Report to:Scrutiny Committee Cabinet Council
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Report of Interim Head of Finance Author: Simon Hewings E-mail: simon.hewings@southandvale.gov.uk Tel: 01235 422499 Wards affected: All |
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Cabinet member responsible: Andrew Crawford Tel: 01235 772134 E-mail: Andy.crawford@whitehorsedc.gov.uk |
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Revised budget 2020/21
Purpose of Report
Corporate Objectives
2. The allocation of financial resources within the revenue and capital budgets needs to match the objectives agreed by the Council. This report shows how that allocation has been affected by the pandemic.
Background
3. The Council set a net revenue expenditure budget for 2020/21 of £15.044 million at its meeting on 12 February 2020
4. Since the budget was set, and in common with councils across the country, Coronavirus has had a major impact on our operations. Additional costs have been incurred in supporting residents and businesses affected by the pandemic. At the same time, a number of the council’s key income streams have been affected by the country going into lockdown. Taken together, the additional spend and lost income must be addressed in year, to ensure that the council stays within a budget approved by Council.
5. To date, central government has provided non ring-fenced grant funding to the council totalling £1.6 million since the pandemic started. This was provided to councils to support their expenditure pressures, and also to alleviate any potential cash flow pressures arising from a sudden increase in spend and drop off in income.
6. We have also received direct funding from government to pay for our delivery of some of their support packages, the most notable being the business grants.
Changes to the 2020/21 revenue budget
7. Monitoring reports for all services have been revised in order to identify the cost of assisting the national response to the Coronavirus pandemic, and the income lost as a result of lockdown regulations and consequent changing behaviour in society.
8. Following a review of spend to date across the council by the strategic finance team working with heads of service and budget holders, it is currently estimated that the net expenditure budget needs to be increased from £15.044 million to £15.835 million, an increase of £0.791 million. This increase will be funded from the council’s reserves. This is summarised in Table 1 and is shown in detail in Appendix 1.
Table 1: Revenue budget 2020/21
12.An initial assessment of the principles has been carried out and used in determining income included in this report. As an example, where a council had budgeted to collect income from leisure centres either through direct customer charges, where they are council owned, or through a planned management fee, where there is an arms-length relationship, and this income is now irrecoverable, such income would be in scope of the income scheme.
13.The scheme will not support income losses in the following areas:
· Commercial income from investment properties,
· Interest and investment income, and
· Council tax and business rates income.
14.The scheme includes a five per cent deductible rate, whereby councils will absorb losses up to five per cent of their planned sales, fees and charges income, with the government compensating them for 75 pence in every pound of relevant loss thereafter. By introducing a five per cent deductible the government is accounting for an acceptable level of volatility, whilst shielding authorities from the worst losses.
15.The first claim for compensation is due at the end of September 2020 based on actual results compared to budget. Future claims will continue to be based on the original budget for the 2020/21 financial year.
16.In terms of council tax and business rates income, under regulations budgeted income from those sources will not change during 2020/21. However, should there be a shortfall in those receipts (compared to expected levels), then in accounting terms this will create a deficit that under normal circumstances would need to be made good in the following financial year.
17.Given this year’s events, the government is proposing that repayments to meet council tax and business rates deficits that occur in 2020/21 will be phased over a three-year period (2021/22 to 2023/24) to ease the immediate pressures on budgets. For business rates, Vale is already budgeting to be at “safety net” so any losses on business rates income will not impact on its budget.
18. On council tax, collection rates have fallen slightly. By the end of August 2020 47.65 per cent of council tax had been collected, compared with 48.52 per cent at the same point in the previous year. The collection rate will continue to be monitored and any impact on the following year’s budget will be assessed as part of the 2021/22 budget setting process.
20. The revised budget sets a new limit on council expenditure for the year that must not be exceeded. It is based on officers’ best estimates of the likely financial impact of the council as at the time of writing, which was Friday 18 September.
21. It must be noted that the nature of the Coronavirus pandemic means that it is not possible to guarantee that the increase of budget requested through this report will accurately reflect the pressures that will arise in the next six months. Should the revised budget proposed in this report not be sufficient to meet those pressures, then it will be necessary to bring a further report to agree the action required to meet those pressures. In the event of an underspend at year end, then this will reduce the requirement to draw on reserves.
Capital programme 2020/21
22. On 13 February 2020 Council agreed a capital programme for 2020/21 of £10.500 million.
23. A small number of additions are proposed to the capital programme for 2020/21, reflecting the council’s response to the Coronavirus and other operational matters. These are detailed in appendix 2 and will be funded from capital receipts.
Future outlook
24. Although this report is focussed on addressing the financial challenges facing the council during 2020/21, drawing on reserves to address the in-year shortfall has implications for future budgets. This decision therefore must be made in the context of the council’s overarching financial position.
25. The position reflected in the council’s medium-term financial plan as reported to Council in February 2020 showed that, while the council was not required to use reserves to set a balanced budget for 2020/21, future years would see a budget gap emerge that was predicted to increase to over £6.2 million per annum by 2024/25.
26. Given the additional draw on balances this financial year, and that the Coronavirus pandemic looks certain to have an ongoing impact on the council into future financial years, the need to take action to address the increasing funding gap as part of budget setting for 2021/22 and future years has intensified.
Financial, legal and any other implications
27. These are covered in the main body of the report.
Conclusion
28. 2020 has seen the council forced to deal with unprecedented challenges that has led to increases in expenditure and pressures on income. Although we have received financial support from government it is estimated that this will not be enough to cover the likely net cost of the pandemic. As a result of this and other necessary revisions to the budget, councillors are asked to agree the proposed changes to the 2020/21 budgets.
Appendices
1) Revenue budget revision
2) Capital programme revision
Background Papers
· Budget papers for 2020/21