Agenda item

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

The report of the Director of Function (Resources)/Section 151 Officer setting out the financial performance of the Council’s services at the end of Quarter 1 of the 2020/21 financial year was presented for the Executive’s consideration.

The Portfolio Member for Finance reported that Quarter 1 2020/21 had been an extremely challenging period for the Council, the Island’s citizens and its businesses as it coincided with the onset of the Coronavirus pandemic meaning that plans were put on hold during the period whilst attention was focused on dealing with the emergency situation. At this stage the Council is managing to keep its head above water financially owing largely to Welsh Government support which has provided £232m to date to meet additional costs incurred by Councils in Wales in dealing with the pandemic. The overall projected financial position for 2020/21 including Corporate Finance and the Council Tax Fund is nearly a balanced budget position with a small overspend of £0.027m which is 0.02% of the Council’s net budget. However, it should be noted that predicting the final year-end position at the end of Quarter 1 is difficult at the best of times as the position can change considerably as the year progresses. For 2020/21 predicting the final year end position is even more difficult because it is still unclear when some of the Council’s services will return to normality and what the additional costs will be in providing those services in a way that minimises the risk of the spread of the virus. Points to note include the following –

•           As the majority of schools were closed for all but one week of the summer term, they have incurred less costs than normal; any underspending that will result will feed through to an increase in school balances as the Council is not intending to claw back any of the underspend.

•           Adults’ Social Care was £716k overspent for the period and the forecast outturn for the year as a whole is a predicted overspend of £195k. The Portfolio Member for Finance in highlighting that this excludes the potential winter pressures grant as the Council has not received a grant offer for these pressures to date said that this uncertainty is a cause of concern and a hindrance to planning and he urged Welsh Government to incorporate Winter Pressures funding within the Council’s overall settlement annually in order to provide the Council with the clarity it needs to continue to provide services which the funding helps support.

•           Children’s Services was underspent by £292k during the period and is projected to underspend by £1.382k at year end. Children and Families Services have seen a reduction in referrals coming into the service and a slight reduction in the number of children coming into the care of the Local Authority.

•           The Waste Service was £32k overspent for the period and is predicted to have an outturn position of £10k overspend at year end made up of overspends and compensating underspends within different sections of the service. A factor is the reduction in price of recyclable material as supply exceeds demand.

The Portfolio Member for Finance singled out the increasing number of second homes owners re-designating their properties as businesses as a particular issue of concern currently because of the implications for the Council’s income (The report refers to the continued erosion of the tax base as significant numbers of self-catering properties switch to business rates).  Second home owners who are able to demonstrate to the Valuation Office Agency that their properties are available to be let for 140 days per year and actually let for 70 days can register to pay business rates instead of Council Tax (which includes the second home premium) and as small businesses they can also be eligible for small business rate relief. The problem is compounded by the fact that the registration can be backdated several years meaning that as well as losing income, the Council must reimburse second home owners for council tax paid. The Portfolio Member said that coastal counties such as Anglesey where there is a high number of second homes are particularly affected and he called on Welsh Government to amend the law to prevent this from happening and to make changing a residential property into holiday accommodation subject to planning permission as with other changes of use.

The Director of Function (Resources)/Section 151 Officer concurred that figures for Quarter 1 in the financial year come with a degree of uncertainty in any case but  the uncertainty is magnified this year because of the pandemic. In a normal year figures change as the year progresses and the financial situation evolves but the current uncertainties around a possible further lockdown, the rate of recovery and Government support as well as winter pressures mean the figures in the report are certain to change. The financial situation has improved from that reported to the Executive’s July meeting as Welsh Government has covered both the additional costs incurred by the Council and the income lost. To date, 3 claims in relation to the Covid 19 crisis have been made to Welsh Government for extra expenditure incurred during Quarter 1.For Quarter 1 reporting purposes, £725k has been applied to forecast figures for the loss of income due to this amount being confirmed by Welsh Government. The latter has confirmed that additional funding will be released to cover the loss of income during the remainder of the financial year but this has not been taken into account in the forecast. The receipt of this additional funding will improve the financial position of some services compared to the forecast.

It is anticipated that the Council Tax Reduction Scheme will come under pressure as the Furlough scheme ends and the unemployment rate rises – discussions are ongoing with Welsh Government as to whether it will fund local authorities for the extra burden of meeting increased claims. Covid-19 is also impacting on the collection of Council Tax and an increase in bad debt provision has been made to reflect this impact; as at August, 2020 the collection rate was down 1.67% compared with the same period last year which is equivalent to approximately £750k. Although the financial situation has improved over recent weeks the outlook remains uncertain with particular risks around the winter period which is a challenging time when the demand on services can increase with resulting cost impacts for the Council.

The following issues were raised as the Executive discussed the report –

•           Whilst the Executive was thankful for the support provided by Welsh Government for councils in Wales to date there were questions about how far it could go being mindful of the fact that those council areas currently experiencing enhanced lockdown restrictions will require additional support. It was noted that the financial viability of councils depends on the continuation of Welsh Government funding to meet ongoing spending pressures and loss of income. The Director of Function (Resources)/Section 151 Officer advised that the situation is dependent on a number of factors including the increased need which tighter local lockdown restrictions generates in the areas where they apply; the extent of support for private residential and nursing homes which forms part of the support budget and the duration and severity of lockdown restrictions over the coming months which will affect council income. If councils’ loss of income reaches the £78m for Quarter 1 in subsequent quarters then that would take up a large part of the latest £260m support package allocation added to which are the ongoing additional costs of complying with Covid-19 rules and the demand on the Council Tax Reduction Scheme meaning that the package is unlikely to be enough to cover all eventualities; but without such support councils will find themselves in a very difficult situation.

•           Concern about the loss of income and for how long the Council is able to sustain reduced income levels. Specific mention was made of the suspension of parking charges over the emergency period and whether the closure of the Council’s leisure centres had seen any increase in the number of people terminating their direct debit subscription. The Director of Function (Resources)/Section 151 Officer advised that leisure centres direct debit payments were not collected during the initial months of the Covid-19 when the centres were closed but have since resumed. However owing to reduced capacity and Covid restrictions the current leisure offering is limited which may lead to some having second thoughts about continuing with their subscription; additionally the Covid 19 emergency has hampered the drive to increase leisure centre income levels as part of which investment in the leisure centre facilities was made.  Welsh Government will make up the income shortfall as a result of the difference between this year and last year’s attendance numbers – but it will not compensate for potential loss of income. As regards parking charges Welsh Government will reimburse loss of income due to reduced footfall in towns but may not cover lost income as a result of a decision taken locally by the Council to offer free parking although how the loss of income is apportioned between the two is the subject of discussion. Parking income amounts to £500k annually for the Council and will otherwise have to be recovered via Council Tax. The Portfolio Member for Highways, Waste and Property thought that the Council may have to resume levying parking charges in October with free parking possibly being offered over the Christmas period instead.

•           The number of second home owners moving from paying council tax to paying business rates which Executive Members were agreed is an issue requiring the Welsh Government’s attention it being noted also that second home owners who have re-registered their properties as businesses can claim a business support grant and further, that an increasing number of second homes are on residential estates and their use as holiday lets often has a detrimental  impact on the amenities of the immediate community. The Director of Function (Resources)/Section 151 Officer advised that since the introduction of the Council Tax premium there has been gradual stream of second homes transferring to business rates and it has become apparent that an increasing number of people are purchasing second homes as investments and letting them for income hence the emergence of such homes on residential estates. Second homes can only be re-registered as businesses if they have been confirmed by the Valuation Office Agency as having met the criteria – currently 30 such homes are awaiting determination and registration can be backdated. In relation to business support grants the Council has 70 second home applicants where the award of a grant is pending the receipt of additional supporting information which under the scheme the Council is required to seek; this information has not been forthcoming and these will be brought to the Valuation Office Agency’s attention. The lack of validating information in these cases also raises the wider issue of the ongoing monitoring of second homes registered as businesses to ensure that they continue to meet the criteria for business rates valuation after the original registration.

Although mindful of the fact that Welsh Government has been previously lobbied on the issue of the transfer of second homes to business rates, the Executive was agreed that the Portfolio Member for Finance and Section 151 Officer should write a joint letter to Welsh Government requesting reconsideration of the matter and the amendment of the law to prevent it from happening.

It was resolved –

•           To note the position set out in Appendices A and B of the report in respect of the Authority’s financial performance to date and expected outturn for 2020/21 noting also that this position is dependent on the continued support from Welsh Government to fund the loss of income and the additional costs which the Council face during the remainder of the financial year as a result of the Coronavirus.

•           To note the summary of Contingency budgets for 2020/21 detailed in Appendix C to the report.

•           To note the position of the invest to save programmes in Appendix CH to the report.

•           To note the position of the efficiency savings for 2020/21 in Appendix D to the report.

•           To note the monitoring of agency and consultancy costs for 2020/21 in Appendices DD, E and F to the report.

•           That a joint letter be sent by the Portfolio Member for Finance and the Director of Function (Resources)/Section 151 Officer to Welsh Government to highlight continuing concern about the rising number of second homes being re-designated as businesses with consequences to the Council’s income especially in the current challenging circumstances, and to urge that consideration be given to amending the law to prevent this happening.