To report the forecast position for 2024/25 at Quarter 3 (December 2024).

The member for finance and corporate services introduced the report.  The report presented the outturn position at quarter 3 2024/25, December 2024. It showed the overall position was a £7m overspend which was expected to reduce to £1.1m by year end. It was noted that despite in year challenges the council had responded proactively to mitigate timing issues in the delivery of savings.

The council's approved net revenue budget for 24/25 was £212.8m which included savings of £19.5m comprising £11.6m of directory savings and £7.9m of council wide budget savings. 

The report highlighted the continuing in year cost pressures to support increases in demand across social care budgets, temporary accommodation and special educational needs transport services.

It was highlighted that the quarter 3 revenue outturn position for 24/25 showed a forecast variance from budget of £7m, an improvement of £3.2m compared with quarter 2. The successful delivery of management actions identified at quarter 2, had a positive impact on the overall outturn position and it was expected that further planned activities in quarter four (January to March 2025) would reduce the forecast overspend to £1.1m by 31 March 2025.

It was noted that a review of the delivery and stages of approved savings had been undertaken at quarter 3 to confirm deliverability of savings targets.  This identified a total of £1.9m of savings across directorate targets which were assessed as at risk at quarter three.

Appendix A of the report set out the detailed explanations for variances from budget by directorate and service areas.

Community Well-Being directorate’s forecast overspend of £5.7m represented in year net cost pressures of £3.3m and savings targets assessed as at risk of delivery by 31 March 2025 of £2.4m.  It was noted that the in-year cost pressures were largely attributable to increase in demand and complexity of client need and increased demand for temporary accommodation. It was confirmed that the section 151 officer’s section 25 report provided assurance that that the directorate budget allocation for 2025/26 reflected these cost pressures and was sufficient to meet the needs and the costs of service delivery.

It was highlighted that £3.3m of the total £5.7m target was forecast to be delivered by 31 March 2025.  £2.4m of savings had been assessed as at risk and due to capacity restraints, these savings will not be delivered in-year. 

The Children and Young Peoples directorate had an underspend of £2m forecast for 2024/25 with forecast delivery of the £2.3m savings target in full by 31 March 2025.  It was noted that the forecast position reflected the impact of increased rigour and challenge of directory expenditure throughout 24/25 and provided assurance that the savings approved for delivery in 25/26 (year two of the revised financial plan) were already in progress. It was highlighted this was the first time in 10 years that the directorate had delivered within budget.

It was noted that forecast expenditure across service areas within Children Young People directorate continued to decrease because of review and management of residential placements and continued reduction in agency staff in social worker posts.

It was confirmed that at quarter 3 the SEND transport budget and expenditure had been transferred from the directorate budget and was reported separately alongside home to school transport budget and expenditure.

The Economy and Environment directorate had a forecast overspend of £0.6m.  This represented in year net cost pressures of £0.2m from reductions in expenditure across energy and waste services and in year savings target at risk of delivery of £0.4m.  It was highlighted that the directorate was forecast to deliver £3.8m of the total savings target of £4.4m.

The Corporate Services directorate had a forecast overspend of £1.3m.  This represented in year savings target at risk of delivery.  It was highlighted that at quarter 3 the directorate was forecast to deliver £2m of the total savings of £3.7m. Work to deliver the outstanding savings was underway, aligned to the development of the Transformation Strategy. 

At quarter 3 the net £1.2m overspend represented savings targets which had not been mitigated by recovery actions and deficiencies in year.   Work was underway to review the original proposals, planned activity and time scales aligned to the development of the Transformation Strategy and target operating model. 

Regarding management activity and recovery actions it was confirmed that the corporate leadership team had continued to exercise robust financial management of the forecast position throughout the year, monitoring the impact of planned mitigations and recovery actions on the in-year forecast and the progress of delivering approved savings targets. 

At quarter 1 the forecast overspend was £10.8m this was expected to reduce to £6.8m with delivery of management recovery actions. At quarter 3 recovery actions identified had successfully reduced the forecast overspend to £1.1m at 31 March 2025.

It was noted that council approved £19.5m delivery of savings for 2024/25 which comprised of directorate savings of £11.6m and £7.9m of council by wide savings. 

It was highlighted that the Dedicated Schools Grant (DSG) had been closely monitored as a key risk to the council's overall financial sustainability. It was confirmed that the cumulative DSG deficit was accounted for as an unusable reserve on the council's balance sheet, as permitted by statutory instrument which will remain in place until 31 March 2026.  After this date it is expected that any balance on the DSG unusable reserve would transfer back to the council's total earmarked reserves. The deficit would have an impact on the council's overall financial position and this risk is being managed alongside the assessment of the adequacy of the council reserves as part of the council’s medium term financial strategy. It was confirmed that as of 1 April 2024 the cumulative deficit brought forward totalled £6.1m.  A focused review to quantify the impact of emerging demand in 25/26 and future years had been undertaken during quarter 3 to inform the high needs budget for 25/26 and the council’s DSG deficit management plan. The revised position for 25/26 has a forecast overspend of £11.1m in 24/25, increasing the council’s DSG deficit to £17.2m as of 31 March 25.  

This increase in forecast expenditure is largely attributable to an increase in independent School placements.  A lack of sufficiency and local authority special school places meant the council is reliant on the independent sector to meet the specialist education needs for children in the county.  The increase in top off costs or element 3 funding, driven by the national increase in the number of Education Care and Health Plans represented an additional cost pressure in 24/25.

 It was highlighted that Herefordshire continued to experience increased demand which was not met by corresponding increases in funding, this was a significant risk across local government and the number of authorities with significant DSG deficits was increasing.  It was noted that the council continued to work with the Department of Education, Local Government Association and other local authorities to seek clarification on the position once the statutory instrument expires. 

The capital outturn, the 24/25 capital budget approved £160m which had been revised to £96.7m.  The revised capital budget included £15.3m of unspent project budgets brought forward from 23/24, approved movements of £0.3m, £3.8m of additional grants and a reduction of £82.8m which had been re-profiled into future years (appendix B, table 4).

The forecast spend position was £79.6m which represented an underspend of £17m against a budget of £96.7m.  The underspend consisted of £4.5m projects that would deliver below the project budget and £12.5m in respect to project budgets to be rolled forward for delivery in 25/26 if not spent. 

It was summarised that management action controls over expenditure had been effective in reducing the forecast overspend. At quarter 1, June 2024, the forecast was £10.8m with a revised forecast of £6.8m. At quarter 2, September 2024, the forecast was £10.2m with a revised forecast of £2m. Now at quarter 3, December 2024, the forecast was £7m with a revised forecast of £1.1m.  

Comments from cabinet members.  It was positively noted that the forecast variance in children’s services was £2m below what was budgeted which was a hallmark of all the various pieces of hard work.

Regarding the variance on the Community Well Being budget it was noted that client numbers and costs had increased significantly with specific pressures in residential (increased by 23%) and domiciliary care for people with physical disabilities (increased by 21%).  It was noted the average cost of a residential care placement had increased by 19%, meaning each residential placement was costing on average an additional £9,300, which based on current numbers amounted to an additional £2.1m per year.

It was highlighted that similar pressures were in housing with an overspend in temporary accommodation. The number of people who required temporary accommodation had significantly increased. Over 1,300 people had presented as homeless since the 1st of April 2024 and this was unprecedented.

In respect of the at-risk savings, it was confirmed that those savings would be delivered in 25/26 but due to capacity constraints delivery had been delayed. The impact of increased demand for adult social care had diverted capacity away from focusing on the savings. 

Congratulations were extended to Councillor Stoddart and the 151 officer regarding their strong grip on the budget.  Also, tribute was made to the cabinet member for Childrens and Young People in respect of their directorate’s achievements. It was also noted as a positive step to separate out finance from SEND and transport from the Children and Young People directorate. 

Group leaders gave the views of their groups.  Congratulations were extended to Councillor Stoddart, Councillor Powell and officers regarding the work in their directorates.  It was raised that £8.1m of savings remained at risk and queried if the savings did not materialise what were the contingency plans for next year.  Repeated delays in the capital programme were also concerning.  It was queried why this was happening and how the executive planned to avoid capital programmes ‘stacking up’ due to the delay. 

Concern around MERs was raised regarding deletion of posts, pressure on remaining staff members and delays in capital programme regarding public transport in cycling and walking schemes. The DSG position was noted, and it was raised this was an issue the government should be addressing. 

In response to queries regarding the savings it was confirmed that detailed plans were in place for delivery of the savings, and this will also be underwritten by the contingency reserve for next year.  Regarding delivery of capital programme, it was confirmed that this remained a key priority, resources were under review to ensure there was capacity and expertise to deliver those projects. It was noted that cabinet were mindful of the impact of delays in delivery of projects.  Assurance was provided that cycling and walking capital projects would be delivered in the next year and the funding for Holme Lacy Road, Alyestone Hill, Transport Hub and green school walking were slowed down to ensure they had value engineering due to the cost impact from construction over the last 2-3 years.  However, these projects would be ready in the procurement pipeline for the next 12 months and expected to be delivered within the 25/26 year period.  It was confirmed there was clearance for the funding should an extension be required. 

Regarding the deletion of posts and MERs concern it was noted that deletion of posts would have been because the post had been empty for some time.  In terms of capacity in the workforce, this had been considered to ensure there was no gap in the service. 

Councillor Lester proposed the recommendations, and it was unanimously resolved that:

Cabinet

a)    reviews the financial forecast for 2024/25, as set out in the appendices A-D, and identifies any additional actions to be considered to reduce forecast cost pressures;

b)    notes the progress in delivery of savings targets and recovery actions for 2024/25; and

c)    c) notes the forecast revenue outturn position at Quarter 3 2024/25 of a £7.0 million overspend, before management action, and the potential impact of this overspend on the council’s reserves.