Agenda item

This matter is the responsibility of Executive Councillor Ross Henley, Portfolio Holder for Corporate Resources.

The purpose of this report is to review and update the Financial Strategy 2020/2021 to 2022/23. The Strategy outlines the Council’s proposed approach to managing its financial position over the medium term, underpinned by the projected 5-year Medium TermFinancial Plan.

The Executive approved the 3 year Financial Strategy for the Council in September 2019. The Strategy outlined the Council’s proposed approach to managing its financial position over the medium term, underpinned by the projected 5-year Medium Term Financial Plan.

It is a legal requirement that the Council set a balanced budget each year, and it was in the public interest that priority local services were both affordable and sustainable with the Council remaining financially resilient.

It was appropriate to undertake an annual review of the strategy, reflecting the up to date financial position and context for the Council. It was clear that the COVID-19 pandemic was not a known situation or risk when the strategy was approved last year, with significant impact on national and local financial environment as well as on service demands for the public sector. Equally, the organisation had continued to evolve during the past year with the agreement of a new Corporate Strategy, the appointment of a new Senior Management Team (SMT) and move to a new directorate organisational structure completed in April/May this year.

There continued to be a high degree of uncertainty regarding future funding, compounded with uncertainty regarding future service demands as the country and local area adapted to COVID-19 impacts. It was clear that local authority finances were under increasing pressure within this environment, with the challenge of meeting local need and at the same time preserving adequate financial resilience of the Council.

This report therefore set out an updated forecast of medium term funding, service costs and income, and updated proposals for the financial strategy in responding to the challenges ahead. The strategy included judicious allocations from reserves to provide funding towards council priorities – notably towards the climate change strategy – and to underpin some service costs for the next two years as the Council’s modernisation and efficiency plans were progressed.

At the time of preparing this strategy the debate around the future structure of local government in Somerset had brought an added dynamic. The County Council had submitted a business case to the Secretary of State setting out SCC’s preferred proposal to create a single unitary council for Somerset – replacing the County and four Districts. The Districts had also prepared an alternative business case proposing two smaller unitary authorities. Any decision by the Secretary of State on a preferred future for Somerset was not likely to be made before January 2021. At this stage the core forecasts within the medium term financial plan in terms of net expenditure and funding were based on the continuation of Somerset West and Taunton as a district authority. This will need to be reviewed if and when any decision for change is confirmed. The strategy set out showed the Council was financially resilient with strong reserves to withstand short term pressures, but with a challenging budget gap in the longer term albeit with a high degree of uncertainty in the longer term forecasts. It was expected that structural change for local government would require significant up-front funding, and the business cases included projections for financial benefits, both of which would affect the MTFP if approved and delivered to plan.

During the discussion the following points and questions were raised:-

·        The Financial Strategy vision, funding shrinkages in respect of bus rates and Hinkley and NHB were considered along with measures of how to compensate for the impact of the financial outlook.

·        Future plans were anticipated around sharing services, modernisation and making efficiencies. 10-15% savings were expected.

·        Maximising fees and charges further were also predicted along with ensuring value for money from contracts and income generation

·        Inflation increases in procurement and leisure services were considered.

·        No increases were anticipated in Commercial investment income.

·        Staffing costs had increased with a similar pay award anticipated next year.

·        CPI and RPI increased in contracts only applied to specific areas where there were contractual requirements to increase these.

·        Financial expectations from leisure and waste services were a recognised risk.

·        Concerns were expressed that the budget gap could not be bridged quickly along with additional risks around long term impact of the pandemic.

·        The potential for an 80% mandatory business rate relief by NHS foundation trust was considered. It was anticipated that this would be at a significant cost and could be backdated. The Burden would not all fall entirely to one council.

·        The volatility reserve was held to cover high value changes in business rates at short notice to protect the council’s financial position. The outcome of the NHS foundation but was not anticipated before the end of the financial year.

·        CIL payments were considered. The policy would be checked to ensure the longstanding list of CIL to pay for the infrastructure needed in SWT, the payments would be prioritised to address the impact where it’s most felt.

·        The Business rates safety net was reflected in the Medium Term financial plan.

·        Concerns were expressed that the commercial investment strategy was doubtful or outdated in the current climate, A Councillor lead review and rethink of the feasibility of the commercial investment strategy was requested.

·        Investment and refocus on climate change and green investments was encouraged to work alongside the rethink and consider the use of the innovation centre and the renewable industries.

·        The Scrutiny Committee expressed concern at the risks going forward in terms of Council finances due to the current economic and social circumstances and recommends the Executive maintains a robust and regular risk assessment on the budget gap and the investment strategy be given consideration and aligned with anticipated targets.

The Scrutiny Committee supported the report and the following proposed recommendations to the Executive and Full Council:

1.1            The Executive approves the updated Financial Strategy for 2020/21 to 2022/23, including agreement of the principle of using general reserves to reduce the Budget Gap in 2021/22 and 2022/23.

1.2            The Executive recommends that Full Council approves the amended CIL Allocation Principles as set out in paragraph 21.15 of this report.

1.3            The Executive recommends that Full Council approves the reallocation of reserves to provide increased resilience and flexibility to mitigate COVID related financial pressures, and to support the Revenue Budget in the medium term, as follows:

(a)   To transfer £3.949m of New Homes Bonus reserve to General Reserves, noting alternative financing for relevant capital schemes through Community Infrastructure Levy and borrowing as set out in para 21.7.

(b)   To transfer £1.0m from the Business Rates Volatility Reserve to General Reserves as set out in para 14.6.

The Committee voted in favour of the recommendations with one abstention.