Agenda item

This report provides an update on Brent’s overall financial position by examining the financial outturn position for 2025/26, the Q1 financial forecast for 2025/26 and the medium-term financial outlook, which is part of the committee’s role in undertaking budget scrutiny throughout the year.

Minesh Patel (Corporate Director, Finance & Resources) was invited to introduce a budget update on Brent’s overall financial position by examining the Financial Outturn Report for 2024/25, the Quarter 1 financial forecast for 2025/26 and the medium-term financial outlook, which was part of the committee’s role in undertaking budget scrutiny throughout the year and would be considered by Cabinet on 28 July 2025. It was reported that in relation to the Financial Outturn Report 2024/25, the Council continued to face financial pressures, particularly in relation to temporary accommodation. While an overspend had occurred, the final position was less severe than initially forecast, which was considered a positive development, albeit not ideal. It was confirmed that no new financial risks had emerged by the end of the financial year. Regarding the Quarter 1 financial forecast for 2025/26, it was noted that the first quarter of the new financial year remained an early stage in the reporting cycle. Emerging risks were evident, particularly in demand-led services. Despite these pressures, the Council was currently forecasting a breakeven position. Key areas of concern included temporary accommodation, Adult Social Care, and Children’s Services. With regard to the medium-term financial outlook, Minesh Patel provided an update on the Government’s approach to the Spending Review and the long-awaited Fair Funding Review 2.0. It was confirmed that the Government had now published the framework outlining the key areas of focus for the review, including the resetting of funding formulas used to determine the distribution of resources across local authorities. Members heard that a consultation on the Fair Funding Review was currently live, with a deadline of 15 August 2025. The consultation comprised 50 questions, covering all aspects of the proposed funding formulas. Each local authority was expected to submit a response. Disappointment was expressed that the government had not provided a standardised model for authorities to use in assessing the impact of the proposed changes. In the absence of such a model, various London Councils had developed their own, though none were deemed fully reliable due to differing assumptions. It was noted that Brent Council was actively working through the available models in collaboration with London Councils and external advisers. It was confirmed that Brent’s response would incorporate relevant points raised by London Councils but would also be tailored to reflect the borough’s specific circumstances and priorities.

Having thanked Minesh Patel (Corporate Director, Finance & Resources) for introducing the report, the Chair then moved on to invite questions and comments from the Committee in relation to the Budget update & Medium-Term Financial Strategy, with the following comments and issues discussed:

• Members cited figures relating to housing needs, Dedicated Schools Grant (DSG) overspend, and supported exempt accommodation, and queried whether these indicators reflected any measurable improvement. In response, Minesh Patel (Corporate Director, Finance & Resources) explained that the figures presented reflected the outturn position, which followed a forecast based on various assumptions. It was noted that significant work had been undertaken by officers during the previous year to reduce financial pressures through savings and revised approaches. However, it was emphasised that many of the challenges were demand-led, and therefore subject to fluctuation. As an example in relation to homelessness, there were peaks and troughs in demand which could significantly affect financial outcomes. While some progress had been made, the underlying issues remained persistent. The financial impact was illustrated by noting that a single additional child that requiring residential accommodation could cost the Council approximately £250,000 per annum. Cautious optimism was expressed regarding the forthcoming Fair Funding Review, which could offer a degree of financial relief.

• As a supplementary question, members queried whether the Council had any influence over the Fair Funding Review process. In response, Councillor Muhammed Butt (Leader of the Council) confirmed that a consultation was currently underway, and that London Councils were actively lobbying central government. It was reported that early indications suggested that 23 London boroughs were likely to lose funding under the proposed changes, with only 8 boroughs expected to gain. Brent was not among the gaining local authorities. This information had been shared during a recent meeting and presentation on indicative figures.

• Members observed the planned discontinuation of the New Homes Bonus and the consolidation of various grants into the Revenue Support Grant and requested initial projections on the financial impact of these changes and any potential policy implications. In response, Minesh Patel (Corporate Director, Finance & Resources) advised that while the full impact remained unclear, the consolidation of grants was, in principle, a positive development. It was explained that managing over 55 separate grants, each with distinct conditions, had been challenging. A single consolidated grant would offer greater flexibility and allow the Council to make more independent decisions regarding expenditure. Regarding the New Homes Bonus, it was confirmed that Brent was currently allocated £1.9 million for 2025/26, but the Government had not yet provided clarity on how much of this would be retained under the new arrangements. It was further explained that the Government had reduced the number of funding formulae from 15 to 9, and that Brent was currently analysing its comparative position across key service areas, including adult social care, children’s services, housing, highways, and fire services. The complexity of this analysis was emphasised, noting that relative need varied significantly across regions. Concerns were expressed about the data sources underpinning the formulae, citing the outdated Index of Multiple Deprivation (2019) and the 2021 Census, providing scope for inaccuracies. It was reiterated that while the implications were difficult to predict, the Council was approaching the changes with cautious optimism.

• Members questioned when the Council would be able to assess the full implications of the funding changes. In response, Minesh Patel (Corporate Director, Finance & Resources) informed that the Government had indicated an Autumn settlement and expressed hope that this would be received in early Autumn. It was stated that the Council was continuing to run various models to assess potential outcomes and aimed to have a clearer understanding prior to the development of the draft budget. In acknowledging the uncertainty, Minesh Patel noted that different models produced widely varying results, some indicating significant losses, others suggesting minimal impact. It was anticipated that media coverage would highlight areas of the country facing substantial reductions. It was further noted that the Fair Funding Review would take into account historical decisions, such as councils choosing not to raise council tax in previous years. It was confirmed that such decisions would not result in penalties, and that the review aimed to ensure fair distribution.

• Members noted that only approximately 8 London boroughs were expected to benefit from the Fair Funding Review, with Brent likely to remain in a neutral position. In light of this, the importance of initiating early discussions regarding the Council’s communications and engagement strategy was emphasised ahead of the 2026/27 budget. Members also stressed the need to actively consult residents, businesses and other stakeholders, and sought details around the plans to ensure that feedback was both captured and demonstrably acted upon. In response, Minesh Patel (Corporate Director, Finance & Resources) acknowledged the importance of early and effective engagement and recognised previous criticism of the Council’s communications strategy. It was noted that the financial information involved was complex and not easily accessible to the general public. However, improvements in collaboration with the Communications Team were reported, including the use of simplified formats such as explainer videos and relatable examples. It was also confirmed that the Council would seek to translate technical financial matters into accessible content and would aim to engage a broad range of stakeholders. The value of early engagement was emphasised, particularly in explaining the inherent uncertainties, and stated that transparency from the outset would be more constructive than attempting to communicate changes at short notice. Councillor Muhammed Butt (Leader of the Council) further stated that the Council had been transparent in its reporting, including the identification of at least £30 million in required savings. It was confirmed that the Council was facing £10 million in cuts in the coming year merely to maintain existing service levels. The increasing reliance on reserves and the unsustainable nature of this approach was highlighted, as outlined in the financial report. The Council’s commitment to openness with members, residents, and stakeholders was reiterated.

• Members queried whether the restructuring of central government funding streams represented a form of devolution, given the reduction in ring-fencing. In response, Minesh Patel (Corporate Director, Finance & Resources) elucidated that while the consolidation of grants into broader funding envelopes did offer greater flexibility, it did not constitute full devolution. It was noted that London already possessed certain devolved powers and that there were currently few discussions about further devolution. It was also explained that the consolidation of grants would allow local authorities to make more autonomous decisions, reducing the administrative burden of managing multiple funding streams with varying conditions. It was emphasised that the principal benefit of the new approach was certainty. While the funding levels may not meet all needs, having a clear 3-year settlement would enable more strategic planning and implementation, as opposed to reactive annual budgeting.

• The Chair asked whether the Government was likely to include notional indicators within the adult social care ring-fence, specifying either the type of care (e.g. preventative) or simply the requirement to allocate funding to the sector. In response, confirmation was provided that both elements were likely to be included. It was anticipated that a portion of the funding would be earmarked for prevention, while another portion would be designated towards adult social care.

• The Chair expressed concern that any notional allocation might not align with Brent’s actual service needs. In response, Minesh Patel (Corporate Director, Finance & Resources) acknowledged the complexity of aligning national funding models with local needs and noted that the growth in adult social care demand consistently outpaced the funding provided, even when growth assumptions were built into the settlement. Councillor Muhammed Butt (Leader of the Council) additionally noted that the Council now had greater clarity regarding future funding, including confirmation that the 5% council tax cap was fixed. It was also stated that this clarity would assist officers in long-term planning and allow for a more strategic approach to financial management.

• Members queried the status of SCIL funds that had been collected but remained unspent and asked why these funds did not appear in the financial accounts and what benefits were derived from them. In response, Minesh Patel (Corporate Director, Finance & Resources) explained that SCIL was a ring-fenced funding stream, designated for specific infrastructure-related purposes. Members learned that within the Council’s treasury management strategy, unspent SCIL funds were utilised to reduce the Council’s exposure to borrowing costs. This was achieved through internal borrowing, whereby available SCIL balances were used in place of external borrowing, thereby avoiding higher interest payments. This was likened to using a savings account to offset the need for a more expensive loan. When a call on SCIL funding arose, the Council would then borrow externally to replenish the internal borrowing. This approach was embedded within the Council’s capital financing strategy, which was managed separately from the general revenue budget.

• The Chair proposed that future financial reports include a clear statement of the SCIL balance, along with an explanation of how it featured in the Council’s Medium-Term Financial Strategy and other financial updates. This would enhance transparency and support the Committee in understanding the role of SCIL in financial planning.

• As a further issue highlighted, members asked what planned investments were in place to utilise the HRA surplus. In response, Amanda Healy (Deputy Director, Investment & Infrastructure) reported that the HRA had been closely monitored throughout the year, resulting in a surplus that had contributed to an increase in the operating reserve, now standing at £5.3 million. This exceeded the Council’s target of maintaining reserves at 5% of HRA income. It was noted that the reserves had previously been below this threshold, and efforts had been made to rebuild it to ensure resilience against unforeseen pressures. It was acknowledged that Brent’s reserve levels remained lower than those of peer authorities, which continued to pose a risk. The surplus would support long-term planning for housing improvements and development. It was confirmed that progress had been made across both capital and revenue programmes, as outlined in the outturn report.

• Members questioned how the Council intended to manage financial risks to the HRA, continue building new homes, and ensure the account remained in surplus and queried the impact of these pressures on the HRA business plan. In response, Amanda Healy (Deputy Director, Investment & Infrastructure) acknowledged the challenge of balancing fire safety obligations with the continued delivery of new housing and reported that a significant number of new homes were due to complete within the current financial year, reflecting the success of the recent developments. However, a decline in the development pipeline was noted, largely due to affordability constraints. Members heard that the Council continued to explore alternative funding opportunities, including engagement with the Greater London Authority (GLA). While current grant levels were insufficient to sustain previous delivery levels, discussions were ongoing. It was confirmed that the HRA business plan had been structured to accommodate both planned fire safety works and future development, within the limits of available resources.

• Members were keen to seek details around the financial impact of Granville New Homes on the HRA, to which Amanda Healy (Deputy Director, Investment & Infrastructure) advised that a final figure had not yet been determined, as negotiations were ongoing. However, provisions had been made within the HRA business plan to account for the anticipated costs associated with Granville New Homes.

• As a final point, members observed that Brent currently held one of the highest levels of council tax arrears nationally, with an average figure cited at approximately £92.2 million, comparable to Croydon. Questions were raised around why previous interventions had not yielded greater success in reducing arrears and what impact the changes to the Council Tax Support Scheme had had on residents’ ability to meet payment obligations. In response, Minesh Patel (Corporate Director, Finance & Resources) acknowledged that while some figures reported in the press were factually inaccurate, the Council’s collection rates were not at a satisfactory level. It was noted that the Government’s Fair Funding Review assumed a 95% collection rate, whereas Brent currently achieved approximately 93%, which presented a risk under future funding assumptions. It was further explained that the Council had identified this issue in Autumn 2024 and had begun exploring alternative approaches to improve collection. Reference was made to previous discussions around the distinction between ‘can’t pay’ and ‘won’t pay’ cases, noting that Brent’s post-COVID recovery had been less robust than in other areas, largely due to higher levels of deprivation. It was highlighted that the Council had prioritised support for vulnerable residents through its Ethical Debt Policy, which had been appropriately applied. However, this had resulted in insufficient resource allocation towards pursuing debts from those with the capacity to pay but who had not done so. It was stated that a renewed focus was now being placed on balancing support and enforcement, with a concerted effort underway to improve the Council’s debt position. It was additionally noted that a portion of the reported arrears figure included statute-barred debt that should have been written off. The Council had not undertaken regular write-offs in recent years, which had contributed to the inflated figure. It was clarified that writing off debt did not negatively impact the Council’s financial position, as provisions were made elsewhere in the accounts to offset uncollectable amounts. Following up, members questioned whether the changes made to the Council Tax Support Scheme had resulted in the majority of residents being able to meet their payment obligations, to which Minesh Patel advised that he was unable to provide the relevant data at the time of the meeting and undertook to provide a written response following the meeting.

In seeking to bring consideration of the item to a close, the Chair thanked officers and members for their contributions towards scrutiny of the Budget update & Medium-Term Financial Strategy. As a result of the outcome of the discussion, the following suggestions for improvement identified were AGREED:

SUGGESTIONS FOR IMPROVEMENT

(1)  In future finance reports, provide detailed information on the balance of unallocated CIL funds, how they are being factored into financial planning, and their contribution to achieving the Council’s strategic priorities and long-term objectives.

(2)  In future finance reports, provide detailed analysis of Council Tax collection, including any ongoing assessment of the current Council Tax Support Scheme’s impact on collection rates, and the outcomes of initiatives aimed at improving collection performance.

Please note that the specific wording of the suggestions for improvement was subject to refinement following the meeting, with the agreement of the Chair.