Agenda item

5.1  The Chair stated that Council’s budget update was a standing item on the agenda and at this meeting there would also receive and overview of the proposed Council budget for 2023/24. The latter was being tabled because of the tight timelines involved and it would be going to Cabinet and Full Council for approval the following week.

 

 

5.2  Members gave consideration to the following three reports

 

 

Overall Financial Position - Nov 2022

Capital Update and Property Disposals and Acquisitions Report - Sept 2022

TABLED slide presentation ‘Scrutiny Finance Update’

 

 

5.3  The Chair welcomed for this item:

 

 

Ian Williiams (IW), Group Director Finance and Corporate Resources

Jackie Moylan (JM) Director of Financial Management

Cllr Robert Chapman (RC), Cabinet Member for Finance, Insourcing and Customer Service

 

 

5.4  IW took Members through his presentation in detail. The slides covered:

 

 

General Fund forecast 2022/23

2022/23 HRA position

The Council’s capital programme and borrowing

Economic context

Local government settlement 2023-24

Disparity in council funding  (spending power comparisons 15-16 to 23-24)

London spending power increases

London spending power (real term reduction of 18% since 10/11)

What the LGFS meant for the Council’s 23-24 budget

Budget Report - Introduction

Budget Report Overview - Council Tax

Budget Report Overview - Revenue Budgets

Budget Report Overview - S151 officer’s statement

Budget Report Overview - Capital programme £1.1bn (22-23 to 25-26)

Budget Report Overview - Capital programme financing £1.1bn

Budget Report Overview - Medium Term Financial Plan

HRA Budget

HRA Business Plan - Budget gap going forward

Cost of living response - recap

Cost of living response - the Money Hub

Cost of living response - financial support provided

 

 

5.5  IW explained that the budget papers had just been published and would be going to Cabinet and Full Council for approval the following week. They were forecasting an overspend of £9m in the General Fund but wished to contain that as much as possible in spite of cost pressures and the now high inflation, including the pay award. Overspends were driven by ASC and CYP directorates and by the impact of the cyber attack. The HRA was under considerable pressure due to delays in procurement.  On the Capital Account the real challenge in the market was trying to get contractors to hold prices steady. The cost of borrowing and unfavourable gilt yield rates were also a factor.

 

 

Questions from Members of Scrutiny Panel on S1 of presentation

 

5.6  Are there going to be delays in building works? IW replied that they had struggled with getting the building maintenance contracts to a better place and what they have been investing in was growing the DLA. There had been significant challenges in Procurement such as trying to get the relevant trades people, Brexit also had an effect on the availability of labour and much longer lead times were required. He suggested he could bring this issue back to Living in Hackney when they were able to update.

 

 

5.7  Re contract management in HRA, to what extent was the Council holding contractors to account when they produced poor quality work, were there penalties and fines that can be used and what about compensation and on costs of legal disrepair to what extent was the Council passing those back.

 

 

5.9  How will the Council use Revenue Contributions to Capital Outlay (RCCO) in the future (noting that this year they were able to release that funding). IW explained that RCCO wasn’t a long term solution but, in the medium term, switching its use to fund higher costs or higher wages in the HRA had been required.

 

 

5.10  IW went on to cover the economic context outlining a scenario where inflation might fall to 4% this coming year. A key challenge of course was that the current government subsidies for energy would end on 31 March and the energy price cap would be lifted. He also explained that the increased local government settlement had come in at a 9% increase over all but was based on the expectation that all councils would increase council tax. It would still be possible to increase council tax to a combined rate of just under 5%. Some councils who have major financial challenges were being given further flexibility, with Croydon for example being allowed to raise it by 15% because of its particular challenges. He added that this was still just a one year settlement and that Cllr Chapman and the Mayor had been lobbying hard for a longer settlement beyond the next financial year.  He stated that the Revenue Support Grant would eventually be replaced.  He pointed Members to the slides on the work that had been done on the disparities in funding of councils, noting that local government funding in the past 15 years has favoured relatively prosperous areas and councils with a larger business tax base would benefit most.  He clarified that Core Spending funding did not include the Schools Grant and that when Council Tax was created in 1990 Hackney had much lower property values so it has a lower council tax base combined with a large population dependent on council services. He concluded that Hackney had experienced an 18% reduction in real terms spending power since 2010/11

 

 

Questions from Members of Scrutiny Panel on S2 of presentation

 

 

5.11  Wasn’t the real terms reduction the opposite of ‘Levelling Up’?  IW replied that in the current settlement Hackney is allowed to raise council tax by up to 5% which is 2% more than they’d expected and this would generate revenue of £2m more.

 

 

5.12  Officers are to be commended for how well they have predicted the settlements but what things could the Council now e.g. building housing with care’ in order to help reduce the pressure on Adult Social Care budget. Also, in relation to SEND at secondary level, could the Council build extra provision in the borough on an invest to save basis? IW endorsed those comments and stated they are always seeking opportunities to invest to deliver savings. On SEND they were looking at capital investment programmes and the investment in estates to increase  in-house capacity rather than having to buy in from the private sector. On social care they’ve been in discussions with Adult Social Care to explore ways to invest in the Council’s own capacity but building those facilities quickly would always be a challenge as they have to be done properly and to a high standard and have to be very carefully located. He added that they were also giving more attention to energy resilience and energy security e.g. more solar panels on roofs, so the Council has greater certainty in the midst of fluctuating energy prices, but again, the roofs involved must be suitable. 

 

 

5.13  On the HRA debt of £110m what projects has the money been used for and why is it at such a level.  IW explained that typically the Council had tended to borrow internally rather than externally and so use the cash it holds. £68m of that debt figure was external borrowing which has to be serviced by, for example, using private sales and rental streams. He was working with the Group Director of Climate Homes and Economy on the impact of external borrowing. The Chair added that having more detail on the cost of borrowing and projects it was being spent on would be useful.

 

 

5.14  The Chair asked if the Pension Fund income could be part of the solution for invest to save.  He also asked for an update on redevelopment of King’s Hall Leisure Centre and what the Council’s energy bill was annually and what was the current risk considering the councils are not part of the current energy support subsidy.  IW explained that while Hackney Central had secured some levelling up money they had not been successful in bids relating to Kings Hall. He explained that much of the energy costs related to the core campus. They buy energy for the core campus and use it also for estates, leisure centres and schools so they can access cheaper energy costs.  The annual bill was c. £14m and that had increased 80% in the past 10 years. In 2019 the bill for the Leisure Estate had been £900k and they now estimated it to be £3m, although that included the redeveloped Britannia Leisure Centre. On the Levelling Up money, they had secured £19m for Hackney Central. Re King’s Hall they have factored in the increased costs in their medium term planning. Doing nothing wasn’t an option for the site and so they have already committed some construction money to protect the building in the short term. In response to the Chair he added that he would expect building on it to commence before 2026.

 

 

5.15  IW took Members through part 3 of the presentation. In summary he explained that Hackney council tax element would increase by 4.99% i.e. £63.65p for Band D. The GLA precept was 10% but the aggregate increase at Band D would be 6.12%.  He explained that they were also doubling the government’s Council Tax support scheme to a level of £50. Over the medium term and given inflation and the erosion of value of money, they will need to increase reserves from £15m to £20m. 

 

 

Questions from Members of Scrutiny Panel on S3 of presentation

 

 

5.16  How was the decision made to increase reserves and where would that money come from?  IW explained that on some balances which had not been earmarked they had taken the decision to increase the level of reserves to deal with unknown eventualities e.g. the recent building collapse in Stoke Newington Church St was a good example of how they had to be prepared for such situations. He explained how the £15m figure hadn’t changed since 2007 and that didn’t go as far now and so it was judged that £20m would be a more appropriate level.

 

 

5.17  RC thanked IW and his team for putting together a budget under such difficult circumstances where council funding continued to be below 2010 levels. They had achieved this budget with no significant cuts to frontline services.  It was necessary to raise council tax to the full limit as they have to fund cost of living support schemes which it was hoped would compensate and help to protect the most vulnerable in our community.  He added that Reserves were there for a purpose and part of the reason Hackney Council had achieved financial stability was because of the robust management of its finances. Much of the reserves were capital and could not be used and he reminded Members they could only be used once and a plan had to be put in place to replace the funding if it was drawn on and reserves were not an easy option to resource council spending. The Chair stated that he fully endorsed Cllr Chapman on increasing the level of Reserves, adding that they were the bedrock of the financial stability of the council over the years.

 

 

5.18  On the financing of the capital programme through debt, the Chair asked about the mechanism involved. IW explained that they made a Minimal Revenue Provision to write down the level of debt outstanding over a number of years therefore if they borrow more they have to increase this provision for it to write it down over say 25 years.  If for example an asset generated an income stream that would impact the financing cost of the capital. He gave the example of the use of the capital programme to build a GP surgery where the rent would be used to write down the debt incurred over a period of years. The change in the budget overall was that the proportion of debt the capital fund was paying had risen. In 23/24 they had also  set aside £6m in the revenue budget for this.

 

 

5.19  The Chair thanked the officers for their detailed reports and their attendance.

 

RESOLVED:

That the reports and discussion be noted.