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.

In response to a question raised by County Councillor O’Toole in relation to the level of reserves summarised on page 36 of the agenda pack the Director of Corporate Services advised that 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, £333k, had been transferred into this reserve.  After allowing for transfers the Authority now held a General fund balance of £8.2m. This was within the target range agreed by the Authority at its February meeting, £3.2m to £10.0m.  The Director of Corporate Services confirmed that the funding assumptions in the medium term financial strategy showed there were plans to use the General Fund balance, with projections showing a funding shortfall over the medium term which would require the drawdown of reserves in future years. 

Earmarked Reserves

The reserve covered all funds, which had been identified for a specific purpose. The overall reserves level increased slightly from £7.9m to £8.0m, 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 reserve was 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.

Public Works Loan Board – This reserve was created to meet the potential penalty costs associated with repayment of the remaining PWLB loans.  The Authority still had £2.0m of long term loans, incurring £0.1m of interest charges per annum.  Opportunities to repay these were reviewed to save any interest payments, however based on the current penalty of £0.9m this was not considered prudent at the present time.

In response to Member questions the Director of Corporate Services confirmed that if a decision was taken not to repay the loans there would be no need for the reserve, similarly if the potential penalty reduced, the size of the reserve would also reduce with any difference going back into the revenue general fund.

Insurance Aggregate Stop Loss – The Authority has aggregate stop losses on both its combined liability insurance policy and its motor policy.  In any one year the maximum liability for insurance claims is capped at the aggregate stop losses.  As such the Authority can either meet the costs direct from revenue or can set up an earmarked reserve.  Within Lancashire we have chosen to meet the potential costs through a combination of the two.  Hence the amount included in the revenue budget reflected charges in a typical year with the reserve being set up to cover any excess over and above this.  As such the reserve, combined with amounts within the revenue budget, provide sufficient cover to meet 2 years’ worth of the maximum possible claims.

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 2018/19 £352k of capital reserves were used.  However, this was partly offset by the sale of assets, which generated £69k of capital receipts. As a result of this the Authority currently held £19.0m of capital reserves/receipts.  The Director of Corporate Services advised that (as set out on page 41 of the agenda pack) the capital reserves reduced to £3m over the 5-year programme.  Without this level of reserves the capital programme would be unaffordable and hence the Authority’s ability to invest improvements would be limited. He advised 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.

North West Fire Control Reserves

Last year’s accounts were amended to reflect the Authority’s 25% share of North West Fire Control Ltd. As such the 2018/19 accounts would be updated in due course however, these were not available at the time of writing the report therefore it had been assumed that the year end position had not changed from 2017/18 to 2018/19 (which would be updated for the final version of the accounts). It was noted that these reserves were not available for use, as they formed an essential part of NW Fire Controls financial planning.

Provisions

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

·        Insurance Provision, which covered potential liabilities associated with outstanding insurance claims. A review of current claims outstanding and our claims history had been undertaken and as such the provision had increased  to £502k at 31 March 2019.

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

·        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 reflected the latest estimates provided by billing Authorities.

The overall position at year end showed the Authority (excluding North West Fire Control balances) holding £36.5m of reserves and provisions, compared with the anticipated position of £36.1m identified in the Reserves and Balances Policy, agreed in February. The majority of the difference relating to the additional grant funding received in respect of Business Rates at the end of the year. At this level the Treasurer believed these were adequate to meet future requirements in the medium term.

RESOLVED: - That the Committee: -

i)     noted the additional £62k of earmarked reserves and the additional £198k of provisions, contributing to the overall revenue outturn position;

ii)    agreed the year end transfers associated with the revenue outturn, £333k to the general reserve and £102k to earmarked reserves;

iii)   agreed the year end transfer associated with the capital outturn, £352k drawdown from capital reserves and £28k drawdown from earmarked reserves;

iv)   noted £69k of capital receipts;

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