Agenda item

The Scrutiny & Overview Committee is asked to review the information provided in the ‘Budget & MTFS Risks’ presentation to inform its scrutiny of the Council’s budget.

The Committee considered a presentation on the key risks in the Council’s budget and Medium Term Financial Strategy (MTFS). The presentation was delivered by the Interim Director of Finance, Matthew Davis. A copy of the presentation can be found at the following link: -

https://democracy.croydon.gov.uk/documents/s33002/Appendix%20A%20-%20Budget%20MTFS%20Risks%20Presentation.pdf

Prior to the presentation, the Leader of the Council, Councillor Hamida Ali, introduced the item by highlighting the progress made in the past year which had included a focus upon introducing a robust governance framework and putting the Council’s finances on a sustainable footing. The Council was still on track to deliver its budget for 2021-22, which included £44m of savings and an increase in the level of reserves held. In addition, a way forward for Brick by Brick had been found through a managed build out process that would provide further new homes. The progress made by the Council had been reflected in feedback received from the Government’s Improvement and Assurance Panel.

Although significant progress had been made, delivering a balanced budget for 2022-23 remained a considerable challenge. The Council needed to find an additional £38m of savings, in addition to the £25m savings identified in the MTFS. £25m had been requested through the capitalisation process, which if not agreed, would require even further savings. As such the process to set the Council’s budget was following a painstaking approach, undertaking a holistic review of the entire budget.

The decision taken by the Cabinet, at its meeting on the previous evening, about the future of Purley Leisure Centre, could be taken as evidence that the administration was prepared to make difficult decisions to ensure a balanced budget was delivered. At the same time, consultations about the future delivery of the Libraries Service and children’s centres indicated that the Council was listening to local people to inform its decision making. The immediate focus for the Administration was to deliver a balanced budget which would ensure the future of Croydon remained in its own hands.

Following the introduction and the presentation the Committee was given the opportunity to ask questions about the information provided. The first set of questions sought clarification on a number of areas, with confirmation given that earmarked reserves were funds allocated by the Council to mitigate against specific identified risks. The general fund reserves were held for more unexpected events such as the pandemic. In theory the Council could just have general fund reserves, however best accounting practice recommended having earmarked reserves for known risks.

The Council Tax base had grown on average by 1.5% per annum over the past five years. This increase was equivalent to an extra £3m per year, which given the potential risk that the Council Tax base may stagnant or decline, needed additional consideration over how best to mitigate against this eventuality.

At present the Council retained approximately £71m of the business rates raised in the borough. When a business premises became empty, the owner was entitled to business rate relief for the first three months the premises was empty. When this three month period ended, payment of business rates resumed, even if the unit remained empty. Business rates only stopped being due if the unit was demolished.  The Council had a level of protection through the localised business rates system, which capped the potential loss of business rate income at a maximum of 7%. This was equivalent to approximately £5m per annum.

As there had been criticism of the Council’s past use of transformation funding, it was questioned how the process had been strengthened to minimise risk in this area. It was highlighted that transformation projects had been agreed at a meeting of Council earlier in the year. Any new transformation funding bids would need to follow the same process in gaining Council approval as well. Prior to reaching Council, a robust business plan was required to support the bid. This was reviewed by an officer panel and if it passed this stage the bid would be submitted to a meeting of the Council for final approval.

It was confirmed that inflation across all areas of spending had been factored into the budget assumptions, with 1% contract inflation equivalent to an additional £3.7m. Officers and the Cabinet Member for Resources & Financial Governance were in the process of reviewing all Council contracts on a line by line basis to identify savings. This presented a significant opportunity to make savings, with £7m targeted, but as this work was still ongoing there was still a degree of risk over whether this target could be reached.

The Council’s total budget was approximately £1b, with a significant percentage accounted for in funding passed through the Council for areas such as education funding and benefits. The net budget requirement was £283m, which was part funded by the Revenue Support Grant, Business Rates and Council Tax.

It was noted that the Council was using a Star Chamber process to set the budget for 2022-23. It was questioned whether this approach had used a zero base budget method as a means of identifying savings. It was confirmed that a zero base budget approach had been used in part for some services, but not all as the budget process had already identified a number of savings. In some areas the budget had been stripped back, but due to the limited timescale available for budget setting the focus was on ensuring the delivery of a robust budget.

As a follow-up it was questioned whether consideration would be given to using a zero base budget approach in the future. It was advised that there was a need for the Council to improve its budget processes, including bringing certain aspects forward to earlier in the year, such as setting out the political aspirations for the budget. It was likely that a report proposing changes to the budget process would be brought forward in due course.

It was highlighted that the Committee had raised concern about the Council’s ability to deliver its budget in previous years. As such, it was questioned what systems needed to be introduced to ensure there was a robust budget setting process going forward. It was advised that the prior lack of corporate systems for budget development had presented a significant challenge and a lot of activity in the past year had been invested in building and embedding new systems. It was essential for the Council to have a robust finance system in place to closely monitor the delivery of the budget, particularly for high risk areas such as Children’s and Adults Social Care. Others systems such as those used for complaint handling and resident engagement were also being reviewed.

Given the presentation had highlighted a variety of different risks, it was questioned whether all of these were captured on the Corporate Risk Register. It was confirmed that many of the risk raised were captured and there was an ongoing process to refine and improve the risk register. Part of the Star Chamber process involved analysing each saving proposal on the risk of delivery.

It was confirmed there was an intention to increase the Council’s ear-marked reserves as part of the budget setting process for this financial year. Work was also underway to reduce the level of debt held by the Council to lessen the amount of interest paid on borrowing.

It was acknowledged that managing demand in services such as Children and Adult Social Care was as much about changing the culture as about changing the systems used. It was questioned whether the work to manage demand in these services was progressing as expected. It was recognised that the Council’s spend on social care was higher than other similar London authorities, but did not always deliver better outcomes for the additional cost. By using learning from other local authorities, it was felt that better quality outcomes could be delivered at the same time as reducing costs to a level more in line with the London average. Given the vulnerability of many of those accessing this services, any change in social care needed to be managed extremely carefully and this remained a work in process.

As the Council had received criticism in the Report in the Public Interest about its commercial investments, it was questioned whether this option would be considered in the future. It was highlighted that commercialisation had been driven by central government, but past experience demonstrated that any such ventures needed careful planning to ensure they were executed effectively. It was unlikely that further commercial investment would be pursued in the near future as the Council had embarked upon a three year plan, with a focus on working within its existing financial envelope and a reduced appetite for risk.

In response to a question about the role of the political leadership in the Star Chamber process, it was confirmed that the Leader of the Council chaired the process and the Cabinet Members for Croydon Renewal and Resources & Financial Governance attended each session along with the Chief Executive, Assistant Chief Executive and Section 151 Officer. The Star Chamber met with the management of each service and with the respective Cabinet Member to review budgets. The first round of the Star Chamber process had been completed and the second round had begun. It was confirmed that the process was led by the political leadership, who were working in collaboration with the corporate leadership to deliver a robust budget. Further assurance was given that a rigorous process was in place to test officers on the savings presented, with the information provided often reviewed at an almost granular level.

As a follow-up it was questioned how the information provided to the Star Chamber was tested. It was advised that the Star Chamber process provided the opportunity to challenge and test the budget proposals put forward by services. Having the opportunity to test and challenge individual budgets allowed the members of the Star Chamber to use their judgement on the deliverability of the proposals. Budget proposals would not be signed off without a robust delivery plan. It was confirmed that savings proposals were being generated from across the organisation, with it highlighted as an example that front line staff in Adult Social Care were being encouraged to submit ideas for efficiencies and managing demand.

It was confirmed that a dialogue had been opened with partners in the NHS about cost sharing in areas, such as hospital discharge, where joint working was delivering greater benefits to the health service. As would be expected, a strong business case driven by evidence was required to support the Council’s position. These discussions were being managed on a directed basis, with an awareness of the short timescales for resolution. It was evident from the discussions that both sides appreciated the partnership working between health and social care and had shown a willingness to continue working together. However, in the event that these discussions were not successful, alternative plans were being prepared.

At the end of the questioning section of this item, the Chair thanked the Cabinet Members and officers for their attendance at the Committee meeting and the engagement with the questions of Scrutiny.

Conclusions

At the end of this item, the Scrutiny and Overview Committee reached the following conclusions:-

1.     From the evidence provided, the Committee concluded that the budget setting process seemed to have been significantly improved, with a greater degree of rigour than in recent years.

2.     The information provided on the budget risks provided reassurance that there was a greater awareness and understanding of the potential risks to delivery. It was also recognised that a lot of the risks were outside the control of the Council and would require careful monitoring to ensure that mitigating action could be taken at the earliest possible stage.

3.     Given that the robust approach to budget setting was encouraging, it was agreed that embedding these processes as part of good practice across the Council should be a priority going forward.