Agenda item

The Committee considered a report of the Director of Corporate and Commercial Services providing an update on the impact of inflation on CA spending and budgets, including the capital programme and revenue pressures, and the prospective approach to budget and business planning for 2023/24.

Discussion took place around the following topic areas:

1)    Risks and uncertainty around funding for tendered bus services: The two main risks of bus funding are wider budget pressures from cost increases affecting the level of funding available for existing tendered services and cuts of commercial services by bus operators could lead to extra pressure for the CA to tender more ‘socially necessary’ services – both of these represent a high social impact on residents. The committee noted the balance of monitoring spending and risk without straying into the Transport Scrutiny Committee’s remit on buses and transport.

2)    Initial assumptions around inflation level: In November/December 2022, the CA Members took the decision to operate under an assumption of 2% inflation, which was in line with similar analysis by most Local Authorities, generally based on then Bank of England estimates. The Committee noted that Scrutiny felt last year that, despite pressures on the revenue budget, a 2% assumption in the pay award was unrealistic and a 4% assumption might have been more accurate. Some Members reported their own places of work working on assumptions of inflation as high as 9% late last year as it appeared evident, even before the Ukraine War Crisis, that inflation would rise across the economy. The committee suggested inflation be focused on when budget 2023/24 scrutiny takes place later this year. 

3)    Gainshare and inflation: As the committee noted last year, Gainshare is not inflation indexed and this was a risk, so it would lose its initial value over time at a minimum of 2% a year (based on historic average of inflation). In light of recent inflation rises, this loss of value has accelerated at an alarming rate – a rise in inflation of 10%, as predicted this year, would essentially wipe off nearly £4m in funding a year from now on, and it is only the first year of Gainshare funds being available to the CA. The CA decided as a deliberate strategy last year to ‘front load’ spending in order to fully maximise the full value of Gainshare, and any borrowing against it, and focus on revenue generating schemes. It was also decided to over programme, similar to capital programmes, to ensure there is always a project in the pipeline to spend the money on to ensure there isn’t a situation where funds are not being deployed where needed. The committee asked to see a monitor of gainshare spending at each meeting.

4)    Possible cancellations of capital programme schemes: The CA, in coordination with the local authorities (through directors of delivery) who usually sponsor and manage many of the schemes in the capital programme, is currently reviewing all schemes to determine the effect inflation costs have had on them and whether they are still viable. The current intention and plan is to avoid cancellation of projects – especially strategically aligned projects – and instead reprioritise their position in the pipeline. It was always policy to over programme and have more schemes and funds committed then available, as it was common for schemes to be delayed, and that ensured that the money was always being spent and making a difference. The tolerance levels have now shifted due to inflation and so this will be revisited.  The ultimate decision on whether schemes are cancelled will be made by the CA Members in a public meeting. The committee asked to see the analysis of the capital programme when completed.

5)    Reserve funds strategy: It is not the CA’s current policy to use reserves (or Gainshare) to ‘plug’ any gaps in general revenue spending e.g. corporate running costs or staff salaries. Reserves would generally only be used in ‘emergency’ type situations on a temporary and contained basis.

6)    Consultation costs and ‘Value for Money’: The ‘not insignificant’ cost of consultations was noted by the Committee and in the context of increasing costs and possible cancellation of schemes, any consultations for schemes that have not yet progressed could be cancelled, or delayed, to save on those costs until the fate of the wider capital programme is clearer. This might be an opportunity to review the effectiveness and ‘culture’ of consultations as well as their true value for money – many consultations are approached as either box ticking exercises or ‘local referenda’ on already agreed schemes. The committee requested a strategic report on consultation strategy and value for money.

7)    Monitoring efficiency of contractors and suppliers: It is a “double edged sword” when suppliers are profiting ‘too much’ from a contract as it calls into question value for money for the authority, but if they are struggling it calls into the question the quality of their service or overall business model. Although the efficiency of contractors and suppliers is monitored to ensure standards are being met, most information available is from previous years and it is more difficult to assess them in the present or predict what shape the supplier will be in in the future, especially in current economic conditions.

Resolved:

i)               That the report be noted and the Committee’s feedback and conclusions be considered further by the Director of Corporate and Commercial Services.

ii)              That Gainshare funding developments, and wider impact of inflation, continue to be monitored at each meeting through an appendix prepared by the Director of Corporate and Commercial Services. 

iii)            That a report by the Director of Strategy and Communications on the approach to consultations and their value for money be added to the work programme and a future agenda item to be determined.

iv)            That the analysis of the capital programme being prepared for the Combined Authority by the Director of Delivery be circulated to members when completed, prior to further decisions being made.