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 Comprehensive Income and Expenditure Statement for 2022/23 and the draft Balance Sheet as at 31 March 2023 was presented for the Executive’s consideration. The report also provided more detailed information on the Council’s general balances and earmarked reserves including the proposed use of reserves and balances in 2023/24 and subsequent years.

The report was presented by Councillor Robin Williams, Portfolio Member for Finance. It set out 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 existing funding commitments made taking into account any specific restrictions on the use of funding. 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.

Councillor Robin Williams referred to the financial difficulties which some councils in Wales are now experiencing and he highlighted that because it has been provident in the way it has managed its finances, the Council is in a better position financially. Although the Council like many others is still facing significant challenges in the next few years with the uncertainty around the 2024/25 financial settlement being one such challenge, the reserves it has built will provide security against the challenges and risks that are likely to come its way.

The Director of Function (Resources)/Section 151 Officer confirmed that the draft financial statements for 2022/23 were signed by the Council’s Responsible Financial Officer on 30 June 2023, and the audit of accounts will commence in August 20223 the intention being that it be completed over the summer and the final audited accounts approved by 30 November 2023. The statements are technical and complicated documents and they include the draft Comprehensive Income and Expenditure Statement (CIES at Appendix 2 to the report) which shows the cost of providing services in 2022/23 in accordance with statutory accounting requirements and covers both the Council Fund and the Housing Revenue Account. The CIES includes statutory accounting costs such as depreciation and pension adjustments which are not charged against Council Tax and are therefore reversed out before determining the final position in respect of general balances, earmarked reserves, the HRA account balance and school balances. The CIES shows that the nest cost of services was £179.599m with a deficit £16.237m on the provision of services. When adjustments are made for the revaluation of assets and for the remeasurement of the pension liability the final net surplus for the year is £132.79m. Adjustments are then made as shown in Table 1 of the report to determine the movement of reserves and balances with it being noted that the figure of £3.258m in the table should not appear in brackets as it represents a contribution from rather than to useable reserves and balances. Table 2 of the report provides a summary of the movements in Council reserves and balances as at 31 March, 2023 including the HRA and school reserves and shows that the Council’s General Reserves stood at £13.967m on that date but with £3.78m of that total having been committed to balance the 2023/24 budget. The Council had total useable reserves of £54.742m as at 31 March, 2023.

The draft Balance sheet at Appendix 3 shows that the value of the Council’s net assets increased by £132.769m from £272.233m in 2021/22 to £405.002m at 31 March, 2023.The significant change is due in large part to the accounting valuation of the Pension Fund. The Pension Fund was valued as a liability of £121.199m as at March, 2022. This has changed to an asset of £19.815m which is the first time in many years that the Fund has been valued as an asset rather than a liability. This has no impact on Council Fund balances as it is a statutory accounting adjustment. In the Council balance sheet this is not reported as an asset in accordance with accounting practices which does not allow reporting of the net pension assets on the balance sheet for most pension funds. This is a prudent approach and reflects the fact that the Council cannot close the fund and crystallise the notional value of the pension asset. The pension liability on the balance sheet is nil due to the net asset position. The balance sheet also shows that the Council’s borrowings have reduced from £127m to £125m.

The Section 151 Officer thanked the Finance Service’s staff for their work on the draft accounts and the sentiment was echoed by the Portfolio Member for Finance.

In response to a question about earmarked reserves specifically whether they are reviewed to ensure that the purpose for which they were set aside remains valid, the Section 151 Officer referred to Appendix 5 of the report which shows the transfers in and out of the various reserves held by the Council which demonstrate that those reserves have been reviewed and updated and he confirmed that this is an annual process. Where reserves are found to be no longer required for the purpose for which they were created then they are transferred back into the Council’s General Reserves Fund. For 2022/23, £4.13m of earmarked reserves was transferred back into the Council Fund.

Councillor Robin Williams said that it is important to note that the Council has earmarked reserves to meet known or planned requirements as well as for unused grants allocated late in the financial year that will be carried forward and used the following year, and he emphasised that these are funds for which the Council has a clear purpose and use.

Councillor Alun Roberts, Portfolio Member for Adults’ Services and Community Safety said that Council reserves and how they are used are often misunderstood. He referred to the

significant pressures on expenditure in Adults’ Services which are only going to intensify with the increase in the over 60s population and the challenge this creates in terms of providing services. Maintaining a sufficient level of reserves is therefore a matter of sensible financial planning ensuring that the Council remains financially resilient and is able to continue to deliver those services in future.

It was resolved –

·      To note the draft unaudited main financial statements for 2022/23. The full Draft Statement of Accounts 2022/23 is published at https://www.anglesey.gov.wales/en/Council/Council-finances/Statement-of-Accounts.aspx

·      To note the position of general balances of £13.967m and to approve the creation of the new earmarked reserves set out in Table 3 of the report which amount to £4.320m.

·      To approve the balance of £19.638m of total earmarked reserves for 2022/23 (£23.181m in 2021/22). This is £3.544m lower than 2021/22 and is made up of £4.320m of new reserves as recommended above and a £7.471m overall reduction to existing reserves though this is made up of increases and decreases to existing reserves.

·      To note the school balances position of £6.716m.

·      To note the HRA balance of £12.107m.

·      To approve the new Capital Grants Unapplied Reserve with a balance of £0.407m as shown in the Movement in Reserve Statement in Appendix 4.

·      To approve the transfer of £1.365m of service reserves back to the general reserve to increase flexibility and financial resilience of the Council.