Agenda item

Draft General Fund Budget & Medium Term Financial Strategy Update


The Corporate Director Finance, Governance and Property introduced the report and stated that in the current 2020/21 financial year, a six month forecast Cabinet report had outlined a deficit of £2.7million. He stated that at the beginning of the financial year, the Council had been reporting a surplus of £4.7million, which indicated a £7million in-year change due to the COVID pandemic. He explained that additional funding had now been received which would ensure the budget was balanced at the end of the 2020/21 financial year, but the budgeted surplus had been lost and this would affect future budgets. He outlined that there was currently a £34million funding gap over the next three years, with a £19million deficit in 2021/22 and a £25million deficit split between 2022/23 and 2023/24. He explained that the lost surplus this year would be compounded by an increased collection fund deficit from decreased business rates and council tax collection, which would impact on potential expenditure in the next few years. He added that this would also be affected by increased costs in adult and children’s social care. He described how Thurrock were in the lowest quartile for adults social care expenditure, but this meant there were still pressures in the system and the pandemic would have a greater impact on the service. He stated that the reasons for the pressures in the service were due to demographic changes, an increased number of resilience payments, increased inflation, increased staff pay, increased treasury budgets and interest costs.

The Corporate Director of Finance, Governance and Property stated that the Council were currently undertaking a number of one-off approaches to buy some time, due to the size of the deficit. He stated that the government had undertaken a spending review in November 2020 and the Chancellor had agreed on a one year settlement, but this only informed resources for 2021/22. He added that government grants and council tax income had been built into the budget, which ensured it would be balanced.

The Corporate Director of Finance, Governance and Property then explained that the team had been working on ways to reduce expenditure and increase income, which included the freezing of non-essential vacant post recruitment. He explained that this would reduce the number of employees over the Medium Term Financial Strategy (MTFS), and would save approximately £4million. He stated that this would have an impact on services as it would reduce the number of the staff, but directorates would try to mitigate this as much as possible. He stated that the Council would also be stopping some allowances such as overtime, car allowances, and shift work. He explained that over the past two years the Council had undertaken a review and restructure of staff pay grades, which had been affordable but had led to increased funding. He stated that he understood that this was a sensitive issue, but outlined that it would save the Council approximately £800,000.  The Corporate Director of Finance, Governance and Property then outlined the proposed rise in council tax. He explained that central government had set the maximum council tax rise at 2%, and Thurrock were proposing a 1.99% increase. He stated that central government had also agreed a maximum adult social care precept of 3%, which Thurrock were also recommending. He stated that this was a total rise of 4.99%, which had also been built into future budgets. He then described how central government had announced a £4.8million COVID grant for Thurrock to support them in the next financial year, but highlighted that this was a one-off grant that may not occur again in future budgets. The Corporate Director of Finance, Governance and Property then explained that the Council would also be using capital receipts, which had originally been for Minimum Revenue Provision (MRP), but would now be used for Council transformation due to government relaxation of rules. He added that these capital receipts had originally been £5million, but were now £3million. He commented that the Council would also be using £3.3million of reserves as a one-off way to close the deficit.

The Corporate Director of Finance, Governance and Property stated that the deficit gap in 2022/23 and 2023/24 had originally been £15million, but this had now increased to £25million. He stated that this was due to the one-off approaches that the Council had undertaken this year, which increased the deficit in future years. He explained that departmental savings had already been built into these budgets, such as the move to fortnightly collections and more staffing savings. He explained that the Council would need to make £4million staff savings in 2022/23 and £2million staff savings in 2023/24. He added that the Council were also looking at increasing commercial income, and continuing to increase council tax by 2% every financial year. He described how central government would be undertaking another spending review in November 2021, which would be outlined to Thurrock in December 2021, but the budget would need to be balanced before this point. He explained that this was due to the time it would take to make savings such as consultation and notice periods. The Corporate Director of Finance, Governance and Property summarised and stated that scrutiny committees would have the opportunity to look at individual departmental savings at the beginning of the 2021/22 financial year.

The Chair began debate and stated that this was a sobering financial report that would present many challenges. He highlighted appendix 1 and stated that before intervention there would be a £42million deficit over three years, of which only £6.4million was due to COVID impacts. He questioned if this figure was correct and only 15% of the deficit was due to COVID. The Chair also queried other, non-COVID related pressures. He stated that there would be £3million corporate growth in 2021/22, 2022/23, and 2023/24, and asked what this increase would mean for council activity. The Corporate Director of Finance, Governance and Property replied that the corporate growth figures were a normal level of growth, and had been seen in previous years. He stated that this year though, the corporate growth figures were only linked to adults and children’s social care, which paid for new fees being paid out. He explained that Thurrock were in the lowest quartile for adults social care expenditure in the country, but payments still had to be paid to ensure vulnerable residents could be supported.

The Chair queried if council tax would continue to rise by 1.99% in future years. He stated that these increases would equate to at 10% rise over three years and this could have an impact on residents. The Chair also questioned if the level of council tax collection would decrease over the period of the MTFS. The Corporate Director of Finance, Governance and Property replied that the Council would be assuming a 1.99% rise again in 2022/23 if there were continued financial difficulties in 2021/22. The Chair then questioned if the Council could be more ambitious regarding commercial income. The Corporate Director of Finance, Governance and Property replied that the Council would be as ambitious as possible, but the commercial income outlined in the MTFS was not a target. He stated that the figure of £1,089,000 came from a reduction in the collection of fees and charges which had occurred this year, and might continue to occur as it could take a while for the country to get back to normal after COVID. He outlined that any departmental savings had been put forward by the department who were working to increase income and decrease expenditure. He stated that the Council had not yet decided how to split savings into increase income and decrease expenditure, and no directorates had yet been given savings targets from corporate.

The Chair stated that Thurrock had currently received £6.4million from central government in COVID funding. He queried if Thurrock were making additional representations for more funding. The Corporate Director of Finance, Governance and Property replied that the government had given Thurrock a general grant of £4.8million this year, and had also agreed to pay for 75% of lost fees and charges revenue until June 2021. He stated that Thurrock were reporting monthly to the MHCLG and were pointing out areas that required additional funding. The Chair highlighted page 19 of the agenda, and drew the Committee’s attention to the bar chart. He explained that when the bar chart was above the red line, the council were in surplus; and when the bar chart was below the red line, the council were in deficit. He stated that the challenge would come in 2021/22 when the council would need to both increase income and reduce expenditure. He stated that since 2015/16 expenditure had been increasing every year, and asked if the Council should have reined in and challenged spending during this period. The Corporate Director of Finance, Governance and Property replied that in hindsight the Council should had challenged expenditure, but felt that the council should also have continued to raise council tax. He stated that Thurrock had very low council tax levels compared to other unitary authorities around the country, and if council tax had been raised, then the Council would now have an additional £13million. He stated that the team had reviewed services over this time period, but would now be increasing the pace of this review.

Councillor Rice questioned the £30million overspend on the A13 widening scheme, and asked what the revenue consequences of this would be. He also questioned the policy surrounding brown bins, including if there was a charge and when this would begin. The Corporate Director of Finance, Governance and Policy replied that a charge on brown bins had not been agreed, no timescales were in place to begin one, and so therefore this had not been included in the budget figures. He stated that the team were still reviewing the A13 scheme and looking into other potential finance streams. He explained that infrastructure projects such as the A13 had a forty year life span, so would be repaid through the MRP at approximately 1/40th of the cost every year. He added that the scheme also had low interest rates of 0.7/0.8%.

Councillor Ralph highlighted page 19 and the drop in interest receivable in 2023/34. The Corporate Director of Finance, Governance and Property replied that this was due to the pause in the investment strategy, during which no further investment would be taking place. He stated that the team had therefore removed the targets for future investments, as investments that matured in this period would not be replaces which would decrease the levels of growth. He explained that the pause in investment strategy was due to recent publicity surrounding investments at Thurrock, as well as a government change in policy. He explained that previously the government had encouraged council’s to be entrepreneurial and undertake investments, but recent policy had stated that local authorities should not invest. He added that the Public Works Loans Board (PWLB) had also introduced a new policy in November 2020 of not lending to Councils who undertook investments, and the majority of the Council’s borrowing came from the PWLB.

Councillor Rigby questioned if the Council would also be undertaking pay freezes. The Corporate Director of Finance, Governance and Property replied that he was currently in discussion with the unions surrounding pay freezes for staff. He explained that in November 2020, the Chancellor had announced a public sector pay freeze, and although local authorities did not fall into this criteria, council’s should have mind to this advice. He added that he was also looking at the affordability of pay increases, and this was being independently reviewed.

Councillor Duffin thanked the finance team for their hard work and questioned if commercialisation would increase, despite the pause in the investment strategy. He felt it would be good to see an increase in commercial revenue, and would also benefit local residents. The Chair highlighted point 3.8 of the report and asked if specific savings proposals would be given to individual directorates. He stated that the report only included one directorate saving as well as council-wide proposals. He asked if the Director was happy with the speed savings were being made at. The Chair also asked if more reserves should be used. The Corporate Director of Finance, Governance and Property replied that the Council had made a conscious decision to take time when making savings. He felt that nobody knew how COVID would progress back in March 2020, or the affect it would have, and stated that the savings from the environmental directorate had not been forced. He explained that other directorate level savings had been made, but the environmental directorate’s savings had been most notable.

The Chair then asked what strategic options were available to the Council now the investment strategy had been stopped. He asked if it would lead to a reduction in services or continued increase of council tax. The Corporate Director of Finance, Governance and Property replied that the Council were already undertaking the majority of strategic options, and were trying to achieve change through transformation to reduce the impact on residents and the community. He explained that as Thurrock had one of the lowest council tax rates in Essex and other unitary authorities across the UK, the council fell into the low-cost service category, which it made it difficult to make service savings. He then stated that although the Council was working to raise commercial income, fees and charges could only make approximately £8million in come, compared to the £25million deficit that the Council faced. He stated that the Council were also continuing to pursue the policy of ‘fewer buildings, better services’, but stated that the biggest budget was staffing. He explained that only 12 budgets in the council were in excess of £1million, the first being staffing, then adults social care, and thirdly children’s social care budget. He described how interest debt remained high, but if the Council chose to decrease debt interest, this would also decrease the level of income received too. He felt that it would be a significant challenge to balance the budget, which would utilise multiple methods such as increasing commercial income and council tax, whilst decreasing staffing and service budgets.

The Chair questioned if the Council should have diversified its income streams, rather than focussing on investments. The Corporate Director of Finance, Governance and Property replied that investment income had helped to maintain services, brought additional funding to the borough, and reduced financial pressures, whilst also decreasing council tax for a number of years. He described how before the investment strategy had been undertaken, the council had been in contact deficit and would have meant that staff and services would have been decreased before the pandemic began, and would still have needed to be cut post-COVID. He felt that the investment strategy had deferred making difficult decisions and reduced the impact on residents, whilst also ensuring that reserves had increased every year since 2016.

Councillor Rice questioned the impact that COVID was having on Impulse Leisure, and what council support was being offered to them whilst they were non-operative. The Corporate Director of Finance, Governance and Property replied that Impulse Leisure did not have any call on the budget, as they did not have a Service Level Agreement with the Council. He explained that a different government grant had recently been introduced which met the criteria of the relationship between the Council and Impulse Leisure, and Thurrock had already bid for a portion of this grant. He explained that Impulse Leisure were a tenant of Thurrock Council’s due to the nature of their lease, but this position had been acknowledged by the government, who would hopefully give Impulse Leisure a portion of the grant.

Councillor Ralph stated that he felt investments had helped Thurrock and its residents. He felt it was a shame the government directive had been changed surrounding investments, but felt lucky that Thurrock had invested in green energy, rather than shopping centres, and had continued to see investment income during the pandemic. He stated that increased council tax would affect residents, and felt it was important that the Council continued to seek alternative funding streams such as capital and commercial funds. Councillor Hague commented that investments had been supported by both the Committee and wider Council since its inception, and felt that government policy had been influenced by some councils making poor investment choices. He added that the current deficit projections would cause huge challenges for the Council, and queried whether working remotely had had an impact on the level of staffing, and if shared service agreements with other councils could now be pursued. Councillor Duffin highlighted the graph on page 19 and felt that investments had brought in over £100million of income, which had benefitted residents. The Corporate Director of Finance, Governance and Property replied that the team were currently looking into shared service agreements and automation as ways of reducing expenditure. He stated that the team were also looking at services which could potentially be delivered by the community. He added that the Council had also received an £80,000 revenue support grant (RSG) from the government, and were making the case for more government support. He explained that the RSG usually decreased year-on-year and felt it was good to see an increase in levels of support through this mechanism.

Councillor Rice asked if the council were considering the sale of assets to increase council income. The Corporate Director of Finance, Governance and Property replied that there were two financial aspects to consider when looking at the disposal of assets, which were: the use of capital receipts to pay for activity, as the sale of assets created capital receipts, which increased the capital strategy; and the 12 budget categories which were in excess of £1million and included the cost and maintenance of buildings. He stated that the team we looking at asset disposals and a paper would be submitted to February Cabinet that would describe this in more detail. The Chair then questioned the Local Council Tax Scheme (LCTS), and asked if future consultation would be taking place. The Corporate Director of Finance, Governance and Property replied that LCTS consultation would be considered in the future, but the team had felt there was currently lots of council tax uncertainty and had felt it was not appropriate to undergo consultation at this time. He added that it would also be difficult for the team to carry out a meaningful consultation because of the pandemic. He stated that officers and the Portfolio Holder had agreed to maintain the LCTS for the time being, but would try to go to consultation in summer 2021. He mentioned that that January Full Council report would show an increase of £700,000 in the LCTS budget to support claimants.

The Chair summarised and stated that the main comments from the discussion had been: requests for additional government support; concern surrounding a 10% council tax increase over three years; an increase in the commercial approach; the team to consider other income approaches, such as shared services or remote working savings; asset disposal; and reassurance surrounding future LCTS consultation.

RESOLVED: That the Committee:

1. Commented on the proposed council tax level with mind to the comments set out in the report.

2. Commented on the draft budget as set out within the report to inform the final budget proposals at Cabinet on 10 February 2021.


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