Agenda item

To consider the quarterly budget position.  

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

59.1           The report of the Head of Finance and Asset Management, circulated at Pages No. 15-38, set out the Council’s financial performance for the second quarter of the year. Members were asked to consider that information.

59.2           The Head of Finance and Asset Management presented the quarter two financial information which projected a surplus of £138,305 on the revenue budget and detailed expenditure to date against both the capital programme and the approved reserves. The projected surplus was expected to go down as the financial situation in the country worsened; however, some impacts, such as rising inflation, the national pay award and the local pay line review had already been included which was encouraging.

59.3           Referring to the revenue budget position, Members were advised that the full year projection for employees highlighted a potential gross surplus of £320,219; however, it should be noted that, within the Council’s corporate expenditure, was a target to save £100,000 from employment costs across the Council, consequently, the net position was a surplus against target of £220,219. That figure included the costs of both the national pay award and the first phase of the local pay review. Significant savings were being made in employee expenditure across the Council as a result of retention and recruitment difficulties – whilst this resulted in a financial benefit to the Council, there could be a service disbenefit associated with the issues. The employer’s offer of an increase of £1,925 across all pay points had been agreed and that equated to an increase of 10.5% on the lowest pay point up to just over 2% at the highest pay point outside of Chief Officers and the Chief Executive. It was estimated that the pay award would cost the Council, including the impact on Ubico, around £500,000 to implement. In addition to the national pay award, the Council was currently facing challenges with retention and recruitment which had resulted in high agency costs and numerous vacancies; therefore, at the end of September, the Council had approved the first phase of the retention and recruitment programme, which was a benchmarking exercise to ensure professional roles were competitive within the marketplace. As with the national pay award, a reserve was set aside to meet the expected additional cost but, on current projections for the whole budget, this was not forecast to be required.

59.4           Payments to third parties highlighted a projected overspend of £441,522. The Ubico contract was forecast to be overspent by £400,000 at year-end driven, in large part, by the rising cost of fuel. Despite a falling price during quarter two, the increased cost of diesel alone accounted for an estimated overspend of £133,000. Other areas of additional spend within the contract included agency staff to cover absences and holidays and the increased cost of vehicle hire which would be funded from reserves. At the start of the financial year, and after the budget was set, the Council had been informed by Cheltenham Borough Council of additional running costs in relation to Swindon Road Depot. The costs, previously borne by Cheltenham Borough Council, were in relation to the day-to-day running costs and maintenance requirements for the depot and were estimated to be in the order of £150,000 per year. The Materials Recovery Facility (MRF) gate fee was expected to be £209,000 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 per tonne, at the start of the contract last year, to a current price of £26 per tonne. Income in many areas of Council activity was showing a positive position with several income streams projected to deliver in excess of budget including car parking and licensing. A few areas were, however, projecting lower than budget with income from Tewkesbury Leisure Centre and a vacant commercial unit within the Council Offices being lower than anticipated. In addition, One Legal income was below target, although that was offset against savings within employee costs. 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 overall projected position on retained business rates was currently exceeding budget expectations, generating additional income of £150,000 – this was due to awarding more reliefs than anticipated, resulting in S31 grants income which was greater than budget. Bringing together both the deficit on net service expenditure and surplus on net corporate expenditure resulted in an overall budget surplus projection of £138,000 for the year. Within that forecast, the budget had absorbed the significant impact of employee inflation and the inflation being felt in services buying goods and external services. Whilst the position could deteriorate over the winter, as it currently stood, the reserve support expected to be needed to meet the impact of inflation would not be required and could end up being released to support other priorities at year end.

59.5           In respect of the capital position, this was currently showing an underspend of £1.27million against the profiled budget of £2.63million. The capital programme estimated total expenditure for the year to be approximately £5.17 million with the main elements including: Ashchurch Bridge over Rail; the heat replacement system at the Council Offices; and Disabled Facilities Grants. As previously noted, there were currently unavoidable delays with the delivery of the Ashchurch Bridge project which accounted for the majority of the underspend on land and buildings. The solar canopy project had been completed in quarter two with a final cost of £599,000. An overspend was being reported for vehicle replacement as the new sweeper was delayed until the new financial year – no further vehicles were expected to be acquired this year. Disabled Facilities Grants were showing an overspend as more grants had been paid out but the overspend would be met by an increased grant being released by the County Council.

59.6           Referring to the reserves position, the Head of Finance and Asset Management explained that Appendix C provided a summary of the current usage of available reserves, and supporting notes were provided for reserves where expenditure was high. As at 1 April 2022, reserves stood at £18.13million which was an increase of £1.93million on the previous year. The increase reflected the 2021/22 budget surplus which included significant external funding for a range of projects. The information in the appendix only reflected expenditure incurred to date and did not take account of reserves which had been committed but not yet paid, or were awaiting capital financing at year-end, such expenditure included: the funding of the Garden Town operation during 2022/23, currently estimated at £544,000; the partial funding of land acquisition to support the Garden Town which would utilise the full balance in the Investment Reserve of £450,000; the partial funding of the solar canopy, from the Council’s own resources, totalling £315,000; temporary staff support for Development Services; funding the forecast income deficit on the commercial property reserve; and additional Council Tax hardship support across the winter. Based on current forecasts, it was unlikely the £750,000 set aside in reserves to meet the impact of inflation in the current year would be required.

59.7           At the half year point of the financial year, treasury investment activities had resulted in an average return of 2.29% in its investment which, at the end of September, totalled £34.2milion. This performance and level of return had generated interest of £356,000 in the first half of the year against the budget estimate of £220,000 resulting in a surplus of £136,000. This was considered to be an excellent return given the relatively low interest rates and represented a return of 0.34% in excess of the benchmark rate; further returns were expected in the second half of the year and an overall surplus of £410,000 was currently projected on investment activity.

59.8           In response to a Member’s query as to where Building Control expenditure sat, the Head of Finance and Asset Management explained that service was outsourced to Cheltenham Borough Council and the net position was incorporated into payments to third parties. The service was currently cost neutral. In terms of agency staff, depending on what they were employed to do, the expenditure would be shown against employees or reserves. In terms of Ubico, the budget was showing £300,000 excess on its own employee budget due to the pay award and inflation in a number of areas would see next year’s budget increase significantly. Local government had dealt with a lot in the last few years but it had not had to deal with inflation at the same time and this was adding significant pressure to budgets meaning the Council had to consider what it could, and could not, afford.

59.9           Accordingly, it was