Agenda item

The Scrutiny & Overview Committee is provided with the Cabinet report setting out decisions to be considered by the Executive Mayor on the Medium Term Financial Strategy. The Committee is asked to: -

1.            Review the information provided in the report on the Medium Term Financial Strategy, and

2.            Decide whether there are any comments or recommendations on the scheme to bring to the attention of the Mayor during his consideration of the report.

The Committee considered a report on pages 59 to 124 of the agenda that presented an updated Medium Term Financial Strategy (MTFS) for 2024 to 2028 and initial budget savings proposals for 2024-25. This report was included on the agenda as part of the Committee’s scrutiny of the budget setting process.

The Corporate Director for Resources & Section 151 Officer, Jane West, Director of Finance, Allister Bannin, Assistant Chief Executive, Elaine Jackson and Corporate Directors Nick Hibberd, Debbie Jones and Annette McPartland were in attendance for this item at the meeting.

During the introduction to the report, the following points were noted: -

• The MTFS was one of the most important reports produced by the Council as it was the first public document in the budget setting process for 2024-25 and provided an indicator of what was expected over the next three years.
• At present the budget for next year had a £6m gap, but this was smaller than at the same stage in the process in previous years, which could be seen as an indication that the Council was getting further ahead in its budget setting processes.
• The report was a continuation of the report from last year and did not include any new surprises. Even so, it was important to remember that the budget included an ongoing £38m budget gap that could not be resolved without government support.
• The Government’s announcement on local authority funding was not expected until later in year and possibly not until the week before Christmas due to the autumn statement being later than normal.

Following the introduction, the Chair of the Committee put on record the Committee’s support for the added transparency in the MTFS and other financial reporting. While it was noticeable that a lot of work had been invested in improving the Council financial management processes and reporting, it was apparent that its debt continued to grow and repayments increased. At present the only option available from Government to support the Council with its budget gap was further capitalisation, as such it was questioned whether the debt would reach a point where it became unsustainable.

In response, it was acknowledged that if capitalisation continued to be the only solution offered by Government to the Council’s budget gap, then its financial position would continue to worsen. As a result, the Officer and Member leadership of the Council continued to make the case for finding an alternative solution to the Government. From the Government’s perspective when developing a solution for Croydon, it needed to be mindful that there were other local authorities in a similar situation and as such a wider approach was needed that could be used in a variety of scenarios, which was a significant challenge. It was confirmed that the Council was seeing an increased level of engagement from the Treasury in these discussions, but there was no easy answer.

As a follow-up, it was questioned how often officers were meeting with representatives from the Government. It was confirmed that the Chief Executive and the Corporate Director for Resources & Section 151 Officer met with the Improvement & Assurance Panel, representative from the Department of Levelling Up, Homes & Communities and the Treasury on a fortnightly basis, and more frequently if needed.  It was advised that as part of these meetings, the Council was being asked to provide a lot of detail on its borrowing and the restructuring of its debt, to help the Government understand the potential implications.

It was confirmed that discussions were also taking place on a political level, but it needed to be acknowledged that there were other authorities in a similar position to Croydon, which meant it was unlikely the Council would get preferential treatment. It was important to ensure there was an ongoing dialogue with the political decision makers, but they would not be able to provide a Croydon only solution. The Council was in contact with other boroughs experiencing similar financial challenges, to provide support and share learning. There was also a significant number of councils predicting they may need to issue a Section 114 notice in the future and as such Government was being lobbied for support. The view from Pan-London meetings was that local government funding was unlikely to significantly change whoever was in power following the next General Election, which was why there was no significant shift in the MTFS.

The extended period for consultation on the Mayor’s budget proposals was welcomed by the Committee. However, it was questioned whether the financial challenges facing the Council meant it was unlikely the consultation would lead to any significant change to the proposed budget. It was acknowledged that general responses to proposals, such as not increasing council tax or not reducing spending, was unlikely to result in a change, given the limited options. Should the consultation result in more specific suggestions for providing services in different ways or opportunities to access external funding, then these would be fully explored.

The Committee questioned how the assumptions made for inflation in the MTFS had been reached. It was confirmed that the inflation assumptions had been based upon Bank of England Monetary Policy Guidance, with figures lower in year two and three of the MTFS than either the current rate or the assumption for next year. There was also an assumption built into the budget for 2024-25 that there would be a 3.5% increase in the staff pay settlement. The Committee was concerned about whether a 3.5% increase would equate to a real terms wage cut for staff.

It was noted that the anticipated conclusion of the statutory intervention process provided through the mechanism of the Improvement and Assurance Panel was based upon the Council reaching a position of sustainability. As Government support was needed to achieve sustainability, it was questioned whether it was expected that the Government would have found a solution by July 2025, when it was anticipated the Panel would be leaving Croydon. It was confirmed that the Council was pushing the Government to find a solution time for the forthcoming budget setting process. As it was likely that there would be a General Election next year that could result in a change of government, the Council did not want to be in the position of having to start the process again. There was a concern amongst the Committee about whether the Government would have an incentive to balance the books before the election, particularly with other local authorities facing similar challenges.

In response to a question about whether there had been any modelling of the savings proposals to identify whether any might have a potential impact on other services, it was confirmed that the Star Chamber process had been used to identify savings proposals. Subsequently, there had been meetings of Cabinet and the Corporate Management Team (CMT) to review these proposals and identify any possible consequences for other departments. It was confirmed that from this process, there was a reasonable level of confidence that there would be no significant unintended consequences.

As part of the budget setting process to identify savings, a request was made for proposals to be underpinned by data, which helped to provide an additional level of assurance on delivery. Assurance was given to the Committee that staff across the organisation would be able to contribute through the consultation process and many had already been involved in the development of savings proposals. The Committee agreed that it would like to see further evidence of the involvement of frontline staff in the budget setting process.

In response to a question about whether the saving identified for next year were deliverable and allowed the Council to deliver its statutory services, it was confirmed that they would.

The final question on this item related to the proposed decision to restart council tax collection and enforcement and what support would be provided to those unable to pay. It was confirmed that collection of council tax arrears had originally stopped during the Covid-19 pandemic because of the courts being closed. As the Council was not acting on arrears, people were building up debt without support being offered to manage the outstanding amounts. At present the total amount of council tax debt was approximately £2.5m. Once collections resumed, the first stage in the process would be to notify individuals of their arrears, make contact to discuss potential arrangements and what support they may be entitled to access. It should be the case that support was put in place to help people resolve their debt if they were unable to pay. A bailiff would only be used if someone would not pay rather than could not pay.

In response to a follow-up question about using a phased approach for the reintroduction of collections, it was confirmed that this would happen automatically as part of the process. It was also confirmed that following a previous recommendation by the Committee the wording used on collection letters had been reviewed.

At the conclusion of the item, the Chair thanked the Cabinet Member and officers for their engagement with the questions of the Committee.

Actions

The Scrutiny & Overview Committee agreed the following actions arising from their discussion of this item: -

1. That in light of Council tax enforcement recommencing, the Scrutiny & Overview Committee agreed it would schedule a review of the process after a sufficient period of time had elapsed to seek assurance on the level of support being provided to residents.

Conclusions

Having reviewed the report and the information provided at the meeting, the Scrutiny & Overview Committee reached the following conclusions on the Medium Term Financial Strategy 2024-28 report: -

1. The Committee acknowledged that the Council was going above and beyond what it could do to improve its financial position through improving its governance and budget monitoring processes, delivering transformation, and selling its assets.
2. However, the level of debt held by the Council remained unsustainable and would only increase while capitalisation remained the only option available to the Government to support the Council to balance the identified ongoing annual shortfall of £38m in future year’s budgets.  It was therefore essential for Government to identify a solution as soon as possible to assist both Croydon and other similar local authorities with unsustainable levels of debt.
3. The Committee welcomed reassurance that the voices of frontline staff were being heard in the budget setting process and agreed that this would need to be tested throughout the budget scrutiny process.
4. The Committee welcomed reassurance that Council tax enforcement was only used as a last resort and in the first instance the Council when notifying residents of arrears provided the offer of help and assistance to find a viable solution. The Committee agreed that it would like to revisit this at a later date to seek reassurance on the level of support offered to residents.