Agenda item

To consider the quarterly budget position. 

That the financial performance for the first half of 2021/22 be NOTED.  

57.1          The report of the Head of Finance and Asset Management, circulated at Pages No. 35-59, set out the second quarterly monitoring report of the Council’s financial performance for the year and highlighted a projected outturn surplus based on the quarter two position of £3,611,060 on the revenue budget and detailed the expenditure to date against both the capital programme and the approved reserves. Members were asked to consider the financial performance information provided.

57.2          The Head of Finance and Asset Management explained that the budget for 2021/22 had been approved by Council in February 2021 with the reserves approved by Executive Committee in July 2021. The report before Members was the second quarterly monitoring report of the Council’s financial performance for the year. It was noted that the reported £3.6 million surplus was comprised of £3.6 million of S31 business rates grants which were required to be set aside to meet a business rates collection fund deficit in 2022/23. Therefore, the balance of the budget forecast at the end of the second quarter was cost neutral and on target to deliver an outturn in line with the original estimates for 2021/22. The Head of Finance and Asset Management drew attention to Paragraph 2.0 of the report and explained that the quarter two full year projection highlighted a full year cost of service provision totalling £12.334 million resulting in a surplus against the approved budget of £83,244. The main reasons for the projected surplus were set out in the report and in Appendix A. The full year projection for employees highlighted a potential gross surplus of £432,612; it should, however, be noted that within the Council’s corporate expenditure was a target to save £155,000 from employment costs across the Council. The net position was therefore a surplus against target of £277,612. The figures did not include the pay award which was still being negotiated but a reserve had been put aside which would equate to a 2% pay award. In terms of corporate expenditure, this highlighted an estimated surplus of £3,527,816 for the financial year. Treasury activities were expected to deliver small savings in borrowing costs and an increase in interest received from investing. The Council’s commercial portfolio was currently predicting a deficit on the year as a result of the unexpected temporary void at one office unit, a tenant exercising a mid-year break clause at an industrial unit and the inducements offered to secure leases at the Clevedon units. Should the commercial property account remain in deficit for the full-year, the Council would utilise the commercial property reserve to cover the void and lease costs resulting in no impact on the base budget position. The anticipated business rates showed a net surplus of approximately £2.9 million from the original budget compiled in December 2020. The major component of the surplus was the £3.62 million S31 grant paid by the government to provide further relief from business rates for businesses in certain sectors. Those businesses would receive the relief in the current year and therefore pay reduced business rates. The underlying position of business rates in the current year showed a small amount of growth and an improving position against the prudent estimates made in the budget. The level of empty business premises across the Borough continued to be much lower than forecast and bad debts were not materialising to the levels originally envisaged. In addition, the government had announced that Material Change in Circumstance business rate appeals would not be dealt with as appeals but would be subject to a separate grants system. With that announcement, the Council was able to remove the provision for those type of appeals from within its retention calculation. As a result of those factors, the level of retention for 2021/22 was likely to be much higher for Tewkesbury Borough with a net gain of over £1.4 million currently being forecast; however, the gain would only be released at the end of 2022/23 and therefore was not available to the Council until April 2023. In contrast to the £1.4 million gain, the additional levy now payable by Tewkesbury Borough was due in the current year and, as a result, the net position for the in-year business rates retention was a deficit of £732,566.

57.3          Appendix B to the report showed the capital budget position as at quarter two which currently showed an underspend of £325,309 against the profiled budget of £695,000. The capital programme estimated total expenditure for the year to be approximately £3.9 million which was much reduced on previous years as a result of the end of the acquisition phase of the commercial investment property strategy. The main elements of this year’s forecast included Ashchurch Bridge; vehicle replacement; Council Offices heating system replacement; and Disabled Facilities Grants (DFGs). The expected replacement of the Council’s heating system would now not take place in the second half of the year due to significant increases in prices; however, grant funding would be used to support the delivery of a solar canopy above a number of car parking spaces in the rear car park of the Offices. Appendix C showed a summary of the current usage of available reserves. Reserves had been set aside from previous years to fund future known costs and the strategic planning of the authority’s operation – this year’s reserves had been boosted by both grant funding related to COVID-19 and the release of provisions from the retained business rates scheme. The information in the Appendix did not take account of reserves which had been committed but not yet paid. In terms of the semi annual treasury report, Members were advised that at the half year point of the financial year, treasury investment activities had resulted in an average return of 1.60% on its investments which, at the end of September, totalled £30,200,000. That performance and level of return had generated interest of £225,000 in the first half of the year against the budget estimate of £172,500. This was considered to be an excellent return given the continued low interest rates and represented a return of 1.52% in excess of the benchmark rate – it was also more than double the average return of 129 other local authorities who were members of the benchmarking club. The Council’s investment performance had been boosted by its investment in a number of pooled funds which held investments in equity, multi-asset and property classes and continued to return an income of 4.71%. In addition, there had been a gain of 9.14% on the capital value of those investments in the first six months which moved the Council close to pre-pandemic capital values. Borrowing costs were down in the first half year as a result of lower borrowing costs and the repayment of £5 million of previous borrowing.

57.4          During the discussion which ensued, a Member noted that £115,000 had been spent on the Garden Communities project and she questioned whether this was the Council’s money or government funding. In response, the Head of Finance and Asset Management confirmed this was all government funding to support the delivery of the Garden Town. In terms of Ubico, he confirmed that discussions were ongoing in respect of the money released from the budget following the new bulky waste collection arrangements and it had been agreed that £30,000 would be released in next year’s budget. In respect of the voids in the commercial properties, he advised there were no concerns at this point as all other areas were occupied - with the exception of 25% of the office block in Hertford - the remainder of the portfolio was in good shape. The top floor at the Council Offices was not performing as well as the rest of the portfolio and in the New Year he would be considering changing Letting Agents as well as pursuing other options internally. In response to a query regarding high inflation and wage pressures, the Head of Finance and Asset Management explained that 4.2% on CPR had been in the headlines that morning and he felt it would likely go higher; however, the impact on the Council remained to be seen. In terms of the pay award, Unions were about to ballot on strike action.

57.5          Accordingly, it was