Budget Strategy - Risk Assessment Update
The Director of Finance and Business Improvement introduced his report providing an update on the budget risks facing the Council. It was noted that the COVID-19 pandemic had had a major impact on the Council’s financial position and showed how vulnerable the Council was to external factors as follows:
Delivery of the Revenue Budget
As a result of the Covid-19 pandemic, the Council had incurred substantial additional expenditure, in particular as a result of accommodating homeless people and establishing a community hub; suffered a reduction in Council Tax and Business Tax receipts; and lost substantial income in areas such as parking. The outcome was that a deficit of £8.563m was projected before taking account of any mitigations.
The deficit was only partially mitigated by government grant so it was expected that there would be a drawing in the region of £4m on the Council’s reserves to bridge the gap. On current projections, this would bring the Council’s unallocated reserves down to just over £4m. This was still above the Council’s specified minimum reserves level of £2m but left little flexibility in the event, for example, of a second lockdown.
In developing a new Medium Term Financial Strategy, consideration would be given to increasing the required minimum level of reserves to £4m.
Delivery of the Capital Programme
The cost of the Capital Programme was spread over the lifetime of investments so it had not been as directly affected by COVID-19 related pressures. However, there were revenue consequences to the Capital Programme. The cost of borrowing was factored into the revenue budget along with a Minimum Revenue Provision which spreads the cost of loan repayment over the lifetime of an asset.
The Capital Programme for 2020/21 had been reviewed in the light of the COVID-19 pandemic. The majority of the projects in the Programme were either underway, required for health and safety reasons or had to be carried out to meet contractual commitments. However, it was proposed that a number of projects be deferred to 2021/22 which would have the effect of reducing the in-year revenue costs of capital expenditure.
The COVID-19 pandemic showed how vulnerable the Council was to external factors. The corporate risk register therefore now included new risks relating to (a) major emergencies such as a new pandemic and (b) a resurgence of the current COVID-19 pandemic.
The other major external risk was a potential adverse financial outcome from a disorderly Brexit. Although the UK had now left the EU, future trading arrangements with the EU were still to be agreed and there remained a risk of disruption if this had not happened by the Government’s deadline of 31 December 2020. It therefore remained as a moderate risk in the budget risk register.
In response to a question, the Director of Finance and Business Improvement explained that the Council now faced a whole range of different risks and this would be reflected in its medium term financial planning with consideration given to favourable, neutral and adverse scenarios.
Members thanked the Officers for their work in addressing and planning for the risks facing the Council at the present time.
RESOLVED: That the updated risk assessment of the Budget Strategy, attached as Appendix A to the report of the Director of Finance and Business Improvement, be noted.
- AGS 29-07-2020 - Budget Risks, item 116. PDF 65 KB View as HTML (116./1) 61 KB
- AGS 29-07-2020 - Budget Risks - Appendix A, item 116. PDF 858 KB View as HTML (116./2) 156 KB