Technical Notes 2024, Issue 97 - General Fund Period 10 Update Position

1. The purpose of this Report is to provide Members with the consolidated revenue monitoring position as at the end of accounting Period 10. This represents general fund expenditure from the 1 April 2023 to the 28 January 2024.  

2. This summary was intended to be reported in the June Council as part of a consolidated Strategic Planning Update.  However, due to alternate arrangements being put in place to accommodate the General Election (TN-085-24) such an update was not possible. 

3. The Period 10 General Fund Financial position represents a likely outturn position for the Council.  It is used by external auditors as part of their preparatory work as well as the Council to estimate the provisional outturn.  It is therefore important for Council to be aware of the Period 10 position and this is publicly available.

4. The Council’s Financial Regulations set out the relative requirements of Officers to monitor and control revenue expenditure within budgeted allocations.  The Council’s Chief Finance Officer provides access to the Council’s Financial Management System to ensure that income and expenditure can be accurately captured and controlled.  These regular statements of income and expenditure discharge the requirement to monitor and analyse the Council’s financial performance.  In order to support this work, narrative explanations of variances are provided following engagement with all Executive Officers and their managers identifying and correcting emerging risks for financial sustainability.

5. On 23rd February 2023 the Council set its Budget for 2023/24.  The Council’s anticipated budget gap within its general fund equated to £20.629m.  Following Council’s agreement on the Budget and a number of late notifications the financial gap reduced to £19.884m.

6. This is the third general fund revenue monitoring report for 2023/24 with delivery against budgets remaining subject to wider economic pressures.  The narrative in the current year will likely mirror those challenges set out in the 2022-23 Annual Accounts where limited, one-off, reserves were set aside to provide immediate, but finite financial provision.  However, once these reserves have been depleted, there will be limited or no capacity to underwrite future budget gaps.

7. The longer-term pressures, and sources of funding to manage these, continue to be uncertain, with projections and assumptions now being revised within the Council’s strategic plans and Reports being specified for inclusion in this reporting cycle. 

8. Whilst the Council remains financially sustainable in 2023/24, this continues to be underwritten by a reserves position bolstered by service concession funds.  However, the risks around Local Government funding remain, with financial risks being sustained in the short, medium and long term.  Economic events continue to place pressure on the Council’s expected outturn position with early management action required to manage overspends and preserve underspends.  Given the significance of the budget gap, the pace and scope of this work continues to be accelerated and extended.

9. There continues to be a number of shared priorities where the Scottish Government provides direct additional funding for ringfenced projects.  These are provided through general revenue grant redeterminations, with funding for a number of new policy areas now set for receipt after Period 10 and in March 2024.  The increasing extent of these shared priorities means that the Council continues to incur costs, based on these commitments, in advance of payment.  This is managed through the Council’s cash flow and treasury management processes until the funding is received at the year-end.  

10. The scale and scope of these redeterminations is becoming increasingly complex, requiring additional time and resources to manage the process.  With increasing commitments funded through year-end redeterminations, the Council has raised risks in relation to cash flow with other Directors of Finance and COSLA to ensure that suitable funding is provided throughout the year as opposed to the year end.  As any redeterminations are fully confirmed, officers will ensure that these are noted within the monitoring reports.

11. As reported consistently throughout the previous year, the cost-of-living crisis continues to represent a material risk for the delivery of Council services with shortages, delays and price rises generally being continued.  Implications for cost and expenditure profiles within many of our core items of expenditure including food and fuel are set out in the appendices to this Report.  Furthermore, and of material significance, is the potential impact on the Council’s pay bill with future demands benchmarked to rising prices setting an unachievable target within existing and planned funding settlements.  The Scottish Government at this time has not included funding for the pay settlements and this should bring betterment to the Councils position.

12. Ongoing inflationary pressures continue to be realised albeit now at a decreasing rate.  It is hoped that this will continue throughout 2023/24 with pressures easing and the potential for underspends where budgets were previously based on the continuation of pressures. The complexity of the financial position is challenging to articulate with interdependencies and uncertainties in substantially all Council services.  The regular cycle of monitoring provides for an ongoing assessment of the position and whilst these Reports may not offer solutions, they provide a general awareness and allow for ongoing scrutiny and evaluation. 
    
    General Fund Revenue Position
     

13. As at the end of Period 10, the Council anticipated that £243.722m of its annual revenue budget of £327.356m would have been spent at this stage.  This planned expenditure includes resources delegated to the Health and Social Care Partnership (HSCP) (see Para 3.31 below).  As noted above a number of redeterminations, whilst notified, have not yet been received.  This has the potential to cause a financial imbalance in some areas of income and expenditure with additional work now being completed to ensure that this risk remains managed.

14. At Period 10 current expenditure equates to £252.752m, denoting a consolidated overspend of £9.030m.  This is shown in Appendix 1 to this Report.  However, this figure should be treated with caution, as there are areas where variation is likely, such as the impact of:

• Timing of grant funding,
• Timing of DWP payments, 
• Issues that may arise through the Fusion downtime
• Inflationary pressures yet to be fully realised even at this stage,
• Variations in staffing costs,
• Variations attributable to unanticipated invoices,
• Changes to contracts,
• Additional redeterminations to be programmed upon confirmation.

15. The Period 10 overspend position is likely to be sustained given the in-year pressures identified above.  Setting Period 10 as the basis for projections, there is the potential for a consolidated overspend of £16.559m, reducing to £13.076m should HSCP overspend projections be excluded.  This variation is accounted for and reported separately to the HSCP Board however, and as a partner under the Integration Scheme, its potential to overspend remains a risk to the Council.  This risk is managed through HSCP reserves.

16. A Council overspend of £13.076m equates to an in-year gap and potential drawdown of General Fund reserves equating to £33.102m, once added to the budget gap of £20.026m (in year amendment).  Elements of the emerging overspend relate to accelerated work within the Corporate Cost of Change totalling £3.610m (although work is being undertaken to see if any of this should be capitalised and is hoped to be confirmed for the next paper).  This work is being undertaken to enhance and upgrade core financial systems to support ongoing Council service delivery and is separately earmarked within General Fund Reserves.  Further work is now being undertaken to manage and mitigate against the remaining pressures within Council services this so that strategic planning can continue to reshape services to deliver within a flat cash and real terms reduced financial envelope. 

17. With reference to the HSCP and within the Council’s overall budget, £75.092m, net of income, is attributable to the delivery of Social Work Services under the strategic direction of the HSCP.  At Period 10, Social Work expenditure equates to £58.100m, which is £1.496m more than budgeted for at this stage.  The HSCP is currently projecting a year-end overspend within Social Work budgets of approximately £3.483m.  These projections are based on how HSCP services are currently being mobilised in accordance with its plan and are expected to be offset, fully or in part, through the use of reserves held by the HSCP.  

18. Additional narrative for the HSCP along with those for each of the Council’s other Strategic areas can be provided on request.  This includes best estimates of the outturn position based on current information and with this driving future patterns of expenditure.  As the Council moves through the year there continues to be the potential for additional financial burdens within budgets as well as measures to manage pressures which continue to be applied.

• Detailed Period 10 outturn income and expenditure profiles are included in the Appendices to this Report, which is constituted by; 
• The main General Fund Revenue summary at Appendix 1, 
•  Analysis and narrative of Appendix 1 at which will be provided upon request.

19. In seeking to provide a complete evaluation of the underlying finances, accounting teams have engaged with Executive Officers and their teams to provide narrative explanations around their variations.  Following recent requests by Members the Council’s Chief Finance Officer has reiterated the importance of a clear narrative to Executive Officers formally asking each to undertake a final review of their submissions.

Education, People & Business

20. Education – Projected Over £2.756m; Over Period 10 £3.982m.

The main area of significance at Period 10 is the cost of transportation, including taxi journeys which are overspending and unlikely to be contained throughout the year. As well as school clothing grants and staffing variations (including unallocated savings, cover, staffing increases underfunded and pay grade changes.  

21. Customer Services & Org Development - Projected Under £0.122m; Under Period 10 £0.321m.
    Employee costs are the main variable in the Customer Services & Organisational Development Service.

22. Finance & Digital - Projected Over £1.721m; Over to Period 10 £0.460m.

    Variations within this service includes overspends for Vodaphone, Insurance, Microsoft 365 project and unachievable income for Lets as well as Community Care & Crisis Grants.

23. Legal & Democratic – Projected Under £0.246m; Under to Period 10 £0.339m

    There are several variations causing this small overspend however nothing material at this time.

24. Roads & Neighbourhood – Projected Over £1.160m; Over Period 10 £0.606m.

    Roads & Neighbourhood is predicting an overspend due to staff turnover savings, overtime and increased costs within the programme of works.  This is expected to increase through additional price increases within electricity, subcontractors and material costs. The overall financial pressure within the Service is significant and despite best endeavours, cannot be easily contained.  At this time the service has, outwith staffing, projected for an in year overspend in short term hires, repairs and spare parts.

25. Assets & Facilities – Projected Over £1.816m; Over to Period 10 £3.932m. 

    Assets and Facilities is actively implementing measures to contain budgets however this is exceptionally challenging in the current environment.  Variation within school meal income and the associated costs of delivering this service continue to be challenging to predict.  The complexity of this work is increased where the impact and uptake of free school meals is now beginning to emerge.  At this time an estimated net shortfall of £0.800m is projected within achievable income pending the outcome of this review.  There has also been overspends within cleaning materials, design staff, repair and reactive costs and rental income. These have been a small offset through an underspend in the PPP contracts, due to an insurance rebate and current vacancy underspends. There are also challenging predictions within the Property Maintenance environment programme of works between income and costs and estimations have been projected based on the period 10 position.

26. Land Planning & Dev’t – Projected Under £0.188m; Under Period 10 £0.746m. 

    An under recovery of planning income due to a decline in applications is expected for 2023/24 given the pressures from the Cost of Living. There is also an under recovery for City Deal recoveries due to current vacancies, however this is offset by the vacancy saving. 

27. Community Services – Projected Over £1.114m; Over Period 10 £0.166m. 

    Reduced parking income and Rental & Landlord Income are expected to be the main contributing factor to the overall variance in Community Services, alongside unachievable staff turnover savings and agency & other body costs.

28. Health & Social Care - Projected Over £3.483m; Over to Period 10 £1.496m.

    Whilst accounted for as part of the Council’s revenue monitoring report, budgets for the following services are consolidated, alongside a contribution from the NHS, within the HSCP.

• Community, Health & Care Services, 
• Mental Health, Learning Disability, Addictions & Health Improvement
• Children & Families & Criminal Justice, and 
• Social Work Strategic Resources 
• HSCP Covid costs

29. There continues to be significant risks in relation to the variability of this expenditure.  Budget variations reflect pressures within employee costs, including overtime & other pay, and agency cost expenditure.  This narrative is presented for Council information with further periodic reporting to the HSCP Board.
     
30. Joint Boards – Projected Underspend £0.004m; Under to Period 10 £0.002m 

A small Variation is expected in line with the requisition schedule

31. Additional Superannuation - Projected Over £1.270m; Over to Period 10 £1.270m

At this time the variation is forecast due to the number of pensions being paid and inflationary pressures, this has been increased at period 10 due to the fund costs of the voluntary trawl, which will be met by the cost of change.

32. Miscellaneous Services – Projected Over £1.601m; Over to Period 10 £0.094m.

This budget in the main holds budgets for uncertainties (including rates and inflation), additional superannuation costs as well supporting the timing of savings anticipated but not yet delivered.  At this time an overspend of £1.601m, of which is included which represents delivery of the Council’s ledger upgrade (£4.887m, with £1.954m being capitalised) and refresh of other key financial systems alongside any additional superannuation costs.  In relation to the system implementation work is ongoing to establish the extent to which the costs associated with the new financial system can be capitalised and this may significantly reduce the above figure and the consequential impact on revenue, and reserves.  However, this is a technical exercise that requires audit consideration and approval before a share of the costs can be met within the Council’s Capital Programme. Until then provision for the costs of delivering the new finance system will be met through the Council’s earmarked reserve for Cost of Change.

This projected overspend has been reduced through predicted savings in staff time with displaced staff Executive Officer budgets being moved here for monitoring with new services being realigned. There has also been a large one of input of cash received for a VAT reclaim made by EDC £1.332m. 

Having established a Corporate Cost of Change Fund within the Council’s reserves, miscellaneous services will be used to record and additional expenditure, linked to change projects, which will be funded from reserves after the completion of year end accounts.  Having established a strategy for it is important to ensure that there is no ‘direct reserve accounting’.  Miscellaneous Services is used to ensure that this does not occur and there is transparency of any planned or additional spend. 

33. Covid Reporting - Projected Over £0.000m; Under Period 10 £0.286m.

    No variation is expected within this service.

34. Debt Charges – Projected Over £2.00m; In line at Period 10

    This budget depends on the Councils borrowing levels including terms i.e. cost of borrowing - interest rates. This tends to have a direct impact from the capital programmes. At this time there is a variation of £2.000m which will be met through the Treasury Management Reserve

35. Budget Adjustments within Periods 8 to Period 10

    Officers continue to ensure that budgets are appropriately aligned to any changes in service delivery, demonstrating a clear accountability, enabling management oversight, scrutiny and review.  Financial reporting at Period 10 has held off on any adjustments unless approved at EO level or required i.e. redeterminations. Redeterminations included in the P10 position now include;

• Local Government payment for pay increase,
• SNCT pay increase,
• Self directed Support Transformation Funding, 
• Ukraine Refugee Resettlement Teams,
• Summer Programmes,
• Further Ukraine Funding,
• SRA for Kinship Foster Care,
• Climate Intelligence Service,
• Educational Psychologists,
• Teacher Induction Scheme,
• Employability Staffing, and
• These will be reviewed at year end to ensure they are not required to be carried forward into 2024/25.

36. There is, however, the likelihood that further budget changes could be made before year end.  Future adjustments also include;

•  A possibility of further budget adjustments towards year-end, for example in line with grants, which cannot be reasonably predicted at this time
• ny further redeterminations from the Scottish Government not yet announced or confirmed as the year-end approaches.

37. Council Tax Income

Council Tax Income will be monitored throughout the year to ensure it does not have a detrimental effect on our budget position.  To date, in-year collection rates for November 2023 equated to 92.36%, a 0.95% decrease from that reported in the previous year