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 incorporating the draft main financial statements for the 2020/21 financial year along with details of the level of general balances and earmarked reserves held by the Council and recommendations regarding their use was presented for the Executive’s consideration.

Councillor Robin Williams, Portfolio Member for Finance reported that the report includes the draft Comprehensive Income and Expenditure Statement for 2020/21 and the draft Balance Sheet as at 31 March, 2021. More detailed information about the Council’s general balances and earmarked reserves is provides and the report details the proposed use of reserves and balances in 2021/22 and subsequent years. Also set out is the level of general balances and earmarked reserves which, in the professional opinion of the Council’s Section 151 Officer is the level required to cover any financial risks faced by the Council, to meet any existing funding commitments made and takes into account any specific restrictions in the use of the funding e.g. restrictions imposed by grant conditions. The level of risk faced by the Council can change and the level of general balances and earmarked reserves will be kept under review over the coming months. The figures as presented are unaudited and may change as a result of the audit process.

The Director of Function (Resources) and Section 151 Officers advised that the draft Comprehensive Income and Expenditure Statement (CIES) shows the cost of providing the Council’s services in accordance with statutory accounting requirements and includes costs which are not charged against Council Tax which explains the figure of £24.231m. These costs which include depreciation and pension adjustments are then reversed out before determining the final position in respect of general balances, earmarked reserves, the HRA account balance and school balances. As a result, the CIES is not directly comparable to the budget outturn reports that were presented to the Executive in June, 2021.

The Council’s General Fund Balance as at 31 March, 2021 stood at £11.593m which is equivalent to 7.86%of the net revenue budget for 2021/22. The Executive has set the minimum level of the General Fund Balance as 5% of the net revenue budget which would equate to £7.37m which mean the General Fund Balance exceeds the minimum value by £4.223m. Normally, the Section 15 Officer would recommend that their level be maintained for the coming year; however in light of the uncertainty with regard to the impact of the pandemic on the demand for Council services in 2021/22; the  continuation or otherwise of Welsh Government financial assistance and the effect of ongoing restrictions and social distancing requirements on the Council’s ability to generate income for certain services, it is considered prudent to increase the minimum level of the general fund balance during 2021/22 and possibly 2022/23 until the impacts of the pandemic are clearer. It is the professional opinion of the Section 151 Officer that a minimum value of £9m (6.1% of the net revenue budget for 2021/22) is sufficient to mitigate these risks.

Prior to the pandemic, the Executive had approved in principle the transfer of a level of general balances to create service reserves. The level of the reserve for each service would be capped at 2.5% of the Service’s net revenue budget or £75,000 whichever is the higher and the annual contribution to the service reserve would be linked to the Service’s financial performance during the year i.e. underspends would be retained by the Service up to the level of the cap to be used for specific projects and overspends apart from those deriving from significant increases in demand would be funded from the Service reserve. Based on the 2020/21 outturn and implementing the cap on the level of reserve, the service reserve for each service would be as outlined in Table 3 of the report (bringing the total Service Reserves to £1.376m) and would be used for the purposes proposed in paragraph 5.6 of the report. After taking into account the requirement to maintain the minimum level of the General Fund Balance at £9m and the use of £1.376m as service reserves, £1.217m would be left to be released for use on one off projects – the Executive is asked to authorise the release of this sum to fund specific projects.

The Council holds earmarked reserves to mitigate potential future risks, to meet increases in the demand for certain services, to fund future capital projects, to fund improvements in business processes and service delivery which are not funded in the annual revenue budget and to hold unused grants and other contributions. The new reserves created during 2020/21 totalling £5,181.646 which the Executive is asked to formally approve, are shown in Table 4 of the report. A full list of all the earmarked reserves is provided in Appendix 4 to the report and they are summarised into the various categories in Table 5 of the report. Appendix 4 identifies the ongoing commitments for each individual earmarked reserve and also identifies reserves which can be released to fund additional one off expenditure. The Executive is asked to approve the use of £2.254m of uncommitted reserves for future projects.

Councillor Robin Williams, Portfolio Member for Finance said that he thought it important also to highlight the fact that despite the welcome reduction in hospital admissions and deaths, Covid 19 has not gone away and its impact is still being felt. The Council faces a number of unknowns going forward especially from a financial perspective including what its funding settlement from Welsh Government for 2022/23 will be; whether Welsh Government will continue to provide Covid related financial support and if so for how long and also whether the level of staff pay awards will be higher than the provision allowed for in the budget. In addition, the Council also has a cumulative backlog of maintenance costs on its roads, schools, leisure centres and libraries; these are some of the funding challenges the Council is facing which the wider public should be aware of. In proposing the recommendations, the Portfolio Member said that he was proposing an amendment to the wording of recommendation 6 to include the words “in principle.”

The Executive’s members acknowledged that the future does contain uncertainty and risks in light of which they agreed that it is therefore right to be cautious in the use of reserves and to hold sufficient back to ensure the Council is able to deal with the financial challenges it is facing. A question was asked about the impact of the pandemic on debtor days. The Director of Function (Resources)/ Section 151 Officer clarified that the length of time that debts remain outstanding  is regularly reviewed and although he was not able to give the exact figures the information not being immediately to hand,  he could confirm that Council Tax arrears have increased to £3.8m as more people take longer to pay. The Council did defer Council Tax instalments for the first two months of 2020/21 so the increase in arrears is not unexpected nor unique to Anglesey with all councils in Wales reporting a similar scenario. Welsh Government has recognised Council Tax collection as a potential risk and has provided Anglesey with £768,625 to cover the anticipated increase in the level of Council Tax debt which may have to be written off. This funding is held in reserve and will be released to the revenue account as required to smooth over the effects of loss of Council Tax income.

It was resolved –

·         To note the draft unaudited main financial statements for 2020/21.

·         To note the position of general balances and earmarked reserves and to approve the creation of the new reserves noted in Appendix 4 of the report totalling £5,181,646.

·         To note the school balances position.

·         To approve increasing the minimum level of the General Reserve balance to £9m.This sum will be reviewed again as the 2022/23 revenue budget is set.

·         To approve the creation of Service Reserves totalling £1.376m as per Table 3, Appendix 1 of the report.

·         To authorise in principle, the use of up to £3.471m (£1.217m of the General Fund balance and £2.254m of uncommitted earmarked reserves) to fund specific projects designed to meet risks and challenges faced by the Council. The Executive will approve all new projects prior to their commencement.