Agenda item

Report of the Corporate Director (Resources, Environment and Cultural Services) on the summary of the Review of the Medium Term Financial Strategy.

Cabinet noted the contents of the report and approved the principles to be adopted for the 2021/22 budget setting process as highlighted in section 3.3.6, in particular the 2021/22 budget setting process should focus on closing the indicative budget gap beyond next year.

Report of the Corporate Director (Resources, Environment and Cultural Services) on the summary of the Review of the Medium Term Financial Strategy.

(1)       The Decision Taken

RESOLVED:

Cabinet noted the contents of the report and approved the principles to be adopted for the 2021/22 budget setting process as highlighted in section 3.3.6, in particular the 2021/22 budget setting process should focus on closing the indicative budget gap beyond next year.

(2)       Reasons for the Decision

The report provided a recap of the three-year Medium Term Financial Strategy (MTFS) approved by the Council in February 2020, together with any major changes in assumptions since that date.

The report therefore served as the starting point for the 2021/22 Budget, and set out the key principles to be adopted in setting the Budget.

The Council started the process in a strong financial position, with General Fund reserves of £8.6M at the end of the last financial year. The Council has approved a sustainable long-term Housing Revenue Account Business Plan.  The Peer Review late last year referred to our proven track record of delivering savings.

The General Fund MTFS as approved in February 2020 was set out in Table 1.  It indicated that the Council would need to find further annual savings of £1.6M in 2021/22 to close the General Fund budget “gap”, and a further £0.3M of annual savings in 2022/23.

Since the MTFS was approved, the most significant change in budget assumptions was related to COVID-19.  The latest estimated COVID financial impact was reported to Cabinet in August 2020, and is summarised in paragraph 3.2.1.  The General Fund adverse impact is estimated at £0.9M for the current year, 2020/21, and at £0.7M in each of the following three years up to 2023/24.  The later year impacts are the result of estimated Council Tax and business rate shortfalls, which can be spread via the Collection Fund over 3 years.  For the current year, 2020/21, it is likely that the Council will receive further government support through the income guarantee scheme, but the amount is not yet known.

Although the COVID impact has inevitably increased the estimated Budget Gap for the years through to 2023/24, the approach to closing the gap will need careful consideration.

Generally speaking, it has always been the intention to close the original budget gap of £1.9M by 2022/23 shown in the original MTFS by identifying annual savings.  These are referred to in Section 3.3, and highlighted in particular, the Modernisation Review in paragraph 3.3.6.

But the additional gap brought about by the COVID impacts poses a somewhat different problem.  Although spread over 3 years through the Collection Fund process, and although recovery may be drawn out, COVID is essentially a “one off” event.  It would be both difficult, and probably unnecessary, to try and absorb the COVID impact from annual savings over the period of the MTFS, without creating an unacceptable impact upon service delivery.

Accordingly, the use of reserves will be considered as part of the Council’s options, as noted in paragraph 3.3.6.

This approach will also allow time to refine the Council’s COVID impact estimations, as we learn more about the government’s income guarantee scheme, and gather more information to crystallise our assumptions on income flows such as commercial rents, and council tax and business rate collection levels. 

There remain many uncertainties for the General Fund about the speed of economic recovery from COVID.

The estimated COVID impact upon the Housing Revenue Account, (HRA), is less material than for the General Fund.  So far, rent collection levels have been holding up well.  The original HRA MTFS is set out in paragraph 3.4.2.  As noted, the estimated additional COVID deficit amounts to just £168,000.

The Council have already held a well-received Member briefing on the MTFS recap, and the COVID impact.  A further all Member briefing will be held later in the year as the budget process advances.