To receive a report and consider the Medium Term Financial Strategy 2022/23 to 2026/27.
Members received a report and update on the Medium-Term Financial Plan 2022/23 to 2026/27 from Councillor Schofield, Deputy Leader and Executive Member for Finance and Governance.
The report to the Committee set out the background and context for the budget elements of service and financial planning for 2022/23 onwards. It provided an early opportunity for Members to consider the factors that will be taken into account when preparing draft budget estimates that are scheduled to be reported in November. Similar to other local authorities, the Council was facing a challenging financial future with an underlying budget gap. Budget efficiencies had been achieved and Reserves remained buoyant, but the Council was seeking new sustainable income streams and sources of income. The report excluded service growth and savings and the outcome of the fees and charges review as well as any government funding announcements. Councillor Schofield asked for the Committee to note the report and provide any comments which could be taken into account as work on the budget progressed.
Members welcomed the report and made the following observations and comments:
Costs and inflation – it was noted that the budget report included an updated forecast for pay cost inflation. Members asked about short and medium-term risks and cost increases and inflation, particularly with uncertainty of cuts from central government. A working assumption in the document was that there would be a similar pay rise to last year. More detail would be known when consultation started between the Council as employer and the unions. The Council recognised that inflation was rising and was keeping a close eye on this. There may be increased costs from suppliers, and, where significant, these would be reflected in the draft budget in the autumn. Cost inflation was recognised as a MTFP key risk in the report.
Borrowing for capital projects – Members welcomed the capital projects that were underway and asked about the borrowing that needed to be paid back as there would be a lag between completing a project and an income stream being established. It was confirmed that financial forecasts for each project were set out in the project business case initially and revenue budget was allocated for interest payments and capital repayments (MRP) costs. There was also a balance to be achieved between purely financial returns and wider social benefits of a project for the community. For example, the Cromwell Road development included different types of housing tenancies for social benefit. The Commercial Ventures Executive Sub-Committee analysed the financial implications of business cases to ensure they deliver value for residents.
Capital programme – the report set out the previously-approved capital programme for 2021/22 to 2025/26. This included the Cromwell Road development as well as Marketfield Way development in Redhill. Members asked if further information about the commercial returns for Marketfield Way and other capital projects and the housing programme could be included in future reports. Councillor Schofield confirmed that MTFP forecasts do not yet include revenue projections for projects not yet completed. Pat Main, Interim Head of Finance, confirmed that when a new asset comes into use, operating costs and income budgets will be included in the budget for the commencement year. Councillor Essex noted that the forecast budget gap was therefore a pessimistic forecast as it did not set out in detail where the additional income streams would come from and did not include information about income from projects already in the pipeline. It was confirmed this would be addressed in more detail in the Commercial Strategy Part 2 and in future budget reports when the details are confirmed.
Commercial strategy – Members highlighted the Commercial Strategy which was outlined in the report. Part 1 had been published but Part 2 was not yet available. There were pressures on delivering projects currently as well as the impact of the continuing response to COVID-19 and there was no commercial director in post at present. The Chair of Overview and Scrutiny expressed concern about the continued absence of Part 2 of the strategy. If income was required from commercial property to balance the budget then the Council needed to be looking out for these opportunities to provide new commercial returns. The Interim Head of Paid Service, Mari Roberts-Wood reassured Members. Part 2 of the Strategy was a critical document and an officer task force had been set up to identify the work and resources needed to progress it as well as identify any skills gaps. The Council was acting on any approaches regarding potential property purchases and considering each on their merits. The next step would be to engage with the O&S Commercial Scrutiny Panel shortly to start to discuss Part 2.
Environmental Sustainability strategy – Members asked if this could be looked at in tandem with the commercial strategy so that these issues could be considered as a whole. The Committee was due to review the Environmental Sustainability strategy in the autumn and the outcome would be reflected in future budget proposals as appropriate.
RESOLVED that the Committee:
(i) Noted the report and raised comments for consideration by the Executive as set out in the Minutes.