Appendix 1

Sir y Fflint Cin

CABINET Date of Meeting Tuesday, 20! October 2020 Report Subject Medium Term Financial Strategy and Budget 2021/22 Cabinet Member Cabinet Member for Finance for Finance Report Author Corporate Finance Manager and Chief Executive Type of Report Strategic EXECUTIVE SUMMARY

The Council works to a cycle of reviewing its Medium Term Financial Strategy (MTFS) on an annual basis.

This report provides an update on the financial forecast for 2021/22 and the following two financial years.

A full review of the forecast has been undertaken to build an accurate and robust baseline of cost pressures that will need to be funded. The review has taken into full account the ongoing impacts of the emergency situation including the speed of recovery of key income targets.

The main purpose of this report is to set out in detail the forecast cost pressures for 2021/22 prior to referral for review and challenge to Overview and Scrutiny Committee.

The report also sets out the solutions available to fund these cost pressures. The funding strategy is highly dependent on sufficient national funding for local government and is unchanged since the budget for 2020/21 was set.

RECOMMENDATIONS

1

To (1) note the overall forecast for the period 2021/22 2023/24 and (2) refer the list of cost pressures for 2021/22 to Overview and Scrutiny Meetings in November for review and challenge.

To note the solutions available to meet these cost pressures and re-set the funding strategy for 2021/22.

REPORT DETAILS

1.00

EXPLAINING THE MEDIUM TERM FINANCIAL STRATEGY FORECAST 2021/22 2023/24

1.01

The Council has a cycle of reviewing its Medium Term Financial Strategy (MTFS) on an annual basis.

This report provides an update on the forecast position, last reported in full in February, for 2021/22 and the following two financial years.

1.02

When setting the budget for 2020/21 a projected estimate was reported for the major cost pressures predicted over the next two years. The forecast was based on (1) annual pay increases trending at 2% (2) similar level of commissioning cost pressures within Social Services and (3) other known pressures at that time. The total of all cost pressures identified at the time totaled £9.829m for 2021/22 and £7.433m for 2022/23.

1.03

A full review of the forecast has been undertaken to build an accurate and robust baseline of cost pressures that will need to be funded. The review has taken into full account the ongoing impacts of the emergency situation including the speed of recovery of key income targets.

The National Position

1.04

The impact of the pandemic continues to have a significant impact on the Council’s cost base and its ability to generate income. The Welsh Government has made a number of funding announcements over the last few months which have given some certainty as to how these additional costs and income losses can be recouped in the current financial year.

1.05

The Autumn Budget of the UK Government has been postponed. This, in turn, has caused budget uncertainty for Welsh Government. It is expected that there will still be some form of a UK Spending Review on a date to be announced.

Updates to the Financial Forecast

1.06

Over the summer the inflationary and demand led service cost pressures have been assessed and this report provides in detail the outcome of this work.

1.07

The cost pressures have been categorised as:

- Prior Year Decisions/ Approvals

- Loss of Income

- Legislative/Unavoidable Indexation

- Issues requiring national resolution

- National Funding Requirements (Pay Awards) - Strategic Considerations

Appendix 1 sets out the latest position for the Medium Term Financial Forecast in detail and includes ranges where pressures are subject to sensitivities such as national pay awards, ongoing uncertainty due to the pandemic or where they can be subject to some choice regarding the level of service to be provided. In summary the ranges are:

- 2021/22 - £14.423m - £27.336m - 2022/23 - £9.447m - £13.036m - 2023/24 - £8.982m - £11.996m

Forecasts for 2022/23 and 2023/24 will continue to be refined alongside the work to agree the 2021/22 budget as decisions made throughout the process will impact on the projections for later years.

The main purpose of this report is to set out in detail the forecast cost pressures for 2021/22 prior to referral for review and challenge to Overview and Scrutiny Committee.

1.08

Prior Year Decisions/ Approvals

These are built-up of commitments and adjustments made in prior years and include:

1.09

Marleyfield Residential Care Home

The cost pressure of £0.425m for the additional revenue costs of the expansion of in house residential care services to meet increasing demand.

Minimum Revenue Provision

This is the amount set aside for the repayment of debt for historic capital spend. The policy was changed to the annuity method a couple of years ago and the annual inflationary uplift of £0.300m needs to be included in the budget on a recurring basis.

One-Off Efficiencies/Pressures Dropping Out

The benefit of a Single Person Discount review has a one-off benefit in the current financial year and will be built into the overall Council Tax base

calculation for 2021/22. In addition a pressure in relation to social services day services that was included in 2019/20 budget is no longer required.

12

Unrealised Efficiencies

There are a number of areas relating to previous year efficiencies which are not able to be achieved. Some of these are due in part to changes in demand on services or lower than anticipated take-up on schemes such as the salary sacrifice scheme.

13

Loss of Income

Reductions in demand is impacting on budgeted income levels across a wide range of service areas and include:

14

Reduced Energy Sales

Due to a reduction in the levels of income generated by sales of Electricity which is dependent on the availability of gas produced by two closed landfill sites.

.15

Recyclates

Due to fluctuations in both the volumes of recycling waste and the amount of rebate available for certain recyclates in the current market. The volatility of the market makes it difficult to predict an accurate figure so at this stage a range of £0.299m to £0.730m is included.

.16

Sale of Newtech Square

Due to the loss of revenue income to the Council as a result of the sale of the asset which will result in a capital receipt to support our Capital Programme.

.17

Markets

Due to the need to reflect the current level of activity which has reduced over time as well as footfall being impacted due to the impact of the pandemic.

.18

Legislative/Unavoidable Indexation

The pressures within this category are a combination of legislative changes and indexation increases to organisations where we have no direct control and include:

.19

‘Sleep-In’ Pay Ruling

The outcome of a ruling by the Supreme Court for Sleep-In Shifts is due shortly which may mean allowances will need to be increased.

.20

Private Water Supplies

Due to the need to meet statutory obligations in relation to risk assessments for all water supplies in the Local Authority area. These include initial assessment, ongoing monitoring and enforcement where necessary.

1.21

North Wales Fire and Rescue Authority (NWFRA)

The NWFRA levy is agreed each year and the Council is likely to need to contribute an inflationary uplift. The principle of adding NWFRA levy increase to the local taxation bill will need to be continued.

Issues Requiring National Resolution

1.22

Council Tax Income / Council Tax Reduction Scheme

The Pandemic has resulted in a significant increase in demand for the Council Tax Reduction Scheme (CTRS) and the receipt of Council Tax income is currently well below target.

Both of these issues are acknowledged by Welsh Government and discussions will need to continue to secure additional funding supported by the WLGA.

The cost of indexation for social care commissioning is also included here and the same principle applies, particularly in view of the current demand pressures in this area.

National Pay Awards

1.23

The impact of the nationally agreed pay awards for Teacher Pay and Non Teacher Pay are included in this category. The increases are not yet known so a range of potential impacts from 2% - 3.5% have been included at this stage for modelling purposes.

The figures also include the estimated impact of the 2020/21 pay awards being higher than the 2% included in the budget. Whilst the in-year impact of a higher pay award will need to be met by reserves in the current financial year, the recurring impact will need to be built into the budget for 2021/22.

1.24

Strategic Considerations

There are a number of areas where further strategic consideration are required over the coming months before the outcome can be included in the formal budget process.

1.25

Transport

School Transport to address fluctuations in the number of school days per year based on current operator costs as well as additional demand due to change of routes.

Post 16 transport to reflect shortfall in efficiency due to a policy change following changes in regulations - flagged as a risk in the 2020/21 budget.

Social Care Transport due to an increase in demand within both Adult and Children’s Services.

1.26

Social Care

Transition to Adulthood to reflect the additional cost of young people transitioning from Children to Adult Services. The range reflects different scenarios based on demand estimates and levels of support requirements.

Children’s Registered Care Home The Council is looking at options to support a reduction in the number of Out of County Placements and is reviewing options to deliver care in house. Support from Welsh Government is also being sought.

1.27

Education

Secondary School Funding due to a requirement to address school deficits which was a recommendation within the Estyn report. The issue is twofold 1) to address the existing deficit position and 2) to try and ensure that schools are funded to the level needed. This may need to be a longer term strategy.

Additional Learning Needs due to a statutory obligation to meet the requirements of the new Additional Learning Needs & Educational Tribunal Act which is due to be implemented in 2021/22. This will require additional resources for both schools and for the local authority in relation to the provision of support for Children.

1.28

The table below summarises all cost pressures:

Table 1: Updated Budget Requirement Forecast 2021/22

2021 / 22 Summary of Pressures L M H £m £m £m

Prior Year Decisions/Approvals Income Loss

Legislative/Unavoidable Indexation Pressures

National Resolution Pressures National Funding Requirement (Pay) Strategic Decisions

Total Pressures

1.29

Risks Issues North Wales Growth Bid

The above is reaching a key stage and it is likely that some capital borrowing costs will be incurred by the partnership for advance capital access to ‘front- load’ investment for priority projects, noting that the Government grant is paid over to the partnership on an annualised bases over fifteen years. The detail of the Growth Deal is being finalised and the partnership aim to keep capital

borrowing costs to the lowest possible level. Final cost estimates, and how they are to be shared, will be reported when available.

Strategic Funding Solutions

1.30 | The solutions available to the Council to fund the cost pressures outlined in the report can be spilt into three themes:- - Government Funding (Aggregate External Finance) - Local Taxation and Income - Service Transformation and Efficiencies We can also consider supressing the budget requirement by not making full budget provision for some risks and treating them as ‘Open Risks’ to be managed in-year. The funding strategy is highly dependent on sufficient national funding for local government and is unchanged since the budget for 2020/21 was set. 1.31 | Government Funding (Aggregate External Finance) The Council receives the largest amount of its funding from Welsh Government in the form of the Revenue Support Grant (RSG). For the Council to be sustainable future settlements will need to reflect the national financial pressures imposed on councils that are outside of their e.g. pay awards and legislative cost pressures. 1.32 | In 2020/21 the Council received an increase of 3.7% on its RSG 0.6% below the Welsh Average of 4.3%. The impact of a range of RSG scenarios ranging from 0% to 5% are set out below. Table 2 RSG Uplift Scenarios Percentage Increase pce settee Set cet Increase (£m) | o | 1.994 | 3.988 | 5.982 | 7.975 | 9.969 1.33 | Local Taxation and Income

No assumptions have been made on the level of Council Tax increases for future years at this stage and a decision will need to be made during the budget process in the context of the overall position.

The impact of a range of scenarios are detailed below ranging from 0% - 5%:

Table 3: Council Tax Scenarios

eae

eect Ho I ie ed

Based on Estimated Council Tax Base for 21/22 and 98.7% collection rate

Fees and charges remain unchanged and will be subject to indexation as per the Council Policy for Fees and Charges with the aim of achieving full cost recovery wherever possible.

1.34 | Service Transformation and Efficiencies There are no local budget choices presented at this stage. There are no efficiencies of scale remaining and the position has not changed since we set the last annual budget. The need for safe and resilient services has been highlighted by the response to the emergency situation. A realistic minimum target of £1m has been estimated as a contribution to the budget for 2021/22. 1.35 | ‘Open Risks’ The forecast as presented is subject to decisions on the level of the financial pressures to be included in the base and whether to take some ‘open risks’ as explained in 1.30 above. 1.36 | Summary and Conclusions Table 4: Potential Scenarios Gap at the Lower Level 14.423 | 14.423 | 14.423 | 14.423 | 14.423 | 14.423 Percentage Increase 0% 1% 2% 3% 4% 5% £m £m £m £m £m £m RSG 0 1.994 3.988 5.982 7.975 9.969 Efficiencies 1.000 1.000 1.000 1.000 1.000 1.000 Council Tax 0.677 1.550 2.423 3.296 4.169 5.041 Total Potential Funding 1.677 4.544 7.411 10.278 | 13.144 | 16.010 Remaining Gap 12.746 | 9.879 7.012 4.145 1.279 | (1.587) 1.37 | As shown in table 4 a minimum RSG uplift of between 4% and 5% is required

to cover the current level of cost pressures at the lower end.

1.38

Budget Timeline

The draft Welsh Government Budget has provisionally been set for 8 December 2020 with the Final Budget set for 2 March 2021. However, UK Government have recently announced that they will not be presenting an Autumn budget this year so the Welsh Government dates may be subject to change.

An outline of the local budget timeline at this stage is set out in the table below:

Table 5: Budget Timeline

Date Event

20 October Cabinet

Overview & Scrutiny Committees

WG Draft Budget/Provisional Settlement

15 December Cabinet

November

8/9 December

19 January Cabinet

16 February Cabinet and Council

2/3 March WG Final Budget/Settlement

2.00

RESOURCE IMPLICATIONS

2.01

Revenue: the revenue implications for the 2021/22 budget are set out in the report.

Capital: there are no new implications for the approved capital programme for either the current financial year or for future financial years the capital programme will be subject to a separate report

Human Resources: there are no implications for additional capacity or for any change to current workforce structures or roles at this stage.

3.00

IMPACT ASSESSMENT AND RISK MANAGEMENT

3.01

Ways of Working (Sustainable Development) Principles Impact

Long-term

Negative the absence of longer-term funding settlements from Welsh Government means that sustainable support for service delivery is challenging for the longer term. Sustainable funding from Welsh Government that provides additional funding for Indexation, Service demands and new legislation will provide a positive and sustainable position for the Council in the longer term.

Prevention

As above

Integration

Neutral Impact

Collaboration

Services continue to explore opportunities for collaboration with other services and external partners to support positive impacts.

Involvement

Communication with Members, residents and other stakeholders throughout the budget process.

Well-Being Goals Impact

Prosperous Wales

Longer term funding settlements from Welsh Government that provide additional funding for indexation, service demands and new legislation will aid sustainability and support a strong economy that encourage business investment in the region. The opposite will be true if settlements are inadequate.

Resilient Wales

Continuation of services to support communities and social cohesion will have a positive impact. The opposite will be true if settlements are inadequate.

Healthier Wales

An appropriate level of funding will ensure that communities are supported and will have a positive impact. The opposite will be true if settlements are inadequate.

More equal Wales

A positive impact with greater parity of funding from Welsh Government for all Welsh Local Authorities. The opposite will be true if settlements are inadequate.

Cohesive Wales

Appropriate level of funding will support services working alongside partners. The opposite will be true if settlements are inadequate.

Vibrant Wales As Healthier and Cohesive Wales above

Globally responsible Wales | Neutral impact.

4.00 | CONSULTATIONS REQUIRED/CARRIED OUT

4.01 | The Forecast for 2021/22 2023/24 will be considered by Overview and Scrutiny Committees during November.

5.00 | APPENDICES

5.01 | Appendix 1. MTFS Forecast 21/22 23/24.

6.00 | LIST OF ACCESSIBLE BACKGROUND DOCUMENTS

6.01 | None.

7.00 | CONTACT OFFICER DETAILS

7.01 | Contact Officer: Gary Ferguson,, Corporate Finance Manager Telephone: 01352 702271 E-mail: gary.ferquson@flintshire.gov.uk

8.00 | GLOSSARY OF TERMS

8.01 | Medium Term Financial Strategy (MTFS): a written strategy which gives

a forecast of the financial resources which will be available to a Council for a given period, and sets out plans for how best to deploy those resources to meet its priorities, duties and obligations.

Revenue: a term used to describe the day to day costs of running Council services and income deriving from those services. It also includes charges for the repayment of debt, including interest, and may include direct financing of capital expenditure.

Budget: a statement expressing the Council's policies and service levels in financial terms for a particular financial year. In its broadest sense it includes both the revenue budget and capital programme and any authorised amendments to them.

Revenue Support Grant: the annual amount of money the Council receives from Welsh Government to fund what it does alongside the Council Tax and other income the Council raises locally. Councils can decide how to use this grant across services although their freedom to allocate according to local choice can be limited by guidelines set by Government.

Specific Grants: An award of funding from a grant provider (e.g. Welsh Government) which must be used for a pre-defined purpose.

Welsh Local Government Association: the representative body for unitary councils, fire and rescue authorities and national parks authorities in Wales.

Financial Year: the period of 12 months commencing on 1 April.

Local Government Funding Formula: The system through which the annual funding needs of each council is assessed at a national level and under which each council’s Aggregate External Finance (AEF) is set. The revenue support grant is distributed according to that formula.

Aggregate External Finance (AEF): The support for local revenue spending from the Welsh Government and is made up of formula grant including the revenue support grant and the distributable part of non- domestic rates.

Provisional Local Government Settlement: The Provisional Settlement is the draft budget for local government published by the Welsh Government for consultation. The Final Local Government Settlement is set following the consultation.

Funding Floor: a guaranteed level of funding for councils who come under the all-Wales average change in the annual Settlement. A floor has been a feature of the Settlement for many years.

MTFS - SUMMARY OF PRESSURES

Bottom £m Prior Year Decisions / Approvals One Off Efficiencies dropping out (20/21) 0.300 One Off Pressures dropping out (19/20) (0.056) Unrealised Efficiency - Legal Svcs/Ind Est Review 0.092 Unrealised Efficiency - Postage - Council Tax 0.035 Unrealised Efficiency - Postage - Benefits 0.041 Unrealised Efficiency - Market Review 0.035 Unrealised Efficiency - Salary Sacrifice - AVC's 0.070 Minimum Revenue Provision (MRP) - Existing 0.300 Further borrowing costs for Capital Programme 0.015 Marleyfield Revenue Costs 0.425 Total - Prior Years Decisions / Approvals 1.257 Loss of Income Reduced Energy Sales - Reduction in gas generation 0.120 Markets - Scale of markets reducing 0.074 Pest Control - Reduction in customer led demand 0.040 Sale of Newtech Square - Rent no longer collected 0.095 Enterprise Centres - Reduction in occupancy levels 0.050 Recyclate Markets - Volatility in price & volume 0.299 Registration Service - Cancellation of events 0.030 Total - Loss of Income 0.708 CUMULATIVE TOTAL 1.965 Legislative / Unavoidable Indexation Pressures Sleep in Pay Ruling 0.125 Private Water Supplies 0.104 SUDS 0.112 Fee Increases - Coroners 0.025 Independent Review Panel for Wales (IRPW) 0.028 North Wales Fire and Rescue Authority 0.160 Adoption Service 0.022 Liberty Protection Safeguards Total - Legislative / Unavoid Index'n Pressures 0.576 CUMULATIVE TOTAL 2.541 Requiring National Resolution Benefits - CTRS 1.172 Council Tax Collection Levels 0.600 Social Care Commissioning 1.880 Total - National Resolution Pressures 3.652 CUMULATIVE TOTAL 6.193

National Funding Requirement

NJC Pay Award Estimate (Non Schools)

NJC Pay Award Estimate (Non Schools) - 20/21 NJC Pay Award Estimate (Schools)

NJC Pay Award Estimate (Schools) - 20/21 Teacher Pay Award Estimate

Teacher Pay Award Estimate - 20/21

Total - National Funding Requirement

11.980

CUMULATIVE TOTAL

Revisions 2021/22 Middle £m

0.300 (0.056) 0.092 0.035 0.041 0.035 0.070 0.300 0.015 0.425

1.257

0.120 0.086 0.046 0.095 0.050 0.479

0.876

2.133

0.125 0.104 0.112 0.025 0.028 0.160 0.022

0.576

2.709

1.414 1.000 1.945

4.359

7.068

14.017

Top £m

0.300 (0.056) 0.092 0.035 0.041 0.035 0.070 0.300 0.015 0.425

1.257

0.120 0.114 0.052 0.095 0.050 0.730 0.100

1.261

2.518

0.125 0.104 0.112 0.025 0.028 0.160 0.022

0.576

3.094

1.654 1.600 3.825

7.079

10.173

18.246 7.430 9.001 10.461

Revisions 2022/23 Bottom Middle £m £m 0.300 0.300 0.001 0.001 0.301 0.301 (0.030) (0.030) 0.271 0.301

0.639 0.794 0.608 0.621 2.037 2.037 2.646 2.658 3.285 3.452

2.428

0.990

2.131

5.549

Revisions 2023/24 Top Bottom Middle Top £m £m £m £m 0.300 0.300 0.300 0.300 0.001 0.001 0.001 0.001 0.301 0.301 0.301 0.301 (0.100) (0.100) 0.201 0.301 0.301 0.301 (0.052) (0.052) (0.052) 0.029 0.029 0.029 0.030 0.030 0.030 0.164 0.164 0.164 0.170 0.170 0.170 0.819 0.471 0.471 0.471 0.633 0.639 0.652 0.664 2.037 2.116 2.116 2.116 2.670 2.755 2.767 2.780 3.489 3.226 3.239 3.251 3.051 1.636 2.289 2.949 1.219 0.784 1.023 1.063 2.703 1.609 2.209 2.822 6.973 4.029 5.521 6.834 7.254 8.759 10.085

TT

MTFS - SUMMARY OF PRESSURES

Revisions Revisions Revisions 2021/22 2022/23 2023/24 Bottom Middle Top Bottom Middle Top Bottom Middle Top £m £m £m £m £m £m £m £m £m Strategic Decisions School Transport - General 0.163 0.163 0.163 School Transport - Closure of John Summers 0.050 0.050 0.050 Post 16 Transport 0.047 0.047 0.047 Social Services Adults Transport 0.063 0.063 0.063 Social Services Childrens Transport 0.044 0.044 0.044 Carelink - Alarm Monitoring Contract 0.125 0.125 0.125 Carelink - Budget Issue (HSG) 0.216 0.216 0.216 0.109 0.109 0.109 Transition to Adulthood 0.495 0.656 1.100 1.176 1.176 1.176 0.656 0.656 0.656 Secondary School Funding Review 0.764 1.529 Secondary School Deficits 1.474 2.948 1.914 0.440 0.180 0.180 ALN - Reforms 0.144 0.340 0.597 0.223 0.223 0.223 0.017 0.017 0.017 ALN - Schools 0.413 0.825 PRU new Build (Increased capacity) 0.061 0.074 0.045 0.113 New PRU Building - Revenue Costs 0.027 0.027 0.027 0.019 0.019 0.019 Children's Registered Residential Care Home 0.138 0.138 0.138 0.413 0.413 0.413 P2P Upgrade 0.024 0.024 0.024 (0.019) (0.019) (0.019) Addressing Poverty - FSM - Demand 0.253 0.253 0.253 Addressing Poverty - FSM - Increase in Allowance 0.107 0.174 Joint Archive Service - Borrowing Costs 0.142 0.142 0.142 Joint Archive Service - Revenue costs 0.039 0.004 0.004 Benefits - Additional Staffing 0.300 0.300 0.300 Ash Dieback 0.060 0.060 0.060 21C Schools - Band B Borrowing Costs | 0.015 0.015 0.015 | 0.097 0.097 0.097 0.912 0.912 0.912 Business Manager - Streetscene 0.072 0.072 0.072 Home Education 0.046 0.046 0.046 Primary Learning Advisor 0.080 0.080 0.080 Missing from Home Coordinator 0.034 0.034 0.034 Feasibility Study Provision Top Up 0.050 0.050 0.050 Total - Strategic Decisions 2.444 5.619 9.090 2.017 3.977 2.575 1.727 1.907 1.911

CUMULATIVE TOTAL 14.423 19.636 27.336 9.447 12.978 13.036 8.982 10.666 11.996

Summary of Pressures 21/22 - 23/24

21/22 22/23 23/24 Summary of Pressures | fm | £m | £m | £m | tm _ £m | £m | £m | &m |

Prior Year Decisions/Approvals 0.301 0.301 Income Loss (0.030) | 0.000

Legislative/Unavoidable Indexation Press| 0.576 0.368 | 0.493 National Resolution Pressures 2.646 | 2.658 National Funding Requirement (Pay) 4.145 5.549 Strategic Decisions 2.017 | 3.977

Total Pressures 14.423 | 19.636 27.336 | 9.447 | 12.978 | 13.036 | 8.982 10.666 | 11.996