2021/22 Financial Position
3.1 The council’s General Fund is currently (month 8, November) forecasting an overspend of £3.634m for 2021/22. This is a high overspend forecast at this stage of the year and therefore steps are being taken to ensure that non-statutory and non-critical spending is curtailed as far as practicable and safe to do so through spending controls, vacancy and contract management.
3.2 Some media attention was focused on the previous year’s outturn (2020/21) which appeared to indicate a £9.733m underspend. However, this was largely due to the timing of Covid grants and compensation, NHS funding and outbreak management funding. The £9.7m resources were effectively used as follows:
- £7.262m was used to balance the 2021/22 General Fund budget which, even so, still required a savings package of £10.687m together with borrowing from reserves of £1.521m to balance the budget;
- £1.680m was used to meet the projected 2021/22 pay award for which no provision had been made in the approved 2021/22 budget following the government’s announcement / expectation of a public sector pay freeze;
- Provision of £0.317m for the deficit on Moulescoomb Primary which fell to the council’s General Fund on academisation of the school;
- £0.474m to support delivery of Corporate Plan priorities delayed by the pandemic including SEND support (CVS), a commitment to an anti-racism initiative (‘The World Reimagined’), women’s safety (CVS), active travel and community wealth building.
2022/23 Budget Setting
3.3 As for last year, the General Fund budget setting process has followed a somewhat different (i.e. later) timetable due to a range of factors including the ongoing presence of the pandemic. However, the principle reason for the delayed timetable was the late announcement of the anticipated 3-year Spending Review which was not announced until the end of October and was not fully analysed until early November. Until this was received, local government was not in a position to determine or understand its budget challenges for 2022/23 or beyond with any accuracy, particularly given the government’s announcement in late Summer of substantial funding for social care reforms which the sector had hoped would provide significant additional funding to alleviate long standing and growing pressures.
3.4 In the event, the Spending Review 2021 (SR21), which included the Social Care reform funding announcements, did not provide any resources to redress the substantial additional demands and costs that have built up across the system over the last decade. The Social Care reform funding is purely to meet new cost burdens including a care cap and increased income thresholds. SR21 did provide an overall increase in funding (but see para 3.5 below) and also allowed councils to increase Council Tax by an additional 1% for each of the next 3 years by way of an Adult Social Care precept. If these precepts are agreed by the City Council, by 2024/25 Council Tax will have increased by 18% since 2016/17 in respect of Adult Social Care precepts, demonstrating that a substantial and increasing proportion of the burden of funding social care (over £21m pa) is falling on local taxpayers.
Spending Review 2021
3.5 As previously reported to the Forum, Local Government has been awaiting a longer term, multi-year Spending Review for some years, which it desperately needed to enable effective medium term financial planning. Due to, first, a general election and then the advent of the pandemic, Local Government has received only short term (1 year) funding announcements since 2019/20. This has made planning very challenging for local authorities, particularly given the high, well-publicised cost pressures that most authorities have been experiencing. In this respect, while Schools also continue to suffer cost pressures and have had years of challenging funding settlements, there was at least a longer term funding announcement made by the government, which has confirmed its commitment to the 3-year funding pledge originally announced by the previous Government in 2019.
3.6 The Spending Review 2021 has now been issued in detail to local authorities through the provisional Local Government Financial Settlement 2022/23 (LGFS) received on 16 December 2021. This provides each local authority with an indication of the specific resources it can expect for 2022/23, including annual grant allocations. It is a 1-year settlement which again leaves Local Government with a level of uncertainty about future years’ allocations from SR21.
3.7 The government’s headline announcements indicated that SR21 would increase Local Government Spending Power by 3% in 2022/23. However, this includes the funding for Social Care Reforms which will be matched by new costs and burdens and does not therefore provide additional funding. As for Schools, SR21 also provided no additional funding to cover the Health and Social Care Levy (NI increase) which will cost approximately £1m across General Fund services. Adjusting for these and including the
Adult Social Care precept shows that Spending Power will only increase by 1.8% in 2022/23. This is not only some way short of current and anticipated demand and inflationary pressures in 2022/23 (a combined estimate of 7%) but also does nothing to redress the reduction of over £100m grant funding or the substantially growing social care pressures over the last decade.
3.8 The latest estimated demand and cost pressures expected to be incurred in 2022/23 are shown in the table below. These demands/costs are above inflation provision for pay, prices and pensions which amounts to a further £5.3m.
Service Pressures |
Latest ongoing pressures identified |
Latest short-term pressures (including Covid) |
Adult Social Care |
£3.212m |
£0.000 |
Families, Children & Learning (incl. Adults Learning Disabilities |
£5.171m |
£0.000 |
Environment Economy & Culture |
£1.437m |
£1.200m |
Housing, Neighbourhoods & Communities |
£1.235m |
£1.683m |
All Other Services |
£1.411m |
£0.000m |
Total |
£12.466m |
£2.883m |
3.9 Including Adult Learning Disability services, Adult Social Care continues to be the most significant pressure as the population of the City grows and people live longer with limiting health conditions. Local Government has been lobbying for many years in the hope that central government would address the long term funding of Adult Social Care. Financially, the long-awaited Social Care reforms will do little, if anything, to address this situation and have potentially introduced even greater funding pressures as many experts, including the Local Government Association, believe that the funding for the reforms is insufficient to meet the projected costs of the care cap and increased income thresholds.
General Fund Budget Gap 2022/23
3.10 In summary, the draft General Fund budget proposals for 2022/23 include the following assumptions:
· a planning assumption of a 1.99% Council Tax increase and 1% Adult Social Care precept i.e. a total Council Tax increase of 2.99% for 2022/23;
· a substantial investment requirement to meet cost and demand-driven service pressures of £12.466m (as identified above), particularly in Adult Social Care including Adult Learning Disability;
· provision for predicted pay increases (i.e. increases for the Real Living Wage, NJC pay award 2022/23 and the council’s minimum pay spine), price inflation and contractual uplifts, and pension changes of approximately £5.3m; and
· provision for unavoidable contractual and capital financing commitments of £4.8m. This includes £2.3m for the 2021/22 NJC pay award for which no provision had been made following the government expectation of a public sector pay freeze in 2021/22. In the event, Local Government employers side offered 1.75% but this is still subject to final negotiation having been rejected by union side.
3.11 In July 2020, the council set out its planning assumptions for 2022/23 which included estimates of cost and demand pressures together with a prediction of the resources
likely to be provided by the anticipated Spending Review. A number of scenarios were considered and at that time, the best (midpoint) estimate was a predicted budget shortfall (gap) of £18.030m requiring savings or spending reductions (cuts) of the same value to balance the budget. This prediction included assumed additional resources from the Spending Review of £6.946m, including assumed continuation of Supporting (Troubled) Families funding.
3.12 In the event, SR21, via the provisional Local Government Financial Settlement, has provided additional resources of £9.194m, providing only £2.248m toward addressing the aforementioned budget gap, as shown in the table below:
Budget Planning – Funding Assumptions 2022/23 |
Assumed Funding Change (July) |
Provisional Settlement (December) |
Additional core funding |
£0.000 |
£0.244m |
Additional Social Care/Grant funding |
£5.000m |
£7.410m |
Additional Social Care Precept at 1% (if approved) |
£0.000 |
£1.580m |
Supporting (Troubled) Families Grant continuation |
£0.946m |
£0.946m |
Homelessness/Rough Sleeping |
£1.000m |
£0.000 |
National Insurance/Care Levy |
£0.000 |
£0.986m |
Total |
£6.946m |
£9.194m |
Increase in Resources compared with July Budget Planning Funding Assumptions |
£2.248m |
|
3.13 Taking into account the resources provided by the Local Government Financial Settlement, including: an assumed 2.99% Council Tax increase; the additional service pressures identified above; applicable pay and price increases, and other unavoidable commitments (mainly financing costs of the council’s capital programme), the latest estimated budget shortfall or gap is £16.631m in 2022/23.
Addressing the Budget Gap
3.14 The Draft Budget Report to December Policy & Resources Committee set out ‘first draft’ savings proposals of £8.540m leaving a remaining gap of £8.091m to be addressed. This is the largest budget gap the council has ever experienced at the draft budget stage and will be very challenging to address in full, particularly coming on the back of savings of nearly £67m over the last 5 years including a challenging £10.7m savings programme in the current year (2021/22).
3.15 Options for dealing with the remaining gap are being explored including:
- Most importantly, further savings proposals (recurrent or one-off) are being considered and will be brought to the February Policy & Resources Committee and Budget Council as part of the final budget proposals for 2022/23. However, identifying additional savings or income generation proposals of over £8m is highly unlikely and other measures will almost certainly be needed.
- A further review of the tax base assumptions for Business Rates and Council Tax will be undertaken and reported to January Policy & Resources Committee. However, these are not expected to change significantly from earlier estimates and can go up or down.
- Service pressure estimates (demand and cost pressures) will be reviewed as at the end of December 2021 to determine whether or not trends are changing, however, at this late stage of the financial year there is not normally any significant movement from earlier estimates and assumptions.
- A key area relates to capital financing costs which may reduce due to both slippage on the council’s capital programme (i.e. delaying borrowing and financing costs) and increasing interest rates (which has a short term benefit on interest earned on cash balances).
- A limited level of Reserves could be used to address any remaining shortfall but this will need to be replenished over the Medium Term Financial Strategy (i.e. over 4 years) by achieving greater savings in later years
Savings Proposals
3.16 As in previous years, due to the large projected budget gap in 2022/23, each directorate was tasked with developing proposals for achieving savings that align with the council’s modernisation approach and Corporate Plan priorities as far as possible. However, as last year, the budget process for 2022/23 has been delayed due to the uncertainties over the Spending Review outcome. First draft savings proposals were presented to the 2 December Policy & Resources Committee but the full set of draft proposals, including any additional savings proposals, will be considered at the February Policy & Resources Committee and Budget Council. The report and agenda are expected to be published on the council’s web site on 2 February 2022.
3.17 First draft savings proposals totalling £8.540m were submitted to the 2 December Policy & Resources meeting but of most relevance to schools are the savings proposals for the Families, Children & Learning Directorate which are reproduced in summary form at Appendix 2 of this report for information. This shows savings proposals of £1.875m for the directorate, however, this includes £0.526m savings in relation to Adult Learning Disability Services which are also managed in this directorate.
3.18 As noted in paragraph 3.13 above, all services are exploring the potential for additional savings proposals to assist in closing the council’s budget gap in 2022/23. Potential additional savings possibilities are being considered across Families, Children & Learning including the following areas:
- Youth Services including the Youth Arts Programme
- Youth Employability Service
- Family Contact Service
- Children’s Agency Placements
- Partners in Change Programme
- Safeguarding IRO resources
If these additional savings proposals are confirmed, Equality Impact Assessments will be developed for consideration by members alongside earlier proposals.