The Overview and Scrutiny Committee of Haringey Council met on Thursday 18 January 2024 to scrutinise the draft budget for 2024/25 and the five-year Medium Term Financial Strategy (MTFS) 2024-2029. The committee also reviewed the draft Treasury Management Strategy Statement for 2024/25. Key discussions focused on the significant budget gap facing the council, the impact of inflation and rising interest rates on services and capital projects, and proposed savings measures across various directorates.

Treasury Management Strategy Statement 2024/25

The committee reviewed the draft Treasury Management Strategy Statement (TMSS) for 2024/25, which outlines the council's approach to managing its cash flows, borrowing, and investments. Tim Mpofu, Head of Pensions and Treasury, introduced the report. Key points raised included:

• Approval Process: Clarification was sought on whether the Audit Committee should have considered the TMSS first. Officers explained that while the CIPFA code requires monitoring by a body overseeing treasury activities, the council's constitution mandates scrutiny by this committee before it goes to the Audit Committee.
• Key Changes: The strategy anticipates a significant increase in the cost of borrowing, from 4.5% to 5.5%. Investment limits with counterparties were increased from £5m to £10m, while short-term borrowing limits were reduced from £30m to £20m due to higher associated costs.
• Bank Rate Forecasts: Assurances were sought regarding the accuracy of the forecast bank rate of £5.25%. Officers confirmed that treasury management advisors provide forecasts within upper and lower limits, which have historically remained within those ranges. While the banking rate is widely agreed to have peaked, higher-than-expected inflation remains a concern.
• Borrowing Levels: Existing borrowing is reducing year-on-year as loans mature. Internal borrowing, which uses existing resources and cash balances, was explained as distinct from external borrowing.
• Audit Process: The strategy is audited as part of the council's annual external audit, with internal audit exercises also conducted. Provisions are made for scenarios where borrowing costs decrease, requiring consideration against lower investment returns.
• Affordability of Borrowing: The Director of Finance advised that the affordability of increased borrowing rates would be addressed in the wider MTFS report. The General Fund Capital Programme borrowing has been scaled down by approximately £400m to reduce debt exposure.
• Short-Term Loans: The council is actively reducing short-term borrowing, which lowers risk exposure. Officers agreed to provide written confirmation of the percentage of borrowing that constitutes short-term loans.
• Liability Benchmark Error: A negative balance in the liability benchmark table for the 2025 column was identified as an error and will be corrected.
• Borrowing Cost Increases: In the event of borrowing costs increasing beyond the predicted range, officers advised that borrowing rates are considered as an average over the MTFS life, providing some mitigation. Any rate increases would only affect new borrowing, as the council holds no variable rate loans on existing borrowing. The final budget report will include a risk assessment.
• Recommendation: The committee recommended that future TMSS reports include an assessment of the probabilities of unforeseen risks and the likelihood of certain scenarios, such as a 1% above expected increase in borrowing costs, similar to pension fund reporting.

The committee resolved to scrutinise and provide comments on the proposed TMSS for 2024/25 before its presentation to Full Council. They also noted that the Audit Committee would be considering the draft TMSS at its meeting on 18 January.

Scrutiny of the 2024/25 Draft Budget and 5 Year Medium Term Financial Strategy (2024/25 - 2028/29)

The committee undertook a detailed scrutiny of the council's draft budget and the five-year Medium Term Financial Strategy (MTFS). The report was introduced by John Warlow, Director of Finance, with contributions from Cllr Carlin, Cabinet Member for Finance and Local Investment, and Josephine Lyseight, Assistant Director of Finance.

Key Budgetary Pressures and Challenges:

• Financial Duress: The council is operating in a period of significant financial duress, with an increasing number of local authorities facing pressure to issue Section 114 notices. Haringey Council, however, is not currently in a position where it cannot set a legal balanced budget.
• Budget Gap: A significant budget gap of approximately £16.3 million exists for 2024/25, necessitating a second round of budget proposals to address it. This is a considerable increase from the £6.3 million estimated in March 2023.
• External Factors: The draft budget has been influenced by developments such as the Autumn Statement, which did not adequately address the common challenges faced by local government in adult social care demand and sector costs. The Provisional Local Government Finance Settlement also raised concerns, potentially making the corporate resources position £3.7m worse off than budgeted, although further analysis hopes to mitigate this impact.
• Use of Reserves: Any remaining budget gap in the final MTFS will need to be addressed through the use of reserves, which can only be used once. Work is underway to narrow the gap as much as possible.
• Key Pressures: The primary pressures within the budget are identified as care services, temporary accommodation due to a paucity of supply, and increased capital budget costs, particularly rising borrowing costs.
• Legacy Issues: The 2023/24 budget has a projected in-year overspend of around £20 million. Growth funding of £25.5 million has been included in the draft budget for demand-led services to mitigate these pressures.
• Capital Programme Reduction: A significant reduction of around £400 million has been made to the capital programme, reflecting affordability challenges. This involves a tighter approach to enabling budgets. Further reductions are difficult to make without compromising policy objectives.
• Housing Revenue Account (HRA): The HRA budget emphasises the management and investment of existing properties and clarity on the new build programme. External grant funding from the GLA and additional rental income from new homes are expected to offset associated costs. However, annual operating surpluses in years 4 and 5 of the HRA are below the ideal £8m figure, expected to recover after year 5.
• Schools Funding: The council is on target for delivery within the Safety Valve programme for schools funding.

Discussion Points and Recommendations:

The committee engaged in extensive discussion on various aspects of the budget and MTFS. Several recommendations were made for referral to Cabinet:

• Demand-Led Growth Funding: Clarification was sought on the source of the additional £25.5m growth funding for demand services and its impact on future savings. Officers assured that expenditure forecasts are credible and reflect cost pressures, with the growth funding being a primary cause of the budget gap.
• Use of Reserves: Assurances were sought regarding the sustainability of using reserves to close the budget gap. Officers expressed confidence in the adequacy of reserves, but noted that their use would significantly reduce the reserve position.
• Waste and Inefficiencies: Cllr Carlin highlighted efforts to make Haringey a lean and efficient authority, including tighter procurement controls, reducing IT contract duplication, and reducing agency staff spend. The focus is on reorganising service delivery rather than simply making cuts.
• Capital Programme Impact: The reduction in the capital programme was discussed, with assurances that schemes are being re-profiled or removed to manage financial challenges. A recommendation was made for future budget scrutiny reports to include a table clearly outlining paused, removed, or re-profiled capital schemes.
• Osbourne Grove Scheme: Clarification was sought regarding the Osbourne Grove scheme's continued inclusion in the capital scheme despite press coverage of its cancellation. Cabinet members explained it was being paused for potential future viability and currently used as meanwhile housing.
• Outstanding Information: Several items required further details, including underspends on maintenance works, management actions, and specific savings trackers. These were referred to a future meeting.
• Match Day Cleansing Services: A recommendation was approved for referral to Cabinet, stating that the use of Council taxpayer funds for match day cleansing services is unacceptable and urging negotiations with Tottenham Hotspur Football Club for full cost recovery, including retrospectively.
• Digital Together Savings: A recommendation was approved for referral to Cabinet, noting that over 90% of savings for this initiative had not yet been achieved and requesting Cabinet to explain how each service department will engage to achieve these savings.
• Environmental Crime Enforcement: Further details were requested on the cost of in-house enforcement versus a private contractor for environmental crime, and on the appeals process.
• New Revenue Growth Proposals: A breakdown of expected extra costs for delivering the Leisure Management Service in-house was requested.
• Children's Services: A recommendation was approved for referral to Cabinet, seeking assurances that key non-statutory services within Children's Services would be protected from further cuts.
• Adult Social Care: A recommendation was approved for referral to Cabinet, seeking assurances that contract negotiations would not negatively impact the quality of care. Further details were requested on the £1m budget growth for Connected Communities.
• Mental Health Service Review: A recommendation was made to share the finalised review recommendations with the Adults & Health Scrutiny Panel.
• New Revenue Savings Proposals (0-19 years Public Nursing Services, Continuing Healthcare, Strength Based Working, Service Audit, Mental Health Service Review, Grant Review): Several of these items required further information or were referred for future consideration.
• Format of Budget Scrutiny Papers: A recommendation was approved for referral to Cabinet, suggesting minor amendments to the format of budget scrutiny papers for future years, including introductory text for tables and additional explanatory text on the capital budget appendix.
• New Revenue Savings Proposals (Increasing supply of Lodge accommodation, Use of social housing as temporary accommodation, Moving on from temporary accommodation, Charging full LHA subsidy rates): Clarification was sought on why these savings were being presented again and if they were being double-counted. Further explanation was agreed to be provided.
• Income Generation from CPNs: While satisfied with the response, the Panel expressed a desire to see more revenue raised from these fines.
• Additional Investment (Landscaping and green space maintenance): A recommendation was approved for referral to Cabinet, welcoming the standard of landscaping and green space provision for new build housing developments and requesting additional investment in their maintenance.
• New Revenue Savings Proposals (Newspapers & magazines in libraries, Library opening hours): Recommendations were approved for referral to Cabinet opposing the proposed savings on stopping hard copy newspapers and magazines and on reducing library opening hours, urging reconsideration and robust community engagement.
• Self-service technology in libraries: The commitment to explore the feasibility of these proposals and engage in full consultation was noted.

The committee resolved to compile a set of final recommendations to be shared with Cabinet on the council's draft budget and MTFS proposals. The meeting was extended beyond 10 pm to complete the agenda business.