Agenda item

To provide input into the Council’s Financial Strategy 2018/22 ahead of it being presented to Cabinet in September 2018.

The Cabinet Member for Finance & Resources, Councillor Simon Hall, and the Executive Director of Resources & S151 Officer, Richard Simpson, gave a presentation to the Committee on the background to setting the new Financial Strategy for 2018 to 2022. The Committee was asked for any recommendations it wanted to make on the process, which would be fed into the production of the final Strategy, to be considered by the Cabinet in September. During the course of the presentation the following was noted:

·      It was intended that the new four year Financial Strategy would dovetail with the Corporate Plan, which would also be considered by the Cabinet in September. The Strategy would look to build upon the approach of the Administration over the past four years.

·      At the end of the last financial year the Council had a £5m net overspend in its budget, which could principally be attributed to spending in the People department relating to work required as a result of the Ofsted Inspection of Children’s Services. This overspend had been balanced by a £4.7m surplus in the collection fund and £332,000 from the general fund balance.

·      The level of earmarked reserves had increased with a significant receipt from the Right to Buy scheme that the Council would look to use for the provision of new affordable housing.

·      A recent rule change meant that Local Authorities now had greater flexibility around how it used capital receipts. Previously these could only be used for other capital expenditure, but could now be used for other purposes such as invest to save projects.

·      Since 2010/11 it had been the Council’s policy not to budget for the use of reserves to balance the budget, although there had occasionally been the need to do so as a result of overspends.

·      The funding required for Children’s Social Care was one of the biggest risks to the overall budget, with increased pressure from rising demand, the provision of Special Educational Needs transport and the provision of support for Unaccompanied Asylum Seeking Children.

·      With people living longer, there was also a huge demand for Adult Social Care. The Council was focused on providing support that allowed for preventative support and early help within local services. As a result, this meant that schemes needed to be pump primed before any outcomes were delivered.

·      Other considerations factored into the Financial Strategy included the Spending Review 2019, the Fair Funding Review and the new scheme for the retention of business rates.

·      Further consideration also needed to be given on the level of borrowing acquired and amount of debt taken on to invest in services and local infrastructure. At present the current repayment on the Council’s borrowing was £20m per year which was a sizable portion of the overall budget.

Following the presentation, concern was raised about the level of balances with a view taken that the budgeted savings in Children’s and Adult Social Care may be optimistic given the recent history of overspending in these areas. In response it was advised that the budget for these areas was being worked on to ensure it was set at the right level and in fact the budget for Adult Social Care had been delivered approximately to budget in 17/18. This had been aided by increased Government funding allowing for more realistic budgeting. The Children’s Service faced more difficult circumstances due to the inadequate rating from Ofsted which had required increased investment to correct, but should  lead to more stable costs in the future.

It was confirmed that the £7m cost for Unaccompanied Asylum Seeking Children (UASC) included the cost for people with no recourse for public funds, which had not been factored into the grant provided by the Government.

In response to a suggestion that public involvement should be encouraged to help make the case for fair funding for the Borough, it was advised that there would be merit in publically motivated campaigns on issues such as UASC but it primarily rested with Councillors and officers to make the case along with the support of local MPs. It was highlighted that cross party support, such as there was for fair funding for UASC helped to strengthen the case when made to central Government. 

In response to a question about the Council working with the third and voluntary sectors, it was highlighted that there was a lot of good work carried out which provided an example of what could be achieved. There was a continuing move to increased levels of partnership working with the voluntary sector, particularly as part of a locality based model working with communities. 

It was noted that the Council was spending money to bring services in-house and dismantling many of the previously large contracts to make them more accessible to local businesses. Evidence of this could been seen in the development of a new app for reporting fly-tipping that had been developed by a Croydon based business. In the instances where large contracts were still in place an obligation was included within the contract to use the local supply chain and local employment where possible.  The Council had also recently launched the Easy Buy scheme for the procurement of small contracts which made them initially available on a local portal open to local businesses.

As it was noted that there was likely to be a profit made by Brick by Brick, the housing development company set up by the Council, it was questioned how this would be used. In response it was confirmed that as the Council was the sole shareholder in the company there was a degree of flexibility as to how any profits could be used. It could be reinvested back into the company to produce further housing, left as equity or taken out and used to fund another area of the Council.

It was noted that there were risks from having a property company such as the property market experiencing a downturn or a rate increase on borrowing. To mitigate against this, all the loans acquired to fund schemes were obtained at a fixed rate. It was an aim for Brick by Brick that it would make a profit from the schemes it delivered, which was assisted by the Council using its own land for projects, reducing the upfront cost of purchasing land. It was questioned whether any receipts from Brick by Brick would be included in the Financial Strategy. It was confirmed that it would not generally be accounted for in the base budget, with income from Brick by Brick included as a consideration rather than a presumption.

A change to how local government in funded from 2020/21 was being developed by the Government that would allow local authorities to retain 75% Business Rates raised above the current level. Although the final details for this scheme were still to be announced, the Council should be in a good position to generate income from the scheme.

The risk to maintaining the current level of balances was questioned, as there was a concerned that overspending in certain services would have an impact. It was advised that it was expected that the Council’s balances would broadly remain the same over the four years of the new Financial Strategy, with the level of contingency increased from £1m to £2m in the 2018/19 budget. It was suggested by the Committee that the level of contingency should be reviewed to ensure it was set at the appropriate level.

A Member expressed doubt about the sustainability of retaining the previous principle on taxation, which aimed to keep any increases either on or below the level of inflation, while maintaining the general fund balance at 5% of the total budget. As such it was questioned whether this would remain the same in the next Financial Strategy? In response it was advised that although it had yet to be finalised, it was likely that the rate of taxation would continue to be less than inflation.  It was also advised that it was likely that capital receipts would become increasingly relevant to supporting the prevention programme and reducing future demand.

From a discussion on the principles used to inform the new Financial Strategy, it was suggested that it should include a principle around the use of any profit delivered by Brick by Brick to be transferred into reserves. It was also suggested that there should be a principle included on borrowing to cover how, why and when it was used.

As it was highlighted that the Council could in theory run its statutory services down while still meeting the current principles set in the Financial Strategy, it was suggested that a principle on statutory services being provided at a good standard should be considered.  In response it was highlighted that the manifesto commitments included a thread of protecting services, but how they were delivered may be subject to change.

It was questioned whether there were any plans over the next four years to undertake a root and branch review of the Council’s expenditure. It was confirmed that each part of the budget was challenged annually, however there was likely to be a change in the approach to how money was allocated, moving from a service by service approach to a more overarching funding model focussed on the budget required across services to address a particular issue.

Conclusion

The Committee agreed that the financial landscape for the Council remained challenging with the need to manage growth for services against a declining revenue base. It was also agreed that the principles informing the Financial Strategy needed to change to reflect the changing nature of local government.

Recommendations

The Scrutiny & Overview Committee agreed to make the following recommendations to the Cabinet:

1.    That there should be a fundamental rethink on the underlying principles of the Financial Strategy.

2.    A principle should be established to inform how any income delivered from Brick by Brick is spent.

3.    A principle should be established around how the Council works with its partners, with a focus on local wealth building and on social value as well as economic benefit.

The principles should not be overcomplicated and effort should be made to ensure they are simple and understandable.