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 estimated financial impact of the Covid-19 pandemic on the County Council’s finances in 2020/21 as well as its longer term implications for the Council’s financial position was presented for the Executive’s consideration.

The Portfolio Member for Finance reported that the Covid-19 pandemic has created a significant level of uncertainty in the 2020/21 budget and also for the future funding for local government in Wales. The report presented is based on a number of assumptions and estimates and the final outcome may change from this initial impact assessment. The report will feed into the Council’s Medium Term Financial Plan which will be presented to the Executive in September, 2020 and will set out the financial strategy for the 2021/22 revenue budget. The financial position will also influence the Council’s recovery planning approach and activities.

The Director of Function (Resources)/Section 151 Officer advised that the report sets out  the areas where the financial impact of the Covid-19 crisis is likely to be felt the greatest and seeks to provide an estimation of the scale of the problem. In summary –

•           Preparing for the Pandemic – a risk of a global pandemic has been on the Council’s risk register and is one of the issues which required the Council to maintain adequate financial reserves (£7.06m in general reserves as at 31 March, 2020). Section 2 of the report shows how decisions made  in relation to maintaining financial reserves, treasury management and Council Tax (by sending bills out as lockdown began thereby ensuring a flow of income from those who could pay) has helped the Council’s day to day cash flow positon thus enabling it to meet the additional costs of the crisis.

•           Short-term Expenditure to deal with the Pandemic – section 3 of the report sets out the areas where the Council has incurred additional costs in dealing with the pandemic crisis.  The vast majority of these costs have been covered by the Welsh Government which has made a total of £120m available to Welsh Councils to meet the additional expenditure. To date, Anglesey Council has claimed £858k for costs incurred in March, April and May. A further claim for June will be submitted in July which is likely to be in excess of the May claim of £526k

•           Loss of Income from Fees and Charges – the Council generates over £5m in income annually from fees and charges for services provided. Where services have been withdrawn – Leisure Centres, school meals, car parks, school care clubs, libraries, Oriel Ynys Môn – the income normally generated is lost. Some services -  Planning, Building Control, Registrars, Recycling and Bulky Waste Collection, Land Charges and Highways Street works - that have not been operating may have had their income delayed although the income may be received when the lockdown is eased. It is difficult to accurately estimate the loss of income as it is dependent on the number of service users and seasonal factors but based on the 2019/20 figures it is estimated that for the period April to June, 2020 the Council could lose £1.23m in income (£950k permanently lost and £280k potentially lost). Taking the calculations further, by using the information collected during 2019/20 and the assumptions set out in Appendix B to the report about each service’s income generating capacity in light of social distancing measures and individuals’ ability to spend as the economic impact takes effect, the potential loss of income to the Council to the end of the financial year could total £3.426m. Welsh Government has recognised that the loss of income will have a significant impact on the financial viability of councils and has announced an additional £78m in funding support two thirds of which will be used to compensate councils for the loss of income although there is no confirmation to date on how this income will be distributed.

•           Expenditure Savings during lockdown – as services shut down, some expenditure savings resulted because buildings were not used, thus saving on energy and other building related costs, school bus operators and school caterers were not required to provide services and administration cost were lower as staff worked from home. The savings quickly diminish once lockdown is eased and buildings come back into use even at reduced capacity i.e. they still have to be lit, heated and cleaned. The total estimated expenditure savings for the period April to June 2020 is £370k (Table 3 of the report refers). It is estimated that the combined savings across all the headings in Table 3 will be £71k in July, 66k in August and £7k in September and minimal thereafter assuming that all Council services will be operating at some capacity from October 2020 onwards.

•           Council Tax Reduction Scheme (CTRS) Costs – the Council budget to cover the cost of CTRS for 2020/21 is £6.016m with Welsh Government providing £5.037m in the Council’s Standard Spending Assessment which then feeds through to its Revenue Support Grant. As the economic situation worsens and unemployment increases, the number of CTRS claimants will increase. Up to the end of May, the estimated cost has increased by £148k to £6.19m and is expected to continue to rise when the furlough scheme ends. Estimating how the caseload will increase over the coming months is difficult, but a conservative estimate of 10% would increase the cost of the scheme by £600k. Discussions between the councils, the WLGA and Welsh Government are ongoing as to whether Welsh Government will fund part or all of these additional costs.

•           Council Tax Collection – the total debit for Council Tax for 100% of the tax base is £42.1m with an additional £10.9m collected in precepts for the North Wales Police and community councils, making a total sum to be collected of £53m less £6.1m through the CTRS giving a net sum to be collected of £46.9m. The Executive has made the decision not to charge the empty homes premium for the first 6 months of the year and also to extend the exemptions for empty properties which will reduce the debit by an estimated £191k. It is anticipated that the economic situation will make it more difficult to collect the Council Tax. Taxpayers have been granted a deferment of the 1st instalment from April to June and this together with the fact that no recovery action has commenced has already resulted in 1.5% less income being collected in May, 2020 compared to May, 2019. Each 1% below the normal collection rate reduces the income by approximately £400k.

•           Pressures on Service Budgets – at the end of the 2019/20 financial year Children’s Services and Adults’ Services continued to experience budget pressures and were overspent. An additional £1.3m was included in the Adults’ Services budget to cover the £1.085m shortfall on the service budget. The elderly population has been particularly affected by the virus with a higher number of deaths in this group. It is unclear at this point how the pandemic will impact on the number of clients in future and the service they will require/request; it is likely to affect future costs but to what extent is unclear. Based on the current service provision and caseload it is likely that the services for the elderly budget will overspend by £250k but offset by an estimated £100k saving in staffing costs leading to an overall estimated overspend of £150k. Additionally the pandemic has resulted in the postponement of the retendering process for the Supported Living Service meaning that the planned savings will not be achieved, and there remains uncertainty about the availability this year of Welsh Government’s £300k Winter Pressures grant bearing in mind the significant additional funding it has already provided to deal with the pandemic. Further, there may be additional costs arising from a higher than budgeted for pay increase for non-teaching staff and additional investment needs to be made in IT resources which have been key in supporting the shift to home working during the pandemic. The overall shortfall on the budget whatever that may be taking everything into consideration, will have to be funded from the Council’s General Reserve balance of £7m and although this is possible, it will severely weaken the Council’s financial position as it moves into 2021/22.

•           The 2021/22 Budget and Beyond – the pandemic has delayed the Council’s budget setting process which would normally commence in June and July and has also introduced a significant amount of uncertainty around the local government settlement and the ability of the Council to increase Council Tax. With the receipt of improved Welsh Government funding of 3.8% in 2020/21, it was hoped that austerity had come to an end and that future settlements would at least cover pay and price inflation. That assumption may need to change but as yet no indication of future financial settlements has been forthcoming from Welsh Government. The Medium Term Financial Plan (MTFP) approved by the Executive in September 2019 assumed a Council Tax increase of around 5% in both 2021/22 and 2022/23 in order to fund services at their current level. The economic impact of the pandemic on Anglesey will have to be considered to establish whether it is necessary to change this planning assumption. An updated MTFP will be presented to the Executive in September, 2020.

The Executive considered the report and thanked the Director of Function (Resources)/ Section 151 Officer for the clear and comprehensive analysis.

The Portfolio Member for Finance in reflecting on the decision taken in March, 2019 to raise the Council Tax by a significant amount in preference to using the Council’s reserves to fund a reduced increase in Council Tax in 2019/20 deemed it to have been a prudent course to have taken in light of events and the call now on the Council’s reserves to help see it through the present crisis. He highlighted that although local authorities are oft criticised for holding what appear to be significant amounts in reserve, such reserves are maintained specifically to help councils deal with unexpected events such as the current pandemic; the importance of having access to reserves at the present time cannot be overstated as it has enabled the Council to meet the immediate financial challenges presented by the coronavirus outbreak.

It was resolved to note the contents of the report.