Members considered the report of the Interim Deputy Chief Executive and S151 Officer on the draft Revenue Budget, which outlined the predicted financial position and key issues that Members needed to consider as part of the budget setting process.  The Committee had been requested to consider the draft budget and make recommendations to Cabinet, to be considered at its meeting on 5 February 2024.

The following assumptions had been made in calculating the draft Revenue Budget:

•     non-pay budgets had been set on a cash limited basis, with a 0% inflation increase applied, except for contracts where specific indices were relevant;

•     with effect from September 2024, an increase of 2% had been applied to salaries and an allowance of 4.5% assumed for staff turnover;

•     the use of transfers between existing budgets had been applied enabling funding to be re-directed into priority areas;

•     where applicable, income budgets had been increased in line with the fees and charges proposed by Cabinet on 6 November 2023;

•     where relevant, the prevailing Public Works Loan Board (PWLB) interest rates would be used for capital appraisals (currently c5%);

•     returns on investment had been calculated using the following rates: Bank current and deposit accounts up to 5.35%; Investments with other institutions/local authorities – up to 4.50%; and Property Fund investments – 4.00%; and

•     an assumed Council Tax collection rate of 98.3% (unchanged from last year).

The following key issues were highlighted: 

•     the draft Local Government Finance Settlement (LGFS) announced by Government on 18 December 2023 applied to 2024/25, did not guarantee any future funding streams beyond the following year and was again a further single year settlement. The Government had reaffirmed its commitment to undertake a Fair Funding review and a reset of the business rates system in the next Parliament;

•     the Council’s Core Spending Power (CSP) had been set at £12.9m, an increase of £0.6m from 2023/24, equating to 5.1%;

•     the Settlement Funding Assessment (SFA) consisted of the Council’s share of business rates income and Revenue Support Grant (RSG). The baseline funding figure had increased from the 2023/24 figure by £0.1m and there was also an increase of £0.1m due to the freezing of the business rates multiplier, taking this support to £0.5m.  However, because the expected share of business rates income comfortably exceeded £3.0m, the Council yet again would not receive an RSG. The Department for Levelling Up, Housing & Communities (DLUHC) had confirmed, in common with previous years, that councils would not be required to pay over negative RSG;

•     the small Business Rates Multiplier for 2024/25 would remain frozen again at 49.9p, but councils would be compensated for any reduction in income because of this decision. The Government had committed to reimburse councils for any negative impact on its business rates income arising from the implementation of the 2023 revaluations;

•     the East Sussex Business Rates Pool for 2024/25 would be retained;

•     the Council Tax referendum principle for Rother would allow an increase in Council Tax by the higher of 3% or £5. Members could decide to set a higher increase but would need consent via a local referendum. A 3% increase would yield approximately £38k more than an increase of £5. It was assumed that the Council would increase Council Tax by the maximum allowed, which was 3% in this case;

•     for 2024/25, to ensure the Council remained within the referendum limit, an estimated increase to about £204.56 for an average Band D property was anticipated and this would be confirmed in phase three of the budgeting process. Including growth, this would generate c£0.368m extra income;

•     Members noted that the LGFS also included council tax setting flexibilities for precepting authorities, as outlined in the report;

•     the 2024/25 Council Tax base had been calculated at 39,197.50 and showed an increase of 676.70 Band D equivalents since December 2022, due to an increase in chargeable dwellings and eligible discounts, a continued post-COVID reduction in Council Tax Reduction Scheme claimants and estimated growth and associated discounts;

•     new Government funding streams in relation to ‘Extended Producer Responsibility for Packaging’ Schemes had been rescheduled to October 2025. With the details of the new scheme being unknown at the time, no additional income had been factored into the estimates for 2025/26 and future periods;

•     a further round of New Homes Bonus (NHB) grants had been announced as part of the 2024/25 LGFS; the Council’s allocation for the next financial year was £136k;

•     in response to inflationary pressures, the DLUHC would combine the NHB legacy payments with the Lower Tier Service Grant; the Council’s allocation would be £778k;

•     service grants had been reduced to £15k for 2024/25;

•     to implement the requirements of the Elections Act 2022, the Council would receive £32k, as well as an unspecified amount to administer the impact of business rate revaluations (£20k had been included within the budget); and

•     the draft Revenue Budget for 2024/25 proposed the use of just over £0.6m (£2.2m originally budgeted for 2023/24) from Usable Revenue Reserves, which would reduce Reserves to £4.5m by 31 March 2025. There was a further reserve requirement of £30.1m in 2025/26 before contributions of (£1.0m) in 2026/27 and a further (£1.3m) in 2027/28, which would take reserve levels back up to around £6.7m.

The cost pressures that might affect the Council’s finances were highlighted within the report and these included contractual inflation, homelessness demands, increased external audit fees, net financing costs, increased staffing costs and non-pay inflation.

As part of the production of the Medim Term Financial Strategy forecasts in November 2023, a detailed budget review took place to identify efficiencies, savings, and additional income to help support frontline services, to balance the budget, and make the Council’s future financial position as resilient as possible. The draft proposals totalled £3.3m, with the efficiencies, income and savings identified coming from several areas, were detailed in the report, the Council’s new ‘Fit for the Future’ financial resilience programme. Following more detailed work on the proposals, total savings of £3.1m had been included within the provisional budget figures.

The Council’s auditors, Grant Thornton (GT), recommended that reserves needed to be at least 5% of net General Fund expenditure. However, it was the view of the Interim Deputy Chief Executive and S151 Officer that the GT recommended levels were not sufficient and that reserves in the region of £4m were more reasonable. Based on the Council’s current budget forecasts, reserves were currently forecast to be about 31% of the Council’s Net Revenue Expenditure by the end of 2024/25 and this was forecast to increase to 47% by the end of 2027/8.

There was currently a fundamental review of the capital programme being undertaken to ensure that capital schemes remained affordable and continued to deliver the outcomes originally anticipated. There were no new proposals or capital growth items included within the updated programme, found at Appendix D to the report, except for any recent Committee decisions regarding capital investment and budget levels.

The gross capital budget was £202m, with £33m having been spent in prior years, leaving a balance of £169m to be spent in the current and future financial years, with a forecast of £20m for 2023/24. The remaining £149m scheduled between 2024/25 and 2028/29 was subject to the ongoing capital programme review and business case re-appraisal.

The budget consultation closed on 17 December 2023, details of which could be found within Appendix E to the report. In general terms, respondents were supportive of the proposals.

Following the introduction of the Levelling Up and Regeneration Act 2023, there were opportunities for the Council to consider changes to its approach relating to certain discretionary areas of the Council Tax to improve outcomes for residents, full details of which were contained within Appendix F to the report.  The changes provided by the Act concerned empty properties and second homes; the former could be introduced by April 2024, the latter required the decision to be taken at least 12 months before the financial year to which it would apply, so would therefore not take effect until the 2025/26 financial year.

During the debate the following points were made:

•     the leases on the public conveniences in Devonshire Square, Bexhill and Channel View East, Bexhill had been taken over by Bexhill Town Council (BTC);

•     discussions were taking place with Pett Parish Council to share the cost of opening Pett Level public conveniences during the summer season;

•     discussions were also taking place with the Bexhill Old Town Preservation Society, Sedlescombe Parish Council and various sports clubs concerning public convenience leases, and with Rye and Battle Town Councils on the devolution of further services;

•     the proposed changes to Council Tax Premiums on second homes could double the income received;

•     the Council’s early vision to invest in its own temporary accommodation (TA) had saved approximately £8m.  Homelessness costs equated to approximately 14% of the net revenue budget;

•     Members congratulated the Chief Executive and Interim Deputy Chief Executive on the savings plan that had been built into the budget;

•     the Council continued to experience recruitment difficulties and Members felt uneasy about the pay award budget;

•     the Council was undertaking a light touch capacity study to look at redeveloping the Town Hall site and developing a business plan proposal for the provision of residential accommodation, a recommendation that had originated from this Committee;

•     DLUHC was exploring the possibility of additional capital flexibilities, one being the use of capital receipts to meet general budget pressures, of which Members raised concerns. A detailed plan to address budget challenges was required, as this was not sustainable;

•     Members noted that the Council’s CSP had only increased by £1m since 2015/16, representing an 8% increase over the entire nine-year period;

•     the funding paid to the De La Warr Pavilion (DLWP), which was owned by the Council, brought in further funding which would be lost if the Council was to reduce its contribution;

•     the current Service Level Agreement with the DLWP was due to expire in due course and discussions would be taking place concerning funding arrangements and the Council’s requirements of the DLWP.  Members agreed that the DLWP was an asset to the district; and

•     a number of reports on the projects of the capital programme would be presented to Members over the coming year.  The next Members’ Briefing would include information on some of the schemes.

It was agreed that the above comments would be submitted to Cabinet.

RESOLVED: That the comments of the Overview and Scrutiny Committee be considered by Cabinet when setting the 2024/25 Draft Revenue Budget at its meeting on 5 February 2024.