The Committee is asked to note and comment on the Council’s Budget for 2021-22 and MTFS 2021-24

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v  Production of the Council’s budget has been challenging for several reasons mainly COVID-19, austerity, growth, and demand for statutory services particularly adults and children.

v  Impact of COVID-19 has slowed down (timescales) staffing reviews to achieve savings. Additionally, the switch by government from providing grant funding to Councils to a greater reliance on council tax.

v  In this budget, the Council is expected to increase council tax to 5% and if not the assumption by government is that the Council will make savings to cover this rather than it being additional income.

v  56 savings have been identified across most of the council areas and the expectation is that these will reduce the capacity of the Council to deliver on some service areas. 

v  There have been extensive efficiencies produced from back office savings to protect frontline services, however, there needs to be balance, as there are capacity  implications.

v  Council is implementing a dual track strategy which includes providing a wide range of service for people with particular needs including free school meals and continuing the generous council tax reduction However,  there is an increase demand for this budget that includes (i) 100% rebate for people on low incomes, (ii) tackling poverty programme (funded for the next year). In addition, (iii) providing good range comprehensive service including parks;  and (iv) street cleansing.

v  The Council has generous reserves but has had to use some of this in the past year in order to deal with some of the pressures on the budget.

v  The Capital Budget will be going to Cabinet on 27.01.2021 and not included with the budget report.

v  Extra funding from government provided but with different amounts each time and different basis for allocations and has been difficult to plan.

v  The total funding requirement for (2021-22) is £362M including new savings of £6M on top of previously agreed £14M and a small drawdown £1.2M will be required to balance the budget.

v  Next year Health, Adults and Communities set at £110M (1/3 of the total services budget and the largest area of spend, followed by Children and Culture) – These are service areas supported by residents’ feedback from the budget  consultation.

v  The MTFS suggests using £8.3M of reserves in 2022-23 specifically to get passed the pandemic although reserves are finite and cannot be used more than once.

v  The Council still has a £10M funding gap for future years.

v  Particular Issues have been identified with the budget setting process – impact of COVID-19 on collection fund and existing savings programme.

v  On the Local Government Funding Settlement, the Government has agreed to help with collection fund deficits, picking up 75% of irrecoverable losses. However difficult to determine what the final cost will be and implications for the business community.

v  Business rates are significant to the London’s economy and there could be further ramifications for LBTH’s budget further down the line.

v  On existing savings programme, the Council has tried to de-risk the savings by re-profiling some and writing off others which are no longer achievable.

v  Main financial risks for the Council are COVID-19, Brexit, business rates reset and fair funding although these may have been pushed back a year.

v  There has been some uncertainty regarding the New Homes Bonus which is a grant paid by central government to local councils to reflect and incentivise housing growth in their areas.

v  Tower Hamlets now finds itself in a materially changed environment from that which existed in February 2020 when the budget and MTFS were approved by the Council. The priorities set out in its strategic plan were temporarily set aside to respond to the crisis. However, ten months further on there is a need to re-evaluate the extent to which those priorities remain relevant in the context of the continuing uncertainty associated with Covid-19 and, just as importantly, the financial position that the council now finds itself in.

v  The Chancellors spending review suggest local government core spending will increase by 4.5% but predicated on the basis that the Council Tax would rise by 2% and Adult Social Care 3% and the  Government expects Council is to adopt these rises.

v  The Spending Reviewhas offered local authorities a 4.5% increase in core spending power for 2021-22, the ability to raise council tax for social care and new money for Covid losses. However, local government is still noticeably short of funding and the medium-term financial health of the sector remains uncertain.

v  Adult Social is funded by precept, improved better care fund and social care grants and the assumption is that these are multiyear sources of funding.

v  Scrutiny requested that they are kept updated as new grants are announced by government or become apparent to officers.

v  The Council is under a legal duty to set a balanced and sustainable budget and maintain adequate reserves such that it can deliver its statutory responsibilities and priorities. A MTFS covering the entirety of the resources available to the Council is the best way that resource prioritisation and allocation decisions can be considered and agreed in a way that provides a stable and considered approach to service delivery and considers relevant risks and uncertainty. The need to respond immediately to the pandemic and the impact that this has had on the Council’s finances means that a re-evaluation of the current year’s financial position is the starting point for any changes.

v  There is an apparent shift from centrally funded grants to locally funded increases in council tax which means that a greater burden is being placed on the local taxpayer to fund the increasing cost e.g. social care.

v  Centre for Public Scrutiny (CfPS) and Chartered Institute of Public Finance and Accountancy (CIPFA) guidance indicates the report should provide the actuals from last year to compare to the budget going forward and that is not in the report and it is considered best practice for scrutiny to consider the actuals as part of any budget scrutiny. Whilst difficult for the current year it should be possible for previous years to do such a comparison. If not at the directorate level, then it should be still possible to do that on a wider level.

v  The Government has officially confirmed that the business rates revaluation in 2021 would be postponed.  The two-year delay means the next revaluation will take effect in April 2023, and to reflect the impact of Covid-19, this revaluation will be based on property values as of April 1, 2021.

v  The Committee asked for the rational on the decision to place the additional New Homes Bonus of £7.6M into reserves.

v  The New Homes Bonus will be moving to a new, more targeted approach and therefore needs to be looked at not so much as an individual piece of work but within the context of the overall budget setting process once there is more clarity about what is happening with business rates revaluation.

v  The only the additional New Homes Bonus over and above what we were expecting that has been proposed will go into reserves now for two important reasons (i) the need to continue to fund free school meals which has been a draw on reserves and there is a need to supplement those reserves; and (ii) the ability to shift once we have absolute clarity as it is not a ring-fenced grant and can be used flexibly.

v  Only the additional New Homes Bonus received is being proposed to into the reserves, the last year of the New Homes Bonus (expected in 2022-23) will be supporting the base budget.

v  Although Tower Hamlets has seen increases in the number of new homes over the last few years, the pandemic has had a material impact on the level of income received from this source.

v  The virus has impacted the number of people in work or receiving low pay and therefore increased significantly those claiming benefits, including through the Local Council Tax Reduction Scheme (LCTRS). There has also been a drop in the collection rate as residents have been affected by Covid-19 on their income levels.

v  Managing financial risk is of critical importance to the Council and maintaining financial health is essential for sustaining and improving service performance. Setting a balanced and realistic budget is a key element in this process.

v  The Committee felt that the placing the New Homes Bonus into reserves was too much of a risk averse strategy and questioned why cuts are being made to balance for 2022-23 when the budget is not due to be set. Committee also outlined that they expect a replacement to the New Homes Bonus so that Council will still be in receipt of income.

v  The Committee accepted that whilst savings needed to be made, they raised concerns on the issue of Council’s estimates and assumptions made about income and were not convinced on the scale of savings/cuts does not given the additional income received.

v  The Council will maintain a range of budget provision (contingency) earmarked reserves for specific risks and general reserves for unforeseen events and risks.

v  The national environment, both financial and in relation to the virus, continues to be subject to significant uncertainty with Brexit taking effect, the government announcing the deferral of the Fair Funding Review and the Business Rates Reset and there being potential for further waves of the virus. 

v  Felt that arguments that have put forward regarding the anticipated income not to be very to be very persuasive regarding especially with reference to (i) New Homes Bonus; (ii) Council Tax Support Grant and (iii) the Social and Care Grant.

v  Need to consider the risks outlined Treasury Management Report that goes before the Audit Committee at that provides an outline of the risks element and will inform the Committee of the timeline that we are working towards.

v  The Committee asked identifying the key assumptions economic and social landscape for LBTH, as well as any suppositions if and when it pandemic will end and if there was any opportunity to use the reserve to defer any of the savings as some savings/cuts will be difficult to wind back. 

v  The Committee asked if the Council could invest in strengthening services for the increase in demand for those services that lag behind the economic impact.

v  MTFS assumes that inflation will £6.5M over the next 3 years. The Committee reflected how the Council dealt with inflation issue as it was lower than expected previous and current year and how they are forecasting given that it is starting off from a low base.

v  The Council has outlined that the increase in population growth has placed added budget pressures as they have received insufficient funds to address this.

v  Whilst the Committee acknowledged that there has been a population growth in the last 10 years the Committee felt it was not proportional across all age groups and the biggest increase was the 20’s, 30’s and 40’s age group and not necessarily children and older people with the exception of some mental the committee do not feel that they are increasing the demands on Council services and need to understand what the drivers are.

v  The Committee enquired if free school meals can be funded via public health grant rather than the reserves because of the level of risk e.g.  losing staff, restructuring vital services. The Committee requested to understand more detail on the risk of capital borrowing fund and whether the Treasury Management Strategy can be shared with the Committee.

v  The Council confirmed that PH grant is used to support free school meals and Treasury Management Strategy will be looked at by the Audit Committee before it goes to Full Council.

v  The number of reserves that the Council has had to use to balance last year's budget because of overspends and savings has diminished the available reserves and in the coming year the New Homes Bonus will need to be used replenish those reserves.  However, the Committee whilst accepting that the level of uncertainty makes planning difficult was concerned that as most of the Council’s costs relate to staffing it is likely that significant reductions will see the loss of highly skilled staff with years of experience and organisation knowledge.  In response it was noted that the processes by which posts are identified draws upon the lessons learnt during the pandemic about which services are essential, which services are discretionary.

v  Council expects to profile 25% losses to business rates and council tax income over 3 years.

v  The Committee enquired about events savings and where this will be going and if there is likely to be more savings 2022-24

v  Savings are on two events Fireworks (£300K per year) display and the Mela (£310K per year), Council leadership cannot justify spending money on finite items as savings being made in other areas of the Council. The Council would consider in the future cross funding for such events and for the Mela to become a community driven initiative. After closing down, they will be taken out of the budget and would be a growth item if they wanted to recommence them.