Agenda item

This report sets out the financial forecast for the General Fund revenue budget, the Housing Revenue Account, the Dedicated Schools Grant and the Capital Programme, as at Quarter 2 2024-25 for review by the Resources & Public Realm Scrutiny Committee.

Councillor Mili Patel (Deputy Leader & Cabinet Member for Finance & Resources) was invited to introduce a report providing an overview of the Quarter 2 Financial Forecast 2024-25, which had been presented to Cabinet in October 2024. In presenting the report, members were advised that the information provided a comprehensive picture of the current financial situation and the Council's projected direction. It was highlighted that, since 2010, the Council had lost at least £210 million from its core budget. Furthermore, since the Quarter 1 Financial Forecast presented in July 2024, the financial position had become more challenging. For the upcoming financial year, the Council needed to identify £16 million in cuts to achieve financial sustainability. The executive summary of the report outlined the financial forecast for the General Fund revenue budget, the Housing Revenue Account, the Dedicated Schools Grant, and the Capital Programme, as at Quarter 2 2024/25.

Following Councillor Mili Patel’s introduction, Minesh Patel (Corporate Director of Finance and Resources) continued by noting that the final details on the Chancellors Autumn Financial Statement were now awaited, with the initial announcement having been made the previous week.  Whilst a member briefing would usually be provided on the Autumn Statement, the Committee was advised that as full details were currently awaited it had not yet been possible to fully assess the impact on Brent.  The Government had advised a new policy document would be released in November 2024 to enhance understanding and provide further details on specific allocations following which a briefing would be prepared and circulated to members. There were significant challenges ahead, and some difficult decisions that would need to be made for the 2025/26 financial year and beyond. It was noted that the draft budget for 2025/26 had been published the previous day and would be considered by Cabinet in November 2024.

Having thanked Councillor Mili Patel (Deputy Leader & Cabinet Member for Finance & Resources) and Minesh Patel (Corporate Director of Finance and Resources) for introducing the report, the Chair then moved on to invite questions and comments from the Committee in relation to the Quarter 2 Financial Forecast 2024-25 report, with the following comments and issues discussed:

• As an initial query further details were sought around whether it would be effective to report on the Autumn Statement and the draft budget for 2025/26 at the Budget Scrutiny Task Group meetings, and whether the focus should be on the impact for the current year or if it would be more effective to consider the differences when the Quarter 3 report was presented for consideration early in 2025. In response, Minesh Patel (Corporate Director of Finance and Resources) explained that it was difficult to determine the impact as it largely depended on the details of the forthcoming policy document. The specific outcome would not be known until the settlement, which was typically announced in the second week of December. Even considering the most positive outcomes of the Autumn Statement and a favourable allocation, it might not meet Brent's specific needs. Regardless of the outcome, members recognised the pressures and challenging nature of the Council’s ongoing financial position and difficult decisions that would be required as a result.

• In response to further questioning regarding the temporary accommodation issue, Minesh Patel explained that if the allocations from previous years' Homelessness Prevention Funding were used, and assuming the same formula was applied, the maximum amount that could be received from that allocation would be approximately £4 million. However, the pressures faced were closer to £20 million.

• Members referenced paragraph 7.3.4 in the Forecast report, which highlighted that Council Tax collection rates had not yet recovered to pre-pandemic levels, which had impacted on the basis of budget calculations. It was questioned whether any research had been conducted on current strategies to address the low collection rates. Rav Jassar (Deputy Director of Finance) responded that low council tax collection rates remained a concern. The reasons for the continued low collection rates post-pandemic were attributed to poverty in the Borough and high levels of unemployment, which made both in-year council tax payments and the collection of historical arrears challenging. This research was ongoing. Actions currently under review included the use of enforcement agents or bailiffs and increasing the resources of the Corporate Debt Recovery Team to improve collection rates.

• Following up, members inquired about the timeline for a decision on the Council Tax collection regime, specifically regarding the use of bailiffs, as there was a perception a soft approach was currently being taken. Further questions were raised about the collection rates by tenure and whether there was a breakdown available, given the high proportion of private rented sector housing in the Borough and the potential impact of tenant turnover on collection rates. In response, it was noted that there was no specific date for the implementation of the new Council Tax collection regime, but it was hoped that a clearer view would be available before the next financial year. The Council was effective in supporting individuals who 'can't pay,' but additional measures were needed to address those who 'won't pay.' It was important to find the right balance to ensure that those who 'can pay' were fulfilling their council tax obligations, potentially through a new regime. Councillor Mili Patel (Deputy Leader & Cabinet Member for Finance & Resources) added that the budget proposals would include further detail, particularly focusing on action in relation to the groups that 'won't pay' alongside proposals in relation to changes in the Council Tax Support Scheme, which it was noted had been identified as an area for review by the Budget Scrutiny Task Group.

• Members noted that when considering the Q1 Forecast at the July 2024 Scrutiny meeting discussions had been focussed on the need to understand the figures concerning those who 'can't pay' and those who 'won't pay.' The latest response indicated that it was still uncertain what those numbers would look like and the predicted financial impact of greater enforcement on those who 'won't pay.' The Chair inquired whether any improvements had been made in this area and how the numbers of people in the 'won't pay' category could be assessed. In response, Minesh Patel advised that discussions were ongoing with the Debt Recovery Team to obtain a breakdown, which would encompass not only Council Tax but also the broader debt recovery process within the council on which figures were awaited.

·            Regarding the Housing Revenue Account (HRA), members raised questions around whether the appropriate balance had been achieved between capital expenditure for new homes and funding for repairs, mould remediation, safety, and retrofitting. Questions were also raised around whether the right balance had been struck between existing tenants and new tenants. In response, Minesh Patel clarified that these would involve two distinct elements of capital financing. For new builds, this related to the self-financing model. The concept was that if funds were borrowed for capital works on new housing, a portion of the generated rents would be allocated to repaying the debt, another portion to management and maintenance, and the remaining portion to future major works. Conversely, the more challenging aspect of capital involved borrowing that needed to be covered by the overall rents collected for major works. In concluding his response, Minesh Patel reiterated that these two elements of capital were distinct; one pertained to a self-financing model for new housing, while the other involved assessing what the HRA could sustain in terms of borrowing for future major works.

·            Following the previous question, further details were sought regarding the impact of borrowing for new builds, specifically concerning the interest payments that could reduce funds available for other necessary works.  In response, Minesh Patel explained that the Housing Revenue Account (HRA) should be viewed as a model where income collected from rents was divided into different expenditure categories. These categories included management and staffing, debt financing, and major works and repairs. He emphasised the importance of benchmarking to ensure the appropriate allocation of incoming funds. Additionally, issues were not anticipated regarding the services tenants should receive from their landlord and stressed the importance of being clear about these service elements and ensuring that adequate resources were available to meet these needs.

·            Views were then sought regarding whether the benefits in seeking to address housing maintenance issues in the short term to maintain asset values and avoid public health challenges. The discussion raised a related issue about investing now to enable people to pay bills in the future and avoid owing money to the council. Members questioned if there was a strategy to address this, rather than allowing debts to escalate.  In response, the issue of balance was highlighted with it noted that, for an asset management strategy, it was sensible to ensure that major works were carried out correctly, which would reduce repair costs over time. This was the approach taken by the housing department. Regarding retrofitting, it was explained that initial funding was necessary, and it was important to understand how this would be repaid over a longer period. In referring to an earlier point about Council Tax, Minesh Patel highlighted that use of the General Fund was not used as a funding source to subsidise housing works under the Housing Revenue Account (HRA) with housing rents also not used to subsidise General Fund services. There was a clear distinction between the two funds, with the landlord function being completely separate from the General Fund, which was funded by council tax.

·            As a further issue highlighted regarding individuals who could not pay council tax due to high energy bills, the Chair noted that if their homes were appropriately retrofitted, their energy bills would be lower, thereby supporting efforts to address fuel poverty.  The importance of a holistic approach was therefore emphasised in terms of budget considerations.  In response, Minesh Patel advised members that the fundamental issue in terms of the Housing Revenue Account (HRA) and its balances, remained the cost of works and extent of limited resources available to address the priorities identified.  Additional funding would be necessary to support the delivery of retrofitting and realise future benefits which needed to be balanced against the costs involved in servicing any borrowing requirement and potential benefits in terms of overall viability.

·            Members then commented on the availability of capital funding borrowing streams and extent to which any wider opportunities were being explored. The Chair noted that while previous suggestions had been made regarding potential borrowing streams as part of the Council’s Treasury Management Strategy, there had been limited specific feedback on the assessment of their viability for Brent with members keen to receive a more detailed breakdown of various options  and the reasons for those that had not been pursued.  As a specific example, referenced was made to potential use of the Local Government Pension Fund as a potential source of  investment to support programmes such as retrofitting.  The Chair also expressed interest in receiving a report for the committee's consideration on the scoping work related to the council's strategy for identifying and developing options to encourage further income generation.

·            As an additional issue, members inquired whether any discussions had occurred in collaboration with other local authorities, particularly in London, regarding the need to reduce costs and implement changes, citing Greenwich Council as a key example. Councillor Mili Patel (Deputy Leader & Cabinet Member for Finance & Resources) responded that this would be taken into consideration.

·            The Committee then moved on to focus on the measures being taken to identify fraudulent landlords and highlighted concerns that some landlords were exploiting vulnerable residents and contributing significantly to anti-social behaviour in the borough. In response Minesh Patel, focussing on the issues raised relating to supported exempt accommodation, clarified that it was the Department for Work and Pensions (DWP) and not the council who were responsible for authorising the registration of a property as supported exempt accommodation. Consequently, a landlord could offer supported exempt accommodation and charge £400 per week in rent, allowing tenants receiving housing benefits to claim this amount from the Council. However, due to subsidy legislation, the Council could only reclaim the maximum Local Housing Allowance (LHA) from the DWP, necessitating the council to subsidise the difference. On a positive note, the tenancies agreed with residents were not full tenancies but 12-month licences, which could be reviewed periodically. Discussions were ongoing with colleagues to determine the necessary processes and resources to conduct additional and challenge certain tenancy agreements or the methods by which these processes were established with work also being undertaken on a cross borough basis to address the concerns highlighted on a London-wide basis.

·            Following on from the previous comments, the Chair sought details on whether supported exempt accommodation was operating outside the Supporting People framework or if Supporting People was currently being used to inspect and ensure standards within such properties. The Chair also inquired whether lobbying could be undertaken to prevent providers from operating outside the Supporting People framework. This raised related questions from members regarding rent control, specifically how landlords could set rents at £400 per week for properties registered as supported exempt accommodation, how this rent amount was justified, and what checks were in place to ensure landlords were providing the services they claimed.  In response, Minesh Patel informed members that the £400 p/w rent charge was intended to be linked to an element of additional care provision or support. Continuing on the issue of supported exempt accommodation, the Committee was informed that whilst provision had been made for a subsidy loss the position had become more challenging due to the emergence of this growing market. Officers in Adult Social Care and the Benefits Teams were being consulted to enhance understanding in this area. Further questions were raised about transitioning residents to Universal Credit and managing this income area, which it was noted the relevant service area would be best positioned to address. This subsequently led to a suggested recommendation being made for the service area teams responsible for Adult Social Care and Benefits to attend the Committee meeting at which the Q3 report was considered.

·            Details were also sought on the position in relation to neighbouring authorities with Minesh Patel advising that the issue of supported exempted accommodation was increasingly being identified as a risk, although Brent had been one of the first to flag as a significant issue with discussions ongoing to understand how this could be addressed on a cross borough basis.

·            Regarding the central budget overspend, reference was made to the detail provided within paragraph 1.5 of the Forecast report, which outlined an overspend of £5 million in central budgets, with members querying the composition of this overspend. In response, Minesh Patel clarified that amount related to the supported exempt accommodation and explained that the subsidy loss was recorded under a Housing Benefit line rather than a service area line within the central budget.

·            The Committee then turned their attention to paragraph 3.2.14 of the Forecast Report and sought further details on the risk identified associated with the lack of fully agreed cost-sharing for children’s care packages at an Integrated Care Board level for Children & Young People (CYP) placements and children with disabilities. Members inquired whether there was an arbitration system for resolving disputes concerning funding responsibilities. In response, Minesh Patel highlighted the challenges in the process for funding care packages between relevant providers and lack of clarity in terms of the mechanisms for resolving such disputes.

·            As a separate issue, with reference to paragraph 3.2.16 of the Forecast report, members raised questions regarding the Shared House model aimed at alleviating housing issues faced by young people, and particularly inquired about the risks associated with this model and whether planning permission was required. In explaining how the Shared House model worked, members were advised this was designed to assist young people under the council's responsibility by allowing them to share a house with two or three other young people, similar to arrangements for those not in care or under council responsibility. It was reiterated that any risks associated with this model were best addressed through the Children and Young People (CYP).

·            Referring to paragraph 3.2.2.1 of the Forecast report, members also inquired about the potential savings implications on safeguarding and the impact of previous savings on safeguarding in the children and young people, and adult social care departments. Members also questioned how cuts to safeguarding were mitigated. Whilst recognising the issues highlighted, members were advised that it was crucial for the directorates and service areas to understand the decisions made regarding budgetary pressures while ensuring that they continued to meet their statutory duties.

·            The Chair noted that the comparison between the overspend in CYP and that forecast in terms of Adult Social Care, which was more substantial and questioned whether the council was bearing costs that should be shared with other partners, including the health service and other partner organisations funded through different streams and government departments. It was queried whether the council was disproportionately shouldering its share of the costs in children and young people and adult social care, and what could be done to address this. Minesh Patel acknowledged that this was an ongoing challenge within each service area and explained that the council was not funded to address all issues across public services. This message was communicated clearly to each directorate to ensure they had processes in place or were challenging these decisions. Following on from the previous response, the Chair sought details on the evidence of feedback indicating that directorates were successfully managing their part of the budget. Minesh Patel (Corporate Director of Finance and Resources) responded that each year, the council decided how much growth was allocated to each department. Part of this process involved challenging the average contributions from the health service. It was further highlighted that the process included challenging other parts of the sector.

·            Following on, further details were sought from the Cabinet Member for Finance & Resources regarding the process followed in seeking to ensure that individual Directorates were operating within their allocated budgets and to challenge and address any pressures identified as a result. In response, Councillor Mili Patel (Deputy Leader & Cabinet Member for Finance & Resources) confirmed that that despite continuous efforts from the finance team, challenges sometimes persisted with external stakeholders, such as the health service. Minesh Patel added each service area had a delegated budget, with each Corporate Director responsible for managing delivery of their budget. Ultimately, each Corporate Director was required to make appropriate decisions to ensure their budget was balanced or to achieve an underspend to offset financial pressures.

·            As a further query, the Chair sought confirmation that the position regarding Adult Social Care’s  ability to remain within the budget framework had been subject to challenge which it was confirmed had been the case.  It was noted that the main pressures arose from the demand led nature of the services provided and increasing costs of more complex care packages leading to issues of complexity and demand. Discussions that had taken place around demand management were also highlighted. It was acknowledged that there were currently insufficient resources to meet the demand across multiple areas of council provision, including adult social care, children’s services, and homelessness. Departments had therefore been requested to identify additional in-year savings and consider alternative approaches, while understanding the associated risks, to ensure that statutory duties were provided in a sustainable manner for the council.

·            As a further issue highlighted, members noted the issues identified within the External Audit Annual Report regarding use of Council reserves to address Departmental funding pressures and need to focus on building up reserves, with members therefore seeking clarification on how reserves could be increased to a level that satisfied the auditors, and whether rebuilding reserves was feasible given the demand on services. In response, Minesh Patel explained that reserves were used in emergency situations, such as challenges with temporary accommodation. It was highlighted that difficult decisions needed to be made by the council when setting future budgets particularly regarding the nature of services and potential reductions alongside additional funding being secured and balance of reserves which had already been identified as issues to be addressed within the 2025-26 draft budget proposals.

·            Referring to paragraph 1.3 of the Q3 report presented to the Committee, members sought details on how spending controls were utilised to mitigate the financial crisis and cited the risk to the council’s financial resilience. It was also questioned whether it was felt the council could be more creative in implementing these spending controls. Members also noted with interest the proactive measures in Adult Social Care, where teams would review the Better Care Fund, and the securing of £1 million in SEND funding from the Delivering Better Value programme to explore financial opportunities elsewhere. In response, Minesh Patel outlined the rigorous nature of the spending controls which had been established, which included specific challenge on the need to incur expenditure in certain areas, level required and whether this could be allocated differently. He emphasised the importance of having as many different funding sources as possible, noting that grants were being applied for to help subsidise relevant in-year costs. It was acknowledged that while the spending controls in place were effective, they did not go far enough in achieving the necessary savings or cost avoidance to balance the budget. Therefore, in-year spending saving plans were implemented to prompt questions about what spending could be halted for the current year and what could be done differently. In concluding his response, Minesh Patel summarised that spending controls were effective for addressing in-year or short-term problems, but these would need to be supplemented by larger reductions within the 2025/26 budget, in order to maintain a balanced budget position.

·            The Chair observed that councils were now utilising section 114 at unprecedented levels and questioned where Brent Council stood in comparison to other local authorities regarding this risk. In response, it was clarified that in cases where there was a risk of section 114, councils would need to seek the government’s assistance to obtain an exceptional financial support loan. Compared to other London councils, members heard that Brent was positioned relatively mid-table. There had been an increase in the number of London Councils seeking exceptional financial support loans, with approximately 19 in this situation.  It was noted, however, that the ability to maintain a financially sustainable position in Brent would require difficult decisions to be made as part of the 2025/26 budget to avoid any risk of the need to seek exceptional financial support over further years.

·            In response to further questioning regarding the meaning of exceptional financial support, members were informed that if a council was unable to set a balanced budget or its spending commitments exceeded available resources, a section 114 notice would be issued. This notice would indicate that actions were required to balance the budget. In such cases, the government would advise borrowing money from the Public Works Loan Board (PWLB) to balance the budget. Previously, there was an interest charge in addition to a premium on the loan. However, the government had now advised that the premium no longer applied in such cases, so the loan would be taken out at the prevailing rates set by the PWLB. In continuing the response, Minesh Patel advised that for the majority of public services funded by the government, any overspend would be absorbed into central government debt. Local government, however, was one of the few parts of the public sector that was required to produce a balanced budget and to  fund any overspends . Discussions remained ongoing regarding the need for reform of the Local Government Finance system, including the need for longer term funding settlements on which further lobbying continued, and it was hoped proposals would be included as part of the next phase in the Government’s funding review.

·            Members enquired about the level of funding that could be regarded as a usable reserve to address the budget deficit. The response confirmed that the Council had approximately £20m in General Reserves, alongside a number of earmarked reserves, where funds were set aside for future projects and programmes. As part of the 2025/26 budget, an assessment would be conducted to establish what was considered financially sustainable in terms of maintaining the balance of reserves in order to address the recommendation made by the External Auditors in their Annual Report regarding the Council’s financial sustainability and the decisions that needed to be made going forward.

·            Concerns were expressed at the impact on local government as a whole in the sector having become the government’s emergency provider of last resort requiring the Council to deliver more services than ever before and picking up the challenges and costs in relation to areas such as children and adult social care and the housing crisis and involving the financial burden in relation to Council Tax having been shifted to cover many of these pressures rather than being adequately funded through central government to provide the necessary services.  As such, Members were keen to ensure the burden being placed on local authorities without the corresponding financial support were raised on a regional level with London Councils in order to adopt a collective stance and approach. In response, Minesh Patel highlighted the challenges in distinguishing between the needs associated with statutory and non-statutory services, which often were intrinsically linked. The Council had statutory duties to provide certain services with more discretion over other services with London Councils already lobbying central government regarding the need for financial reform. A clearer picture regarding reform was expected in the spring, which could involve changes to the expectations of local government although without significant additional funding being provided it was felt the expectations of what a council was there to do would need to be changed.

·            Members inquired of the officers about National Insurance (NI) within the council, addressing not only direct employment but also contractual arrangements, and the impact of stamp duty on two companies involved in property acquisition for letting. The committee was informed that guidance from central government on the NI issue was still pending. Reference was made to a central government document released in connection with the Autumn budget, which included a statement with limited detail indicating £4.7 billion allocated to compensate the public sector for the employer NI increase. It was challenging to determine whether £4.7 billion would suffice for the entire public sector and what the implications would be. In the private sector, with a 2% NI increase, it was anticipated that either wage bills would be reduced, or prices would rise. The council recognised the importance of being prepared for discussions with the private sector about potential fee increases in the coming year due to possible implications. Regarding the stamp duty issue, it was unclear whether the analysis had been completed, as certain rules could allow local authorities to offset some stamp duty liabilities. The current status of the assessment concerning stamp duty remained unknown.

·            Members then queried the position regarding the impact of the additional Employer National Insurance (NI) contribution requirements recently announced by the Government including on the Council’s commissioning arrangements with service providers and also in relation to stamp duty and the impact on the Council’s housing subsidiary companies. The Committee was advised that guidance was awaited from central government regarding the NI matter. Referring to a document released by central government in support of the Autumn budget statement, this had included reference to £4.7 billion to compensate public sector for the employer increase but, at this stage no further details had been provided.  The concerns raised regarding the possible impact on organisations commissioned to provide services on behalf of the Council were recognised in terms of possible cost increases or the need for service reductions/availability needing to be passed on as a result to compensate, which the Council was already working to assess and address.  In terms of the issue raised in relation to stamp duty, members were advised that further clarification would need to be sought on this issue outside of the meeting given the technical nature of the requirements in relation to the offsetting of these fees.

·            Members expressed concerns that the Education Funding System (EFS) appeared to exacerbate an already unsustainable situation in terms of  management of the deficit in relation to the Dedicated Schools Grant.  It was noted that the statutory override established by the Government to manage the deficit position had now been extended to 2025/26 but members advised that concerns remained more generally in relation to the level of borrowing and overall approach towards the funding of local government. In response, Minesh Patel advised members of the current fiscal rules with borrowing now mainly reserved for capital infrastructure projects and the Council expected to generate additional savings or income to fund growth in other services and continue meeting their financial obligations. The significance of reform was also emphasised.

·            With reference to previous committee recommendations, the Chair noted that Cabinet members had lobbied the Local Government Association (LGA) regarding the need for local government financial reform. It was questioned whether there were any indications of a commitment to deliver the Local Government Financial Reform and the associated timescales for its implementation. In response, Minesh Patel confirmed that that the funding announced for local government in the Chancellor’s recent Autum Statement had marked the beginning of the process, with the next phase, including the Fair Funding Review, scheduled for Spring 2025. The concept of core spending power in the context of the Autumn budget was referenced and it was noted that a recent announcement of a 3.2% increase in core spending power for local government included an assumption of a 5% increase in council tax. Projections for 2026-27 and 2027-28 had indicated a potential 1.5% increase in real terms which, although welcomed, would still require difficult decisions regarding the priorities for funding and shift in the way services were provided.

·            As a final question, the Chair noted that the Community & Wellbeing Scrutiny Committee would be reviewing the pressures in relation to homelessness and  temporary accommodation at its next meeting and was therefore keen to ensure the outcome of the that process and information provided in support was made available to the Scrutiny Budget Task Group as an area of significant risk, which it was confirmed would be highlighted as part of the pre scrutiny planning process  in order for the necessary details to be provided.

Given the time remaining and in seeking to bring consideration of the item to a close, the Chair thanked officers and members for their contributions towards scrutiny of the Quarter 2 Financial Forecast 2024-25.  As a result of the outcome of the discussion, the recommendations, requests for additional information and suggestions for improvement identified were AGREED as follows:

Suggestions for Improvement

(1)       Explore additional funding options with partners for retrofitting and energy efficiency across council properties as part of the authority’s wider income generation strategy and climate action efforts, and report back on findings and future plans to the committee. 

Information Requests

(1)      Provide an updated briefing to the committee on the impact of the Chancellor’s Autumn Statement on the council.

(2)      Provide a detailed breakdown and allocation of the council’s useable reserves, including their intended purpose and planned usage.

(3)      Submit a progress report in six months on the efforts of the ‘Supported Exempt Accommodation’ Working Group, highlighting ongoing and completed projects, as well as the associated impacts, including cost benefits to the council.

(4)      Provide an update in six months on the implementation of the Supported Housing (Regulatory Oversight) Act 2023, highlighting its impact in enhancing quality standards and achieving cost savings in Supported Exempt Accommodation.

(5)       Provide a progress update in six months on the debt recovery improvement initiatives and strategies in place to enhance collection rates across all debt types.  This update should include a detailed overview of Council Tax collection, and an assessment of the Council Tax Support Scheme reduction, including an evaluation of the effectiveness of measures to mitigate the impact on affected residents.

(6)      Provide data on Council Tax collection rates by tenure for the last three years.