Impact of Inflationary Pressures
North Lanarkshire Council · 29 September 2022
Back to Policy and Strategy Committee — 29 September 2022 and its agenda
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North Lanarkshire Council Report Policy and Strategy Committee Does this report require to be approved? ☐ Yes ☒ No Ref EK / GT Date 29/09/22 Impact of Inflationary Pressures From Elaine Kemp, Head of Financial Solutions E-mail kempe@northlan.gov.uk Telephone 01698 302408 1. Background Executive Summary The purpose of this report is to highlight the risks and impacts of inflationary pressures on Council service delivery, revenue budget, investment programmes and income recovery. While the Council’s draft Medium Term Financial Plan includes prudent estimates of the recurring impact of inflation, the volatility of the current economic conditions and uncertainties over the availability of UK Government or Scottish Government interventions require the Council to gain a better understanding of the risks associated with inflation as a matter of urgency. Noting that some local authorities across the UK have already indicated that inflationary pressures have required difficult decisions about their revenue budgets, capital programmes or service delivery, the Council will be required to identify and manage the inflationary pressures to ensure that existing services remain affordable. Recommendations It is recommended that Committee: (1) Acknowledges the wide-ranging impact of inflationary pressures on the Council’s revenue and capital budgets and recognises the provisions already made in the Council’s 2022/23 revenue budget and current reserves to manage in-year inflationary pressures, (2) Recognises the ongoing work within Financial Solutions and Services to gain a better understanding of the impacts of inflation on service delivery and the Council’s finances and ensure there are effective processes in place to track any recurring impacts to support ongoing decision making, and (3) Acknowledges the Council’s Strategic Capital Delivery Group continues to consider the implications for inflationary pressures on capital programmes. This has to be considered in the context of updated Community Investment Fund projections, 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
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1.1 The Council has considered several reports over the previous 12 months highlighting risks of programme delivery associated with supply chain issues and inflation. 1.2 These inflationary pressures have the potential to create significant additional financial pressures and are highly likely to limit what the Council can achieve within available budgets and could potentially impact on the Council’s ability to effectively deliver key services and to progress planned projects. 1.3 The Council set aside an additional £2.4m of recurring resources in its approved 2022/23 revenue budget to support inflationary pressures. In addition, reserves of around £7m have been earmarked to support energy and non-pay inflation on a non- recurring basis. Individual finance teams are continuing to work with services to monitor the impact of both inflationary pressures and the management action savings achievable through the ongoing curtailment of non-essential expenditure and vacancy management. 2. Report 2.1 Inflationary pressures are likely to become more and more acute across the Council. The following is a summary of the impacts across key areas of the Council. Recurring Revenue Budgets 2.2 Energy Prices: The most high profile example at the moment is energy prices. While there’s relative protection in the domestic supply of energy with a regulated price cap, there is no such price cap for non-domestic energy use with the public sector more exposed to market pressures. 2.3 Some local authorities have already indicated that electricity prices have risen by 30% with one indicating that gas prices have increased by 150%. Given the complexities around pre-purchased volumes of energy and uncertainties in trend analysis linked to previous Covid-19 restrictions and market volatility, the Council continues to work to understand the impact on its current and future year budgets, including scenario planning. 2.4 Measured term contracts: it is now known that the inflationary rise payable to Mears for 2022/23 will be around 17% which will have a significant impact on the Housing repairs programme in the current year and will ensure that the Council faces a challenging 2023/24 HRA budget. Inflationary pressures in excess of current budget provision are also apparent on the APS road and winter maintenance contract. 2.5 Other contract inflation: The Council has a number of other contractual commitments and a number of these have annual inflationary uplifts linked to RPI / CPI. 2.6 School transport: Education and Families already face demand pressures for ASN transport but the increased price of fuel has the potential to have a substantial impact on both ASN and mainstream transport provision from external partners seeking to recover costs. 2.7 Food costs: The average cost of providing a school meal is anticipated to increase by at least 20% over the course of 2022/23 at a time when the service is experiencing increased demand for free school meals with the implementation of free meals for P4 and P5. 2.8 Pay inflation: The latest offer from Cosla will require a significant contribution from local government, currently estimated at around 3.5% of the current pay bill. The Scottish Government has provided funding equivalent to 1.5%. At the time of writing this report,
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Unison, Unite and GMB were in the process of balloting members. The position with teacher pay is still subject to ongoing negotiation. 2.9 Impact on income recovery: As the cost of living crisis continues to impact on the residents of North Lanarkshire, there is an increased risk of real impacts on key income generation activity including Council Tax and Housing Rent collection and on payment for services in areas such as paid school meals, Active and Creative Communities and planning / building control. The Council is due to review its fees and charges policy in Committee Cycle 4 which will include consideration of inflationary pressures. Capital Investment Programme 2.10 The Council has experienced significant inflationary challenges affecting construction activity with material costs predicted to be 25% higher than they were just a year ago. This is exacerbated by continued labour scarcity issues in the construction sector and associated industries. 2.11 These factors will be particularly acute for the large construction projects in areas such as the Town and Community Hubs but they are also impacting on the contract prices in areas such as the HRA investment programme. 2.12 In addition to the reduced spending power of the capital programme linked to inflationary pressures, the increased cost of borrowing and the upcoming recession are very likely to have an impact on the resources available to support programme activity. This compound impact has the potential to lead to a requirement to manage a reduction in the Council’s approved capital investment programmes. 2.13 The Council’s Strategic Capital Delivery Group continues to consider the impact of inflationary pressures on programme delivery to ensure that activity matches funding available. Required Actions 2.14 The Council’s draft Medium Term Financial Plan (MTFP) makes a prudent assessment of the impact of inflation on key areas of the Council’s budget but given the volatility of inflationary rises it is likely that even following the approval of the MTFP there will be a requirement for further financial outlook reports to ensure future decision making is well informed. 2.15 Therefore, Financial Solutions and individual service areas will be required to identify and manage the inflationary pressures to ensure that existing services remain affordable. 3. Measures of success 3.1 The Council’s response to inflationary pressures will need ensure it protects both the Council’s financial sustainability and minimise the impact on service delivery. 4. Supporting documentation None Elaine Kemp Head of Financial Solutions
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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 Financial Solutions? Yes ☐ No ☐ If Yes, please provide a brief summary of the impact? While individual financial impacts are not quantified in the report, the impact of inflation creates a risk that the Council will not be able to achieve a balanced budget position during 2022/23. Therefore, the Council is required to gain a better understanding of the impact on inflation on its financial position as a matter of urgency so the financial impacts can be managed accordingly. 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 and Organisational Development? 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 Solutions? 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
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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 technology, has an assessment been carried out (or scheduled) 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? Supply chain (inflation) is already included in the corporate risk register.