Councillors and committees

Agenda item

SCRUTINY OF 2021/22 DRAFT BUDGET AND MEDIUM-TERM FINANCIAL STRATEGY TO 2025/26

Purpose of the item: To scrutinise the Draft Budget and Medium-Term Financial Strategy.

Minutes:

Witnesses:

Anna D’Alessandro, Director of Corporate Finance

Mel Few, Cabinet Member for Resources

Zully Grant Duff, Cabinet Member for Corporate Support

Nicola O’Connor, Strategic Finance Business Partner (Resources and Transformation, Partnerships and Prosperity)

Leigh Whitehouse, Executive Director of Resources

Rachel Wigley, Director of Financial Insight

 

Key points raised during the discussion:

1.    The Cabinet Member for Resources informed the Select Committee that the provisional settlement announced by central government had closed the budget gap, which had stood at £18.3m pre-settlement, without the need for the Council to make any further efficiencies. The Executive Director of Resources added that the settlement indicated around £20m Covid-19 funding at the beginning of 2021. These were the initial headlines; some news was still awaited at this stage.

 

2.    The Director of Financial Insight explained that the Medium-Term Financial Strategy (MTFS) would be updated every year. The provisional settlement only covered one year (2021/22), so the Council could not plan definitively beyond that. The Director of Corporate Finance added that there would be an increase in the tax base over the course of the MTFS due to a 1.99% increase in core council tax, while it was assumed that grant funding and business rates would steadily decrease. Due to the economic impact of the pandemic, central government was trying to reduce the Council’s reliance on income from business rates and grant funding, in favour of locally raised income (i.e. from council tax). The Finance service was in the process of reviewing the Council’s collection fund deficit in light of the provisional settlement; it was expecting to hear more about the government underwriting of 75% of the business rates deficit soon. The Director of Corporate Finance expressed confidence about the Council’s prudence in Covid-19 recovery assumptions over the medium term, and added that the Council was in a healthy position on contingencies and reserves.

 

3.    A Member noted that there had been a recent tightening of Public Works Loan Board (PWLB) lending criteria, and asked what impact this would have on Surrey County Council. The Director of Corporate Finance responded that the new criteria (from 26 November 2020) meant that Surrey County Council was not allowed to use PWLB money for commercial yield. It could, however, use this money for investment in the county as a result of the greater economic benefit to the county. The new criteria would not have any impact on Surrey, as the Council had no plans to invest outside of county. Also, the new rules did not apply retrospectively.

 

4.    A Member enquired about the preliminary results and emerging themes from the consultation on the budget, who had been consulted, and whether there were further engagement activities planned. The Cabinet Member for Resources stated that the consultation had been presented to approximately 2,000 residents and approximately 200 responses had been received so far. The main themes and priorities were education, Adult Social Care (ASC) and children’s care. The results were still being looked at, but the response would be available in due course once analysis was completed.

 

5.    Referring to the fact that the Leader had announced that the Cabinet had recommended not to increase council tax by the maximum amount (5% including the ASC precept), a Member asked why that decision had been taken and why there had not been consultation with Select Committees on this. The Cabinet Member for Resources replied that this decision had been made taking into account the economic hardship caused by the pandemic: the Leader of the Council had decided that 5% would not be realistic given that the economic situation was likely to continue for some time. The decision had been taken to increase council tax by 1.99% but not to increase the precept beyond that.

 

6.    A Member noted that efficiencies amounted to over £40m in 2021/22 and over £100m over the course of the MTFS to 2025/26, and asked how the Council could continue to make such efficiencies without reducing important services. The Cabinet Member for Resources explained that the projected shortfall over the period currently amounted to a £170m gap and this outcome did not include any further government financing such as the Fair Funding Review (FFR). Efficiencies were made through the transformation programme, and many aimed at saving money without reducing services for residents; agile working was an example. Efficiencies were about using resources more effectively.

 

7.    A Member asked whether it was anticipated that the £4.6m of Covid-19 budget pressures would be reversed as Covid-19 was overcome. The Executive Director of Resources responded that the anticipated Covid-19 pressures for 2021/22 were a combination of assumptions around when tiers or lockdown restrictions would end, the impact on service budgets (such as increased cleaning and social distancing), and service impact, particularly in ASC and Children’s services. It was anticipated these impacts would lessen in future years, as the pandemic eased. An exception would be corporate parenting, as there had been an increase in the number of looked after children over the course of the pandemic, and longer term costs in ASC. However, the government had provided the Council with adequate funding to cover the pressures so far.

 

8.    A Member questioned whether it was realistic to look for alternatives to the £10.8m of red RAG (red, amber, green) rated efficiencies. The Director of Corporate Finance stated that when an efficiency was rated red, this did not mean it was undeliverable, but rather that it would be difficult to deliver. If red rated efficiencies were undeliverable in-year, then services would always try to find compensating savings as part of the business-as-usual budgets. The Member enquired whether that would work for 2021/22, in light of Covid-19. The Director of Corporate Finance said that central government had been rather generous so far in terms of Covid-19 funding and it looked like this would continue into next year. No doubt, delivering red rated efficiencies would be difficult, but the Council had delivered surpluses in the last few years and even had some Covid-19 funding in reserve, so it was in a relatively stable position.

 

9.    A Member asked what the basis was for growth over the MTFS period and where identified efficiencies over the MTFS came from, and requested that officers give Members more detail on the budget envelope, which was forecast to shrink over the MTFS period. The Director of Financial Insight replied that, having worked closely with services and developed fully costed budget principles, growth was anticipated in terms of inflation, demand and economic factors. At the same time, the Council had looked at efficiencies and taken some of those forward into the medium term. Programmes such as Digital Business and Insights were anticipated to lead to efficiencies in the medium term. The Director of Corporate Finance added that the Council was awaiting the FFR, including the Business rates reset, for more guidance around business rates; it was anticipated that the FFR would result in a reduction in business rates, but the Council would have transitional arrangements in place, so the level of funding would not suddenly plummet. The Director of Financial Insight stated that the message to convey was that things would get tougher over the medium term, as indicated in the provisional settlement.

 

10.  A Member enquired how closely the Council was working with districts and boroughs. The Director of Corporate Finance responded that there was a strong dialogue with district and borough councils. Officers in the Surrey County Council finance team had close working relationships with their counterparts in districts and boroughs, and collected a detailed spreadsheet on district and borough collection fund positions on a bi-monthly basis. The Director of Corporate Finance and the Director of Financial Insight both sat on the Surrey Treasurers’ Group, where they had ongoing and honest conversations with districts and boroughs about levels of prudency.

 

11.  A Member asked whether it was anticipated that the £9.9m Covid-19 emergency funding reserve would be used in 2021/22. The Director of Corporate Finance stated that the £9.9m was money from Covid-19 funding from central government that had been unspent so far in 2020/21 and been put into an earmarked Covid-19 reserve for use in-year or to be carried forward into 2021/22. The Cabinet Member for Resources added that due to the increase in use of Children’s services due to Covid-19, that £9.9m might be spent quite soon.

 

12.  A Member enquired whether efficiencies included reductions of services to Surrey residents. The Director of Financial Insight said that the efficiencies came from proposals across the Council and delivering services better at lower cost, not cuts to services. The Cabinet Member for Resources added that the objectives, outcomes and financial benefits of all efficiencies were shown in the transformation programme.

 

13.  Noting that earmarked reserves had increased, a Member asked how the level of earmarked reserves were arrived at and whether there were plans to use them over time. The Director of Corporate Finance replied that, as aforementioned, the Covid-19 Emergency Funding reserve of £9.9m was the balance of Covid-19 funding not yet used. The general contingency had increased by £21.7m, which was composed of a £20.3m base and a £1.4m repayment from the Environment, Transport and Infrastructure directorate. These were the only two movements in the use of earmarked reserves for 2020/21 or planned for 2021/22. It was agreed that the Director of Corporate Finance would provide written information to the Select Committee on the proposed purpose and use of earmarked reserves.

 

14.  A Member remarked that the money in the reserves could be put to good use improving services for residents, and that sitting on the money might not be beneficial. The Executive Director of Resources clarified that there was a distinction between whether reserves were earmarked and whether the Council was planning to spend them. These reserves were not set aside to be spent on a specific plan, but rather were earmarked for potential future emergency need.

 

15.  The Cabinet Member for Corporate Support introduced the Resources and Transformation, Partnership and Prosperity (TPP) service-specific section of the budget, referring to the enabling of the Council’s key priorities through efficiencies and digitalisation.

 

16.  A Member enquired what activities were contained within the £3m planned efficiencies in the Land and Property service. The Strategic Finance Business Partner responded that detailed proposals were being worked up, but the areas of focus were reducing the leased portfolio and rationalising the wider property estate. The service was also doing a review of energy costs to identify buildings with high energy costs in order to focus attention on reducing these costs. The Member asked whether the Land and Property service could involve councillors by using the knowledge of long-standing councillors prior to the election in May 2021 to identify which buildings were not being used effectively. He referred to a list of leased properties that had been circulated in the past, and the Cabinet Member for Resources agreed to follow this up. A Member requested that the appropriate divisional Member was kept informed of property proposals before a leasehold property changed hands.

 

17.  A Member was pleased to see a substantial capital budget going forward. How could it be ensured that the appropriate Select Committees were involved in scrutiny of business cases? The Director of Corporate Finance outlined scrutiny arrangements surrounding the capital programme, including the Capital Programme Panel, which she chaired. Any project or business case that affected the pipeline of the capital programme was presented to the Capital Programme Panel and reviewed by all panel members using the HM Treasury green book model. Furthermore, all business cases valued over a certain amount had to go through and be approved by Cabinet before progressing.

 

18.  A Member enquired whether Your Fund Surrey (YFS) had gone through the business case assessment process as a whole, or whether individual bids within YFS would be assessed case-by-case. The Director of Corporate Finance informed the Select Committee that each bid would undergo a financial or business case assessment, the extent to which was dependent on size.

 

19.  A Member asked what the budgeted headcount for the Resources and TPP directorates were for each department, how this changed year-on-year, and how many posts were vacant or filled by temporary contractors at present. The Strategic Finance Business Partner stated that she could not give specific headcount numbers at present, as this level of detail was still being worked on. A vacancy factor was incorporated into staffing budgets. It was agreed that the Strategic Finance Business Partner would provide more detailed information to the Select Committee on headcount and vacancies.

 

20.  A Member requested more information on what was behind the £3.2m pressures under central income and expenditure. The Director of Corporate Finance explained that this area included corporate budgets, such as the portion of the transformation programme funded from revenue, the feasibility fund, Minimum Revenue Provision (MRP), and the budget contingency, as well as redundancy provision. The pressures were relatively large because of the size of the Council’s overall budget. The Executive Director of Resources added that the central income and expenditure section of the budget did not comprise the Council’s corporate services; rather, it was a series of statutory costs and provisions. More information on Central Income and Expenditure would be provided to the Select Committee at its meeting in January 2021.

 

Recommendation:

The Select Committee recommends that the Cabinet Member for Resources works with each district and borough to agree the assumptions about receipts for council tax and business rates to ensure the 2021/22 Surrey County Council budget is based on robust figures.

 

Actions/further information to be provided:                               

1.    The Cabinet Member for Resources to provide a briefing and details about the budget consultation;

2.    The Director of Corporate Finance to provide, at the 21 January 2021 Select Committee meeting, information on the overall level of reserves, the purpose of each earmarked reserve and the anticipated usage in 2021/22;

  1. The Cabinet Member for Resources to provide a list of vacant Council properties in each division to support discussions on their ongoing use and disposition;
  2. The Strategic Finance Business Partner to request that local divisional Members are in future advised of property proposals in advance of changes;
  3. The Strategic Finance Business Partner to provide a high-level departmental breakdown of headcount vacancy on an FTE basis;
  4. The Director of Corporate Finance to provide, at the 21 January 2021 Select Committee meeting, an analysis of Central Income and Expenditure.

Supporting documents: