To consider the Council’s financial outturn for 2018/19 and to approve the transfers to and from earmarked reserves.

1.      that the general fund outturn for 2018/19, the financing of the capital programme and the annual treasury management report and performance be NOTED; and

2.      that the transfers to and from earmarked reserves be APPROVED.

7.1             The report of the Head of Finance and Asset Management, circulated at Pages No. 15-40, highlighted the Council’s financial performance for the previous year including setting out the General Fund and Capital Outturn positions. Members were asked to note the General Fund Outturn for 2018/19, the financing of the capital programme and the annual treasury management report and performance; and approve the transfers to and from earmarked reserves. 

7.2             Members were advised that the report provided information on the Council’s finances and financial performance. In terms of the General Fund Outturn, the Head of Finance and Asset Management explained that, in February 2019, the quarter three outturn position had confirmed a surplus of £664,478. The full year position was reported as a £2.68 million surplus. This was a significant increase against the quarter three position and could be primarily attributed to strong performance in treasury and commercial activities; additional business rates retention, including the impact of the 100% retention pilot; and substantial external grant funding being received. Attention was drawn to Table 1 in the report which showed a summary of the General Fund Outturn and particular attention was drawn to the employees full year budget which was underspent largely as a result of staff turnover and vacancies in most service groupings; premises was underspent as a result of savings on utilities and the release of New Homes Bonus monies to support the asset maintenance programme in future years; payments to third parties was showing a significant overspend as a result of an overspend on the Ubico contract as well as payments for work undertaken in areas such as the Community Infrastructure Levy (CIL) and the Joint Core Strategy (JCS) where partner finance or reserves existed to cover the cost; and income which was £1.48 million over the budgeted provision with the majority of fees and charges budgets, with the exception of planning, having been delivered on budget during the year with a few areas, such as garden waste, being beyond expected levels and substantial external grant income being received during the year.

7.3             In terms of corporate activity, the treasury service continued to do well with most investments achieving above target - although more had been spent on borrowing than anticipated due to the Council’s commercial activity. The Council had acquired two commercial properties in the year which had resulted in increased rental generation against the budget of £281,000; the two properties, one an office building and one a retail outlet, had a combined yield in excess of the targeted yield and had been purchased sooner than envisaged. The two new properties, combined with the existing units, would make a significant contribution to the Council’s core budget funding in the coming years. In terms of the Business Rates, the Head of Finance and Asset Management was pleased to report a positive position - the Council had seen little impact from successful appeals in year, partly as a result of a number of unsuccessful appeals but also due to the provisions it had made against successful appeals. There had also been some small underlying growth which had helped the base position. In addition to the base position in terms of retained business rates, Tewkesbury had been a member of the 100% Business Rate Retention Pilot in Gloucestershire for 2018/19. The outturn figures for the pilot highlighted a net gain for Gloucestershire of £14.272 million with the overall gain between the pilot and the base non-pooled 50% scheme being £17.347 million.

7.4             The Head of Finance and Asset Management referred to the supplies and services overspend and, in particular, the overspend on the Ubico contract sum. He referred to Paragraphs 2.6-2.9 of the report and explained that the deficit of £268,866 was broken down as £108,980 – employments costs; £93,765 – transport costs; £23,054 - supplies and services; -£3,951 – statutory and regulatory work; £47,062 - indirect expenditure; and -£46 - income. The majority of the additional expenditure on employee costs was attributed to the use of agency staff to cover an increased amount of sickness within the workforce, as well as additional costs at the beginning of the year to meet grounds maintenance requirements. There had also been an overspend under the heading ‘supplies and services’ due to the purchase of additional personal protective equipment (PPE) during the year. Indirect expenditure represented recharges from the fleet operation, the cost of senior management and general company costs – the overspend reported under the heading included further allocations from the workshops to cover small parts and general supplies, additional overtime and the cost of a management restructure. Transport costs had reported an outturn overspend of £93,765, the majority of which was from an overspend on tyres of approximately £61,000. Other contributing factors included the additional hire of vehicles, vehicle cleaning and directly attributable spare parts; the overspend on tyres had been highlighted earlier in the year as an area of concern and Ubico had undertaken further analysis of the area to identify the main reasons behind the overspend. The Head of Finance and Asset Management felt this was disappointing but, unfortunately, it was the type of service that could attract large overspends. As a result of the quarter three position, Ubico had been working on an improvement programme within its operational and financial management to ensure timely communication of detailed information including an overhaul of the reporting documentation being issued, improved controls, with regard to purchase ordering, and financial training for supervisors and management – this should mean better information would be provided to the Council in the future.

7.5             A discussion ensued regarding Ubico employment costs, including how proactive the HR service was in respect of sickness absence, and whether measures had been introduced to gauge any issues. In response, the Ubico representative explained that it had had two and three quarters full-time equivalent employees off on long-term sick leave which was very hard to mitigate against. In terms of short-term sickness, the organisation had a vigorous and robust process in place whereby it did not pay employees for the first three days of their sick leave and triggers were in place where issues were raised. The job was a demanding one and injuries tended to be muscular/skeleto which did not compare with office-based absences. Ubico was looking at reviewing its Occupational Health provider and concentrating more on well-being as well as more innovative ideas such as an internal physiotherapist to improve manual handling with a view to prevention as opposed to cure. In addition, currently the direct costs of each Ubico contract were siloed so if one contract had a high level of sickness it could be very costly. There had been discussions as to whether this could be shared across the organisation thereby reducing the cost volatility of sickness absence; this was felt to be something to think about to smooth out potential cost issues. In response to a query regarding manual handling training, the Ubico representative confirmed that this was undertaken regularly including staff having a full induction and then various training updates. A matrix was maintained for all staff, so the management team could easily see where there were gaps in training and where it needed to be refreshed. Some local testing of pooling of staff had been undertaken and this had been successful until some drivers had left. There was an action within the Ubico business plan this year to be more creative to try and avoid drivers looking to the private sector for work; possibly by Ubico establishing its own agency/brokerage service to fulfil its own demand and then potentially offering temporary staff to other organisations. Unfortunately, the national shortage of drivers made it very difficult for Ubico to offer the best rates of pay compared to the private sector and drivers preferred to be employed via an agency as that allowed them to take advantage of the market. Currently Ubico had 12 trainee drivers but it was frustrating that there was no way to tie them to the organisation once they were trained. In respect of staff absences, the Ubico representative confirmed that the organisation tended to assume nine days absence per staff member plus holidays so on any given day there could be five to ten agency staff in the service. There were 77 employees on the Tewkesbury contract so 308 sickness days had been budgeted for but 1,191 days had been lost – including 713 days of long-term sickness. The representative undertook to supply the report (with appropriate changes specific to Tewkesbury) which was provided to the Ubico Board to circulate for Members’ information. Employee surveys were challenging with direct staff due to the nature of the workforce as the vast majority had no email addresses. There were ‘drop in’ sessions run periodically and the Managing Director joined a round every quarter so he could see what happened but otherwise it was difficult to gain feedback on different issues.

7.6             A Member questioned whether a similar overspend had been seen in other Districts and, in response, the Ubico representative stated that this was a complex question to answer. It was the case that previously budget-setting had not been effective enough, e.g. Cotswold District Council had never seen an increase in the provision for vehicles despite them getting older and requiring more maintenance, this was an explainable overspend but it demonstrated that the contract and partnership sums agreed at the start of each year needed to be adjusted to ensure they were representative of the costs of the service. Referring to transport costs, a Member noted that tyres were £61,000 of the overspend but that left £32,000 in other costs and she questioned what this was. In response, the Ubico representative explained that, since the new service had started, Stroud District Council had been hiring a vehicle from Tewkesbury – that vehicle had been sold to Stroud last year - so Tewkesbury had had to hire a vehicle to cover that round at a cost of £8,500. A Member also questioned why West Oxfordshire District Council had such a lower cost in terms of transport, in response, the Ubico representative explained that none of those vehicles went onto landfill sites so consequently the vehicles did not sustain the same amount of damage; in addition, there was a ‘tipping point’ for changing tyres and West Oxfordshire was just about to reach that point whereas Tewksbury Borough was already there. In terms of personal protective equipment, a Member questioned what controls there were in respect of the inventory of equipment and what arrangements were in place for agency staff. In response, she was advised that agency staff were issued with the same equipment as employees; new guidance from the Health and Safety Executive meant that employees operating on roads with a speed limit of over 40mph had to be issued with hi-viz of a higher quality than others. In respect of gloves, this was a huge issue for staff and there were a number of different products that staff were testing.

7.7             It was felt important to remember that Ubico was run as if it was an in-house service so any changes were reflected directly on the Council; if Ubico was a private company it would have an extra margin on the contract value but that was not how a teckal arrangement worked. The Ubico representatives were confident that the organisation was delivering value for money but understood that there was a need to clearly and transparently demonstrate that to the Council so there was a position whereby Members could have confidence in Ubico.

7.8             Referring to Paragraph 3 of the report – Council reserves, the Head of Finance and Asset Management explained that an in-year surplus had been generated which had allowed the creation of new reserves and the topping up of existing reserves to meet future needs or specific projects. The reserves list also included substantial set asides in relation to housing, homeless and the delivery of the Joint Core Strategy all of which had been financed from government grants received during the year. Other government grants and new burdens funding which had been carried forward included transparency funding, clean high streets, parks and play areas, exit from the European Union and various new burdens funding in relation to welfare reform. The Council had committed to a substantial capital programme in the last few years and this was highlighted in the level of capital expenditure incurred in 2018/19 which had totalled £10.67million. The bulk of that expenditure had been on the purchase of further investment properties, the refurbishment of the Public Services Centre and disabled facilities grants. In summary, the Council had expended £10.67million on capital projects in 2018/19 utilising £1.15million of capital reserves, £0.90 million of capital grants, £0.20million of revenue contributions and £8.5million from borrowing. The summarised capital programme was attached to the report at Appendix C for Members’ information. The Head of Finance and Asset Management explained that the detailed treasury report was attached to the Committee report at Appendix D and this had been drafted to comply with the CIPFA Code of Practice on Treasury Management in the Public Services.

7.9             Having considered the information provided, it was