Agenda item

To consider the quarterly budget position.

That the financial performance information for the first quarter of 2022/23 be NOTED.  

33.1           The report of the Head of Finance and Asset Management, circulated at Pages No. 20-30, set out the financial update for quarter one of 2022/23 which Members were asked to consider.

33.2           The Head of Finance and Asset Management explained that the report highlighted a projected outturn surplus of £275,461 on the revenue budget and detailed the expenditure to date against both the capital programme and approved reserves. It was noted that the forecast currently included the budgeted assumption of a 2% pay award for staff; however, the pay request made by Unions and the recent offer made by the employers’ side were both significantly in excess of this which reflected the push of the anticipated National Living Wage and current inflationary impacts. Once agreed, it was expected that additional full year costs of a minimum £300,000 would be incurred and a pay award reserve of £500,000 had been set aside to meet the in-year impact.

33.3           In terms of service expenditure, the full-year projection for employees highlighted a potential gross surplus of £591,914; it should, however, be noted that within the Council’s corporate expenditure was a target to save £100,000 from employment costs across the Council. The net position was therefore a surplus against a target of £491,914. Savings were expected due to high levels of turnover and a number of vacant posts – this had affected many service areas including One Legal, Development, Democratic and Corporate Services. Included within employment costs was an assumed 2% pay award for April 2022. In early June, the Unions had submitted a pay claim which requested an increase of £2,000 or the current rate of Retail Price Index (RPI), whichever was greater, for every scale point plus several other significant changes to terms and conditions. The employers side responded in late July with an offer of £1,925 on every scale point plus an additional day of annual leave. The size of the claim and offer was being driven by the need to increase the lowest scale point by an estimated 10.5% to meet the expected National Living Wage. The need to increase the bottom scale point by that size meant there was a significant implication for all other scale points. In addition, the current inflationary pressures, coupled with the cumulative impact of zero or low pay awards, were driving significantly higher pay claims than would have been imagined 12 months ago. The Council would have to meet the costs of the pay award, once agreed, from its own resources which was the reason for establishing the reserve.

33.4           Premises costs highlighted a projected overspend of £36,619 and it was expected that programmed maintenance costs would exceed the budget by £25,000; any overspend in the year would be funded from the asset maintenance reserve. Due to One Legal now occupying the top floor office space within the Public Service Centre, the business rates had risen as they could no longer be recharged. There was a projected saving of £13,772 for transport costs, the reason for this being the reduction of business travel across the Council; however, the Council was currently negotiating the car fleet and higher prices were being seen during those negotiations.

33.5           The projected outturn for supplies and services highlighted a potential overspend of £14,379 – annual computer licences were expected to be £28,000 over budget due to the renewal fees being increased because they tended to be based on current levels of inflation; in addition, higher costs were expected within postage, printing and audit fees. This overspend was reduced by a potential saving in card terminal bank charges of £26,000, although the Council was just starting to see the impacts of inflation so it would be interesting to see what happened in quarters two and three. Payments to third parties highlighted a projected overspend of £1,683,590; however, it was noted that £1.5million of that was due to the M5/A46 government grant being paid over to the County Council. The Ubico contract was forecast to be overspent by £240,000 at year-end driven in large part by the rising cost of fuel. This alone accounted for an estimated overspend of £141,000. It had also estimated a rise in employment and supplies and services. In addition, at the start of the financial year, after the budget had been set, the Council had been informed of additional running costs in relation to Swindon Road Depot. The costs had previously been borne by Cheltenham Borough Council and were in relation to day to day running and maintenance requirements in the order of £150,000 per year. The Materials Recovery Facility (MRF) gate fee was expected to be £150,000 lower than budget which was due to a significant reduction in the gate fee per tonne being paid. The current buoyant market for recycled materials had resulted in the gate fee paid dropping from £67 to the current price of £26 per tonne. Income in many areas of Council activity were showing a positive position; however, there were some areas which were projecting lower income than budget. There was likely to be a report to come forward on the impact of COVID-19, inflation and the cost of living crisis on the Tewkesbury Leisure Centre.

33.6           In terms of corporate expenditure, this highlighted an estimated surplus of £51,867 for the financial year. Treasury activities were expected to deliver savings in borrowing costs, despite the increasing rates, as the Council had been able to divest itself of some of its previous borrowing need. The commercial property portfolio was currently predicting a small deficit on the year as a result of the expected temporary void at one office unit in Hertford. All units were now fully let and the gross income secured.  The overall projected position on retained business rates was currently in line with budget expectations at £3.06 million. Bringing together both the surplus on net service expenditure and net corporate expenditure resulted in an overall budget surplus projection of £275,000 for the year. It was expected the position would worsen and that there would most likely not be any further government support to help the position.

33.7           Appendix B to the report set out the capital position as at quarter one which was currently showing an underspend of £525,000 against the profiled budget of £1,294,000. The capital programme estimated total expenditure for the year to be approximately £5.17 million with the main elements including the Ashchurch Bridge; vehicle replacement; completion of the solar canopy; and Disabled Facilities Grants. An overspend was being reported for vehicle replacement as the new sweeper, which had been expected in quarter four, had been delayed until the new financial year – no further vehicles were expected to be acquired this year. In addition, Disabled Facilities Grants was showing an overspend as more grants had been paid out – that overspend would be met by the increased grant being released by the County Council so there would be no impact on Tewkesbury Borough Council’s finances. Appendix C to the report provided a summary of the current usage of available reserves and supporting notes were provided for reserves where expenditure was high. As would be expected, at the end of quarter one reserves expenditure was relatively modest but it was anticipated that further significant expenditure would be incurred against the reserves through the remainder of the year.

33.8           During the discussion which ensued, a Member questioned whether all staff would get any agreed pay rise, or whether it would just be those who belonged to the Union. In response, the Head of Finance and Asset Management confirmed this would apply to all members of staff. The Member also questioned whether the Garden Communities Reserve was all Homes England money and he confirmed that it was all external funding. Another Member questioned what impact the current high energy costs would have on the Council. In response, the Head of Finance and Asset Management confirmed there would be no impact in the current year as the Council had a fixed fee agreement in place with the supplier. This was due for review in November for the following financial year and it was difficult to know what would happen going forward, although it was anticipated the costs would not get as high as those experienced by domestic properties due to the way the supplier purchased its energy. The solar canopy would reduce the Council’s energy needs by 44% which would also be taken into account. Referring to the reducing number of people using the offices, the Member questioned whether the Council would end up heating areas which did not need heating. In response, the Head of Finance and Asset Management indicated that Officers were looking at introducing a system which was capable of zoning so heating could be reduced in different areas. In terms of the pay offer, he explained that there were three Unions involved in the negotiations; one had already said it would not accept the offer and the other two were currently balloting their members – the employer side was due to hear back from the Unions in early to mid October. Referring to a query regarding the open spaces and watercourses budget, the Head of Finance and Asset Management advised that the reserve was made up of monies that had come in from commuted sums for development and would be used for things like collapsed bank repairs - this was drawn down as needed. The list of what the Council was responsible for was quite extensive but he undertook to find a format that would be shareable with Members. The open spaces part of the reserve included the open space within parks but not play areas.

33.9           Accordingly, it was