Agenda item

To consider the Council’s financial outturn including the use of reserves 

1.           That the general fund outturn for 2019/20, the financing of the capital programme and the annual treasury management report and performance be NOTED.

2.           That transfers to and from earmarked reserves be APPROVED.

15.1          The report of the Head of Finance and Asset Management, circulated separately at Pages No. 1-22, highlighted the Council’s financial performance for the previous year, setting out both the general fund and capital outturn positions. Members were asked to note the general fund outturn for 2019/20, the financing of the capital programme and the annual treasury management report and performance; and to approve the transfers to and from earmarked reserves. 

15.2          In introducing the report, the Head of Finance and Asset Management explained that table 1 on Page No. 3 of the report summarised the service performance which had generated the reported full year surplus of £516,851 – this was a solid outturn position but was reduced against predictions as a result of the need to pay a business rates levy to the government. The table highlighted the non-service-related activity as well as other aspects of the overall budget to provide a whole view of the Council’s general fund. The table concluded with the budgeted transfer to reserves of £575,000 and the actual transfer totalling £1,091,851. The outturn position for direct expenditure and income showed a positive variance of £896,892 and was mainly attributable to major items including: the employees full year budget being underspent largely as a result of staff turnover and variances in a number of service groupings; an overspend on supplies and services which was mainly generated through expenditure on holding elections during the year – this was reimbursed by the government; an overspend on payments to third parties as a result of disbursement expenditure by One Legal which was recovered directly from clients; expenditure in Development Services which was reimbursed by government grant; an overspend on the Ubico contract; and the increased cost of disposal of recyclate collected.

15.3          Treasury performance had been strong in 2019/20 with both investment and borrowing decisions contributing to an overall surplus of £250,867; of that surplus approximately £58,858 had been generated from investments and, whilst an increase in the portfolio balance and a slight increase in market rates had benefited the portfolio, the main reason for the surplus was the continuing investment in the CCLA pooled property fund and investment in additional investment vehicles within higher asset classes. The Council had failed to acquire a further commercial investment property in the year which had resulted in a deficit of rental generation against budget of £384,173. The loss of income was offset by the savings on borrowing and savings against the expected minimum revenue provision for the year. The unspent capital monies were carried forward into the 2020/21 budget.

15.4          The overall position on the retained business rates scheme showed a deficit of £331,229 for the full year. The underlying position of both the Council and the Gloucestershire business rates pool was good with surpluses reported on both; of note was Tewkesbury’s share of the pool which was £841,786; however, the accounting impacts of the release of provisions within the scheme meant the position was reduced to a deficit in 2019/20. Tewkesbury had been able to recalculate its requirements for provisions against successful business rates appeals in the year after the withdrawal of several, potentially substantial, appeals. As a result of the release of those provisions, some of which dated back to 2010, a significant surplus was generated from which the Council would benefit after a levy to the government was paid. The levy payment was made in-year but the release of the gross surplus happened through the collection fund a year in arrears. This meant that at this year-end, the Council’s business rates position was impacted and there was a negative effect on reserves but the Council would enjoy the release of approximately £3.5million of a collection fund surplus in 2020/21. As previously highlighted, the release of the surplus would be used to replenish reserves reduced to cover the impact at year-end with the balance used to fund the likely financial impact of COVID-19. The surplus on the general fund revenue account, and the planned contribution to reserves, had been surpassed by the expenditure incurred in-year on reserves resulting in an overall reduction in the reserve levels. In order to manage the payment of the levy prior to receiving the gain from the actual release of provisions, the Medium Term Financial Strategy reserve of £1million had been completely withdrawn at year-end but would be replaced with the release of provisions money in 2020/21; and the planned increase in the vehicle replacement reserve of £400,000 had been limited to £139,954 with the balance added to the reserve during 2020/21 as the release of business rates provisions took place. Overall, the Council was able to transfer to reserves a gross total of £1.09million.

15.5          In terms of the capital programme, a small overspend against forecast levels was delivered from the Disabled Facilities Grants programme; however, all expenditure was covered by capital grant funding from the government which was administered by the County Council – Tewkesbury’s allocation for the year was in excess of £1.2million so the total expenditure incurred could easily be met from that. The summarised capital programme was shown at Appendix C together with the sources of finance used. The Council had expended £1.08million on capital projects in 2019/20 utilising £156,280 of capital reserves, £571,561 of capital grants and £349,481 of revenue contributions. Following the allocation of capital receipts, primarily from some small asset sales such as the site next to Aldi in Tewkesbury, the balance on capital reserves, both receipts and grants, had reduced to £1.14million as at 31 March 2020.

15.6          Performance in treasury management was strong with income gains over 4.5% and borrowing requirements less than forecast; however, the year-end total of borrowing which stood at £44.3million was artificially inflated by £15million of borrowing taken at the end of March as a result of imminent recalls on other short-term borrowing to help ensure liquidity in light of the financial implications of COVID-19 – it was expected that borrowing would return to normal levels during 2020/21.

15.7          A Member commended the Head of Finance and Asset Management and his team for their work to date under the very difficult pressures the pandemic was placing on finances. He questioned whether there was an indication from the government about the support it would offer to Tewkesbury Borough Council. In response, the Head of Finance and Asset Management advised that a funding package had been announced recently with £500million to support spending pressures; 75% of income losses would be paid by the government after the local authority paid 5% and apportioned over three years rather than the following years as normal. The detail of the package had not yet been received and he would be particularly interested in how income losses would be calculated so he could understand the financial benefit to Tewkesbury Borough Council. At the moment there was only a high level definition of the income the Council could claim – sales, fees and charges were included but commercial income was excluded; it was likely that there would be some exclusions in sales, fees and charges but this would not be confirmed until the detailed guidance was received. In response to a query about the Ubico overspend, the Head of Finance and Asset Management confirmed that this had been discussed by Members in the final quarter of 2019/20 when the problem had been discovered and the Interim Head of Ubico had spoken to the Committee. The overspend had been made up of several issues including historic underbudgeting. The Head of Finance and Asset Management confirmed that, overall, the position was very much improved now. The financial teams at Ubico and Tewkesbury Borough Council had a good relationship and the reporting and transparency from Ubico was greatly enhanced. In response to a query regarding internal audit, he explained that the team had been redeployed due to the COVID-19 pandemic response, but the Head of Corporate Services was now looking at the audit plan going forward.

15.8          A Member questioned what interest rate the Council was able to borrow at in the current climate. In response, the Head of Finance and Asset Management advised that the Council could borrow long-term from the government and short-term from the money markets. The money markets offered cheap borrowing whereas, in comparison, the government borrowing was based on guilt yields with an additional 1.8% which made it quite an expensive option. Local authorities were campaigning for the 1.8% uplift to be reduced as it would be better for borrowing for things like regeneration and housing schemes without affecting their viability. It was noted by a Member that, overall, the Council’s strategy and approach to sound finance stood it in good stead. The Head of Finance and Asset Management advised that, as reported to Committee in June, the initial estimates in respect of COVID-19 had now increased to an impact of around £3.2million on the budget this year – including £500,000 set aside for recovery, which was well over one-third of the Council’s budget. There were many unknowns in terms of financing and the Council could be facing a very significant deficit next year if funding such as New Homes Bonus was withdrawn. He would be presenting the Medium Term Financial Strategy to the Transform Working Group over the next couple of months when more detailed information was received but there would likely be many difficult decisions to be made going forward.

15.9          It was proposed, seconded and