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Agenda item

Quarterly Finance Update

Meeting of Scrutiny Panel, Monday 4 December 2023 7.00 pm, MOVED (Item 5.)

Minutes:

5.1 Council Finance is a fixed item on the agenda of the Scrutiny Panel to allow members to retain oversight of the Council’s overall budget. Reports and updates below are provided for members to review: The finance update will also include a verbal update about the following:

1. The Council's communication / engagement plans with residents about the Council's budget;

2. Update on the budget setting progress and budget gap;

3. Update on the Audit Committee work looking at Section 114 notices

4. Update on the Audit Committee Task Group for Fees and Charges.

5.2 Cllr Chapman introduced the item highlighting the ongoing financial pressures that the Council was facing. Due to reduced central government funding, the Council was now £150m worse-off now than it was in 2010 and further tightening was anticipated over the next financial period.

5.3 The DoF presented a series of slides which are attached which covered the following issues:

· General fund forecast 2023/24

· HRA forecast

· London picture

· Capital programme & borrowing

· Update on Budget Process 2024/25 - 2026/27

· Budget communications

· Autumn Statement Update

· Public Interest Reports & S114 notices

· Income Generation Task & Finish Group

Questions from members of the Panel

5.4 The presentation noted that £14m of reserves had been used for this year. Can officers explain further about the use of reserves and the value of remaining reserves? Does the council have an appropriate level of reserves / contingencies to meet unexpected demands in 2024/25?

· (DoF) It was correct that £14m of reserves had been used, mainly for those services areas of high demand and spend such as children’s and adult social care. It was anticipated that there would be a drop in reserves after this year, but next year significant growth monies had been put into these budgets to reflect the high demand for these services. Whilst this growth would have covered the overspend this year, this would not mean that additional reserves would not be needed for next year. The Audit Committee undertook a deep dive into the councils use of reserves which demonstrated that there was a long term decline of the amount of reserves available, a position which was common to many authorities across London. The reserves position would be updated after the final settlement which was expected on 18th December 2023. A stress test of the reserves available for next year was also planned to test out the financial resilience of the council. There was an agreed level of reserves and this would be set out in the Cabinet report in February.

· (Cllr Chapman) It was noted that there was also an overspend of £9m this year which may impact on reserves.

5.5 (Cllr Hayhurst) In terms of the £9m overspend, is it the case that to mitigate this that a certain amount of money is set aside at the beginning of the year and a conservative figure is set for Council tax collection? Once these factors are taken into account, how will this impact on the projected £9m overspend? How much is the council worse off in real terms compared to last year? Is there a notional reserve for the SEND overspend?

· (DoF) In the forecast, we have not utilised the contingency which we always hold in the budget. In terms of the council tax, the council was part of a localised NNDR pool and that can accrue a surplus for the council but as this is by no means uncertain, it is not factored into the budget to help with the £9m forecast deficit. There may need to be an additional drawdown (in excess of the £14m of reserve use for this year) to help balance the position. Other budget areas may also be used such as the Capital Programme. All these decisions are taken at year-end once a clearer assessment could be made. It was emphasised that none of these sources could individually offset the £9m forecast overspend.

· (DoF) At the end of the last financial year there was approximately £150m of reserves, though it should be remembered that much of this was allocated for specific purposes such as set aside for capital spend and other areas. This was a complex area however and the DoF agreed to bring a more detailed summary to the Commission once the final settlement was in and agreement had been reached with Cabinet.

· (Cllr Chapman) Emphasised that most of the value of reserves were set aside for a specific purpose. If reserves are used, then this does not address the reasons for the overspend and of course, the reserves have to be replaced for their intended purpose. Reserves cannot and should not be used to finance expenditure and pressures associated with that.

Agreed: (DoF) To provide a short summary of reserves of the Council to the Scrutiny Panel (once the final settlement and agreement of Cabinet reached) to a future meeting.

5.6 What is the remaining budget gap for 2024/25 and the remainder of the MTFS period?

§ (DoF) There were a number of reports due to go to Cabinet which would affect the budget position and once these had been agreed there would be greater clarity on the budget gap. The overall budget gap would not be fully clear until the final settlement was published (December 2023) and then the final council tax rate could be set and published in the February Cabinet papers. Noting these variables, the Council was in a relatively good position for 2024/25, but again, this was dependent on the local government settlement for 2024/25. Difficult budget decisions had already been taken for 2024/25, but it was likely that further difficult decisions would be needed balance future budget for 2025/26-2026/27.

5.7 (Cllr Adejare) Noting the volatility in interest rates, how much of the projected borrowing to support the capital programme would be from external sources?

§ (DoF) There would be no new external borrowing this year, as the council is able to use various cash flow processes to support its borrowing needs. For example, the council may utilise reserves which were held for specific purposes or use grants which are paid in advance or another example would be to use the ‘right to buy’ receipts. So borrowing would take place against these cash balances, but it must be remembered that these monies need to be repaid (through future borrowing or set aside). The Cabinet has also been working on developing a longer-term capital programme so that there is a much better understanding of long-term finance needs. A breakdown was provided in the budget report of capital spend, borrowing requirements to support these commitments and the source of funding / borrowing used.

5.8 (Cllr Hayhurst) In terms of Hackney Central Levelling Up money, £2.6m would need to be spent by the beginning of April 2024. Was this feasible?

§ (Cllr Coban) A significant proportion of funding would be used for the Pembury Circus improvement and a report and decision is expected in Cabinet in December, with works commencing next year.

5.9 (Cllr Hayhurst) In respect of big project sites such as the Tesco site on Morning Lane, can officers reassure the Panel that current income from the site was offsetting ongoing costs for future planned development?

§ (DoF)There is an income from Tesco which is held on the balance sheet for the most part which is uncommitted. In terms of the capital outlay, this was significant and has had to be reflected in budget and MTFS. New planning proposals for the site were being encouraged which would offset these costs going forward.

5.10 (Chair) One of the risks for local authorities mentioned in the report is the debt risk in relation to overall turnover. Can you give Hackney’s position in relation to this risk?

§ The current debt level for Hackney was around £70m and the gross budget was £1.3b, and with an annual budget of £365m. This was a comparatively low debt ratio compared to other boroughs. It was noted however, that the council would be moving to a higher degree of borrowing to fund the capital programme because capital receipts were being depleted or were committed elsewhere in the capital programme.

5.11 Income Generation Task & Finish Group - Cllr Lynch (Chair of Audit Committee) presented a summary of the key outcomes of this work. To commence, it was noted that there is an aligned programme of communication with local residents to improve awareness of what services the council was statutorily required to fund and provide and those services which were discretionary. For all members there were clear priorities in ensuring that there were effective services for maintaining the cleanliness of the borough (e.g. street cleaning and waste collection), education of young people and care for most vulnerable residents. This review was undertaken with a view to improving income generation across the council to be able to support both essential and discretionary areas of spend.

§ The review has contributed to clear set of principles around oversight of fees and charges which means that proposals are always stress tested to ensure that these do not have a disproportionate impact on residents;

§ The review has also highlighted that commercial decisions (income generation through fees and charges) is a partnership between councillors and senior council officers, where the latter were able to provide a range of alternative financial options for local policy ambitions. From this initial work, it was apparent that there needed to be greater awareness of the financial decision making process and role of respective bodies (Cabinet, Labour Group etc.).

§ There would be further opportunities for the other council members to become involved in this work (which started in November 2023). The review has already assessed some income streams within the council and noted those which are over performing (e.g. filming in Hackney) and would progress to look more widely at other areas where income may be increased.

§ (DoF) Stressed that whilst this was a move to greater commercialisation of the council, this would be within the general business of the council and not expose the council to further external risks (as evidenced in a number of other authorities which had faced financial problems in this respect).

§ (Cllr Chapman) Thanked members and officers supporting this task and finish review.

5.12 (Cllr Hayhurst) When feed and charges are increased or a new fee is introduced, is there an internal audit process for assessing the impact to make sure it is delivering the required income and that there are no adverse effects? The example of increased charges for skips was used, which it was suggested this had incentivised residents to move to private contractors.

§ All the changes to fees and charges would be reviewed as part of the ongoing budget monitoring function of the council to ensure that these were delivering the required level of income. The Council has been very careful to ensure that where new charges were introduced or fees were increased, that this did not have an adverse impact on demand and therefore reduce income for the council.

5.13 The Chair thanked Cllr Lynch for this work and indicated that further updates would be welcomed by Scrutiny Panel. The Chair also thanked DoF and Cllr Chapman for the budget presentation.

Supporting documents: