Report to: 

Scrutiny Committee

Cabinet

Council

Report of Head of Finance

Author: Simon Hewings

Tel: 01235 422499

E-mail: simon.hewings@southandvale.gov.uk    

Wards affected: All

Cabinet Member responsible: Andrew Crawford

Tel: 01235 772134

E-mail: andy.crawford@whitehorsedc.gov.uk

To: SCRUTINY COMMITTEE                                      1 February 2022

To: CABINET                                                               4 February 2022

To: COUNCIL                                                             16 February 2022

 

 

 

Revenue Budget 2022/23 and Capital Programme to 2026/27

RECOMMENDATIONS

1. That Cabinet recommends to Council that it:

·      sets the revenue budget for 2022/23 as set out in appendix A.1 to this report,

·      approves the capital programme for 2022/23 to 2026/27 as set out in appendix D.1 to this report, together with the capital programme changes as set out in appendix D.2 and appendix D.3 to this report,

·      sets the council’s prudential limits as listed in appendix E to this report,

·      approves the medium-term financial plan to 2026/27 as set out in appendix F to this report.

2. That Cabinet agrees that the cabinet member for finance, in conjunction with the head of finance, may make minor adjustments to this report and the prudential indicators should they prove necessary prior to its submission to Council on 16 February 2022.

Purpose of report

1.     This report:

·                brings together all relevant information to allow Cabinet to recommend to Council a revenue budget for 2022/23 and a capital programme for 2022/23 to 2026/27;

·                recommends the prudential indicators to be set by the council in accordance with ‘the Prudential Code’ introduced as part of the Local Government Act 2003;

·                contains the opinion of the council’s chief financial officer on the robustness of estimates and adequacy of the council’s financial reserves;

·                contains the Medium-Term Financial Plan (MTFP) which provides details of the forward budget model for the next five years.

Corporate objectives

2.     The allocation of financial resources within the revenue and capital budgets needs to match the objectives agreed by the council. 

Revenue budget setting 2022/23 

Background

3.     The revenue budget for 2021/22 agreed by Council in February 2021 was balanced by a significant draw on revenue reserves of £2.6 million.  Whilst this draw reflected an anticipated increase in net costs due to the Coronavirus pandemic, a significant draw was anticipated to be required from reserves across all years of the Medium-Term Financial Plan (MTFP) and was predicted to be in excess of £5 million by 2025/26. 

4.     As noted in the budget setting report, the ongoing draw on reserves to balance the budget is not sustainable over the five-year period covered by the MTFP and must be addressed. The council could set a balanced budget for the first three years of the MTFP period by drawing on reserves. It can also set a balanced budget in 2024/25 but, in doing so, would mean the general fund balance would be less than ten per cent of net revenue expenditure at the end of that year. Officers have previously advised that such balances should be a minimum of ten per cent of net revenue expenditure. On current projections, the level of revenue reserves are insufficient to set a balanced revenue budget in 2025/26.

5.     The use of reserves highlighted in the February 2021 budget setting report, and the need to address them, was also highlighted by the council’s external auditor, EY when they addressed Joint Audit and Governance Committee (JAGC) in July 2021.  Kevin Suter, Associate Partner, in addressing JAGC members, advised that:

       “What I am flagging here is I need to be assured next year that those decisions are at least being prepared or considered in order to reduce that budget gap over time and before the councils, and this will apply to both South Oxfordshire and Vale of White Horse, before they get to a position where a S114 notice would be required because those reserves have been diminished to such a level.”

6.     Over the summer officers discussed the budget situation informally with cabinet members to agree an approach to the 2022/23 budget setting round that would continue to address the financial challenges facing the council.  Those discussions highlighted that, whilst a comparatively low-cost council, Vale of White Horse DC’s revenue situation was affected by a number of key issues:

·                The council’s Band D Council Tax of £141.69 in 2021/22 is the 15th lowest in the country for a shire district council and is well below the national average of £198.96,

·                The council had, unlike other councils, not benefitted from the business rates retention scheme,

·                The council had benefitted from the “New Homes Bonus” funding stream but that was under review by government and was expected to be less generous in the future.

7.     The approach to budget setting agreed with cabinet members for 2022/23 was that to achieve a balanced budget through identification of £1.4 million, being either recurring budget setting savings or a contribution above that previously forecast from the local government finance settlement.  To achieve this, officers would in the first instance undertake a thorough review of the base budget and, subject to what that process could achieve, alternative approaches such as service reductions and fees and charges increases would be considered.

Revenue base budget setting 2022/23

8.     The starting point for building the council’s revenue budget for 2022/23 is the 2021/22 budgets for service teams, of £18,888,478.  This has then been updated for the following:

·         opening budget adjustments, including the removal of one-off growth items relating to 2021/22

·         addition of

-       inflation, salary increments and other salary adjustments

-       essential growth

·         removal of costs relating to

-       base budget savings.

9.     In the MTFP agreed as part of the budget setting in February 2021, the base budget for 2022/23 was estimated to be £16,509,075.  This included an estimate for inflationary pressures and essential growth.

10.  Base budgets for 2022/23 have been constructed by heads of service and budget holders supported by finance business partners from the Strategic Finance Team.  They have been scrutinised through a “base budget challenge” exercise undertaken by the Interim Head of Policy and Programmes and the Head of Finance supported by project accountants from the Strategic Finance Team.  The challenge exercise, which took place during October and November, focussed on the following key areas:

·           Identification and removal of all surplus budgets and consolidation of one corporate contingency budget,

·