Agenda item

Consideration was given to a report of the Director of Finance which recommended that the Cabinet considered the level of balances necessary to support the 2021/22 budget underpinned by the agreed policy on Earmarked Reserves, setting a properly balanced revenue budget which included the financing of capital investments within the present investment proposals.

Members were informed that, in order to comply with Section 25 of the Local Government Act 2003; the Authority’s Chief Financial Officer (the Director of Finance) was required to report on the robustness of the estimates made for the purposes of the revenue budget calculations and the adequacy of the proposed reserves. This information enabled a longer-term view of the overall financial resilience of the Council to be taken. It also reported on the Director of Finance’s consideration of the affordability and prudence of capital investment proposals. The level of general balances to support the budget and an appropriate level of Earmarked Reserves maintained by the Council in accordance with the agreed Council Policy on Earmarked Reserves, were an integral part of its continued financial resilience supporting the stability of the Council.

There had been several reports issued on the subject of the financial resilience of Local Authorities alongside the publication by the Chartered Institute of Public Finance & Accountancy (CIPFA) of a Local Authority Financial Resilience Index and the implementation of a Financial Management Code. These issues were highlighted in Section 5 of the report but were largely prompted by the financial challenges at Northamptonshire County Council during 2018 followed by both Nottingham City Council (NCC) and the London Borough of Croydon Council (LBC) in 2020 and the raising of significant concerns about the financial stability of other Local Authorities. On 10 February it was announced that four other Councils were to be provided with financial support by the Ministry of Housing, Communities and Local Government (MHCLG) in the form of a capitalisation direction. This was to ensure that they are able to set a balanced budget for 2021/22

Whilst the Council had prepared a detailed revenue budget within a five-year Medium Term Financial Strategy (MTFS), a five year capital programme and continued the closure of accounts within an appropriate timeframe allowing early focus on the upcoming challenges and a robust financial transformation programme, there continued to be a reliance on the use of reserves to balance the revenue budget.

Since 2016/17, reserves of £32.945m had been used to underpin the Council’s revenue budget. For 2021/22, there was a proposed use of reserves of £10.008m combined with a number of one-off measures totalling £5.150m.

Included within the Medium Term Financial Strategy was the required use of reserves of £29.000m over the next two financial years. For 2021/22, it was proposed to use corporate reserves of £16.703m and specific reserves of £0.127m together with £25.456m to offset the Collection Fund deficit arising from the awarding of business rates reliefs in 2020/21 (this is a technical accounting adjustment) combined with one-off measures totalling £2.000m. The remaining corporate Balancing Budget reserve of £12.297m would be used to support 2022/23

The continued use of reserves and one-off measures had the impact of deferring the changes that were required to balance the revenue budget by on-going sustainable means. The implementation of the next phase of the transformation programme in 2021/22 was expected to begin to address this challenge. The expected benefits of the transformation programme would be phased over several financial years and it was anticipated that there would continue to be a need to utilise reserves until the programme was complete.

As detailed within the Council’s Audit Completion Report, presented alongside the Statement of Accounts, the External Auditors concluded that for 2019/20 the Council had made proper arrangements to deliver financial sustainability in the medium term. However, it was also pointed out that “The Council had significant levels of Earmarked Reserves as at 31 March 2020, but these were not sufficient to sustain the Council’s financial position over the medium term”. It was important to note that the public findings into both Nottinghamshire City Council and London Borough of Croydon (LBC) indicated Councils were at risk of not being able to agree balanced budgets as their reserves were insufficient to mitigate either in year or 2021/22 estimated shortfalls in resources. LBC is still awaiting a response to its request for support from the MHCLG.

Members noted that financial resilience depended in part on the Council maintaining an adequate level of reserves. In order to scrutinise the level of reserves held by the Council, the policy on earmarked reserves was considered by the Audit Committee in June 2020 and it was proposed to action the same review again in 2021/22 after the closure of the accounts for 2020//21.

Whilst the Council was utilising a number of reserves to support the 2021/22 revenue budget, and anticipated a use of reserves in 2022/23, Members were assured that the Council currently remained financially resilient and was working hard to address the pressures that had arisen over a number of years and therefore still continued to be well placed to meet the difficult financial challenges that it faced.

RESOLVED - That the following be accepted and commended to Council:

1. The proposed General Fund Balance currently calculated for 2021/22 at £15.641m.
2. The initial estimate of General Fund Balances to support the Medium Term Financial Strategy is as follows:
   • £17.349m for 2022/23 and
   • £18.602m for the years 2023/24
3. The intended report to be presented to the Audit Committee on Earmarked Reserves to ensure this area is subject to appropriate scrutiny.
4. The actions necessary to secure a properly balanced budget as presented in paragraph 3.6 of the report.
5. The actions necessary to ensure the prudence of the capital investments as noted in Section 4 of the report.