Agenda item

To consider the latest Medium Term Financial Plan (2020/21 to 2024/25) and Budget forecast for 2020/21.

Members considered the latest Medium Term Financial Plan update (2020/21 to 2024/25) and Budget forecast for 2020/21.

Councillor Tony Schofield, Portfolio Holder for Finance, introduced this item. He said that local government continues to face a very challenging financial situation. Government funding is set to reduce further so the Council is continually challenged to find new ways to make more efficient use of existing resources while at the same time seeking new sustainable income streams.

The timing for many of the proposed funding changes was unclear – there was speculation that there may be a delay, but the Council needed to plan for implementation next year until formal announcements were made.

Councillor Schofield said that the Committee had been given the opportunity to consider the key budget and financial information earlier in the financial planning cycle that in previous years. The report gave as much information as possible at this early stage in the service and financial planning process to put the financial challenges and plans into context.

Members of the Committee were asked to consider and comment on aspects such as:

  - the scale of commercial investment opportunities to be pursued

  - the types of investment that the commercial strategy should focus on

  - the extent of planned borrowing to purchase income generating assets

  - the extent to which investment should be through joint-ventures

  - the relative balance between commercial and people/place objectives when considering new investment opportunities.

Members commented on a number of areas of the MTFP update which included:

·       New Homes Bonus Reserve – this was noted to be quite high with no restrictions on use. It was asked if some of this money be given to provide future affordable housing rather than waiting for the draft housing strategy to be completed. The Portfolio Holder for Finance said that the Council had not previously assumed that the grant would continue therefore it was not being used to support the base budget. And the government had set out its intention to end the New Homes Bonus as part of the Fair Funding Review in 2020. Affordable housing was potentially one area being looked at for use of these funds but there was not a firm plan yet.

·       Strategic Property – Capital Programme – Members asked for more detail on the list of properties in the Capital Programme in Appendix 2 of the report. It was confirmed that this was mainly expenditure incurred on purchasing property.

·       Towns and Villages initiatives – Members asked what would be included in future budgets to fund Corporate Plan priorities for 2020-25 (p58 of the report) that recognise the need for the Council to support towns and villages in the borough to thrive. This included villages that are in the north of the borough such as Banstead village which provided significant income to the whole borough. This would be considered as part of the budget setting process along with other priorities.

·       Economic growth – Members asked if any allowance had been made for potential impacts on economic growth due to Brexit. It was confirmed that Brexit continued to create uncertainty and that has an impact on the Council’s supply chain such as price increases, and that operational delivery of capital schemes had been considered.

The scale of the financial challenge in the next three years, included the change in external funding, with the Council more dependent on Council Tax than before. Income from Retained Business Rates was due to stop and the Revenue Support Grant was now zero. It could lose £2.1m in the Government’s Fair Funding Review in 2019/20. It could also be affected by major cuts to services by Surrey County Council.

·       The positives were that the Reserves and Balances were healthy. The General Fund Balance acts as a buffer against unpredicted budget pressures. Officers were in the early stages of developing an updated policy for future use and size of Reserves that existed, particularly ones with a small balance remaining. The Business Rates Equalisation Reserve remained as it there was uncertainty on Business Rates funding continuing.

·       A timetable was set out which included the Management Awayday that had taken place earlier in the day, and future updates to the Overview and Scrutiny Committee. It was explained that a Budget Advisory Working Group had been set up to support the Portfolio Holder for Finance. It was noted that the membership of this Group consisted of Councillors Feeney, King, Neame, Sachdeva and Paul.

In conclusion, it was a challenging fiscal environment. However, the Council had good reserves but it did not want to draw on these reserves too much as its aim was to be financially sustainable.

The Committee discussed the presentation and made observations in the following areas:

·       Brexit– Members asked if Brexit could lead to a potential drop in rental values commercially and a drop in property values. It was identified that if property values dropped it would be reflected in the balance sheet at year end. It was not thought that capital values would have an immediate impact on rental income. It could also be an opportunity for buying property at a lower value and therefore at a lower cost to the Council.

·       Purchasing property/other commercial investments – Members asked what return the Council was achieving at the moment from its income-generating assets. Members noted that if they funded the majority of acquisitions from reserves, this would mean losing investment interest. If the Council cannot use reserves and if it makes substantial investments, then it would have to start borrowing money and it would be paying circa 2.5 per cent interest plus provision for repayment costs.

·       Members asked why the Capital Programme in 2018/19 was £25m less in 2019/20. It was identified that £25m has been made available for new investments to support corporate priorities, including commercial investments. The Commercial Ventures Sub-Committee has the authority to approve new spending. Members asked if the Council has the skills and resources to acquire sites.

It was identified that investment included proposals to purchase land for redevelopment that would not generate revenue yet but could take some years for the revenue to come through. Business cases would include an exit strategy for the Council.

·       Members asked if the Council could look at joint venture commercial investments with the public sector, for example, with Surrey County Council or with the NHS (eg. to develop the nurses’ accommodation at East Surrey Hospital). It was confirmed that it was part of the Commercial Ventures Sub-Committee’s role to look at the Council’s existing property portfolios and land that it owned. This included looking at its social value as well as commercial value and whether it should develop or dispose of some of it. Some major schemes were well outside the Council’s ability to fund and would need support from other partners which included Surrey County Council.

It was noted that Committee Members had been asked to give the Executive feedback on the scale and type of investments as well as assets within or outside the Reigate and Banstead borough.

·       Members asked if it could invest in more residential properties to support residents. It did have some residential affordable housing schemes such as Lee Street Bungalows and Cromwell Road. These were not as large as other commercial schemes. It was identified that these discussions were part of the draft housing strategy.

·       Members discussed the relative importance of commercial and People/Place objectives when considering a new investment opportunity. It was identified that a balance of all three was positive. One Member thought that looking for opportunities outside the borough was very important. It was noted that while investment should be considered outside the borough, the greater the distance when investing in a property, the greater the risks. The right skills and resources would be needed to manage these investments. A Member who had worked on town centre redevelopments said that local authorities could have delays in getting development plans underway if they did not own the land. Investments should be strategic and have clear benefits for the Council. It was identified that the Council could have some restrictions on schemes outside its area of economic influence – developers could challenge a decision if it borrowed money to fund an acquisition so it had to be careful where it looked.

·       Members said that the Council needs to consider the environmental impact. If climate change was to be part of the Corporate Plan, then this should also be part of its investment strategy, for example, whether it could invest in solar panels for one of the depot buildings, which would help balance the investment portfolio.

It was observed that the strategy did not discuss the Council’s appetite for risk in investment. Should it invest in real estate property or with Brexit on the horizon should there be a balanced portfolio of investments such as in solar panels?

·       Members considered if there were investment opportunities that would meet People/Place objectives. Some could involve property purchases that may not be expected to have a revenue stream immediately. One Member said that investments in properties should be made locally within the borough. Local people should benefit from the Council’s property investments. It was not just about generating revenue but making sure local people could live in the properties or use them for work or leisure.

Members requested further information on the projects that could require new borrowing for the current approved capital programme, as capital programme costs rise by a large amount between 2020/21 and 2021/22. It was confirmed that work was still ongoing to look at this detail.

·       Members asked if other commercial ventures were being considered such as work for other councils in the area of revenue and benefits fraud.

·       It was noted that a review of the reserves and the reasons why they were held was underway. Members identified that these reserves should be consolidated to be more manageable.

·       Fees and charges – A review of fees and charges was also noted to be part of this year’s service & financial planning plans. Members asked that if the Council puts up fees and charges at a CPI rate, how did this compare to inflation? If it affected residents then it should do an equality impact assessment for residents as some of the charges could be very sensitive. One example was an increase on charges for allotments so Portfolio Holders needed to understand the impact of any decision. Members said that allotments should not be a profit centre. These should be considered as an amenity rather than an opportunity for increasing revenue.

It was identified that the Medium Term Financial Plan update was an initial draft report. It would be reviewed again at the Executive meeting on 18 July 2019 and through the Budget Advisory Working Group. It was quite early to expect considered responses but the O&S Committee Members’ views would be considered in an updated report.

Members observed that the updated version of the MTFP should reflect all six of the requirements set out in the CIPFA Financial Management Code. This included a Financial Resilience Assessment, a long-term financial strategy and a multi-year MTFP.

In summary, Councillor Schofield said that one of objectives of giving a detailed report was to give Members sufficient reference as to what was being considered in the budget planning process. More details would be given at a later stage.

Members said it was a good starting point and thanked the work of Councillor Schofield and finance officers.

RESOLVED – that the Medium Term Financial Plan update and the observations of the Committee, as set out in the Minutes, be noted. The Committee observed that:

(i) It would consider commercial investment opportunities to be made within the Reigate and Banstead Borough and surrounding areas.

(ii) It requested a further update on the Medium Term Financial Plan for the Committee so that non-exempt information could be discussed in the public part (Part 1) of the meeting.