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Presentation on Renewing Croydon: The Plan

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Minutes:

The meeting received a detailed presentation entitled Renewing Croydon provided by the Director of Finance, Insurance and Risk. This comprised information on the Finance Review Panel, the Croydon Renewal Plan, the Medium Term Financial Strategy and the first phase of the Finance Review.

 

The objectives and membership of the Finance Review Panel were detailed along with the immediate (in-year) savings workstreams and their consolidation. A summary of savings was presented. It was advised that savings were those that were considered deliverable as opposed to those that had been initially been proposed in the budget. It was highlighted that some savings remained categorised as amber or red denoting that they still required work.

 

The forecast outturn (overspend) was presented. The gross impact of Covid was £70.5m which was reduced to £42m as a result of Government Covid grants. With the impact of exceptional items (UASC) and a £5m contribution to reserves, the overspend was stated at £50.3m to the end of August 2020. Taking into account the savings agreed at Cabinet in September 2020, the remaining overspend to the end of August 2020 was £22.4m.

 

The risks that could increase the overspend figure and the limitations on the Council’s financial resilience were detailed to the meeting. There was mixed confidence in the delivery of in-year savings and there was potential for the Government to apply further requirements on local authorities that would need funding. It was highlighted the 2019/20 accounts were still to be audited and that there might be adjustments to be made with an effect on the in-year budget.

 

The options available to the Council were explained. If the Government were to take control, the Council would not have any budget with which to make decisions. If the Council were to retain control of its budget it could either reconcile this by a process of slicing from budgets or go through a process of reshaping and renewing. The latter was the much better and favoured option.

 

The meeting was reminded of the responsibilities placed on the Chief Finance Officer under the Section 114 directive; that a report was required where expenditure incurred in a financial year was likely to exceed resources. It was explained that in line with Chartered Institute of Public Finance and Accountancy (CIPFA) guidance, the budget work and development of plans meant that a notice had not been issued. A capitalisation direction was explained as gaining Government permission to borrow money for revenue spending which was not usually allowed. A credible delivery plan to ensure that the budget would be balanced over next three years was required as the basis of the submission to Government. An illustration of the costs of borrowing for revenue spending was provided.

 

What needed to be done to successfully secure a capitalisation direction was detailed. This was underpinned by being able to give Government confidence in the Council’s ability to reshape its future. This was being achieved by the work of the Finance Review Panel, the strategic review of group companies and the delivery of savings. It was critical that the budget be completely understood; it was not desirable to gain the capitalisation to find out that it was not for the right amount of money.

 

The work already undertaken was detailed including gaining the Cabinet’s agreement to request a capitalisation direction from Ministry of Housing, Communities and Local Government (MHCLG). It was explained how this was Plan A with Plan B to undertake a further £22.4 of savings in-year and £47m next year should MHCLG not agree. In such a situation, should it not be possible to agree a further emergency budget, a Section 114 would be issued, after which there would be 21 days to agree a balanced budget.

 

The annual savings required for 2021/22, 2022/23 and 2023/24 were outlined with it being explained how the capitalisation direction would be used to smooth out the profile of the required savings over the three year period. Further work was being undertaken on the Medium Term Financial Strategy (MTFS) to understand how this would be affected by a variety of factors including inflation, Council Tax and care cost predictions.

 

The work of the Finance Review Panel and the first phase of its improvement plan was reviewed for the meeting and how this was addressing aspects such as financial management and monitoring of financial performance.

 

In response to a Member question regarding the auditor’s concerns, the Director of Finance, Investment and Risk clarified that the audit for 2019/20 had only just began and therefore this was a risk that further adjustments may be required. The auditor explained that whilst there had been regular contact with the finance team throughout the year, with items being identified and discussed. However, until the detailed work of the audit was undertaken, it was not possible to come to any conclusions. The auditor noted that the work of the audit might reduce the reserve position.

 

The Director of Finance, Investment and Risk explained, in response to a Member question, that reshaping, renewing and refocusing the budget had been considered at the time the budget was set for 2020/21. This approach was being brought back for the attention of Members due to the level of savings required.

 

It was explained by the Director of Finance, Insurance and Risk that it was not possible to provide the number of budgets that were at variance in 2019/20 given the volume involved. However, this would be addressed through the development of the MTFS which would determine which budgets required growth. The commitment was made to provide Members with details outside of the meeting on the success of measures taken to address budget overspends.

 

The Director of Finance, Investment and Risk verified that an increase in debt repayments of around £1.5m a year equated to a 1% increase in Council Tax.

 

Again in response to a Member question, it was confirmed that gaining income from the sale of assets was being explored with the focus on the Council’s estate. This recognised that the Council was working different because of the impact of the pandemic. However, it was also highlighted that any sale of property would need to happen at the best time to maximise the income generated. It was also confirmed that the costs of Special Educational Needs transport were a focus given the level of expense incurred. Some savings had arisen from lockdown when the service was not in operation. A reduction in costs was also anticipated as a result of schools being built within the borough reducing the extent of travel involved.

 

The auditor confirmed that the work on the audit of the 2019/20 accounts had not started. The legal timetable had been extended until the end of August 2020 to make allowance for the impact of Covid. However, this had been exceeded for a number of reasons including officers working on the Council’s response to the pandemic and because there had been a loss in finance personnel.  It was stressed that the Council’s finance team was working closely with Grant Thornton to ensure the accounts were as strong as possible. It was acknowledged that there were other Councils that also had not completed the audit process. Despite the deadline being exceeded, there was still a commitment to make the accounts available for public inspection.

 

It was explained by the auditor that conversations were happening about concerns and that these were subject to additional review before the final accounts were submitted. Those issues that might impact on the reserve position were to be prioritised by the audit.  It was acknowledged that there was work to do on asset valuations given the impact of Covid. It was hoped that the audit would commence before the end of October 2020. It was thought that whilst the Council may be acknowledged for not having completed its audit within the legal timeline, no further action was anticipated.

 

It was agreed to provide Members with the details of the number of agency workers employed by the Council during 2019/20.

 

The Director of Finance, Investment and Risk explained that it was unclear whether it would be necessary to identify in the submission MHCLG the additional £22.4m of in-year savings and the £47.1m of savings to be made 2021/22 if the capitalisation direction was not agreed. However, it was clear that the main focus of this submission was how the Council planned to achieve a balance and sustainable budget supported by a capitalisation direction.

 

In response to a Member question regarding a Report in the Public Interest, the auditor noted that an adverse qualification had previously been made on value for money and it was not thought that this situation had improved. It was explained that when repeating a qualification, there was a need to consider if anything additional should be done in terms of the powers available to the auditor. Statutory recommendations might be considered for one or two specific issues and would mean that the Council would have to respond at a public meeting. A Report in the Public Interest was usually employed for a more pervasive issue with impact across the whole Council. Discussions would be had with officers and relevant Members as part of the consideration before issuing. Officers were to be kept informed as the audit progressed.

 

In response to Member comments regarding the welcomed transparency being provided at the meeting, the Chair informed the Committee of the intention to increase the number of meetings, giving greater opportunity to build familiarity with the Council’s finances. It was intended to invite the relevant Cabinet Member to respond to Members’ questions.

 

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