Agenda item

The report presented the year end outturn position in respect of usable reserves and provisions based on the information reported in the Revenue Outturn, Capital Outturn and Treasury Management Outturn reports.

The Authority approved the reserves and balances policy as part of its budget setting process, in February, with the year-end outturn position being reported to Resources committee and included in the statement of accounts.  The previously reported Revenue Outturn, Capital Outturn and Treasury Management Outturn all fed the Authority’s overall reserves position, which was considered by Members as summarised in the report.

General Reserve

These were non-specific reserves kept to meet short/medium term unforeseeable expenditure and to enable significant changes in resources or expenditure to be properly managed in the medium term.

The Authority needed to hold an adequate level of general reserves in order to provide:-

·        A working balance to help cushion the impact of uneven cash flows and avoid unnecessary temporary borrowing;

·        A contingency to cushion the impact of unexpected events;

·        A means of smoothing out large fluctuations in spending requirements and/or funding available.

As a precepting Authority any surpluses or deficits were transferred into/out of reserves in order to meet future potential commitments, and as such the balance of the surplus on the revenue budget, £10k, had been transferred into this reserve.  As agreed as part of the budget setting process a further £2.6m of general fund had been used to fund the capital programme in 2017/18, with a further £28k being transferred to earmarked reserves to meet requirements.  After allowing for transfers the Authority held a General fund balance of £7.8m. This was within the target range agreed by the Authority at its February meeting, £2.5m to £10.0m.

Earmarked Reserves

The reserve covered all funds, which had been identified for a specific purpose. The overall reserves level increased slightly from £7.5m to £7.9m, with the detailed position in respect of the various earmarked reserves considered by Members as set out in the report.

The Director of Corporate Services highlighted:

PFI Equalisation Reserve – This was used to smooth out the annual net cost to the Authority of both PFI schemes, and would be required to meet future contract payments. The level of reserve required to meet future contract payments had been updated to reflect current and forecast inflation levels, which were higher than previously allowed. This resulted in an increase of £0.8m in 2017/18, giving a revised balance of £4.3m.

Apprentices / Graduates - This reserve was created from the in-year underspend relating to the appointment of apprentices, which was delayed awaiting national developments.  As such the reserve has been set up to offset some of the pay costs that would be incurred in 2018/19, with the balance being met direct from the revenue budget. The flexibility this created contributed to addressing apprenticeship targets, set by the Government, as well as addressing capacity issues within departments.

Innovation Fund (incorporating non-specific ICT & Equipment reserves) - The Authority previously created a Future Fire Fighting capital budget which had been used to meet costs arising from innovation within the sector, most notably the introduction of Technical Rescue Jackets. This capital budget would have been fully utilised in 2017/18.  Given the fact that current replacement priorities were already included in the revenue budget we had not built any allowance into the capital programme for a continuation of this. However it was inevitable that developments would occur and we would continue to evaluate these with a view to introducing those that improved service delivery or fire fighter safety.  As such it was agreed to establish an innovation fund to cover any such developments, with any requests to utilise the fund requiring the approval of the Executive Board.

Capital Reserves and Receipts

Capital Reserves had been created from under spends on the revenue budget in order to provide additional funding to support the capital programme in future years; as such they could not be used to offset any deficit on the revenue budget, without having a significant impact on the level of capital programme that the Authority could support.

Capital Grant had been previously received in relation to Lancaster Fire Station rebuild, this has been fully utilised within the year.  Capital Receipts were generated from the sale of surplus assets, which had not yet been utilised to fund the capital programme.  In 2017/18 we utilised £2.9m of capital reserves. However this use of reserves was more than offset by the agreed transfer from general reserves of £2.6m, the transfer in of unused revenue contributions of £0.9m and the sale of assets, which generated £81k of capital receipts.  As a result of this the Authority currently held £19.3m of capital reserves/receipts.  However the 2018/19 capital programme, after allowing for slippage, showed £17.9m of this being utilised over the latest 5 year capital programme, leaving a balance of approx. £1.4m at the end of 2022/23.

Provisions

The Authority had three provisions to meet future estimated liabilities:-

1.    Insurance Provision, which covered potential liabilities associated with outstanding insurance claims. A fundamental review of current claims outstanding and our claims history had been undertaken and as such the provision had been reduced to £434k at 31 March 2018. (This reduction has been used to offset the change in earmarked reserves, and in particular the creation of the Innovation Reserve and the increase in the PFI Reserve.)

2.    RDS Provision, which covers potential costs associated with RDS personnel relating to employment terms and eligibility to join the Pensions Scheme.

3.    Business Rates Collection Fund Appeals Provision, which covered the Authority’s share of outstanding appeals against business rates collection funds, which was calculated each year end by each billing authority within Lancashire based on their assumptions of outstanding appeal success rates, as part of their year-end accounting for the business rates collection fund. The change in this reflecting the latest estimates provided by billing Authorities.

The overall position at year end was broadly in line with those identified in the Reserves and Balances Policy, agreed in February, at £36.1m.  At this level the Treasurer believed these to be adequate to meet future requirements in the medium term.

In response to a question raised by County Councillor Holgate the Director of Corporate Services confirmed that the reserves identified did not allow for the potential relocation of Service Headquarters.  If this was included then all capital reserves and receipts would be utilised to fund this, as well as potentially requiring additional borrowing.

RESOLVED: - That the Committee: -

i.      noted the net drawdown of £50k of earmarked reserves and the additional £12k of provisions, contributing to the overall revenue outturn position;

ii.    agreed the year end transfers associated with the revenue outturn, £10k to the general reserve and a drawdown of £17k from the DFM reserve;

iii.   agreed the following transfers between reserves:-

a.    general reserve, transfer of £28k to earmarked reserves and £2,600k to capital funding reserve;

b.    Provisions, transfer of £691k to earmarked reserves;

iv.   agreed the year end transfers associated with the capital outturn, £224k drawdown from earmarked reserves and £2.921m from capital reserves and the transfer of £0.926m of unused revenue contributions to capital reserves;

v.     noted £81k of capital receipts;

vi.   noted and endorsed the overall level of reserves and provisions as set out in the report.