Technical Notes 2024, Issue 158 - General Fund Revenue Monitoring at Period 4 of the 2024/25 Financial Year

1. The purpose of this note with the consolidated revenue monitoring position as at the end of accounting Period 4.  This represents general fund expenditure from the 1 April 2024 to the 28 July 2024.
    
2. This summary was intended to be reported to, and updated for the next Policy & Resources Committee.  Offers recognise the need to publish financial information to support decision making and highlight the potential for pressures at the earliest opportunity.  Aspects of financial reporting have been complicated by the delays in external audit activities and the implementation of the Council’s main financial systems.  In order to bridge this gap, finance teams have continued to engage with Council Services to provide projections at Period 4.
    
3. 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.
    
4. On 22 February 2024, the Council set its Budget for 2024/25.  The Council’s anticipated budget gap within its general fund equated to £1.840m.  Following Council’s agreement on the Budget, a number of late notifications increased the financial gap increased to £2.126m.  These changes were £0.331m in relation to partnership payments given increase requested by the Scottish Government unfunded and expectations, and increased Council Tax income of -£0.045m.
5. A number of risks remain, including the potential need to include a further £2.453m within debt charges.  It is anticipated that this pressure will be managed through the use of the Treasury Management Reserves at the year-end, however, this pressure will be sustained into the future. 
    
6. Furthermore, the Council continues to assume that the Scottish Government will provide funding to offset the additional costs of teacher’s superannuation.  On 30 August COSLA received a letter of comfort from the Scottish Government on this issue along with indications of quantum and that this will be included within the General Revenue Grant from 2025/26.  This assumption therefore appears to be reasonable with suitable assurance now received.
    
7. This Technical Note represents the first general fund revenue monitoring report for 2024/25, 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 2023-24 Budget 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. 
    
8. 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 with Reports being specified for inclusion at the meeting of the Council on 26 September 2024 to reinforce the financial pressures.
    
9. 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 gap and the potential for in-year pressures to occur, the pace and scope of this work continues to be accelerated and extended.  Further technical notes are being planned to continue to reinforce the previous ‘non-essential’ spend moving this to a ‘business critical’ footing to emphasise the pressures the Council remains under.
    
10. 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 have the potential, in time, to be included in the appendices to this Report. 
     
11. In addition to the above, and of material significance, is the potential impact on the Council’s pay bill with ongoing claims exceeding the 2% provision included as an assumption when setting the 2024/25 budget.  With negotiations ongoing, the resulting pressures cannot be finalised within budgets, however, initial expectations of additional costs are likely to £2.2m.  There will be a consequential impact on the Council with some additional funding being provided via capital.  The Council continues to assume that any additional pay pressures, over and above 3.2% will be funded by the Scottish Government, but with this process continuing, there is no absolute assurance that this will be the case.
     
12. At Period 4 an overspend position of £1.560m increasing to £5.310m should Health & Social Care Partnership (HSCP) pressures be included.  The HSCP 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 can be managed through HSCP reserves where suitable flexibility exists.
     
13. The period 4 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,
  • Inflationary pressures yet to be fully realised,
  • Variations in staffing costs with the pay increase still to be finalised,
  • Variations attributable to unanticipated invoices, and
  • Redeterminations to be programmed upon confirmation.

14. A Council overspend of £1.560m equates to an in-year gap and potential drawdown of General Fund reserves equating to £3.683m, once added to the budget gap of £2.126m.  These plans are predicated on the planned use of the Treasury Management Reserve to smooth £2.453m of increased pressures as a result of costs of delivery within the Capital Programme.
     
15. 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. 
     
16. With reference to the HSCP and within the Council’s overall budget, £77.551m, net of income, is attributable to the delivery of Social Work Services under the strategic direction of the HSCP.  The HSCP is currently projecting a year-end overspend within Social Work budgets of approximately £3.750m.  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.
     
17. There continues to be risks in relation to the volatility of HSCP 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.
     
18. Within Council services current projections currently identify pressures within:

• • Finance & Digital where projections are on track, however, there are historic pressures within income on lets and external printing costs which are being actively managed at this time but may feature in future monitoring reports.
  • Roads & Neighbourhood Services where projected overspends of £0.115m may occur as a result of inflationary pressures within materials, subcontractors and fleet.  However, additional income within green waste collection projected at £0.306m is having a positive impact on service budgets with an underspend of £0.039m currently projected.  This will be kept under constant review as the year progresses.
  • Community Services where reductions in parking income (£0.211m) as well as rental and landlord income from homeless properties and lead tenancies (£0.654m) are causing pressures within the service.  This is under active consideration at the time of writing with a view to manage these pressures down.
  • Education where there is the potential for the full recovery of costs relating to probationers funding (£0.400m) to not be recovered.  Other options within the service are being considered to manage this pressure down.
  • The overall debt charges budget of £18.192m will be kept under review as the year progresses as this has the potential to vary in accordance with the delivery of the capital programme. 

Furthermore, any Council decision on the future programme will impact the required debt charges then required with Council Reports in August, and planned for in September, setting out the likely costs to take forward such plans.

Since the start of the financial year £48m of debt has matured and replaced by £65m of new debt with interest rates ranging from 5.2% to 5.38%.  New debt continues at to be taken to cover cash flow requirements including the delivery of the capital programme.  Borrowing is taken short periods of time aligned to the strategy and the expectation of falling rates.

19. 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 4 has held off on any adjustments unless approved at an Executive Officer level.  Redeterminations included in the P4 position now include:-
    • Adults & Older Peoples Rates (£4.690m)
    • Children & Families Rates (£0.302m)
    • School Milk (£0.023m)
    • No One Left behind (£0.060m)
       
20. Other redeterminations are expected during the course of the year and they will be added when full information received. The carry forwards from 2023/24 have not yet been approved and therefore not yet included in the current position.  These will be reviewed at year end to ensure they are not required to be carried forward into 2024/25.
     
21. 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 July 2024 equated to 37.54%, a 0.23% decrease from that reported in the previous year.  This is as a result of the additional income resulting from backdated valuations being applied to expectations in advance of the decision of Council being taken on the 21 August (Report EDC/018/24/JR).  Retrospective recovery will now be written-off with billing on new bandings from 1 April 2024 now being communicated and initiated.  It is expected that Council Tax income will achieve budget expectations as the year progresses.