The Head of Financial Services has submitted a report to update members on the estimated financial impact of the Coronavirus together with agreement upon mitigating actions.

Recommendations: That Cabinet resolves to:

1.    Agree the mitigating actions proposed against the financial impact of the coronavirus;

2.    Note the additional spend commitments taken under Executive Emergency powers to commit further expenditure in 2020-21 in the order of £1.5 million as detailed in paragraph 11-12; and 

3.    Agree the strategy of a transfer from reserves by the Head of Financial Services to cover the estimated increased net expenditure in 2020-21 followed by a budget re-set for 2021-22 and beyond.

The Head of Financial Services had submitted a report to update members on the estimated financial impact of the Coronavirus together with agreement upon mitigating actions.

Councillor Ed Turner, Cabinet Member for Finance & Asset Management introduced the report. The effects of Covid-19 on the Council’s finances were profound. He drew attention to the anticipated deficits over the next 4 financial years. The  Council had sought to protect frontline services by safeguarding income streams and it was precisely those income streams which were adversely affected by Covid-19. Income projections were therefore having to be revised in a wide range of areas.

It was necessary to take careful stock of the present position. The extent of support from central government was minimal as a  proportion of the additional costs incurred to date and there was uncertainty about the extent of future support. It would be necessary, also, to take stock once the immediate crisis was over of the position of, for example, the property and leisure sectors. The Council was adopting a two pronged approach, first pausing non-essential expenditure which will generate in year savings to mitigate the deficit which will accrue. Secondly, the Medium Term Financial Strategy will be reshaped, with work on it starting much earlier in the financial year than hitherto. This will inevitably involve some difficult choices and would, as always, be the subject  of public consultation. The focus however will remain on delivering against the Council’s values, including among others,  safeguarding frontline services; narrowing the gap between rich and poor; and avoiding compulsory redundancies. He concluded by paying tribute to the significant contribution of officers in the Finance Team at this challenging time.

Cabinet resolved to:

1.         Agree the mitigating actions proposed against the financial impact of the coronavirus;

2.         Note the additional spend commitments taken under Executive Emergency powers to commit further expenditure in 2020-21 in the order of £1.5 million as detailed in paragraph 11-12; and 

3.         Agree the strategy of a transfer from reserves by the Head of Financial Services to cover the estimated increased net expenditure in 2020-21 followed by a budget re-set for 2021-22 and beyond.

Nigel Kennedy, Head of Financial Services, will be available to present the April Financial monitoring report, which will be going to Cabinet, showing the financial impact on the council of coronavirus together with mitigations taken to date. The Panel is asked to consider the report and agree any recommendations to Cabinet accordingly.

NB This report will be issued as a late paper in a supplement.

The Panel was introduced to the Cabinet report by Head of Financial Services, Nigel Kennedy. Facing what is reported to be the worst recession since the 18^th century, deficits in the Council’s budget were estimated to be approximately £9.4m over the current financial year, and with Covid-19 related measures having a continued impact, a further £14m for the remainder of the Medium Term Financial Plan. It was sensible, therefore, to provide an unusually early update report, even if there was considerable uncertainty around the figures.

The majority of the deficit reflected income losses from a variety of sources, including commercial rents, Council company dividends, and car parking in particular. In addition, however, Council expenditure had increased: providing all rough sleepers with accommodation, establishing locality hubs, and equipping the Council to work remotely were all areas of expenditure for which budget provision had not been made. Government grants of £1.6m had been received, but were far short of the predicted deficit for the year. Decisions of further support by central government were not expected until the autumn, and it was unclear whether this would be forthcoming. 

The recommended response to the situation was put forward as advising that the Council make use of earmarked reserves, with the consequent impact on the projects for which they were earmarked, to close the current year’s budget deficit and to accept the loss of interest and increased borrowing costs arising from reduced reserve levels. Identification of the reserves chosen to use would be a future decision. In conjunction, newly agreed expenditure would be paused and existing spending likewise unless it sat within set criteria for the good-running of the Council or improving its financial position. Some capital spending would also be delayed. The purpose of the strategy was explained to give the Council as many options and give it the maximum flexibility on when considering how to close the predicted deficits of future years. This would be undertaken in December as part of the budget-setting process. The impact of the coronavirus on the HRA was relatively minor, and it was recommended that its existing strategy be maintained.

Whilst the financial position was financially challenging, the view of the Head of Financial Services was that the Council, if it implemented the recommendations in the report, was not facing the need to make a s. 114 notice, a requirement where Councils cannot bring expenditure and income into balance.

Whilst it was uncertain whether additional funds would be made available from government, the Council was also being proactive in lobbying government for the right to capitalise losses and write them off over a longer period. No agreement from government had been received to date in regards to this. The costs of doing so would not be negligible – borrowing costs of around 2.5% and the need for a minimum revenue provision. However, a long period over which to close the deficits in the Medium Term Financial Plan would ease the current financial burden on the revenue account.  ...  view the full minutes text for item 5