Agenda item

The Financial Strategy is presented for approval by the Executive. This sets out the approach and plans for ensuring the Council continues to operate in a financially sustainable way and allocates its resources in accordance with agreed priorities. The Strategy if agreed with underpin the ongoing management of the current year 2021/22 budget as well as the approach to developing the 2022/23 budget for approval by Council in February 2022.

The Council’s services, costs and income last financial year were significantly impacted by the COVID pandemic, with major uncertainty and a frequently changing financial position. In such a dynamic and uncertain environment, financial forecasting and planning is extremely difficult, and the approach during the year necessarily adapted as the year progressed. The refresh of the financial strategy last year focused very much on managing the financial impact of COVID as well as supporting intervention and economic recovery.

Financial planning uncertainty remains, and this is reflected within the 2021/22 budget and reserves plan. The ongoing impact on services, costs and income will be carefully monitored during this year to assess reliability of current year baselines and budget forecast assumptions.

A further factor considered in the Financial Strategy is the prospect of a move to a new (one or two) unitary authority structure within Somerset from April 2023. The Secretary of State is expected to decide on the preferred option in the summer. This added uncertainty leads to a shorter-term focus in budget planning within this Strategy, with future corporate and service priorities, structural design, and related financial plans beyond 2022/23 likely to be undertaken through shadow/transitional governance arrangements.

The other major uncertainty reflected in the Strategy is future funding arrangements for local government. The previous Spending Review in 2020 only covered one year, and it is uncertain at this stage whether the 2021 Spending Review will cover a longer period, and how future funding of local government will be affected by the ongoing impact of COVID in the economy and local demand for services. Changes in funding mechanisms, such as the fair funding review and redesign of business rates retention and new homes bonus are also ‘known unknowns’ at this stage.

Given the level of uncertainty and likely structural change, this Strategy and updated MTFP focus on 2021/22 and 2022/23 with an indicative forecast for 2023/24 based on continuation of existing district services.

During the debate the following comments and questions were raised:-

·        Ensuring funds were available to manage the transition to the New Council and manage existing budgets effectively was a priority. Clarity on the Future of Local Government reform in Somerset was welcomed towards the end of the month.

·        Concerns around investments held by the Council and future risk around the commercial property sector was expressed. Reassurance was requested around commercial investments.

·        The portfolio of assets were being built along with any asset management requirements. It was questioned when commercial investments would be reviewed. This was managed by the officer team and reported to the Commercial Investment Board.

·        It was questioned what advice Arlingclose had provided in respect of inflation and interest rates. Alerts in changing in the market happened regularly alongside quarterly meetings, their advice could be addressed at short notice if required. Increases in interest rates could change but were not expected to increase significantly in the next two to three years.

·        The Chair requested that the committee review the strategy over the coming months.

The Corporate Scrutiny Committee recommended that:-

1. The Executive approves the Financial Strategy 2021/21 to 2022/23.

2. The Executive recommends Council approves the revisions to the Budget and planned reserve transfers in 2021/22 as set out in Table 1 and Appendix A.