PO11- Revenue Resources Budget Strategy Update
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/KS Date 29/09/22 PO11: Revenue Resources Budget Strategy Update From Elaine Kemp, Head of Financial Solutions E-mail kempe@northlan.gov.uk Telephone 01698 302408 1. Background 1.1 Over a number of years Local Authorities have continued to face an extremely challenging financial environment arising from reducing funding for core services along Executive Summary This report provides an annual review on the Revenue Resources Budget Strategy (the Strategy), highlighting continued progress in implementing and embedding the Strategy in the Council’s financial planning arrangements, and advises of further considerations moving forward with future financial plans. In addition, given the challenges from the continued recovery from COVID-19 and the current challenging economic and financial environment, the report also sets out some of the implications of these, particularly in respect of the key principles of the Strategy. Recommendations It is recommended that Committee: 1. Acknowledges the continued progress in implementing and embedding the key principles of the Revenue Resources Budget Strategy into the financial planning arrangements of the Council and the further considerations in moving forward with future financial plans. 2. Recognises that unless there are any significant changes which impact on the validity of the key principles, no further updates on the implementation of the Strategy will be required. 3. Recognises the additional financial challenges as a result of the continued recovery from COVID-19 and the current challenging economic and financial environment. The Plan for North Lanarkshire Priority Improve North Lanarkshire's resource base Ambition statement All ambition statements
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with increasing cost pressures and additional demand for services. This has required the Council to take action to set balanced budgets by reducing spending and generating additional income. This has been achieved through various means, including revised service operating models, the implementation of efficiency measures, reduced levels of service provision and the introduction of increased fees and charges for a number of services. As a result, savings of around £250m have been approved over the last 10 years. 1.2 The Revenue Resources Budget Strategy (the Strategy) was approved by Policy and Strategy Committee in June 2019 to facilitate a more strategic approach to establishing budgets and associated savings and investment options, as applicable. The Strategy lays out a set of principles and an outline framework to ensure the Council has a robust and sustainable financial plan, which aligns with the Plan for North Lanarkshire. 1.3 This report provides the annual update on implementing and embedding the key principles of the Strategy and outlines further considerations in relation to future financial plans. 1.4 It also recognises the additional challenges arising from the continued recovery from COVID-19 and the impact of the current economic and financial environment both of which present additional financial challenges for Local Authorities over the short to medium term. 1.5 The principles outlined in the Strategy have now been fully incorporated into the Council’s financial planning arrangements. It is therefore proposed that unless there is a significant change to the approved principles contained in the Strategy, no further annual updates will be required. Risks and challenges in the implementation of the strategy will be reported through the Medium Term Financial Plan and the annual budget setting process. 2. Report Update on the Revenue Resources Budget Strategy Principles 2.1 The Revenue Resources Budget Strategy contains nine guiding principles. Appendix 1 outlines those nine principles, provides an update on progress in implementing them to date and outlines further considerations required. Key highlights include: i. The Council has seen significant benefits following the approval of the Strategy. Having robust medium term financial planning arrangements, and producing a rolling five year plan, to inform the three year rolling budget setting process, has meant that despite facing a budget gap of £19.584m, the Council was able to set a balanced budget for 2022/23 with no further savings decisions required. This was as a result of previously approved action resulting from the three-year approach taken to budget setting in February 2020. In addition, the Council was in a position to approve a modest level of one-off investment in communities as a result of sound financial planning, budgeting and monitoring arrangements. This demonstrates the Strategy has strengthened the Council’s ability to manage the financial challenges and develop balanced budgets in recent years. However, it is acknowledged that the extent of savings already implemented, together with the additional challenges and unprecedented uncertainties arising from COVID- 19 recovery and the current challenging economic climate, means it will be increasingly difficult for the Council to set a budget for more than one year.
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ii. Consideration continues to be given to service redesign and reviews of operating models to deliver savings whilst still meeting the objectives of the Plan for North Lanarkshire, thus ensuring the Council remains financially sustainable. Action requested by the Corporate Management Team to continue to delay or freeze recruitment and curtail all non-essential expenditure contributed to the financial underspend reported by the Council at 31 March 2022 which provides additional resilience in future financial planning considerations. iii. The Council continues to reflect the revenue consequences of capital investment plans in the general fund revenue monitoring position. This link provides assurances that the updated five year Community Investment Programme is affordable. Potential impact of ongoing recovery from COVID-19 & the current challenging economic environment on current and future budgets 2.2 The Revenue Resources Budget Strategy is an integral part of the Council’s overarching Financial Strategy developed to ensure that the Council can demonstrate ongoing financial sustainability. The principles which underpin the Strategy remain valid and will be implemented and embedded in the Council’s financial planning arrangements. 2.3 Taking a strategic and longer-term approach to budget setting remains a sound principle and is essential to ensuring ongoing financial sustainability. However, applying this principle has been challenging particularly due to the absence of a multi-year funding settlements. In addition, the financial impact of the ongoing recovery from COVID-19 and the challenging economic environment has presented new and additional challenges and risks which have the potential to impact on the Council’s finances over an extended planning period. The effect on service delivery and financial planning and sustainability remains unclear. 2.4 The full economic impact from COVID-19 and the ongoing cost of living crisis on future financial settlements for Local Government is still unknown. However, the reality for Local Government is that cost and demand pressures continue to increase. It is therefore inevitable that the Council will face increasingly difficult decisions to continue to set balanced budgets in future periods and maintain financial sustainability. 3. Measures of success 3.1 Measures of success will include: • Ongoing financial sustainability • Alignment of resources and holistic approach to achieving corporate priorities to deliver on the Plan for North Lanarkshire. 4. Supporting documentation 4.1 Appendix 1 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? 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 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?
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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?
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Appendix 1 Revenue Resources Budget Strategy - Progress Update Progress to date Further Considerations i. Future budgets will be developed to cover a rolling three year period. The Revenue Resources Budget for the 3 year period will take account of all opportunities flowing from the Plan for North Lanarkshire and the associated Programme of Work, ensuring full integration of the Plan and the budget. A longer term approach to the budget process will provide for longer term planning and delivery of more complex projects, linked to the Plan to deliver efficiencies and savings over an extended period. The Council continues to develop a five year Medium Term Financial Plan (MTFP) which informed the budget process for 2022/23 and beyond. This led to the approval of a balanced budget for 2022/23, largely due to the effectiveness of this financial strategy which ensured significant savings had already been approved in advance as detailed in iii. below. This demonstrates that the strategy and detailed financial planning over the medium term continues to strengthen the council's financial position and ongoing financial sustainability. However in setting the 2022/23 budget it was acknowledged that the Scottish Government had again provided a single year financial settlement with a commitment to publishing their Resource Spending Review in May 2022. Therefore, whilst this Council is fully committed to this key principle the focus of the 2022/23 budget was setting a balanced budget for single year. The Council's MTFP update is also presented on this agenda, providing an update on the 5 year financial forecast. This continues to model envisaged, optimistic and pessimistic scenarios, recognising the many challenges and considerable uncertainties particularly in relation to the impact of the current economic environment and the cost of living crisis, affecting both the Council and its residents. The Scottish Government's Resource Spending Review provided insufficient information to confirm detailed funding assumptions. However the review advised that Local Government can expect a flat cash settlement for 2023/24 to 2025/26, with a minor increase forecast in 2026/27. At a time of significant increases in energy costs, and inflationary pressures, along with pressures on the cost of future pay awards, a flat cash settlement will be extremely challenging. However, it remains essential that the Council continues to develop a budget strategy to facilitate the setting of a balanced budget. Work continues within Services to review service delivery models to generate savings. As in previous years officers will work to support political groups to ensure there is a plan in place to enable fully informed solutions to be agreed. Key Principle
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ii. Budgets will be clearly linked to the achievement of Council priorities. As previously reported, following a previous exercise to ensure that financial planning aligned with the objectives of the Plan for North Lanarkshire, it was agreed that financial implications arising from the Plan and the associated Programme of Work would be managed within existing resources. This continues to be the position. However, the governance arrangements in reporting on PoW activity ensures that service operating models align with the Plan and captures any additional financial consequences. This ensures all costs and savings are clearly reported and incorporated into the MTFP. The appraisal of savings options also distinguishes between those related to statutory and discretionary responsibilities to ensure resources are targeted towards delivery of Council priorities and statutory requirements. Annual reviews reaffirm financial planning assumptions. Any new financial impacts identified are incorporated in the MTFP update to ensure costs of the plan are contained within existing budgets, PoW plans and the Community Investment Fund delivery plans will continue to be reviewed to ensure they remain affordable. iii. The identification of savings opportunities will remain under continuous consideration rather than being restricted to deliberation as part of the annual budget setting exercise. Approval from appropriate Committees will be sought as savings are identified, allowing consideration by elected members well in advance of the annual budget setting meeting. The identification and approval of savings will become an integral part of normal Committee activity. The Council remains committed to this principle however there were few savings identified and reported to directly to Committee throughout 2021/22 in advance of the budget setting meeting. However, as requested by the Corporate Management Team, services were directed to continue with the freeze on recruitment and to curtail non-essential expenditure. Both these actions contributed to the underspend reported by Council at 31 March 2022, increasing the general fund reserves which are critical to support ongoing financial sustainability. It is essential that Services continually review service operating models in line with the Plan, Delivering for Communities agenda and the associated Programme of Work. This will ensure delivery models are prudent, affordable and sustainable, and drive out efficiency savings to manage future forecast budget gaps where possible.Savings arising from these service developments will be incorporated into future budget reports. Generating in-year savings from a freeze or delay in recruitment and curtailing non-essential expenditure, will also continue to with ensuring the Council remains financially stable.
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iv. Opportunities for service redesign which will inevitably flow from the Plan for North Lanarkshire and the associated Programme of Work will become the new drivers of future years’ savings. Consideration of Service redesign continues to identify savings options to improve efficiency and reduce the Council's asset base where appropriate. These include office & depot rationalisation, continuing work on the DigitalNL programme, income generation opportunities and other service restructures, all of which should deliver savings or generate income, in support of the Council's budget strategy. The impact of COVID-19 on future service re-design has been considered and is accounted for within the MTFP. As outlined in iii above, Services are continuing to review service operating models in line with The Plan, Delivering for Communities agenda and the associated Programme of Work. It is essential that service delivery models developed and reported to Committee are prudent, affordable and sustainable, and are aligned with future years financial plans, which recognise forecast budget pressures and associated savings requirements. Any savings arising from these service developments will be incorporated into future budget reports. v. Services must ensure full understanding and recognition of the revenue consequences of future capital investment decisions to enable capital and revenue budget plans which are fully integrated. This will facilitate the development of an approach to growth which meets the objectives of the Community Investment fund by ring fencing elements future of Council Tax increases. The key principles of the Council's Capital Investment Strategy reflect the requirement to ensure revenue consequences are embedded in the decision making around Community Investment. Therefore the Strategic Capital Delivery Group continues to ensure capital investment decisions consider all recurring revenue consequences. During 2021/22 a revised 5 year community investment programme was approved which encompasses all general service capital investment based on forecast capital resources from general and specific capital grants, capital receipts and community investment fund monies. Due consideration of the recurring revenue consequences was considered as part of the evaluation of capital proposals and assessed to be managed within existing revenue budgets. Continue to apply the principles of the Capital Investment Strategy and ensure all recurring revenue consequences are considered as part of the MTFP update. vi. Future charging models for services provided will be informed by benchmarking and the principles of full cost recovery. Once costs are established on this basis, future increases will be index-linked. Additionally, consideration will be given to appropriate revenue generating opportunities. As previously advised progress has been made in moving towards full cost recovery. The impact of COVID-19 and the challenging economic environment has made it difficult to deliver previously approved income generation targets or to undertake further development work to ensure this principle is fully embedded. It was previously reported that further review work would be undertaken to ensure the principles of full cost recovery continue to be met. As part of the Programme of Work the Council has committed to developing a sales, fees and charges policy during 2022/23, embedding the principle of full cost recovery. This policy will be reported to Committee in cycle 4. If approved, any additional income generating opportunities, including potential for annual price increases will be incorporated into future financial outlooks.
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vii. Consideration will continue to be given to the planned, sustainable use of available balances. The Council's continues to comply with the approved Reserves Policy. Financial Solutions continue to ensure financial plans reflect demands for future one-off resource requirements. This includes change management fund requirements to meet the one-off costs savings. An update on forecast costs was included in the 2022/23 budget setting report. In addition, as part of the close down of the financial year a review of other one- off resource requirements is undertaken and reserves earmarked as applicable. The position in respect of these reserves will continue to be reported within the revenue monitoring reports. Implementation of this principle is essential to demonstrate the sustainability of approved plans and associated one-off costs. The policy will continue to be reviewed annually to ensure it remains relevant and reflects changes in circumstances. This includes consideration of the impact on reserves balances, as a result of the ongoing recovery from COVID-19, the current challenging economic climate and the financial position for the next five years as reported in the MTFP.. Some additional flexibility may be required in order to smooth future budget processes and help manage higher than budgeted pay and non pay inflation costs, increases in energy costs and other future uncertainties, on a one-off basis. The next annual review of the Reserves Policy will take cognisance of such requirements. viii. Consideration will be given to proposals to fully implement the use of participatory budgeting To reflect the context of Covid-19 recovery, full implementation of Participatory Budgeting and delivery of the 1% target was extended until March 2022. The Council continues to make progress including the establishment of a Mainstreaming Participatory Budgeting Task and Finish Group to oversee the development and implementation of the process in North Lanarkshire and identification of potential budgets. Continued development of the participatory budgeting model linked to the Community Board structures. ix. Active member involvement is essential. The Accounts Commission previously recognised that “with the financial pressures, Councillors need to make difficult decisions. This requires effective political leadership and communications. It is essential that all Councillors, not just the administration, work effectively with officers and other stakeholders to identify and deliver necessary savings.” Officers continue to develop a budget strategy and ensure that members are fully informed and supported as they work towards setting a balanced budget. This includes briefing sessions and encouraging active member involvement across all political groups. Financial Solutions continued to work with individual party budget groups to progress budget discussions. Continued engagement with Elected Member groups to encourage active member involvement.