Agenda item

Northumberland County Council – Consideration of ‘Going Concern Status’ for the Statement of Accounts for the year ended 31 March 2022

Northumberland County Council is required to assess whether it should be considered as a ‘going concern’ organisation, and whether the Council’s annual Statement of Accounts should be prepared on that basis. This report considers the Council’s status as a going concern and recommends that Members approve this.

Northumberland County Council – Consideration of ‘Going Concern Status’ for the Statement of Accounts for the year ended 31 March 2022

Northumberland County Council was required to assess whether it should be considered as a ‘going concern’ organisation, and whether the Council’s annual Statement of Accounts should be prepared on that basis.  The report considered the Council’s status as a going concern and recommended that Members approve this.  (A copy of the report has been filed with the signed minutes).

J. Willis, Interim Executive Director of Finance and S151 Officer introduced the report which detailed all of the considerations that were taken into account in arriving at the judgment that the statement of accounts should be prepared on a ‘going concern’ basis.  

Members were reminded that there had been a forecast outturn for this financial year with a gross overspend of £17 million and a net of the exceptional inflation reserve, which was set aside at the beginning of the year, of just under £12 million. 

She commented that it was helpful that an intervention was being made to address rising energy costs which would help the Council as well as helping residents and businesses. 

However, the latest issue was rising interest rates with the latest estimates of where interest rates could potentially end up being around the 6% mark.  This was significantly higher than anticipated when this year’s budget was set and even planning assumptions for the following year.  The risks associated were increasing which would mean that it was more important than ever to maintain an adequate level of reserves to deal with the unforeseen.  The Council was going into a very challenging period, and it would be very difficult over the next eighteen months.

Nevertheless, the financial position of the Council for the time being remained healthy, with significant reserves and strong financial disciplines. 

The Chair welcomed the report and the financial position of the Council.  However, he stated that it was uncertain times and Audit Committee would need to monitor and be kept up to date with developments.

Councillor Oliver commented that the final two candidates for the central government leadership election had both made strong statements about local authorities delivering more public services.  He questioned whether there had been any indication of what might happen in terms of local authority funding at the end of the year.  Or was it anticipated that it would be another one year funding settlement.  In response J. Willis stated that unfortunately there had been no indications other than the announcement of a £500 million funding package around social care and hospital discharge which would probably go to the NHS rather than local authorities.  Ordinarily the Chancellor’s Autumn announcement would happen in October, but it was now being pushed back to the end of November.  Local authorities would normally get their financial settlements in December, but it was quite possible that this would also be pushed back.  Usually there was intelligence ahead of what was likely to be in the financial settlement, but this year there had been no indication which was of concern to local authorities.  It was believed that it would be another one year funding settlement and it was not anticipated that there would be any funding reforms before the next general election. But the consensus was that local authorities would need help, although what that would look like and when it would be announced no one could answer. 

Councillor Jackson felt reassured that the report highlighted that Northumberland did have high reserves and was in a much better position than others.  However, there was a need to continue to plan ahead.  There was a proposal to spend £3 million over the next three years on a Strategic Transformation Programme.  He questioned if the business case had been finalised yet and whether from a value for money perspective Audit Committee could examine it to ensure that the £3 million per year would produce real results.  J. Willis confirmed that the business case would be finalised by the end of October.  She had first sight of the opportunity analysis which identified all the areas where there were real opportunities to make savings and an initial quantification of those savings had started.  The Programme Board had also seen the opportunity analysis and the underlying assumptions were currently being validated. The business case would set out the prioritisation, phasing and investment needed to deliver the savings over the next three financial years.  The Transformation Programme was needed to drive efficiencies across the whole organisation and was part of the Council’s approach to pursue value for money.  Having the correct governance and resourcing in place was essential.  Councillor Jackson requested that the Audit Committee be informed of the outcome of the process once at the relevant stage.

Councillor Towns com mented on recent local press articles and comments made by councillors about a reported ‘£17 million black hole in the Council’s finances.  However, looking at the report there was a overspend forecast of £17 million but that seemed to be offset by a £5.2 million from exceptional inflation reserve.  Therefore, the was a £12 million forecasted overspend not £17 million as wrongly reported in the press.  He suggested that better communication was needed with residents to inform them that Northumberland’s finance position was strong especially compared to other local authorities in the region and around the country.  He felt the press had reported Northumberland’s finances unfairly and had worried residents into thinking council services would be cut, their council tax would increase and there would be job losses.  He hoped that something could be done to reassure the public and change the perception created by these such newspaper headlines.  J. Willis advised that she could not control what was written in the local press.  However, the Council’s financial status was audited each year by Mazars as part of the value for money assessment.  Members of the public could take comfort that not only officers but also an external body felt that the Council was in a financially strong position.

Councillor Towns queried why there was an exceptional inflation reserve, had it been put aside specifically for this kind of eventuality or was it coming out of the healthy general reserves of £70 million.  J. Willis confirmed that when the budget was set for this year inflation was starting to increase particularly around energy costs which resulted in some additional allowance being built in.  As the 2020/21 accounts were reporting an underspend Cabinet agreed to set aside £5.2 million in the exceptional inflation reserve to accommodate further inflationary increases.   However, no one could have predicted the scale of the cost of living crisis and the speed at which it had developed. Undoubtedly, it would have a significant impact on the Council’s budget going forward, as well as on households.

Councillor Dale commented on the pay award which she felt could have come in earlier and the concerns from members of the public over the delivery of council services.  She commented on the voluntary redundancy scheme in place but was reassured that there were no plans for voluntary redundancies in hard to recruit roles, such as social workers.  She discussed the issue of recruitment and the concerns faced in trying to attract the right people to the right posts to deliver services.  Councillor Dale asked if it was believed that enough had been done to ensure the Council could maintain its ‘going concern’ status next year.  J. Willis confirmed that yes it was believed that the status would be maintained although difficult choices would need to be made along with efficiency savings.  The Council would continue to balance the budget and try to protect frontline services.  The Strategic Change Programme would drive out some of the efficiencies in the longer term.  It was hoped that by doing this the Council would not be forced into cutting services that residents valued the most.

P. Topping asked about those village schools who were using oil for heating and whether there was any energy relief tariff to help them.  J. Willis reported that there had been recognition that households would need financial help with their heating along with businesses, but the detail contained within the package of support had not been provided yet.  It was hoped this would also cover oil heating.

Councillor Grimshaw raised concerns regarding benefit payments and the precepts for grants and the possible impact to the Council if people could not keep up with repayments.  She also sought reassurance around the inflation rate and the current borrowing rates for the Council.  J. Willis confirmed that monitoring the collection fund performance was taking place.  It was expected that the cost of living crisis would impact on collection rates both for business rates, rents and council tax.  Within the second quarter of this financial year a small dip in performance had been seen.  When council tax was to be set for next year any surpluses or deficits on the collection fund would need to be taken into account. Money had been set aside from previous year’s surpluses that could be used for collection fund smoothing.  However, there would need to be a review of the provision for doubtful and bad debts ahead of budget setting for next year.  Regarding borrowing, the Council had high cash reserves and had been under borrowing.  The Council had recently taken on some external debt and locked into some fixed rate deals on a short term basis to help mitigate against rising interest rates. 

The capital programme was being examined and it could be that there would be the need to look at rephasing some of the capital commitments.  Work was also taking place to examine all the debt charge forecasts. 

The Chair thanked J. Willis for her honest and detailed report.  He stated that he hoped regular reports would be brought to Audit Committee to allow members to monitor the situation going forward.

RESOLVED that the Audit Committee approve that the Council is considered to be a going concern and that the Statement of Accounts 2021-22 is prepared on that basis.