Agenda item

To consider and make any appropriate recommendations to Cabinet on the Draft Medium Term Financial Strategy, Draft General Fund Budget 2024/25 and Draft Capital Programme 2024-2027 for consultation.

Members consider the Budget report presented by Councillor Chris Boden

Councillor Boden paid tribute to the work undertaken by Mark Saunders stating his expertise and knowledge is second to none.

Members made comments, asked questions, and received responses as follows:

·         Councillor Booth stated that there has been discussions over numerous years about how the budget should be set, but what appears to be different this year from the report is the amount of loans the Council is going to have to take out for the capital programme in the future, with the total estimated stated as being around £30 million. He noted in the report it said for every one million pounds borrowed this is going to have £100,000 cost, with 5% of that due to interest and the other 5% is the capital repayment of those loans, with that in itself explaining where a lot of the deficit is going to arise in future years and in the medium term the Council is going to have to be paying off substantial loans over 20 years alongside some of the outstanding loans the Council already has which run over 30 years. Councillor Booth expressed concern that this appears to be different to what has been presented in previous years but there has not been such a massive capital programme presented to the Panel, although Councillor Boden has spoken today around what happens with the budget the Council appears to be heading towards quite high loan repayments that are going to need to be made to carry on with the capital investments. He stated supplementary to this is something that needs to be seriously considered if the Council continue with this, for example in fees and charges the report talks about the Wisbech Port, there was a Working Task Group which looked into that, the issue with Wisbech Port is the income pays for the services but it does not pay for the capital investment that is required, there is a figure quoted in the report of £50 million pounds, the question asked by the Work and Task Group was whether the Council should continue with the Port and the Council needs to look at the services provided and as to whether the Port is sustainable in the long term. Councillor Boden responded that he agrees the Council does need to look very carefully at the capital programme, and what there is presented will have some amendments made for various reasons especially around what has been mentioned, with the overwhelming majority of District Councils across the country financing their capital expenditure partially through disposals of assets but primarily through borrowing which is the usual way an authority works. He made the point that Fenland District Council has been in an exceptional position for a number of years but the Council will be coming out of this position in the same regime as the vast majority of other District Councils, not this year but certainly next year. In reference to the change to the capital and the impact on the deficit, Councillor Boden stated that the Council has been cash rich effectively paying up front for capital items which have a life span of 40 years which means most of the assets the Council has are deemed to have a useful life of 40 years with 40 years of benefit from the purchase so instead of those 40 years of benefits being accounted for each year it is all accounted for in the year of purchase, this does go against the accrual concept which is a basic concept in accounts and is made difficult in local authority financing because of the lack of depreciation within local accounts and the effective lack of depreciation, for example, in a company a charge of cost of an asset over the expected useful life of the asset is sent to the accounts each year that asset is used, for local authorities it does not work the same way. He added that when the Council makes capital purchases out of borrowing then the situation reverts to a similar way to that of a Limited Company whiles the Council does not have depreciation there is a concept called Minimum Revenue Provision (MRP) and the MRP evens out the capital borrowing cost across the estimated useful life of the asset, under the Government rules the MRP has maximized that at 40 years, this means the basic accruals concept which is missing when capital expenditure is financed out of cash then comes in effectively through the back door so each year the revenue account is hit by the amount of MRP which is approximately the same and is similar in principle to depreciation although calculated in a very different ways that is why this linkage with the capital expenditure with the deficit maybe a slightly misleading way of putting it as this is reverting to the idea that instead of accounting for capital expenditure in the year that it is acquired it will be accounted for the cost of capital expenditure over the estimated useful life of the asset. Councillor Boden stated that there has been a particular item come up in the last few months and is still ongoing to do with the opportunities given to the Council by Central Government on the Local Authority Housing Funds, LAHF1 and LAHF2, which should give a figure of £4 million pound of expenditure incurred either at the end of 2023/24 or 2024/25 and will make financial sense for the Council and make a very significant difference in terms of both quality of service provided for homelessness and of cost to the Council in terms of homelessness which can amount to hundreds of thousands of pounds a year. He added that the Council has a significant amount of capital expenditure coming in at the end of this financial year and the beginning of the next financial year which is probably what will carry the Council over into a situation where at some point next year there will be the need to start borrowing and there are discussions underway to see how this can be reversed with the hope that within a year or two there will be no need to borrow and this is under discussion with the officers. Councillor Boden stated in response to the question asked about Wisbech Port and the £50 million pounds reported, it is an eye-opening figure, and in reference to the income that the Council provides for the service this is misleading as looking at the trading accounts this does show a loss and most of this loss is to do with Wisbech Port, with the Council having been informed by the Department of Transport that it should not be subsidising the Port operations from the Councils general funds as the rule is the Council should not be systemically financing the running costs of Wisbech Port and additionally there may be difficulties that these subsidies provided may soon reach the subsidy controls which exist because as a Council there is a rule about subsidising private companies beyond a certain level. He stated that this is ongoing and the Council will be receiving updated paperwork within the next few months. Councillor Booth responded he would like to pick up the point about depreciation and the life of the capital asset that are still impacting the actual accounts as it still feels like it is going to cost the Council money in the medium-term forecast and is there an estimation at what rate this will affect the Council. Councillor Boden agreed with the statement and stated this will impact the accounts because if something is being paid cash in advance it directly affects the accounts but this will not directly impact the revenue accounts, with the mechanism for accounting for this changing significantly once it is moved from paying cash to paying by borrowing which is the way vast majorities of local authorities do this which does meet satisfactory approvals.

·         Councillor Sennitt Clough stated it is their job not to set the budget but to scrutinise and there is a saying that the best predictor of future behaviour is past behaviour except perhaps when future finances are being talked about. She referred to mention of a pattern in your presentation and that Central Government are complicating the ways in which local authorities receive money plus the term normally and probably was used a lot within the presentation, there was also mention of the 114 notices and other local authorities possibly in a similar situation, so what level of confidence is there that Fenland District Council will not be heading towards a similar situation? Councillor Boden responded that he has a great deal of confidence because the accounts are looked at in detail by himself as the Portfolio Holder and because of this he feels he has got a tight grasp of things and is aware of the uncertainty that exists. He stated that the Budget Equalisation Reserves was set up to look at variations between years in the outturns to try to avoid hitting the general fund, with the reserves now reaching £1.87 million pounds which means with any particular year something unexpected happens the Council has an enormous cushion to be able to use through any unexpected event, what this does not do is address medium- and long-term potential deficits as this is a different matter but it can act as a bridge between the medium and long-term deadline if needed without using the general fund. Councillor Boden expressed the view that lessons have been learnt since Covid 19 and as a Council the results were better than expected because of the various negative and positive impacts of Covid 19 on the Councils finances, a plan has been in place since 2019 that by 2023 Council Tax would be reduced but by the time the budget of 2022 was looked at nobody knew the impact that Covid 19 was going to have on the finances so the reduction of Council Tax was not put forward, this is just one example of unexpected circumstances the Council can face, hopefully the likes of Covid 19 will never be seen again but it is always a possibility that something could throw the Council off track and plans need to be put in place so the Council is not so vulnerable next time. He made the point that Central Government of whatever party will not drive Local Government into bankruptcy as this is not in the interest of Central Government let alone the Country so there is a high degree of certainty that water is going to continue to be pumped into the harbour so the boats can rise, that’s not good enough however when you make a catastrophic mess of your finances and when you look at the likes of Thurrock, Birmingham or Nottingham they made catastrophic errors in terms of the investments that were made, the decisions that were made, and poor governance, poor officers, poor members, poor Overview and Scrutiny, and that is the value of what is being done here today and it is part of the process to ensure that this Council does not make the same mistakes these other local authorities have made. Councillor Boden stated this is why it is important the Panel understands the process, the risk and the direction the Council is going, with all this in mind there is a high degree of probability that the assumptions made are correct and if they are not, there is a good cushion available with the Budget Equalisation Reserve to ensure that something which is not expected will be able to be met.

·         Councillor Nawaz thanked Councillor Boden for a scholarly albeit a theoretical presentation and feels there lies the problem that it is theoretical at this stage. He referred to the past patterns, the over cautiousness of officers and the officers always achieving the targets set which are all noteworthy but within this there are also two pages of risks and assumptions made, some of those are positive some of those are not, with there being in total 21, and he feels the Council cannot be too cautious with public money although it is comforting to know a lot of those external factors and unpredictables seem to have been accounted for, with there being a short fall of £539,000 against a reserve of £2 million. Councillor Boden corrected this figure stating it was substantially more than £2 million, there is a general fund reserve but this was not used as this is what the Budget Equalisation Reserve is for. Councillor Nawaz agreed the general reserve is not for this purpose as that is allocated for general projects. Councillor Boden responded in usual circumstances yes, the general fund would be used but the Council is in a better position because there is the Budget Equalisation Reserve which has built up over the last five years. Councillor Nawaz stated it is anticipated that the financial settlement is going to be less generous than it has been in the past, with 20-25% of local authorities having great worries about their financial future not least because of the unpredictable, such as the financial settlement, possible litigation, staff, costs and rise in fuel costs given the situation in the Middle East. He feels that whilst it is a comforting presentation, it would be more reassuring if the deficit was addressed. Councillor Boden responded the financial statement and the paper that was presented to Cabinet in December was written before the financial settlement was announced at the end of December, the financial settlement that was received contained quite a lot of pluses and minuses which cancelled themselves out to the extent of £10-20,000 difference so the financial settlement, while it was uncertain when the paper was originally written, ended up being exactly at the level that had been assumed. He added that 20-25% of authorities have expressed concern about getting through 2024/25 and this backs up a previous statement made that Central Government cannot afford to let 20-25% of authorities to go bankrupt and the only way this can be avoided is to pump more money into the system, if this is undertaken by this Council it will receive a portion of the money, but as stressed previously this Council is in a better position than most District Councils and if help was needed there are levers and methods within the Council’s control to be able to solve any financial problems with out having to go to Central Government plus there is the equalisation reserve. Councillor Boden made the point that there are always challenges within these figures and as such the Council will have to do a lot of work, members are going to have to make some hard decisions and officers are going to have to do a lot of work but with the hard work already undertaken within the Council many of these areas have been covered, such as the Accommodation Review, looking at the trading accounts and the legality, looking at the transformation processes, the efficiencies as well as the Government grants received, which puts the Council in a strong position compared to many other local authorities. He added that in the medium term there are always challenges which will require the Council to step up and meet, an easy way of achieving a shortfall for example would be to increase the Council Tax by 2.99% over the next five years, with the medium-term financial strategy in 2027/28 having a potential shortfall of two and half million pounds and just by increasing the Council Tax by 3% would bring in an extra 1.6 million pounds and that is without an increase in fees and charges which could bring in another £346,000. Councillor Boden stated he is also aware that NDR energy costs are going to be at least £500,000 more than are currently being shown and there is a significant amount of opportunity to be able meet this cost by balancing the Medium-Term Financial Strategy now by making decisions, the suggestion put forward would be instead of taking money from people’s pockets as a first option it would be looking at those efficiencies that the Council manages to achieve, looking at the transformations in the way which the Council delivers services, looking at getting the trading accounts into order especially if it is legally required to do so, looking at the accommodation review and what savings can be made, looking internally at how things can be managed before looking externally and that is without the idea of the taxes in putting car parking charges in place and the tax of significantly increasing the amount of the green waste bin collection. He feels this is how to separate the financial side from the political side and the choices that need to be made, with it being more effective to work extremely hard to ensure that the Council gets the best value for money out of the work undertaken within the Council rather than pickpocketing the electorate at the first opportunity. Councillor Nawaz thanked Councillor Boden for the reassurances shared and stated this is what he was looking for that the team are alert to lots of unknowns and prepared for the unpredictable. He commended Councillor Boden for his words and commented he will be monitoring the situation throughout the year.

·         Councillor Booth stated he would like to raise a few points, with one of the things to bear in mind which Councillor Boden has touched on is the fact that the budget set today does not have an impact just on this financial year but on future financial years. He stated that he has long been an advocate of the Council getting the net service expenditure down to a zero rate increase, but the difference in this report today is about the future capital expenditure that will be needed and he would appreciate a clearer picture of what impact that will have, as looking on page 25 this gives an estimate about what that potential impact could have, looking at pages 28-29 it was just under £3 million and on page 22 it is saying it could be under £4 million so this gives an idea of the quantum and the potential impact. Councillor Booth referred to Councillor Boden stating that the Government will not let the Local Government sector fail, he does agree with what has been said, however, it needs to be recognised that District Councils are always the poor relations when it comes to settlements that are set out, with the Metropolitan Cities always getting the majority share of any settlement that the Government sends out, it is then down to County Councils, with generally the more rural County Councils getting less and then below that is the District Council so with this in mind there will be some money but not as much as those at the top of the tree in the Government’s eyes. He added that the analogy about the rising water in the harbour might need to be a slightly different analogy because this Council would not rise as high as some of the other boats but that is just an observation. Councillor Booth expressed the view that there does need to be some thought around what will happen in the future, is the Council turning a corner and looking at page 29 within the report of the outturn and usage from the equalisation reserve that is stating that this year the Council will be using £77,000 potentially although that is still up in the air due to the final settlement from the Government, but that equalisation reserve is only equivalent of one year’s deficit in the medium term financial settlement, so saying that the Council can rely on this is not realistic and it can only be relied on at a very minimal level but this does all depend on what the final figures are on this year then what rolls forward for future years as this can put the Council at a crossroads particularly with capital expenditure that is required for future years. Councillor Boden agreed there are very similar policies, and in the past both himself and Councillor Booth have agreed on decisions that have safeguarded the future capital expenditure of this Council, so when looking at the capital expenditure now through the transformation processes, through the efficiencies being achieved and the accommodation review the job is to ensure the capital expenditure is under reasonable control, with the effects of capital expenditure being different on the overall financial position at some stage in the future than it has been in the past. He stated that this is instead of the effect on the overall accounts to be in advance of the use of the assets, with the effect of the accounts being spread out over the course of the age of the assets as a result of the minimum revenue provision so that accounting means that the Council are able to look at the capital expenditure being spread out over a much longer period which is up to 40 years, this will change the impact which there is but this does not change the fact that if there is a note in the account for example saying something has cost £50 million pounds in an authority of this size, which is an extreme example but the same applies to everything which is in the capital programme and that needs looking at extremely carefully to work out whether the timing of this is correct or whether it is needed at all or whether it can be provided in a better way than is currently intended to be provided. Councillor Boden made the point that these are ongoing challenges which are faced everyday and there are councils around the country of all political persuasions that indulge in vanity projects which end up burdening the local residents with long term debt and very little return, the one good thing about this Council is that it is not in the business of vanity projects and as long as the focus is on the interest of the residents and not the needs of the Council this gives a good starting point when making decisions.

·         Councillor Barber asked in relation to the accommodation review, stating there is nothing currently happening, how far in the future is the Council thinking of doing something about this because depending on which option is taken it could be costing the Council a lot of money which conversely could bring in some money depending on which option is chosen. Councillor Boden stated that he cannot go into too much detail as he has not seen the latest report which is being written up, until the report is completed it would be deemed inappropriate to comment but suffice to say there is a lot of work going on behind the scenes with Carter Jonas and this should be coming to a head within a few months, the complete report will come before Overview and Scrutiny before going to all Councillors to explain what the options are and to explain what the costs of avoidance are where possible and to explain how it is going to be possible for the Council to have an estate which is relevant for its needs. Paul Medd stated there is a process that is being followed and a lot of work is going on behind the scenes, he can appreciate the frustration this can create because he is aware everyone would like to see definitive details on this but he would like to assure the panel a lot of the necessary preparation work is being undertaken. He stated that in terms of the next steps there will be a strategic outline business case which will set out details that are connected to the shortlisted options and this will be presented the members to give a steer of what the accommodation review could achieve and that report will get presented to Cabinet and the outcome of that discussion will hopefully lead to a definitive option being pursued to full business case, with the hope to present the strategic business case to Cabinet in March to discuss the options and move forward to a more detailed business case, which once agreed this will then take a number of months to work on the sufficient detail which can be brought back to members so the project can proceed into the delivery phase of the project subject to details and engagement. Councillor Boden added at the very beginning of the process there were eight general options about how to move forward, one was to go out to find a site and build a new headquarters but that will not be happening as that sort of vanity project is not appropriate for the Council as it would not be cost effective and it will be looking at the most cost effective method of achieving the necessary accommodations that the Council needs to have to fulfil its function.

·         Councillor Hay stated it appears in 7.9 of the report that Transformation Agenda 2 (TA2) savings and potential increases in those savings have already been included in the forecasts so if the predicted deficit is due to be met via the TA2 savings where are these additional savings going to come from. She added that it mentions a 0% increase of the term of the medium financial forecast but over the next five years the actual cash level is remaining the same within that report which indicates to her that it is an actual decrease in Council Tax because obviously the plan is to build but how can this be justified when looking at this report from 2025/26 onwards as there is a deficit of over two million, further on from that it was mentioned the £1.86 million that currently sits in the Budget Equalisation Reserve and how it is a very significant cushion, with in the report it stating that in 2023/24 the Council is on course for a deficit of about £700,000 which would significantly decrease that £1.8 million and in 2024/25 there is a deficit of £539,000 so when looking through the reports it would appear that the paper which is going to be discussed later on in this meeting for fees and charges there is a possible extra income of £211,000 which has not been included, what is the reason for not including this in the report. Councillor Boden responded that there was a TA1 which started four years ago and TA2 is the new agenda with challenges that were looked at over a year ago and are now coming into effect but there is still a significant amount of TA2 work to be done which has not yet been taken into account in the figures that have been presented within the report so there will be a number of TA2 savings which have not been included in the Medium Term Financial Strategy nor were they included in next years budget and not all of the TA2 savings are going to come into force next year or beyond that time scale as this is a long term project which is continuing to produce more recurring savings for the Council. He added that as pointed out the cash level of monies received from Council Tax would mean that this would be decreasing the Council Tax charge that is shown in the papers and the reason for that is the increase in the tax base which is equivalent to the extra number of houses which are going to be built in the area, as stated before because of the challenge set to have a 0% increase in Council Tax it was suggested that the Medium Term Financial Strategy would assume that the total amount of Council Tax received each year would remain the same that is that the Council would not be taking advantage in the assumptions that it made in the challenges that were placed before officers. Councillor Boden made the point that the numbers have changed since the report was produced as there was an amendment made by Mark Saunders in December because it was so significant he felt it needed to be changed so instead of the 1.3% figure which is in the papers the actual amount of increase within the Council Tax base from 2023/24 to 2024/25 is 1.65% and that is equivalent to a Council Tax decrease next year of 1.62%, also within the report in the Medium Term Financial Strategy the same assumption was made in 2025/26, 2026/27 and 2027/28 as the Council does not know how many houses will be built within this period of time but what it does know is that the building will continue in Whittlesey, March and Chatteris over a three year period with a figure of £1.8 million pounds, with the assumption being made that every year for the next four years the Council Tax charge will be reduced to each individual as stated back in February last year when this policy was introduced, however, it is unlikely to be achieved this year which is not that concerning but the concern lies within the following years of 2025/26/27 and there is confidence that when it comes to the budget which is produced next month that the projected deficit for the year 2024/25 will be less than £539,000 due in part to the £211,000 which was identified earlier within the fees and charges. He stated that saying that the idea of a Council Tax decrease is not a comfortable thought in the year 2024/25, circumstances may change, numbers may change, things could look different in a months’ time but as things look at the moment not just for 2024/25 but also for 2025/26 and beyond it would improve the figures by £131,000 so the figure would raise to £242,000 in that figure of £539,000 and that is without a number of outer figures which are due to take place which will make the position better than it currently is. Councillor Boden stated that as far as the justification of the money the Council will only take what is needed from the public but this has to be done with caution until there is more certainty about the savings that will be achieved in the various ways which have been mentioned and this is why it is difficult to justify a Council Tax decrease next year and certainly not the 1.62% figure which is shown within the document at the moment. He added in relation to the £211,000 for the increase in fees and charges which is not included in the figures relating to the of £539,000 deficit this is because this is the way it has always been done and Mark Saunders has been encouraged to continue to work this way, but the fees and charges are only set by Cabinet in January and the papers that have been provided for this meeting were produced for a December meeting and actually produced in November so at that time it was not possible to be accurate about the majority of the fees and charges and that is why the fees and charges are never included in the pre-budget estimates. Councillor Boden referred to the significant deficit in 2023/24 of £777,000 which is the projected outturn that has been produced in the paper but was calculated in November, year after year there is a projected outturn figure and the final outturn figure which is produced and the reason for that is there continues to be saving made by officers all the way through the financial year right up to the year end and those are not all accounted for and even after the November date that figure is produced more money turns up unexpectedly from Central Government, so there is always a difference and one of the differences there will be this year is the officers will be looking at some of the reserves and looking to see what the appropriate use of those reserves will be. He added that when the question was asked about the £1.8 million pounds being a small figure it is not a small figure but is not something that can finance recurring significant deficits, it is a cushion which can be used between now and when all of the work has been undertaken on transformation, on trading accounts, on the accommodation review and on the efficiencies, the officers would be surprised if the outturn for the current financial year is anything close to the deficit figure currently being shown as £777,000. Councillor Hay responded the figures being shown at this meeting are based on a lot of assumptions, can the panel assume that by the time the budget is produced in February those assumptions will be known as actual figures so it will be a lot easier to make informed decisions going forward. She added that it was mentioned about making money from the green waste as an example earlier is this correct or is it only possible to recover the cost? Councillor Boden responded this was given as a possibility but not something that would be considered.

·         Councillor Sennitt Clough referred to the subject of Wisbech Port and Sutton Bridge regarding efficiency and confidence moving forward and how was the situation reached concerning the Wisbech Port and if the information is correct that Sutton Bridge is losing money is this Council responsible for the Port of Sutton Bridge even though it is in another local authority area. Councillor Boden responded he is unable to answer these questions as there will be a report coming out in the near future which will address some of the issues, some of which are being actively discussed and looked at, therefore, it would be premature to answer at this time but thanked Councillor Sennitt Clough for the question.

·         Councillor Roy stated this is a time of uncertainty and budgeting for the future is always a complicated process, with in 7.10 of the report it mentioning that the funding gap will be £2.558 million by 2028/29 so given all the assumptions that have been made for this budget things should pan out quite well. He feels that what the general public want to know is can the officers give assurances that should things not go as well and there is a similar unseen things happen such as Covid-19 that short falls will not be made up by cutting services or reducing the services residents get to try and balance those budgets. Councillor Boden responded that from experience medium term financial figures are interesting because invariably they start out with large deficits and then you get the final outturn with large surpluses and there is a process to be undertaken where you start out with the Medium Term Financial Strategy apparent deficit in four years’ time and where it ends up being after that year is finally finished and part of that is some of the assumptions made. He stated that, for example in that figure quoted of two and half million pounds nothing is allowed for increases in fees and charges, now assuming that fees and charges after this year increase on average by 3% that is another £346,000 to be knocked off that figure straight away, without sharing to much detail the income that is received from renewable energy and MDR is going to increase by at least £500,000 in that time and if there is a decision over the next five years not to increase Council Tax within those four years then that will produce another £536,000 to take off that figure of two and half million, so by giving this example it shows how a figure can be halved and the improvements for the accommodation review, the trading accounts, the transformation projects, the efficiencies and others have not been included. Councillor Boden made the point that guarantees about the services being cut can never be given, however, it is not something that would be encouraged but some services may be subject to substantial scrutiny and potential change.

Members noted the Draft General Fund Budget proposals for 2024/25 and the updated Capital Programme.