Agenda item

Five financial challenges facing the Council over the medium to long-term

Minutes:

Hitesh Jolapara (Strategic Director for Finance and Governance) and Emily Hill (Assistant Director, Corporate Finance) presented the report that outlined the following five key financial challenges that concerned officers over the longer term:

·         Issue 1 - Balancing the budget and future finance strategy

·         Issue 2 – Financial resilience

·         Issue 3 – Schools Funding

·         Issue 4 – Major projects

·         Issue 5 – Lessons from Northamptonshire County Council (NCC)

 

Issue 1 - balancing budget and future finance strategy

 

Hitesh Jolapara introduced the first issue – noting that there had been a significant budget gap every year since he joined the Council. The National Audit Office reported that there had been a real terms reduction in spending power (grant and local tax) of 28.5% from 2010/11 to 2018/19.

 

Some members of the Committee felt more focus should be given to what cost cutting means to frontline services.

 

Kim Dero felt the future finance strategy was an area where the Committee's co-optees could be used to better effect. She suggested a task force could be set up to look at this issue in more detail.

 

Chris Littmoden wanted the Committee to test the Council’s zero-based budgeting approach.

 

Councillor Max Schmid (Cabinet Member for Finance) highlighted alternative income streams and commercial opportunities as an area where the Committee could add real value.

 

Erik Hohenstein questioned whether the Committee was given enough time – and enough detail – to do meaningful budget scrutiny. The Chair suggested officers could do a formal briefing on the budget earlier in the cycle. Councillor Schmid noted, for context, that the timescales for the budget were extremely tight – information on the final allocation from Central Government was sent around Christmas day and budget reports had to be ready by mid-January for scrutiny and mid-February for Full Council.

 

The Chair suggested the following areas for the work-programme:

·         Raising revenue

·         Continuing to review service spend

·         Review fees – including a more dynamic approach (e.g. flexible pricing for leisure facilities based on usage peaks)

 

Judith Worthy felt the Committee should understand reserves better – particularly the earmarking process and the practice of services holding on to reserves. She felt corporate finance should be more proactive – taking earmarked reserves back if projects were dormant for too long. She suggested a proper review of the earmarked projects.

 

Kim Dero suggested greater scrutiny of invest to save projects – did they yield the expected return etc.

 

Issue 2 - Financial resilience

 

Judith Worthy felt the Committee should consider the Council’s contractual commitments – how deeply was the organisation bound to expensive contracts? Was this covered in the business continuity planning?

 

Erik Hohenstein asked if the Council had done any modelling on the potential impacts of Brexit. Hitesh Jolapara said officers had done forecasts and scenario planning. Councillor Max Schmid noted that a risk assessment had been done after the vote including how business rates and council tax revenues would be affected. The Committee suggested testing the assumptions used in these exercises.

 

Judith Worthy said it would be prudent to carry out ‘bankruptcy scenario planning’ to give an idea of the danger point for the authority. Given the commitments the Council has, how much would revenues need to fall before there was significant risk of failure? From that we could understand the tipping points, what level of reserves would be required etc.

 

Issue 3 - Schools funding

 

Members asked, given the overspend, if H&F was spending more than other boroughs in this area. Steve Miley (Director of Children’s Services) said two thirds of all London boroughs were overspending. Council expenditure exceeds the grant from Government. The numbers of SEND children has grown significantly but the grant hasn’t. We need a sustainable plan to address this going forward. There were issues of financial management here with lessons that could be applied across the Council. Members noted that this could be an area for a joint task force with the Children and Education Policy and Accountability Committee.

 

Issue 4 - Major projects

 

Councillor Max Schmid felt it would be good to have a generic way of looking at these types of projects - then start bringing them to scrutiny one by one. Hitesh Jolapara added that this could include costings, risk considerations, the parameters of the project, the ‘lifetime cost’, how we procure and contract, how it changes our financial risk profile going forward, return on investment etc.

 

Erik Hohenstein noted that procurement was a key issue – the Committee returned to it repeatedly.

 

Issue 5 - Lessons from Northamptonshire

 

Councillor Max Schmid noted that H&F’s situation was very different from Northamptonshire’s but there were still lessons to learn. Kim Dero agreed and said the redevelopment of the Town Hall was a key area – H&F was one of the last boroughs to do this so there was a lot of learning out there.

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