Agenda item

To submit a report by the Head of Function (Resources)/Section 151 Officer.

The report of the Head of Function (Resources)/Section 151 Officer incorporating the Medium Term Financial Plan (MTFP) for 2019/20 to 2021/22 was presented for the Executive’s consideration. The plan outlines the Council’s budget strategy over the next three year period and sets out the assumptions which will be taken forward to the annual budget setting process.

The Portfolio Member for Finance reported that the Council is required to put in place a robust system to monitor and control its revenue budget with the Medium Term Financial Plan being a key element of that system. He said that the Council will have to make difficult decisions over the next three years with no prospect of a let-up in the funding cuts which local authorities in Wales have experienced over the past few years. The introduction of the austerity programme by the Westminster Government has resulted in reductions in the funding passed onto the Welsh Government and this in turn has affected the level of funding which councils in Wales receive with year on year cuts to council budgets. But although local authority funding levels have continued to decline the Council still has to deliver services to the people of Anglesey - those include services for vulnerable people and services which by law it must provide.

The Portfolio Member referred to Table 2 in the report which provides an analysis of the savings made per service over the three year period form 2013/14 to 2018/19 compared to the net revenue Budget for 2018/19. The Council has made savings to the value of £21.748m in this period and whilst it has sought to provide some level of protection to schools, Adults’ Services and Children’s Services, other frontline services – Leisure, Maritime, Economic Development, Housing, Highways, Waste and Property in particular – have borne the brunt of the savings and have provided the greatest proportion of savings in relation to their net budget.

The Portfolio Member said that the Medium Term Financial Plan describes how the Council proposes to deal with the financial challenges it faces in the coming three years whilst at the same time balancing its budget and continuing to deliver services and fulfil its statutory responsibilities. He commended the Plan to the Executive.

The Head of Function (Resources)/Section 151 Officer said that the MTFP set the financial context in which the Council will have to operate for the next three year period. The current situation is not encouraging with the Council, based on Quarter 1 data forecasted to overspend its budget by £1.744m at the end of the 2018/19 financial year. Alternatively, it could be said that budgets are underfunded and have failed to keep up with demand.

Notwithstanding, the underlying causes of service overspends have to be tackled otherwise the Authority’s reserves will be further depleted potentially taking them from where they currently stand at just above the minimum reserves threshold of £6.5m agreed by the Council down to below the £5m level. This is unacceptable and poses a risk to the Council in future. Consequently, a strategy will have to be developed to lift the level of reserves back to the recommended value over time.

The Officer said that the Council has made significant savings over the course of recent years but has protected schools and Children’s Services from the worst of the cuts throughout the process. This has become unsustainable as the scope for other services to take on a greater proportion of the cuts reduces. Although the overall economic situation remains uncertain, there has been some evidence of the relaxation of the Government austerity programme with the announcement in June 2018 of annual average increases above inflation of 3.4% to the NHS Budget in England thereby increasing the budget by £20b in real terms by 2023. This increase in funding will lead to a consequential increase of £1.37b in funding through the Barnett formula for Wales over the same period although it is not clear whether any of this additional funding will make its way to local government budgets. Consequently, the Authority is basing its assumptions on an expected reduction of 1% in the local government settlement in 2019/20 which for Anglesey equates to a loss of £900k in income.

The Head of Function (Resources)/Section 151 Officer referred to section 5 of the report which lists the budget pressures both national and Anglesey specific which the Authority is facing and for which it will have to find solutions. Table 3 of the report sets out the estimated standstill budget for each of the next three years - 2019/20, 2020/21 and 2021/22 which when set  against the previous three years’ final budgets reflect pressures in the region of £6m, £4m and £4m for each of the three years respectively. The estimated standstill budget is funded from the level of aggregate external finance (AEF) received from Welsh Government and is made up of the Revenue Support Grant (RSG) and NDR Pool funding and from the Council Tax raised locally. Raising the Council Tax by 5% will generate additional income of approximately £1.6m; however, the expected 1% decrease in the level of the RSG will if realised, reduce that figure by £900k leaving approximately £500k additional income to offset additional costs of approximately £6m. This funding gap will have to be bridged meaning that it will be necessary to again find savings; it is expected that savings of £9.34m (8.3%) will have to be made from service budgets over the next 3 years which on top of the savings already made is a huge challenge for services.

The Officer said that the Council’s efficiency strategy in previous years has been to reduce service budgets by requesting services to review existing budgets and to reduce the net overall budget by traditional means which include reducing staffing and administration costs, increasing income and rationalising office space. However, the scope to generate the required level of savings by these methods alone is now considerably less and the Council must change its strategy in order to continue to deliver the required savings. Areas which require action which will involve changes in the way the Council delivers services and a reduction in the services it delivers are listed in section 9.5 of the report. Achieving a balanced budget over the next 3 years by implementing these actions will require difficult decisions to be made and there are a number of risks which may prevent the Council from delivering all of these measures; these are set out in section 9.6 of the report.

The Executive considered the information and made points as follows –

•  The Executive noted that the financial situation is challenging and the outlook unpromising; the UK Government’s austerity programme introduced to reduce the Government’s budget deficit is having a serious impact on public services and, because of the resulting cuts to the Welsh Government’s budget, is hitting Council budgets in Wales hard. The Authority in Anglesey has throughout this process tried to mitigate against the effects of the cuts to its funding, but like many other authorities is finding it increasingly difficult to deal with these budget challenges with services such as Leisure, Maritime and Economic Development having to make significant savings in proportion to their budgets. The message that the situation is unsustainable and that local authorities cannot be expected to set a balanced budget and meet a growing demand for services when their funding is being cut has to be sent to both the UK and Welsh Governments.

•  The Executive noted that the UK Government has announced that the Welsh Government will receive additional funding of £23m as a result of the decision to increase pay for teachers. The Executive sought clarification of whether this is likely to make a difference to the situation is Anglesey. The Head of Function (Resources)/ Section 151 Officer said that it is understood that the allocation to Welsh Government will be £8.7m in 2018/19 and £14.8m in 2019/20 which translates to an additional

£200k for Anglesey in 2018/19 and £350k in 2019/20 if this funding is included in the settlement.

•  The Executive noted the situation in Canolfan Addysg y Bont wherein the school is experiencing financial difficulties because its budget does not match the rising costs of the increase in pupil numbers at the school and noted also correspondence from Councillor Dylan Rees as a Local Member asking the Executive to support what is being proposed in the report that these additional costs be allowed for in the MTFP to enable the school to continue to meet its legal duty to care for its pupils.

The Executive was supportive of this course of action and it further noted that this is what happens under austerity when budgets do not keep pace with demand with the result that it is often the most vulnerable that are affected. These are the kind of ongoing pressures that the Council is having to contend with as it tries to meet its statutory duties and deliver the range of services for which it is responsible.

•  The Executive noted that the Health budget now forms 49% of the total Welsh Government budget compared to 42% in 2011/10 whilst the Local Government budget has fallen from 30% of the total Welsh Government budget to 28% over the same period. The Executive further noted that it might now be timely to make representations to Welsh Government asking it to reconsider the prioritisation of Health over Local Government.

It was resolved to note the contents of the Medium Term Financial Plan 2019/20 – 2021/22 and to approve the assumptions made therein.