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Contents
Part A: First Quarter Revenue Budget 2023/24
A1) Revenue Budget: Council
A2) Revenue Budget: Corporate Services (CS PAC)
A3) CS PAC Revenue Budget: Significant Variances
A4) Other Revenue Budgets: Significant Variances
A5) Virements
Part B: First Quarter Capital Budget 2023/24
B1) Capital Budget: Council
B2) Capital Budget: Corporate Services (CS PAC)
B3) Capital Budget Variances
Part C: First Quarter Local Tax Collection 2023/24
C1) Collection Fund
C2) Collection Rates
C3) Business Rates Retention (BRR)
Part D: Reserves & Balances 2023/24
D1) Reserves & Balances
Part E: Treasury Management 2023/24
E1) Introduction
E2) Economic Headlines
E3) Council Investments
E4) Council Borrowing
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A1) Revenue Budget: Council
Net Expenditure 2023/24 (@ 1st Quarter): Analysis by PAC
Net Expenditure 2023/24 (@1st Quarter): Analysis by PRIORITY
Net Expenditure 2023/24 (@ 1st Quarter): Analysis by SUBJECTIVE SPEND
‘Transfer payments’ include payments of housing benefit, which are falling with the introduction of Universal Credit. The underspend on transfer payments is offset by a reduction in reimbursement income from central government.
Net Expenditure 2023/24 (@ 1st Quarter): Analysis by CABINET MEMBER
A2) Revenue Budget: Corporate Services PAC
A2.1 The table below provides a detailed summary of the budgeted net expenditure position for the services reporting directly into CS PAC at the end of Quarter 1. The financial figures are presented on an accruals basis (i.e. expenditure for goods and services received, but not yet paid for, is included).
A2.2 This table now shows the variance split between expenditure and income to give more of an insight into the nature of the variance.
A2.3 These budget areas are all covered by the Cabinet Member for Corporate Services, with the exception of the two marked ** which are covered by the Leader of the Council.
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CS Revenue Budget: NET EXPENDITURE (@ 1st Quarter 2023/24)
A3) CS Revenue Budget: Significant Variances
A3.1 Within the headline figures, there are a number of both adverse and favourable net expenditure variances for individual cost centres. It is important that the implications of variances are considered at an early stage, so that contingency plans can be put in place and, if necessary, be used to inform future financial planning. Variances will be reported to each of the Policy Advisory Committees on a quarterly basis throughout 2023/24.
A3.2 The table below highlights and provides further detail on the most significant variances at the end of Quarter 1.
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|
Positive Variance Q1 |
Adverse Variance Q1 |
Year End Forecast Variance |
|
Corporate Services |
£000 |
||
|
Sandling Road Site – Running costs are exceeding the budgets, mainly for utility costs. There is also a shortfall in the rental income that was anticipated. The Council’s objective remains to ensure that this site is fully tenanted up to the point where it is handed over for redevelopment as part of the housing capital programme. |
|
-90 |
-200 |
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Maidstone House – There are shortfalls in rental income received against budget, as letting of floors 2 and 4 is behind schedule. Some building works have been required in order to meet current accommodation standards and to provide space that is attractive to tenants in the current market. Progress is being made, with agreements in place to for the letting of 40% of Floor 2 and planning under way for the conversion of floor 4. |
|
-300 |
-200 |
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External Interest Payable – The variance on this budget relates to the Minimum Revenue Provision (MRP) that is required to be made to cover the cost of borrowing for the capital programme. Slippage in the programme means that we have not borrowed as much as had been anticipated. The profiled budget assumes the MRP figure is charged at the end of the financial year. |
|
-55 |
823 |
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Interest & Investment Income – Due to the slippage in the capital programme and interest rates continuing to be high there is likely to be a significant increase in income received by the end of the financial year. |
61 |
|
450 |
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Archbishop’s Palace – Now the lease with Kent County Council has expired liability for the Business Rates now rests with Maidstone BC, but currently there is no budget for this. The profiled budget assumes the rates are due in the first quarter of the year. |
|
-58 |
-50 |
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MPH Residential Properties – The majority of the forecast variance relates to the temporary closure of Granada House for refurbishment works. |
|
-68 |
-200 |
CS PAC Variances (@ 1st Quarter 2023/24)
A4) Other Revenue Budgets: Significant Variances
A4.1 The tables below highlight and provide further detail on the most significant variances.
Planning, Infrastructure & Economic Development PAC Variances (@ 1st Quarter 2023/24)
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|
Positive Variance Q4 |
Adverse Variance Q4 |
Year End Forecast Variance
|
|
Planning, Infrastructure & Economic Development |
£000 |
||
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PLANNING & ECONOMIC DEVELOPMENT |
|
|
|
|
Former Park & Ride Sites – These are budgets that were used to fund the Business Rates and running costs for the site. They are no longer required and will be removed for 2024/25. |
80 |
|
100 |
|
|
Positive Variance Q4 |
Adverse Variance Q4 |
Year End Forecast Variance
|
|
Planning, Infrastructure & Economic Development |
£000 |
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PLANNING SERVICES |
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|
|
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Development Control (Majors) – Numbers of applications are down as developers are waiting for the Local Plan to be approved before they submit new ones. |
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-90 |
-150 |
Housing, Health & Environment PAC Variances (@ 1st Quarter 2023/24)
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|
Positive Variance Q4 |
Adverse Variance Q4 |
Year End Forecast Variance
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|
Housing, Health & Environment |
£000 |
||
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Homeless Temporary Accommodation – The ongoing economic crisis means that demand for this service continues to be high. Properties are continuing to be purchased to provide further accommodation which should reduce costs going forward. |
|
-229 |
-818 |
Communities, Leisure & Arts PAC Variances (@ 1st Quarter 2023/24)
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|
Positive Variance Q4 |
Adverse Variance Q4 |
Year End Forecast Variance
|
|
Communities, Leisure & Arts |
£000 |
||
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Lockmeadow Complex – There have been additional service charge costs for Love Food relating to 2022/23. Service charge costs continue to exceed budgeted levels, leading to a projected overspend for the year. |
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-34 |
-60 |
A5) Virements
A5.1 In accordance with the Council’s commitment to transparency and recognised good practice, virements (the transfer of individual budgets between objectives after the overall budget has been agreed by full Council) are reported to the CS PAC on a quarterly basis.
A5.2 Virements may be temporary, meaning that there has been a one-off transfer of budget to fund a discrete project or purchase, or permanent, meaning that the base budget has been altered and the change will continue to be reflected in the budget for subsequent years.
A5.3 The virements made in Quarter 1 are presented in the table below.
Virements (@ 1st Quarter 2023/24)
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B1) Capital Budget 2023/24 (@ 1st Quarter 2023/24)
B2) Capital Budget Variances (@ 1st Quarter 2023/24)
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Corporate Service |
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Garden Community – Work continues to develop this project, with any unused funding to be carried forward into 2024/25. |
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Biodiversity & Climate Change – A number of projects have been identified and are being developed, including large scale tree planting, wetland restoration and works around the decarbonisation of the Council property estate. Unused funding will be carried forward to 2024/25 to fund other projects. |
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Communities, Leisure & Arts |
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Mote Park Lake Dam Works – This project is now substantially complete with just the final payment due to the contractor and has come in under budget.
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Leisure Provision – Discussions are ongoing with the current operator regarding this budget, and at present it is anticipated that there will be some initial spend on improvements at the centre in the final quarter of the year. There will be a further update on the this in the 2nd quarter report. |
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Riverside Walk Works – The plans for this project are currently in development, and whilst it is hoped that it can be completed within the current financial year there is some uncertainty over the timing of the works, so it could slip into 2024/25. There will be a further update on the this in the 2nd quarter report. |
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Housing, Health & Environment |
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Private Sector Rented Housing/1,000 Homes Affordable Housing Programme - A number of schemes are at various stages of development at present, and further land/property acquisitions are likely to take place before the end of the financial year. Some schemes will also contain elements of both private rented and affordable housing so the costs may change depending on the mix at the sites where this happens.
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Flood Action Plan - The flood action plan budget was set up to allow the Council to deliver, or contribute towards, schemes that would mitigate flood risk. At this stage, the only schemes that have been identified have been small scale natural flood management schemes. Officers are discussing with counterparts in the Environment Agency, Kent County Council and the Upper Medway Internal Drainage Board what can be done to promote appropriate and practical schemes in the future. |
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Planning, Infrastructure & Economic Development |
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Town Centre Strategy – The Town Centre Strategy is currently under development, and it is envisaged that capital works will be commissioned as part of this. The first tranche of work is likely to get under way in the final quarter of the year. |
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C1) Collection Fund
C1.1 A large proportion of the Council’s income is generated through local taxation (Council Tax and Business Rates), which is accounted for through the Collection Fund.
C1.2 Due to the risk in this area, including the risk of non-collection and the pooling arrangements in place for Business Rates growth, the Council monitors the Collection Fund very carefully.
C1.3 There are statutory accounting arrangements in place which minimise the in-year impact of collection fund losses on the general fund revenue budget, however, losses incurred in one year must be repaid in subsequent years so there is a consequential impact on future budgets and the medium-term financial strategy.
C2) Collection Rates & Reliefs
C2.1 The collection rates achieved for local taxation are shown in the table below.
Local Tax Collection Rates (Q1 2023/24)
|
Description |
Target Q1 2023/24 |
Actual Q1 2023/24 |
|
Council Tax |
27.48% |
28.16% |
|
Business Rates |
30.97% |
31.28% |
C2.2 The amount of Council Tax and Business Rates collected is marginally higher than the quarter 1 target.
C3) Kent Business Rates Pool
C3.1 The council will continue to participate with other Kent authorities during 2023/24 to maximise the proportion of business rates growth it is able to retain. Forecasts from those in the pool have been requested and we will have an update once we receive all Business Rate quarter 2 figures. As in previous years, any funding will be allocated to spending which supports the delivery of the council’s Economic Development Strategy.
C3.2 As part of the pooling arrangements, pool members share the risks, as well as the rewards of pool membership. Business rates retention scheme is extremely difficult to forecast, due to the number of unknowns e.g. the impact of the removal of expanded reliefs to businesses affected by Covid-19, and the longer term impacts on local, national and global economies.
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D1) Reserves & Balances
D1.1 The combined total of the General Fund balance and Earmarked Reserves as at 1 April 2023 was £30.8 million. This includes £19.3 million set aside for specific purposes in Earmarked Reserves. The makeup of the balance, and the forecast movements during 2023/24 are presented in the table below.
D1.2 The closing balance enables a minimum general fund balance of £4.0 million to be maintained, as agreed by full Council in February 2023.
Reserves & Balances Quarter 1 2023/24
E1) Introduction
The Council has adopted and incorporated into its Financial Regulations, the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice (the CIPFA Code).
The CIPFA Code covers the principles and guidelines relating to borrowing and investment operations. On 22nd February 2023, the Council approved a Treasury Management Strategy for 2023/24 that was based on this code. The strategy requires that Corporate Services Policy Advisory Committee should formally be informed of Treasury Management activities quarterly as part of budget monitoring.
E2) Economic Headlines
During the Quarter ended 30th June 2023, the Council’s Advisors, Link Asset Services, reported:
• A 0.2% m/m rise in real GDP in April, partly due to fewer strikes;
• CPI inflation falling from 10.1% to 8.7% in April, before remaining at 8.7% in May. This was the highest reading in the G7;
· Core CPI inflation rise in both April and May, reaching a new 31-year high of 7.1%;
· A tighter labour market in April, as the 3myy growth of average earnings rose from 6.1% to 6.5%;
· Interest rates rise by a further 75 basis points (bps) over the quarter, taking Bank Rate from 4.25% to 5.00%;
· 10-year gilt yields nearing the “mini-Budget” peaks, as inflation surprised to the upside.
E3) Interest Rates
The Council has appointed Link Group as its treasury advisor and part of their service is to assist the Council to formulate a view on interest rates. Their advice is set out in this section.
The PWLB interest rate forecasts below are based on the Certainty Rate (the standard rate minus 20 bps) which has been accessible to most authorities since 1st November 2012.
Interest Rate Forecast
BANK RATE
The latest forecast, made on 26th June, sets out a view that both short and long-dated interest rates will be elevated for some little while, as the Bank of England seeks to squeeze inflation out of the economy, against a backdrop of a stubbornly robust economy and a tight labour market.
Bank Rate moved to a more aggressive 0.5% hike in June but, with inflation remaining elevated, we anticipate that Bank Rate will need to increase to at least 5.5%, if not higher, to sufficiently slow the UK economy and loosen the labour market.
Moreover, we also still anticipate the Bank of England will be keen to loosen monetary policy when the worst of the inflationary pressures are behind us – but timing on this will remain one of fine judgment: cut too soon, and inflationary pressures may well build up further; cut too late and any downturn or recession may be prolonged. Our current judgment is that rates will have to increase and stay at their peak until the second quarter of 2024 as a minimum.
PWLB RATES
Gilt yield curve movements have shifted upwards, especially at the shorter end of the yield curve since our previous forecast but remain relatively volatile. PWLB 5 to 50 years Certainty Rates are, generally, in the range of 4.90% to 5.60%.
We view the markets as having recalibrated the level of reward required by investors to hold UK sovereign debt (c0.75% higher than in March).
E4) Annual Investment Strategy
The Treasury Management Strategy Statement (TMSS) for 2023/24, which includes the Annual Investment Strategy, was approved by the Council on 22nd February 2023. In accordance with the CIPFA Treasury Management Code of Practice, it sets out the Council’s investment priorities as being:
• Security of capital
• Liquidity
• Yield
The Council will aim to achieve the optimum return (yield) on its investments commensurate with proper levels of security and liquidity, aligned with the Council’s risk appetite. In the current economic climate, over and above keeping investments short-term to cover cash flow needs, there is a benefit to seek out value available in periods up to 12 months with high credit rated financial institutions, using the Link suggested creditworthiness approach, including a minimum sovereign credit rating and Credit Default Swap (CDS) overlay information.
The council held investments totaling £8.54m at the start of the year which have increased to £10.24m on 30th June 2023. Average level of funds available for investment during the quarter was £11.52m. All investments were held in either short term notice accounts or money market funds, to be readily available to fund the Council’s liabilities, including the capital programme.
A full list of investments held at this time is shown at the table below.
Short-Term Investments (1st Quarter 2023/24)
|
Counterparty |
Type of |
Principal |
Start |
Maturity |
Rate of |
MBC Credit Limits |
|
|
|
Investment |
£ |
Date |
Date |
Return |
Maximum Term |
Maximum Deposit |
|
Aberdeen Standard Liquidity Fund |
Money Market Fund |
8,340,000 |
|
|
4.43% |
|
£10,000,000 |
|
Lloyds Bank Plc |
Call Account |
1,900,000 |
|
|
4.90% |
|
£5,000,000 |
|
Total Investments |
|
10,240,000 |
|
|
|
|
|
The Council outperformed the benchmark Sterling Overnight Investment Rate (SONIA) rate by 15 bps (Sonia Rate 4.37%, Council Investments 4.52% as at 30/06/2023). The Council’s budgeted investment return for 2023/24 is £37,000, and performance for the year to date is £10,000 above budget.
Officers can confirm that the approved limits within the Annual Investment Strategy were not breached during the quarter ended 30th June 2023.
E5) Council Borrowing
The Council held external borrowing amounting to £10m at the start of 2022/23. Total borrowing as at 30th June 2023 was £9m.
Due to the overall financial position and the underlying need to borrow for capital purposes (the Capital Financing Requirement - CFR), new external borrowing of £4m was undertaken in June and July (£2m in each month) from the Market. £5m of current borrowing has been repaid in May 2023. A breakdown is shown in the table below.
Council Borrowing (1st Quarter 2023/24)
|
Counterparty |
Type of Institution |
Principal £ |
Start Date |
Maturity Date |
Interest Rate |
|
Public Works Loans Board |
Central Government |
2,000,000 |
11/11/2021 |
11/11/2071 |
1.73% |
|
Public Works Loans Board |
Central Government |
3,000,000 |
30/12/2021 |
30/12/2071 |
1.56% |
|
North Northamptonshire Council |
Local Authority |
2,000,000 |
23/06/2023 |
23/02/2024 |
5.32% |
|
Humber Bridge Board – Kingston Upon Hull |
Local Authority |
2,000,000 |
03/07/2023 |
03/10/2023 |
5.10% |
|
|
|
|
|
|
|
|
Total Loans |
|
9,000,000 |
|
|
|
The Council has also committed to £80m future borrowing to fund the capital programme, currently forecasted at around £200m over the next 5 years. The loans were procured through a tendering process undertaken by Link Asset Service. Details of these can be found in the table below.
Committed Borrowing (1st Quarter 2023/24)
|
Counterparty |
Type of Institution |
Principal £ |
Start Date |
Maturity Date |
Interest Rate |
|
Aviva Life & Pensions UK Limited |
Corporate Lender |
20,000,000 |
13/02/2024 |
13/02/2064 |
2.87% |
|
Aviva Life & Pensions UK Limited |
Corporate Lender |
20,000,000 |
13/02/2024 |
13/02/2074 |
2.87% |
|
Aviva Life & Pensions UK Limited |
Corporate Lender |
20,000,000 |
13/02/2025 |
13/02/2075 |
2.87% |
|
Aviva Life & Pensions UK Limited |
Corporate Lender |
20,000,000 |
13/02/2026 |
13/02/2076 |
2.87% |
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Total |
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80,000,000 |
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E6) Prudential and Treasury Indicators for 2023-24 as of 30th June 2023
The following table lists the Council’s Prudential and Treasury Indicators showing budget for 2023/24 against the actual as at 31st March 2023.
Officers can confirm that the approved Treasury and Prudential limits within the Treasury Management Strategy Statement 2023/24 were not breached during the quarter ended 30th June 2023.
Prudential and Treasury Indicators
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Treasury Indicators |
2023/24 Budget £’000 |
31.03.23 Actual £’000 |
|
Authorised limit for external debt |
79,683 |
17,473 |
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Operational boundary for external debt |
69,683 |
17,473 |
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Gross external debt |
60,992 |
10,000 |
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Investments |
32,000 |
8,540 |
|
Net borrowing |
28,992 |
1,460 |
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Maturity
structure of fixed rate borrowing - |
|
|
|
Under 12 months |
5,000 |
13,500 |
|
5 years to 10 years |
0 |
5,000 |
|
10 years to 20 years |
0 |
0 |
|
20 years to 30 years |
0 |
0 |
|
30 years to 40 years |
0 |
0 |
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40 years to 50 years |
5,000 |
5,000 |
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|
|
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Upper limit for principal sums invested over 365 days
Year 1 Year 2 Year 3 Total |
2,000 2,000 2,000 6,000 |
2,000 2,000 2,000 6,000
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|
|
|
|
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Prudential Indicators |
2023/24 Budget £’000 |
31.03.23 Actual £’000 |
|
Capital expenditure |
33,248 |
16,639 |
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Capital Financing Requirement (CFR) |
119,335 |
71,609 |
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Annual change in CFR |
31,287 |
5,406 |
|
In year borrowing requirement |
31,597 |
4,000 |
|
Ratio of financing costs to net revenue stream |
2,024 |
(505.90) |