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Council well placed to manage financial sustainability according to Audit Wales report

Rhondda Cynon Taf Council is “well placed” to manage its financial sustainability.

That’s the finding of an Audit Wales report which will be considered by the council’s governance and audit committee on Tuesday, November 9.

It has looked at the financial sustainability of the council covering areas like Welsh Government support, financial planning, the reserves it holds and its performance against budget.

It said that the immediate impact of Covid-19 on the council’s financial sustainability has been assisted by additional Welsh Government funding.

Welsh Government financial support during Covid-19

Most of the council’s spending and income losses due to coronavirus have been covered by Welsh Government and the medium term financial plan assumes Welsh Government will continue to cover any spending or income losses as a result of Covid-19.

The council has taken the impact of Covid-19 into account in its budget strategy for 2021/2022 factoring in additional costs in areas like waste management and public protection services, it has increased its business rates scheme and frozen some fees and charges.

The report said the council is still very reliant on the Welsh Government’s hardship fund continuing.

The council has invested a further £6m in its capital programme as a result of the extra Welsh Government funding.

RCT estimated it will have spent an extra £37m as a result of Covid-19 in 2020/2021 and lost £14m in income.

The council also estimated that it will receive an extra £51m in funding from Welsh Government in 2020/2021 to mitigate the impact of Covid-19 meaning the costs in 2020/2021 after the Welsh Government funding is taken into account would be £2.04m.

Financial planning has served council well

It also said the council’s financial planning has served it well to date which it can build on to consider how it manages its budget gap in the medium term.

The council has a projected funding gap over the next three years of £39.19m based on a 3% increase in the Welsh Government settlement and a 2.65% council tax increase.

The report said the council is in a “healthy” financial position and has a number of options available to address the budget gap.

It said the council has a track record of addressing its budget gaps and Audit Wales has no concerns about the council’s financial sustainability.

The council is currently modelling three potential Welsh Government settlement scenarios for 2022/2023 to 2024/2025 which include a 2%, 3% and a 4% increase as well as a cash flat (0%) settlement.

The 2021/2022 settlement saw a 3.8% rise in funding and its budget is based on a local government pay freeze with about £1m set aside for increased pay awards for staff on salaries below £24,000.

The report said that historically the council’s assumptions have been realistic and its financial situation is such that it can cope with fluctuations in settlements in the short term but it needs to manage less positive scenarios than it planned for in the medium term.

“Healthy” level of reserves

The council is said to have a “healthy” level of reserves and uses them to support its financial sustainability.

The 2019/2020 report found that RCT had a “reasonable” level of usable reserves with the more recent report finding that total usable reserves have increased from £138.9m in 2016/2017 to £171.3m at the end of March 2021.

In February 2020, the council used £1.5m from its general fund balance reserves to help deal with the costs of Storm Dennis which the report said showed the council’s willingness and ability to use its reserves to respond to unforeseen pressures.

This left the level of its general fund balances reserve below the recommended £10m but it plans to replenish this over the next three years.

The £711,000 used to close the remaining budget gap this year comes from the Medium Term Financial Planning and Service Transformation reserve which is used to support the council’s overall budget strategy.

This reduced the pot to £3.6m but the council hopes to replenish this too.

Good track record of delivering within budget

The report added that the council has a track record of delivering its services within its overall revenue budget.

The draft position for 2020/2021 forecasts an overspend of £204,000 against the revenue budget which is after the council transferred funds into its reserves.

There has been a revenue surplus of about £52.2m which the council has moved into its usable reserves.

As a result of significant extra funding from Welsh Government, the council has increased its level of usable reserves by more than £60m in 2020/2021.

There are overspends in some key services like safeguarding and support services for children which is £2.46m over budget and adult services which is £1.3m over budget.

There is also a £602,000 overspend in waste services but the report said the council understands the cause of these overspends highlighting the ongoing pressures in adult and children’s services.

Identifying and achieving savings

The report said that the council identifies and achieves savings early.

Audit Wales found that the council has continued to identify savings and to only include these in the budget when confirmed.

The report said this approach has been effective so far and the council has been able to achieve “significant levels of savings” and maintain a healthy level of reserves.

The council has identified £4.6m of cuts which it has taken out of the budget requirement for 2021/2022.

Since 2017/2018, the council has identified £42m of cuts and the council’s section 151 officer has highlighted the challenge of “continuing to deliver significant efficiencies without impacting front line services.”

But Audit Wales’ report said it is clear that the council’s priority is to protect front line services and it will continue to look for alternative savings.

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