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Council finances - tackling the myths

Council finances - tackling the myths

23 November 2020
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While the Coronavirus pandemic has impacted on Wokingham Borough Council’s finances, the authority is well placed to face the pressures thanks to its prudent and professional financial management, despite years of austerity. 


This doesn’t mean the authority doesn’t face financial challenges now, and in the future, but it’s in a better place than many other authorities around the country thanks to the approach it’s taken in terms of its all-round financial management arrangements including: commercial investments, raising income and borrowing decisions. 


Lowest funded unitary authority


Wokingham Borough Council continues to be the lowest funded unitary authority in the country per head of the population. This position hasn’t changed for many years.  The council now receives no money from central government’s revenue support grant. Approximately 85% of council services are funded by council tax. A one year settlement is expected mid to late December which unfortunately is not helpful for the council’s long-term planning but a new four-year settlement is expected in 2021. While the council doesn’t know what the settlement will be for the next financial year, it continues with its strong and sound budget setting processes.


Year on year it’s financially tough for the borough council. Demand for services continues to increase every year and both the number of people living longer and the number of vulnerable children needing specialist services continues to grow. 


Lasting financial implications


And Coronavirus has significantly enhanced the pressures on the council’s finances and will have longer lasting implications. The council was originally forecasting a cost pressure due to the Coronavirus pandemic of around £7million on the 2021/22 budget, but this has been reduced to about £2million as a result of the authority’s continuous lobbying for grant funding from the government and careful cost control measures. The council is well placed in its ongoing response to the emergency such as providing PPE and food parcels, as well as bearing the loss of income through services closing during lockdown such as leisure centres.    


In recent years, the council’s approach has been to invest across the borough to generate long-term revenue to support services. Projects like Wokingham Town Centre regeneration and building new social housing all generate money.  Each of the social homes, and the retail units, brings in rent income which helps the authority to pay off its debts and pays for things like council houses to be repaired and replaced.  Such investment activities bring in a staggering £7.2million per annum for council taxpayers and this is a large part of the reason the council is able to fund services that meet the needs of the vulnerable in such challenging times. 


Commercially minded authority


Cllr John Kaiser, executive member for finance and housing, said:  “We’ve stepped up during the pandemic to support our communities. But to do this has cost money, money that was not budgeted for. Although we received some government grants, which were welcome, we face a stark financial future. However, we have an important role to play in local and regional recovery. 


“We will target council resources were they are needed most. And we will continue to invest.  We’re a very commercially minded organisation and this appears in some people’s eyes to be a bad thing. In fact it is the opposite.  If we didn’t approach the challenges in this way, and take a risk based on sound facts, we would have some incredibly difficult decisions to make. And some of our communities would be hurt by that as we couldn’t provide the level of service that we currently do. 


“We’ve faced negative comments saying we’re irresponsible and unethical. And that’s just not true. We are doing all we can to ensure our financial security and the future of the council. By having good financial management we have built up financial resilience and sustainability despite years of austerity from central government. 


“We make significant money from our investments and that pays for vital services. We don’t want to make cuts or reduce services like many other local authorities.”


The council’s budget for 2021/22 will be set in February 2021. As per last year, the proposed budget will scrutinised across the political spectrum, and process has already started. 


Tackling financial myths


There are a lot of myths around the council’s financial position that Wokingham Borough Council is keen to tackle. 

 

  • Myth: WBC will go bust
  • Fact: WBC is financially sustainable

 

WBC has always been a council that believes in balancing its books and not overspending, so it is in a much better financial position than most councils across the country. But resources are stretched and the council will have to be smart about how it spends money going forward and continue to make sound investments.  In January 2020 the CIPFA Finance Resilience Index put Wokingham Borough in the top 20 for financial sustainability across all upper tier authorities in the country


  • Myth: Council has borrowed £700million
  • Fact:  Council responsibly borrows money and currently has borrowed £324million

 

As of 30 September, the council’s external general fund debt is £324million, which reduces to £83million after taking into account cash balances which we lend out ourselves. The council’s financial management is prudent and the debt levels manageable.  


The council borrows money like all councils up and down the county. They do so to fund assets needed by the community such as roads, schools and leisure activities. The net cost per council tax payer for financing all borrowing to date equates to £7.52, which is 0.4% of the average band D council tax charge. To understand the true cost of this, it is important to take into account the income from treasury investments, contributions from ‘invest to save’ schemes, income from investment / commercial properties which all contribute to reducing the annual cost of this financing.


  • Fact:  Council’s realisable assets are worth around £500million

 

Much of this is in relation to our commercial activities and could be sold off to repay debt, which as stated above is only £83million after taking into account our cash balances that we lend out.


  • Fact: WBC has healthy reserves 

 

The council has healthy reserves which could be used to offset pressures. Reserves are like savings accounts – once the money spent, it’s gone. That’s one of the reasons why the borough council has chosen to invest in commercial assets; so we can continue to fund vital services. The current forecast is to end this financial year with a reserve balance of approximately £9million, and then increase this value to £10million in the following financial year.


  • Myth: WBC doesn’t have an adequate level of reserves
  • Fact: WBC has reserves to cover all medium and high risks

 

There is no exact science to a safe level of reserves, but in general an adequate level of reserves covers all medium and high risks, and this was deemed to be around the £10million for WBC. The figure of £10million was at the more prudent end of the scale, and anywhere significantly below £7million would become a concern. The general fund balance is predicted to be at around the £9million level at the end of the financial year.


  • Myth: WBC accepts its funding from central government
  • Fact: WBC continues to fight for fairer funding

 

WBC continues to make representation to central government and local MPs to fight for a fair funding settlement and to cover the cost we have faced throughout the pandemic. 


  • Myth: WBC is not collecting council tax
  • Fact:  Currently WBC traditionally collects on average 99.3% of all council tax owed within the financial year and almost 100% of the debt over two or three years

WBC is currently on track to achieve these type of collection rates and we are currently 0.2% above our collection target this financial year (as of 30 September). 


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