To review performance for Quarter 1 2023/24 and to report the forecast position for 2023/24, including explanation and analysis of the drivers for the material budget variances, and outline current and planned recovery activity to reduce the forecast overspend. 

To provide assurance that progress has been made towards delivery of the agreed revenue budget and service delivery targets, and that the reasons for major variances or potential under-performance are understood and are being addressed to the cabinet’s satisfaction.

Cabinet members considered a report setting out the performance of Quarter 1 2023/34 and the forecast position for 2023/24. 

The cabinet member for finance and corporate services introduced the report and highlighted that this report is the first outline position for 23/24 and clearly demonstrates the challenges faced in delivering the revenue budget set by the previous administration in February 2023.  This year’s revenue budget £193.3m which includes planned savings of £20m arising from £14.1m director savings together with £5.9m central budget savings.

The cabinet member set out that the Quarter 1 report for the last four years has traditionally forecast a overspend. In:

• 2019/2020 Quarter 1 showed a zero overspend and final overspend of £600k;
• 2020/2021 Quarter 1 forecast was £15.9m with a final over spend of £0 which was underwritten by £10.2m of Covid funding;
• 2021/2022 Quarter 1 forecast was £9.4m with a final overspend of £12.6m.

Therefore this year’s overspend will be less than the Quarter 1 forecast.  The Quarter 1 forecast is £13.5m overspend and the Medium Term Financial Strategy, which was approved by previous administration, has a cumulative funding gap of £15.8m over a three year period (2024-2027). The cabinet member highlighted that these two figures clearly demonstrate the scale of the financial challenge we have been left by the previous administration.

The cabinet member outlined what they are going to do to address the £13.5m overspend which equates to 7% of the net budget with the most significant overspend being in Children and Young People Services at £10.6m.  The cabinet member highlighted the following points:

• The overspend reflects significant national pressures including inflation, unprecedented demand for adult and children social care and national living wage increases;
• Recovery action has been identified to reduce the cost by £4m and timely delivery of this activity is a priority for the Cabinet.  This includes restrictions on procurement, non-essential spends, target reductions for third party spends and reduction on the number of interim and agency staff as well as number of directorate specific measures. Table 3 shows the revised forecast in light of these actions;
• Improvement in Children’s Services are supported by a robust three year financial plan.  Activities planned within this service aim to reduce reliance on agency staff, improve the balance of social workers to 90% permanent employees and 10% agency staff.  The lack of sufficient childrens social work places and increase in residential placement costs will be monitored over this period;
• Efforts to recruit in house foster carers to reduce the Council’s need to use independent fostering agencies will renewed;
• Fully committed to reduce in year over spend and as part of 24/25 budget.  A three prong approach will be adopted; Firstly, this report sets out the immediate management actions to deliver savings through controls and these actions will continue and develop into next year; Secondly, the Council will invest in the economy to generate growth; Thirdly the Council will innovate to increase revenue through maximum utilisation of Council owned assets. 

The cabinet member advised that it is only through investing in growth and increasing future revenue, that the long term funding issues can be addressed. This strategy will be underpinned by this administrations belief in openness and transparency and supported, in the recommendations of the report, for active engagement by the scrutiny management board.

The cabinet member highlighted the Council has maintained healthy reserves but noted the Council’s reserves have reduced over the last three years from £114.7m to £106.1m in March 2022 to the current figure of £91.4m.  The cabinet member made it clear, that despite challenges and reports in the media, the Council’s position is stable. 

Cabinet members discussed the report and it was noted that:

• The projected overspend is predominantly within Children’s Services and the Council are considering replacing agency staff with permanent staff over a 3 year period;
• The Council have increased the welcome bonus in September and the retention bonus for long serving staff.  Alongside this the induction process, as well as the Learning and Development opportunities that have been strengthened;
• The majority of staff feel valued, staff recently told Ofsted they like working for Herefordshire and value support from their managers, this is helping recruitment;
• Planning to develop spirit of Herefordshire website and simplify the application process.  In addition the Council are planning open days and to attend employment fairs;
• The Council wish to increase the number of apprentices and the Council is looking to grow their own workforce in Herefordshire;
• In respect of the Environment directorate it was stated there is not a massive  overspend and work is being carried out to balance the figures;
• Clarified that engagement with the scrutiny management board  will be welcomed;
• In respect of inflation this has been factored into the report and will continue to be monitored as the 24/25 budget is developed;
• Regarding the Community Wellbeing budget, it is showing a £3.3m overspend;
• Noted a reason for this is because demand fluctuates in Adult Social Care and Summer 2023 saw an increase in people asking for Council supported care;
• Due to shortage in social workers, it is unlikely the savings will be seen until April 2024;
• Clarified that of the £4m given to the previous administration in the fourth quarter of last year, £200k has been spent.  This was spent on providing day care providers the 8% uplift, as previously this was only provided to the Council’s providers;
• Savings previously put forward relied on obtaining data but this has been challenging to identify number of people in supported living and respite care;
• There is a clear action plan of achievable actions to assist Children’s Services in delivering the budget.  However Cabinet remain open to any further actions identified that may assist;
• Clarified the reserves in Table 1 is the total list of all reserves;

-        The general fund balance is £9.6m. 

-        The ear marked reserves (currently there are none) are set aside from the general fund. 

-        The future expenditure is to support specific corporate priorities. 

-        The financial resilience reserve is £1.2m and is set aside for financial risk.

-        The business rate reserve is to smooth the transition of business rates.

-        The school balance is £9.3m and is held for individual maintained schools.

-        The waste reserve of £9.4m is to support increased future costs of waste disposal. 

-        The unused grants reserve is currently £17.6m and represents the amount of grant funding received that has not been applied to relevant expenditure. 

-        The £31.2m represents the smaller individual reserve balances.

• Explained the financial resilience reserve is where a directorate delivers an underspend, and these underspends will be transferred to manage future financial risks;
• The voluntary sector is engaged across the whole Council in particular Children’s Services, notably early help.  The Council has undertaken an opportunity with the Police Crime Commissioner office of a £1m grant;
•  The reserves held by Herefordshire Council is above average and it was reiterated that Herefordshire Council’s financial position is stable.

Group leaders gave their views of their groups.  It was noted that it was a tough Quarter 1 report to present; cuts from Central Government have been a contributing factor to the issues faced in the budget and the challenges faced by Children’s Services were taken seriously by the previous administration.  There needs to be a focus on well-being and focus on retaining social workers however it is said this has been a recurring issue. Expressed a need for the Council to be run along business lines.  Noted it was reassuring that there are prudent reserves however caution was expressed in using the reserves; the Council are in a sound financial position and the recommendation for scrutiny management board to review the Budget was welcomed. 

In response to queries it was noted that: 

• The Delivery Plan is in progress;
• The invitation to the scrutiny management board to review the budgets will be welcomed and the Director of Resources and Assurance is open to a conversation with the Chair regarding what information the scrutiny management board requires;
• The Q2 budget and performance report is coming down the line;
• Cabinet will consider the letter being sent to Michael Gove regarding funding for children and Adult Social Care, regulation of social workers and funding for training social workers;
• Clarification will be sought regarding the difference in figures in tables two and three and the figures agreed at full Council.  In particular it was said the money allocated for All Ages Social Care (£4m) was to bring some commonality in the way the services are dealt with and that money was not to be used as a saving;
• Further information will be provided at the next Cabinet meeting regarding the Capital fund for the voluntary sector as this was part of the Capital Programme of the previous administration;
• The letter that was sent out on 28 September (morning) went to all organisations that expressed an interest in the Capital Fund for the voluntary sector. 

It was unanimously resolved that Cabinet:

a)    Review performance and financial forecast for year 2023/24, as set out in the appendices A-E, and identifies any additional actions to be considered to achieve future improvements;

b)    Note the forecast revenue outturn position at Quarter 1 2023/24 of a £13.5 million overspend, before management action, and the potential impact of this overspend on the council’s reserves;

c)    Note the management action already identified to reduce the forecast outturn position for 2023/24 to £9.5 million;

d)    Note the impact of the 2023/24 forecast outturn on the 2024/25 budget requirement and the future financial sustainability of the council;

e)    Agree to receive a monthly update to monitor the forecast revenue outturn position and actions being taken to address it;

f)      Request that Scrutiny Management Board reviews the budget monitoring position and that relevant Cabinet Members provide explanation for key variances and actions identified to address key pressures; and

g)    Agree the continuation and strengthening of management actions to reduce the forecast overspend as identified in this report.