No Easy Choices For Highland Council SNP Led Administration As Huge Budget Gap Looms

24th October 2022

The first two words of the paper to be debated at the next Highland council meeting on 27 October says a lot - Financial Crisis.
The full title of the paper is - Financial Crisis - Valuing Partners Through Collective Budget Strategies, Redesign and Co-production.

Two areas of great concern are partners that derive income from the council such as Early Learning Centres and High Life Highland.

The paper leads off with the problem - a forecasted budget
gap for 2023/24 is £40.9m.

From the paper -
As reported to the Highland Council on 22 September 2022, the forecasted budget gap for 2023/24 is £40.9m. Based on the Quarter 1 revenue monitoring and after the funding of commitments made in September to provide cost of living financial support, non-earmarked reserves at the end of 2022/23 are predicted to be £6.4m which is just 1% of our budget, well below the agreed target level for this reserve of 3%. The financial challenges facing the Council are caused by a range of factors including unbudgeted pressures arising from pay increases, contractual and other inflation and increasing costs of borrowing - combined with an anticipated flat cash funding settlement for 2023/24.

1.5 At the September Council meeting, Members also agreed a number of strategic approaches for addressing both the in-year pressure and the budget challenges for 2023/24 and beyond. Since then, Directorates have been provided with indicative targets based on a 6.9% budget reduction and have been considering how to apply these budget strategies to the provision of in-house services, as well as those delivered through our partners. Proposals will come forward to Members as part of the budget setting process.

1.6
Council partners are experiencing the same kind of cost pressures on their budgets as services within the Council. This includes cost of living pay awards and general inflationary increases. It is recognised that these pressures are creating significant stress both for partners and also within Council Directorates. Out of these shared risk
discussions it has been recognised that we need to urgently work together to redesign services within our communities to achieve best value within the context of the reduced financial envelope and financial pressures we all face. The Council and our partners therefore need to work together to redesign services to ensure delivery is not at the expense of future financial sustainability.

1.7 The Council's partners, linked to statutory provision and with associated financial and resource responsibilities and liabilities, are focused on within this report: Early Learning and Childcare (ELC) Partners, High Life Highland (HLH), Eden Court and NHS Highland (NHSH). This report considers in-year financial sustainability and
prepares an outlook for the challenges ahead in financial year 2023/2024 for these partners and the Council. It is imperative, and has been discussed, that the decisions made in-year in no way pre-empt decisions that lie ahead as the financial outlook of the Council and national funding arrangements are so uncertain, and the scale of challenge unknown. The recommendations are very much focused on this financial year as it is challenging to obtain a complete picture of the ongoing sustainability of all of these partners at this time, and further work is required to do so. However, what
this report does set out is the absolute requirement of the Council and its partners to work closer together at a pace to redesign service provision within a reduced financial envelope for financial year 2023/2024, as indeed set out by the Finance Minister in his
communication (Appendix 1).

Members are asked to note:
• that the Council's grant funding settlement from the Scottish Government is unlikely to be known before December 2022;
• that the pay awards for 2022/2023 are not concluded and the associated financial pressure unknown;
• the ELC budget position set out in 4.6;
• that further engagement with the ELC Sector will continue, and that further recommendations relating to the ELC funding rate for the 2023/24 financial year will be considered as part of the Council's budget for next year;
• the steps HLH are taking to mitigate their in-year and ongoing budget pressures;
• the work to be taken forward in partnership with HLH in relation to redesign and contract review (this includes legal involvement); and
• the work completed by Eden Court to mitigate in year pressures in light of the financial crisis and the consequential impact on their income (Appendix 2)
• that Council officers will be reviewing all payments to external providers - whether grants, procured or commissioned services - with the Council's ongoing financial sustainability in mind.
2.2 Members are asked to agree:
i. The principles for partnership working set out in para 1.3.
ii. in the light of budget uncertainty and the potential impact on all aspects of the Council's operations, whether delivered internally, externally or arms' length, recurring funding commitments should be avoided in advance of the budget setting meeting of the Council in March 2023.
iii. one-off support funding for ELC Partners in the current financial year based on the payment of an additional funding amount calculated as 32p per hour for 3-5 year old provision, and 53p per hour for 2 year old provision.
iv. For the additional ELC payment to apply from either August 2022 or October 2022, at a cost of £240,000 or £365,000 respectively.
v. To conclude the current review of ELC partner rate funding for August 2022.
vi. Recommendations will be considered by the Council in March 2023 relating to ELC funding for 2023/24.
vii. A review of ELC re-design to be taken forward, with further reports back to Education Committee in February 2023.
viii. To increase the Council's earmarked balance held to support HLH by £0.4m to £1.4m. This funding to be drawn down at financial year end to ensure HLH avoid entering a negative reserves position and provide assurance that they can implement the SJC pay award for HLH own staff in the current year.
ix. That work will be taken forward in partnership with HLH in relation to redesign and contract review (this includes legal involvement).
x. That redesign work will move forward at a pace regarding Adult Social Care and be reported in detail at an exceptional JMC Committee in November 2022.

A report will be considered at the Highland Council meeting on 27 October. This can be found online at Financial Crisis Valuing Partners Through Collective Budget Strategies Redesign and Co-production

The meeting on 22 September 2022 debated the paper
Financial Crisis