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Report to: |
Cabinet |
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Date: |
29 September 2022 |
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By: |
Chief Executive |
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Title of report: |
Reconciling Policy, Performance and Resources (RPPR) – Update |
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Purpose of report: |
To update Members on the latest policy context, Medium Term Financial Plan and capital programme and proposed approach to one-off investments. |
RECOMMENDATIONS:
Cabinet is recommended to:
i. note the updated policy and demographic context as set out in paragraph 2;
ii. note the updated Medium Term Financial Plan as set out in paragraph 3 and appendix 1;
iii. approve the allocation of £270,000 from the £5.175m Services Grant funding to support staff recruitment and retention as set out in paragraph 4.5, and to hold the remainder of the funding in the Priority and Transformation Reserve;
iv. note the capital programme update as set out in paragraph 5 and appendix 2; and
v. agree to continue lobbying for sustainable funding to meet the needs of the residents of East Sussex.
1. Background
1.1. In June Cabinet considered the State of the County report, a key milestone in the Council’s Reconciling Policy, Performance and Resources (RPPR) process, its integrated business and financial planning cycle. The report set out the updated demographic, economic and service evidence base; the national and local policy context; and updates on our medium term financial planning position and capital programme. It gave our latest understanding of how we will need to continue to respond to the broad and rapidly evolving range of policy, demographic and financial drivers which influence the outlook for the Council, both in the short and longer-term.
1.2. The report illustrated the high levels of uncertainty and change that continue to dominate the environment within which we are working and planning. Factors such as the volatile national and international economic situation and the undefined impact of national reforms to many of our key service areas, particularly social care, contributed to a highly uncertain financial outlook. As a result of this unclear and evolving picture it was not possible to present an updated Medium Term Financial Plan as part of State of the County.
1.3. Since June, the instability in our planning context has persisted, with significant further national economic and political developments. A new Prime Minister took office on 6 September and although the new Government’s policy agenda and priorities are beginning to emerge, there remains uncertainty over whether, or how, national policy proposals brought forward by the previous administration will be progressed. The new Government takes over at a time when current and forecast economic conditions continue to shape a very challenging financial outlook both for the Council itself and many of the county’s residents and businesses.
1.4. The RPPR process, which brings together our policy, business and financial planning and risk management, continues to provide the robust mechanism to help us navigate this uncertain environment, supporting planning for 2023/24 and beyond and maintaining focus on our four priority outcomes:
The priority outcome that the Council makes the “best use of resources, now and for the future” is a test that is applied to all activities to ensure sustainability of our resources, both in terms of money and the environment. In June Cabinet also agreed, for planning purposes, a number of changes to the delivery outcomes which underpin these priorities to ensure they remain up to date and appropriately reflect the post-Covid context.
1.5. With our firm foundation of careful management of resources over many years, and with the assistance of Government Covid support during the pandemic, we have been able to maintain stability in service provision in recent years and we are managing current, in-year pressures within our current plans and contingency arrangements. However, the financial outlook in the medium term is increasingly challenging and uncertain with national economic conditions impacting on our projected future position, alongside pre-existing pressures and uncertainties. This report provides our latest assessment of the position.
1.6. As reported in June, the allocation of a single year Services Grant by Government, as part of the finance settlement for 2022/23, presents an opportunity to consider making one-off investments where these could help manage future demand, address future issues or help deliver priorities. However, the difficult economic situation, and resulting additional pressures on Council services and our financial position, form a new backdrop against which to consider the appropriate use of one-off funding.
1.7. This report provides Members with an update on the rapidly evolving context that will continue to inform our planning for 2023/24, and includes:
· updates on key policy context developments since June;
· updates on the financial context and an updated Medium Term Financial Plan for 2023/24-2025/26;
· an update on the capital programme and next steps; and
· a proposed approach to one-off investments.
2. Policy context update
2.1 The context the Council is operating within continues to change rapidly. Key areas in which there have been developments since the State of the County report, or in which further developments are expected this autumn, are detailed below.
· National Government changes - On 5 September Liz Truss was announced as the new Leader of the Conservative Party and Prime Minister. She indicated that her Government’s initial priorities would be growing the economy, addressing energy price rises and energy supply, and access to NHS services. New ministerial appointments were made in early September including Simon Clarke as the new Secretary of State for Levelling Up, Housing and Communities. Further detail of the new Government’s policy agenda, and how that will impact on local government, is expected to emerge during the autumn, after a pause in parliamentary business during the period of mourning following the death of Her Majesty Queen Elizabeth II.
· National economic context – since June, national economic conditions have become increasingly challenging with forecasts indicating this is likely to continue for some time. Inflation, as measured by the Consumer Prices Index (CPI), reached 10.1% in the 12 months to July and, despite an unexpected fall to 9.9% in August, is currently forecast by the Bank of England to peak at 13% in the coming few months before reducing to the 2% target over the next two years. The high rate has been driven particularly by significant increases in the cost of energy and food, both linked to the ongoing war in Ukraine amongst other factors, and creates significant cost of living pressures for individuals and families. The Institute for Fiscal Studies has highlighted that lower income households are likely to face higher rates of inflation than the headline figures suggest because they spend a higher proportion of their income on food and energy. In response to rising inflation the Bank of England raised interest rates by 0.5% to 1.75% in August – the largest increase since 1995 - with further rises anticipated.
In late August the energy regulator Ofgem announced an 80% increase in the cap on household energy prices from 1 October to £3,549 (annual cost for dual fuel for an average household). Although Ofgem did not provide specific price cap projections for the new year due to ongoing market volatility, it was indicated that there could be significant further increases through 2023. The regulator’s announcement highlighted the significant impact this would have on households and called for further support from Government in addition to measures already introduced to support households with energy bills earlier in the year. Research published by the University of York indicated that, without further action, around two thirds of UK households could be in fuel poverty (spending more than 10% of net income on fuel) by January. Significant concerns have also been raised nationally about the impact of inflated energy prices on the sustainability of some businesses, who are not covered by the price cap.
In response to the significant rise in energy prices, on 8 September the new Government announced a package of measures to ensure that typical households will pay no more than £2,500 a year on gas and electricity bills from 1 October through an Energy Price Guarantee. The Prime Minister confirmed that the new price guarantee will last for two years and will be paired with both the existing Energy Bill Support Scheme, which will provide £400 support to households, and a £150 saving, brought about by a temporary suspension of green levies on energy bills. Households who do not pay direct for mains gas and electricity – such as those living in park homes or on heat networks – will receive support through a new fund. The Government will also support business, charities and public sector organisations with their energy costs this winter, providing an equivalent guarantee for six months. In addition, the Treasury announced a joint scheme, working with the Bank of England, to provide resilience to both energy and financial markets, and the economy, and reduce the eventual cost for businesses and consumers. The Government also announced a new Energy Supply Taskforce to agree long-term contracts that reduce the price charged for energy and increase the security of its supply.
As well as the potential for increased demand on services, high energy prices and inflation also impact directly on our operating costs as set out in more detail in paragraph 3 below. Levels of inflation and cost of living pressures are impacting on pay negotiations across the workforce in both the public and private sectors. Combined with a reduction in the active workforce post-Covid and low rates of unemployment there remains a highly competitive and challenging environment for recruitment and retention of staff. For ESCC this means we are continuing to experience significant challenges in recruiting to posts across the organisation, particularly front line social care roles, which impacts on the capacity in services. Part of our response to this issue has been the launch of a new recruitment brand in September, promoting the Council as an excellent place to work and ‘employer of choice’.
· Looking ahead, the outlook for the UK economy over the next 18 months has worsened compared to forecasts earlier in the year. Gross Domestic Product (GDP) fell by 0.1% in the second quarter of 2022, the first fall in GDP since early 2021. The Bank of England forecasts that the economy will go into recession later this year, with output falling from the last quarter of 2022 to the last quarter of 2023. Even when growth resumes, it is forecast to be “very weak”.
The Government has indicated that the Chancellor will make a fiscal statement (as opposed to a full Budget statement) on 23 September which will include setting out the cost and funding of the energy support package. The statement may also include details of the new Government’s taxation policy and plans to strengthen economic growth. Any implications of the statement for ESCC will be reported verbally at the Cabinet meeting.
· Adult Social Care charging reform – In July the Government published updated operational guidance on implementing the cap on care costs, which included a change to the implementation of one aspect of the reforms, the extension of Section 18(3) of the Care Act 2014 which will allow people who are self-funding their care costs to have residential care for eligible needs arranged by their local authority at local authority rates (this provision is already in place for domiciliary care). In response to concerns expressed during consultation about the workability of full implementation of this aspect from October 2023 it will now be phased, with people newly entering residential care from October 2023 initially eligible, and the full roll-out to those already living in residential care to take place by April 2025, or earlier if the market can sustain it. This does not affect people’s ability to use the cap on care costs as all care users will be able to meter towards the cap from October 2023.
In August, Government published a technical consultation on proposals for distributing funding to local authorities to support the first year of delivery of charging reform in 2023 to 2024, including funding for undertaking an increased number of financial and needs assessments, and implementing the extension to the means test and the cap on care costs. Our response raised concerns about whether the allocations under any of the methodologies proposed would be sufficient to cover our costs and emphasised the importance of factoring in the existing number of self-funding individuals in an area given the link to the likely impact of the reforms.
To support initial preparations for implementing the reforms we have been allocated £97,792 in 2022/23. The Adult Social Care and Health department has initiated a programme of work to deliver the required changes to systems and processes, linking this to activity already underway to develop an Adult Social Care Strategy to ensure that the needs and aspirations of local people and other stakeholders are woven into priority projects and programmes going forward. Work continues to analyse the potential impact of charging reforms in East Sussex, with a key next step being the requirement to produce a provisional Market Sustainability Plan to submit to the Department for Health and Social Care (DHSC) by mid-October. The very significant potential financial impact of the reforms on the County Council is outlined in paragraph 3 below.
Funding linked to charging reforms does not cover existing growth in demand for social care. We will therefore need to continue to lobby with others in the sector for Government to address ongoing social care pressures in a sustainable way that reduces reliance on Council Tax, as well as highlighting the additional impact of reforms, including the significant consequences for the NHS and the care home market, as well as Councils, if reforms are implemented without sufficient time or funding.
· Health and social care integration – On 1 July Integrated Care Systems (ICS) came into being on a statutory basis across England. Locally, this saw the replacement of the East Sussex Clinical Commissioning Group with the NHS Sussex Integrated Care Board which took over responsibility for commissioning most local health services across East and West Sussex and Brighton & Hove. In August DHSC issued further guidance on how ICSs are expected to work with Health and Wellbeing Boards, Health Overview and Scrutiny Committees and care providers, as well as statutory guidance for Integrated Care Partnerships on the preparation of Integrated Care Strategies. The guidance will inform local approaches as new arrangements become fully established over the coming months.
· Levelling Up and devolution – The Levelling Up and Regeneration Bill continues to progress through parliament, reaching Committee stage in the House of Commons before the summer recess. It is expected to continue its progress through the autumn. August saw the announcement of two proposed new devolution deals - one in North Yorkshire and York and another covering the East Midlands. Both deals included a focus on skills, transport and infrastructure and included the adoption of a directly elected mayor for the area covered by the deal. Further devolution announcements from the initial round of County Deal negotiations signalled in the Levelling Up White Paper are anticipated by the end of the year. ESCC will continue to monitor developments closely to understand the detail of new devolution deals and any opportunities presented by the Government’s devolution offer.
· Climate Change – The impacts of climate change received increased focus over the summer in light of the heat waves experienced locally and nationally which necessitated a multi-agency emergency response. A drought was declared across large parts of England, including East Sussex, during August following a lack of rainfall over the summer. Locally, work is ongoing to update the Council’s corporate Climate Emergency Plan which sets out the actions we are taking to work towards becoming a carbon neutral council as soon as possible and by 2050 at the latest.
· Support for refugees and asylum seekers– East Sussex households have continued to welcome and host guests from Ukraine over the summer with ongoing support in place through partnership arrangements between the County Council, district and borough councils and the VCSE. The autumn will see many hosting arrangements reach the end of the initial six month period and locally there has been a focus on putting in place ‘moving on’ arrangements where these may be needed. This includes supporting guests to secure accommodation for the longer term if hosts are not able to continue to offer this, and to find suitable employment. It was announced in July that the national Homes for Ukraine scheme would be extended to allow new applications from those aged under 18 who are not travelling with or joining their parent or legal guardian. The process for these applications requires the planned sponsor (who should have a pre-existing relationship with the Ukrainian family) to undergo safeguarding checks by their local Council before an eligible child can start their visa application. There is also an expectation that hosts will agree to look after the child for a minimum of three years.
In August, in response to an increasing number of Unaccompanied Asylum Seeking Children (UASC) arriving in the country, the Government announced changes to the National Transfer Scheme (NTS). The ten day transfer deadline has been reduced to five working days for all transfers of UASC not currently in the care of a local authority and the upper threshold for the number of UASC to be received by any local authority under the NTS has been increased from 0.07% to 0.1% of a Council’s general child population (for East Sussex this is an increase from 74 to 106). ESCC continues to play a full part in the NTS as well as supporting any additional unaccompanied children arriving under the separate Homes for Ukraine scheme. Increased numbers of arrivals under both schemes will require additional support from local services.
· Public service reforms – as set out in the State of the County report, Government is progressing a range of public service reviews and reforms that will have implications for services delivered by the County Council. Key areas in which Government response and future direction are awaited include the Special Educational Needs and Disability (SEND) and Alternative Provision Green Paper and the National Review of Children’s Social Care services. Announcements and progress in each of these areas is expected in the coming months.
2.2 We expect further detail of policy developments and the resulting implications for the County Council to become clearer in the coming months and will continue to factor these into planning for 2023/24 and beyond.
2.3 Since State of the County we have also received initial headline results from the 2021 Census which add to our understanding of the demographic make-up of the county as set out in the Focus on East Sussex appendix in June. The Census results suggest the East Sussex population was approximately 545,800 in 2021, a growth of 3.6% since 2011. With the exception of Wealden (7.5%), all districts in East Sussex registered population growth below the national average (6.6%); Hastings registered the lowest population growth at just 0.9%. However, the rate of population growth varied across the age bands, for example East Sussex saw an 46.6% increase in 70-74 year olds between 2011 and 2021, compared to a national increase of 36.8%. More detailed statistics from the Census will be released by the Office for National Statistics over the coming months and will be used to inform our business planning processes.
3. Medium Term Financial Plan
3.1 It remains difficult to plan for 2023/24 and beyond. The level of Government funding that ESCC will receive between 2023/24 – 2025/26 is yet to be confirmed; Although the Spending Review (SR) 2021 covered three years, the subsequent Local Government Settlement was for a single year only and therefore allocation of funding for this planning period will be announced at the provisional Local Government Settlement for 2023/24, which will be in the late autumn of 2022. The economic context has also changed significantly since SR 2021. The impact of the pandemic, global supply chain issues and levels of inflation not seen for decades, combined with the Ukraine situation, has led to an unprecedented level of financial uncertainty.
3.2 Initial updates to the Medium Term Financial Plan (MTFP) for State of the County in July estimated a deficit budget position by 2025/26 of £14.999m, with further work required over the summer on the details, including the budget requirements for services. The MTFP is now updated to reflect service pressures and more detailed analysis.
3.3 The impact of the updates is summarised in the table below and provides a deficit budget position by 2025/26 of £31.5m.
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Medium Term Financial Plan |
2023/24 |
2024/25 |
2025/26 |
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|
£m |
£m |
£m |
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Annual Budget Deficit / (Surplus) |
17.544 |
9.661 |
4.266 |
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Total Budget Deficit / (Surplus) |
17.544 |
27.205 |
31.471 |
3.4 The net impact of delayed funding reform is presented in the MTFP (as modelled by LG Futures) from 2024/25, however this could be subject to further delay and formula changes. Future Ministerial policy decisions on the nature of any further reform and how this will impact the continuation of existing Business Rate and pooling arrangements for 2023/24 and onward, are not clear. This includes the unknown impact of business rates revaluation from 1 April 2023, and the cycle of revaluation reducing from five years to three years.
3.6 We have undertaken local modelling to estimate the potential impact in East Sussex, taking into account specific local factors in our population and care market. Whilst there are a number of uncertainties, our best estimates show that approximately 3,800 additional people in home care and residential and nursing care may require a Care Act Assessment, of which approximately 3,200 may have eligible needs and require a Care Account, advice and their care being brokered by the Council. There is the potential for a net pressure across the MTFP period of £60.5m after national funding to support reforms (as currently indicated) is taken into account. Our estimates will continue to be refined as more information becomes available. For information, the estimated pressure is presented in more detail separately to the MTFP at the ‘Impact of Adult Social Care’ section as part of appendix 1. The estimated pressure is not included within the MTFP as lobbying continues for this new burden to be fully funded by Government. The projected impacts clearly illustrate that it would not be possible for ESCC to bear the costs of the reforms without significant further national support as current levels of Government funding are not sufficient.
3.9 A detailed MTFP after normal updates and proposed pressures is shown at appendix 1.
3.10 As set out above, our estimated deficit for 2023/24 is £17.544m. However, as detailed above, we know there is uncertainty about future funding allocations, and in resetting the MTFP and presenting the budget position for 2023/24 and beyond. Additionally, a number of scenarios around inflation could also impact the possible level of budget deficit that will need to be addressed. These are summarised in the table below.
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Scenarios to be considered |
2023/24 |
2024/25 |
2025/26 |
Total |
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1% on pay 2023/24 |
1.784 |
0.054 |
0.055 |
1.893 |
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1% inflation in all years on contracts (excluding Waste Private Finance Initiative (PFI)) |
2.904 |
3.397 |
3.705 |
10.006 |
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1% inflation in all years on Business Rates income |
(0.840) |
(0.940) |
(0.980) |
(2.760) |
3.11 At this point in the RPPR process it is not possible to present a balanced MTFP due to the considerable level of national funding uncertainty.
3.12 We continue to benchmark our services against other local authorities to ensure these provide best value for money and to learn from others. Over the coming months, we will work to refine the budget to update for the impact of the Local Government Settlement, in whatever form that takes, whilst reflecting updated assessments of budget pressures, including Council Tax and Business Rates. If there is a deficit on the 2023/24 budget, and in line with our robust financial management policies and procedures, one option will be to bring grant funding forward and/or use reserves to mitigate this position until the medium to longer term funding position is clarified. Given the level of uncertainty about future funding, and pressures currently being experienced by services, it is not proposed to seek new savings at this point.
4. One-off investment
4.1 As reported at State of the County in June the Local Government Settlement provided the Council with a Services Grant of £5.175m for 2022/23. As this was presented by Government as a one-off grant, which would not be taken into consideration for transitional protection when future changes are made to the local government funding regime, it was agreed that this grant would be held in reserves for potential one-off investment opportunities.
4.2 Opportunities for use of this one-off resource, which can be revenue and/or capital in nature and can be spread across multiple years, have been considered in line with the principles endorsed by Cabinet in June and reviewed by scrutiny in July:
· managing service demands
· avoiding future costs
· proactively addressing known future issues; or
· having a positive impact on the MTFP.
Both People and Place Scrutiny Committees were supportive of the proposed criteria for assessing potential investments. Scrutiny comments focused on how the criteria could be interpreted or applied such as through providing an opportunity to test new approaches, and ensuring that any investments were in line with the Council’s priority outcomes and would help prepare for challenges ahead, given the level of change and uncertainty.
4.3 The developments in our financial outlook since State of the County set out above, and increased projected deficit within the MTFP, form a new backdrop to consideration of how the Services Grant funding is best used to support our position going into 2023/24. Potential areas for investment were considered by Scrutiny earlier in September in this context and, although there was support for investments which met the criteria above, both People and Place Scrutiny Committees recommended that the level of financial uncertainty be carefully considered in coming to a view on the best approach.
4.4 In light of the latest MTFP outlook, the significant ongoing uncertainty in the economy and the feedback from Scrutiny, a prudent approach which will reduce the potential requirement for future savings is recommended. It is proposed to continue to hold the majority of the Services Grant funding in reserves for a longer period to provide additional security until the financial outlook is clearer. There remains the option to reconsider investments as part of budget setting in the new year when details of the finance settlement for 2023/24 are known.
4.7 The additional carriageway patching and pavement works programmes are underway and on track to be completed by 31 March 2023. The extra investment has enabled an additional 356 carriageway patches to be completed up to the end of June, totalling 10,580m2 over 209 sites, and a further 300 sites have been identified to be completed by March. Approximately 100 footway resurfacing schemes are targeted to be completed this year in addition to 85 small footway patching schemes already delivered and further small patching works. The road marking/lining and road signs works will be delivered over two financial years in line with the availability of the required resources and seasonal programming of lining works, with forecast completion by 31 March 2024 to enable efficient delivery and ensure value for money.
5. Capital Programme
5.1 The programme has been updated for approved variations since the State of the County in July 2022, increasing the gross programme to £681.2m to 2031/32, details of which can be found at appendix 2.
5.2 The 10 year capital programme to 2031/32 and 20 year Capital Strategy 2022/23 to 2042/43 will be updated as part of the RPPR process over the autumn to add a year and to include consideration of the impact and management of inflation and supply chain issues, alongside any updates relating to funding, programme and project profiles and any other investment basic need.
6. Lobbying and Communications
6.1 The medium term outlook has become increasingly challenging. We face a very significant and growing financial gap linked to the acute impacts of the national economic situation which could not be foreseen and are outside of local control. Coupled with this, the uncertain impact of national reforms in major service areas remains and we await clarity on long-term funding arrangements, particularly for existing pressures and reforms in Adult Social Care, which continues to make planning difficult. Fundamentally, without further Government support or sustainable reform of local government finances we will not have the funding we need for the future.
6.2 In the context of this unprecedented uncertainty, and the new Government formulating its response to current challenges and its ongoing policy programme, our lobbying will be vital. We will call for specific support with the impacts of current economic conditions which we cannot control, alongside recognition of the additional demand these conditions create on services already under pressure as a result of the increases in cost of living driving increased need in our communities, and workforce shortages limiting our capacity to respond. We will also strongly make the case for increased time and resource to deliver much needed reform to Adult Social Care and for longer term sustainability of future funding for local government, which is appropriately reflective of local need. This will be essential to ensuring we secure adequate resources to deliver what will be required to support East Sussex residents, communities and businesses with the core services they need in the years ahead. We will continue to work individually, with our partners across the region and with the sector nationally to articulate these messages clearly and actively, supported by local evidence of the issues we face.
7. Next Steps
7.1. This report confirms the high level of uncertainty within which planning for 2023/24 is taking place. Much is to be determined around national spending allocations and priorities for 2023/24 onwards, the impact of national reforms, and the medium to longer term impact of current economic conditions.
7.2. Thanks to our sound financial management and clear focus on priorities we are in a position to manage immediate financial pressures but the situation for next financial year and beyond presents considerable challenges and our response will depend on levels of national support.In the short term, this report proposes to use one-off funding to support the recruitment and retention of our essential staff and to provide additional security until the financial outlook is clearer.
7.3. Work will continue throughout the autumn and winter to understand the detailed funding picture as it emerges, the implications of national policy developments and to refine our understanding of the county’s needs as new demographic data emerges. This analysis will feed into our ongoing business and financial planning.
7.4. Members will continue to be involved in developing plans through Cabinet, County Council, Scrutiny Committees, and specific engagement sessions throughout the 2022/23 RPPR process.
BECKY SHAW
Chief Executive