Agenda pack
North Lanarkshire Council · 23 February 2023
Back to Council — 23 February 2023 and its agenda
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Our Ref: Your Ref: Contact: Tel: Fax: E-Mail: Date: Mark Hamill 07811294702 hamillm@northlan.gov.uk 14 Feb 2023 Members of the Council Chief Executive’s Office Archie Aitken Chief Officer of Legal & Democratic Civic Centre, Windmillhill Street Motherwell ML1 1AB DX 571701, Motherwell 2 www.northlanarkshire.gov.uk Notice is given that a Special Meeting of the COUNCIL is to be held within the Council Chamber, Civic Centre, Motherwell on Thursday, 23 February 2023 at 2:00 pm which you are requested to attend. The agenda of business is attached. Chief Executive Members : Councillors: D Ashraf, A Ballinger, C Barclay, B Baudo, A Beveridge, M Boyd, H Brannan-McVey, G Brennan, B Burgess, A Bustard, J Cairns, A Campbell, T Carragher, C Costello, M Coyle, S Coyle, D Crichton, G Currie, P Di Mascio, K Docherty, K Duffy, A Duffy-Lawson, H Dunbar, T Fisher, F Fotheringham, W Goldie, M Hughes, J Hume, L Jarvie, D Johnston, T Johnston, J Jones, P Kelly, J Keltie, A Khan, K Larson, J Leckie, G Lennon, J Linden, J Logue, H Loughran, F MacGregor, A Magowan, A Masterton, M McBride, B McCluskey, B McCulloch, M McCulloch, P McDade, F McKay, R McKendrick, J McLaren, C McManus, F McNally, M McPake, J McPhilemy, A McVey, L Mitchell, L Nolan, P Patton, J Reddin, L Roarty, D Robb, G Robinson, N Shevlin, W Shields, A Smith, K Stevenson, A Stubbs, L Stubbs, R Sullivan, A Thomas, J Toner, S Watson, C Williams, N Wilson and G Woods. Page 1 of 35
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AGENDA (1) Declarations of Interest in terms of the Ethical Standards in Public Life Etc. (Scotland) Act 2000 (2) Housing Revenue Account - Revenue Estimates 2023/2024 (page 5 - 14) Submit report by the Chief Officer (Finance) presenting information that will enable the Council to set the Housing Revenue Account (HRA) budget for 2023/2024 (copy herewith) (3) Accounting for Service Concessions (page 15 - 24) Submit report by the Chief Officer (Finance) seeking approval to implement a change in accounting for all existing service concession agreements following the publication of new statutory guidance published in September 2022 (copy herewith) (4) Revenue Budget 2023/2024 to 2025/2026 and Council Tax 2023/2024 (page 25 - 35) Submit report by Chief Officer (Finance) providing financial information to enable the Council to set its 2023/2024 Council Tax and Revenue Budget (a) Council Tax 2023/2024 (b) Revenue Budget 2023/2024 to 2025/2026 (copy herewith) Page 3 of 35
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North Lanarkshire Council Report Housing Committee Does this report require to be approved? ☐ Yes ☒ No Ref EK / GT Date 15/02/23 Housing Revenue Account – 2023/24 Revenue Estimates From Elaine Kemp, Chief Officer of Finance E-mail kempe@northlan.gov.uk Telephone 01698 302408 1. Background 1.1 Income and expenditure in relation to a local authority’s own direct provision of housing must be recorded within a Housing Revenue Account (HRA) as set out in the Housing (Scotland) Act 1987. In addition, this Act sets out the requirement for local authorities to set an annual budget to support sound financial management and helps ensure that expenditure is linked to the key priorities of tenants. 1.2 North Lanarkshire is Scotland’s largest local authority landlord, with a housing stock of approximately 36,000. The number has reduced marginally over the last year reflecting the impact of tower re-provisioning, partially offset by additions to the stock through the Council’s new supply programme and buy back schemes Executive Summary The purpose of this report is to present to Committee information that will enable the Council to set its Housing Revenue Account (HRA) budget and rent levels for 2023/24. Recommendations It is recommended that Committee: (1) Recognises the HRA cost pressures detailed in Appendix 1, (2) Recognises the base budget savings outlined in Appendix 2, (3) Considers the allocation of HRA surplus balances as detailed in paragraphs 2.3, 2.4 and 2.5, and (4) Agrees to review the financial assumptions contained within this report at the Special Council meeting February 2023 to approve the HRA Revenues Estimates and rent levels for 2023/24. The Plan for North Lanarkshire Priority Improve North Lanarkshire's resource base Ambition statement (25) Ensure intelligent use of data and information to support fully evidence based decision making and future planning AGENDA ITEM 2 Page 5 of 35
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1.3 The Council approved its 2022/23 HRA budget of £149m on 16 December 2021 with £142m (95%) funded by rental income from tenants and £7m (5%) from other fees and charges. 1.4 The average 2022/23 weekly rent in North Lanarkshire of £76.50 is the ninth lowest amongst Scottish local authority landlords and 3.2% below the Scottish local authority average. The recent Landlord Report published by the Scottish Housing Regulator shows North Lanarkshire Council’s rents are between 11.7% (for a 1 apartment) and 17.0% (for a 2 apartment) below the Scottish average for all social housing rents. 1.5 In setting the HRA budget and rent levels in December 2017, the Council agreed to an average rental increase of 5% for 2018/19 and 5% for the subsequent three years up to 2021/22. For 2022/23 the rent increase was set at 3%, an average increase of £2.27 per week. 1.6 Committee has received regular updates on the progress of delivering the Council’s ambitious plans for housing through the Economic Regeneration Delivery Plan. This has been further strengthened through The Plan for North Lanarkshire approved in March 2019 with specific focus on three key programmes of work supported by the current rent strategy: • PO13 – New Supply Programme • PO14 – Tower Strategy • PO15 – Housing Investment Programme 1.7 Significant progress to date includes: • An increase in the target for new supply housing from 2,150 by 2027 to 5,000 by 2035, • Completion of 970 new build homes with a further 421 on site. Sites have been identified and are at various stages of progression for a further 1,346 homes, • Expansion of the buy back scheme which will allow around 130 properties to be brough back into use each year. 606 homes have been purchased through the Council Buy Back Schemes at 9 January 2023, • The approval, development and ongoing delivery of plans for investment and re- provisioning of the Council’s tower properties, • Approval of a 5 year mainstream capital programme from 2021/22 to 2025/26 that aims to deliver £354m of investment in the Council’s housing stock; greater than 20% increase from the previous 5 year planning period. 30-year Business Plan 1.8 The 30-year Business Plan included as part of the 2023/24 budget setting process is shown in Appendix 3. Financial Solutions has worked closely with Housing Property and Projects and the New Supply Team to confirm future investment targets to support the development and refinement of financial modelling. The 30-year Business Plan continues to demonstrate affordability and sustainability of plans based current assumptions. Housing Benefit / Universal Credit 1.9 During the mid point of the current financial year, North Lanarkshire had 23,400 tenants in receipt of some form of support for their housing costs, representing more than 67% of tenants. Almost 34% of tenants are now in receipt of the housing cost element of Universal Credit and a further 33% are in receipt of Housing Benefit. 1.10 A rent increase would result in some tenants receiving more Housing Benefit and some existing non-claimants becoming entitled to Housing Benefit. However, unless their Page 6 of 35
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circumstances change, most tenants will be liable for the same contribution towards their rent, with Housing Benefit making up the difference. 1.11 Tenants currently entitled to the full housing cost element of Universal Credit would have their Universal Credit payment uplifted to reflect any rent increases up to the Local Housing Allowance cap. 1.12 Following approval at the former Housing and Regeneration Committee in November 2019, the Council established the Universal Credit Assistance Fund (UCAF). This was expanded to include the Covid Hardship Fund in June 2020. Nearly 10,000 tenants have been supported that would otherwise have fallen into arrears. In addition, in accessing these funds tenants have been provided with additional support and advice and signposting to other agencies where required ultimately contributing to longer term sustainability of tenancies. 1.13 In addition, funding provided by the Scottish Government to support Covid-19 recovery and the cost of living crisis has seen a further 719 tenants supported through the Tenant Hardship Fund and Local Authority Covid Economic Recovery Fund. 1.14 Together these measures have ensured the Council has seen a stable position for rent arrears for current tenants with the arrears balance remaining largely unchanged throughout the current financial year where other landlords are experiencing increasing current tenant arrears. 2. Report HRA Revenue Estimates 2.1 In assessing the budgetary requirements of the Housing Revenue Account for 2023/24, a number of variables and factors have to be considered and analysed before determining the adjustments required in the base budget position. These base budget adjustments are outlined in Appendices 1 and 2, with the main factors described below: 2.1.1 Cost Pressures of £10.314m to ensure that the HRA can continue to deliver a highly performing repairs and maintenance programme, effective housing management and support and deliver the approved capital programme, including: • Employee cost pressures totalling £1.375m, incorporating an adjustment for the higher than originally budget pay award for 2022/23 and an anticipated pay award for 2023/24 in line with the Council’s Medium Term Financial Plan assumptions and the ongoing impact of incremental pay pressures. The HRA will also benefit from the UK Government’s decision to reverse increases in National Insurance contributions. • The cost of funding capital investment including prior year expenditure and approved investment targets in line with the existing 30-year Business Plan (£4.992m). However, this is largely offset by the release of historic recurring Ambition funding set aside to support capital investment plans (£4.879m). • Inflationary pressure on repairs and maintenance expenditure linked to wider economic factors and the increasing price of goods and services throughout 2022/23 (£6.796m). However, it is anticipated that inflation impacting on repairs and maintenance will reduce from its current high levels during 2023/24. • Other inflationary pressures for energy and other services (£2.030m) Page 7 of 35
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2.1.3 Base Budget Savings are considered each year to ensure that the HRA continues to direct its resources towards key priorities. Appendix 2 outlines base budget savings of £0.070m to be implemented by the service in 2023/24. 2.1.4 The combined impact of these cost pressures and partially offsetting savings is a funding gap of £10.244m. This can be summarised as follows: £m Cost Pressures (see Appendix 1) 10.314 Base Budget Savings (see Appendix 2) (0.070) Funding Gap 10.244 2.2 A rental increase of 7.15% would be required to bridge the funding gap. 2.3 Members will be aware of the Scottish Government’s Cost of Living (Tenant Protection) (Scotland) Act 2022 which introduced a rent freeze for all landlords until 31 March 2023. The Scottish Government intends to make regulations to lift the rent freeze for the social housing sector from 1 March 2023. These regulations would allow the Council to increase rents effective from 1 April 2023. 2.4 Members will also be aware of the commitment agreed through COSLA to keep rental increases to an average of less than £5 per week across the country. For North Lanarkshire Council, maintenance of that commitment will limit the potential rent rise to circa 6.5% for 2023/24. Use of Surplus Balances 2.5 As part of its long-term HRA budget strategy, it is the Council’s policy to set aside approximately 1% of the HRA budget as a core reserve. As a result, the core reserve currently stands at £1.470m. 2.6 In addition, the HRA reserve balances include a Change Management / Risks & Uncertainty reserve of £5.155m and a reserve balance to support Ambition related activity of £5.054m. This excludes the surplus currently projected for 2022/23 of £1.000m. 2.7 Elected Members are reminded of the Council’s Reserves Policy approved at Policy and Strategy Committee in January 2020 which aims to ensure that available balances are managed and utilised in accordance with effective governance principles and continue to support financial plans which are affordable and sustainable. 3. Measures of success 3.1 The Council is required to set a balanced budget for the Housing Revenue Account with expenditure plans fully funded by income, largely from housing rents. 3.2 The setting of an annual budget and thereafter monitoring the budget ensures that tenants can have confidence that the Council and its officers are accountable for the spending decisions they make. Page 8 of 35
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4. Supporting documentation Appendix 1 Cost Pressures 2022/23 Appendix 2 Base Budget Savings 2022/23 Appendix 3 30-year Business Plan Summary Elaine Kemp Chief Officer of Finance Page 9 of 35
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5. Impacts 5.1 Public Sector Equality Duty and Fairer Scotland Duty Does the report contain information that has an impact as a result of the Public Sector Equality Duty and/or Fairer Scotland Duty? Yes ☒ No ☐ If Yes, please provide a brief summary of the impact? The HRA budget for 2022/23 will ensure that the Council can continue to provide a highly effective and responsive housing management service for all tenants and improve the health and wellbeing and economic outcomes of communities through the delivery of significant additional capital investment in high quality and affordable social housing. If Yes, has an assessment been carried out and published on the council’s website? https://www.northlanarkshire.gov.uk/your-community/equalities/equality- and-fairer-scotland-duty-impact-assessments Yes ☒ No ☐ 5.2 Financial impact Does the report contain any financial impacts? Yes ☒ No ☐ If Yes, have all relevant financial impacts have been discussed and agreed with Finance? Yes ☒ No ☐ If Yes, please provide a brief summary of the impact? The financial implications of the 2023/24 Revenue Estimates are outlined throughout the report. 5.3 HR policy impact Does the report contain any HR policy or procedure impacts? Yes ☐ No ☒ If Yes, have all relevant HR impacts have been discussed and agreed with People Resources? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.4 Legal impact Does the report contain any legal impacts (such as general legal matters, statutory considerations (including employment law considerations), or new legislation)? Yes ☐ No ☒ If Yes, have all relevant legal impacts have been discussed and agreed with Legal and Democratic? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.5 Data protection impact Does the report / project / practice contain or involve the processing of personal data? Yes ☐ No ☒ If Yes, is the processing of this personal data likely to result in a high risk to the data subject? Yes ☐ No ☐ Page 10 of 35
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If Yes, has a Data Protection Impact Assessment (DPIA) been carried out and e- mailed to dataprotection@northlan.gov.uk Yes ☐ No ☐ 5.6 Technology / Digital impact Does the report contain information that has an impact on either technology, digital transformation, service redesign / business change processes, data management, or connectivity / broadband / Wi-Fi? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? Where the impact identifies a requirement for significant technology change, has an assessment been carried out (or is scheduled to be carried out) by the Enterprise Architecture Governance Group (EAGG)? Yes ☐ No ☐ 5.7 Environmental / Carbon impact Does the report / project / practice contain information that has an impact on any environmental or carbon matters? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.8 Communications impact Does the report contain any information that has an impact on the council’s communications activities? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.9 Risk impact Is there a risk impact? Yes ☐ No ☐ If Yes, please provide a brief summary of the key risks and potential impacts, highlighting where the risk(s) are assessed and recorded (e.g. Corporate or Service or Project Risk Registers), and how they are managed? All activities undertaken by the council are subject to risk, and in acknowledging the Council’s approved Risk Management Strategy (September 2012), Services manage these as part of their overall corporate and service planning process. The current economic climate, in particular, has the potential to impact upon the Council’s ability to provide quality services within approved budget levels. The Government’s proposals for welfare reform include a number of changes to the housing benefit system which present significant financial risks to the HRA, including increasing rent arrears and cash collection costs, combined with lower levels of rental income. These risks are increased by the current and potentially ongoing economic impact of the Covid-19 pandemic. These risks will be closely monitored throughout 2023/24. 5.10 Armed Forces Covenant Duty Does the report require to take due regard of the Armed Forces Covenant Duty (i.e. does it relate to healthcare, housing, or education services for in-Service or ex- Service personnel, or their families, or widow(er)s)? Yes ☐ No ☒ If Yes, please provide a brief summary of the provision which has been made to ensure there has been appropriate consideration of the particular needs of the Armed Forces community to make sure that they do not face disadvantage compared to other citizens in the provision of public services. Page 11 of 35
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Appendix 1 Housing Revenue Account Cost Pressures 2023/24 £000 £000 Employee Costs Pay awards 1,479 Incremental drift 176 Reduction in National Insurance and other cost reductions (280) 1,375 Inflationary Pressures Housing repairs inflation and stock movements 6,796 Trading and support service costs 1,250 Energy costs 1,107 9,153 Capital Financing Costs Loan charges associated with increased capital investment 4,992 Release of Ambition funding to support capital investment (4,879) 113 Movement and profile of housing stock (327) Cost Pressures Total 10,314 Page 12 of 35
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Appendix 2 Housing Revenue Account Base Budget Savings 2023/24 £000 Property Costs Reduced costs associated with both close cleaning 50 Other Operational Efficiencies Reduced operational delivery costs linked to office expenditure and uniforms / protective clothing 20 Total base budget savings 70 Page 13 of 35
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Appendix 3 Housing Revenue Account 30 Year Business Model Summary 30 Year Year 2020/25 2025/30 2030/35 2035/40 2040/45 2046/50 Totals Average Mainstream Housing Stock 34,930 34,224 33,519 32,779 32,575 32,575 New Build Housing Stock 1,252 2,214 2,986 3,312 3,358 3,358 Average Housing stock 36,182 36,439 36,505 36,091 35,933 35,933 Capital Investment £000 £000 £000 £000 £000 £000 £000 Prudential borrowing 307,405 554,539 649,413 700,776 928,535 536,936 3,677,604 Capital receipts 32 0 0 0 0 0 32 Other receipts / Government Grants 88,654 90,944 55,818 5,457 0 0 240,873 Sub total 396,091 645,483 705,231 706,233 928,535 536,936 3,918,509 CFCR 141,395 125,731 123,231 123,230 123,230 123,230 760,047 Total resources 537,486 771,214 828,462 829,463 1,051,765 660,166 4,678,556 Loan Analysis Opening debt 324,109 582,972 1,048,747 1,546,458 2,015,481 2,640,866 324,109 Prudential borrowing 307,405 554,539 649,413 700,776 928,535 536,936 3,677,604 Principal repayment - historic debt 42,481 49,673 60,402 73,085 50,336 30,382 306,359 Principal repayment - new borrowing 6,061 39,091 91,300 158,668 252,814 378,499 926,433 Closing debt 582,972 1,048,747 1,546,458 2,015,481 2,640,866 2,768,921 2,768,921 Per house (£) - Closing Stock 16,112 28,782 42,363 55,844 73,494 77,058 77,058 Housing Revenue Account 123,055 241,810 400,970 601,009 808,636 1,061,510 3,236,990 658,790 723,485 801,023 884,577 984,812 1,100,100 5,152,787 781,845 965,295 1,201,993 1,485,586 1,793,448 2,161,610 8,389,777 Other income (71,978) (54,960) (54,960) (54,960) (54,960) (54,960) (346,778) Balance to be financed by rents 709,867 910,335 1,147,033 1,430,626 1,738,488 2,106,650 8,042,999 Average weekly rent (£) 78.12 97.78 122.82 153.59 186.08 225.49 Rental Income 709,867 910,335 1,147,033 1,430,626 1,738,488 2,106,650 8,042,999 Average Yearly % increase 4.58% 4.66% 4.54% 4.30% 4.20% 3.26% Capital charges as a % of rent income 17.33% 26.56% 34.96% 42.01% 46.51% 50.39% 5 Year Bands Loan charges Other costs Page 14 of 35
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North Lanarkshire Council Report Council Does this report require to be approved? ☒ Yes ☐ No Ref EK/KS/RM Date 23/02/23 Accounting for Service Concessions From Elaine Kemp, Chief Officer for Finance E-mail kempe@northlan.gov.uk Telephone 07939 280 601 Executive Summary The report seeks approval to implement a change in accounting for all existing service concession agreements following the publication of new statutory guidance published in September 2022; Local government finance circular 10/2022 – accounting for service concession arrangements, leases and similar arrangements. This provides a statutory override to the requirements of the accounting code in respect of the Council’s existing service concessions (PPP schools) only. The proposed option proposed must be adopted no later than financial year 2023/24 and the guidance stipulates that Council approval is required to make the change to accounting practice. The report aims to provide more details on the key principles of the statutory guidance and detailed financial implications, including potential associated costs that may require to be managed, subject to future decisions on use of the one-off retrospective saving. It is important to note there is no change to the unitary charge cash payment to school contractors over the contract period. This proposed change applies only to the accounting treatment in respect of the repayment of debt in the Council’s revenue account. The change in accounting treatment will see a reduction in annual accounting charges for service concession arrangements in the short to medium term, due to spreading them over the remaining useful life of the assets rather than the shorter contract life which is currently applicable. Thus, results in a short to medium term financial benefit for the Council. However, a further consequence of such action is that charges will be incurred beyond the contract period, which the Council will have to manage. Based on the analysis shown in Appendix 1, an annual financial saving of £4 million is estimated to be prudent and sustainable over the short to medium term. This has been reflected as a base budget adjustment to reduce the Council’s budget gap in 2023/24, in the Revenue Budget 2023/24 to 2025/26 and Council Tax 2023/24 Report, also included on this agenda. It should also be noted there is a potential £44.8 million one-off benefit arising from the retrospective application of the change in accounting. Consideration will be given to the use of this one-off benefit as part of future Medium Term Financial plans and budget strategies, following an update of the existing PPP affordability model over the longer term, to ensure a robust and affordable budget strategy is in place to meet the PPP accounting charges beyond the contract period. AGENDA ITEM 3 Page 15 of 35
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1. Background 1.1 Council will be aware that the Scottish Government introduced a number of potential fiscal flexibilities to local authorities aimed at assisting Councils to manage the financial impact of COVID. The Council’s Treasury Management Strategy, reported to Finance & Resources Committee on 10 March 2022 provided a high-level summary of these flexibilities, and advised specifically of the flexibility in relation to accounting for service concessions, commonly known as public private partnerships (PPP) arrangements. 1.2 Currently, a statutory intervention is in place in respect of service concession arrangements in Scotland, which was introduced in 2010 to address a financial impact when service concession assets, mostly schools, were first recognised on a local authority’s balance sheet. The current statutory arrangements require the repayment of the liability to be charged to the revenue account over the contract period. This is contrary to standard accounting practice which requires an asset to be depreciated over its useful life. 1.3 In the interests of ensuring a consistent approach going forward, Scottish Government has introduced statutory reforms to support standard accounting practice for all leases and service concession arrangements. The Scottish Government suggested this would generate a saving for Councils, as the cost is spread over the useful life of the asset, which is generally greater than the contract period. As previously advised, initial modelling indicated the Council would accrue a prudent one-off revenue benefit of approximately £17.7m, if retrospection application was permitted, as well as recurring Use of the one-off retrospective benefit will most likely require additional borrowing, incurring interest costs, which could be material. As a result, full consideration of all future forecast loan charge costs compared with budgetary provision is required to determine the affordability of any proposals to use the one-off benefit. In addition, future changes in respect of implementing the new accounting standard, IFRS16, which is currently planned to be adopted by the Council in 2024/2025, are also anticipated to give a financial benefit in respect of costs of service concession arrangements only. This will also be given due consideration as part of future budgetary strategies, as indicated above. Recommendations It is recommended that Council: (1) Approves the implementation of the change in accounting for all existing service concession arrangements (2) Acknowledges the reduction in annual accounting costs of service concessions over the short to medium term and that this has been reflected in the 2023/24 to 2025/26 budget report to this Council meeting (3) Acknowledges the one-off benefit generated in applying the accounting change retrospectively and notes that use of this benefit will be approved as part of future budget strategies, subject to an affordability review (4) Recognises that it is anticipated that further financial benefit mat be generated following the implementation of IFRS16 in 2024/25 The Plan for North Lanarkshire Priority Improve North Lanarkshire's resource base Ambition statement (25) Ensure intelligent use of data and information to support fully evidence based decision making and future planning Page 16 of 35
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annual savings. This was subject to receipt and analysis of the awaited statutory guidance. 1.4 In September 2022 the Scottish Government published new statutory guidance; Local government finance circular 10/2022 – accounting for service concession arrangements, leases and similar arrangements. The statutory guidance provides a statutory override to the requirements of the Code of Practice for Local Authority Accounting in accounting for infrastructure assets. This essentially provides the details of the options available in accounting for PPP arrangements. 1.5 Officers have reviewed the guidance and have taken specialist independent advice to review and critically appraise the options available, and to model and verify the financial implications of such options. It should be noted that the option proposed needs to be applied to all existing service concession arrangements and must be adopted no later than financial year 2023/24. The guidance also stipulates that any change to accounting for such arrangements, requires full Council approval. 1.6 This report aims to provide more details on the key principles of the statutory guidance and detailed financial implications, including potential associated costs that require to be managed, subject to future decisions on any use of the one-off retrospective saving. 1.7 It should also be noted that CIPFA/LASAAC published the 2022/23 edition of its Code of Practice on Local Authority Accounting in the United Kingdom (the Code) in August 2022. This sets out the accounting for service concession arrangements under the new IFRS 16 Leases accounting standard, which the Council currently plans to adopt in 2024/25 financial year. Implementing the new standard is expected to generate a further financial benefit in respect of accounting for service concession arrangements, which will be further clarified in future budgetary strategies. 2. Report 2.1 In June 2005, the Council entered a 31 year public private partnership (PPP) agreement for the provision and maintenance of a number of purpose built school and community buildings, which ends in March 2037. A Design, Build, Finance, Maintain (DBFM), arrangement was agreed in 2016/17 for the replacement of Greenfaulds High School, with a second DBFM contract following for Cumbernauld Academy, both with a contract period of 25 years, ending in 2040/41. The useful life of these assets is estimated at 50 years. 2.2 Under such arrangements the Council is liable for annual contractual payments for the provision of schools, over the life of the contract. These unitary charge payments, cover the cost of operations, life cycle replacement, repayment of capital, interest on the outstanding liability, as well as inflationary uplifts (as determined by the individual contract). Essentially the unitary charge is a payment for services, repayment of debt and interest costs payable. The assets revert to the Council’s ownership at the end of the contract. 2.3 Whilst the assets are not legally owned by the Council, accounting practice requires the assets to be recognised on the balance sheet, along with the long-term liability to pay for the asset over the contract life. The element of the unitary charge payment which represents the repayment of debt, writes down the long-term liability in the balance sheet, such that the debt outstanding will be nil by the end of the contract when the assets revert to Council ownership. Page 17 of 35
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2.4 The Local Government Finance circular 10/2022 replaces the 2010 version, which covered service concession arrangements, and now permits the authority to apply an alternative accounting treatment for all service concession arrangements entered prior to April 2022. This can only be applied in 2022/2023 or 2023/2024. There are 3 options outlined in the circular that Councils can consider for service concession arrangements: • Option 1; Apply the accounting code with no statutory adjustments • Option 2; Continuation of existing statutory accounting arrangements as set out in 2010 • Option 3; Apply the new flexibility that aligns the statutory adjustments to the asset life, with a choice of retrospective or prospective application. If this option is applied there is a further choice on how to reprofile the principal elements, either using an equal instalment of principal (EIP) methodology or an annuity method 2.5 It is important to note that the unitary charge cash payment will remain unchanged and continue to be paid to the contractor over the contract period. This proposed change applies only to the accounting treatment in respect of the repayment of debt for these assets in the Council’s revenue account. 2.6 Option 3 outlined in 2.4 above better reflects the benefit/ use of the asset over its life, therefore, it is prudent to account for the repayment of the debt over the longer period, represented by the asset life. For example, the period over which the Council’s original schools’ contract would be accounted for, would increase to 50 years from the 31 years contract life. This option will result in an annual reduction in the accounting charge to the revenue account, which will mean that charges will be incurred beyond the period currently planned. Note the Council also has the option to apply the accounting change retrospectively and recalculate the revised charge which would have been incurred to date, had charges been originally spread over asset life since the start of the contract, resulting in a retrospective one-off benefit/ overpayment. 2.7 It is important to note that applying this flexibility does not generate an overall saving, it just extends the period over which payments are made, such that the total charges to the revenue account are unchanged over the life of the assets. 2.8 These are not cash releasing savings, as we continue to pay the contractors as planned, but they reduce the charges to the general revenue account, thus increasing the General Fund Reserve by reversing part of the charge that has already been made, which sits in an unusable reserve (Capital Adjustment Account). Changes to Accounting for Existing Service Concessions 2.9 The remainder of this report assumes the Council will adopt option 3, noted in 2.4 above, from 2023/24 onwards, which enables debt repayments to be paid over the life of the asset. Option 3 also requires the Council to determine its preferred repayment method i.e. annuity method or the equal instalments of principal (EIP) method. 2.10 The report advises on the financial implications using the annuity basis as opposed to the EIP method, which is deemed to be the most prudent repayment option as it reflects the consumption of assets over their useful lives, and the time value of money. It recognises that assets are not consumed equally throughout their lives, as maintenance costs tend to increase in later years. With the annuity method lower charges are incurred in the early years and higher charges in later years. The use of the annuity method is also in line with the methodology currently applied to service Page 18 of 35
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concession arrangements by the Council, and mirrors the current methodology for loans fund charges, in respect of Council assets, funded from borrowing. 2.11 There are a number of variables within the financial modelling undertaken, which require a number of assumptions to be made. Therefore, some sensitivity analysis has also been carried out to give some assurances over the robustness of the estimated financial implications reported. Financial Implications of Applying the Change 2.12 As a result of the change in accounting from 2023/24, it is estimated there will be an annual reduction in statutory charges to the revenue fund of £4.0 million. Therefore a £4.0 million annual saving is assumed as part of the Revenue Budget 2023/24 to 2025/26 and Council Tax 2023/24 report, to this Council. However, by extending the repayment period the Council will have to ensure there is budgetary provision to pay for the accounting charges beyond the current contract lives, when it had previously been assumed such costs would drop off. 2.13 In addition, by applying this change in accounting retrospectively, there will be a one- off gain to the Council, albeit not cash backed. The clarification of application now provided in the guidance indicates an estimated one-off increase in useable reserves of £44.8 million. This represents the overpayment, to 31 March 2022, based on spreading the costs over the asset life and not the contract period. 2.14 However, as indicated earlier in this report, this change in accounting does not represent an overall saving over the life of the asset. The total charges to the general fund revenue over the asset lives remain unchanged, which means the Council will have to ensure there is adequate budgetary provision in the future to meet all costs. Therefore, whilst this increase in the reserves balance may be used to support the Council’s revenue budget strategy going forward, consideration must also be given to ensuring any proposal is prudent, affordable, and sustainable. 2.15 It is currently envisaged that a combination of the future unitary charge budget (uplifted for inflation, less the Scottish Government funding, which will cease at the end of the contract lives), along with provision as part of robust future Medium Term Financial Plans, and perhaps earmarking some of the one-off benefit of £44.8 million, will ensure there is adequate funding to meet future service concession charges. More detailed modelling is required before any decisions around alternative use of these one-off funds can be made, as well as determining the costs and affordability aspects, of such use. Use of Retrospective Benefit & Associated Costs 2.16 As indicated in 2.8 above these benefits are not cash savings, they are accounting savings. Therefore, if the Council wishes to consider using these savings to support future budget strategies, and ultimately incur additional expenditure, then cash resources will most likely need to be borrowed, which will result in increased interest costs. The scale of the interest costs will be determined by any decisions taken to use the retrospective benefit. However, it is important to note these costs are not a consequence of the change in the accounting practice. 2.17 The amount borrowed and interest rates applicable at the time will determine the cost incurred. By way of illustration, three different scenarios have been modelled, which result in material interest costs ranging between £169 million and £178 million. Even after adjusting for the time value of money these costs are material. Page 19 of 35
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2.18 It is important to note there are already several factors putting pressure on the loan charges budget including: previously approved loan debt re-profiling savings, which were acknowledged at the time need to be repaid; hikes in interest rates (cost of borrowing); implications of any decision to exercise the loan debt holiday flexibility available to the Council in 2022/23. As a result, full consideration of all future loan charge costs compared with budgetary provision is required to determine the affordability of any additional borrowing from using the retrospective benefit. 3. Measures of success 3.1 Successful implementation of the accounting change, delivery of the annual saving and prudent provision of budgetary requirements to meet the future PPP costs and the cost of any decision to use the one-off benefit. 4. Supporting documentation 4.1 Appendix 1: Repayment Profiles of Service Concession Arrangements Elaine Kemp Chief Officer (Finance) Page 20 of 35
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5. Impacts ( http://connect/report-template-guidance ) 5.1 Public Sector Equality Duty and Fairer Scotland Duty Does the report contain information that has an impact as a result of the Public Sector Equality Duty and/or Fairer Scotland Duty? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? If Yes, has an assessment been carried out and published on the council’s website? https://www.northlanarkshire.gov.uk/your-community/equalities/equality- and-fairer-scotland-duty-impact-assessments Yes ☐ No ☐ 5.2 Financial impact Does the report contain any financial impacts? Yes ☒ No ☐ If Yes, have all relevant financial impacts have been discussed and agreed with Finance? Yes ☒ No ☐ If Yes, please provide a brief summary of the impact? Details are contained within the report 5.3 HR policy impact Does the report contain any HR policy or procedure impacts? Yes ☐ No ☒ If Yes, have all relevant HR impacts have been discussed and agreed with People Resources? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.4 Legal impact Does the report contain any legal impacts (such as general legal matters, statutory considerations (including employment law considerations), or new legislation)? Yes ☐ No ☒ If Yes, have all relevant legal impacts have been discussed and agreed with Legal and Democratic? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 5.5 Data protection impact Does the report / project / practice contain or involve the processing of personal data? Yes ☐ No ☒ If Yes, is the processing of this personal data likely to result in a high risk to the data subject? Yes ☐ No ☐ If Yes, has a Data Protection Impact Assessment (DPIA) been carried out and e- mailed to dataprotection@northlan.gov.uk Yes ☐ No ☐ 5.6 Technology / Digital impact Does the report contain information that has an impact on either technology, digital transformation, service redesign / business change processes, data management, or connectivity / broadband / Wi-Fi? Yes ☐ No ☒ Page 21 of 35
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If Yes, please provide a brief summary of the impact? Where the impact identifies a requirement for significant technology change, has an assessment been carried out (or is scheduled to be carried out) by the Enterprise Architecture Governance Group (EAGG)? Yes ☐ No ☐ 5.7 Environmental / Carbon impact Does the report / project / practice contain information that has an impact on any environmental or carbon matters? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.8 Communications impact Does the report contain any information that has an impact on the council’s communications activities? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 5.9 Risk impact Is there a risk impact? Yes ☐ No ☒ If Yes, please provide a brief summary of the key risks and potential impacts, highlighting where the risk(s) are assessed and recorded (e.g. Corporate or Service or Project Risk Registers), and how they are managed? 5.10 Armed Forces Covenant Duty Does the report require to take due regard of the Armed Forces Covenant Duty (i.e. does it relate to healthcare, housing, or education services for in-Service or ex- Service personnel, or their families, or widow(er)s)? Yes ☐ No ☒ If Yes, please provide a brief summary of the provision which has been made to ensure there has been appropriate consideration of the particular needs of the Armed Forces community to make sure that they do not face disadvantage compared to other citizens in the provision of public services. Page 22 of 35
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Appendix 1 Repayment Profiles of Service Concession Arrangements Year Current Revised Current Revised Current Revised Current Revised Annual Cumulative £m £m £m £m £m £m £m £m £m £m Pre 23/24 60.133 21.851 5.069 1.028 3.105 0.596 68.307 23.475 44.832 44.832 23/24 4.877 1.851 0.947 0.204 0.949 0.218 6.772 2.273 4.499 49.331 24/25 5.714 1.932 0.996 0.214 0.994 0.228 7.704 2.375 5.329 54.660 25/26 5.456 2.017 1.047 0.225 1.042 0.239 7.545 2.482 5.063 59.723 26/27 6.537 2.106 1.101 0.237 1.091 0.251 8.730 2.593 6.137 65.860 27/28 6.469 2.198 1.158 0.249 1.144 0.263 8.771 2.710 6.061 71.921 28/29 6.942 2.295 1.218 0.262 1.198 0.275 9.358 2.832 6.526 78.447 29/30 6.555 2.396 1.281 0.276 1.255 0.288 9.092 2.960 6.132 84.579 30/31 6.973 2.501 1.347 0.290 1.315 0.302 9.636 3.093 6.543 91.121 31/32 6.025 2.611 1.417 0.305 1.378 0.317 8.820 3.232 5.588 96.709 32/33 7.117 2.725 1.490 0.321 1.444 0.332 10.051 3.378 6.674 103.383 33/34 6.676 2.845 1.568 0.337 1.513 0.348 9.756 3.530 6.226 109.609 34/35 8.295 2.970 1.649 0.355 1.585 0.364 11.528 3.689 7.840 117.449 35/36 7.953 3.100 1.734 0.373 1.661 0.381 11.347 3.855 7.492 124.941 36/37 8.074 3.237 1.824 0.392 1.740 0.400 11.637 4.029 7.609 132.550 37/38 0.000 3.379 1.918 0.412 1.823 0.419 3.741 4.210 (0.469) 132.081 38/39 0.000 3.527 2.017 0.434 1.910 0.439 3.927 4.400 (0.473) 131.608 39/40 0.000 3.682 2.121 0.456 2.001 0.460 4.123 4.598 (0.475) 131.133 40/41 0.000 3.844 2.231 0.480 2.097 0.482 4.328 4.805 (0.477) 130.655 41/42 0.000 4.013 1.158 0.505 2.197 0.505 3.355 5.022 (1.667) 128.989 42/43 0.000 4.189 0.000 0.531 2.302 0.529 2.302 5.248 (2.947) 126.042 43/44 0.000 4.373 0.000 0.558 2.412 0.554 2.412 5.485 (3.073) 122.969 44/45 0.000 4.565 0.000 0.587 0.754 0.580 0.754 5.732 (4.979) 117.990 45/46 0.000 4.765 0.000 0.617 0.000 0.608 0.000 5.991 (5.991) 111.999 46/47 0.000 4.975 0.000 0.649 0.000 0.637 0.000 6.261 (6.261) 105.738 47/48 0.000 5.193 0.000 0.683 0.000 0.668 0.000 6.544 (6.544) 99.194 48/49 0.000 5.421 0.000 0.718 0.000 0.700 0.000 6.839 (6.839) 92.355 49/50 0.000 5.659 0.000 0.755 0.000 0.733 0.000 7.148 (7.148) 85.208 50/51 0.000 5.908 0.000 0.794 0.000 0.768 0.000 7.470 (7.470) 77.737 51/52 0.000 6.167 0.000 0.836 0.000 0.805 0.000 7.807 (7.807) 69.930 52/53 0.000 6.438 0.000 0.879 0.000 0.843 0.000 8.160 (8.160) 61.770 53/54 0.000 6.721 0.000 0.924 0.000 0.883 0.000 8.528 (8.528) 53.242 54/55 0.000 7.016 0.000 0.972 0.000 0.925 0.000 8.913 (8.913) 44.329 55/56 0.000 7.324 0.000 1.022 0.000 0.970 0.000 9.316 (9.316) 35.013 56/57 0.000 0.000 0.000 1.075 0.000 1.016 0.000 2.091 (2.091) 32.922 57/58 0.000 0.000 0.000 1.131 0.000 1.064 0.000 2.195 (2.195) 30.727 58/59 0.000 0.000 0.000 1.189 0.000 1.115 0.000 2.304 (2.304) 28.422 59/60 0.000 0.000 0.000 1.251 0.000 1.168 0.000 2.419 (2.419) 26.003 60/61 0.000 0.000 0.000 1.315 0.000 1.224 0.000 2.540 (2.540) 23.463 61/62 0.000 0.000 0.000 1.383 0.000 1.283 0.000 2.666 (2.666) 20.797 62/63 0.000 0.000 0.000 1.455 0.000 1.344 0.000 2.799 (2.799) 17.998 63/64 0.000 0.000 0.000 1.530 0.000 1.408 0.000 2.938 (2.938) 15.060 64/65 0.000 0.000 0.000 1.609 0.000 1.475 0.000 3.085 (3.085) 11.975 65/66 0.000 0.000 0.000 1.693 0.000 1.546 0.000 3.238 (3.238) 8.737 66/67 0.000 0.000 0.000 1.780 0.000 1.620 0.000 3.400 (3.400) 5.337 67/68 0.000 0.000 0.000 0.000 0.000 1.697 0.000 1.697 (1.697) 3.641 68/69 0.000 0.000 0.000 0.000 0.000 1.778 0.000 1.778 (1.778) 1.863 69/70 0.000 0.000 0.000 0.000 0.000 1.863 0.000 1.863 (1.863) (0.000) Totals 153.794 153.794 33.292 33.292 36.909 36.909 223.995 223.995 (0.000) SC21 Greenfaulds Cumbernauld Total Total Benefit Page 23 of 35
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North Lanarkshire Council Report Council Does this report require to be approved? ☒ Yes ☐ No Ref; EK/KS Date 23/02/23 Revenue Budget 2023/24 to 2025/26 and Council Tax 2023/24 From Elaine Kemp, Chief Officer (Finance) E-mail KempE@northlan.gov.uk Telephone 07939280601 Executive Summary The purpose of this report is to provide financial information that enables the Council to set its Revenue Budget and Council Tax for 2023/24 and provide a forecast Revenue Budget position for financial years 2024/25 and 2025/26. In line with the framework outlined in the Revenue Resources Budget Strategy, the Council’s Medium Term Financial Plan (MTFP), approved by Policy and Strategy Committee on 29 September 2022, identified an envisaged 3 year budget gap of £74.817 million, with an estimated shortfall of £37.897 million in 2023/24. This forecast has now been updated to reflect the 2023/24 financial settlement contained in the Local Government Finance Settlement Circular (11/2022), and some other changes to planning assumptions, which result in a net reduction in forecast costs of £9.643 million, reducing the 2023/24 budget gap to £28.254 million, as outlined at Appendix 1 and 2. To help manage the gap in 2023/24, action totalling £17.210 million is proposed through a combination of base budget adjustments and use of one-off resources, thus reducing the gap to £11.044 million. As a result of such action the gap for 2024/25 and 2025/26 is now estimated at £30.848 million and £16.090 million, respectively. See appendix 2 for details. Recommendations It is recommended that Council: (1) Acknowledges the key movements on financial planning assumptions in relation to expenditure and resources at section 2 and 3. (2) Recognises the subsequent impact on the financial outlook for 2023/24 to 2025/26, summarised in Appendix 2, which shows a budget gap for 2023/24 of £28.254 million. (3) Confirms the level of Council Tax for 2023/24. (4) Agrees the general fund contingency reserve as advised by the Chief Officer (Finance), outlined in section 5.2. (5) Agrees the continuation of the treatment of volume discount as set out at section 6. The Plan for North Lanarkshire Priority Improve North Lanarkshire's resource base AGENDA ITEM 4 Page 25 of 35
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1. Background 1.1. The statutory requirements in relation to budget setting are contained within Section 93 of the Local Government Finance Act 1992. This is reinforced by CIPFA’s guidance which requires that total estimated expenses for the year can be funded by the income estimated from grants, Council Tax and other income. Failure to meet these requirements would result in serious consequences for Council operations and individual members. Section 102 of the Local Government (Scotland) Act 1973 sets out specific processes for the Controller of Audit to report to the Accounts Commission on the failure to set a budget. The Commission can recommend that Scottish Ministers direct the Council to rectify this. 2. Report 2.1. Revenue Expenditure Budget 2023/24 to 2025/26 Appendix 1 highlights the updated revenue budget position for 2023/24, and Appendix 2 summarises the position across the three years. Adjusted 2022/23 Budget 2.2. The starting point for determining the revenue budget for 2023/24 is the 2022/23 revised base budget of £908.119 million. Expenditure Budget 2023/24 2.3. The 2022/23 revised base budget has been adjusted to reflect the planning assumptions detailed in the Medium Term Financial Plan 2023/24 to 2027/28 approved by Policy and Strategy Committee in September 2022. A number of these planning assumptions have also been updated to reflect known changes and additional requirements arising from the Local Government Finance Settlement 2023/24, which are outlined below and summarised in Appendix 1. 2.4. The total expenditure budget for 2023/24 reflects additional net expenditure requirements totalling £61.354 million with the most significant relating to employee and inflationary cost pressures. After accounting for Directed Expenditure and Ring-Fenced Grant movements of £13.330 million, the Council’s revised net forecast expenditure budget for 2023/24 is £982.803 million. This incorporates updates to planning assumptions since the Medium Term Financial Plan. The main updates are as follows; 2.4.1. The 2023/24 expenditure budget reflects the additional recurring cost of £21.394 million for the 2022/23 pay award agreed for single status employees, and the current offer to teachers, at the time of writing. It should be noted that an element of additional funding provided for pay award by the Scottish Government is in respect of all Local Authority employees, including Adult Social Care, which will be given full consideration in discussion with the IJB. In addition, employee cost pressures for 2023/24 are forecast to reduce by £3.500 million to £8.500 million to reflect the reversal of the 1.25% social care levy, by the UK Government. 2.4.2. As indicated above, the Local Government Finance Settlement includes a net increase in ring fenced and directed resources of £13.330 million. This includes a net increase in ring fenced grant funding of £0.471 million, primarily for early years expansion. In addition, further directed resources of £12.859 million have been provided in relation to empty property relief funding (£3.974 million), family wellbeing support (£2.346 million), additional free school meals monies (£1.175 million), a net increase in respect of Adult Health & Social Care (£5.045 million), mainly for the Real Living Wage uplift, and a number of other minor expenditure requirements (£0.318 million). Ambition statement (25) Ensure intelligent use of data and information to support fully evidence based decision making and future planning Page 26 of 35
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2.4.3. Members should also be aware that following the revaluation of properties by the Scottish Assessors the cost to the Council for Non-Domestic Rates has increased. However, the non-domestic rates poundage has been frozen at the 2022/23 levels, as part of the Scottish Government budget. Therefore, the budgetary provision for the inflationary uplift in the poundage, will partially offset the increased costs. In addition, responsibility for empty property relief has been devolved to Local Authorities from 2023/24, which subject to review, may provide a future budget benefit, and could help manage the overall rates budgetary position. Any shortfall in 2023/24 will be managed on a one-off basis, with a full review undertaken to determine any recurring budgetary pressures, which will be incorporated into the next update of the Medium Term Financial Plan. 2.4.4. Members are reminded this budget is presented on the basis that the Council approves a 1% increase in Council Tax to ringfence those funds to meet the borrowing costs of the Community Investment programme expenditure. 3. Available Resources 3.1. Resources available to the Council in setting its 2023/24 budget total £954.549 million, as set out below and detailed in Appendix 1. 3.2. The draft 2023/24 Local Government Finance Settlement updated in January 2023, details the level of grant available to the Council for 2023/24. The Scottish Government has indicated that it will work in partnership with local government to implement the budget and the joint priorities in return for the full funding which includes: • Support for the 2022/23 local government pay deal and additional funding for payment of SSSC fees for the Local Government workforce, which will continue to be made on a recurring basis. • Additional funding to support social care and integration, which recognises the recurring commitments on adult social care pay in commissioned services and inflationary uplift on free personal nursing care rates. This is partially offset by the non-recurring interim care money ending. • Confirmation that councils have full flexibility to set the Council Tax rate that is appropriate for their local authority area. 3.3. It is anticipated the level of government grant (Aggregate External Finance) for 2023/24 will be £786.374 million, which includes assumptions on undistributed funding of £9.481 million in respect of Teacher Induction Scheme and Discretionary Housing Payments. 3.4. The Council Tax base budget of £158.049 million is anticipated to increase by 1% or £1.600 million to reflect the commitment to ring fence 1% of Council Tax increases for the Community Investment. In addition, a further £0.800 million is anticipated to be raised through growth in housing stock. 3.5. The Scottish Government has provided capital grant funding of £7.726 million, in lieu of general revenue grant, to support the agreed 2022/23 pay award. Scottish Government has advised this will be baselined in the general revenue grant from 2024/25 onwards. 4. Budget Gap 4.1. Total resources outlined above equate to £954.549 million compared with an estimated expenditure budget for 2023/24 of £982.803 million, which results in a shortfall of £28.254 million, as highlighted in Appendix 1. Page 27 of 35
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4.2. However, as indicated in the updated Financial Outlook provided in Appendix 2, base budget adjustments totalling £7.192 million have been identified over the three-year period, with a saving of £6.510 million forecast for 2023/24 and £0.682 million for years 2024/25 and 2025/26. Further details in respect of the base budget adjustments are provided at Appendix 3. There is also an assumed £10.700 million use of one-off resources in 2023/24 to manage the forecast energy burden, due to the real uncertainty in respect of the recurring cost to the Council. Taken together this reduces the budget shortfall in 2023/24 to £11.044 million. 4.3. Appendix 2 contains an update on the Financial Outlook for 2024/25 and 2025/26, highlighting anticipated budgets shortfalls of £30.848 million and £16.090 million respectively, after adjusting for base budget adjustments. Work is ongoing to develop strategies to manage this position and ensure the Council remains financially sustainable. 5. General Fund Reserves 5.1. The Policy and Strategy Committee in January 2020 approved a Reserves Policy which sets out the types of reserves held by the Council, establishes procedures for their governance and outlines the approach to be taken in determining the appropriate reserve levels held by the Council. The policy provides guidelines which ensure reserves are established and managed in a way that safeguards long term financial sustainability and supports good financial management, allowing the Council to balance current obligations, whilst preparing for future commitments and financial risks. 5.2. Within the General Fund Reserve, a Contingency Fund is maintained. This is held for unexpected events or emergencies. Based on previous assessments of risk facing the Council, the level of contingency has been set at £8.000 million over recent years. Given the Council’s track record of effective financial management it is recommended that the sum of £8.000 million remains appropriate for 2023/24. 5.3. The Council also maintains a Change Management Fund to support future budget pressures, one-off costs of approved savings, and transformation initiatives, whilst ensuring the Council has a strategic plan that is prudent, affordable and sustainable in the medium to longer term. 5.4. Based on the latest financial projections it is anticipated that the Change Management Fund balance as at 1 April 2023 will be £27.800 million, as detailed in the forecast at Appendix 4. The forecast also reflects estimated fund requirements for approved savings and one-off costs to support future budgets savings to 2027/28. 5.5. Given the Council is looking over the medium-term timeframe both in relation to anticipated challenging future budget positions and future organisational ambitions, it is essential that the Council takes a prudent approach to retaining the remaining balances for the period ahead. The overall reserves position will continue to be updated as part of the regular budget monitoring report and will be subject to a full review as part of the year end closedown process. 6. Housing Revenue Account 6.1. As with previous years Members are asked to confirm the continued treatment of including the volume discount in the General Fund budget in relation to the Council’s partnership with Mears Scotland LLP. Page 28 of 35
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7. Treasury Management Strategy and Prudential Indicators 7.1. The Treasury Management Strategy outlines the Prudential and Treasury Indicators that allow the Council to demonstrate that investment plans are managed within a sound financial environment. These indicators are endorsed by Finance and Resources Committee and remitted to Full Council for approval to meet the full requirement of the Prudential Code. 8. Areas of Risk and Uncertainty 8.1. As always, in preparing the Revenue Budget, estimates have been made that contain an element of risk and uncertainty. It should be noted that forecasts of pay and non-pay inflation adds significant additional risks and uncertainties to this budget. However, it is currently not possible to forecast the financial impact of such risks with any degree of certainty. Therefore, the financial impact of inflation remains under continuous review. It is envisaged that any unbudgeted pressures arising will be managed on a one-off basis from unallocated reserves, with any recurring impact addressed in future Medium Term Financial Plan, when there is greater certainty of impact. 8.2. The grant settlement received by the Council may be subject to change as the Finance Budget Bill progresses through Parliament. In the event that further undirected funds are received as a result of this process, they will be held in reserves to mitigate against these risks and to support future budget pressures. 9. Measures of success 9.1. Ensuring that the Council sets a balanced budget for 2023/24 10. Supporting documents Appendix 1 North Lanarkshire Council Revenue Budget 2023/24 Appendix 2 Updated Financial Outlook Appendix 3 Base Budget Adjustments Appendix 4 Change Management Fund Forecast Elaine Kemp, Chief Officer (Finance) Page 29 of 35
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11. Impacts ( http://connect/report-template-guidance ) 11.1 Public Sector Equality Duty and Fairer Scotland Duty Does the report contain information that has an impact as a result of the Public Sector Equality Duty and/or Fairer Scotland Duty? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? If Yes, has an assessment been carried out and published on the council’s website? https://www.northlanarkshire.gov.uk/your-community/equalities/equality-and-fairer- scotland-duty-impact-assessments Yes ☐ No ☐ 11.2 Financial impact Does the report contain any financial impacts? Yes ☒ No ☐ If Yes, have all relevant financial impacts have been discussed and agreed with Financial Solutions? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? The financial impacts are detailed in the report. 11.3 HR policy impact Does the report contain any HR policy or procedure impacts? Yes ☐ No ☒ If Yes, have all relevant HR impacts have been discussed and agreed with People and Organisational Development? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 11.4 Legal impact Does the report contain any legal impacts (such as general legal matters, statutory considerations (including employment law considerations), or new legislation)? Yes ☐ No ☒ If Yes, have all relevant legal impacts have been discussed and agreed with Legal and Democratic Solutions? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? 11.5 Data protection impact Does the report / project / practice contain or involve the processing of personal data? Yes ☐ No ☒ If Yes, is the processing of this personal data likely to result in a high risk to the data subject? Yes ☐ No ☐ If Yes, has a Data Protection Impact Assessment (DPIA) been carried out and e- mailed to dataprotection@northlan.gov.uk Yes ☐ No ☐ 11.6 Technology / Digital impact Does the report contain information that has an impact on either technology, digital transformation, service redesign / business change processes, data management, or connectivity / broadband / Wi-Fi? Yes ☐ No ☒ Page 30 of 35
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If Yes, please provide a brief summary of the impact? Where the impact identifies a requirement for technology, has an assessment been carried out (or scheduled) by the Enterprise Architecture Governance Group (EAGG)? Yes ☐ No ☐ 11.7 Environmental / Carbon impact Does the report / project / practice contain information that has an impact on any environmental or carbon matters? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 11.8 Communications impact Does the report contain any information that has an impact on the council’s communications activities? Yes ☐ No ☒ If Yes, please provide a brief summary of the impact? 11.9 Risk impact Is there a risk impact? Yes ☐ No ☒ If Yes, please provide a brief summary of the key risks and potential impacts, highlighting where the risk(s) are assessed and recorded (e.g. Corporate or Service or Project Risk Registers), and how they are managed? 11.10 Armed Forces Covenant Duty Does the report require to take due regard of the Armed Forces Covenant Duty (i.e. does it relate to healthcare, housing, or education services for in-Service or ex- Service personnel, or their families, or widow(er)s)? Yes ☐ No ☒ If Yes, please provide a brief summary of the provision which has been made to ensure there has been appropriate consideration of the particular needs of the Armed Forces community to make sure that they do not face disadvantage compared to other citizens in the provision of public services. Page 31 of 35
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Appendix 1 North Lanarkshire Council Revenue Budget 2023/24 £m £m 2022/23 Adjusted Base Budget 908.119 Additional Net Expenditure Requirements Employee Costs - 22/23 Pay Award 21.394 Net Employee Costs - 23/24 8.500 Contract Inflation 11.600 Energy 11.180 Strategic Priorities 2.290 Other Net Expenditure 6.390 61.354 Additional Net Directed Expenditure and Ring Fenced Grants Early Years & Childcare Expansion & Other Ring Fenced 0.471 Empty Property Relief 3.974 Free School Meals 1.175 Adult Health & Social Care 5.045 Family Wellbeing Support 2.346 Other Net Directed Spend 0.318 13.330 Expenditure Budget 2023/24 982.803 Available Resources: Anticipated Aggregate External Finance 786.374 Council Tax Base Budget 158.049 Council Tax Increase for CIF (1%) 1.600 Council Tax Base Growth 0.800 946.823 Capital Grant Flexibilty in Lieu of Pay Award Funding 7.726 2023/24 Available Resources 954.549 Recurring Budget Shortfall/ (Excess) 28.254 Identified Action Base Budget Adjustments (6.510) Use of One Off Resources (10.700) (17.210) Revised Budget Shortfall/ (Excess) 11.044 Revised Estimated Recurring Budget Shortfall 2024/25 30.848 2025/26 16.090 Page 32 of 35
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Appendix 2 2023/24 £m 2024/25 £m 2025/26 £m Total £m Budget Shortfall MTFP 37.897 20.620 16.300 74.817 Reversal of 1.25% Social Care Levy (3.500) (3.500) Increase in General Revenue Grant (6.143) (6.143) Revised Budget Gap 28.254 20.620 16.300 65.174 Action Identified Base Budget Adjustments 6.510 0.472 0.210 7.192 Use of Balances - energy costs 10.700 (10.700) 0.000 Revised Shortfall / (Excess Resource) 11.044 30.848 16.090 57.982 Updated Financial Outlook Page 33 of 35
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Appendix 3 Base Budget Adjustments 2022/23 2023/24 2024/25 Total £m £m £m £m Removal of residual transitional rates relief budget 0.127 0.127 Reduction in non staffing education HQ budgets 0.181 0.181 Reduction in children's services HQ employee cost budgets 0.069 0.117 0.186 Deletion of vacant posts following the change to the delivery model for inspections & maintenance of playgrounds 0.061 0.061 Reduction in supplies & services / employee cost budgets in water management/ bridge & transportation engineering 0.075 0.039 0.114 Income generation in Countryside Ranger service 0.022 0.022 Increased charging for services and reduction in Greenspace for Communities budget 0.031 0.031 Increase capital recharges for property service provided in generating capital receipts 0.050 0.050 Asset rationalisation savings 0.117 0.082 0.173 0.372 Review of procurement and management support structure 0.059 0.059 Review of staffing resource on completion of the Enterprise Project 0.037 0.037 Reduction in Facility Support Services budgets within management and administration 0.044 0.044 Increase recharges to capital for forward planning costs 0.052 0.052 Review of City Deal budgets including increased recharging to capital 0.077 0.077 Review of Planning staffing resources & increased income generation. 0.104 0.104 Maximise charging other non Council funds for services provided 0.050 0.050 Remove budget to promote tourism & inward investment in North Lanarkshire 0.060 0.060 Reduce costs of lighting within stairs and closes 0.032 0.032 Review resource requirement within Enterprise and Communities strategic resourcing / business intelligence/ business development 0.068 0.068 Household waste collection (exc. special uplifts) re-routing efficiency saving 0.392 0.392 Household waste collection (exc. special uplifts) - income generation for glass, metal, plastic 0.580 0.580 Reduction in Environmental Health resources 0.041 0.041 Inflationary uplift in Private Sector landlord registration fees 0.050 0.050 Increased income generation in Building Standards fees 0.150 0.150 Fiscal Flexibilities; Accounting for Service Concessions 4.000 0.000 4.000 Corporate management structure changes 0.127 0.125 0.252 6.510 0.472 0.210 7.192 Page 34 of 35
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Appendix 4 2023/24 2024/25 2025/26 2026/27 2027/28 £m £m £m £m £m Opening Balance Projected Balance at P9 27.800 22.400 12.400 8.400 4.400 Less: Known Commitments Revised One off Costs of Approved Savings (0.900) 0.000 0.000 0.000 0.000 Less: Estimated Future Commitments Indicative One off Costs of Future Savings (4.500) (10.000) (4.000) (4.000) (4.400) Forecast Closing Balance 22.400 12.400 8.400 4.400 (0.000) Change Management Fund Forecast Page 35 of 35