Agenda item

Consideration was given to a report of the Director of Finance which recommended that the Committee considered the level of balances necessary to support the 2022/23 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.

Over the last few years there have been a number of Local Authorities which had been subject to the issuing of a Section 114 notice or approached Government for exceptional financial assistance. During 2021/22, both Slough Borough Council and Wirral Council had been subject to such measures and / or requirements. Those issues were highlighted in Section 5 of the report.

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 £ 74.627m had been used to underpin the Council’s revenue budget alongside a number of one-off measures. This included £25.182m relating to grant compensation received in 2020/21 and used in 2021/22 to support the Collection Fund deficit arising from the award by Government of Business Rates Relief after the budget for 2020/21 had been set for 2022/23, it was proposed to use corporate reserves of £10.101m and specific reserves of £1.805m together with £9.045m to offset the Collection Fund deficit for 2021/22 which arose from the awarding of Business Rates Reliefs in 2021/22 after the budget had been set (this was a technical accounting adjustment) combined with one-off measures totalling £2.500m. The remaining corporate Balancing Budget reserve of £9.932m would be used to support 2023/24 and 2024/25. There was, therefore, a considerable reliance on the use of reserves to balance the budget over the MTFS period. 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 2022/23 was expected to begin to address this challenge although this had been impacted by the global pandemic. The expected benefits of the transformation programme would be phased over several financial years and would be supported by the use of reserves over the short term.

As detailed within the Council’s Audit Completion Report for 2020/21 received by the Council on 17 December 2021, the External Auditors concluded that “there is not a significantweakness in the Council’s arrangements in relation to financial sustainability”. This was encouraging and should be considered in the context of 2022/23 budget setting and the Medium-Term Financial Strategy for 2022/23 to 2026/27. It was important to note that the reviews into both Slough Borough Council and Wirral Council indicated that they were at risk of not being able to agree balanced budgets as their reserves were insufficient to mitigate either in year or 2022/23 estimated shortfalls in resources.

Financial resilience depended in part on the Council maintaining an adequate level of reserves which were set out in the report. In order to scrutinise the level of reserves held by the Council the policy on Earmarked Reserves was considered by the Audit Committee in July 2021 and it was proposed to action the same review again in 2022/23 after the closure of the accounts for 2021/22.

Whilst the Council was utilising a number of reserves to support the 2022/23 revenue budget and anticipates a use of reserves in both 2023/24 and 2024/25, Members were assured that Oldham Council currently remained financially resilient. Work was taking place to address the on-going financial pressures that the Council was facing. At the start of 2022/23 it continued to be well placed to meet the difficult financial challenges ahead. The strategy relied on the delivery of the transformation programme over the short to medium term. Public findings reported elsewhere had shown that some Authorities had not, in a small number of cases, been able to deliver the level of transformational savings required.

In conclusion, the Chief Finance Officer was able to advise Members of the robustness of the estimates and the affordability and prudence of capital estimates for 2022/23. Despite the use of reserves over recent years, the level of reserves remained adequate to support the 2022/23 financial position and demonstrated financial resilience. However, this was only the case provided that action was taken to ensure that the balances were set at the level of £19.935m for 2022/23 as calculated in the report and that all budget options, or in year alternatives, were delivered as planned and monitored.

RESOLVED that the following be accepted and commended to Cabinet:

1.    The proposed General Fund Balance currently calculated for 2022/23 at £19.935m.

2.    The initial estimate of General Fund Balances to support the Medium-Term Financial Strategy is as follows:

·         £21.268m for 2023/24 and

·         £21.415m for 2024/25 to 2026/27.

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.

5.    The actions necessary to ensure the prudence and affordability of the capital investments as noted in Section 4.