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, £331k 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 of £4.0m to £10.0m. 

Earmarked Reserves

The reserve covered all funds, which had been identified for a specific purpose. The overall reserves level had reduced from £10.8m to £9.8m, 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. 

Insurance Aggregate Stop Loss – The Authority had aggregate stop losses (ASLs) 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 clams was capped at the ASL.  As such the Authority could either meet these 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.  As such, the reserve, combined with the amounts within the revenue budget, provided sufficient cover to meet 2 years’ worth of the maximum possible claims.  It was 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 2021/22 as the costs were met from the revenue budget and existing insurance provision.

Prince’s Trust – This reserve had been established to balance short term funding differences and to mitigate the risk of loss of funding and enable short term continuation of team activities while alternative funding was found.  Without this reserve any significant loss of funding would have an immediate impact on our ability to deliver the Prince’s Trust programme and hence improve the lives of younger people.

Section 21 Business Rate Relief Grant  in 2020/21 the Government had 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 ourselves; we received 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, we accrued £1.9m for our anticipated share of this in 2020/21 and carried this forward via this reserve in order to meet the business rate collection fund shortfall that had arisen.  This was drawn down in 2021/22.  However a similar exercise was undertaken in respect of 2021/22 resulting in an estimated £1.1m now being due to the Authority, ie: a net reduction of £0.8m.

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 £7m by March 2027, 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.  In 2021/22, £977k was utilised of capital reserves.  However, this was partly offset by the proposed transfer of £336k from earmarked reserves. £3k of unused RCCO and of £331k from the general reserve, representing the in-year revenue underspend.  In addition, the sale of vehicles generated £3k of capital receipts.

As a result of this the Authority currently held £19.4m of capital reserves/receipts.  However, the 2022/23-2026/27 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 two provisions to meet future estimated liabilities:-

·         Insurance Provision, which covered potential liabilities associated with outstanding insurance claims.  A review had not yet been undertaken.

·         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. A review had not yet been undertaken.

The overall position at year end showed the Authority (excluding draft North West Fire Control balances) holding £36.7m of reserves and provisions compared with the anticipated £35.3m identified in the Reserves and Balances Policy, agreed in February; the majority of the difference reflecting the additional capital slippage.

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

In response to a question raised by County Councillor O’Toole, the Director of Corporate Services advised that the official deadline for local authority returns for the business rates collection fund was the end of June.  He acknowledged that capacity was a common theme and advised that if the returns were not submitted, an estimate would be provided in the accounts.

County Councillor Steve Rigby queried the contract lengths of the PFI schemes and whether it was possibly to buy out of them, given the rise in inflation rates.  In response, the Director of Corporate Services advised that the Authority had 2 separate Private Finance Initiative (PFI) contracts: i) for 2 stations which went live in 2003/04 and ii) another much larger scheme across the North West for 16 stations (4 in Lancashire) which went live in 2011/12.  The first contract was for 30 years and the second for 25 years.  He advised that national contracts had been adopted which had 3 cost elements: i) fixed, ii) increased with a fixed inflation rate and iii) facilities management (repairs, maintenance, energy and cleaning etc) which increased with RPI.  Even if we ran the buildings ourselves we would suffer from inflation increases.    It was possible to buy out of the scheme but this would be costly and more complicated with the second contract as it was in partnership with Cumbria and Merseyside Fire and Rescue Services and would have to be agreed jointly.  Consideration would need to be given to the level of reserves and the potential for borrowing therefore this was not considered at the moment to be a viable option.

County Councillor Steve Rigby commented that PFI schemes had been discredited because the impact on revenue from having a set maintenance schedule.  The Director of Corporate Services advised that there were conversations on what maintenance was required throughout  the life cycle of the programme and there was a requirement in the contract regarding the building condition at the end of the contract.

RESOLVED: - That the Committee: -

i)       noted the utilisation of £690k of earmarked reserves;

ii)      agreed the year end transfers associated with the revenue outturn, £331k to the capital funding reserve;

iii)    noted the transfer of £336k from earmarked reserves into capital reserves;

iv)    agreed the year end capital outturn drawdown from capital reserves of £977k;

v)     noted the transfer of £15k of unused RCCO to capital reserves;

vi)    noted £3k of capital receipts;

vii)   noted that NWFC accounts had not yet been received in order to calculate our share of their reserves, nor were we able to calculate our share of the Business Rates Collection Fund Appeal Provision; and

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