Policy &
Resources
Agenda Item 10
Committee
Subject:
General Fund
Budget Planning & Resources Update 2023/24
Date of
meeting: 7 July 2022
Report
of:
Chief Finance Officer
Contact
Officers: Name: Nigel Manvell, James
Hengeveld
Tel: 01273 293104, 01273 291242
Email: Nigel.Manvell@brighton-hove.gov.uk
James.Hengeveld@brighton-hove.gov.uk
FOR
GENERAL RELEASE
1
PURPOSE OF REPORT AND POLICY CONTEXT:
1.1
This report provides a budget planning and resource update in
preparation for the start of the 2023/24 annual budget setting and
medium term planning process. While the previous two budget rounds
were conducted during a period of great uncertainty surrounding the
financial impacts of the pandemic, the financial results for
2020/21 and 2021/22 show that government support for Covid-19 was
effective and was key to helping the authority manage exceptional
costs and demands over the 2-year period. In the current year,
Covid-19 funding support has now ceased and this is already
exposing some ongoing financial impacts, such as continuing high
Council Tax Reduction claimant numbers and, due to the suppressed
economy, reduced incomes from planning fees and commercial rents.
These trends will need to be monitored during 2022/23 but these are
indicators that economic recovery has some way to go before
returning to pre-pandemic levels.
·
Ongoing economic and health impacts of the pandemic, which are
currently driving higher costs e.g. for staffing, contracts,
homelessness and local welfare support;
·
A period of significantly higher inflation which is driving up pay,
energy and social care provider costs as well as other supplies and
contractual costs;
·
A cost of living crisis caused by high inflation, driven by
European and World events, which could increase demand on council
services including everything from higher Council Tax Reduction
claims to increased need for Mental Health services, homelessness
provision, or children and family support;
·
Significant uncertainty over the financial impact of Social Care
Reforms which are widely expected to place additional financial
pressures on local authorities;
·
A one-year Local Government Financial Settlement from central
government for 2022/23, which means there is no certainty over the
resources expected to be available to local authorities for 2023/24
or beyond.
1.3
Although the government announced a high level, multi-year spending
review last year, this does not provide local authorities with any
reliable information on which to set budgets. The last point in
paragraph 1.2 above is therefore fundamental and means that in
starting the planning process for 2023/24 the authority will need
to make some key judgements about likely levels of government
funding support, which will not be known or confirmed until
autumn/winter 2022. However, other factors are also difficult to
assess, particularly over the medium term planning period (4
years), and therefore judgements will need to be made, for example,
regarding how long high inflation and the cost of living crisis
will persist, and the time period for full economic recovery from
the pandemic.
1.4
In this situation, as for the previous two years, the council will
need to consider a range of potential planning scenarios by
considering the worst, most likely and most optimistic scenarios
for costs (inflationary and demographic), government funding, fees
& charges incomes, and taxation revenues. This is clearly an
unenviable position and carries with it very high risks. Being too
optimistic could impact on financial sustainability in the short
and medium-term if the situation turns out to be significantly
worse, and, vice versa, being too pessimistic could result in
unnecessary or damaging cuts to essential services. Although the
council has no unallocated reserves, it can manage a level of risk
by internally borrowing from its earmarked reserves and, in a worst
case scenario, can utilise its Working Balance in the short term.
However, the council’s reserves and balances are well below
the average for upper tier local authorities and it has already
borrowed £5.7 million from its reserves to manage the impact
of the pandemic to date, which could take up to 10 years to
repay.
1.5
As last year, the budget process will not only be aimed at setting
the annual budget, as legally required, but will take a longer term
view and consider costs and resources over a 4-year planning
period. This will be important for a number of reasons
including:
·
Continuing to demonstrate that the council is setting its annual
budgets in the context of understanding its longer term financial
sustainability;
·
Demonstrating that any use of reserves or balances in the
short-term to support the budget is financially sustainable (i.e.
repayable) in the medium term;
·
Ensuring that delivery of the Council’s Corporate Plan
priorities and associated service planning is aligned with
medium-term financial planning and sustainability, and;
·
Ensuring that any budget shortfalls (gaps) in future years are
identified early to enable longer term programmes of change to
generate savings, efficiencies or income to be identified and
instigated as soon as possible.
1.6
As in previous years, the medium term planning process will
consider both the service and financial strategies required to
maintain financial sustainability over the period while ensuring
that core statutory services can be funded, and aiming to support
the council’s corporate priorities as far as possible. Medium
Term Service & Financial Plans (MTSFPs) will therefore be drawn
up by the council’s service directorates to ensure alignment
of service delivery, including capital investment schemes, with
budgets and priorities. However, this year, an associated planning
document will also be drawn up alongside the budget in the form of
a ‘Business Framework’ which will further help to frame
the context for service delivery including determining core service
requirements.
2
RECOMMENDATIONS:
The Policy & Resources Committee is
recommended to:
2.1
Note the potential funding and net expenditure projections for
2023/24, based on the three planning scenarios identified in the
report.
2.2
Note the Medium Term financial projections for 2023/24 to 2026/27
and the predicted budget gaps based on a ‘midpoint’
planning scenario.
2.3
Agree that officers should draw up 4-year Medium-Term Service and
Financial Plans (MTSFPs) and strategies, including budget proposals
to manage the identified budget shortfall in 2023/24, and report
back with draft budget proposals to the December Policy &
Resources Committee.
3
MEDIUM TERM SERVICE & FINANCIAL PLANNING
The Covid-19 pandemic gave rise to
significant financial impacts on the economy, locally affecting the
council’s fees & charges incomes, commercial rent
incomes, and also its taxation revenues, for example, through a
slowdown of housing developments and higher Council Tax Reduction
claimant numbers. There is evidence of some recovery but it is far
from complete and, for example, Council Tax Reduction claimant
numbers remain well above pre-pandemic levels while incomes such as
commercial rents and planning fees remain suppressed. Whilst the
government’s emergency funding largely covered the financial
impacts of Covid-19 in 2020/21 and 2021/22, there is no further
funding in 2022/23 and it remains to be seen if its ongoing effects
will continue to place financial pressures on the local
authority.
3.1
Since setting the council’s 2022/23 budget, inflationary
pressures, which had started to increase, have now increased
dramatically and are expected to reach as high as 10% to 11% by
autumn/winter before beginning to recede. This is now the greatest
concern financially because it is not only driving higher costs
across all areas but, as noted above, it is also giving rise to a
cost of living crisis which will have the twofold effect of placing
higher demands on council services and local welfare support.
i)
Single-year financial settlements: Central government
announced a high level, multi-year Spending Review (SR2021) last
year but followed this up with a short-term, one-year Local
Government Financial Settlement (the third in a row) providing no
certainty over funding for 2023/24 and beyond.
ii)
Setting financial limits annually: Similarly, the government
continues to make decisions on an annual basis concerning key
financial parameters including whether or not additional Council
Tax precepts will be allowable, and annually determining the level
of Council Tax increase allowable without the need for a local
referendum.
iii)
New bidding processes: Significantly, there are also an
increasing number of funding streams, both capital and revenue,
that are now subject to national bidding processes, giving even
less certainty over funding. Most notably for this council, funding
for homelessness and rough sleeping, arts and cultural services,
and sustainable transport are subject to numerous bidding
rounds.
iv)
Financial reforms: The recent Social Care Reforms are
supported by a 3-year government funding package but it is unknown
whether or not the funding will be sufficient, however, most
proponents, including the Local Government Association, believe it
will cause additional financial pressures. There are also other
potential financial reforms including the Fair Funding Review and
Business Rates changes which are still awaiting clearance, and the
Revaluation of Business Rates for 2023 could also have a
significant impact. In relation to Fair Funding, the government
converted part of local authorities’ 2022/23 Revenue Support
Grant into a one-off ‘Services Grant’ in lieu of the
potential re-distributional impacts of the Fair Funding
Review.
All of this makes financial planning
very challenging and perilous at a time when local authority
budgets are under growing and sustained pressure.
3.3
As a result, the budget setting process needs to allow flexibility
to manage any adverse fluctuation in the level of estimated costs,
resources or funding, particularly in the current situation where
the ongoing financial effects of the pandemic, high levels of
inflation, and the consequences of the cost of living crisis are
hard to predict with accuracy. This necessarily requires a prudent
approach in order to:
(i)
Manage risks effectively and maintain financial resilience and
sustainability over the medium term, and;
(ii)
avoid exhausting the authority’s reserves and balances
(one-off resources) without any plan to replenish them.
3.4
This report includes an assessment of the financial pressures
facing priority services in terms of increases in costs, and
demographic growth in demands, particularly in relation to
‘demand-led’ services for vulnerable adults, families
and children such as social care and homelessness. Alongside
government grant reductions, limitations on the allowable level of
council tax increases, and inflationary pressures, these demand-led
cost pressures have been the main driver of the substantial
‘budget gaps’ that the council has been experiencing
over the last decade or so. The impact of high inflation will
further exacerbate pressures in 2023/24, and possibly beyond,
depending on the effectiveness of monetary policy and global
economic factors.
·
Notification to and involvement of the Department of Levelling Up,
Housing & Communities (DLUHC) where potential financial
difficulties have reached a critical point including expectation of
a statutory Section 114 report being issued by the Chief Finance
Officer (CFO).
·
Public Interest reports being issued by External Auditors where
they believe the authority is not acting or is failing to act
appropriately regarding financial matters.
·
Appointment of independent financial reviewers, usually where a
local authority has identified the need to request a
‘capitalisation direction’ from government whereby it
needs to sell capital assets and use capital receipts to fund
revenue expenditure in the short term to keep afloat.
·
In severe cases, appointment of Commissioners to run the council or
parts of the council on behalf of the Secretary of State, for
example. Liverpool City Council.
·
In the severest case, Northamptonshire, direct intervention by
government resulted in the dissolution of the authority and
creation of two new unitary authorities from April 2021.
3.6
In their annual reviews, external auditors are therefore
increasingly concerned with local authorities’ arrangements
for securing value for money which includes demonstrating financial
resilience and sustainability, and providing evidence of effective
medium term planning. In the current context, External Auditors
will be looking closely at authorities’ plans and approaches
for managing the impacts of the pandemic and their remit for
assessing Value for Money arrangements was accordingly strengthened
in 2021.
Reserves &
Balances
3.7
In this context, the council’s available reserves and
balances are an important indicator of the council’s
financial resilience and ability to manage unexpected financial
impacts. Available reserves and balances are those that are
cash-backed and are not due to be drawn down for at least one year.
This excludes balances held by the Housing Revenue Account and
Schools which are not available to the General Fund. Levels are
currently as follows:
·
Working Balance £9m – this is a permanent risk reserve
and therefore any use must be accompanied by a plan for
replenishment;
·
Useable Earmarked Reserves £17m – Earmarked reserves
are held in lieu of an approved scheme or expense which will
normally span more than one financial year. Many are held against
contractual commitments (e.g. PFI contracts) while others are held
for regeneration projects and are linked to match funding from the
Local Enterprise Partnership or other government funds. Earmarked
reserves can be ‘internally borrowed’ from where they
are cash-backed i.e. useable, but they must be replenished in time
for when they are required to meet their intended purpose. Reserves
are generally reducing year-on-year as the authority has not been
in a position to make planned additions to reserves for many
years.
3.8
A more detailed analysis of the council’s reserves and
balances as at 31 March 2022 is provided in the Targeted Budget
Management (TBM) Provisional Outturn report also on this committee
agenda.
2023/24 Budget Planning Scenarios
Table: Planning
Scenarios 2023/24
Cost and Income Scenarios
|
Scenario Description/Assumption
|
Worst Case
|
Reflecting a significant increase in Adults and Children’s
Social care provider costs driven by high inflation affecting
wages, energy and other provider costs. Similarly, full provision
for inflation on contracts, in particular PFI contracts which are
linked to higher RPI-X increases. Provision for increases in energy
costs following the ending of fixed contract rates. Higher
provision for demographic demand pressures across Children’s
Social Care and Homelessness reflecting cost of living impacts and
current trends. Fees & Charges such as property rents or
planning fees remain suppressed in line with the slow economic
recovery. Pay negotiations for staff result in higher pay awards
due to high inflation.
|
Midpoint Case
|
As above but assumes that not all inflationary pressures are passed
on by social care providers or other suppliers and contractors.
Demographic increases in demand for demand-led services such as
children’s social care, adult social care and homelessness
are moderated in line with longer term trends to smooth out short
term factors (e.g. the pandemic and/or cost of living). Pay awards
assumed at a slightly lower level e.g. which may be
possible/accepted if a multi-year award is negotiated.
|
Best Case
|
Social care providers and other suppliers and contractors take a
long term view of inflation, which the Bank of England expects to
reduce to 2% within two years as monetary policy takes effect, and
do not pass on the full short-term inflationary impacts.
Demographic demand pressures assume higher levels of attrition and
higher levels of ‘move-on’ to lower cost care and
homelessness settings on the assumption that current factors (e.g.
the pandemic and cost of living) fall away more quickly than
anticipated. Pay negotiations result in a lower increase in pay
costs e.g. a longer term view of inflation is recognised and
accommodated in negotiations.
|
Grant Funding / taxation Scenarios
|
Assumptions
|
Worst
|
An assumed minimum level of increased funding from government to
cover increased general and social care costs of £2.5m
(£0.5 billion nationally). This could be direct funding or
via additional precepts, etc.
Business rates
statutory RPI increase is assumed at 9%, which may be capped by
government but the assumption is that councils will be funded
through S31 grant instead.
Council tax base
assumptions remain as per the current predictions in all scenarios
due to an already optimistic view of Council Tax Reduction claimant
numbers returning to pre-pandemic levels.
|
Midpoint
|
Government gives greater recognition of the combined effect of high
inflation, a suppressed economy, and the emerging increases in
demand caused by the cost of living crisis, providing additional
grant funding support to local government at £5.6m
(£1.1billion nationally). This could include both direct
funding and/or additional precepts, etc.
|
Best
|
Government gives even greater recognition of the combined effect of
high inflation, a suppressed economy, and the emerging increases in
demand caused by the cost of living crisis and addresses the
shortfall in the expected costs of social care reforms, providing
additional grant funding support to local government at £8.2m
(£1.65 billion nationally). This could include both direct
funding and/or additional precepts, etc.
|
3.10 There will be
variants of these scenarios in between but they serve to illustrate
the expected range of possible outcomes from worst to best case for
the primary elements of the council’s budget and resources.
Financially, the very best case scenario for the council is likely
to be one where the following all come together:
·
Central government gives significant recognition to the additional
inflationary pressures facing councils, particularly in relation to
social care provision, and provides substantial funding support
and/or allows additional Council Tax precepting;
·
The National Joint Council (NJC) achieves an affordable pay award
for local government which ‘smooths out’ immediate
inflationary pressures, for example, through negotiation of a
multi-year award;
·
Local economic recovery through 2022/23 gathers pace from the
summer onward meaning that fees, charges and property rents
recover, Business Rates remain buoyant, and that Council Tax
Reduction claimant numbers return to pre-pandemic levels quicker
than expected;
·
The government’s support to households for the cost of living
crisis (mainly for energy bills) has significant impact and helps
to mitigate or reduce demands on council services, and;
·
Inflation peaks in the autumn and begins to show signs of
slowing.
Addressing Budget Shortfalls (Gaps)
3.12 The difference
between the estimated costs of services, net of fees, charges and
rents, and the estimated resources available from taxation and
government grant funding determines whether or not there will be a
predicted budget shortfall or gap. In common with many councils,
this council has experienced annual budget gaps since 2009/10 as
the demand for services has substantially increased while its
government grant funding has fallen by over £100 million. A
budget gap can be closed by identifying cost savings and
efficiencies, generating increased income or funding, developing
cost avoidance strategies (e.g. preventative strategies), or by
cutting or reducing services provided that statutory minimum
requirements can still be met.
3.13 In summary, the
broad options or possibilities for closing any projected budget
gaps are as follows:
(i)
Government may provide a better funding settlement than assumed in
any of the scenarios through the Local Government Financial
Settlement;
(ii)
The council could elect to increase Council Tax above the current
‘excessive council tax increase threshold’ (i.e. above
1.99%). For example, with inflation currently at 9%, an
inflationary council tax increase at this level would potentially
raise an additional £11.2m. However, under current
regulations this would require a local referendum to be held with a
successful outcome, and in itself creates a cost of approximately
£0.375m to hold a referendum and requires identification of
one-off resources to mitigate the delay in implementing proposals
while the outcome is awaited;
(iii)
Partners could provide increased funding for joint operations e.g.
Clinical Commissioning Group (CCG) funding toward social care
costs. For example, last year the NHS agreed increased funding for
Section 117 Mental Health caseload which is already incorporated in
current assumptions. There may be opportunities for shared funding
or joint investment through the Integrated Care System (ICS) to
improve longer term care costs but plans are still at early stages
of development. Other partners are small by comparison;
(iv)
There may be improvements in the projected levels of cost, income
and/or demographic pressures as the council progresses through the
budget process. Estimates will be revisited from time-to-time but
particularly ahead of producing the Draft Budget proposals for
December Policy & Resources Committee and again for the final
proposals to Policy & Resources Committee and Budget Council in
February 2023;
(v)
Development of Medium Term Service & Financial Plans by major
service directorates that include identification of potential
savings, efficiencies and cost management measures to either reduce
costs in non-priority areas, manage down pressures in demand-led
areas (e.g. through prevention, commissioning and intervention
strategies), generate greater incomes from fees, charges or
property rents, or develop strategies to attract alternative
funding. These could be multi-year proposals which may then enable
the council to ‘financially smooth’ out budget gaps
over a 4-year medium term period, for example, where savings and
cost reductions steadily increase over the period.
3.14 Options (i) to
(iv) above carry a high level of uncertainty or risk and therefore
the authority will normally need to develop budget strategies and
proposals as described in (v) above. In the case of a Council Tax
Referendum, it is a legal requirement to have a substitute budget
should a referendum not be successful.
Medium Term Service & Financial Plans to support the Corporate
Plan
3.15 The 2021/22 and
2022/23 General Fund budgets were set in the context of the
council’s Corporate Plan ‘A fairer city, a sustainable
future’. The 2021/22 budget, approved in February 2021
included approximately £22m investment in support of
Corporate Plan priority areas, including provision for cost and
demand increases across key demand-led services such as social care
and homelessness. Similarly, the 2022/23 budget approved in
February 2022, included over £13m to support priority areas
and services. This also included approximately £1m support in
2023/24 relating primarily to capital financing for multi-year
carbon neutral investments.
3.16 The major
service directorates also developed Budget Strategies for 2021/22
and 2022/23 and these will not only be updated for 2023/24 but will
shift focus to the medium term (4 years) to ensure greater
alignment of longer term service delivery with the council’s
resources in the context of a more challenging financial outlook.
By developing Medium Term Service & Financial Plans (MTSFPs),
services will be able to show the longer term direction of travel
of services, set out the approach to the commissioning and delivery
of services, and demonstrate how plans support and align with the
council’s Corporate Plan priorities. This will include
proposals for achieving cost savings or efficiencies, increasing
income, or developing strategies for managing demand-led budgets to
help address predicted future budget gaps.
2023/24 Financial Planning Scenario Projections
3.17 The table below
sets out the projected costs, pressures and priority investments
under the three scenarios outlined in paragraph 3.9 above.
Table: Investments, Cost Pressures & Tax Base Scenarios
2023/24
|
Budget
Area
|
Worst
Case
|
Midpoint
Case
|
Best
Case
|
|
|
£m
|
£m
|
£m
|
|
2022/23 pay award
above 2% base provision
|
3.375
|
2.700
|
2.025
|
|
2023/24 pay award
above 2% base provision
|
2.700
|
2.025
|
1.350
|
|
General Fund
energy contract inflation
|
1.100
|
1.050
|
1.000
|
|
Waste PFI
contract inflation
|
1.500
|
1.200
|
1.000
|
|
Children's Social
Care – provider cost increases
|
2.400
|
2.200
|
2.000
|
|
Demographic
Pressures - Looked after children and Care Leavers
|
3.000
|
2.300
|
1.500
|
|
Adult Social Care
(including Learning Disability services) – provider cost
increases
|
8.000
|
6.500
|
5.600
|
|
Demographic
Pressures - Adult Social Services including Learning
Disabilities
|
5.600
|
5.400
|
5.300
|
|
Temporary
Accommodation and Rough Sleepers – cost and demand
pressures
|
2.800
|
2.400
|
2.000
|
|
Orbis Services -
revised cost shares (ACRs)
|
1.200
|
1.100
|
1.000
|
|
Housing Benefit
Subsidy shortfall
|
0.500
|
0.400
|
0.300
|
|
All other
pressures across council services
|
4.530
|
3.430
|
3.030
|
|
|
|
|
|
|
All other budget
changes and commitments
|
1.695
|
1.695
|
1.695
|
|
Total Cost
Pressures and Investments
|
38.400
|
32.400
|
27.800
|
3.18 The scenarios
above indicate that cost pressures driven by inflation, demographic
change and other demands together with unavoidable commitments
(e.g. capital financing commitments) are expected to be in the
range of £38.400m to £27.800m. These scenarios are as
per the assumptions described in paragraph 3.9 and include flexing
the pay award assumption between 3.5% and 4.5% (i.e. 1.5% to 2.5%
more than the base provision). Similarly, social care provider
inflation is modelled between 6% and 10% (compared to the base
provision of 2%). Other cost estimates are based on expected autumn
inflation rates (e.g. PFI and energy costs). Orbis revised cost
shares are now known following the removal of some services from
the partnership, while the Housing Benefit subsidy pressure relates
to a known issue on Regulation 13 benefits where the council
receives less than 100% subsidy. The estimate for ‘All other
pressures across council services’ includes a provision for
exceptional inflationary impacts as well as known or unavoidable
commitments across services.
3.19 Similarly,
potential funding/taxation scenarios are given below based on
assumptions described in paragraph 3.9 above. A best case scenario
would see the council receive £14.880m more than already
assumed in the Medium Term Financial Strategy.
Table: Funding Scenarios 2023/24
|
Funding
Scenarios
|
Worst
Case
|
Midpoint
Case
|
Best
Case
|
|
|
£m
|
£m
|
£m
|
|
|
|
|
|
|
Additional
government funding
|
-2.500
|
-4.000
|
-5.000
|
|
Business rates
increase above 2% base
|
-5.040
|
-5.760
|
-6.480
|
|
Business rates
growth change from 1.7%
|
0.350
|
-
|
-0.100
|
|
Additional
Council Tax increase (base 1.99%)
|
-
|
-1.650
|
-1.650
|
|
Additional 1% ASC
precept
|
-
|
-
|
-1.650
|
|
Total
|
-7.190
|
-11.410
|
14.880
|
3.20 Combining the
projected net cost pressure and funding/taxation scenarios
illustrates the range of potential budget gaps as set out in the
table below which can be considered for financial planning
purposes. This provides the committee with a sense of the range of
risks that the council may need to consider, particularly in the
case where costs continue to escalate, recovery is slow, and any
funding settlement from government is at the lower end of the
scale.
Table: Range of
Potential Budget Gaps 2023/24
|
Cost & Income
Pressures Scenario:
|
Worst
|
Midpoint
|
Best
|
|
Aligned
with:
|
£m
|
£m
|
£m
|
|
Worst
Funding/Taxation Levels
|
31.210
|
25.210
|
20.610
|
|
Midpoint
Funding/Taxation Levels
|
26.990
|
20.990
|
16.390
|
|
Best
Funding/Taxation Levels
|
23.520
|
17.520
|
12.920
|
3.21 The table above
shows the ongoing complexity of planning in the current environment
where there is uncertainty over almost every aspect of the
council’s budget from inflation, demographic changes and the
speed of economic recovery, to government grant funding levels. The
table indicates a range of potential budget gaps in 2023/24 from
£31.210m at worst down to £12.920m at best. This is a
considerably higher range than estimated last year, primarily
reflecting significantly higher inflationary pressures alongside a
significant demographic increase in relation to Care Leavers and
transitions (from children’s services) in Adult Learning
Disability. However, it must be remembered that all estimates at
this very early stage of the process are subject to change and will
be reviewed and updated throughout the budget process. The position
also assumes that any one-off pressures, for example, those
relating to Tree Management (Ash/Elm dieback) can be met from
one-off resources for 2023/24 and are not included here.
3.23 First, a longer
term approach is needed to undertake more fundamental changes to
services and/or implement more complex proposals such as reducing
occupancy of administrative buildings or introducing new
initiatives, such as congestion charging or clean air zone charges.
Complex changes may mean that savings or cost reductions are not
achieved until later in the 4-year medium term period and this may
need to be recognised in the profiling of savings targets. Second,
issuing a requirement to develop a very large savings programme in
2023/24 is not a realistic option given the comments in paragraph
3.22 above. A more realistic approach would be to request proposals
to meet a Best Case budget gap in 2023/24 and then develop options
over the 4-year period for addressing the cumulative 4-year budget
gap. This would require some use of reserves in the short term to
allow the position to be financially smoothed over the whole
period.
3.24 However,
adopting this approach carries risks, particularly if longer term
savings proposals fail to materialise or achieve the predicted
level of savings. Effectively, the council would be storing up a
growing recurrent budget deficit which may eventually outstrip
available cash reserves. This would put the authority in the
position of not being able to achieve a balanced budget and could
result in a Section 114 report (a stop on expenditure and
contracts) and/or government intervention. To avoid this, it is
therefore recommended that each service area develops
‘backstop’ options, up to the Midpoint budget gap, that
could be enacted by the council in the following situations:
·
A Worst case cost and/or funding situation arises over the
autumn/winter that substantially increases (or hardens) the budget
gap;
·
There are insufficient reserves to achieve financial smoothing over
the medium term compared to the value or profile of savings put
forward in MTSFPs for the earlier years;
·
Not all services are able to identify achievable savings in 2023/24
to meet the minimum requirement (i.e. the Best Case target).
3.25 The
council’s Executive Leadership Team (ELT) will determine a
reasonable allocation of savings targets for planning purposes,
which in the past has usually been based on a ‘Sense of
Scale’ methodology which allocates indicative savings targets
according to the relative size of the combined Gross and Net
budgets of each major service area. This methodology recognises
that larger services (i.e. those with higher gross budgets) have
greater potential scope for savings as they spend more, either on
in-house services or via procured or commissioned services.
However, services with high income sources (and low net budgets)
have a different opportunity to generate savings, for example, by
increasing their incomes from fees & charges. One issue with
this methodology is that the higher spending areas will generally
attract the higher savings targets but these tend to be the large
demand-led areas such as adult and children’s social care.
However, excluding these services from any requirement to find
efficiencies or economies would dramatically skew savings
requirements across areas such as Housing, Transport and City
Environmental Services and would not be achievable.
Medium Term Financial Projections 2023/24 to 2026/27
·
Midpoint scenario assumptions are used for pressures and
funding;
·
1.99% Council Tax increases;
·
1.00% Adult Social Care precepts in 2023/24 and 2024/25;
·
(Average) Pay awards of 3.5%, 2%, 2% and 2% respectively;
·
3% income target uplifts;
·
Average 3% social care third party payment increases from 2024/25
onward;
·
1.00% to 3.00% non-pay budget cash limits from 2024/25
onwards;
·
2.00% assumed inflation rate for Business Rate uplifts from 2024/25
onward;
Table: Indicative
Medium Term Financial Projections (at ‘Midpoint’)
|
Summary Projections and Budget Gaps
|
2023/24
|
2024/25
|
2025/26
|
2026/27
|
|
|
£m
|
£m
|
£m
|
£m
|
|
Commitments (from previous decisions)
|
4.455
|
6.458
|
0.785
|
-0.609
|
|
Net Inflation (on Pay, Prices, Income, Pensions)
|
20.283
|
7.806
|
7.307
|
6.524
|
|
Subtotal
|
24.738
|
14.264
|
8.092
|
5.915
|
|
Net Investment in priority/demand-led services
|
15.030
|
8.750
|
8.000
|
8.000
|
|
New grant funding assumed
|
-4.000
|
-2.000
|
-1.500
|
-1.500
|
|
Projected Net Tax Base changes
|
-14.778
|
-11.866
|
-7.104
|
-7.297
|
|
Predicted Budget Gaps
|
20.990
|
9.148
|
7.488
|
5.118
|
3.27 The medium term
projections could be affected by a wide range of factors as
follows:
·
Higher or lower demands and cost pressures than projected;
·
Higher or lower tax base movements;
·
Further movements in pay or general inflation;
·
More or less favourable government grant settlements;
·
Potential changes to the ‘excessive council tax’
capping rules and/or precepting;
·
Changes in interest rates (impacting on financing budgets);
and
·
Actuarial changes to employers’ LG pension
contributions.
Many of these can have significant
impacts on medium term projections in either direction.
3.28 Based on the
analysis above, which includes many unknowns and broad assumptions,
it is recommended to instruct the Executive Leadership Team (ELT)
to develop options to address budget gaps over the medium term
period 2023/24 to 2026/27 based on the combined Midpoint cost and
funding scenario for all years. This would mean addressing a
combined budget gap (i.e. savings requirement) of £42.744m
over the 4-year period. This can include an element of financial
smoothing (i.e. use of reserves) provided balance can be achieved,
i.e. the combined gaps are addressed, over the 4-year period.
3.29 The Committee
will note that the projected budget gap in 2023/24 and the combined
gap over the 4-year period are very substantial and this presents
severe challenges following large savings targets over many years.
The council will therefore need to clearly prioritise services and
investment, balancing its duties in relation to statutory service
provision with discretionary and/or universal service provision and
priority areas for investment and support.
3.30 In the context
of this financial challenge, officers will develop a new
‘Business Framework’ to accompany the development of
Medium Term Service & Financial Plans which will attempt to
define core service requirements and provide a framework for the
delivery of services, setting out key strategies and principles as
follows:
·
Workforce Strategy including the council’s People
Promise
·
Digital Strategy for increasing on-line service delivery and
accessibility
·
Accommodation and Ways of Working changes
(‘Workstyles’)
·
Financial Resources (Capital and Revenue)
·
Customer Service Strategy and Standards (‘One Council’
approach)
·
Governance and Compliance requirements.
The Business Framework will help the
council to define the resources that it will need to deliver core
services to agreed standards and will therefore also indicate where
additional funding or choices would need to be made if resources
are oversubscribed.
5 Year Capital
Investment Programme
4.1
The current Capital Strategy was approved at Budget Council in
February 2022 along with scheme-by-scheme capital programme
estimates that were incorporated into the council’s Budget
Book. The aim of the Capital Strategy is to ensure that all members
on the full Council can understand and determine the overall
long-term policy objectives and resulting capital strategy
requirements, governance procedures and risk appetite of the
council. The capital expenditure estimates incorporate planned
rolling investment programmes alongside major infrastructure,
housing and sustainability schemes.
Rolling programmes
4.2
The majority of the council’s capital investment is within
rolling programmes. The key programmes are as follows:
·
Carbon Neutral investment programme.
·
Investment in new build housing through the Housing Revenue Account
and Housing Joint Venture (with Hyde Housing);
·
Investment in maintaining and improving the Council Housing Stock
through the Housing Revenue Account;
·
The Education Capital programme provides investment from central
government which includes New Pupil Places, Education Capital
Maintenance and Devolved Formula Capital for schools;
·
Disabled Facilities Grants;
·
The Local Transport Plan (LTP) covering a wide range of
transport-related schemes;
·
The Information, Technology & Digital Investment Fund to
maintain and upgrade the council’s infrastructure and IT
architecture;
·
The Asset Management Fund (AMF) to maintain operational buildings,
improve sustainability and reduce long term maintenance costs;
·
Corporate Planned Maintenance (PMB) to undertake planned works and
upgrades;
·
The Strategic Investment Fund (SIF) to provide project support for
major regeneration programmes;
·
Vehicle and plant replacement annual programme.
4.3
The current strategy identifies longer term capital investment
plans as well as a funding strategy and the potential outcomes for
each investment plan. This strategy includes major investment
requirements such as investment in the seafront infrastructure and
partnership investment through major projects such as Valley
Gardens, New Homes for Neighbourhoods, the Home Purchase scheme,
the Housing Joint Venture, Heritage Lottery Fund bids such as the
Stanmer Park Master Plan and the Royal Pavilion Estates
Regeneration, and plans for investment into the seafront
infrastructure at Madeira Terrace.
4.4
Government funding through the City Deal has been received to
support the development of Longley Industrial Estate including the
refurbishment and expansion of New England House. Local Growth Fund
(LGF) grants have been approved from the Coast to Capital Local
Enterprise Partnership (C2C LEP) to support the Black Rock Enabling
project, Valley Gardens Phase 3 and the Brighton Research
Innovation Fibre Ring projects. The Kingsway to the Sea project has
received significant funding through the Government’s
Levelling Up Fund. Longer term investment for coast protection is
also incorporated into the 5-year strategy which includes
government match-funding from the Environment Agency.
4.5
Capital receipts from the sale of surplus land and buildings
support the capital programme and the projections are regularly
reviewed having considered the social value implications of any
decision to dispose first. The council will continue with its
strategy of re-balancing the property portfolio by disposing of low
or non-performing commercial properties and reinvesting in more
viable property investments. This ensures costs can be minimised
and rental growth optimised to ensure best value is achieved.
However, this is now considerably more challenging as borrowing
from the PWLB is now prohibited for commercial property investment
and so needs reviewing. Capital receipts are generally under severe
pressure due to competing demands and there are significant calls
on receipts to support the following objectives:
·
Funding of annual investment funds such as the SIF and AMF referred
to above;
·
Rebalancing of the commercial property portfolio;
·
Additional capital investment towards achievement of carbon neutral
2030;
·
Support for accelerating housing supply schemes; and
·
Funding of the Modernisation Fund which supports implementation of
savings and improvement programmes (see below).
Modernisation &
Enabling Investment
4.7
The Modernisation Fund is kept under review as budget plans develop
and spend-to-save opportunities and investment requirements emerge
in more detail.
|
Table:
Modernisation Fund (Indicative Profile)
|
|
Programme
Area
|
2020/21
|
2021/22
|
2022/23
|
2023/24
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Invest to Save
(4-Year Plans)
|
0.650
|
0.550
|
0.450
|
0.350
|
2.000
|
|
Customer
Digital
|
1.750
|
1.750
|
1.550
|
1.050
|
6.100
|
|
Modernisation
enablers
|
1.510
|
0.920
|
0.930
|
0.940
|
4.300
|
|
Managing staffing
changes
|
0.700
|
0.500
|
0.400
|
0.400
|
2.000
|
|
IT Modernisation
Investment
|
0.800
|
0.300
|
0.000
|
0.000
|
1.100
|
|
Total
|
5.410
|
4.020
|
3.330
|
2.740
|
15.500
|
The current elements of the
Modernisation Fund are as follows:
4.8
Customer Digital: The council’s Digital programme
initially concentrated on developing the digital infrastructure and
providing the web design and content management applications and
tools necessary to develop digital services. In the last two years
there has been development of a significant number of digital
services and ‘apps’, particularly driven by the
pandemic where digital access became critical to ensure
accessibility and continuity of service. Digital forms, apps and
services can enable enhanced data management and a better customer
experience. Digital developments enabled thousands of businesses to
apply on-line and access Covid-19 business grants during the
pandemic. The council is now being supported by consultants, 31Ten,
to develop its longer term IT & Digital strategy to ensure it
is able to make well-informed investment decisions.
4.9
Modernisation Enablers: This investment covers project teams
and staffing necessary to support service directorates in the
delivery of large savings and improvement programmes. This includes
Project & Programme Managers (PMO), Business Improvement
analysts and ‘Workstyles’ project staff, as well as
investment in the People Promise, internal communications and
change management. This resource has become more critical over time
as management and administrative savings have reduced
services’ staffing capacity to support improvement programmes
directly.
4.10
Invest-to-Save (4-Year Plans): These investments cover
direct investment by services to enable them to achieve planned
savings and improvements. This can include commissioning expert
advice or professional services, providing temporary additional
capacity, or investing in equipment, IT, training & development
and systems developments to support service changes. Investments
must be supported by Business Cases which are considered and
scrutinised by the Corporate Modernisation Delivery Board (CMDB)
chaired by the Chief Executive. The use of the resources is focused
on helping services modernise and achieve cost reductions as a
further aid to achieving financial sustainability.
4.11 Managing
Staffing Changes: Many savings measures will involve service
redesign or modernisation (e.g. becoming more digital) that may
have an impact on staffing requirements. This is normal within
local authorities as they strive to improve value for money as part
of their Best Value duty under the Local Government Act 1999 and as
part of their budget strategies. Managing change often
requires seeking voluntary redundancy or supporting redeployment as
a way of managing the process and this requires funding to meet
potential severance costs and potential pension strain costs.
4.12 The
Modernisation Fund is currently managed by the Corporate
Modernisation Delivery Board (CMDB) chaired by the Chief Executive
and including Executive Directors and the CFO. Decisions regarding
the detailed use of the Modernisation Fund are governed according
to Financial Regulations, and Committee and Officer delegations set
out in the Constitution. Larger investment decisions, above
£0.500m, are reported to Policy & Resources Committee as
these are above officer delegations. Decisions leading to
investment in capital assets are also reported to Policy &
Resources Committee as per Financial Regulations, either as a
separate report or through the capital appendices of Targeted
Budget Management (TBM) reports.
4.13 The capital plan
for the HRA is split into two main areas in investment, this being
in existing stock and in new housing supply. Investment in existing
stock is mainly funded from direct revenue funding from
tenants’ rents (and associated rent rebates). Whilst
investment in new supply is mainly funded from retained capital
receipts including Right to Buy sales, grant funding and
borrowing.
4.14 The capital
investment programme for 2021/22 to 2023/24 is informed by the most
recent stock condition review and survey as well as the existing
and emerging priorities of the HRA Asset Management Strategy which
is currently under review. Key considerations include improving the
quality of homes, and working in consultation with tenants and
leaseholders to agree planned and major works programmes. It will
also be important to determine the investment needed to fulfil the
health and safety requirements as a result of Government safety
guidelines in light of the Grenfell Tower fire and assess the
investment needed in carbon reduction initiatives to support the
city’s commitment of becoming carbon neutral by 2030.
4.15 The HRA
continues to look at the range of initiatives it has to deliver
additional housing and meet the Housing Committee Work Plan
priority commitment to deliver 800 additional council homes by
2023. These initiatives include the New Homes for Neighbourhoods
Programme, Home Purchase Scheme and Converting Spaces
programmes.
4.16 Work will
continue through 2022/23 to deliver housing supply pipeline
schemes. The Home Purchase Scheme will continue to explore
opportunities to buy back ex-right-to-buy properties to increase
the supply of affordable housing within the HRA.
5
TIMETABLE
5.1
The suggested timetable for developing and approving the 2023/24
budget is given below. However, the timetable may need to flex
depending on the timing of government announcements. The timetable
is in outline only and does not include all aspects of member
involvement or wider consultation that may need to be undertaken
including with staff, unions, partners, service users and
residents.
Table: Outline
General Fund Budget Planning Timetable
|
Date
|
Who
|
What
|
|
7 July
2022
|
P&R
Committee
|
TBM Provisional
Outturn 2021/22
General Fund
Budget Planning & Resource Update 2023/24 (including financial
scenarios)
|
|
29 July
2022
|
P&R
Committee
|
2022/23 TBM Month
2 (May)
|
|
July –
Oct
|
ELT
|
Develops Medium
Term Service & Financial Plans (MTSFPs) including budget
proposals to address budget gaps for 2023/24 to 2026/27 alongside
developing Equality Impact Assessments
|
|
6 Oct
2022
|
P&R
Committee
|
TBM month 5
(August)
|
|
Oct/Nov
|
Government
|
Likely Autumn
Statement announcement
|
|
1 Dec
2022
|
P&R
|
Draft General
Fund Budget 2023/24 including draft MTSFPs, budget proposals and
Equality Impact Assessments.
TBM month 7
(October)
Council Tax
Reduction Scheme Review 2023/24
|
|
December
|
Government
|
Provisional Local
Government Finance Settlement
|
|
December
|
ELT
|
Consultation
process begins on draft 2023/24 budget proposals including staff,
unions, partners and residents
|
|
19 Jan
2023
|
P&R
|
Council Tax Base
report
Business Rates
tax base report
Recommends the
Council Tax Reduction Scheme 2023/24
|
|
February
|
Government
|
Final Local
Government Financial Settlement
|
|
9 Feb
2023
|
P&R
|
2023/24 General
Fund and HRA Revenue & Capital Budget reports including the
Capital and Treasury Management strategies.
TBM month 9
(December).
|
|
23 Feb
2023
|
Budget
Council
|
2023/24 General
Fund and HRA Revenue & Capital Budget reports including the
Capital and Treasury Management strategies.
|
6
ANALYSIS & CONSIDERATION OF ANY ALTERNATIVE OPTIONS
6.1
The budget process allows all parties to engage in the examination
of budget proposals and put forward viable alternative budget and
council tax proposals, including through amendments, to Budget
Council on 23 February 2023. Budget Council has the opportunity to
debate the proposals put forward by the Policy & Resources
Committee at the same time as any viable alternative
proposals.
7
COMMUNITY ENGAGEMENT AND CONSULTATION
7.1
No specific consultation has been undertaken in relation to this
report.
8
CONCLUSION
8.1
The council is under a statutory duty to set its budget and council
tax before 11 March each year. This report sets out information on
projected costs, investments and resources for 2023/24 to 2026/27.
It also provides an outline timetable for considering options to
develop the 2023/24 annual budget.
9
Financial Implications:
9.1
These are contained in the body and appendices of the report.
Finance Officer Consulted: James
Hengeveld Date: 27/6/22
10
Legal Implications:
10.1 The process of
formulating a plan or strategy for the council’s revenue and
capital budgets falls within the Scheme of Delegation for Policy
& Resources Committee.
10.2
This report complies with the
Council’s process for developing the budget framework, in
accordance with the Council’s Budget and Policy Framework
Procedure Rules as set out in Part 7.2 of the
Constitution.
Lawyer Consulted: Elizabeth
Culbert Date: 28/06/22
11
Equalities Implications:
11.1 For any
significant budget changes proposed in 2023/24 or later, it is
proposed to use the council’s well-established screening
process to develop Equality Impact Assessments (EIAs). Key
stakeholders and groups will be engaged in developing EIAs but we
will also need to consider how Members and Partners can be kept
informed of EIA development and the screening process. In addition,
where possible and proportionate to the decision being taken, there
may be a need to assess the cumulative impact of the
council’s decision-making on individuals and groups affected
in the light of funding pressures across the public and/or third
sectors. The process will ensure that consideration is given to the
economic impact of proposals.
12
Sustainability Implications
12.1 The
council’s revenue and capital budgets will be developed with
sustainability as a key consideration to ensure that, wherever
possible, proposals can contribute to reducing environmental
impacts and support progress toward a carbon-neutral city.
13
Other Implications
Risk and Opportunity Management
Implications:
13.1 There are a
range of risks relating to the council’s short and medium
term budget strategy including the ongoing economic impact of the
pandemic, inflationary pressures, the impact of the cost of living
crisis, further potential reductions in grant funding, the impact
of legislative changes and/or other changes in demands. The budget
process will normally include recognition of these risks and
identify potential options for their mitigation. In the current
volatile financial climate, the level of risk that the council may
be prepared to carry is likely to be higher than in normal
circumstances.
SUPPORTING DOCUMENTATION
Appendices:
1.
Medium Term
Financial Assumptions and Projections
2.
Resources
Update
Documents in
Members’ Rooms
None
Background
Documents
None