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.  Given the Authority’s current general fund balance stood at £6.0m and the scale of the capital programme was proposed that the revenue underspend, £348k was transferred into the capital funding reserve, reducing future borrowing requirement, hence the year-end General fund balance would remain at £6.0m compared with the target range agreed by the Authority at its February meeting, £3.5m to £10.0m. 

Earmarked Reserves

The reserve covered all funds, which had been identified for a specific purpose. The overall reserves level had increased significantly from £7.8m to £10.6m, 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. 

Covid-19 Ringfenced Funding – The Government had provided £1.4m of total funding to meet costs associated with the Covid pandemic.  This balance represented the unused funding held by the Authority at the year end which was available to support activities in 2021/22.

Section 31 – Business Rate Relief Grant – The Government provided Section 31 rate relief grant to individual billing authorities in order to cover the additional in year reliefs provided as a result of the pandemic.  Business rates were split between the Government, billing authorities, Lancashire County Council and the Authority with the Authority receiving 1% of the total.  As such this grant should be split in line with business rates.  However, the Government allocated all of this to billing authorities to aid cash flow, with the correct distribution anticipated in the new year once the outturn business rates position had been agreed.  As such an accrual had been made for the Authority’s anticipated share in 2020/21 which needed to be carried forward via this reserve in order to meet the business rate collection fund shortfall that had arisen due to these additional reliefs. 

Carry forward 2020/21 underspend relating to timing of activities – within the revenue budget there were a number of items that had been delayed by the pandemic and which therefore needed funding carried forward from 2020/21 to 2021/22.  These related to areas such as fire safety, training provision, property maintenance, organisational development and digital transformation, and these were a timing issue.  This carry forward was already reflected in the year end revenue budget position.

Specific grant carry forward 2020/21 – This reserve carried forward unspent specific grants provided in 2020/21 in respect of: i) protection uplift grant; ii) building risk review grant and iii) Grenfell infrastructure grant.  It was anticipated that these funds would be utilised in the new financial year.

It was noted that a number of the reserves were short-term holding reserves and as such it was anticipated drawing down these and reducing the earmarked reserves to approximately £5m by March 2026, the majority of which would be attributed to the private finance initiative reserve and the insurance reserve.

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 2020/21, £163k was utilised of capital reserves.  However, this was more than offset by the proposed transfer of £200k from earmarked reserves and of £348k from the general reserve, representing the in-year revenue underspend.  In addition, the sale of vehicles generated £17k capital receipts.

As a result of this the Authority currently held £19.6m of capital reserves/receipts.  However, the 2021/22-2025/26 capital programme, after allowing for slippage showed all of this being utilised over the next 5 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 reduced slightly to £500k at 31 March 2021.

·         Retained Duty Service Provision, this provision dated back to the Part Time Workers Regulations 2000 and, given all cases, where possible, had been resolved, the remaining balance had been removed from this provision.

·         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 £37.8m 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 J Rigby, the Director of Corporate Services advised that the Authority had 2 Private Finance Initiative (PFI) Schemes: i) Morecambe and Hyndburn which ran until 2032 and therefore had 11 years left to run and ii) North West PFI Scheme jointly with Cumbria and Merseyside Fire and Rescue Services which had 16 stations in total of which 4 were in Lancashire (Chorley, Blackburn, Burnley and Fleetwood); this was a 25 year scheme which ran until 2038 therefore had 17 years left to run.

Councillor Williams queried whether the Authority had an obligation to maintain a percentage of its reserves and if so, what was the minimum value.  In response the Director of Corporate Services advised that the auditors and inspectorate referred to a 5% turnover for the general fund reserve.  However, the accounting body CIPFA had issued guidance several years ago that directed every Authority to do an annual assessment based on risks unique to that Service which looked at the entire financial risks (both internal and external) and report the outcome of the assessment of risk as part of the budget setting process.  He advised that the level of capital funding reserves would be linked to the level of the capital programme.  In addition, earmarked reserves were considered for specific purposes, so would vary depending on the circumstances they were required for.  It was noted that the Authority considered its Reserves and Balances Strategy report each February.  The Director of Corporate Services emphasised that there was a balance between the level of reserves held and the capital programme and how to finance any funding gap which would otherwise require borrowing.

RESOLVED: - That the Committee: -

i)     noted the additional £2,995k of earmarked reserves and the £44k reduction in provisions, contributing to the overall revenue outturn position;

ii)    agreed the year end transfers associated with the revenue outturn, £348k to the capital funding reserve and £15k to earmarked reserves;

iii)   noted the transfer of £200k from earmarked reserves into capital reserves;

iv)   agreed the year end capital outturn drawdown from capital reserves of £163k;

v)    noted £17k of capital receipts; and

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