Agenda item

Budget Scrutiny 2022/23 - To consider the following budget related reports scheduled for Cabinet consideration on 9 February 2022:

·       Budget and Medium-Term Financial Plan (MTFP) 2022/23 (Pages xx – xx)

·       Housing Revenue Account (HRA) Budget Setting 2022/23 (Pages xx – xx)

The Chairs from the Children’s Services and Health and Adult Social Care Overview and Scrutiny Committees are invited to attend the Board for consideration of this item.

The Overview and Scrutiny Board will also consider the following report scheduled for Cabinet consideration on 9 February 2022:

·       2021/22 Budget Monitoring at Quarter 3

Cabinet members invited to attend for this item: Councillor Drew Mellor, leader of the Council and Portfolio Holder for Finance and Transformation.

The O&S Board is asked to scrutinise and comment on the reports and if required make recommendations or observations as appropriate.

The Cabinet reports for this item are included with the agenda for consideration by the Overview and Scrutiny Board.

The Chairman introduced this item and advised that the Budget and Medium-Term Financial Plan (MTFP) 2022/2 and Housing Revenue Account (HRA) Budget Setting 2022/23 would be taken together and asked all parties in the meeting contribute to a constructive discussion of the issues in a respectful way. The Chairman then invited the Leader of the Council to introduce the reports. The Leader and Portfolio Holder for Transformation and Finance presented the reports, copies of which had been circulated to each member and which appears as Appendices ‘A’ and ‘B’ to these minutes in the Minute Book. The Portfolio Holder and Chief Financial Officer responded to comments and questions from the Board, details included:

·     A Councillor advised that residents views that they had been made aware of included that the issues outlined in the budget were not what the Council should be focused on, that much of the content went against sensible financial practice, that loans were being used to hold down council tax at the cost of borrowing, which was effectively financial engineering and that Councils should be run service providers rather becoming involved with issues they shouldn’t be. The Leader responded that the Council would be investing £50million and would deliver in the region of £1billion of savings over a 20-year period. They felt that this was good financial planning and the right thing to do at this time. However, it was understood that it was a choice regarding the level of council tax set.

·     The Chairman commented on the cost of transformation and the mechanism being used to fund it. The cost had increased significantly with savings being realised at the end of the time-period. It was noted that there were risks and that this was not what people were used to which had raised a number of concerns about this approach. A Councillor commented on the Section 151 financial warning flags across the report. The Leader responded that it was fair to say that this was a step change in financial strategy. The Council, now the tenth largest unitary authority in the country, was a very different organisation to the preceding authorities. The Council was not selling off assts in order to ensure that they would be retained for future generations. The Leader acknowledged that comments made around transformation were valid, but the programme was fundamental in achieving 5-year and ongoing financial sustainability. The Council was now in a position of looking towards a solid, balanced 5-year Medium Term Financial Plan, which was not a position the Council had always been in. It was noted that the level of debt for the Council was much smaller than other councils of a similar size.

·     The Leader advised that the Council would be delivering investment and retaining assets with utilising what was available to invest in future savings.

·     A Councillor commented that the lower council tax increase was only positive if services were fully and regularly delivered. It was noted that savings had not been achieved previously and there were assumptions made in the report in terms of increases in inflation and the Leader was asked whether it would be possible to achieve the indicated savings for future years. The Leader commented that the Council was moving towards being £50million per year more efficient with the support of the fantastic partner the Council had in KPMG. The current administration had taken over in the middle of the pandemic and needed to look at what should be taken forward in terms of the transformation programme. It was crucial that transformation was done right and not rushed. Therefore, certain changes in terms of savings were taken in particular to ensure that systems were in place to make the changes effectively and reduce pressures before moving forward. There needed to be an understanding on a service level transformation in order to find extra capacity within Children’s and Adult services, in order to fund longer term savings. The Leader commented that they did not feel the need to increase council tax and it was entirely right to look at a low council tax increase in the current climate. The Council were not selling assets and wanted to create a sustainable financial strategy into the future.

·     A Councillor commented that the report indicated a loss of £5.2million from the Bournemouth Development Company and questioned if there was an issue of mismanagement and failure on behalf of the administration. In relation to the Bournemouth Development Company the Leader advised that provision for £5.2 million had been made whilst the winter gardens scheme was reassessed.

·       A Board member asked what the biggest challenges were regarding transformation. It was noted that the cost had significantly increased. This was due to additional staff needing to do transformation work but not able to do their current jobs. There were no issues five months ago with regards to the significant increases in the transformation costs. The Leader noted that there was very little headroom to move things forward and some extra space needed to be created to allow for transformation work. KPMG had requested that this needed to be done to move forward with transformation. It was explained that staff time allocated to the transformation programme would allow for it to be funded differently through the use of capital receipts. The Corporate Director for Transformation and Resources advised that he had stated previously that there would be a need for additional funding and it was noted that the overall costs for transformation were higher than when the programme was established nearly two years ago.

·       Recording of staff time would need to be at a level acceptable to auditors. A majority of the mechanisms needed for this were already in place.

·       Issues were raised concerning the flexible use of capital receipts particularly in relation to the proposals regarding beach huts. The Chief Financial Officer advised that section 63 of the report showed that £5.5million had already been received in capital receipts and there were other known receipts which were working through the system which would provide approximately £12 million additional funding available for service transformation.

·       The government had stated that there would be some changes to the guidance in relation to the flexible use of capital receipts but this had not yet been received, the current regulations were due to expire on 31 March 2022, information received in respect of the local government finance settlement was that the government intended to extend the regulations and current criteria.

·       A Board member questioned whether the existing staff being utilised for the purpose of transformation were either not doing the job they were supposed to be doing or was it intended to make them redundant at the end of the transformation process. It was felt that sooner or later Flexible Use of Capital Receipts - FUCR regulations would be withdrawn. It was reiterated that the Council could not keep selling off things to pay for the way we live and according to the budget the Council was not living within its means to the tune of £20-30million. The non-traditional approach being utilised needed to be thought about very carefully. The Chief Financial Officer clarified that the regulations were introduced in 2016 and not as a consequence of the covid pandemic.

·       There were concerns raised about sale of beach huts to another company but there was no information about whether this would be a wholly or majority owned company. It was noted that this had yet to be confirmed but the Council would retain control of any company. The Council would be keeping more money in the pockets of residents. There would be an opportunity to consider how beach huts were funded in future.

·       A Board member commented that the budget was using additional reserves to support spending, including earmarked reserves. It was putting £700k into one reserve and taking out £30m from another reserve. An increase in Council tax would be preferable to other measures being taken. The Leader responded that the Council was being more ambitious in terms of transformation and currently there was the ability to finance and fund this better than previously. The Leader confirmed that he felt a lower increase in council tax was preferable.

·       In responding to the query the Leader advised that the Council was below average in terms of reserves and was currently increasing its unearmarked reserves.

·       A Board member noted that Future Places started less than 6 months ago and there was already £1.7m in salaries for part-time staff, not even living in the area. The Leader felt that this demonstrated confidence in the Council as it had been able to attract a fantastic team of nationally significant and renowned people. The Council was investing more into this and asking them to do more for it. The Leader expected that there would be ambitious projects coming forward in the next 12 months.

·       In response to a query the Leader advised that he had asked for areas in Adults and Children’s Social Care to be looked into and space created to address the increases in budget pressures in these areas. Investment was needed in this area to ensure that the service areas could be doing the things they wanted to do and change the way some of the services had been delivered.

·       A Councillor commented that they supported the intention of keeping the increase in council tax down, but a number of residents had expressed discomfort with the large risks being taken compared to previous budgets.

·       In relation to beach huts a Board member questioned how the sale would affect the loss in rental revenue. The Leader advised that they would be taking the majority of funding up front and then banking £3m per year over the next several years. The risk was negligible in terms of an income generating asset and it was guaranteed that there would be more investment in the beaches with a better product. The Chief Financial Officer advised that section 77 of report outlined securitisation of the income stream. The proposal related to £5.1 of net income from beach huts. The Council would give the company a loan with a repayment of £0.7m per annum. Further detail would need to come forward on the issue of beach hut projects which were already subject to the repayment of prudential borrowing.

·       There were further concerns raised with the increased cost of transformation and also staff engagement and satisfaction with the way things were progressing. The Leader advised that there were previously working with a net nil cost position around staffing but in terms of increased confidence around finances the intention was now to deliver extra investment into staffing when the point of delivery of savings were reached. The Leader advised that they were trying to take transformation forward in the right way to ensure that savings and efficiencies were made at the right time. The Chief Financial Officer advised that the table at figure 5 of report indicated that the pay and grading project had a cost of £9.1 million in the year 2024/25.

·       A Board member commented that the area was a leading destination but there was a need to invest in services as there were areas in need. More ambition was required as assuredly the Council could not continue as currently if there was a need to generate future savings. The Leader agreed that there were areas of the conurbation which required investment, places needed to be brought up to the standard of the natural environment.

·       A Board member asked about the rules on debt as advised by government, what the permissible level was and how the risk was considered in terms of the budget due to inflationary pressures. The Council was currently at the bottom of the third quartile of councils in terms of debt levels. There was significant headroom to invest further. The Chief Financial Officer advised that it was the Council’s duty to set its own debt limits. The Council had decided to extend its debt limits to provide extra headroom in addition to that already in place. The Board was advised of the Council’s allocated debts and that there was currently £18.5 million of unallocated debt. There would be a flexibility to renew this on an annual basis to allow the Council to meet future challenges

·       A Board member raised concerns regarding the overall approach to the budget and use of public money and related concerns raised by residents.  The Leader responded that there was nearly £25 million extra being invested this year. The Council was committed to delivering services particularly for adults and children. Just because some people were not happy with this approach it did not mean that it was not in the residents’ interest for the Council to be commercially driven. It would mean that the Council can continue to invest in those services for vulnerable people. The Leader agreed that it wasn’t our money and that was why it was important to take as little of that money as possible.

·       A Councillor commented that when the Leader referred to the Council’s assets a number of these were not really financial assets, for example Poole Park was not an asset which generated income or would hopefully ever be sold. The Councillor asked whether there were other assets which could be considered to be utilised in the same way the beach huts were. The Leader commented that it was important to utilise assets in order to maximise value from them such as with plans for Poole or Christchurch Civic Centres. Assets would not be disposed of unless they were really surplus and not required, further capital receipts were not required at present.

·       It was noted that there was an additional £5 million allocated to the Winter Gardens Scheme, this was a challenging scheme but was on target. However now according to the report additional options were continuing to be explored. The Leader was asked to what extent was the design being redeveloped and was the original scheme no longer deliverable. The Board was advised that this was not new money, but it was prudent to recognise that the money had been spent.  The Winter Gardens was a great scheme, and it would be excellent if delivered on the site in isolation, but the future places team had been asked to look at all the key sites and move this forward.

·       A Councillor requested further information on the proposals for beach huts and plans for the company which will own and run them, for example would rents be increased in future or would there be controls in place.  The Leader advised that the Council would be the controllers of the company and could decide who would be directors and whether there would be any remuneration. There would be an investment in these assets, and this should be beneficial to beach hut owners. Businesses were not just set up to make profits but to do what the Council want them to do. Rental increases were unlikely to be affected any differently from how they were at present in Council ownership.

·       There was a concern raised that there was no report on the beach huts along with the budget report. Much of the information provided by the leader on this issue was not included within the report and they had been advised that this information hadn’t yet been decided. The report referred to a dividend which would be paid back to the Council which indicates that there would be a profit from this and that the company would have to pay tax on this. The Leader advised that he knew what he wanted to bring forward on this but there was no paper at written and the Council would be in control of these decisions.

·       However, part of due diligence on this would get behind that to clarify the situation regarding this which may depend on the company and how this was formed.

Following the questions and debate a motion was put and seconded that the Overview and Scrutiny Board expresses its concern over the disposal of beach huts into an SBV and request the cabinet to think again and that the Board ask Cabinet to look for more options to reduce risk, increase savings and increase sustainable income.

There was some debate on the motion and concerns were raised that it was too narrow in its focus and should be concerned by the wider capital approach. Others supported the recommendation as action needed to be take now. The Chairman commented that the report did outline that the position on beach huts would have to be revisited if necessary. Following consideration, the motion was put to the vote which was lost.

Voting: 6 in favour, 7 against, 1 abstention

A further motion for a recommendation to Cabinet was then put, that the Overview and Scrutiny Board:

RECOMMENDED: That the administration develops a Plan B in the event the government cancels the FUCR regs or amends them leaving a hole up to £54 million in the 2022/23 budget.

Voting: 7 in favour, 7 against.

The Chairman used his casting vote to carry the motion.

2021/22 Budget Monitoring at Quarter 3 – The Leader of the Council and Portfolio Holder for Transformation and Finance presented the report, a copy of which had been circulated to each member of the Board and which appears as Appendices ‘C’ to these minutes in the Minute Book. The Portfolio Holder and Chief Financial Officer responded to comments and questions from the Board, details included:

·       It was noted that the £3milllion missing from the transformation savings were not referred to within the report which raised concerns on meeting savings targets in the future. Although £40 million in savings had already been made the next tranche of savings would be significantly harder and would end up driving the Council into bankruptcy. The underlying features of the report indicated another £9million of overspend in the current budget. The Leader said that the financial position had improved so much that a positive choice could be made on the transformation programme and it could be delivered in the right way.

·       A Councillor referred to shortages in the Adult Social Care workforce which had resulted in a £1million saving in the budget. It was suggested that these needed to be filled to provide adequate care to elderly and vulnerable adults. The level of vacancies indicated that the market rate for the jobs needed to increase. This seemed to be setting the service up for an overspend in future. The Leader commented that there were real pressures on wage inflation with staff and to address this the Council were looking at options with Tricuro and recruitment options with the university. Investment in staff were important and there was over £9million of investment moving forward.

·       A Board member commented on services for children and young people in BCP. Councillors had recently received a briefing on complex needs of children in BCP and children were in danger of getting lost due to gaps in the provision across different areas of the conurbation. More responsibility needed to be taken for this. A mapping exercise had been launched to identify gaps and this would result in an increase in costs. The Chairman advised that this issue should be taken up with the Children’s Services O&S Committee.

The meeting adjourned at 9:03pm and resumed 9.11pm