Agenda item

To consider a report by Councillor Julian Thompson-Hill, Lead Member for Finance, Performance and Strategic Assets (copy enclosed) setting out the financial impact of COVID 19 on the Council’s 2020/21 budget and proposed strategy for responding to the crisis.

Vote taken: 7 in favour, 0 against, 0 abstentions

RESOLVED that Cabinet –

(a)       note the forecasts around the financial impact of the Covid 19 pandemic on the Council, and

(b)       approve the Draft Financial Strategy as outlined in the report.

Councillor Julian Thompson-Hill presented the report setting out the financial impact of COVID 19 on the Council’s 2020/21 budget, which was a combination of additional costs as well as a significant loss in income, and proposed a strategy for responding to the crisis and mitigating that impact in the short to medium term.

Cabinet was advised that the impact of the coronavirus pandemic would be significant and that business as usual from a financial perspective was not possible if the Council was to respond to the crisis.  Councillor Thompson-Hill outlined the financial impact together with the short and medium term response proposed taking into account the impact on cash flow and base budget.  In summary –

·         Effects of COVID 19 on Income and Expenditure up to end of June – A net increase of £2.1m in expenditure was projected for the quarter to the end of June (additional expenditure of £2.8m alongside a decrease in expenditure of £747k).  Income losses of £6.3m were forecast for the same period (the largest impact of £2.22m on Denbighshire Leisure Limited).  Welsh Government (WG) was expected to provide funding for the additional expenditure but no firm announcement for funding loss of income had been made to date.  The Welsh Local Government Association (WLGA) had submitted information to WG to inform that process and it was expected that funding announcements would be made before the end of May.  The net impact of £8.3m per quarter, if not funded, would have a devastating impact on the Council finances if the lockdown continued for an extended period.  It was noted that the projected figures were subject to change and did not include the impact on levels of Council Tax Reduction Scheme claimants or payment of Council Tax itself

·         Short Term Response Phase – partnership working had been ongoing with all Welsh local authorities, WLGA and WG to help define the scale of the problem and develop solutions.  The recommended strategy over the next few months was to identify a way to ensure the financial stability of the Council for 2020/21 and beyond to include (1) continuing to work in partnership to try and achieve financial help to cover the overspend due to losses of income; (2) to continue to identify and define the financial impact to achieve an increasingly more accurate picture; (3) keep under review decisions that had led to decreases in income, and (4) to ensure the financial flexibility to deal with any residual overspends and continue to deliver efficient and effective services.  This included identifying current underspends, review of non-statutory services, review of reserves and balances and exploring the capitalisation of revenue losses

·         Medium Term Response and Recovery Phase – this would be dependent on the outcome of the response phase.  It was hoped the Council could build on the learning of the crisis to take advantage of opportunities for better and more resilient ways of working.  This would involve the identification of new priorities, areas of ongoing savings and areas that required investment.  Work to be completed over the coming months included: production of the Medium Term Financial Strategy; Revenue Budget Setting Process and Timetable, and a Review of Capital Priorities and Projects.

The Head of Finance and Property added that it was a fast changing situation and he provided a further update, since the report was written, regarding the regulations and administration arrangements surrounding the grant funding made available by WG in respect of direct costs and social care together with free school meals and digitally excluded learners.  In terms of the availability of extra funding indications were that a significant sum of money would be made available in the supplementary budget to be announced on 27 May which would inform future financial planning.

The following matters were raised during debate –

·         Councillor Mark Young expressed this thanks for the hard work undertaken in administering the business grants scheme and ensuring charities had access to resilience funding which had made a significant difference to those affected

·         in response to subsequent questions raised by Councillor Mark Young, the Lead Member for Finance and Head of Finance and Property confirmed that the UK Government would be borrowing for a range of purposes and any areas of borrowing involving devolved issues would result in a Barnet formula consequential for Wales and WG would decide where to allocate that additional funding; with regard to future solvency the report set out the pressures for the first quarter and the funding announced would cover the first quarter expenditure – it was hoped that tomorrow’s announcement would go some way to cover the income shortfall for the same period and, depending on the outcome, a shortfall of approximately £2m was likely, hence the measures detailed within the report.  Following the outcome for quarter 1 attention would turn to quarter 2 and work to lobby for that funding – if there was an easing of the lockdown after June it might be possible for some income streams to be resumed.  Finally the Leader and Chief Executive confirmed that local authorities had been expected to undertake additional work, including the Track, Trace and Protect Programme, which required a significant resource, and there had been some financial commitment from the UK Government in that regard.  Given that some officers had already been committed to alternative duties and others would be required for when services resumed it would be a challenge to allocate and redirect staff for that purpose, particularly if funding was not forthcoming

·         Councillor Brian Jones sought assurances that the highways underspend for 2019/20 would be carried over and that the capital spend for highways in 2020/21 would remain intact.  The Lead Member for Finance explained the usual practice of bringing the financial outturn report to Cabinet in June detailing recommendations for carry forward or otherwise of service overspend – it was likely that if the slippage in spend had been due to Covid 19 then funding would be carried forward.  For the next financial year the block allocations for investment in assets, including highways, would carry forward but those allocations were submitted on an annual basis and therefore as yet not approved – it was assumed they would continue provided funding was available

·         Councillor Bobby Feeley acknowledged the significant financial impact of the coronavirus pandemic and the identified measures to respond to that which potentially included a review of non-statutory services – she highlighted the value of non-statutory services, many of which affected people’s wellbeing and quality of life, and indicated that she would resist any proposals to dismiss those services in favour of savings made from modernised and different ways of working that did not impact on service delivery.  Councillor Thompson-Hill highlighted the Council’s legal duty to provide a balanced budget and the need for all options to be identified to achieve that.  However it would be the worst case scenario depending on the Council’s financial position.  The Head of Finance and Property added that the report set out the strategy for working in partnership to try and secure additional funding but given the risk that funding was not forthcoming then action would need to be taken to use one or more of the measures identified to meet the funding gap which was in line with the usual budget process.  The Chief Executive confirmed that many lessons had been learnt in terms of operational and working practices but if sufficient funding was not received from WG then difficult choices would need to be made.

The Leader highlighted the challenges and uncertainties for local authorities arising from the pandemic including the financial impact if funding losses were not met.  However he was pleased to report on the positive relationship with Ministers through the WLGA and regular meetings where there was recognition that local government had a key role in delivering services together with the financial challenges faced.  Those challenges were further impacted by the fast changing circumstances creating difficulties for future financial planning.  As part of the recovery process it was important that local authorities responded to the challenges faced and opportunities had been provided to work differently and more efficiently.  He highlighted the importance of ICT and Democratic Services working together to ensure democratic processes continued as expected and there were greater opportunities for more modern ways of working.  The Leader also agreed that the non-statutory services were important for residents and would await the outcome of the forthcoming budget announcement from WG to inform future budget planning.

Lead Members responded to issues raised by non-Cabinet members as follows –

·         Councillor Brian Jones provided an update on the opening of recycling centres and reasoning behind the slight delay due to technical issues.  Councillor Emrys Wynne also asked for timely and clear guidance to be provided to both members and residents prior to the resumption of various services and facilities

·         Councillor Julian Thompson-Hill confirmed that the reference in the report to major regeneration projects referred to the North Wales Hospital Redevelopment Scheme.  He also referred to the definitions in law as regards to the classification of statutory and non-statutory services and the Head of Legal, HR and Democratic Services clarified the legal interpretations and obligations in that regard, particularly in terms of the wellbeing element in response to questions from Councillor Gwyneth Kensler which the Council had to have regard to but was not a statutory service as such.

RESOLVED that Cabinet –

(a)       note the forecasts around the financial impact of the Covid 19 pandemic on the Council, and

(b)       approve the Draft Financial Strategy as outlined in the report.