Agenda item

Council Fund Budget 2019/20 – Third and Closing Stage

Decision:

(a) That a decision on the budget be deferred for Council to engage with Welsh Government – through a cross-party delegation – for an improved Local Government Settlement, in order to suppress Council Tax rises in Flintshire and across Wales, by specifically increasing recurring funding for schools and children’s services;

(b) That officers look into the possibility of utilising earmarked reserves that were not protected in 2018/19, to be used in 2019/20, totalling £1.3m;

(c) That officers look into the possibility of capital receipts being utilised to fund the Minimum Revenue Provision charge to release revenue funding; and

(d) That requests for further information would be dealt with at a briefing for Members which would be arranged prior to the County Council meeting on 19^th February.

Minutes:

The Chief Executive introduced the Council Fund Budget 2019/20 – Third and Closing Stage report to which the Cabinet report of 22^nd January 2019 was appended. Additional information had been circulated to Members the previous day, following a request at Cabinet, on the non-mandatory services which could be at risk if no additional funding was forthcoming from WG, and the Council Tax equivalent of those services.

The Chief Officer (Governance) explained that it was the collective duty of Council to set a legal and balanced budget. He explained the importance of not overloading the budget with risks and that any proposals put forward would have to have realistic timescales and be deliverable, with sufficient finances set aside for main risks. He concluded with the need for Members to listen to the advice from the statutory roles of the Section 151 Officer and the Chief Executive in advising the Council.

The Chief Executive and Corporate Finance Manager delivered a presentation which covered the following areas:

· Setting a legal and balanced budget;

· Updated forecast for 2019/20;

· Stage 1 – Corporate Budget Solutions;

· Stage 2 – Portfolio Business Plan Proposals;

· Final Settlement;

· Other changes to the forecast 2019/20;

· Impact of grant announcements;

· Summary of revised forecast;

· Remaining options and possibilities;

· Reserves and balances;

· Types of reserves;

· Managing the in-year 2019/20;

· Prudent level of reserves for 2019/20;

· Council Tax;

· Potential Council Tax rises in Wales 2019/20;

· Council Tax (Band D) comparators 2018/19;

· Council Tax indicative comparators 2019/20;

· Council Tax indicative Welsh comparators 2019/20;

· Schools and Social Care budgets;

· Schools funding 2019/20;

· Social Care funding 2019/20;

· Professional opinions;

· Future outlook;

· Medium term forecast;

· #backtheask;

· Update from the AMs and MPs meeting;

· Budget scenarios; and

· Next steps and timelines.

The Chief Executive said the options remaining to achieve a legal and balanced budget were outlined in the Cabinet report. The scope for further service reductions for this financial year of any scale had been exhausted, and the portfolio resilience statements which demonstrated the risks to service capacity and performance of any other budget reductions had been accepted by Overview and Scrutiny Committees and Cabinet. A number of Member workshops had also been held. He commented on the implications of potential suggestions at this late stage including workforce and trade union relationships. Any new decisions would take time to implement and could not result in immediate or sufficient savings for the 2019/20 budget year as a consideration in balancing the budget.

The position of the specific requests made to Welsh Government (WG) for financial assistance was detailed in the report. Beyond a financial intervention by WG the only remaining budget options to balance the budget were Council Tax income and reserves and balances, with the scope for the latter being limited. The Corporate Finance Manager provided an explanation of the proposed prudent level of reserves he was recommending to be held to mitigate the impact of the factors outlined in the report. Based on the analysis in the report, there was only a relatively small amount of reserves of £0.189m available to make a further contribution to the budget for 2019/20.

On potential Council Tax rises, the Chief Executive provided information on indicative figures on the increase range and how many councils that applied to – there were three Councils currently known to be looking to set a 9%+ Council Tax rise. He emphasised that 8.5% was not recommended by officers, but this was the figure that would bridge the budget gap and was a requirement as the calculations stood. The addition of the increase in the North Wales Fire and Rescue Levy would need to be included, bringing the overall increase to 8.9%.

The Revenues Manager explained that, based on that 8.9% increase, it would equate to an annual increase of £104.81 for an average Band ‘D’ household, which was £8.73 per month. Latest intelligence indicated that an 8.9% increase would result in Flintshire setting a Council Tax charge which would be £34 lower than the Welsh average for 2019/20.

The Corporate Finance Manager and Chief Executive confirmed that their professional opinions were as detailed in the report to Cabinet. The Chief Executive commented on the risks to the workforce with many teams already under stress due to (a) service demands and (b) cumulative reductions in their capacity. Intricate financial forecasting had taken place and the figures provided to Members were robust.

The budget scenarios were:

Scenario 1: the Council sets a budget within its known resources and without any national support. The Chief Executive said this would be difficult but it could be achieved.

Scenario 2: local government receives an improved Settlement and the Council can set a budget with more resources. The Chief Executive said there was little chance of this happening.

Scenario 3: Flintshire receives an improved Settlement with supplementary funding and the Council can set a budget with more resources. The Chief Executive said this had never happened before so he felt the probability was very low.

Scenario 4: the Council cannot set a legal and balanced budget and has to default to the statutory procedures and risk a national intervention. The Chief Executive said this was the default position and a situation nobody would want to find themselves in. The Corporate Finance Manager would need to issue a Section 114 Notice where an action plan would need to be agreed in 21 days for the Council to recover its budget in-year and would only be allowed to spend on committed expenditure – anything discretionary would have to be suspended and the situation could spiral out of control. No Council in Wales had ever had to issue a 114 Notice.

There was a final engagement planned with WG which had been arranged by Councillor Kevin Hughes, which would see a delegation of Members attending the Senedd on Tuesday 5^th February and hopefully meet with Assembly Members – full details would be available nearer the time. Following that there was a County Council meeting on 19^th February prior to the formal setting of the Council Tax on 28^th February.

Councillor Aaron Shotton thanked all officers who had undertaken work on the budget to date and commented on the number of County Council, Cabinet, Overview and Scrutiny Committee meetings and workshops that had taken place where they budget had been discussed prior to today. Each Member meeting had universally recognised and accepted that there was no further efficiencies of scale to be found in services without putting those services at risk.

The Council had been through ten years of austerity and a pragmatic cross-party approach had been adopted which had seen services protected and a change in delivery models. Flintshire was one of the most cost effective councils in Wales and that could be demonstrated by the efficiencies found whilst still providing the level of services it did. However, the Council was now at the limit and there were no further efficiencies to be found. He reiterated the situation in that if no further intervention was received from WG, the only options to bridge the funding gap was Council Tax and the use of reserves and balances, which was limited. He moved deferment of the item until the cross party delegation had been to WG on 5^th February because, if additional funding was made available, the Council Tax increase could be suppressed. He thanked Councillor Kevin Hughes for organising the delegation to WG and engendering the cross party approach.

Recognition and support was being sought from WG for the needs of Flintshire residents and businesses – WG expected the average Council Tax increase to be 6.5% yet Flintshire was looking at 8.5% which was a step too far and support was needed. Advice had been received on the implications for the Council if a legal and balanced budget was not set – there needed to be acceptance across the Chamber that there were no further efficiencies available. If a legal and balanced budget was not set then non mandatory services would be at risk and he cited examples of the music service, Theatr Clwyd, youth services, play schemes, countryside services and subsidised buses. Councillor Attridge seconded the proposal for deferment of the item.

Councillor Peers said it was appropriate to defer the item, particularly based on resolution (2) from Cabinet on 22^nd January “that Cabinet advise Council that in the absence of an improvement in the Local Government Settlement by Welsh Government then the Council will have to rely on a Council Tax rise in the region of 8.5% to meet its own expenditure requirements for 2019/20 (excluding the increase in the Levy of the North Wales Fire and Rescue Authority)”. He commented on Councillor Aaron Shotton’s remarks at the County Council meeting on 11^th December where he said funding from WG was inadequate and that he did not wish to see a Council Tax rise in the region of 9%; this had been reiterated by Councillor Peers at the meeting that had taken place with AM’s on 11^th January where Councillor Shotton said it was unlikely any Member would want to support such a rise in Council Tax. The Cabinet report of 22^nd January stated the Settlement was still inadequate to meet Flintshire’s funding requirements.

On the potential 8.5% Council Tax rise, Councillor Peers said the gap should be funded by WG, not local tax payers and asked what the Leadership was proposing if there was no improvement in funding from WG? He commented on the Stage 1 proposals which had been previously agreed where a 4.5% increase in Council Tax had been approved along with £1.9m VAT rebate taken from reserves. On the per capita table, Flintshire was 19^th out of 22 local authorities and £134 per person lower than the Welsh average – he provided details of the top six Councils in the annual Settlement and the increase they had received on the provisional Settlement.

In March 2018 the reserves, as listed by the Wales Audit Office (WAO) were £49m – further reserves needed to be considered. £1.4m had been recovered from the change in accounting policy for the Minimum Revenue Provision (MRP) and was available to be used from reserves. Cabinet transferred it into the contingency reserve in September 2018. At the same time, £1.9m VAT rebate was also transferred, intended to be used for the Medium Term Financial Strategy (MTFS) but was now being used to support Stage 1 of the budget.

A Treasury Management presentation had been delivered to Members that morning and £22.6m of Council finances had been invested and could be accessed from between 15 and 35 days. At that presentation Members were also informed that the debt was now £290m and he queried whether the consolidation of those debts could be looked into. Council expenditure for 2019/20 would need to be re-assessed to avoid an unacceptable Council Tax rise of 8.5%.

Councillor Richard Jones said at the last County Council meeting there was a consensus that Members did not want to see a Council Tax rise of over 5%. Based on a Council Tax rise being set at that level, he said that to avoid a reduction in services provided by the Council then the two remaining things to be considered were reserves and balances and corporate financing options. A letter had been received from Julie James AM and Rebecca Evans AM, as Cabinet Ministers, which stated there was no evidence Flintshire was disadvantaged by the Settlement formula – based on that he did not feel there was much chance that Flintshire would get additional funding following their visit to WG on 5^th February.

Following a request from him at the budget meeting the previous year, officers established what part of earmarked reserves could be used to support schools and he wanted to do a similar thing this year. The estimated balance as at 1^st April 2019 was detailed in the paperwork, with figures against specific earmarked reserves, which would not move within the financial year – he felt that was unacceptable and if it was felt at the beginning of the year that the balance would not move, it should not be included as an earmarked reserve and that it should be used; it totalled £1.318m.

In addition he suggested that capital receipts could be put into the revenue account through the Minimum Revenue Provision (MRP) charge, and not into the capital account. The MRP charge was estimated at approximately £4m and he felt there was an opportunity for some of the capital money to be utilised in that way. This was a corporate responsibility and would not affect services. He moved an amendment that the two options described by him be looked into by officers, which was seconded by Councillor Heesom.

The mover and the seconder of the original motion, Councillors Aaron Shotton and Attridge, accepted the amendment which then became the substantive motion.

The Corporate Finance Manager explained that the use of capital receipts for the revenue budget was not usually allowed. Contact would be made with Wales Audit Office (WAO) and details on that possibility would be provided to Members prior to the next County Council meeting on 19^th February.

Councillor Chris Dolphin thanked Councillor Kevin Hughes for arranging the delegation visit to WG on 5^th February and said that an 8.5% Council Tax rise was unacceptable. He referred to the letter from Julie James AM who had held a meeting on the funding formula at which the Leader of the Council was present. There were no details contained within to say that there had been any opposition to the formula by those present – he queried whether the message on the formula being flawed was reaching WG. He commented on the support always provided by the Liberal Democrat Group as they were supportive, whilst recognising that difficult decisions were needed to ensure that the Council Tax rise did not reach 8.5%; if cuts needed to be made he said Cabinet needed to take those decisions by looking at the non-mandatory services. He commented on the number of Household Recycling Centres in close proximity of one another and urged Cabinet Members and officers to be creative and look at all areas including this.

Councillor Heesom also did not support an 8.5% Council Tax increase and said the responsibility of the budget lay with the Leader and the Leadership of the Council. He praised the quality of the documents that had been provided to Members by officers which were articulate and of a high standard for which he was grateful. On reserves and balances he said there was a question on what actual reserves were available. He also made reference to the Treasury Management training that had taken place that morning where a discussion had taken place on reserves and cited £49m being available for the Council. There was also the issue of capital receipts which were a significant amount and were available for the purposes of balancing the budget.

This was an on-going issue with trying to balance the budget and he said the strategy needed to be re-thought in the future and it may be the case that non-mandatory services would need to be considered and he blamed the Leadership for the situation and not WG. On the prudent level of reserves outlined in the document, he said that further information was required as to how those amounts had been arrived at, which he felt were token sums, and requested those details in advance of the next meeting. He also commented that no scrutiny had ever taken place on the Central Loans and Investment Account and requested further information on that.

The Chief Executive said that the information and figures contained within the report were professional opinions based on detailed data which was available to Members.

In response to a question from Councillor Sharps on whether it was possible for housing bands to be re-evaluated, the Revenues Manager explained that it could not be done by Flintshire alone as a change would be required in primary law in Wales. The last evaluation of houses in Wales was carried out in 2005; the last one in England to be carried out was in 1993.

Councillor Kevin Hughes commented on the unfairness of children in Flintshire receiving less funding for education than other children across Wales. He also said he did not wish to see an 8.5% Council Tax rise however a budget did need to be set. He was pleased that a cross party delegation was going to WG on 5^th February which showed a united front from Flintshire County Council and he urged all Members to work together for the benefit of the local residents in the County.

Councillor Brown said she had also attended the Treasury Management training that morning. On the Capital Programme the code said it should be affordable in terms of Council Tax levels. She said Members needed to see the Capital Programme with every item within so that it could be re-evaluated either at the next meeting on 19^th February or sooner, as a proposed rise in Council Tax of 8.5% was not acceptable and it was not the responsibility of the residents to fund the gap. She also commented on the rise in rent arrears and the increases in numbers of people relying on food banks. The Chief Executive explained that a report on the Capital Programme would be reported to Council on 19^th February and said that the Programme contained the longer term plans. He said Members needed to be mindful of what was in the longer term Capital Programme that did not require a commitment from the 2019/20 budget as it was a rolling programme over a number of years – the usual report could possibly be extended to include the longer term plan including the burden that could be placed on revenue.

Councillor Gay proposed that the £1.4m recovered from the change in accounting policy in the MRP be used to help bridge the gap. The Chief Executive explained that given the amendment that had been proposed by Councillor Richard Jones and now formed part of the substantive motion, Members would need the advice of officers in taking reserves and balances into account. An agreement would be needed by Council that there was sufficient remaining to meet all of the risks – he suggested that her proposal was therefore not valid as it was being taken out of sync; the whole of the reserves package needed to be looked at and Members would need to make a decision, on 19^th February, based on risk. This was accepted by Councillor Gay.

Councillor Bithell provided details of the agreed Police and Crime Commissioner precept which had been agreed earlier that week and said the passporting of taxes onto residents could not continue and it bore no resemblance to income. Councillors Woolley and Ellis also concurred that an increase of 8.5% was not acceptable, particularly when the precepts for the North Wales Fire and Rescue Authority, the Police and Crime Commissioner and the Town and Community Council precepts were added. The Chief Executive said given the requests for further information a briefing for Members would be arranged prior to the meeting on 19^th February.

The Corporate Finance Manager said reference had been made to reserves of £49m and he explained that it was comprised of a number of elements such a capital receipts and reserves, HRA and the earmarked reserves - the actual usable reserves was £5.8m as outlined in the report. On Treasury Management he said it was important not to confuse the availability of cash on a temporary basis with reserves, citing when the RSG was received compared to when the payroll system ran. Debt rescheduling was also looked at on a regular basis and was scrutinised by the Audit Committee.

The Chief Executive said nobody was making light of a potential 8.5% Council Tax rise but it was the primary role of officers to advice Members to help them inform a view to be able to approve a balanced budget within the limitations available. On the delegates visit to WG, he said there was no history of any package being offered to individual Councils. On the funding formula, he said the view of officers was different to that of WG; the formula had been contested over the years but had never been part of a formal consultation or vote and had not been reviewed for around 20 years. The Council believed the balance between rurality, deprivation and population was imbalanced. He referred to a previous debate in the Chamber on the information from the Local Government Commissioner for Finance in 2016. The Commission had recommended in its final report that (1) a freeze be applied to demographic led changes on the funding formula as it stood (which would have meant Flintshire would not have been on the funding floor this year); and (2) a full review of the funding formula be undertaken as it was dated.

As well as setting a budget for 2019/20, it was also important to look beyond that year and, as an illustration, if the Council was to use an extra £1.3m of reserves this year, that would result in the equivalent of 4.5% Council Tax the following year required just to bridge the gap for the funding used from reserves in the absence of any other funding solution to replace them. On capital receipts there was a diminishing number remaining – the Capital Programme was heavily subsidised for things in urgent need. On the comments made by Councillor Dolphin, he said there was nothing left to offer of scale on services which had been accepted at all of the Overview and Scrutiny Committees. If jobs were removed that would result in services being withdrawn or closed. The teacher pension issue was a huge risk to the Council and if the Council had to take half of that funding responsibility it could ‘sink’ the Council’s budget without the recommended reserves in place.

Councillor Aaron Shotton, in summing up, explained that, as outlined in the Constitution and as explained by the Chief Officer (Governance) at the outset, the budget was not the responsibility of the Leader but of the Council as a collective, based on a recommendation from Cabinet. He was not proposing an 8.5% Council Tax increase. However, Cabinet had recognised that, following officer advice, the only option to achieve a legal and balanced budget was by setting a Council Tax of 8.5% to bridge the gap if there was no intervention from WG.

Councillor Chris Dolphin had suggested that further cuts be made to services, he said he would not be proposing any further cuts to services which was based on the advice from professional officers and each Overview and Scrutiny Committee. On the letter from the Minister he believed it was used within a press release by an Assembly Member which was unfortunate as it mis-represented Flintshire’s case. The Council had never asked for an immediate review of the funding formula as it was recognised that it would take time and would not address the situation the Council faced now. What was being asked for was recognition of how the funding formula did not meet the Council’s needs. He provided assurance that he constantly raised the issue at WLGA meetings. He welcomed the amendment from Councillor Jones but asked Members to be mindful that if it was legal to use capital receipts to substitute revenue funding it would result in investments possibly not starting or continuing, such as Castell Alun High School, Ysgol Glan Aber and Marleyfield Care Home. On the use of any further reserves, the Cabinet took the advice from professional offices which was detailed in the report which was based on risk.

RESOLVED:

(b) That officers look into the possibility of utilising earmarked reserves that were not protected in 2018/19, to be used in 2019/20, totalling £1.3m;

(c) That officers look into the possibility of capital receipts being utilised to fund the Minimum Revenue Provision charge to release revenue funding; and

(d) That requests for further information would be dealt with at a briefing for Members which would be arranged prior to the County Council meeting on 19^th February.

Supporting documents: