Agenda item

2023/24 Quarter 4 Budget Outturn Report

Meeting of Scrutiny Management Board, Tuesday 10 September 2024 2.00 pm (Item 80.)

To present the financial outturn position for 2023/24 for revenue and capital budgets, subject to external audit, as reported to Cabinet at the meeting in May 2024.

Minutes:

The Cabinet Member Finance and Corporate Services introduced and gave an overview of the 2023/24 Quarter 4 Budget Outturn Report.

A breakdown of how the £8.7 million overspend from the previous year had been funded was provided as detailed below:

Application of the public health reserve £0.6 million
Utilisation of the waste reserve £1.5 million.
Release of corporate provision of £0.2 million
Direct reserve balances of 5.6 million - a review had identified reserve balances with no future commitments or planned use and these were used.
Utilisation of the climate change reserve of £0.8 million.

The Cabinet Member Finance and Corporate Services explained that portfolio holders and corporate directors had met on monthly basis to review budget spending plans for the period and to ensure that they brought expenditure into line with the savings expected of them.

The Chair invited comments from the board members in relation to the report. The principal points of discussion are summarised below:

RESERVES

The board enquired as to whether the UK Shared Prosperity Fund had been used to help fund the overspend.

The Director of Finance assured the committee that no money from the UK Shared Prosperity Fund had been used in covering the overspend.

The board noted that the Economy and Environment directorate appeared to be receiving less and less in terms of allocation of the of the overall revenue budget, with 13.9% of £193.3 million total.

The board raised concerns that unused grants funds were being taken from the Economy and Environment directorate - which funded service areas used by many residents on a daily basis - to pay for statutory children’s services.

The Director of Finance gave an assurance that there had been a detailed review across all directorates of unused grant balances and that there had been consideration and fairness in terms of recognizing that the significant driver for the overspend was in the Children and Young People directorate and therefore it was appropriate that the directorate maximised its contribution to the overspend.

The board acknowledged the balances put in place, but reiterated concerns about falling funding for Economy and Environment and the risk of losing sight of where money needed to be spent in terms of service delivery.

The Cabinet Member Finance and Corporate Services pointed out that the budget that had been balanced in May of last year was the previous administration’s budget and suggested that the budget being implemented imminently would ensure that the Economy and Environment directorate was not adversely impacted. The council stood for growth in Herefordshire and the growth would predominantly come from the economy. This was something that the administration wanted to build on.
The Director of Finance pointed out that Economy and Environment was one of the few directorates across the council where there had been significant input in terms of capital expenditure, including the significant investment in economic growth and highways. It was stated that the spend in the revenue budget for Economy and Environment needed to be considered in the context of the capital programme.
The Cabinet Member Finance and Corporate Services described having conversations with residents frustrated by the perceived lack of spending on road maintenance and waste services, but explained that there was not only a statutory requirement, but also a moral duty to provide care for those in need.

The board requested a detailed list of all the grants that had been used, as people were keen to see what they had lost and what had not been delivered.

The Director of Finance explained that there had been no future plans or allocations made for the use of certain reserves drawn on, so essentially nothing had been lost.
The Cabinet Member Finance and Corporate Services pointed out that restrictions around certain reserves meant that they had to be dovetailed with overspends in specific areas, for example, the application of the public health reserve of £0.6 million could only be used in tackling the public health overspend. With the Climate Change reserve only £0.8 million of a £1.2 million was used, because there was only £0.8 million that could be attributable to climate change.

The board requested additional information about grants and where the money for them came from. It was suggested that a visual representation such as a pie chart might help in illustrating where different allocations were made.

The board enquired if there was a reserves policy that formed part of the budget that went to full council.

The Director of Finance explained that the reserves policy formed part of the budget papers that went to full council The general reserves policy was to make prudent use and provision of reserves to manage council risks. There was an annual review of earmarked reserves that would be going to Cabinet in December 2024, this would include a detailed review of existing balances, their historic build up and their proposed use in terms of adding value.

The board enquired about how the interest from reserves was used and how judgements were made about cutting services when there were robust reserves available to fund them.

The Director of Finance explained that reserve balances were reviewed as part of routine monthly budget monitoring. Although yearly start and finish reserve totals might look similar there was typically movement from transactions drawing down from reserves in-year, with appropriate governance around the application of those eligible to be spent in-year.
It was pointed out the reserves were monitored on a regular basis to make sure that funds were being used effectively for the purposes they were awarded for. The reserve balances were subject to review by external auditors who would benchmark the council against other local authorities to make sure it was setting aside sufficient monies for managing future risks.
The Director of Finance explained that in relation to the level of return on the reserve balances, the treasury management strategy was to maximise returns from the cash balances available, whilst making sure that cash balances for immediate service delivery were maintained. The council earned interest on all balances and these were accounted for collectively through the corporate centre in the council budget.

A board member acknowledged that the previous administration had reluctantly drawn down from reserves out of necessity and the financial situation had been exacerbated by the reduction in year-on-year funding from the government.

A board member expressed disappointment at the use of the public health reserve funds to cover overspend and hoped this could be avoided in future.

The Director of Finance explained that the decision to use to public health reserve funds had been taken in consultation with OHID (Office for Health Improvement and Disparities) and the Director of Public Health and was used against eligible spend.

The board asked for further details in relation to the amendment made during the February 2024 full council budget-setting meeting during which an amendment was made for reserves to be curtailed and used for children services. The board also asked for clarity around how much money had been returned via the requirement of the motion.

The board asked if the external auditor had ever raised concerns regarding the council’s reserves levels.

The Director of Finance explained that, regarding the 2024/25 delivery of children and young people directorate savings and the paying back of reserves, the Quarter 1 report was due at Cabinet on 26 September 2024 and that would show the delivery of in-year savings and allow for discussion on the matter.
The Director of Finance pointed out that the external auditor had two roles, one was to undertake an audit of the statement of accounts, which was almost at a conclusion and the findings would be reported to Audit and Governance in due course. The second statutory piece of work the auditor undertook was the ‘value for money’ opinion, which sat across three themes: financial sustainability, governance and the ‘three e’s’ which were economy, efficiency and effectiveness in the council’s use of reserves resources.
It was explained that under the financial sustainability criteria the external auditor reviewed the council’s reserve balances, use of in year reserves, general fund balances and reviewed and benchmarked these against other authorities. In all the recent years since the ‘value for money’ regime had been in place, the auditor had not raised any improvement recommendations or highlighted significant weaknesses around reserve balances.
The auditor had also noted that the council’s reverse balances were higher than average for a unitary authority.

The board wished for it to be noted that when the current administration came in on 1 April 2023 reserves were at £81.8 million and that on the 31 March 2024 the reserves were at £73.2 million.

The board suggested that the executive should look at the policy, structure and use of reserves and satisfy themselves that the best value-for-money outcomes were being achieved for residents from utilising the reserves.

REVENUE BUDGET

The board noted that the revenue budget was where council funding for staff came from Referencing Table 1 within the report the board noted and raised concerns that recent overspends in the Children and Young People directorate had coincided with savings being made in the Economy and Environment directorate.

The board asked what the plans were, moving forward, to make sure the council had the right amount of appropriately skilled staff in Environment and Economy to ensure that the council could deliver the programme it had agreed.

The Cabinet Member Finance and Corporate Services pointed out that child and adult social care were demand-led services in critical areas, which had to be responded to on a mandatory not discretionary basis. The administration did not prioritise one directorate over another and each of the directorates were equally important. The recent funding for road infrastructure was highlighted as an example of capital funding being invested in the Economy and Environment directorate.

The board reiterated the question about whether the right funding was in place to ensure that the Economy and Environment directorate was adequately staffed.

The Cabinet Member Finance and Corporate Services stated that it was each Corporate Director’s responsibility to ensure that they had the requisite people with requisite skills to fulfil what they were required to deliver for their corporate service area. A skills review had recently taken place, to ensure that the council had the individuals in post to meet requirements.

The board raised concerns that recent activity around MERS (Mutual Early Resignation Scheme) might have left holes within the council’s staffing structure and asked how this might potentially impact the council’s ability to deliver services.

The cabinet member and chair acknowledged this wasn’t directly linked with the current item, but an assurance was given that checks and balances had been in place throughout the MERS process to ensure that the workforce structure was stable and that frontline services and key individuals were secured.

The board enquired about how issues such as overspends on SEND (Special Education Needs and Disability) transport costs had been addressed and what lessons had been learned going forward.

The Director of Finance explained that they had engaged with the children and young people task and finish group and that one of the key challenges identified was how to ensure the 2024/25 budget was sufficient to deliver children and young people services in the county next year.
The costs pressures of 2023/24 had been outlined and additional funding was built in for 2024/25 to assure the external auditors that the budget would be robust. The auditors had taken a deep dive into the children’s directorates finances and the robustness of the 2024/25 budget to deliver services in-year and had not identified any improvement recommendations.

The board raised concerns about how escalating costs in areas such as SEND transport and additional help would be addressed and whether it would be a case of continuing to throw money at these areas or coming up with innovative ways to address them.

The Director of Finance pointed out that a significant amount of the overspend in the children’s directorate in 2023/24 had been linked to the non-delivery of savings in that area. This had been built into the 2024/25 budget as part of the children’s three-year financial plan, which targeted some of those areas of overspend and escalating cost pressures.
The Cabinet Member Finance and Corporate Services pointed out that an additional £11 million had been put in as upfront spending via the children’s three-year improvement plan and that over the three years the directorate would draw down on that. At the end of the period the Children and Young People directorate would be working within its normal budget.

The board enquired if the council had contributed to any action involving lobbying government to stop potential profiteering in areas such as care services for children.

The Cabinet Member Finance and Corporate Services stated they were working with other neighbouring councils to try and strike a balance about what should be paid and were also encouraging commissioning officers to be savvy.
The Finance Director noted that the council needed to be creative and continue to investigate all options when dealing with the volatile nature of a demand-led budget.

The board noted the revenue budget overspends for staff in corporate services and central involved in the transformation process and special budgets. There were concerns that there wasn’t enough investment going into frontline service staffing. The question was asked as to whether the transformation process in pace was costing the council money rather than enabling savings.

The Cabinet Member Finance and Corporate Services explained that there was a lag in savings coming through from the transformations, which had been focused primarily on the digitalisation of certain services. Staffing costs incurred while implementing these new systems would be recovered further down the line.

The board enquired as to how the Cabinet had gone about assessing the different savings options that it had in front of it when the administration came in.

The Director of Finance explained that when an overspend was identified the finance team would work very closely with the corporate directors and the service leads to understand the impact and the drivers for that overspend and what could be done to mitigate it and reduce that overspend over the remainder of the year.
In 2023/24 additional expenditure controls had been introduced very early on in the year, which consisted of weekly directorate control panels to review all spends above £500. Three questions were asked during a review: did the money have to be spent now, did the money have to be spent at all and could the same thing be delivered by spending less? The approach had prompted a tangible change in the culture of the organisation in terms of encouraging people to treat council funds as they would their own income and expenditure. This helped bring the overspend down. The controls had been highly effective and would be used going forward for areas such as recruitment.
The Cabinet Member Finance and Corporate Services noted that officers and directors had been encouraged to think of council funds as they would their own money and to be prudent in what they did with it.

The board pointed to an overspend in the Executive’s Office and asked if overspend controls were applicable to all levels of the council.

The Director of Finance gave an assurance that the expenditure control measures were in place across all directorates and that the challenge to spend within budget was the same across all areas.
Where overspends were identified in the prior year, then these would form part of the risk management and financial management in the current year.

The board enquired as to the factors contributing to the overspend in the Chief Executive’s Office.

The Director of Finance explained the main costs were related to staffing and agency costs pressures.
It was explained that in addition to weekly director expenditure control panels, there were regular reviews of all agency staff to understand the purpose of their engagement, their costs and the exit plan for agency staff where appropriate.

The board asked what changes had been brought into the oversight of the Children and Young People directorate to ensure that there wouldn’t be an overspend in the coming year of the magnitude of the one from last year.

The Cabinet Member Children and Young People explained that the financial controls and measure previously discussed were being complemented and supplemented by encouraging the children’s services leadership team to take financial management as seriously as other performance related matters across the department.
The Cabinet Member Children and Young People informed the board that nationally there had been a significant increase in the costs of residential care. The previous government had commissioned a report into social care that was authored by an individual who was now a standing MP. The report had made specific recommendations about exercising control over the market and the cabinet member intended to establish if the report author and current government were intending to tackle the issue of the increasing costs of residential placements.

CAPITAL OUTTURN

The board raised concerns that the council didn’t have a good track record of managing its own projects in terms of underspend on capital projects and suggested that it was not managing or putting enough resources into grant led opportunities. The question was asked that when it had obtained grant funding was the administration putting enough effort into actually spending the money.

The Cabinet Member Finance and Corporate Services stressed that the administration was very keen to obtain and spend funding, and officer advice regarding timelines for spending certain funds was always noted and acted on.
Within the financial team there were people working constantly to find where grants were available and what grants were coming out.
It was noted that there was no single point of information regarding availability of government grants and that officers worked to ensure that all individual sources of information around funding and grants were checked regularly.

The board asked what was being done to spend funds that appeared to be being rolled over from previous periods.

The Cabinet Member Finance and Corporate Services stated that some funding had been rolled over from the previous administration and that everything was being done to ensure funding lines were being used in a timely and effective manner. It was pointed out that, to ensure there was transparency, appendix B of the report contained a table providing reasons for variance to the current capital budget detailing why certain funding remained unspent.

The board enquired about the potential risks of unspent Section 106 funding having to be returned.

The Cabinet Member Finance and Corporate Services explained that the administration was addressing the so called ‘bubble’ of Section 106 money and was requesting staff to be allocated to push forward related projects in this area. A forthcoming project management office review would provide greater detail on this and the administration had confirmed that it wanted to deliver projects efficiently and in a timely fashion.

The board asked what consideration the administration gave to the relationship between revenue and capital in terms of capital projects reducing future revenue expenditure. The board asked if enough was being spent on capital to deliver transformations that would benefit people.

The Cabinet Member Finance and Corporate Services stated that when the administration looked at any capital project the first questions asked were: what was the resource impact of it, how would it be funded and what would be delivered to improve Herefordshire for the people.

The board acknowledged the comments about the potential revenue cost of capital investment, but asked about the ‘investing to save’ side of capital projects.

The Cabinet Member Finance and Corporate Services gave an example of how, under transformation, AI was being used to provide a number of services across the council, which meant that it was no longer necessary to have staff in certain areas manning telephones and answering questions.

The board enquired about details around the underspend in relation to the schools capital maintenance grant.

The Cabinet Member Finance and Corporate Services gave an assurance that he would discuss the matter with the relevant officer an provide a written response.

A board member stressed the importance of emphasising and focusing on the needs of young people within the county and urged that consideration be given to directing unallocated capital funding to the needs of the younger generations and not just projects like road maintenance.

The Cabinet Member Finance and Corporate Services stressed how the administration had made its budget consultation methods with the public, particularly young people, more interactive and engaging - with multiple visits to the Sixth Form College, NMITE and the Herefordshire College of Arts allowing young people to have their voices heard.

The board asked if the council had carried out an assessment of the impact of the capital programme on different sectors within Herefordshire, such as young people and people with disabilities.

The Cabinet Member Finance and Corporate Services explained this kind of information was typically included in full detail business cases, which contained details around the benefits of and support for projects. The cabinet member had not, however, seen a table or document that detailed the impact of every project within the capital programme.

The board suggested that a review of the impact of the capital programme on local people might make a good recommendation.

The board enquired how the administration was going about ensuring that it was going to deliver 53% of the capital programme in one year with the contracts it had and with staff being reduced.

The Director of Finance explained that that was a question that needed to be directed at the senior responsible officers and cabinet members in charge.
Delivery of the capital programme would be reported as part of the Quarter 1 budget report and the performance report, which would outline delivery against the key performance indicators and strategic projects.

The board asked about the status of projects on hold in the capital programme and whether they were waiting to go to the project management office or being delivered in a different way.

The Cabinet Member Finance and Corporate Services stated that the senior responsible officers were best placed to answer the query, but noted that there were a number of projects in the capital management programme that had been there for several years and the administration was looking at each of them and being as open and transparent about them as possible.
Projects were being rolled into next year because it was known they couldn’t be delivered in the current year.
New projects would only be placed into the capital programme if there was confidence they could be delivered. It was, however, important to note that just because something was in the capital programme that did not guarantee it would be given the go ahead and funded, and a full business case had to be approved beforehand.
The Cabinet Member Finance and Corporate Services explained to the committee that all projects had a cabinet member who was responsible for them and they would receive updates from senior responsible officers. Strategic management boards were in place within directorates so that there was oversight of delivery of projects.

The board asked if there was a process for making a decision about which budgets would be reprofiled into future financial years, such as the school’s capital maintenance grant moving from £5.5 million to just under £3 million.

The Director of Finance explained that these decisions were made on a case-by-case basis via project boards and delivery boards, which were guided by project managers.
There was a governance process in place to ensure there was justification for any reprofiling.
The board heard that from the Cabinet Member Finance and Corporate Services that Talk Community was working diligently to publicise available grants to people, but unfortunately there were instances where people still missed out.

SAVINGS

The board asked what distinguished savings from cuts and whether there was a differentiation between the two.

The Cabinet Member Finance and Corporate Services Councillor suggested that a saving was a gradual reduction whereas a cut was the complete removal.

TREASURY MANAGEMENT

The board enquired about a drop of £17 million in investment during March 2024 and the Director of Finance stated they would be able to come back with an explanation of what had driven that.

The committee asked if the authority was under-borrowed compared to other authorities.

The Director of Finance explained that the authority had a low level of borrowing and that this enhanced its financial sustainability and reduced exposure to risk, but each council would have a different appetite for its borrowing/risk circumstances.
The Cabinet Member Finance and Corporate Services stated that the authority could borrow more, but was focused on doing everything in a prudent and balanced way.

The board suggested that there might be a need to look at the low borrowings strategy in light of the fact that the council was struggling to deliver its capital programme.

At the conclusion of the debate, the committee discussed and unanimously agreed the following recommendations.

Resolved that:

The executive should look at the policy, structure and use of reserves and satisfy themselves that the best value-for-money outcomes are being achieved for our residents from utilising the reserves.

Following the overspend of £8.7m in 23/4 and the continuing loss of expertise under the Mutual Early Resignation Scheme, the executive should look at how both of these are impacting on service delivery, particularly in the economy and environment directorate, and take corrective action to mitigate their impact.

Given the continuing annual underspends on the Capital Programme, the executive should review what other measures can be brought to bear, beyond actions by the Project Management Office, to ensure consistent delivery of what is planned under the capital programme.

The executive should undertake a review of the impact of the current programme on local people and look for opportunities to improve the impact of the capital programme on the council’s priority outcomes.

That the executive should review the current capital programme to ensure that we have sufficient resources, including borrowing, to be able to deliver our agreed capital programme.

Supporting documents: