Agenda item

The Cabinet gave consideration to a report of the Director of Finance which recommended that Cabinet agreed 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.

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 had been a number of Local Authorities which had been subject to the issuing of a Section 114 notice or approaching Government for exceptional financial assistance.

Whilst the Council had prepared a detailed revenue budget within a five-year Medium Term Financial Strategy (MTFS), a five-year Capital Programme and continues 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 have been used to underpin the Council’s revenue budget alongside other 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 is proposed to use corporate reserves of £10.101m and specific reserves of £1.805m together with £13.092m to offset the Collection Fund deficit for 2021/22 arising from the awarding of retail, leisure, hospitality and nursery Business Rates Reliefs (£8.888m) and further Business Rates reliefs relating to the COVID-19 Additional Relief Fund (£4.204m) after the budget had been set (this is a technical accounting adjustment), combined with one-off measures totaling £2.500m. The remaining corporate Balancing Budget reserve of £9.932m will be used to support the 2023/24 and 2024/25 budgets.

There was a reliance on the use of reserves to balance the budget over the MTFS period. The continued use of reserves and one-off measures has had the impact of deferring the changes that are required to balance the revenue budget by on-going sustainable means. The implementation of the next phase of the Council’s transformation programme in 2022/23 is expected to address this challenge although this has been impacted by the global pandemic. The expected benefits of the transformation programme will be phased over several financial years and is therefore 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 Auditor concluded that “there is not a significant weakness in the Council’s arrangements in relation to financial sustainability”. This is 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.

Whilst the Council was utilising a number of reserves to support the 2022/23 revenue budget and anticipated 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 is facing. At the start of 2022/23 it would continue to be well placed to meet the difficult financial challenges ahead. However, this strategy relied on the delivery of the transformation programme over the short to medium term. Public findings reported elsewhere have shown that some Authorities have not, in a small number of cases, been able to deliver the level of transformational savings required so it was important that the Council delivers on current plans.

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 remains adequate to support the 2022/23 financial position and demonstrates financial resilience. However, this is only the case provided that action is taken to ensure that the balances were set at the level of £19.935m for 2022/23 as calculated in this report and that all budget options, or in year alternatives, are delivered as planned and monitored.

The Statement of the Chief Financial Officer was presented to Policy Overview and Scrutiny Committee on 27 January 2022. The Scrutiny Committee was content to commend the report to Cabinet.

Recommendations

RESOLVED – That the Cabinet approved and commended to Council:

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 was 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 of the report.

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