Agenda item - Leader of the Council's Items - A.3 - Financial Performance Report 2023/24 - General Update at the end of September 2023

To provide a general update and overview of the Council’s financial position against the 2023/24 budget and looking ahead to 2024/25 and beyond.

RESOLVED that Cabinet -

(a) notes the Council’s in-year financial position at the end of September 2023 along with the updated financial forecast for 2024/25 and beyond;

(b) approves the proposed adjustments to the 2023/24 budget, as set out in Section 1 of Appendix 1H to the Report of the Leader of the Council/Corporate Finance & Governance Portfolio Holder and requests Officers to review the potential on-going impact in 2024/25 and beyond, where necessary, as part of developing the forecast and detailed estimates for further consideration by Cabinet later in the financial year;

(c) approves the carry forwards from 2022/23, as set out in Section 2 of Appendix 1H and that, in respect of items 1) and 2) therein, Officers be requested to provide an update on the associated work / activities within the Quarter 3 Financial Performance later on in the financial year;

(d) notes the updated position in respect of the treasury transactions with Birmingham City Council set out in the report;

(e) notes the updated financial forecast set out in the report and requests Officers, in consultation with the relevant Portfolio Holders, to continue to develop the financial forecast proposals alongside the development of the Council’s priorities, as part of the wider framework within which to identify the necessary budget reductions to support the Council’s long-term financial sustainability; and

(f) requests that the Resources and Service Overview and Scrutiny Committee be consulted on the latest financial position of the Council, as set out in the report.

Cabinet considered a report of the Leader of the Council & Portfolio Holder for Corporate Finance and Governance (A.3), which provided it with a general update and overview of the Council’s financial position against the 2023/24 budget and looking ahead to 2024/25 and beyond.

That report was split over two distinct sections as follows:

1) The Council’s in-year financial position against the budget at the end of September 2023; and

2) An updated long term financial forecast

Members were reminded that previously an additional section had been included within these reports that had undertook a detailed view of items that would have an impact on the in-year position but also an on-going impact on the later years of the forecast. Although this report set out a number of adjustments to the in-year budget, any longer term impacts remained under review at present. However, they would be revisited as part of developing the forecast for 2024/25 and beyond, and they would be reported within future financial performance / budget reports.

SECTION 1 - In respect of the in-year financial position at the end of September 2023:

It was reported that the position to the end of September 2023, as set out in more detail within the appendices, showed that, overall, the General Fund Revenue Account was underspent against the profiled budget by £1.857m.

Cabinet recalled that, as part of developing the budget for 2023/24, which had been agreed by Full Council in February 2023, a number of adjustments had been made to reflect emerging and/or on-going issues. Therefore, only a limited number of variances had developed during the first half of this financial year. Where variances had been highlighted, those broadly reflected known issues where further review / consideration might be necessary or reflected the timing of general expenditure and/or income budgets. It was acknowledged that other expenditure or income trends might still emerge / develop over the remainder of the financial year.

Members were made aware that this report also set out a number of additional issues that had emerged during the second quarter of the year.

In respect of other areas of the budget such as the Housing Revenue Account, capital programme, collection performance and treasury activity, additional details were set out in this report where necessary.

A half-year treasury management review had been carried out with a summary set out in this report. A further update had also been provided in respect of the recent treasury transactions undertaken with Birmingham City Council.

Members were reassured that any emerging issues would be monitored and updates provided in future reports, which would include their consideration as part of updating the long-term financial forecast.

Cabinet was advised that a limited number of in-year budget adjustments were proposed as set out in Appendix 1H, with an associated recommendation also included within the report. That same appendix also set out a number of outstanding carry forward requests from Services, for which Cabinet had requested the provision of additional information to allow them to be considered further.

Cabinet was informed that the net impact of the proposed budget adjustments would be moved to the Forecast Risk Fund. At the end of September 2023, it had been possible to make a further contribution to the fund of £0.671m.

In respect of the updated long term financial forecast:

It was reported that the forecast had been reviewed and updated at the end of September 2023 and it was set out in Appendix 2A. It continued to reflect the very challenging financial position faced by Local Authorities, and now included revised inflationary assumptions.

Members were advised that the revised forecast also sought to better balance the optimism / pessimism bias that was inherent in any forecasting process and it included the use of one-off funding such as the New Homes Bonus in the short term. The forecast also now included additional income from increases in the property ‘base’ for both council tax and business rates based on historical averages.

Cabinet was informed that worked remained ongoing within departments and with Portfolio Holders with the aim of remaining ‘sighted’ on potential future cost pressures.

Taking into account the adjustments to the forecast set out in the report, the annual estimated deficits had increased, which in turn reduced the balances held within the Forecast Risk Fund. However, based on the latest forecast, the Forecast Risk Fund still remained in surplus to support the Council’s financial position over the period from 2024/25 to 2026/27.

Cabinet was made aware that, based on the updated forecast, ongoing savings of £3.000m were still required across 2024/25 to 2026/27. This was significant, especially in the context of the Council’s overall net budget being just over £14.000m and it continued to present the Council with a major challenge. Although significant on-going savings were still required, the long-term approach alongside the Forecast Risk fund provided additional flexibility and time to make better-informed decisions.

It was considered that developing the framework against which the required savings could be identified therefore remained a key activity over the coming months alongside the development of the new Corporate Plan. The level of resources required to not only develop the above framework but to deliver the required savings, was not to be underestimated, especially when set against other existing commitments such as delivering the Levelling Up projects and Freeport East. There therefore needed to be a clear focus on the timely development of the plan whilst managing competing resources over the coming months.

Members were told that, although consideration would be given to extending the current forecast period beyond 2026/27, the long-term forecast approach still provided an effective method of managing financial risks, and remained underwritten by the Forecast Risk Fund. As mentioned during the development of the longer-term approach to the budget over recent years, it was important to continue to deliver against this plan as it continued to provide a credible alternative to the more traditional short-term / annual approach.

It was reported that an updated risk assessment for each line of the forecast had now been completed and was attached as Appendix 2B to the Leader’s report. The primary risks remained as in earlier forecast periods and those related to the successful delivery of the necessary savings alongside the management of emerging cost pressures.

Cabinet was informed that the challenges faced by the Housing Revenue Account were also significant and included increased expectations and requirements that were likely to emerge from the Social Housing Regulation Act and associated enhanced powers of the Housing Regulator. The HRA 30 Year Business plan would be developed over the coming weeks / months with the aim of responding to such challenges as set against the wider context of continuing to provide a financially sustainable position in the long term.

In response to question put by the Deputy Leader of the Independent Group (Councillor Steady), the Leader of the Council confirmed that external funding matters within the Cabinet’s initial Budget proposals for 2024/25 would be scrutinised by the Community Leadership Overview & Scrutiny Committee.

In order to set out the latest financial position for the Council; to respond to emerging issues in 2023/24; and to help develop the budget and long term forecast from 2024/25:-

It was moved by Councillor M E Stephenson, seconded by Councillor Kotz and:-