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Contents
Part A: Second 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: Second Quarter Capital Budget 2023/24
B1) Capital Budget: Council
B2) Capital Budget: Corporate Services (CS PAC)
B3) Capital Budget Variances
Part C: Second 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 (@ 2nd Quarter): Analysis by PAC
Net Expenditure 2023/24 (@2nd Quarter): Analysis by PRIORITY
Net Expenditure 2023/24 (@ 2nd 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 (@ 2nd 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 2. 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 (@ 2nd 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 tables below highlight and provides further detail on the most significant variances at the end of Quarter 2 for both this and the other PACs.
CS PAC Variances (@ 2nd Quarter 2023/24)
|
|
Positive Variance Q2 |
Adverse Variance Q2 |
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. |
|
-119 |
-100 |
|
Maidstone House (Landlord) – This variance is a combination of projected over and underspends. We are anticipating receiving some additional service charge income and a significant underspend on the electricity budget. However, we are also anticipating additional costs and a shortfall in income in relation to the vacant floors that we are seeking to let out. |
70 |
|
130 |
|
Unapportionable Central Overheads – Pension contributions to the Kent County Council Pension Fund will be lower than forecast, which reflects the level of staff vacancies across the Council. |
29 |
|
50 |
|
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. |
8 |
|
402 |
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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. |
296 |
|
800 |
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Archbishops 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. |
|
-76 |
-90 |
|
|
Positive Variance Q2 |
Adverse Variance Q2 |
Year End Forecast Variance |
|
Corporate Services |
£000 |
||
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Sundry Corporate Properties – There is a Medium-Term Financial Strategy saving of £88,000 for additional rental income from new properties that is unlikely to be realised as there have been no new additions so far this year. |
40 |
|
-75 |
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MPH Residential Properties - The majority of the forecast variance relates to the temporary closure of Granada House for refurbishment works. |
|
-141 |
-252 |
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Rent Allowances/Non-HRA Rent Rebates - The variances are due to the timing of the rent allowances /rebates awarded and the income received from government. These are an estimated cost until the year-end subsidy claim is submitted. |
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-238 |
0 |
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Maidstone House (MBC Tenant) – Service charges costs for floors 5 and 6 are likely to be £80,000 greater than forecast. |
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-72 |
-80 |
A4) Other Revenue Budgets: Significant Variances
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|
Positive Variance Q2 |
Adverse Variance Q2 |
Year End Forecast Variance
|
|
Planning, Infrastructure & Economic Development |
£000 |
||
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PLANNING & ECONOMIC DEVELOPMENT |
|
|
|
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Development Control Advice – Income from Planning Performance Agreements is significantly down this year as developers are waiting for the new Local Plan to be adopted before progressing with further applications. |
|
-65 |
-75 |
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Development Control Majors – Income from major applications is significantly down this year, as with the Planning Performance Agreements developers are waiting for the new Local Plan to be adopted before progressing with further applications. |
|
-215 |
-150 |
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Innovation Centre – Running costs are currently overspent due to Non-Domestic rates bills that are due on the vacant office space. That vacant space is also reflected in the shortfall in income budgets. The adverse variance will be covered by income from Enterprise Zone rates. |
|
-85 |
0 |
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Business Terrace 1st Floor Maidstone House – Service charge costs are significantly higher than forecast, and there are also two units vacant meaning there is a shortfall in income. |
|
-53 |
-100 |
Planning, Infrastructure & Economic Development PAC Variances (@ 2nd Quarter 2023/24)
|
|
Positive Variance Q2 |
Adverse Variance Q2 |
Year End Forecast Variance
|
|
Planning, Infrastructure & Economic Development |
£000 |
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PARKING SERVICES |
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|
|
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On Street Parking – This variance is a mixture of reduced running costs and increased income. Penalty Charge Notice income is £19,000 up on the profiled budget, On Street Pay & Display income is slightly down. |
41 |
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52 |
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Sandling Road Car Park – Running costs are currently underspent and income is in excess of budget. This is forecast to continue for the remainder of the year. |
27 |
|
56 |
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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. |
93 |
|
100 |
Housing, Health & Environment PAC Variances (@ 2nd Quarter 2023/24)
|
|
Positive Variance Q2 |
Adverse Variance Q2 |
Year End Forecast Variance
|
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Housing, Health & Environment |
£000 |
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Playground Maintenance & Improvements – There are vacant posts in the team, and the replacement equipment budget is currently underspend but will be utilised later in the year. |
51 |
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31 |
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Housing Temporary Accommodation – This continues to be a significant issue as the demand for the service continues to be high. The cost-of-living crisis and issues with getting people out of temporary accommodation are the main challenges at present. Further properties are being acquired to help alleviate the pressure on this budget. |
|
-457 |
-779 |
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Homeless Prevention – Expenditure continues to be high on the Homefinder scheme, although there are plans to reduce the level of spend. There have also been unanticipated legal costs of £25,000. |
|
-54 |
-37 |
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Fleet Workshop & Management – Expenditure on unscheduled vehicle maintenance and vehicle hire is currently lower than forecast. |
35 |
|
49 |
Communities, Leisure & Arts PAC Variances (@ 2nd Quarter 2023/24)
|
|
Positive Variance Q2 |
Adverse Variance Q2 |
Year End Forecast Variance
|
|
Communities, Leisure & Arts |
£000 |
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Leisure Centre – Under the terms of the current contract with the operator the Council is responsible for excess utility costs, and with utility prices continuing to be at a high level this is reflected in this overspend. |
|
-47 |
-80 |
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Lockmeadow Complex – A number of units at the complex have fallen vacant during the period, leading to a shortfall against budget. However, progress has been made in identifying new tenants. The former David Lloyd unit now operates as the Lockmeadow Health Club, under the same management as the council’s leisure centre. A tenant offering virtual reality experiences has moved into another unit. Head of terms have been agreed with a prospective tenant at the former Frankie & Benny’s. Note that the business case for the Lockmeadow acquisition anticipated that the end of existing leases there would be a period during which these units would be non-income producing |
|
-240 |
-350 |
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 2 are presented in the table below.
B1) Capital Budget 2023/24 (@ 2nd Quarter 2023/24)
B2) Capital Budget Variances (@ 2nd Quarter 2023/24)
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Corporate Services |
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Corporate Property Acquisitions - This budget is available for Commercial Property acquisition opportunities that may arise during the year. Expenditure therefore depends on whether any suitable acquisitions emerge. So far this year no such opportunities have proved to be worth pursuing further. Even if any opportunities were identified at this stage (November 2023), completion would probably not take place in the current financial year, so no spend is projected. |
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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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Infrastructure Delivery - This budget exists to enable major infrastructure schemes to go ahead. It is intended that it will be used where a top-up from MBC can make the difference between a scheme proceeding or not. No requirement to use the budget has been identified so far in 2023/24. Given the time required to work up proposals for suitable schemes, it is unlikely that the budget will be used in the current financial year. |
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Communities, Leisure & Arts |
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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 3rd quarter report. |
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Riverside Walk Works – This project has now been subsumed into the overall plans for Town Centre improvement works, arising out of the emerging Town Centre Strategy. The budget will therefore be carried forward to 2024/25. |
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Housing, Health & Environment |
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Private Rented Sector 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.
The figures also reflect grant funding that we anticipated receiving this year. To date we have received £2.3m from the Local Authority Housing Fund, and £2.1m from the Brownfield Release Fund, which will be used to fund the initial development costs of the Maidstone East scheme. The initial programme does anticipate further funding, but some of that is linked to the development of certain schemes. The projected overspend of £1.981m on Private Rented Sector relates to increased costs for the Granada House scheme and the acquisition of a site that was not included in the initial forecast for this year. This will be covered by the £2.3m Local Authority Housing Fund grant referenced above.
The projected slippage for the Maidstone East Commercial Development and the Heather House Community Scheme reflects that the progress on the wider schemes of which they are a part has not moved on as far as the initial programme anticipated. As part of the budget setting process for 2024/25 and beyond the capital programme is being reviewed, and there will be a revised budget in place for the third quarter financial update report that will more accurately reflect the position of the various schemes.
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Temporary Accommodation – There have been a significant number of acquisitions to date this year, and the team continue to seek suitable properties, but any purchases agreed in the fourth quarter are unlikely to be completed within this financial year so the unused budget will be rolled forward. |
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Continued Improvements to Play Areas – The projected slippage is a sum set aside for the refurbishment of the Penenden Heath play area, which is scheduled to take place in the first quarter of 2024/25. |
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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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CCTV Upgrade & Relocation – This is an unbudgeted cost relating the scheme which took place in 2020. The contractor contacted the Council and advised us that there was a final payment due. Officers reviewed the position and agreed that this was the case and the payment was made. |
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Planning, Infrastructure & Economic Development |
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Town Centre Strategy – The current strategy is being reviewed and updated and is unlikely to be adopted until early 2024, so it is anticipated that there will be some spend 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 (Q2 2023/24)
|
Description |
Target Q2 2023/24 |
Actual Q2 2023/24 |
|
Council Tax |
54.93% |
54.81% |
|
Business Rates |
56.52% |
59.26% |
C2.2 The amount of Council Tax collected is marginally lower than the quarter 2 target, whilst Business Rates is showing a higher level of collection compared to their 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 2 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 September 2023, the Council’s Advisors, Link Asset Services, reported:
• Bank Rate has increased from 5% to 5.25% in August 2023, but the Monetary Policy Committee decided not to increase rates further in September 2023;
• CPI inflation falling from 8.7% in April to 6.7% in August, its lowest rate since February 2022, but still the highest in the G7;
· Core CPI inflation declining to 6.2% in August from 7.1% in April and May, a then 31 years high.
· A cooling in labour market conditions, but no evidence yet that it has led to an easing in wage growth.
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 latest forecast on 25th September sets out a view that short, medium 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.
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
In its latest monetary policy meeting on 20 September, the Bank of England left interest rates unchanged at 5.25%. The weak August CPI inflation release, the recent loosening in the labour market and the downbeat activity surveys appear to have convinced the Bank of England that it has already raised rates far enough. The minutes show the decision was “finely balanced”. Five MPC members (Bailey, Broadbent, Dhingra, Pill and Ramsden) voted for no change and the other four (Cunliffe, Greene, Haskel and Mann) voted for a 25 basis points hike.
The Bank of England wants the markets to believe in the higher for longer narrative. The statement did not say that rates have peaked and once again said if there was evidence of more persistent inflation pressures “further tightening in policy would be required”. Governor Bailey stated, “we’ll be watching closely to see if further increases are needed”. The Bank also retained the hawkish guidance that rates will stay “sufficiently restrictive for sufficiently long”.
The Bank of England does not want the markets to decide that a peak in rates will be soon followed by rate cuts, which would loosen financial conditions and undermine its attempts to quash inflation. The language also gives the Bank of England the flexibility to respond to new developments. A rebound in services inflation, another surge in wage growth and/or a further leap in oil prices could conceivably force it to raise rates at the next meeting on 2nd November, or even pause in November (rates have stayed at 5.25% in November) and raise rates in December.
PWLB RATES
The yield on 10-year Gilts fell from a peak of 4.74% on 17th August to 4.44% on 29th September, mainly on the back of investors revising down their interest rate expectations. But even after their recent pullback, the rise in Gilt yields has exceeded the rise in most other Developed Market government yields since the start of the year. Looking forward, once inflation falls back, Gilt yields are set to reduce further. A (mild) recession over the next couple of quarters will support this outlook if it helps to loosen the labour market (higher unemployment/lower wage increases).
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 £10.24m in the last quarter have increased to £16.76m on 30th September 2023. Average level of funds available for investment during the quarter was £16.242m. 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 (2nd 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 |
8,790,000 |
|
|
5.29% |
|
£10,000,000 |
|
Federated Hermes Short-Term Sterling Prime Fund |
Money Market Fund |
7,970,000 |
|
|
5.35% |
|
£10,000,000 |
|
Total Investments |
|
16,760,000 |
|
|
|
|
|
The average rate of investments during this quarter is 4.04% accumulating £369k in investment income.
Officers can confirm that the approved limits within the Annual Investment Strategy were not breached during the quarter ended 30th September 2023.
E5) Council Borrowing
The Council held external borrowing amounting has remained at £9m since the last quarter. A breakdown is shown in the table below.
Council Borrowing (2nd 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 (2nd 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% |
|
Total |
|
80,000,000 |
|
|
|
E6) Prudential and Treasury Indicators for 2023-24 as of 30th September 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 September 2023.
Prudential and Treasury Indicators
|
Treasury Indicators |
2023/24 Budget £’000 |
31.03.23 Actual £’000 |
|
Authorised limit for external debt |
60,000 |
17,473 |
|
Operational boundary for external debt |
50,000 |
17,473 |
|
Gross external debt |
45,000 |
10,000 |
|
Investments |
22,882 |
8,540 |
|
Net borrowing |
22,118 |
1,460 |
|
Maturity
structure of fixed rate borrowing - |
|
|
|
Under 12 months |
4,000 |
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 |
|
40 years to 50 years |
5,000 |
5,000 |
|
|
|
|
|
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
|
|
|
|
|
|
Prudential Indicators |
2023/24 Budget £’000 |
31.03.23 Actual £’000 |
|
Capital expenditure |
38,994 |
16,639 |
|
Capital Financing Requirement (CFR) |
102,373 |
71,609 |
|
Annual change in CFR |
30,764 |
5,406 |
|
In year borrowing requirement |
30,975 |
4,000 |
|
Ratio of financing costs to net revenue stream |
(550.00) |
(505.90) |