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Merthyr Tydfil: Council’s financial sustainability

Merthyr Tydfil: Council’s financial sustainability

Merthyr Tydfil Civic Centre

Merthyr Tydfil Council’s financial position has improved in the short term but it needs to take a more medium to long term approach, auditors have said.

Representatives from Audit Wales presented a report on the financial sustainability of Merthyr Tydfil Council at a meeting of the council’s audit and governance committee on Monday, October 18.

It was based on an assessment that Audit Wales did between January and March 2021 with reports set to be produced for all 22 Welsh councils.

In it they said that the council’s immediate financial position has improved but it needs to consider how it can best use its resources to strengthen its financial sustainability over the medium term.

All of the council’s additional Covid-related spending and income losses have been covered by Welsh Government funding apart from £298,000 in relation to equipment for home working.

As well as compensating for loss of income and additional expenditure, the
Welsh Government provided additional funding for specific Covid-related
spending.

The council has assumed that in 2021/22, the Welsh Government Hardship
Fund will cover homelessness costs of £871,000, school transport costs of
£31,000, loss of car parking income of £275,000 and loss of conference
income of £100,000.

In March 2021, the council received £449,000 from the Welsh Government
in respect of a contribution towards loss of council tax income collected.

This money will be set aside within an earmarked reserve and the council has
increased its council tax reduction scheme recognising the potential
impact of the pandemic.

The council’s medium term financial plan has three scenarios for Welsh Government funding settlements in the three years up until 2024/2025 with the most cautious being a 2% increase.

This would lead to an overall funding gap of £13.74m but there’s no guarantee there would be a 2% increase for each of these three years and so the deficit could be larger.

The report also said the council’s focus has been on annual budgets rather than planned long-term savings but the council is in the process of identifying the savings it intends to achieve through its Recovery, Transformation and Improvement (RTI) Plan as well as any investments needed to deliver on it.

The £802,000 investment requirement for the plan in 2021/22 will be financed from the revenue out turn from 2020/21.

The council received a 4.8% increase in its revenue support grant from Welsh Government for the 2020/21 financial year and a 4.6% increase for 2021/22

Because of these relatively favourable settlements the council’s short-term
financial position has improved, the Audit Wales report said.

The report said the council has recognised that it had urgent capacity issues and has taken steps to address some of them, with £705,000 included in the 2021/22 revenue budget but it is likely that further investment will be needed in future years

Audit Wales’ report also said: “The council needs to take a much more medium to long-term approach to its financial planning, including determining the level of savings it can realistically achieve through transformation and the investment required to deliver the Recovery, Transformation and Improvement Plan.”

The report found that the council’s general fund reserve has increased and is set to be kept in line with its reserves policy (of being between 3.5 and 4% of the annual budgeted net revenue spend) but there was an overall trend of decreasing usable reserves from £22.2m in 2016/2017 to £15.9m in 2019/2020.

However they have increased significantly in 2020/2021 to £25.7m as the council received extra funding from the Welsh Government.

In 2020-21, the council added £635,000 to its general reserves fund so this
now amounts to £5.335 million, in line with the council’s reserves policy.

The council currently has no plans to use any general reserves in the
next two financial years but plans to use £6.5 million of its earmarked reserves in the period up to 31 March 2023 for specific planned purposes such as funding the RTI Plan, digital transformation, COVID recovery, and the apprenticeships programme.

The schools balances reserves position has increased to £4.267 million as at 31 March, 2021.

It also said that the council has improved on its previous “mixed record” of performing against budget, with surpluses achieved in the last two financial years.

In 2019-20, there was an underspend of £2.9 million and for 2020/2021 the council has a provisional surplus of £4.464 million, which includes around £1.4 million of the additional Welsh Government funding received in March 2021.

It said the council has a good track record of meeting savings targets, but those savings are “insufficient” to meet future funding gaps.

In 2016/2017, the council achieved 97.5% of its planned savings, in 2017/2018 it was 88.8%, it was 96.4% in 2018/2019, 93.8% in 2019/2020 and is estimated to be 95.9% in 2020/2021.

For 2021/22, the council has so far identified cuts of £935,000 and has taken this amount out of its base budget requirements for the year.

Audit Wales made two proposals for improvement which were that the council should include cash flat or minus settlement figures as well as other more positive scenarios it may want to use when it projects its future funding gap.

The second was that the council must build on its current financial position to strengthen its financial resilience.

It said: “It is imperative that it takes a much more medium to long term approach to its planning including considering the level of savings it
expects to realistically achieve through transformation and the level of
investment needed to deliver the RTI Plan beyond 2021-22.”

Words: Anthony Lewis, Local Democracy Reporter


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