Agenda item

The Scrutiny and Overview Committee is asked to:-

1.     Note the update to be provided on the delivery of the 2021-22 budget and setting the 2022-23 Budget.

2.     Consider the conclusions of the Committee on 2022-23 budget, to be submitted to the Budget Council meeting on 28 February 2022, including:-

a.     Reaching a conclusion on deliverability and sustainability of the 2022-23 budget.

b.     Reach a conclusion on whether sufficient evidence has been provided to conclude that there is understanding of the key risks and ownership of the proposals by the Council’s political leadership.

c.     Consider whether there are any further conclusions on the 2022-23 budget the Committee would like to bring to the attention of Council.

The Committee considered a report set out on pages 101 to 270 of the agenda which presented the Administration’s budget proposals for scrutiny prior to their consideration by the Cabinet and Council on 7 March 2022. The comments of the Committee would be reported at the Council meeting during the consideration of the budget item. The Committee was asked to reach a conclusion on the deliverability and sustainability of the budget, whether there was an understanding and ownership of the key risks to the budget by the Council’s political leadership, along with any other conclusions the Committee wished to make on the budget.

The report was introduced by the Leader of the Council, Councillor Hamida Ali. During the introduction, the following points were noted: -

·       The budget was the culmination of a year’s work and thanks was given to officers from across the Council who had helped to ensure its delivery.

·       The past year had seen a significant shift in the culture and management of the Council following the creation of the Croydon Renewal Plan.

·       The forthcoming financial year was likely to be even more challenging with £55m of savings to be delivered.

·       At the end of month 9 of the 2021-22 budget year, the Council was still on track to deliver £44m of savings, which helped to provide assurance the Council was able to manage its own budget.

·       There had been a number of difficult decisions taken during the development of the proposed budget, but there had been a focus on protecting frontline services. In doing so, there had been an emphasis on delivering the best value for money wherever possible, which had included reducing senior staff spend by £1m, renegotiating contracts and continuing to ensure the best use of the Council’s assets.

·       As well as making savings, there was also new investment in the budget, which included £1.3m to support SEND students and growth added to the grounds maintenance budget.

·       A key risk to the budget, which was highlighted in the report, concerned the historic accounting treatment in previous year’s budgets. Significant work was underway with the auditor to find a resolution, however at this stage the outcome of this work was not clear. As such it was important to be transparent on this risk given its potential impact.

·       The Council was still waiting to receive written confirmation from the Government on the £25m capitalisation bid, which was needed before the final budget could be approved. However, the Improvement and Assurance Panel have confirmed its approval of this being granted and it was likely to be formally confirmed in the coming days.

·       The budget also included a proposal to add £22m to earmarked reserves which demonstrated the Administration’s determination to improve the Council’s long term financial position.

Following the introduction, the Chair provided a summary of the budget scrutiny work undertaken over the past year, which culminated at this meeting.  This work included regular scrutiny of the delivery of 2021-22 budget, training with the Centre for Governance and Scrutiny and a number of informal briefing sessions to ensure the Committee and its three Sub-Committee had an understanding of the budget proposal in their respective areas. At each of its meetings since 7 December, the Committee had included an item on progress made with setting the 2022-23 budget. In January, the Committee and its three Sub-Committee had each conducted deep dives on specific areas of risk within service budgets, with the Chairs given the opportunity to provide feedback.

The Chair of the Children & Young People Sub-Committee, Councillor Robert Ward, highlighted that the response provided by the officers to the Sub-Committee’s budget questions had been first rate. The areas reviewed by the Sub-Committee were managing the reduction of care packages, the support for vulnerable adolescents and the budget for unaccompanied asylum-seeking children (UASC). Officers had responded well to the questions raised by the Sub-Committee, who concluded that sufficient reassurance had been given that the savings were deliverable and could be managed safely. However, it was also agreed that these areas would need to be revisited throughout 2022-23 to ensure that the savings remained on track for delivery.

The Streets, Environment & Homes Sub-Committee had also reviewed three areas, which were the Independent Travel service, Grounds Maintenance service and the Temporary/Emergency Accommodation service. One of the key risks for both Temporary Accommodation and Independent Travel was the demand led nature of these services. The Sub-Committee was reasonably reassured that the budgets produced for both services had been reasonably well assessed in terms of risk management but felt that there was still sufficient uncertainty that could have a significant impact upon the Council’s budget.

The discussion on the Ground Maintenance budget focussed on the proposal to reverse budget cuts introduced in 2021-22. The Sub-Committee welcomed confirmation that the additional budget would not simply focus on increasing the number of cuts delivered, but would instead have specifically tailored requirements dependent on the maintenance needs of specific areas. It was understood that further work was required to define this need. As it was noted that it had been challenging to recruit seasonal workers last year, reassurance was given to the Sub-Committee that recruitment would start earlier than before.

The Streets, Environment & Homes Sub-Committee had also been given the opportunity to provide feedback on the budget for the Housing Revenue Account. As the Business Plan was not available when the budget was considered it had been difficult for the Sub-Committee to make a definitive judgement on whether it was deliverable at this stage. The Sub-Committee had suggested that the Administration should consider delaying the 4.1% rent increase in light of the challenges facing the Housing Service but acknowledged that this may be difficult to implement and required further exploration.

The Health and Social Care Sub-Committee had focussed on the proposed reduction in care packages and the management of demand within Adult Social Care. There was evidence to suggest that the service had strengthened its financial controls over the past year through examples such as the recovery of the budget for the Transitions service. The Sub-Committee was given reassurance that any changes made to care packages would be managed with the full involvement of the service users and their carers. Overall, it was concluded that the budget proposals for Adult Social Care, while challenging, were sustainable and deliverable.

The Scrutiny and Overview Committee focussed on the preparations for the move to the Mayoral model of governance, concluding that a good level of progress had been made in advance of the election in May 2022. The Committee had also reviewed whether there was sufficient capacity within the corporate centre of the organisation to deliver the ongoing improvement work required in the Croydon Renewal Plan.  From the response given, there was an indication that the culture of the Council was changing in the right direction and would continue going forward through workstreams such as the new Workforce Strategy. It was agreed that this was an area that should be scheduled for review by the Committee in 2022-23.

An update on the budget position since the previous meeting of the Committee in January was provided. It was confirmed that the government settlement was £1.4m higher than had previously been budgeted and included compensation for business rates being set using the Retail Sales Index rather than the Consumer Price Index. Following a review of the cost for UASC the amount allocated in the base budget for 2022-23 had been reduced by £2m. The budget included provision for a 5% inflationary increase and 3% for the staff pay award.

Following the introduction to this report, the Committee proceeded to scrutinise the information provided. The first area of focus was the budget for UASC, with concern raised that it seemed to have been based upon the Government reimbursing the Council for the disproportionate costs, when it was advised that the funding provided in the current year had been a one-off allocation. It was advised that the financial modelling for the cost of supporting UASC was complex and refreshed monthly. The Home Office was aware of the disproportionate impact on the Council’s budget and conversations were ongoing about support required to alleviate these budget pressures. It was recognised that the impact of the conflict in Ukraine would need to be monitored as it could potentially lead to additional refugees requiring support.

In response to a question about the reduction in the cost for the freedom travel pass, it was confirmed that the amount paid was based on the number of journeys each year and set in advance. As a result of the pandemic there had been significantly fewer journeys, which had resulted in a rebate.

It was noted that the Council had not been undertaking monthly reconciliation and it questioned whether this was a risk. It was confirmed that it had been identified as a risk and the Council was working with CIPFA to address the issue.

Regarding the potential risk from the issues raised by the external auditor around the accounting treatment for Croydon Affordable Homes in the 2019-20 budget, it was confirmed that work was ongoing at present to understand the full picture, with expert advice being sought. At this stage it was difficult to predict the outcome, but it was important for the budget report to be transparent about potential risks. A proposal to mitigate the risk, should it materialise, had been prepared. It was highlighted by the Committee that the risk had first been flagged to them in March 2021, when it was advised that the issue was a matter of the accounting treatment and would be resolved in a few weeks. As such, it was concerning that discussions were still ongoing, and it was now being flagged as a major risk.

In response to a question about what the main risks to the delivery of the budget were, it was advised that other than those already mentioned, the possibility of inflation rising above the 5% that had been budgeted was a significant risk, as each percentage increase in inflation equated to £4m in the Council’s budget. The proposal to hold the reserve for inflationary costs corporately would help to ensure that contractors did not automatically pass their own inflationary costs onto the Council. The Programme Management Office had been strengthened to bring additional resource to the oversight of the savings delivery programme, as monitoring would be key to ensuring the budget remained on-track.

It was highlighted that a proportion of the Council’s debt was short term and should there be an increase in interest rates it was possible that cost of this debt could increase significantly. It was questioned whether any regard had been taken of the potential materialisation of this risk. It was acknowledged that a potential increase to interest rates was a significant risk and was being managed by the Treasury Management Team.  The Committee agreed that it would be prudent to explore further mitigation to manage the potential impact of future interest rate increases.

At the conclusion of this item the Chair thanked the Leader, the Cabinet Members and officers for their participation in the budget scrutiny process over the course of the past year, noting that the increase transparency was welcomed.

Conclusions

Following its review of the Administration’s budget proposals, the Scrutiny and Overview Committee reached the following conclusions: -

1.     Taking account of the evidence heard by the Committee at its previous meetings and from the discussion at the meeting on 1 March 2020, it was agreed that significant weight could be given to the Section 25 report of the Section 151 Officer and the robust advice provided in the report was welcomed. The Committee was pleased to note that the preparation of the report had been coordinated between the previous and the new Section 151 Officers to agree the content.

2.     The Committee welcomed confirmation that the 2021-22 budget was currently projecting a slight underspend at month 9, which could be seen as a reason for greater confidence in the Council’s ability to deliver the £55m savings required in 2022-23 budget. However, there should be no underestimation of the scale of the challenge facing the Council in the forthcoming year, which was even greater than the one in 2021-22.

3.     The Committee felt that the political and corporate management of the Council had a good understanding of the key risks to the 2022/23 budget, which are outlined within the report.   It was agreed that the risk relating to the accounting treatment of Croydon Affordable Homes was significant and if poorly handled and could derail the Council’s budget for 2022-23 and even result in the need for another Section 114 notice to being issue due to the potential financial impact should there be a negative resolution. However, a level of reassurance could be taken from the Section 25 report that this risk could be managed providing appropriate mitigation was put in place.

4.     Given the volatile world economy, the Committee highlighted that potential interest rate increases were likely and as such there was a risk that this would impact upon the cost of the Council’s short term debt.  It was agreed that this should be considered a risk to the delivery of the budget and would recommend the development of a hedging strategy to manage this risk and minimise the cost of increased interest payments. 

5.     The Committee agreed that it was prudent for the Council to have budgeted 5% for the potential cost of inflation in the forthcoming year. However, there was also a realisation that inflation could rise even higher, with the impact of the war in Ukraine not known at this stage. As such it was agreed that managing the impact of inflation was likely to be one of the key risks to the delivery of the budget.

6.     The Committee welcomed the continued drive to increase the level of earmarked and general fund reserves held by the Council. It was agreed that this should continue to a priority in future budgets to ensure that the Council was in a strong position to manage any future, unforeseen risks.

7.     Finally, the Committee concluded that there had been a robust process to set the budget and that the budget proposed reflected the two priorities identified by residents, which were adult and children’s social care and prioritising services for the most vulnerable.

Recommendations

The Scrutiny and Overview Committee agreed to refer the following recommendations to the Council during its consideration of the budget: -

1.     The Scrutiny and Overview Committee would request that Members are kept informed on the progress made in the negotiations with the auditors to resolve the issues concerning the signing-off 2019-20, 2020-21 accounts.

2.     The Scrutiny and Overview Committee would recommend to the Council that a hedging strategy is put in place to manage the possible negative impact of interest rate increases upon the Council’s debt repayments.

3.     The Scrutiny and Overview Committee agreed that scrutiny of the delivery of the 2022-23 budget would continue to be a significant part of its work programme in the forthcoming year and would request that the Committee is kept informed of any changes in the status of the key risks identified in the Section 25 report.

4.     The Committee also recommends earlier engagement by the Council on the budget setting process, which should be a year-round process, and would provide more opportunities for councillors and the public to engage in in the formation of future budgets, before choices are locked in.