Agenda item

The Scrutiny & Overview Committee is presented for its information with 2025-29 Medium Term Financial Strategy Update report, due to be considered by the Cabinet on 16 October 2024. The Committee is asked to: -

1.    Review the information provided in the 2025-29 Medium Term Financial Strategy Update Reports and

2.    Consider its conclusions on the information provided.

3.    Consider whether there are any recommendations to bring to the attention of the Cabinet at their meeting on 16 October 2024.

The Committee considered a report set out in the agenda supplement which presented an updated Medium Term Financial Strategy (MTFS) for 2025 to 2029 and initial budget savings proposals for 2025-26. This report was included on the agenda as part of the Committee’s scrutiny of the budget setting process.

In attendance for this item were the following: -

• Councillor Jason Cummings – Cabinet Member for Finance
• Katherine Kerswell – Chief Executive
• Jane West – Corporate Director for Resources and Section 151 Officer
• Kiri Bailey – Head of Commercial, Housing & Litigation Law

A copy of the presentation delivered by the Council’s Section 151 Officer, Jane West, can be found on the following link –

https://democracy.croydon.gov.uk/documents/b15010/Agenda%20Supplement%20Item%206%20-%20MTFS%20Update%20Presentation%2014th-Oct-2024%2018.30%20Scrutiny%20Overview%20Commi.pdf?T=9

Following the introduction, the Committee proceeded to question the information provided in the Cabinet report. The first question asked whether there had been any indication from the Government when they would be confirming the 2025-26 financial settlement for local authorities. It was advised that no confirmation had been provided at the time of the meeting, but it was not anticipated that it would be much earlier than the previous Government, which tended to be late in December. It was hoped that going forward a multi-year settlement would be provided, which would give greater financial certainty for local authorities.

It was noted that the MTFS included £52m of growth for 2025-26, but only £19m of savings. As such, it was questioned why the level of savings was so much lower than the growth. In response, it was highlighted that, as noted in the period monitoring report, three services were experiencing significant overspends, which made it difficult to identify savings. The level of growth was needed to right-size the budget based on the current level of demand and increased costs. The current increased level of demand for services had been modelled into the MTFS, but there was no indication that there would be a further increase going forward. There had been conversations with other local authorities across London to try to understand the potential future demand for temporary accommodation. If there was a significant increase, it would have a serious impact on the sustainability of local government in London.

In response to a question about how the budget deficit of £187m compared to other boroughs, it was noted that there was not a huge sample size at this stage, as Croydon was presenting its updated MTFS earlier than many other boroughs. Of those available, some were higher and some lower, although Croydon would always be at the higher end of the spectrum due to its population size.

Further information was requested on the savings included within the £19m. It was advised that savings included those arising from the transformation work in both Adults and Children’s services with their respective transformation partners. No savings from the transformation work of BCG had been included at this stage, although it was anticipated that savings would be realised across the life of the MTFS. A request was made for further clarification to be added to the list of savings to outline the different types of savings, such as those that were invest-to-save, those that are service reductions, etc.

It was questioned what could be expected in terms of the cost of debt repayment going forward. In response, it was advised that over the past four years interest rates had gone up, which meant that although the level of general fund debt had decreased, payments had increased. Going forward, the cost of debt repayment would be dependent on the timing of when the Council was able to refinance the different elements of its debt, with it possible that some of the short-term loans could be refinanced at lower rates. The biggest issue was the continuing requirement for capitalisation, which increased borrowing, with it likely that further capitalisation would be needed if it was not possible to close the current in-year budget gap.

Given the budget gap, it was questioned whether there was a risk of the Council needing to issue a Section 114 notice. It was advised that the guidance from the Department for Housing, Communities and Local Government was that capitalisation was their preferred solution rather than local authorities issuing a Section 114. Looking forward, the budget would be difficult to balance without an exceptional solution rather than ongoing capitalisation.

In response to a question about how the Council’s financial challenges would be communicated to residents, it was advised that the budget consultation would be used to bring residents up to speed. There had also recently been a webinar for staff, 50-60% of whom lived in the borough, to help them understand their role in the delivery of the budget.

Following a recommendation made by the Scrutiny & Overview Committee last year that the budget consultation was subject to independent review prior to being launched, it was confirmed that it would be reviewed by the communications team at the Local Government Association, once the MTFS had been agreed by Cabinet. The Committee requested to be updated on the outcome of this review.

The next question asked what the key risks across the life of the MTFS were, other than demand pressures. It was advised that the MTFS report presented the best and worst-case scenarios based on current assumptions. Other risks included the uncertainty of having a new Government in place who were undertaking a spending review, the potential impact on the Council’s wage bill from an increase to employer National Insurance contributions, and there was still concern about inflation and the cost of borrowing. The Council also worked in partnership with the Police and the Health Service, who were facing their own budget pressures, which could result in cost shunting that would be difficult to predict.

In response to a question about the Council’s approach to asset disposal, it was confirmed that a report setting out the assets for disposal in tranche 3 of the Asset Disposal Plan was being finalised. The Improvement & Assurance Panel had acknowledged that the Council had increased the pace of its disposals, although the third tranche was likely to include more complex proposals that could require service reorganisation and office moves, which would take time to deliver. The income targeted in 2025-26 from asset disposals would be delivered from sales across the three tranches, as the time taken to progress sales meant the tranches were overlapping.

The final question of the session asked whether consideration would be given to increasing Council Tax above 4.99%, if the new Government increased the cap. It was advised that 4.99% had been included in the MTFS as an assumption based on the current cap. If the Government changed this and allowed a higher cap, then the level proposed would need to be reviewed in that context, taking account of the fact that the level of Council Tax in Croydon was already the second highest in London. It was highlighted that the Mayor had given a commitment to not exceeding the cap.

At the conclusion of the item, the Committee discussed their conclusions and recommendations based on the information provided. The Chair also thanked the Cabinet Member and officers for their engagement with the questions of the Committee

Actions

Following its review of the updated Medium Term Financial Strategy, the Committee agreed the following actions to follow-up outside of the meeting: -

1. The Committee agreed it would look to explore how other local authorities are communicating with their residents about their financial challenges, separately from the budget consultation.
2. The Committee agreed that a briefing would be requested on Tranche 3 of the Asset Disposal Plan, once the Cabinet report was available, ahead of the Cabinet meeting.
3. The Committee recognised that their understanding of the management of the Council’s debt and treasury management would benefit from further training, which would be arranged ahead of its consideration of the 2025-26 Budget.

Conclusions

Following its review of the updated Medium Term Financial Strategy, the Committee reached the following conclusions: -

1. The Committee recognised that the Council’s financial position remained extremely fragile, particularly managing London-wide and national challenges to the local government sector, on top of the Council’s existing debt burden.
2. The Committee acknowledged and commended the transformation work of the Adult Social Care service, which meant they were better able to manage demand and as a result were outperforming other London boroughs.
3. The Committee acknowledged and recognised the current uncertainty, as the draft MTFS was being considered in advance of the Government Autumn Statement.  It recognised further uncertainty as the new government's approach to local authority finance, including any future council tax referendum cap level, had not yet been announced. This meant that there would need to be further options appraisals for closing the 2025-26 budget gap, which would in turn lead to changes in the estimates and projections set out in the draft MTFS presented at the meeting.
4. The Committee concluded that given the financial challenges facing the Council from its debt burden, in addition to increasing demand and growth pressures, meant that the 2025-26 Budget would be riskier than previous years, even if greater certainty was provided in the new Government’s Autumn Statement. The Committee also concluded that a service delivery was likely to be at greater risk as a result.

Recommendations

Following its review of the updated Medium Term Financial Strategy, the Committee agreed to submit the following recommendations for the consideration of the Cabinet: -

1. The Committee recognised the importance of all Members understanding the in-year financial challenges. As such, it recommends that an all-Member briefing is arranged in a timely manner.
2. The Committee felt that it was important for residents to be made aware of the challenging in-year financial position and the impact upon the Medium Term Financial Strategy. As such, it recommends that residents are regularly updated on the in-year financial challenges and related impact on the MTFS as part of the Council’s email newsletter to residents.
3. As the Council’s ability to gather data more effectively had improve, the Committee recommends that it be better used within the Budget report, due in February 2025, to demonstrate the robustness of assumptions informing budget decisions.
4. The Committee recommends that 2025-29 Medium Term Financial Strategy report provides greater clarification on the way it reports savings proposals (Appendix B) by providing a sub-category to Transformation items in the ‘Savings Type’ column e.g invest to save, new ways of working, service redesign etc.
5. Following the Administration’s confirmation that the Committee’s recommendation from last year, for the budget consultation plan to be independently reviewed, the Committee recommends that the feedback from the LGA’s review of this year’s Council’s Budget Consultation is shared with the Committee ahead of its launch.
6. Given the importance of prevention in managing demand in those services experiencing the greatest overspends, the Committee recommends that further detail on prevention workstreams is included within the Budget report.