My overall view hasn’t changed that based on the figures presented so far, there doesn’t seem to be a large risk of significant overspend. My rationale for this thinking is:
- Whilst the risks and opportunities above highlight large potential for movement, on balance it feels as if they are well matched, and we have some room for manoeuvre.
- Using the experience from last year, a number of costs did come out of the forecast towards the end of the year due to project delays. Whilst some of that will have been due to market conditions (COVID delays for example), there are likely to be some delays this year which would generate a saving.
- The reversal of National Insurance in the current year should generate a significant benefit
- We have potential one-off incomes such as £2m additional income to be received in the year for IP addresses and £860k for overachieving PUP targets. Whilst this is a one-off and cannot be used to fund ongoing pressures permanently it does present flexibility in year.
However, whilst the risk of a significant overspend doesn’t seem high at the moment, the financial outlook isn’t positive. Looking ahead to the MTFP, with high pay awards, SE Allowance, high inflation, and a challenging recruitment market which could drive salary increases, the savings gap is unlikely to get any easier. Therefore, as a force we should continue to do all we can to minimise spend (in particular, recurring spend) commitments where possible. Furthermore, we need to start identifying savings as soon as possible to ensure we can achieve a full year saving from April 23 onwards.
As predicted, additional borrowing was required in the early part of 2022/23. In this respect, short term cashflow borrowing of £2m was required in the week ended 8 July immediately prior to the Home Office Pension Top-Up grant receipt of £37.2m on 5 July. On 7 October, cash under management totalled £46m. On average, cash balances will decrease £6m per month for the remainder of the year with further cashflow borrowing expected in Q4, dependant on capital receipts the timing of which is still subject to confirmation. Table 7 below shows the latest cashflow forecast.
The savings target for the year was £6.8m and we are forecasting £3.7m to be achieved. This leads to a deficit of £3.1m. However, a large part of this is already built into the vacancy factor above and once roles have been permanently delimited, the unachieved savings will reduce to circa £2.2m (vacancy saving would reduce accordingly so net nil difference to the forecast).
This remaining pressure would be more than mitigated through the additional vacancy factor savings and potential income on IP addresses (if required).
MTFP 2022-23 to 2026-27
- Whilst the MTFP will be updated alongside budget setting, there are a number of factors that we already know and should be noted. These include:
- An increased pay award will add cost to future years both through the immediate cost of that pay award but also the higher base from which future pay awards will be made
- An increase in South East Allowance paid to Police Officers from £2500-£3000 p/a has been agreed by Chief Officers. This represents a further cost pressure of £2.4m p/a
- With inflation still increasing, the current pay award may set a standard going forward for higher than “normal” pay awards and the 2% we have budgeted for 2023/24 onwards looks to be low
- Non-pay inflation is still increasing and is significantly above the figure built into the MTFP when set in January so would again increase the gap. Already we have indication that utilities will be circa £800k more next year and likewise an £800k increase in rates is expected
- The new Chancellor has indicated public spending cuts are likely- how that affects us we don’t yet know but it does indicate that a more favourable settlement is seemingly unlikely
- There is potential that council tax could be increased beyond the £10 limit but there is nothing formal to indicate that and even if it was, we’d still have to get that agreed against a backdrop of a cost of living crisis
- In the current year, we are underachieving on our savings ambitions as outlined above. This will need to be added to next year’s target as we can’t rely on the vacancy factor remaining as high as it is when we are actively trying to recruit to several roles.
- Whilst the MTFP is revised as part of budget setting between September and December, the early indication is that the 2023/24 savings targets outlined in January 2022 of £8.2m or £11.8m depending on the precept decision are now too low.
- A range of £12m to £16m is seen currently as more likely. This figure is only presented to be indicative and will be updated following the formal process as outlined in the budget timetable. Several factors such as internal cost pressures and savings, LGPS pension valuation (which has cost Essex £1.6m in their 23/24 budget), government budget and the settlement are unknown and will be required to formalise a final figure.
- With such political uncertainty, trying to build in reasonable assumptions around settlements and government funding is a challenge. Therefore, I recommend we focus instead on what we can control at the moment which is our internal costs and savings plan should be formulated accordingly.
Jonathan Castle CFO