Agenda item

To receive a verbal update on Spelthorne Borough Council’s emergency response to COVID-19 and the resulting financial impact.

The Chief Finance Officer provided the following update to Council on the impact of COVID-19 on the Council’s Revenue Budget for the current financial year:

“As promised to Councillors at the Extraordinary Council Meeting (ECM) of 21 May when the Council received a detailed report on the initial estimates impacts on the Council’s 2020-21 Revenue Budget, this is a further update on the estimated impact of COVID-19 on the Council’s Revenue Budget. As the impacts of the pandemic become clearer there will be further updates to councillors. We will also highlight COVID-19 impacts in the normal budget monitoring reports which will go to future Cabinet and Overview and Scrutiny meetings.  For the 2021 -22 Budget we will be looking at how we can provide greater opportunities to scrutinise draft budget assumptions and options, clearly COVID-19 will have very considerable impacts on the 2021-22 and future budgets. 

The focus of this update is primarily on the 2020-21 (i.e. current financial year)  Revenue Budget. In the autumn the Government will undertake the next Comprehensive Spending Review setting the high level spending parameters for the public sector for the next three financial years for revenue and next four years for capital. These parameters will be very much driven by the financial impacts of COVID-19. This will in turn drive the 2021-22 Finance Settlement for local government, which hopefully we should receive by Christmas, in which we also await to see if the proposals for negative grant, which would hit this council, have been postponed a further year. The Surrey districts and boroughs are taking some expert advice with respect to the option the Government has provided to Councils to choose whether to bear business rates and council tax COVID-19 related deficits in 2021-22 or spread over three years. In a two tier area the impacts are more complex.

This update is based on our most up to date estimates of the financial impacts of COVID-19 on this Council, as we have been updating those estimates in order to submit a COVID-19 financial impacts return to Government required by end of tomorrow. So the Accountancy team have been liaising with service managers across the Council to confirm impacts to date and their latest estimates for the year.

As presented to the Extraordinary Council Meeting on 21 May due to the uncertainties as to how the pandemic may evolve and the scale of economic impacts we have projected a range of estimates from a pessimistic set of scenarios through a mid range “realistic” to an optimistic case. We are using the realistic figures in our returns to Government.  The figures are likely to continue to change as the economic impacts on the residents of our borough become clearer. In particular we await to see the impact of the ending of the furlough scheme and the scale of job losses at the airport and in associated sectors. The Economic Development team are drawing together an economic recovery plan whose initiatives and resourcing will draw on funds from the additional retained business rates we set aside after the 2018-19 “100%” Surrey Business Rates Retention pilot.

On the revenue expenditure impacts, we now have much more certainty as to the extent of the expenditure hit arising from supporting the leisure centres re-opening following the support approved by Cabinet on 22^nd July. This will enable our two leisure centres to reopen from 1^st August. The swimming pool at Sunbury Leisure Centre requires some repairs so will not be reopening until January 2021 (note the Swimming Pool at Spelthorne Leisure Centre opens on Saturday at same time as rest of the centre). We are aware from confidential feedback from other councils in the south east some with the same operator as us and others with different operators that we have negotiated a relatively less expensive deal for this council than a number of other councils have incurred. 

The expenditure on shielded residents has proven significantly less than originally feared which has helped improve our expenditure figures.

The projected range for expenditure COVID-19 revenue impacts is now:

On the income side, as a result of the Government announcement at the beginning of July of a scheme to partially reimburse councils for fees and charges income loss (not including rental loss) our figures have improved since May. The Government scheme deducts the first 5% income from across a council’s fees and charges income from a reimbursement of 75% of COVID-19 income loss. This 5% deductible for us equates to approximately £370k. After deducting the 5% the net estimated reimbursement we anticipate on our central scenario is approximately £680,000. This figure is lower than originally anticipated as a result of clarification of the 5% deductible and also as a result of some of our estimated income losses due to COVID-19 having improved on the basis of recent months performance. Not all our fees and charges streams have seen reductions in income as a result of COVID-19, for example Meals on Wheels income has gone up and garden waste income has been maintained.

Excluding impact of potential shortfalls on Elmsleigh Centre rental the overall projected income shortfalls estimates now range from:

It is acknowledged that the scale of the impact on the retail sector of COVID-19 has become clearer. The potential shortfall for the year on Elmsleigh Centre could be approximately £3.3m  However, this can be borne without any impact on the 2020-21 Revenue Budget as a result of cash balances relating to commercial assets which can be used to offset, without reducing the Elmsleigh or the commercial assets sinking funds.

On the commercial assets rentals we have now collected 95.2% of the rent due for the first three months of the financial year and 94% of the rent due for the second three months. This is a much better performance than most other commercial landlords. Of the balance not received yet all but 0.2% is covered by deferral agreement with tenants. We are not anticipating writing off more than 0.2% of the rental income relating to this period at most. Additionally we have been reviewing on a weekly basis our worst case and expected case sinking funds 10 year COVID-19 scenarios. Even on the worst case  modelling the £20m of funds we have to date set aside into the sinking funds from a slice of our rental income will be more than enough to cover any commercial rental shortfalls, and therefore to protect the revenue budget and council tax payers from adverse impact. Therefore we are not assuming any COVID-19 Revenue Budget adverse impact relating to commercial rents.

Taking into account grant support the net projected range for COVID-19 2020-21 Revenue Budgets is as follows:

In comparison councillors will recall at the 21^st May ECM the realistic estimate was £2.2m and the pessimistic scenario was £4.5m. So a realistic estimate of a net impact of £1.1m represents roughly a net £1.1m, improvement, roughly halving the gap, since that report. In turn this means we are now more confident that the upto £2.2m additional supplementary revenue estimate to be funded from reserves approved by Council on 21^st May will be more than sufficient to offset 2020-21 Revenue impacts. Therefore currently we are not, subject to the earlier caveats about the uncertainties of predicting future COVID-19 impacts, anticipating a need to be making further requests to councillors for additional use of reserves.

A gap of £1.1m represents 9% of our net Revenue Budget. Alternatively the gap is equivalent to 3% of our total cash reserves.”

There were no comments or questions.  It was Resolved to note the report.