Subject:
General Fund Budget Process and Resources Update
Date of
meeting: 19 January 2023
Report
of:
Chief Finance Officer
Contact
Officer: Name: Nigel
Manvell
Tel: 01273 293104
Email: nigel.manvell@brighton-hove.gov.uk
Ward(s)
affected: All
For general
release
1.1
This report provides an interim update on the forecast position for
the current financial year, 2022/23, as well as updating on the
projected funding and resource position for next year, 2023/24,
following the publication of the provisional Local Government
Financial Settlement.
1.2
The report also provides information about the budget process
including the guideline criteria used to help inform options for
investments, service pressure funding and savings, together with
information about a Budget Categorisation exercise that has been
undertaken to provide an alternative analysis of the different
types of budgets that the council is responsible for as a further
aid to informing the development of options.
1.3
Finally, the report seeks agreement to a Budget Protocol that will
determine the process for receiving and signing off alternative
budget proposals (budget amendments) and provides important advice
to all members regarding the legal requirements and
responsibilities for setting the Council Tax and approving a
balanced budget.
2
Recommendations
2.1
That the Policy & Resources Committee notes the Legal Advice
regarding the setting of the Budget and Council Tax in Section 8
and Appendix 1 and notes that this will be provided to all
councillors for the Budget Council meeting.
2.2
That the Policy & Resources Committee agrees the Budget
Protocol set out in Section 7 of the report.
2.3
That the Policy & Resources Committee notes the latest interim
forecast for 2022/23, indicating a General Fund outturn overspend
of £10.601m.
2.4
That the Policy & Resources Committee notes the latest resource
position for 2023/24 indicating an overall budget shortfall of
£20.929m with a remaining budget gap of £8.333m to be
addressed in order to achieve a balanced budget.
2.5
That the Policy & Resources Committee notes the Guideline
Criteria and Budget Categorisation information used to inform the
development of budget options, including savings proposals.
3
Interim Revenue Budget Forecast 2022/23 (Month 8, November)
3.1
The council’s financial monitoring process, Targeted Budget
Management (TBM), is updated on a monthly basis and reported
periodically to Policy & Resources Committee, usually to around
5 meetings per annum. This is due to the timing and availability of
meetings and how this fits with the monthly timetable for
generating and collating forecasts from across the authority.
3.2
The next scheduled report is to February Policy & Resources
Committee which will receive the forecast position as at Month 9
(December). This forecast is all important because any forecast
under or over-spend impacts directly on the availability of one-off
resources to support the following year’s budget. An
underspend will increase available resources, while an overspend
will reduce resources and must be covered by drawing down existing
one-off resources, including reserves.
3.3
Given the very challenging forecast overspends experienced this
year, driven by high inflation, higher than anticipated pay awards,
and other impacts on demand caused by the cost-of-living and
economic situation, an interim forecast is provided here to keep
members abreast of the latest position. A summary is provided with
full details to be provided to February Policy & Resources
Committee as normal.
3.4
The latest position at Month 8 (November) indicates an improvement
of approximately £1m from Month 7 with the forecast overspend
now standing at £10.601m. This is summarised across
directorates as shown in the table below.
|
Forecast
|
|
2022/23
|
Forecast
|
Forecast
|
Forecast
|
|
Variance
|
|
Budget
|
Outturn
|
Variance
|
Variance
|
|
Month
7
|
|
Month
8
|
Month
8
|
Month
8
|
Month
8
|
|
£'000
|
Directorate
|
£'000
|
£'000
|
£'000
|
%
|
|
3,173
|
Families,
Children & Learning
|
103,668
|
106,884
|
3,216
|
3.1%
|
|
587
|
Health &
Adult Social Care
|
75,204
|
75,732
|
528
|
0.7%
|
|
2,447
|
Economy,
Environment & Culture
|
42,809
|
44,746
|
1,937
|
4.5%
|
|
862
|
Housing,
Neighbourhoods & Communities
|
26,166
|
26,322
|
156
|
0.6%
|
|
1,241
|
Governance,
People & Resources
|
31,730
|
32,803
|
1,073
|
3.4%
|
|
8,310
|
Sub
Total
|
279,577
|
286,487
|
6,910
|
2.5%
|
|
3,327
|
Corporately-held
Budgets
|
(34,708)
|
(31,017)
|
3,691
|
10.6%
|
|
11,637
|
Total General
Fund
|
244,869
|
255,470
|
10,601
|
4.3%
|
3.5
This remains a very significant overspend and would severely impact
on reserves and balances if sustained at this level. Recruitment
and spending controls previously reported to Policy & Resources
Committee will therefore remain in force until the end of the
financial year to mitigate the position as far as possible. Early
implementation of increases to fees & charges will also be
considered wherever possible via the January Service Committee
cycle.
3.6
If a large overspend is forecast at Month 9, consideration will
need to be given as to how this can be managed, with options set
out in the General Fund budget report alongside any other demands
or calls on one-off resources. However, it should be noted that the
previous forecast for the Council Tax and Business Rate Collection
Funds indicated a combined net deficit of £3.309m due to the
economic situation and continuing high numbers of Council Tax
Reduction Claimants, alongside the third and final repayment of the
deficit sustained during the pandemic. This would also need to be
funded from one-off resources.
4.1
The Local Government Financial Settlement (LGFS) for 2023/24 was
announced on 19 December. The announcement follows on from a
‘Policy Statement’ issued by government on 12 December
which set out the principles and mechanisms the government will
apply to Local Government funding over the next 2 years (i.e.
remainder of this government’s normal term). The Policy
Statement contained both positive and negative financial impacts
for the council but the net overall impact is negative compared to
the resources estimated to be provided from the earlier Autumn
Statement.
4.2
The LGFS subsequently confirmed the detailed outcome of the Autumn
Statement and Policy Statement for each local authority in the
country. The overall impact of the LGFS is a decrease in resources
compared to those expected to be provided by the Autumn Statement.
The main reasons for this are:
·
Government is protecting local authorities for the loss of revenues
from the freezing of Business Rates but has elected to provide
protection based on the lower CPI rate rather than RPI which had
always been used in previous years;
·
Government has chosen to protect local authorities with resource
increases of less than 3% (mainly non-social care authorities) and
has removed the Lower Tier Grant in order to fund this. This
council will not benefit from this and therefore loses this
grant;
·
The government has top-sliced the Services Grant (effectively
Revenue Support Grant) to fund the Supporting Families programme.
This is effectively a cut in funding.
4.3
Overall, the financial settlement is expected to provide additional
funding and resources of approximately £18.2m through a
mixture of social care and other grants, an allowable Council Tax
increase assumed at 2.99%, and an Adult Social Care precept assumed
at 2%. However, this is £2.039m lower than estimated from the
Autumn Statement for the reasons outlined above.
4.4
While the settlement provides a significant increase in resources
it does not even cover the impact of inflation on the cost of
services, which is estimated at £22.5m. This primarily
relates to the higher cost of pay awards and increases in social
care provider costs, together with other inflationary impacts on
energy, supplies and transportation. When other demographic changes
(increases in demand), cost pressures and income pressures are
added (mainly driven by economic conditions that are suppressing
fees & charges incomes), this brings total cost pressures up to
£39.1m. When compared to the increase in funding of
£18.2m, this means that the council is now facing a budget
gap of £20.9m for 2023/24; an increase of £2m compared
to the estimated gap advised in the Draft Budget report to Policy
& Resources Committee on 1 December.
4.5
The Draft Budget report to Policy & Resources Committee
included first draft savings proposals of £12.6m toward
meeting the budget gap. Assuming that these remain intact and were
to be accepted by Budget Council in February, this would reduce the
gap to £8.3m which will need to be addressed to achieve a
legally balanced budget.
4.6
The situation for 2023/24 is therefore very challenging due
primarily to abnormal inflationary impacts, resulting in a very
large budget shortfall when compared to the resources available
from government grant and allowable local taxation. It is, however,
a legal requirement for local authorities to set a balanced budget.
The council must address any projected budget shortfall (gap) and
officers have therefore continued to develop options for addressing
the remaining budget gap of £8.3m next year. This is likely
to mean identifying increasingly more challenging proposals that
will need to consider the impact on services and residents.
4.7
Like many councils across the country, the council’s
financial position means that it will need to consider which
services it can afford to continue to provide at the current level
of service but must, in the first instance, ensure that it is able
to fulfil its statutory responsibilities and duties. Further
savings proposals will therefore need to be brought forward to the
February Policy & Resources Committee and Budget Council for
all councillors to consider when setting the Council Tax and
approving the budget for 2023/24.
5
Developing Options for the 2023/24 Budget
Scenario Planning
5.1
The ‘General Fund Budget Planning & Resources Update
2023/24’ report to July Policy & Resources Committee set
out potential scenarios for the 2023/24 budget based on best,
midpoint and worst case estimates of inflation, demographic changes
(demand), funding, and resources (taxation). This indicated
potential budget shortfalls ranging from £13m (best case), to
£21m (midpoint), and £31m (worst case). Officers
embarked on developing savings proposals to address the minimum
shortfall (£13m), together with additional
‘back-stop’ proposals to address the midpoint shortfall
(£21m) until further information was available from
government. As noted above, at the Draft Budget stage, first draft
proposals of £12.6m have been identified.
Developing Options
5.2
The development of budget savings proposals requires directorates
to review all activities and services and consider potential
savings opportunities which can come from:
·
Efficiencies through changing or modernising processes or utilising
new systems or technologies;
·
Economies through procurement savings, commissioning or providing
services differently, working through partnerships, or by
re-providing services with alternative, lower cost provision;
·
Generating additional income from fees and charges;
·
Stopping, closing or reducing non-statutory services.
However, the council provides a very
wide range of services and therefore some consideration of how
savings opportunities align with the council’s overall
priorities and statutory responsibilities is important. The
criteria set out in Appendix 2 have therefore been developed and
can help to inform the development of options by using the rating
scale as a guide to assessing the contribution that services and/or
proposals make to identified priorities. This is not a precise
exercise and there is inevitably a level of subjectivity but it
provides a useful framework for members and officers to review and
compare options. In summary, the criteria enable consideration of
how much a service, investment or saving supports or detracts from
the following Corporate Plan objectives:
·
Long-term Financial Sustainability
·
Community Wealth Building Potential
·
Contribution to 2030 zero net carbon target
·
Addresses Housing & Homelessness Pressures
·
Supports a diverse, welcoming & tolerant city
·
Supports Health and Wellbeing
·
Supports those facing the impacts of austerity
5.3
Similarly, officers have undertaken a Budget Categorisation
exercise to define the different types of services and budgets
across the council and the role that they play. For example, many
services are required to meet statutory duties and responsibilities
such as Adult Social Care, while others are not statutory but
provide essential services such as Street Lighting, while other
services can generate income that help the authority to mitigate
costs and overheads. Six broad categories have been identified as
follows:
Budget / Service
Category
|
Meaning / Example
|
Statutory
|
Unavoidable statutory duty or service requirement / e.g. Adult and
Children’s Social Care
|
Business Critical
|
Non-statutory but without these services the council could not
function / e.g. Operational Buildings, IT infrastructure and
networking
|
Income
Generating
|
Services that generate significant incomes which, if withdrawn,
would create a budget pressure or loss / e.g. Commercial Property
Rents
|
Business Important
|
Non-statutory but without these services many legal, financial and
service risks would increase, the council would be unlikely to
function as efficiently or effectively, and/or overall costs are
likely to increase / e.g. Support Service functions such as
Procurement Team
|
Policy
Priority
|
These
are non-statutory, discretionary services that meet current
Corporate Plan policy priorities / e.g. Welfare Support or
Sustainability Services
|
Discretionary
|
Non-statutory, discretionary services that the council has elected
to or has historically provided or commissioned / e.g. Early Years
Nurseries
|
5.4
The overall analysis of the council’s General Fund service
budgets (excluding Schools and Housing Revenue Account) is as
follows:
|
Budget
/ Service Category
|
Directorate
£m
|
Total
£m
|
|
|
EEC
|
FCL
|
GPR
|
HASC
|
HNC
|
|
|
Statutory
|
48.305
|
96.994
|
10.686
|
98.834
|
13.671
|
268.490
|
|
Business Critical
|
18.197
|
2.775
|
11.333
|
4.366
|
0.484
|
37.155
|
|
Income Generating
|
-37.515
|
-0.093
|
-1.184
|
-0.273
|
-0.398
|
-39.463
|
|
Business Important
|
0.328
|
0.704
|
6.941
|
0.591
|
0.320
|
8.884
|
|
Policy Priority
|
6.422
|
1.516
|
1.735
|
5.098
|
2.967
|
17.738
|
|
Discretionary
|
0.123
|
0.754
|
0.000
|
0.000
|
0.354
|
1.231
|
|
Total
|
35.860
|
102.650
|
29.511
|
108.616
|
17.398
|
294.035
|
5.5
The table shows that the great majority of services provided by the
council are provided, commissioned or procured to meet statutory
duties. As expected, however, this does not mean that statutory
services cannot be considered for potential savings, efficiencies
or economies. In fact, as many statutory services regularly
experience significant increases in demand, through either growing
need or demographic changes in the population, for example social
care, it is increasingly important to explore different ways to
meet need and demand in the most cost effective way. For social
care services, this means working with partners, such as the NHS,
to find ways to support people that achieve the same or better
outcomes for them but at lower overall cost.
5.6
The council also has a duty of ‘Best Value’ requiring
it to demonstrate that it continually seeks best value, i.e. good
value for money, in the provision, commissioning or procurement of
services. It therefore compares provision with other similar
councils or providers so that it can understand how costs contrast.
This is also considered by the External Auditor who provides an
Annual Report commenting on the council’s arrangements for
securing economy, efficiency and effectiveness in the use of the
resources available to it, including commenting on its governance
(decision-making) arrangements.
5.7
The Budget Categorisation above provides another way to look at the
council’s budgets and services which can aid the development
of options and indicate where to explore options in the first
instance, but all savings options still need to be considered in
terms of their deliverability, contribution to Corporate
Priorities, and wider impact on services and residents.
Managing Risk
5.8
Managing risk is another key factor in developing robust budget
options and savings. There are many potential savings
possibilities, as identified in the draft budget proposals, however
they do not all carry equal delivery risk. Some proposals can be
complex to implement, may require co-ordination or agreement with
partners, may require up-front spend-to-save investment to enable
delivery, or may be uncertain due to demographic or market factors.
The latter can apply particularly to savings relating to income
generation where the price-elasticity of demand is important to
understand and can vary widely for different fees &
charges.
5.9
The council uses a Red, Amber, Green (RAG) rating approach to
assess the deliverability of savings proposals. RAG ratings have
been used for many years to aid budget planning but also to inform
the level of overall risk inherent in the delivery of savings.
Green rated proposals are those that are relatively straightforward
to deliver (or have already been achieved in the current year),
Amber rated proposals will usually be more complex but potentially
achievable, while Red rated proposals will be very complex, may
contain a number of uncertainties or working assumptions, or may
require extensive consultation. The RAG rating takes into account
delivery risk by considering the potential for the following
factors to impact on achievement of savings:
·
The outcome of consultation with partners, businesses, stakeholders
or affected service users or customers or their
representatives;
·
The outcome of consultation with staff and trades unions;
·
Complexity of service redesign, recommissioning, re-procurement or
other processes required to achieve a saving;
·
Complexity of managing changes to, withdrawal, decommissioning or
reduction of services including putting in place any alternative
provision and/or managing equality impacts;
·
Complexity of changing the method of delivery of services;
·
Complexity of implementing proposed changes to fees & charges
including the impact of the price-elasticity of demand.
5.10
For the last two years, the achievement of savings was impacted
significantly by the pandemic which had a wide range of negative
impacts, particularly in terms of diverting organisational capacity
toward responding to the pandemic. However, the government provided
significant additional resources to local authorities to buffer the
impact of the pandemic and this enabled the council to manage
within its budget despite the challenges.
5.11
The current year’s economic situation is making matters much
more challenging. Pandemic funding support has ended but the new
and financially more serious challenge that has emerged in the form
of high inflation, a suppressed economy and rising demands and
costs related to the cost-of-living crisis is having a very
substantial impact on the achievement of savings this financial
year for which approximately 49% were at risk of non-achievement as
at the end of October.
5.12
In previous years, the council maintained sufficient reserves and
balances to cover significant under-achievement of its savings
programmes. This enabled the Section 151 Chief Financial Officer
(CFO) to place reliance on reserves and balances to manage the
assessed (RAG rated) delivery risks in the savings programmes each
year. However, the position is now potentially different,
particularly if a large overspend is sustained this financial year
as a result of inflation and economic conditions, including
impacting on the achievement of planned savings. An overspend would
result in a call on the council’s reserves and balances,
meaning that they could be significantly reduced and may not be
sufficient to cover the assessed risks in the savings programme
next year, particularly given the much greater scale of savings
potentially required.
5.13
The overall risk within the budget proposals will be assessed by
the council’s CFO who is required, under Section 25 of the
Local Government Act 2003, to report on the robustness of the
estimates included in the budget and the adequacy of the reserves
for which the budget provides. This report has to be considered by
the Policy & Resources Committee and the full Council as part
of the budget approval and Council Tax setting process. If, in the
opinion of the CFO, the council’s reserves and balances are
inadequate to meet the assessed risks within the budget proposals,
including savings, the CFO will be required to advise the Council
of the position and this will normally mean that further cost
reductions and savings options will need to be identified within an
appropriate time frame to secure the council’s financial
sustainability and resilience.
6
General Fund Budget Setting Process and Protocol 2023/24
6.1
The council has a well-established process for developing its
General Fund budget proposals and putting these before councillors
for decision at Budget Council in February of each year. This
process has become increasingly challenged in recent years due to a
range of factors including:
(i)
Successive financial settlements since 2009/10 where the resources
provided by central government or allowed to be raised through
local taxation have fallen well short of the growth in costs and
demands faced by councils, particularly in relation to social care,
resulting in the identification of large £multi-million
annual savings programmes;
(ii)
The provision of short term settlements for local government with
considerable uncertainty and movement from year to year. The
2023/24 financial settlement will be the fifth single-year
settlement in a row;
(iii)
Successive governments’ failure to review the system of local
government finance including resolving the long-term funding of
social care. Further delays to the Fair Funding Review, Business
Rates review, and social care funding reform have now been
confirmed.
(iv)
Other factors including managing through the pandemic and more
recently responding to economic conditions and the cost-of-living
crisis.
6.2
However, the normal process is that in advance of Budget Council
the Administration’s budget proposals will have been worked
up including service, legal and financial implications and
incorporated in full into the General Fund Revenue and Capital
Budget Report despatched for Budget Council.
6.3
The council’s budget process allows all parties to engage in
the examination of budget proposals and to put forward viable
alternative budget and council tax proposals to Budget Council on
23 February 2023. Budget Council therefore has the opportunity to
debate the proposals put forward by the Policy & Resources
Committee at the same time as any viable alternative
proposals.
6.4
Any proposed amendment from a Group (or Independents) will require
evaluation by finance officers to determine the service, financial
and legal implications of implementing those proposals. The
proposals will be held confidentially from the other political
Groups by the finance officers involved and all proposals will be
required to be received and assessed in accordance with the
protocol below.
6.6
First, they are not covered by the Budget Protocol and therefore
the timeline for evaluating and assessing them is not clear.
Second, such amendments are effectively amending next year’s
budget before it has even been considered by Budget Council which
is the committee responsible for agreeing the Budget and Policy
Framework. Third, the final package of budget proposals are not
usually available until they are published for February Policy
& Resources Committee, meaning that there is insufficient time
for the development or clearing of amendments. Finally, there is a
potential for unsafe decisions to be made, for example, if there is
insufficient time to properly update Equality Impact Assessments or
fully evaluate the service, legal and financial implications or
risks.
The budget protocol
for setting the 2023/24 Council Tax, General Fund and Housing
Revenue Account Revenue and Capital Budget will be as follows:
(i)
Budget Amendments shall not be allowable at the February Policy
& Resources Committee. For the avoidance of doubt this does not
apply to reports referred to Policy & Resources Committee by
Service Committees including any referred Fees & Charges
reports, the HRA budget (recommended by Housing Committee), or any
other decision referred or recommended to Policy & Resources
Committee by another committee.
(ii)
Each recognised political Group shall be allowed a maximum of 6
Budget Amendments. Collectively, Independent Members shall be
allowed a maximum of 2 Budget Amendments in total.
(iii)
All proposed amendments must have been received by finance officers
no later than 10 working days before Budget Council (i.e. by 12
noon on Thursday 9 February.
(iv)
All amendments will have had to have been assessed and evaluated
by finance officers and the
relevant Executive Director no later than 12 noon 5 working
days before Budget Council. (i.e. by 12 noon Thursday 16 February
2023).
(v)
The Chief Executive, Chief Finance Officer and Monitoring Officer
will have final sign-off and will not normally allow an amendment
where a proposal is not considered to be robust or viable for one
of the following reasons:
a. The
proposal is legally unsafe and/or carries an exceptionally high
risk of non-delivery;
b.
There is insufficient evidence or information to assess the
potential net saving;
c.
The proposal is adding to, or bringing forward, an existing saving
without further information as to how this can be achieved;
d. The
alternative proposal requires one-off investment, additional
organisation capacity, and/or loan financing that cannot be
supported;
e. The
alternative proposal is beyond the powers and duties of the local
authority.
(vi)
The Mayor will refuse to accept any amendment that has not been
“signed off” by the Chief Executive, Chief Finance
Officer and Monitoring Officer.
(vii) All
amendments will be treated in strictest confidence by finance
officers and other such officers that the Chief Executive, Chief
Finance Officer or Monitoring Officer need to consult in order to
assess and evaluate an amendment. They will not be shared until the
designated time detailed in (viii) below.
(viii)
All amendments will be shared at 12noon on Monday 20 February
2023 between the Group Leaders by the Monitoring Officer or
their nominated officer (usually the Head of Democratic
Services).
(ix)
The Chief Executive shall have a “brokering” role if
this would appear to facilitate agreement on particular amendments
or proposals.
(x)
A Whips meeting will be arranged following the sharing of
amendments for the afternoon of Monday 20 February 2023 with
the Monitoring Officer and Head of Democratic Services so that any
matters relating to the Budget Council meeting on the 23 February
and the recently circulated amendments can be discussed.
(xi)
There will be a meeting of Group Leaders (attended by the Chief
Executive, the Chief Finance Officer and other relevant officers)
at 3:00pm on Wednesday 22 February 2023 with a view to
exploring agreement on proposed amendments (i.e. potential
composite or All-Party amendments).
(xii) There will
be a second meeting of Group Leaders, with relevant Officers in
attendance, on Thursday 23 February at 10:00 am, unless the
Chief Executive considers that, given any progress made on 22
February, it is not needed.
(xiii)
Any variations to the amendments or any new amendments arising from
the Group meetings shall be limited to grouping and repackaging of
amendments or other changes providing that they do not, in the
opinion of the Chief Finance Officer, involve significant costing
or evaluation that cannot reasonably be done within the available
timescale.
(xiv) Should Council
fail to set the Council Tax on the 23 February 2023, a further
meeting will need to be held prior to 10 March and a reserve date
of Tuesday 28 February 2023 is being held for this
purpose. Further meetings with Group Leaders will be
arranged as appropriate.
8.1
Under section 30 (6) of the Local Government Act 1992 the Council
has a duty to set the Council tax by the 10 March 2023. A failure
to set the tax by then does not in itself invalidate the tax
demands but it has other adverse consequences including the
potential loss of income to the Council.
8.2
The legal obligations for setting the budget mean in practical
terms that:
·
The local authority has a legal duty to set a lawful budget in
time.
·
Members should not put forward proposals that would mean setting an
unlawful budget and need to take officer advice in particular from
legal and finance to ensure that their proposals are in order as
per the Budget Protocol in Section 7 above;
·
Members jointly and severally (collectively and individually) have
a fiduciary duty to Council Tax-payers. This means they have a duty
to facilitate, rather than obstruct, the setting of a lawful
budget, a process that requires flexibility and compromise.
·
Failure to set a lawful budget in time can lead to a loss of
revenue, significant additional administrative costs and
reputational damage.
·
Failure to set a lawful budget may lead to intervention from the
Secretary of State under section 15 of the Local Government Act
1999 (as previously seen in authorities in relation to a failure of
governance.)
·
It may give rise to personal liability for individual Members for
misfeasance in public office, negligence or breach of statutory
duty.
8.3
The full legal advice regarding the setting of the Budget and
Council Tax is set out in Appendix 1 for members’
consideration and guidance. In previous years, this advice has been
provided to Group Leaders for dissemination but it is considered
that this advice should be in the public domain and should be noted
by Policy & Resources Committee as the lead committee
responsible for the development of the annual budget.
8.4
The Local Authorities (Standing Orders) (England) (Amendment)
Regulations 2014 impose an obligation on the Council to amend
standing orders to require the vote of Members on the budget to be
recorded. The votes on any amendments and the substantive budget
will normally be conducted by electronic voting and the individual
votes will be reflected in the minutes.
8.5
The Council will be asked to agree that Council Procedural Rules be
suspended in accordance with council procedural rule 1.7 to the
extent that it is necessary to enable the business to be
conducted.
9
Practical Implications of failing to agree a Balanced Budget
9.1
Notwithstanding the legal advice and guidance to members above and
in Appendix 1, based on the experience of a small number of
authorities across the country, the practical implications of
failing to agree a balanced budget, as legally required, are likely
to be as discussed below.
9.2
If, after appropriate debate and any necessary adjournments, a
lawful and balanced budget cannot be agreed by Budget Council on 23
February 2023, a further meeting of the Council will be required
and a reserve date of Tuesday 28 February is being held in this
respect. In the event that a lawful budget cannot be agreed at the
reserve meeting the next steps are likely to depend on the extent
of any impasse. If it appears that agreement is not completely out
of reach, a further meeting or meetings of the council will need to
be held as quickly as practicable to ensure the council does not
lose revenues and can lawfully enter into new commitments and
contracts.
9.3
In the event that a lawful budget still cannot be agreed, the Chief
Executive, Chief Finance Officer and Monitoring Officer will need
to consider whether or not a statutory intervention is appropriate.
This may be by way of a Section 114 report (LG Act 1988) or Section
5 report (LG & Housing Act 1989) as detailed in Appendix 1.
Issuing a Section 114 report would require notification and
consultation with the Department of Levelling-Up, Housing &
Communications before being issued.
9.4
In cases where this has occurred, the level of external scrutiny,
challenge and government intervention has increased and a level of
local control and democracy is lost in almost all scenarios. This
can range from independent financial/best value reviews being
instructed by the Secretary of State (in all cases) to the
installation of government appointed commissioners (e.g. Liverpool)
under Section 15 (LG Act 1999).
9.5
The Secretary of State will consider the options available taking
into account the council’s financial resources and make-up
and could agree that a Section 114 report needs to be issued, which
would give the Council 21 days to respond with an action plan to
achieve a balanced budget, or may instead entertain an application
for assistance through a ‘capitalisation direction’. It
is also possible that both may apply.
9.6
A capitalisation direction enables a council to use capital
resources such as capital receipts or borrowing to fund revenue
expenditure which is not normally legally possible. However,
application is known to be a lengthy process with a lead-in time of
many months and, even if support is ultimately granted, will come
with a significant set of actions to which the council would need
to agree in order to satisfy the government’s conditions for
support. Even then, the council would still need to fund the
situation itself, usually by either being allowed to borrow, but at
a premium rate, or being allowed to sell assets such as land and
properties to fund annual revenue spending (neither are allowable
without a capitalisation direction).
9.7
However, borrowing involves repayment over a long period of time
and both are only a one-off short-term solution and are best
avoided if at all possible. Although challenging, the council
should explore all options available to it to balance its budget
without resorting to government.
9.8
A Section 114 notice also places a stop on all non-critical
spending and new contracts cannot be entered into without the
authorisation of the Section 151 Chief Finance Officer.
9.9
To date, S114 notices have only been issued by four authorities
where a common factor has been untenably high loan debt. This does
not apply to Brighton & Hove City Council but its financial
position is nevertheless becoming increasingly challenged. It is
clearly preferable for an authority to attempt to resolve issues
before reaching this position.
10
Analysis and consideration of alternative options
10.1
The council must approve a lawful and balanced budget and set a
Council Tax by 10 March 2023. Advice is provided as to the
potential consequences and sequence of events should this not be
achievable. All political groups have the ability to put forward
alternative budget options (Amendments) for consideration at Budget
Council within the terms of the proposed Budget Protocol in this
report.
11
Community engagement and consultation
11.1
No specific consultation has been undertaken in relation to this
report.
12
Conclusion
12.1
The report updates the committee on the latest in-year and forward
budget and resource positions. Both are very challenging and will
require appropriate responses and decisions to ensure that the
council remains financially sustainable and resilient in the medium
term. The report provides guidance and advice as an aid to all
councillors regarding their role in approving the General Fund
budget and setting the Council Tax.
13
Financial implications
13.1
The implications of an outturn overspend for 2022/23 are covered in
the report and would result in a call on reserves and balances. The
extent of any overspend is critical, with a large overspend having
the potential to significantly reduce one-off resources and leave
the council with little protection against any future financial
shocks or risks, for example, any under-estimate of cost pressures
or pay awards next year.
13.2
Similarly, the risks around delivery of a balanced budget next year
are discussed in the report and will need to be assessed and
reported to February Policy & Resources Committee and Budget
Council by the Section 151 Chief Financial Officer with
consideration of the adequacy of reserves and balances to manage
risks.
13.3
Detailed legal advice is provided regarding the role of councillors
in approval of the budget and the setting of the Council Tax. The
report also discusses what may happen in the event of a failure to
set or agree a lawful budget. However, this can only provide a
broad guide to consequences as the process and steps involved will
usually be unique in each case where this has happened.
13.4
The Guideline Criteria and Budget Categorisation information
discussed in the report can only provide a guide to help officers
to develop budget proposals and savings options for members’
consideration. They are not definitive and carry significant levels
of subjectivity. The council’s budget is also very complex
and there are many interdependencies between services and across
partnerships. Taken at face value, the Guideline Criteria and/or
Budget Categorisation would provide an over-simplified assessment
of the services and budgets provided by the council. All options
therefore need to consider wider aspects including delivery risks
as well as legal, financial, equality, information governance,
public health, sustainability and other risks.
13.5
The proposed Budget Protocol provides a clear timeline for managing
Budget Amendments and ensures that there is sufficient time for
most proposals to be properly evaluated and assessed by relevant
officers, including the CFO. However, even then, a very complex
amendment involving, for example, substantial change to a service
or introduction of complex new processes or fees & charges may
need to be disallowed if there is insufficient time to fully assess
the financial and wider implications.
Finance officer
consulted: James Hengeveld Date consulted:
09/01/22
14.1
Legal Implications are included at Section 8 of the report and at
Appendix 1.
Lawyer
consulted: Elizabeth
Culbert
Date consulted: 09/01/23
15.1
None directly. The equality implications of budget proposals are
assessed in associated Equality Impact Assessments (EIAs) which are
provided alongside the General Fund budget proposals and must be
considered by Budget Council when approving the budget.
16.1
None directly but the council’s budget process does enable
the full Council to consider the budgets and funding applied to
services and functions that may support sustainability. Financial
sustainability is also considered as the General Fund budget
proposals will include an updated Medium Term Financial Strategy
setting out the council’s projected resource position over a
multi-year period.
Supporting
Documentation
Appendices
1.
Legal
Note to all councillors on the setting of the Council
Tax
2.
Guideline
criteria for developing budget options