Agenda item
2024/25 Capital Investment Budget and 2024/25 Draft Budget - Revenue
Minutes:
It was noted that consideration of the ‘2024/25 Capital Investment Budget’ item and the ‘Corporate Services Directorate Delivery Plan 2024/25’ element of the ‘2024/25 Draft Budget – Revenue’ had been deferred at the board meeting held on 10 January 2024.
Further documents published for the current meeting included: the ‘Medium Term Financial Strategy 2024/25 to 2027/28; ‘Treasury Management Strategy 2024/25’; and ‘Earmarked Reserves and General Fund Balance forecasts to 31 March 2024’.
The principal points of the discussion are summarised below.
2024/25 Capital Investment Budget
The documents for this item were published within the agenda for 10 January 2024 and are also available through this link: 2024/25 Capital Investment Budget
The Cabinet Member Finance and Corporate Services responded to questions from board members, the key points included:
i. Schools Accessibility Works [10 January 2024 agenda, page 97]: It was confirmed that access needs were identified each year which could result in capital costs for accessibility works.
ii. Children’s Residential Homes for 11 to 18 year olds [10 January 2024 agenda, page 99]: The board was advised that the identified revenue budget implications had been included in the revenue budget proposals 2024/25.
iii. Property Improvements in Care Homes [10 January 2024 agenda, page 107]: The need to raise awareness about council assets was acknowledged.
The Chairperson:- drew attention to the information available on the council’s website [link to the council land and property assets webpage]; suggested that future business cases should make it clear where investments were being made in council-owned property, to meet repairing lease responsibilities, or to meet other legal obligations; and, referring to best practice identified to board members during Treasury Management Training provided by Link Group, requested assurance that appropriate levels of detail (such as legal power, evidence of robust option appraisal work, sensitivity analysis outcomes, impact on resources, skill-sets of external consultants, and any material risks) were made available for each line of the capital programme, and for the proposed additions, before spending was sanctioned on any individual project.
The Cabinet Member Finance and Corporate Services accepted that additional information could have been included in this Outline Business Case and said that full details would be included in the Full Business Case.
In response to a comment from a board member that the absence of a County Plan beyond 2024 made it difficult to understand the need for certain expenditure, the Cabinet Member Finance and Corporate Services advised that the County Plan 2024-2028 was in development and the Delivery Plan would include financial lines.
iv. Prudential borrowing [10 January 2024 agenda, page 90, paragraph 17]: Clarifications were provided about how capital schemes would be financed from prudential borrowing through to 2027/28. It was reported that this approach was factored into the Medium Term Financial Strategy.
A board member expressed concern that this could limit the capacity to borrow in future years.
The Chairperson re-iterated that the lack of a County Plan for the next period fettered the ability of the board to see the full context of the proposals. The Cabinet Member Finance and Corporate Services, referencing the discussion at the board meeting on 21 November 2023 [minute 30 of 2023/24 refers], said that the County Plan would be delivered as quickly as possible. The Chairperson noted that the board had recognised the need for meaningful consultation and had expected the plan to be considered by Council in March 2024, but the administration had indicated subsequently that the plan would not be presented until the Annual Meeting of Council in May 2024.
Medium Term Financial Strategy 2024/25 to 2027/28 (MTFS)
This document was published in Supplement 1 to the agenda for 16 January 2024 and it is also available through this link: Medium Term Financial Strategy 2024/25 to 2027/28
The key points of the discussion included:
1. In response to a question, the Chief Executive provided an overview of the involvement of the Corporate Leadership Team in constructing the MTFS, guided by the Director of Finance and Resources and informed by key assumptions, with a focus on balancing the budget for 2024/25.
2. A board member expressed concern about the level of revenue budget savings that had to be made by the Economy and Environment Directorate, particularly as this could have an impact on services accessed by most residents. The Cabinet Member Finance and Corporate Services said that the executive recognised this concern but emphasised the range of services which were required to be undertaken under statutory duties by the Children and Young People Directorate and by the Community Wellbeing Directorate.
The Chief Executive commented on external funding that had been secured, investments through the capital programme, and additional resource and capacity to support growth in the economy.
The Cabinet Member Finance and Corporate Services said that Cabinet and the Corporate Leadership Team had worked together to set a balanced budget and the council was in a better position than in many other local authorities.
The Leader of the Council drew attention to: capital investment in road resurfacing; and additional investment in the Children and Young People Directorate, aligned to support the delivery of the Improvement Plan for Children and Families.
3. The Chairperson made reference to: the Medium Term Financial Strategy (MTFS) 2023/24 – 2026/27, approved by Council on 10 February 2023 [link to the MTFS 2023/24 - 2026/27], which identified ‘Whilst a balanced budget is proposed for 2023/24, there is a total funding gap of almost £16m over the period from 2024/25 to 2026/27 and this must be addressed through future reductions in spending, savings or transformation of services.’; Council Tax premiums on second homes and empty properties which had been approved by Council in principle [minute 53 of 2022/23 refers]; and Annex B of the MTFS 2024/25 to 2027/28 which showed funding from ‘Council tax (second homes premium)’ of £6.431m in 2025/26 and £6.560m in 2026/27, and a surplus of £1.879m in 2025/26 and a gap to be funded of £1.916m in 2026/27.
In response to questions, the Director of Resources and Assurance advised that: the draft settlement received in December 2023 was for one year only again. The funding projections for future years were estimates based on information received from civil servants; and it was reported that the Levelling Up and Regeneration Act 2023, including discretionary options for the application of Council Tax premiums, received Royal Assent in October 2023 and a further report would be considered by Council to confirm the council’s policy [link to the meeting page for 9 February 2024].
In response to further questions, the Director of Resources and Assurance commented on dialogue with other councils, that guidance was awaited on the definition of second homes, and on the work being undertaken to identify such properties.
4. In response to questions from the Vice-Chairperson about differences between the key financial risks and mitigating actions table in paragraph 61 [agenda for 10 January 2024, page 18] and Table 4 (Key financial risks) of the MTFS 2024/25 to 2027/28 [supplement 1 for 16 January 2024, page 8], the Head of Strategic Finance said that: the mitigating action for the key financial risk ‘Not delivering required improvements’ had been updated following the discussion at previous board meeting; and ‘Dedicated Schools Grant’ was referenced in the MTFS only, as it expanded on risks which were relevant over the medium term.
The Chairperson acknowledged that officers were working hard to provide the most up-to-date picture but noted that it would be helpful if changes or differences could be highlighted in key documents.
5. Referring to Table 2 (Key assumptions by budget area) of the MTFS 2024/25 to 2027/28 [supplement 1 for 16 January 2024, page 6], the Chairperson questioned why ‘Contract inflation’ assumptions appeared to mirror the consumer prices index (CPI), rather than the averaging of inflationary assumptions for the different directorates as reflected in the previous MTFS. In response, the Director of Resources and Assurance accepted that the CPI was not based on a representative sample of the sort of goods and services typical of the council’s operation, but stated that the planning assumptions which had been made were considered robust, and had been informed by expert advice and sensitivity analyses.
6. The Chairperson highlighted that responses were awaited to a number of recommendations and requests made to the executive in relation to income and charging, as identified at the board meetings on 7 November 2023 [minute 18 of 2023/24 refers], on 21 November 2024 [minute 31 of 2023/24 refers], and on 10 January 2024 [minute 40 of 2023/24 refers] and requested that these be made publicly available ahead of for Cabinet and Council considering the budget. The Cabinet Member Finance and Corporate Services acknowledged this request.
7. In response to a question from a board member about the monitoring and reporting of savings delivery, the Chief Executive advised that: the Corporate Leadership Team received monthly reports; review meetings were held weekly with the Chief Executive, the Director of Resources and Assurance, and the relevant corporate director; and there had been regular ‘star chambers’, involving the relevant cabinet member, during recent months to consider in-year positions and the proposals for 2024/25.
Referring to Annex B of the MTFS 2024/25 to 2027/28, a board member questioned whether the ‘Savings, efficiencies & mitigations’ of £20.035m in 2023/24 and £24.941m in 2024/25 would be achieved. The Chief Executive commented that: the external auditor had issued an unqualified audit opinion for 2022/23; and, except for Children’s Services during 2023/24, there was commitment by the corporate directors to deliver the level of savings committed to for 2023-24, and all were committed to those proposed for 2024-25.
8. The Chairperson expressed concern that savings had not previously been delivered in respect of children’s services, despite the assurances provided by officers during 2023/24 budget setting, and questioned whether the ‘Children’s Three Year Plan’, which proposed savings of £2.503m in 2024/25, would be deliverable. In response, the Cabinet Member Finance and Corporate Services commented that the increased demand on services was not unique to this council and children’s services was being given the highest priority by the administration.
The Leader of the Council reminded the board of the contributions made by the Corporate Director Children and Young People at the previous board meeting, including steps being taken in terms of improvement that were leading to savings.
The Cabinet Member Children and Young People commented on: the Report of the Children’s Services Commissioner in Herefordshire on progress and next steps, due to be considered by the Children and Young People Scrutiny Committee [link to the meeting page for 23 January 2024]; ongoing work on the delivery of improved outcomes for children, including demand reduction in a number of areas; the challenges associated with the higher rate of looked after children in Herefordshire compared to the national rate or those of ‘statistical neighbour’ local authorities; and other challenges in relation to recruitment and retention, and SEND (Special Educational Needs and Disability) transport services.
The Chairperson emphasised the need to demonstrate a track record of starting to deliver savings in this portfolio area before the end of the financial year 2023/24 to provide assurance to Cabinet and Council around the robustness of budget estimates for 2024/25. The Cabinet Member Children and Young People considered that the right metrics were in place and would discuss this with Corporate Director.
The Chief Executive said that: conversions from agency to permanent posts were starting to be made; it was hoped that trajectories would be shown in Q3 of 2023/24 but this was predicated on appointments having been made before the end of the reporting period; and evidence had been provided to the Children and Young People Directorate Budget Task and Finish Group which supported the integrity of the Three Year Plan and the commitment to deliver savings.
In response to a question about confidence in the collection and accuracy of the data in terms of staffing levels, the Chief Executive noted the potential for this matter to form the basis of a recommendation in the Task and Finish Group report.
9. A committee member commented on the need for clear language within council documents and, as an example, requested that the wording be clarified for the key assumptions against ‘Council tax’ in Table 2 of the MTFS 2024/25 to 2027/28.
Corporate Services Directorate Delivery Plan 2024/25
This document was published within the agenda for 10 January 2024 and is also available through this link: Corporate Services slide pack
The key points of the discussion included:
i). The treatment of legal services activity within the budget for Corporate Services was explored, including in relation to children’s services and the Programme Management Office. The Chairperson said that, depending on where and when the costs fell, this could obscure the full costs associated with service delivery in the directorate areas.
The Cabinet Member Finance and Resources outlined the intention to embed project managers within individual service areas.
ii). With reference made to ‘Corporate Services 2024-2025 Pressures’, ‘P3 – Cross Directorate Virements’ [10 January 2024 agenda, page 79], the Head of Strategic Finance advised that this showed movement associated with the transfer of services. The Director of Resources and Assurance said that a breakdown could be provided.
iii). In response to a comment about the identified £1.2m overspend in relation to the Programme Management Office [10 January 2024 agenda, page 77], the Director of Resources and Assurance said that this reflected the situation as at Q2, there had been some improvement, elements had been recharged to relevant projects, and further explanation would be provided in the Q3 report to Cabinet.
iv). With reference made to the identified £1.0m overspend in relation to the Transformation Programme, assurance was sought that the proposed saving of £2.6m associated with ‘S2 - Transformation: Thrive Programme Savings’ [10 January 2024 agenda, page 84] could be achieved.
In response to questions: the Cabinet Member Finance and Corporate Services advised that the programme sought to structure the organisation to deliver more innovative, effective and efficient services over the next three to four years, and this involved upfront costs; the Director of Strategy and Performance outlined the invest to save approach; and the Chief Executive acknowledged that savings had not come through as quickly or in the format as originally planned, and that consideration may need to be given to a more appropriate way to present the investment made and when savings would be delivered.
v). Questions were asked about the proposed saving of £2.142m associated with ‘S6 – Reduction in Hoople SLA contract value and workforce service reviews’ [10 January 2024 agenda, page 31]. The Cabinet Member Finance and Corporate Services, noting that the council was the major shareholder, said that Hoople would provide the same services for less money, albeit some services may be delivered slightly differently. The Director of Resources and Assurance highlighted that the proposed saving was based on reduce (£610k) and transform (£1.532m), and commented on the potential of online self-service by customers and automated systems to transform a range of activities.
vi). Questions were asked about the proposed saving of £4.5m associated with ‘S1 – Mutual Early Resignation Scheme 2024 (MERS24)’ [10 January 2024 agenda, page 32]. The responses included:
· The Cabinet Member Finance and Corporate Services commented on the linkage to transformation and confirmed that applications for MERS would not be accepted for critical posts.
· The Chief Executive outlined the consultation undertaken with the trade unions, said that expressions of interest and applications had been received, outlined the next steps, and confirmed that successful applications would result in staff finishing employment before 31 March 2024.
· The Chief Executive said that the window for applications under MERS24 would need to close before the full position became clear.
· The Cabinet Member Finance and Corporate Services emphasised that this was a voluntary resignation scheme, not redundancies.
· The Director of Resources and Assurance advised that Hoople were not planning any redundancies; the council’s Workforce and Organisation Development Strategy would help to manage change and wellbeing support was available to staff; and it was acknowledged that the council would be smaller as a result, reflecting the reality of the financial situation for all councils.
vii). There was further discussion about Annex B of the MTFS 2024/25 to 2027/28 and the implications of reducing the size of the council given the identified ‘Growth – Demand & Pressures’. The Director of Resources and Assurance commented on the set of assumptions for future years and drew attention to sensitivity analysis outlined in paragraph 5.2 [supplement 1 for 16 January 2024, page 7]. The Cabinet Member Finance and Corporate Services reiterated that critical posts were not eligible to apply for MERS, including certain posts in social care and planning, and that the transformation programmes would help the council to manage potential growth in demand.
The Chairperson drew attention to the ‘Growth – Demand & Pressures’ of £32.018m in 2023/24, £35.278m in 2024/25, and £15.475m in 2025/26. The Cabinet Member Finance and Corporate Services said that best practice from across government was being used to inform the projections.
viii). In response to a question about the provision made by the previous administration to support the hardest hit households, the Cabinet Member Finance and Corporate Services confirmed that there was no planned change. The Chairperson suggested that the level of funding should be made overt to provide confidence to Council.
ix). In response to a question, the Cabinet Member Finance and Corporate Services confirmed that the proposed saving of £4.5m associated MERS was a gross figure and there were no proposals to increase staff.
Treasury Management Strategy 2024/25
This document was published within the agenda for 16 January 2024 and is also available through this link: Treasury Management Strategy 2024/25
The key points of the discussion included:
1). The Chairperson drew attention to: the Treasury Management Strategy (TMS) 2023/24 – 2026/27, approved by Council on 10 February 2023 [link to the TMS 2023/24 - 2026/27], which identified indicative 2023/24 Minimum Revenue Provision (MRP) charge of £11.151m for 2023/24 and estimated council borrowing as at 31March 2024 of £165.2m; and the TMS 2024/25 [agenda for 16 January 2024, page 23, paragraph 3.9] which stated ‘The council borrowing is forecast to be £119.4 million at 31 March 2024. This is expected to increase to £162.4 million by 31 March 2025. The estimated movement of £43.0 million in 2024/25 is represented by additional prudential borrowing to fund capital spend of £52.3 million less £9.3 million Minimum Revenue Provision (MRP) charge.’
The Director of Resources and Finance provided clarifications about the methodology for MRP, noted that capital expenditure had been lower partly due to slippage, and said that a breakdown could be provided.
2). Referring to Table 5 (Estimates of capital expenditure and funding) in Annex C of the TMS 2024/25 [agenda for 16 January 2024, page 27], a committee member expressed concerns about: the increase in capital expenditure from the forecast of £68.873m in 2023/24 to the estimate of £156.373m in 2024/25; and the increase in prudential borrowing from the forecast of £17.860 in 2023/24 to the estimate of £52.320m in 2024/25. With attention also drawn to Table 10 (Ratio of financing costs to net revenue stream) [page 30], concerns were also expressed about risks associated with the increase in total financing costs from the forecast of £13.191m in 2023/24 to the estimates of £15.151m in 2024/25, £17.903m in 2025/26, and £19.408m in 2026/27.
The Cabinet Member Finance and Corporate Services commented that the level of borrowing was significantly lower than in many other unitary authorities and there were indications of a downward trend in interest rates. The Director of Resources and Finance confirmed that existing loans were at fixed interest rates, and this was recommended for future borrowings.
Earmarked Reserves and General Fund Balance 01 April 2022 to 31 March 2024
This document was published within supplement 1 for 16 January 2024 and is also available through this link: Earmarked Reserves and General Fund Balance
The key points of the discussion included:
§ The Chairperson commented on the need for an indication about how the ‘2023/24 Q2 forecast outturn before management actions’ of £13.8m, principally in relation to the Children and Young People Directorate (£11.8m), was proposed to be funded using the council’s reserves. The Cabinet Member Finance and Corporate Services said that the position would be looked at in Q4, as part of routine financial management. The Chairperson considered that a forecast should be provided as part of the evidence supporting the budget.
§ Clarity was sought about ‘Unused grants carried forward’ and whether any were time sensitive. The Director of Resources and Assurance said that a breakdown could be provided; it was reported that further capital grant of £1.8m had been announced during the previous week.
§ In response to a question, the Director of Resources and Assurance provided an overview of representations made in respect of the Provisional Local Government Finance Settlement and said that adjustments would be reported to Cabinet [link to the meeting page for 25 January 2024].
§ In response to a question, the Director of Resources and Assurance reported that the council was following the statutory guidance on the treatment of high needs deficits in relation to Dedicated Schools Grant and, as this was an issue for most councils in England and Wales, a solution was awaited from the government.
Potential actions and recommendations
At the conclusion of the debate, the Statutory Scrutiny Officer displayed potential actions and recommendations, as identified by board members during the 10 January 2024 meeting, and the board discussed amendments and additions to the list.
c) Assurance be provided as to the approach to develop the relationship with self-funders in the county, with more systematic review of self-funders coming to a point where they could no longer support their own care packages and were likely to fall into the council’s responsibility. [Information to be provided to the Health, Care and Wellbeing Scrutiny Committee]
d) Consideration be given to the Children and Wellbeing Scrutiny Committee and the Health, Care and Wellbeing Scrutiny Committee working together to look at early help provision, Talk Community and prevention.
e) The funding for all-age commissioning, rather than being wound into the budget for adult social care, be retained as a discrete line in the budget.
f) There is clarity in terms of the ring-fenced element of council tax for adult social care, as reflected in Annex B to the MTFS 2024/25 to 2027/28.
g) Greater clarity be provided on SEND transport, including how the pipeline was understood and managed. [Information to be provided to the Children and Young People Scrutiny Committee]
· Evidence be provided justifying income targets within the planning service, and mapping of income to support services and how they manage that in-year. [The final wording is shown in the resolution below]
· More detail be provided on the proposed savings with the Balfour Beatty Living Places contract, including clarity about how the £450k savings would be set out against the services in the Annual Plan. [The final wording is shown in the resolution below]
h) The Environment and Economy Directorate S8 saving (Transfer of functions from the Local Enterprise Partnership (LEP)) should be presented as income rather than as a saving.
i) The presentation and profiling of all the directorate savings be sense checked to ensure that they reflect how the savings were going to be delivered against the financial quarters.
Arising from a point made during the current meeting, the Chairperson noted the request that:
j) Confirmation be provided that the best practice points, identified in the training provided by Link Group, were being followed for all business cases.
There was a short adjournment to enable the board to consider other potential actions and recommendations arising from the discussion at this meeting.
In addition to discussing draft recommendations, the following points were re-iterated:
k) The need for officers to be reminded that reports had to be made available within the required timescale before each scrutiny meeting in public.
l) The need for the wording be clarified for the key assumptions against ‘Council tax’ in Table 2 of the MTFS 2024/25 to 2027/28.
The meeting recommenced, the draft recommendations were read out by the Statutory Scrutiny Committee, and the following resolution was agreed by the board.
Resolved: That it be recommended to the executive that:
1. Income and charging detail is provided for services in each directorate;
2. Investment in and level of targeted support is made clear in the budget;
3. Evidence is provided justifying income targets within the planning service;
4. There is ongoing monitoring of performance in areas where MERS savings were taken for the 2024-25 financial year;
5. Council to be provided with more detail on the proposed savings with regard to the Balfour Beatty Living Places contract;
6. For the administration to provide a forecast of where they are minded to adjust earmarked and general reserve lines to deliver the required £13.8 million to cover the overspend forecast at quarter 2 in children’s services; and
7. To provide further evidence to give confidence that the savings of £2.5 million in Children and Young People directorate are deliverable, from Q3 and Q4 2023-24.