When is a balanced position, not a balanced position? When you use reserves to plug the gap! When is a budget, not the budget? When you change it during the year!
Some might call it “smoke and mirrors”, some might call it “legitimate accounting practice”. It certainly doesn’t allow a common sense understanding of the Council’s finances.
The 2018/19 overspend
At next week’s Cabinet meeting a document on the Final Accounts for 2018/19 will report ( my emphasis)
“The General Fund revenue outturn position is a balanced position when compared to the Revenue Budget for 2018/19. The balanced position is achieved after use of reserves of £5.434m”
The actual spend in 2018/19 is £225.4m, the budget set at the beginning of the year was £217.8m, resulting in an overspend of £7.6m. Why not, £5.434m? The budget was increased during the year to £220m. Which is the correct budget?
The “reserves” used to fund the unbalanced budget position of £5.434m is from a variety of annual grants received during the year e.g. Social Care, Winter Pressures, Better Care Fund with the largest element, £2.873m from the Business Rates Pilot Gain. This “Gain” results from Derby City Council participating in a pilot scheme for the future policy that allows Councils to retain 100% of Business rates ( to be implemented from 2020/21). The total “gain” for 2018/19 was £5.82m. The purpose of the “gain” was to fund in-year services – not to be transferred to reserves.
See Derby News article from 11th April 2018 – “Good news! Council to receive an additional £6m government funding this year”.
In view of this has there really been an overspend or not?
Where was the reported overspend in 2018/19?
The report states that there was a significant overspend of £8.42m in Children’s Services; this is against a “current” budget of £47.8m. The original budget declared was £51.7m ( and confirmed in Feb 2019) – in which case, the overspend was £4.5m. It seems that £3.8m of budget was transferred in the last few months of the year from Children’s Services to Communities and Place ( i.e. everything apart from Adult Social Care and Children’s Service e.g. Leisure, culture, waste collection, street cleaning, highways etc ) compounding the confusion. This transfer is not explained.
What caused the reported overspend in Children’s Services?
£6.5m – overspend on a budget of £23.2m for “looked after” children ( excluding school placements). This is due to an increase in numbers and complexities of cases.
£0.9m – using agency social workers to fill temporary vacancies
£0.4m – legal costs associated from care proceedings. This was on a budget of £0.3m!
£0.75m – overspend relating to Home to School transport for children with Special Needs to placements outside of the City
Other significant variances in the Budget?
- Adult Social Care underspent by £1.38m by improving the collection of income from a variety of sources.
- Parkings services overspent by £0.23m due to traffic cameras being temporarily out of use
- Leisure Centres underachieved on the budget by £0.47m due to poor/unattractive facilities, competition from 3rd parties
- Delay in Libraries strategy implementation – under achievement of £0.15m
- Delay in operation of Sinfin Incinerator resulting in payments for disposal being based on planned tonnages – saving £1.08m [ A suggestion that the Incinerator will be a revenue budget burden when it is implemented!]
- Concessionary fares underspend of £0.42m
- Managing an ageing depot ( Stores Road) and vehicle fleet requiring additional maintenance – overspend of £0.31m
- Housing Benefits overpayment recovery netted £0.96m
This year saw the first significant reductions in key reserves, principally due to the expected overspends on the A52 project. These reserves are now planned to deteriorate significantly over the next few years. In aggregate, the unearmarked budget reserves:
- At 31 March 2018 – £50.4m
- At 31 March 2019 – £34.8m
- Planned position – future – £10.9m
Capital programmes have slipped signficantly
The original major build / purchase programme across all areas ( Schools, property, Regeneration, Highways, Housing) for 2018/19 was £134.3m ( albeit it is now reported as £87.5m). The actual spend is £74.14m – an underspend of £60.15m. £25m of the shortfall will be due to the delay to the Sinfin Incinerator being the contracted 50% contribution from the Council. The rest of the underspend reflects the fact that the Council cannot plan capital programmes within a 12 month horizon.
Perhaps the most disappointing slippage/underspend relates to the Department of Transport Cleaner Bus Grant. This is for £2.82m. Due to a delay in discussions with Trent Barton and YourBus, this funding will now be returned to the Government.
Cash, and Borrowing position.
Although the Council’s borrowings have dropped by £11m to £352m, its Cash/short term investments position has dropped by £31m to £68m. This means that the net borrowing status has increased by £21m – this is similar to the position in 2015/16. What is not clear is whether this is a trend for future years.
Derby City Council’s finances have typically been viewed through the lens of party politicking. Since 2014, despite the rhetoric about central Government cuts the aggregate general, unearmarked budget reserves doubled from ~ £25m to £50m at 31 March 2018. This only happened due to budget surpluses. There is now a marked downturn, due to the need to fund the A52 overspend, of ~£30m.
It is worth remembering that in the 2010/2011 Budget, published a few months before the Tories took office, nationally, and before the start of the long austerity period, Derby City Council declared it needed to make £39m of savings over the subsequent 3 years to “balance the budget”. Depending on your viewpoint, this £39m saving could have been interpreted as:
- Draconian cuts to vital services and vulnerable people
- Loose accounting practices
- An opportunity to remove “fat” from the budget.
Given that the budget in 2010/11 was £215m there is a common view that £39m of savings would have reduced the budget to £176m by 2013 and that this would have been further reduced by over £100m since then – if you believe the political explanation. This is incorrect! The budget has increased every year since then – in 2019/20 it will be £221m.
The Council’s reporting of its finances fails any form of transparency test. It is complex, complicated, and bordering on misleading. This is obscured and contorted when it is confused by political “spin” which leaves the general public reeling, and feeling “manipulated”. The Council manages to the nearest “million pounds”, not the small sums spoken of by the politicians used, for their convenience, to influence public opinion.
Perhaps the Council, should keep things simple for the public:
- Plot the trend in aggregate unearmarked, budget reserves, including a projection for 3 years
- Plot the trend in cash balances/short term investment, and borrowings together with a projection for 3 years.
…and explain the future trend.
That’s all that’s needed for the public – the rest is just “smoke and mirrors”
Categories: Derby City Council