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 deficit on the revenue budget, £286k, had been drawn down from this reserve.  After allowing for transfers the Authority now held a General fund balance of £7.9m. This was within the target range agreed by the Authority at its February meeting, £3.0m to £10.0m. 

Earmarked Reserves

The reserve covered all funds, which had been identified for a specific purpose. The overall reserves level reduced slightly from £8.0m to £7.8m, 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 however, given the reducing likelihood of repaying the loans with such a large penalty, the balance was transferred into the Capital Funding Reserve as part of the 2020/21 budget setting process.

Insurance Aggregate Stop Loss – The Authority had aggregate stop losses on both its combined liability insurance policy (0.4m) and its motor policy (0.3m).  This meant that in any one year the Authority’s maximum liability for insurance claims was capped at the aggregate stop losses.  As such the Authority could either meet the costs direct from its revenue budget or could set up an earmarked reserve to meet these.  Lancashire had 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.  It was also noted that the revenue budget allocation had also been reduced in recent years reflecting the claims history.  Without holding this reserve to cushion any major claims that may arise this would not have been possible.  There was no utilisation during 2019/20 as the costs were met from the revenue budget and existing insurance provision.

Fleet & Equipment – This reserve provided scope to meet new equipment requirements identified in-year such as battery powered hand tools and other new technologies.  In addition, the reserve had been increased by the unspent budgets for replacement structural firefighting boots and replacement duty rig, as neither were purchased in 2019/20, both of which should be spent during 2020/21, plus £0.1m for a delayed delivery of firefighting PPE which was received in April rather than March as expected.

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 Receipts were generated from the sale of surplus assets, which had not yet been utilised to fund the capital programme.  In 2019/20, £860k was utilised of capital reserves.  However, this was partly offset by the sale of assets which generated £13k of capital receipts from the sale of a vehicle.

As a result of this the Authority currently held £19.0m of capital reserves/receipts.  However, the 2020/21 capital programme, after allowing for slippage showed all of this being utilised over the next 3 years of the capital programme.

North West Fire Control Reserves

The North West Fire Control (NWFC) reserves brought forwards formed part of the opening balances, and the draft accounts’ balances were included in the report and the draft accounts.  This was not available for use as it was the Authority’s share of the NWFC required reserves.

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 £522k at 31 March 2020.

·        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 overall position at year end showed the Authority (excluding draft North West Fire Control balances) holding £37.3m of reserves and provisions.

At this level the Treasurer believed these were adequate to meet future requirements in the medium term.

In response to a question raised by Councillor Williams regarding the stock levels of PPE and any further costs of these the Director of Corporate Services advised Members that if a second spike did come and it lasted through to March 2021 it was anticipated, based on the first period, that there would be sufficient PPE available.  However it was difficult to predict how long a second spike would last and also depended on the roles the Service would pick up.  He reassured Members that this would be kept under review particularly given the potential for availability difficulties and higher costs when faced with increasing demand.

In response to a question raised by County Councillor O’Toole regarding a breakdown of the spend against the covid-19 grant, the Director of Corporate Services confirmed that funding received and expenditure incurred were set against the same ledger code with any surplus shown in the reserve at year end.  He confirmed that returns were submitted to the Home Office on a monthly basis which showed the Authority’s position. 

RESOLVED: - That the Committee: -

i)     noted the additional £646k of earmarked reserves and the additional £298k of provisions, contributing to the overall revenue outturn position;

ii)    agreed the year end transfers associated with the revenue outturn, £286k from the general reserve and £38k to earmarked reserves;

iii)   noted the transfer of £877k from earmarked reserves into capital reserves;

iv)   agreed  the year end transfer associated with the capital outturn, £860k drawdown from capital reserves;

v)    noted £13k of capital receipts;

vi)   noted the additional £172k of unused revenue contributions to capital increasing reserves; and

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