Portfolio Holder for Finance and Assets introduced the report and informed Members that despite knowing the operational costs for 2023-24 in early December, full details of the Council’s income had not been known as the Local Government Financial settlement had not been received until the 19^th. He added that there had also been challenge about the level of retained business rates the Council would receive, which made it difficult to predict the Council’s operating income. It was noted that the wider context of the financial situation was the result of external factors, which had been unforeseen in the previous year. Cllr E Seward noted that the previous S151 Officer had noted that predictions suggested continued funding at the same level would have equated to a £100k deficit, though this was based on a range of assumptions subject to change, as had come to be the case. He added that now the Council better understood its financial situation, it would respond to the challenges accordingly, predominantly related to inflationary costs of approximately 14%, equivalent to £2.932m. It was noted in terms of funding, that a new 3% Guarantee Grant established that would provide over £1m, and was very welcome. Cllr E Seward stated that the Council had also lost funding streams such as the Lower Tier Service Grant worth £147k, as well as losing most of the new homes bonus which had reduced to £31k from £886k. He added that these funding losses had not been fully anticipated, and the Council had therefore only seen a net funding increase of £137k. It was noted that of the retained business rates outlined at £7.2m the Council were only entitled to £6.3m, which meant the Council would have to take £900k from the business rates reserve. Cllr E Seward stated that the lower entitlement was the result of various Covid grants and payments received, with further savings of £1.2m required, following an initial sift of £396k, which totalled the £1.6m required to produce a balanced budget. He added that no change in the funding formula had been proposed for 24-25, but the business rates received could fluctuate in the years ahead.

Questions and Discussion

       i.          The Chairman noted that Cllr E Seward had commented on both the MTFS and Budget reports, though in most cases the comments applied to both. He added that in previous years concerns had been noted regarding the economic forecasts, and these challenges were now being seen.

      ii.          Cllr C Cushing referred to p57 and noted that pay inflation was reported at two percent, whilst other inflation was reported to be a three percent, and sought clarification, given that they appeared to be much higher. Cllr E Seward replied that it was his understanding that pay inflation was five percent, but was expected to return to two percent. The DFR stated that whilst there had been a larger than expected increase in 2022, it was forecast to reduce in the years ahead, and this was why two percent had been stated in the MTFS. She added that other inflationary costs might also be expected to stabilise in the near future, which was therefore reflected in the MTFS, following advice from the Council’s treasury advisors. The Chairman asked whether officers were confident that that the reduction in pay inflation would be realised, given the current economic context. The DFR replied that she did expect next year’s pay increase to be lower, given the higher increase in 2022. The Chairman noted that this prediction remained a judgement call for officers, and there were risks associated with making these assumptions, given the existing rate of pay inflation and the understanding that public sector pay tended to lag behind market rates. It was confirmed in response to a question from Cllr C Cushing that modelling had not been done to determine the impact of pay inflation if it remained at five percent. The Chairman suggested that it would be prudent for this to be included in future reports to Full Council and suggested that it could form part of a recommendation. Cllr J Toye stated that he agreed that modelling should be undertaken to determine the impacts of higher levels of inflation to help officers better prepare for all scenarios.

     iii.          Cllr S Penfold referred to proposals to take £900k from the business rates reserve, and asked whether the reserve could cope with this level of withdrawal on an ongoing basis, if required. Cllr E Seward stated that the reserve currently stood at £3.9m, with £868k already taken, in addition to the proposed £900k reduction, which would leave it at approximately £2m available, should it be required in future years. The DFR added that the reserve was put in place to provide a smoothing effect to allow for fluctuations in business rates received year to year.

    iv.          The Chairman referred to comments within the MTFS that the document may carry a higher level of risk than seen in previous years, and noted that the Council would have to look at every option to balance its budget, then asked how realistic the suggested savings and income proposals were. Cllr E Seward replied that it was a balance to determine whether the level of potential risks could justify the investment of officer time to ensure mitigation measures would be adequate. He added that it was clear in hindsight, that mitigation efforts should have begun earlier to avoid the delays and additional work required to balance the budget, and as a result, the process would begin earlier in 23-24. It was suggested that the biggest challenge going forward was that Local Government finance would eventually be reconfigured, and this would present significant uncertainty in the years ahead. The Chairman suggested that forming a view of the potential risks would help to determine the level of contingency required, and it was clear that there were risks ahead. Cllr J Toye agreed that it was important to look ahead, whilst ensuring that the Council operated a one-team approach.

      v.          The Chairman suggested that the Committee may be minded to recommend that additional modelling on pay inflation of up to five percent be undertaken, and that contingency plans be developed early in 23-24 to ensure that adequate mitigation was in place.

    vi.          It was clarified following a question from Cllr S Penfold that pay inflation for 23-24 was assumed to be five percent, and was expected to fall to two percent from 24-25 onwards.

   vii.          The recommendations were proposed by Cllr J Toye and seconded by Cllr H Blathwayt.

RESOLVED

1.     To recommend to Cabinet that financial modelling of inflationary costs of up to 5% for staff and fees be included in the report to identify potential risks.

2.     To recommend to Cabinet that in recognition of the increasing risk of deficits arising, robust savings and income generation contingency plans need to be developed as soon as possible in FY 23/24, to ensure that financial risks can be adequately mitigated for 2024-25 and onwards.