Member Briefing Note from Dave Kempson, Head of Finance

Luton’s Financial Position – a note on the statements produced by the Local Government Association.

Background Explanation

1. The Local Government Association (LGA) has recently produced financial position statements for all Councils. They are private to each Council, but they use rankings to show how well or badly each Council is doing relative to others. Luton is ranked against all other principal councils (unitaries, mets, counties and districts) in a ranking out of 353. There is also a ranking of unitaries, which is out of 56. In all of these rankings, the authority in the best financial position ranks 1, and the authority in the worst position ranks 353 nationally, and 56 for the worst placed unitary. The analysis takes account of the size of each authority, to produce a like for like comparison (e.g the change in levels of reserves are not ranked on absolute values, but on change as a percentage of net revenue expenditure).

2. These statements are in a format called ‘spidergram’ charts. Each chart shows the rankings on a web. If the Council was top ranked for everything shown on the chart there would be no shading on that chart at all. Just a simple dot in the middle – like a tiny money spider – a very moneyed spider – at the centre of an open web.

3. If the Council was bottom ranked for everything shown on the chart virtually the entire web would be shaded in. The bigger the shadow, the greater the financial problem.

4. This briefing note sometimes refers to quartile rankings. The top 25% of authorities are in the 1st quartile. The next 25% of authorities are in the 2nd quartile. Those below the mean average are either in the 3rd quartile, from 51 to 75%. And then there is the bottom quartile.

Key Issues 5. There are a number of indicators where Luton’s position is good compared with others, and a number where the analysis shows major cause for concern. This is shown in the charts, and summarised below.

6. In terms of the good news, Luton ranks well, particularly against other unitaries, in relation to the present indicators. It is top of the unitaries in the net change in reserves over the last 4 years, and hence has improved its short-term financial position more than others over that time. It ranks 3rd amongst the 56 unitaries for its level of net assets, which means that overall its liabilities are lower, relatively, than most other unitaries. However, unitaries are generally in a worse underlying position than the average authority, as Luton is only 2nd quartile overall for net assets. Amongst Unitaries, Luton is in the top quartile for both unringfenced reserves and working capital, so has more funds available in the short-term than most unitaries. However, in the national comparison Luton is only in the 3rd quartile for these indicators.

7. Luton is also top amongst unitaries in relation to income from investment properties and investments (and is top quartile nationally, too, in relation to these indicators).

8. These positives are a direct result of decisions made in recent years in terms of budget setting without contributions from reserves, achieving savings early, and making strategic investments in property.

9. The bad news is that in terms of key future indicators and risks, Luton is in one of the worst positions nationally.

10. The LGA’s assessment of each council’s likely level of funding as a percentage of its expenditure in 2019/20 puts Luton 317th out of 353 authorities nationally, and 50th out of the 56 unitaries. This position is underlined by the Council’s ranking in dependence on government funding, where Luton ranks 310 nationally, and 47th out of the 56 unitaries. There is an indicator of change in core spending, which is based on the LGA’s analysis of the level of increase in spend required to meet current and future demand in the period to 2019/20 with a constant level of service, and on this measure Luton is 325th out of the 353 authorities nationally, and 48th out of the 56 unitary authorities. 11. This position of relatively high grant dependence and demand-driven increases in spend is combined with below average – though improving – collection rates for Council Tax and Business Rates (national rankings of 268 and 315 respectively, unitary rankings of 34 and 47) below average rates of change in Council Tax and Business Rates (these have identical rankings at 273 nationally and 41 amongst unitaries), and above average levels of Business Rates appeals, which reduce still further the amount of business rates collectable – here Luton ranks 318 out of 353 nationally, and 48th out of 56 unitaries.

12. It is the combination of high grant dependence, demand for spend on core services, and low levels of increase in the core business rates and council tax income, that makes Luton’s forward financial position so difficult, particularly when this is seen in the context of the developing Local Plan, where the options to deliver more housing and business are so limited.

13. It should also be noted that while Luton is top amongst unitaries in relation to general and property investment, the level of Luton’s revenue income from these sources - around £10m – is small compared with the Council Tax and Business Rates income of £85million excluding top up funding.

14. The key risk arising from this is that the future reductions in government grant, combined with increased demands for spend, put a future Council in a position that is not financially sustainable, unless significant reductions in the remaining non-statutory expenditure are made and significant additional income can be generated.