Agenda item

6.1  The Chair welcomed the Group Director, Finance and Corporate Resources for the item.

 

6.2  She advised there were four papers in the agenda packs for this item. She suggested that the main focus would be on the first three of these; the Overall Financial Position (OFP) Report, an update on the Capital Programme, and a report setting out the Council’s preparations for 2020/21 budget setting.

 

6.3  The fourth paper provided the findings of the most recent State of Local Government Finance survey, run by the LGiU and The MJ. This had been enclosed to provide wider context on the financial pressures facing local government.

 

6.4  The Group Director thanked the Chair. Highlighting the OFP Report, he made the following substantive opening points:

 

·  This was the first OFP for 2019/20. This set out the Council’s current and forecast position around its major funding sources - the General Fund, Housing Revenue Account and Schools Budgets – and other areas.

 

·  In line with previous positon statements, and with other local authorities, this latest statement continued to project significant cost pressures, particularly in relation to Adult Social Care, homelessness and temporary accommodation, and Special Educational Needs.

 

·  Projected surpluses in other areas did enable the Council forecast a near-balanced budget; with a £4,028k overspend projected for year end.

 

·  However, it was important to be clear on the cost pressures in particular areas. It was also important to note that the surpluses expected in some areas in 2019/20 - which would help fill gaps elsewhere - could not be presumed to be in place for future years also.

 

·  This meant there needed to be a continued focus on addressing overspends. The Council was progressing this agenda. Discussions were ongoing with City and Hackney Clinical Commissioning Group (CCG) around greater funding support from the Health Service for activities currently financed by the Council. These had been largely encouraging.

 

·  The 2018/19 end of year accounts showed the scale of the challenge around SEND funding. 2018/19 saw SEND activity costs at £9.5 million above agreed budget level. The Council had been able to put in measures to handle these pressures, but it was not sustainable for the longer term. Furthermore, 2019/20 was currently projected to see spending increase by £2 million compared with 2018/19.

 

·  As with Adult Social Care – and as Members were aware - this was an issue which was affecting all Councils. He did note that officials from the Ministry of Housing, Communities & Local Government had seemed to have a greater grasp of the issue; ie the significant increases in the numbers of Education and Health Care Plans (EHCP) in place not being matched with a corresponding increase in funding. He hoped that this translated into a new settlement.

 

·  The update also summarised measures to better secure the financial viability of a number of Council assets.

 

·  This included agreeing a new 125 lease for 3-10 Bradbury Street, which was effectively required in order for the leaseholder to access finance with which to carry out substantial improvements to the property, and to continue to deliver objectives in line with the Council’s, including around inclusive growth.

 

·  Another measure had been the agreement of a loan to the operators of the Rio Cinema to deliver improvements which would increase their financial sustainability over the longer term. This would help secure a popular cultural venue at a Council owned site, at a far lower cost than would be incurred by Council in the event of it needing to take over its management.

 

6.5  A Member noted the points around the £9.5 excess of budget spend on special educational needs activities and the projected £2 million increase in 2019/20. He asked how the Council had successfully met this funding gap, and what its plans were going forward.

 

6.6  The Group Director, Finance and Corporate Resources said the gap was filled by a number of aspects, including a drawing down from Hackney Learning Trust reserves, and savings made across other Hackney Learning Trust departments.

 

6.7  Future costs were difficult to predict as this would be depend on the numbers of new EHCPs emerging, and the nature of these. However, he had confidence that the methodology and modelling in place – which predicted an increase in spending by £2 million (across SEND activities) in 2019/20 - was more robust than in many other areas. It was currently projected that this would help result in the HLT reserves being fully utilised by year end. In terms of plans going forward, the HLT and the whole Council continued to investigate ways that expenditure could be brought greater under control. The challenge was vast – however - and would only be truly solvable through revised funding proposals from Government.

 

6.8  Cllr Sharman, Chair of Audit Committee agreed with these points. The Audit Committee had carried out a study around budget forecasting and management within the SEND area, which had included benchmarking with other local authorities. It had applied this level of focus given that it was one of the largest threats to the authority’s ability to set balanced budgets.

 

6.9  Through the work the Committee and reached a view that - within the context of unviable levels of funding with which to deliver statutory duties - there were sound understandings and practices in place in Hackney in terms of the current position, future projections, and planning moving forward.

 

6.10  The findings had made clear that – without Government action to close the funding gap – the authority would be left with very difficult choices in the near future around how shortfalls would be met.

 

6.11  The Chair thanked Cllr Sharman. The SEND working group of which she was a member and which included community representatives, had reviewed the Audit Committee report and found it informative and useful.

 

6.12  The Chair asked whether efficiencies secured from the Integrated Commissioning Programme and from the further integration of Hackney Learning Trust with the Council generally, could be used to fill part of the funding gap in SEND.

 

6.13  The Group Director, Finance and Corporate Resources said this was a good point. However, in terms of Integrated Commissioning, the reality was one of already considerable pressure in the system; including around Learning Disability Services and Workforce costs.  The Council was engaging NHS partners around areas which might be appropriate for greater contributions from Health Services. However, in relation to SEND services, he felt that partners would be more likely to see this as falling to schools as the appropriate funder.

 

6.14  On the point around savings from the move of the Hackney Learning Trust into the Council, efficiencies had been and continued to be achieved. These had been used to partly offset the SEND overspend. However, any future savings secured through back office changes were unlikely to make a significant dent on the unfunded spend.

 

6.15  A Member noted that on Integrated Commissioning, the partnership had come from a place of having its own Clinical Commissioning Group receiving a block grant from Government of around 0.5 billion a year. Due to the demographic weighting applied to the funding, Hackney had been a recipient of relatively high levels of funding for these services, compared to some other boroughs.

 

6.16  However – in terms of the health side – there was a move to greater pressure for integration on a North East London level. There was some concern that this brought the risk of funds leaving the borough. In addition to this, the Government’s Framework around governance of health funding was around a move from an arrangement where Hackney had a dedicated Single Accountable Officer and a Single Financial Officer, to one where this role would be focused on the North East London level arrangement. He asked what extent these changes were impacting on the day to day ability to shape and achieve a single health and social care system for Hackney.

 

6.17  The Group Director of Finance and Corporate Resources said the Council and NHS partners had entered the Integrated Commissioning Programme in a good place in terms of relationships. However, the effective bringing together of seven separate arrangements into one, did bring challenges. This said, even without these changes, there had already been a shift in terms of greater central command and control impacting on the flexibilities which did exist previously. NHS partners did not have the flexibilities afforded to the Council as a local authority around being able to follow more innovative pathways, although it was important to note they were not facing the same scale of financial constraint.

 

6.18  There was a continued need to work more closely and to drive out opportunities. There was work which could be further built on. One example was the Council’s Property Services Division having provided support which had enabled the CCG to end an arrangement where it was meeting particular void charges for sites within the NHS estate which were empty, rather than this being met by wider budgets. From a relatively small investment, this work would result in around £1 million a year being available to invest on local health and social care services, which was not previously.

 

6.19  Moving on to the Capital Update Report, the Corporate Director, Finance and Resources said this provided an update on the current position of the Capital Programme. The report had also sought and received approval from Cabinet for the allocation of resources to the delivery of projects within the programme, where this was required.

 

6.20  The Council’s projected capital programme for 2019/18 stood at just over £350 million, which was likely to be one of the highest in London. The final figure included £7.7 million of slippage from the previous year. This was an extremely low proportion compared to many other local authorities.

 

6.21  Appendix 1 of the report provided a breakdown of the projects funded by the Programme. This made clear the significant allocations to schools, given that many were of Victorian age, and brought significant maintenance costs. Lifecycle works were also required on schools rebuilt or refurbished within the Building Schools for the Future Programme (BSF).

 

6.22  The Chair asked if there had been any recent investment from the capital programme into improving specialist provision for students with Special Educational Needs. She appreciated that in-borough provision could in some cases stop children from having to make long journeys to access education, and also make provision less costly for the Council.

 

6.23  The Group Director, Finance and Corporate Resources said it was important to note the strength of Hackney’s offer in this area. The BSF Programme had built a legacy of the Council having 3 of the best specialist-provision facilities in London.

 

6.24  In terms of additional provision to this, proposals would be coming forward for the delivery of a new facility on the site of the current Pupil Referral Unit (PRU) on Ickburgh Road. This would be further to the PRU itself moving to a new and improved dedicated facility on Nile Street. The existing and new provision would leave Hackney in a relatively very strong position in terms of specialist provision, and did mean that there would be more opportunities for families not needing to access sites outside of the borough. However, it was important to note that while these developments would be expected to help mitigate the current funding gap in SEND, they would not come anywhere near to solving the issue.

 

6.25  A Member noted the allocation of the £357 million in the Capital Programme, which the report broke down by Council Directorate and by project. He asked if an overview could be provided of the funding / income elements which made up the £357 million.

 

6.26  The Group Director advised that the funds were made up from a range of sources, including capital receipts, Government grant support, and the Housing Revenue Account. There was a financial statement available which provided fuller details on the profile of Capital Programme funding sources. He offered to share this with Members.

 

ACTION 1: Group Director, Finance and Corporate Resources To circulate financial statement showing the funding sources making up total Capital Programme fund.

 

6.27  A Member noted from previous items that the Council had achieved a position of securing greater income from its properties. He asked what flexibility there was around usage of these funds.

 

6.28  The Group Director, Finance and Corporate Resources confirmed that the Council had and was drawing greater levels of income from its commercial portfolio. Examples included rental streams from Keltan House and another building on Mare Street. This income would be incorporated into the Council’s Commercial Property income stream, which would then feed into the Council’s Base Budget. There was general flexibility around allocations of this. This was not the case with some other forms of property, including units managed within the Housing Revenue Account.

 

6.29  The Member asked what share of the budget was now accounted for by income from commercial property.

 

6.30  The Group Director, Finance and Corporate Resources confirmed that over recent years the share of income which was provided by commercial property had increased, and now stood at approximately £10 million a year. He recalled a previous presentation around income from the Council’s commercial estate. He said that he could provide again at a later meeting, if this would be useful.

 

6.31  A Member noted the reference to a refurbishment of the Median Road facility. He asked if there was any prospect of this site being re-established for use for providing intermediate care, in-borough.

 

6.32  The Group Director, Finance and Corporate Resources confirmed that Officers were currently exploring options for in-house, in-borough delivery of intermediate care provision. However, the viability of returning the Median Road site back to use for this would be questionable, given that it was now providing temporary accommodation for homeless families and that adaptions had been made to make it suitable for that purpose. The site was playing an important role in the Council’s work to maximise in-borough temporary accommodation provision for the very high numbers of households in need of this.

 

6.33  Now asked to introduce the paper summarising the Council’s preparations for budget setting for 2020/21, the Group Director, Finance and Corporate Resources said it was intended to help answer a range of questions asked in other forums.

 

6.34  A key message was that there was very significant uncertainty on funding levels from Government, both in terms of the general funding grant and specific government grants. In the context of the wider political environment, there was a concern that the picture would not be made clearer until December 2019, and the release of the Local Government Finance Settlement. The uncertainty was exacerbated by the Government still being expected to apply revised calculations to allocations of General Grant Funding (Top Up Grant); Hackney was expected to be a net loser in this arrangement (Fairer Funding), but the extent of this was unknown.

 

6.35  Combined, this had left this Council and others in the most uncertain position – in regards to the funding picture for next year - which had been seen whilst he had been a Finance Director.

 

6.36  The Council was working as effectively as was possible within these constraints to produce well informed forecast budgets and expenditure estimates. A good start had been made. Robust estimates around Council Tax income had been built into planning.

 

6.37  The Chair said it was a shocking position that the Government had announced a new general funding arrangement for Councils yet - with less than 9 months until they impacted - had not released details of what the results would be.

 

6.38  She noted the lack of information around grants for specific aspects – for example for Social Care – and the impact that this had on councils being able to plan and shape the functions which supported their most vulnerable residents.

 

6.39  She had found the breakdown on 2019/20 revenue streams for the Council’s General Fund, very useful. She asked what certainty there was around the different elements of these for 2020/21.

 

6.40  The Group Director, Finance and Corporate Resources said one area of greater certainty was around Council Tax income. He did not expect to see any large change in the Council Tax recovery rate, meaning that quite robust forecasts were possible. For 2020/21, there would be options around increasing Council Tax (the extent of this was not fully clear), although as had been discussed in detail in the past, the overall share of the budget which was sources from Council Tax was low – at less than 10%.

 

6.41  There was less certainty around other streams. This was in particular relation to Business Rates, General Grant Funding (Top Up Grant), and Specific Government Grants; the levels of which would only be made clear when the Comprehensive Spending Review and the Local Government Finance Settlement were available.

 

6.42  The Chair of Audit Committee noted the scale of the unknown funding picture. He asked if there was a worst case scenario which was being worked to, and what this was.

 

6.43  The Group Director, Finance and Corporate Resources confirmed the Council was currently forecasting a budget gap of £30million between 2020/21 to 2022/23, based on the difference between the total resources forecast (from all sources), and the total expenditure estimate across the Council. There was now a focus on closing this gap.

 

6.44  It needed to be acknowledged that - in the event of Hackney being impacted particularly badly via the Fairer Funding changes - there was a risk of savings requirements being found to be larger than this. It was not yet fully clear the measures which would inform allocations and how these measures would be defined; for example the extent and nature of any weightings around population density and levels of deprivation.

 

6.45  However – there was a good degree of confidence that the £30 million savings requirement forecast, would not be found to be an underestimate. There had been significant testing around this. The assumptions used in Hackney had been sense tested and found to have been consistent with those being used in other boroughs.

 

6.46  A Member noted that the Council had announced a new Voluntary Redundancy Scheme. He noted that the success of schemes in delivering long term savings for organisations could rely on quite difficult decision making during the assessment of applications. This was in terms of best ensuring that post deletions resulting from the process, were sustainable in the longer term. He asked about the Council’s readiness to deliver a scheme which would deliver savings.

 

6.47  The Group Director, Finance and Corporate Resources accepted this point. There was a clear need for decisions within the process to be fully informed by organisational need. He felt the Council was in a strong position, having already delivered and learnt from two similar programmes in recent years.

 

6.48  A Member noted the recent announcement that the Group Director of Neighbourhoods and Housing was to leave the Council to become Chief Executive of the London Borough of Lewisham. He asked if any update could be given on succession plans.

 

6.49  The Group Director, Finance and Corporate Resources said that discussions were ongoing on a way forward, with the opportunity being used to consider all options.

 

6.50  The Chair said she wished to give consideration to future Scrutiny Panel meetings being shaped broadly around particular themes. She suggested that Municipal Entrepreneurialism might form one of these. She knew that other Members in addition to herself had an interest in this area. She said that she would discuss with the Head of Overview and Scrutiny how an item might be delivered in the next meeting on the 7^th October, which included an outward look at what other authorities were doing in this area, and what could work well.

 

6.51  The Group Director, Finance and Corporate Resources suggested that an item might explore the Commercial Waste Service in Hackney, including consideration of any expansion of the offer to businesses outside of the borough.

 

6.52  He also knew that Members were familiar with the developments around the Council’s establishment of an Energy Company. He said that an item might explore the balance to be achieved between gaining and delivering benefits for residents from entrepreneurial activity, whilst also ensuring an ongoing focus on delivering and maintaining high quality public services to residents of Hackney. For example, consideration around delivering waste services in other areas would need to be made with caution; it would be important to ensure that this would not be at any detriment to the high environmental standards achieved in the borough.

 

6.53  A Member asked whether the Energy Company would deliver energy outside of the borough.

 

6.54  The Group Director, Finance and Corporate Resources envisaged the Energy Company delivering an offer to households outside of the borough. However, predominantly the focus would be on Hackney. Close working with other services would help enable build-up of a local customer base. An example was around working with Housing Services to achieve a situation where the Hackney company was made the default energy provider in newly let Council homes. Another would be close working with Communications on an effective marketing campaign. This would help best ensure a good customer base which benefitted from low and sustainable energy.

 

6.55  A Member asked whether the Council’s development of a Housing Company might be another area to explore, in terms of its selling of properties.

 

6.56  The Group Director, Finance and Corporate Resources said that his understanding was the Housing Company would be letting out a number of homes procured through the Council’s housebuilding programme. These would be at a mixture of market, and London Living Rent levels.

 

6.57  In response to being asked about the latest developments with the Housing Company, the Group Director, Finance and Corporate Resources advised that properties were now coming online or approaching this. This included units at a regenerated estate in Homerton.

 

6.58  The Chair of Audit Committee noted points around entrepreneurialism. He felt caution should be applied to any view that these activities were an answer to budget challenges. There were real challenges; success was reliant on in depth knowledge of the market, having a level of expertise on the area, and also an acceptance that it was likely to take a considerable period for schemes to become fully established.

 

6.59  On a broader level, he worried that schemes and activities being delivered by local authorities could end up competing with one another, producing a zero-sum gains where residents did not benefit. His own view was that focus should continue in the areas where there had been proven success, including commercial property.

 

6.60  As a final question, the Chair advised the next item would see a discussion on the Government’s release of new statutory guidance on Overview and Scrutiny in local government. She noted that the guidance included advice around the need to ensure a clear division of responsibilities between the functions of Audit and Scrutiny, and that the authority’s section 151 Officer should advise scrutiny on how to manage this dynamic. As the Council’s section 151 Officer, she asked if the Group Director, Finance and Corporate Resources had a view on this.

 

6.61  The Group Director, Finance and Corporate Resources said that he had always been committed to providing the types and levels of information which both Audit Committee and the Overview and Scrutiny functions requested. Audit had a clear role and it was now a particularly active forum under the Chairing of Cllr Sharman. He and colleagues would continue to give maximum flexibility around their servicing of the different functions. This would include helping to cater for in depth sessions outside of the formal meeting structure, if Members deemed this to be required.

 

6.62  The Chair of Audit Committee agreed with these points. However, the Audit function did – in his view – perform a scrutiny role. Its role included scrutinising the management of major risks and finance aspects. As an increasingly active group, it was producing in depth reviews/investigations, as had been the case with the recent exploration of budget setting and management within the SEND area.

 

6.63  He felt that the work of the Commissions and the Audit Committee could best complement each other and avoid duplication through regular dialogue. He would continue to attend Scrutiny Panel whenever he was able so that Audit and Scrutiny Chairs could be aware of each other’s areas of focus.

 

6.64  A Member agreed with these points. He did not see any particular issue in terms of great duplication or collision between the functions. Indeed, he felt that if both offered forums in which a wider range of Members could get an insight into and interact with key issues and decisions, this was a strength.