At last weeks Cabinet Meeting, Tory Leader of the Council, Cllr Chris Poulter made the statement that the main Budget Risk Reserves were “wasted on the A52”. This wasn’t true. The Cabinet which he leads made a decision in November 2019 to borrow the money to fund the overspend and not to take it from reserves.

Council Officers managed an exceptional response to the Covid pandemic in supporting vulnerable people and adjusting the service provision to navigate the changing restrictions. What wasn’t remarkable was the financial performance of the Council.

In 2020/21 the Council received £25.1m in specific COVID Government Grants and a further £8m in 2021/22. Whilst the Council would have experienced some incremental costs ( especially in Children’s Services) and loss of income, it also experienced significant costs savings.

Whilst most businesses and organisations struggled throughout the pandemic, financially, the Council didn’t. It was able to contribute £5.2m to reserves in 2020/21 and £2.3m in 2021/22 – it’s clear that the generous Government grants exceeded the net cost of Covid, to the Council. A windfall bonus!

What is the reported position with revenue reserves

The Council is a large organisation and its total reserves at 31 March 2022 were £233m. £120m of that is for Capital assets and the Council Housing account. A significant proportion of the balance of £112m is earmarked for specific revenue purposes. This analysis focuses on the Budget Risk Reserve and 4 other accounts ( MTFP, Assy Rooms, Other Services, Capital support); the 4 additional were part of a cross account transfer in 2018/19 and have been included to make the numbers as comparable as possible.

The trend of reducing revenue reserves is in the context of increasing funding ( Central Government and Council Tax) and budgets.

When Budgets are set , legally, they must be balanced with funding. There has been a trend in the last few years for this to be partially achieved by taking money from revenue reserves. The budget for 2022/23 relies on a £5.3m drawdown from revenue reserves . The total funding for 2022/23 is £259m which is in excess of the COVID years. The Qtr 1 2022/23 report shows a £14m overspend to these record high numbers.

For context – an interesting comparison in the growth in funding to the Council ( excluding schools)

In 2014/15 the budget was £218m – in the subsequent 4 years this increased by £7.5m to £225.5m in 2018/19 – 3.4%

In the 4 years from 2018/19 it increased by 20.4%

Comment

The reserves were not impacted by the A52 overspend. Covid provided a boost to reserves and was not a drain unlike most businesses in the country. Yet the future is for the revenue reserves to be depleted even when the income to the Council is substantially higher than it was 4 years ago.

The £33m COVID grant provided a massive income boost and has flattered the position since then with some of the “surplus” being held back to smooth out subsequent deficits. That fund has now run out and the true situation is being exposed.

At the Cabinet meeting on the 14th September, Simon Riley ( Chief Financial Officer) was “blaming” current inflationary pressures for the overspend. When the budget was set in the last quarter of 2021, there was clear evidence that the UK inflation rate was increasing, and therefore an inevitable demand for a commensurate pay increase. The cost of oil and gas was already beyond historic levels suggesting that there would be knock-on effects to wider service costs.

Derby City Council has a leader who doesn’t understand why reserves are being wiped out and a Chief Finance Officer who cannot provide clear financial leadership with reliable forecasting and planning.

It is possible to “engineer” the numbers for a short period but at some point “the music stops” and the lame excuses that were used at the Cabinet meeting by Mr Riley just show that he, and the Tory Cabinet, have lost the initiative and are not in control of the Council’s finances.