Statement of Accounts 2019/20 Contents Statement of Accounts 2019/20 Newport City Council Page No. Head of Finance’s Narrative Report for the Statement of Accounts 5 Statement of Responsibility 15 Annual Governance Statement 16 Auditor’s Report 46 Expenditure and Funding Analysis 50 Comprehensive Income and Expenditure Statement 51 Movement in Reserves Statement 52 Balance Sheet 53 Cash Flow Statement 54 Notes to the Statement of Accounts 55 Group Accounts 129 Notes to the Group Accounts 134 Glossary of Accounting Related Terminology 148 Glossary of Acronyms 153 Further Information 154 - 2 - Contents Statement of Accounts 2019/20 Newport City Council Notes to the Statement of Accounts Index Note 1 Accounting Policies Note 2 Accounting Standards that have been issued but not yet adopted Note 3 Critical judgements in applying Accounting Policies Note 4 Events after the balance sheet date Note 5 Assumptions made about the future and other major sources of estimation uncertainty Note 6 Material items of income and expense Note 7 Note to the expenditure and funding analysis Note 8 Expenditure and Income Analysed by Nature Note 9 Adjustments between Accounting Basis and funding basis under regulations Note 10 Transfer to / from earmarked reserves Note 11 Other operating expenditure Note 12 Financing and investment income and expenditure Note 13 Taxation and non-specific grant income Note 14 Property, Plant and Equipment Note 15 Heritage Assets Note 16 Investment Properties Note 17 Financial Instruments Note 18 Inventories Note 19 Short term debtors Note 20 Cash and cash equivalents Note 21 Assets held for sale Note 22 Short term creditors Note 23 Provisions Note 24 Usable reserves Note 25 Unusable reserves - 3 - Contents Statement of Accounts 2019/20 Newport City Council Note 26 Cash Flow Statement – operating activities Note 27 Cash Flow Statement – investing activities Note 28 Cash Flow Statement – financing activities Note 29 Members’ allowances and expenses Note 30 Officer Remuneration Note 31 External audit costs Note 32 Grants income Note 33 Related parties Note 34 Capital expenditure and capital financing Note 35 Leases Note 36 Private Finance Initiatives and similar contracts Note 37 Impairment losses Note 38 Capitalisation of borrowing costs Note 39 Termination benefits Note 40 Pension Schemes accounted for as defined contribution schemes Note 41 Defined Benefit Pensions Schemes Note 42 Nature and extent of risks arising from financial instruments Note 43 Contingent Liabilities Note 44 Contingent Assets - 4 - Head of Finance Narrative Report for the Statement of Accounts Statement of Accounts 2019/20 Newport City Council Introduction The 2019/20 financial year for Newport City Council has been a challenging one, requiring to deliver a balanced revenue budget with a minimal increase in funding from Welsh Government, while there were significant increased demands on social services and schools in particular. During the year, the Council saw some significant changes in the Senior Leadership Team, with a change in the Chief Executive and the Director of People retiring during the year. There was also a change in the Leader during the year following the previous Leader stepping down having been announced a life peer in September 2019. The Covid-19 pandemic hit the UK at the back end of the 2019/20 financial year, while there was minimal impact on the Councils outturn and Statement of Accounts as lockdown only began in the last two weeks of March. However, it is extremely likely during 2020/21 and beyond there will be a significant impact on the Councils finances, including impact on loss of income, the cost of response and recovery and potentially reduced funding in future years, as the demand on government resources shifts due to the impact of the pandemic. It is very difficult at this stage to quantify the impact of Covid-19, especially in the early stages of recovery and subsequently the “new normal”, when it is unknown what services will look like and how they will be provided in the future, and the level of funding that will be made to deliver these. The Council will monitor and forecast these future costs and loss of income alongside our “usual” monitoring process, and will take the appropriate actions required to maintain the financial sustainability going forward. 1. About Newport and the Council Newport is a coastal city, covering a geographical area of just over 84 square miles. It has an urban hub with an extensive rural hinterland and is home to one of Wales’ most diverse and multi-cultural populations. The city has a population of over 150,000 and has employment in the city of 84,800 across a broad range of industries. Newport's population by Age 26,164 30,946 Aged 0 to 15 Aged 16 to 64 Aged 65 and over 94,375 - 5 - Head of Finance Narrative Report for the Statement of Accounts Statement of Accounts 2019/20 Newport City Council Employment by broad industry Other service activities Public administration, defence, education… Professional, scientific and technical… Real estate activities Finance and insurance activities Information and communication Wholesale, retail, transport, hotels and food Construction Production Agriculture, forestry and fishing - 5,000 10,000 15,000 20,000 25,000 30,000 The City Council’s Corporate Plan for 2017 – 2022 – “Building on Success: Building a Better Newport” sets out the key priorities of the Council. The Council has a clear mission statement – “Improving People’s Lives”, which is aligned to the aspirations set out in the Well Being of Future Generations Act. The plan outlines how we will put this mission into practise, through the well-being objectives, which have been adopted: Improve skills, educational outcomes and employment opportunities Promote economic growth and regeneration whilst protecting the environment Enable people to be healthy, independent and resilient Build cohesive and sustainable communities The Council employs approximately 5,800 members of staff (including teachers and other school based staff), every day the mission is executed through the delivery of around 800 discrete activities in various service delivery methods, ranging from services the council delivers to services delivered in partnerships with a number of other organisations. 2. The Council’s Performance and Achievements in 2019/20 Over the last year, the Council made substantial progress Energy saving projects delivered across the towards our well-being objectives. County including roll out of roof-top solar PV across Council buildings and the installing of LED Formal opening of the Ringland Community Hub in streetlights throughout the City. November 2019. Supported the hosting of the British Transplant Introduction of the new waste bins across the Council Games. which saw recycling rates increase to 66.4%. Heritage Lottery Funding agreed and work Successful implementation of Civil Parking started on the Market Arcade. Enforcement from 1 July 2019. - 6 - Head of Finance Narrative Report for the Statement of Accounts Statement of Accounts 2019/20 Newport City Council Significant funding provided to support the Artist Impression of Chartist Tower Hotel development of both the Chartist Tower hotel and office block at Mill Street, both of which are due to open in early 2020/21. 3. Explanation of Accounting Statements These Statement of Accounts and notes sets out the Council’s income and expenditure for the year, and its financial position at 31 March 2020. It comprises core and supplementary statements, together with disclosure notes. The format and content of the financial statements are prescribed by the CIPFA Code of Practice on Local Authority Accounting in the United Kingdom 2019/20, which in turn is underpinned by International Financial Reporting Standards. There are 4 key statements together with supporting notes, as follows The Comprehensive Income and Expenditure Statement (CIES) - this records all of the Council’s income and expenditure for the year. The top half of the statement provides an analysis by service area. The bottom half of the statement deals with corporate transactions and funding. The Movement in Reserves Statement - summarises the Council’s income and expenditure activity (in the CIES) and shows how this is adjusted back to arrive at the Council’s funding/or council tax position, and how surpluses/ deficits have been distributed to reserves. The Balance Sheet - is a “snapshot” of the Council’s assets, liabilities, cash balances and reserves at the year-end date. The Cash Flow Statement - shows the movements in cash and cash equivalents of the Council during the reporting period. The Statement of Accounts also includes consolidated group accounts: The Group Accounts - are prepared in addition to the single entity accounts where local Authorities have material interests in subsidiary and associated companies and joint ventures. The Group Accounts have been prepared to include Newport Transport Limited, a 100% owned municipal bus company and comprise the Movement in Reserves Statement; the Comprehensive & Income Expenditure Statement; the Balance Sheet; the Cash Flow Statement and associated notes. The Notes to these financial statements provide more detail about the Council’s accounting policies and individual transactions. - 7 - Head of Finance Narrative Report for the Statement of Accounts Statement of Accounts 2019/20 Newport City Council A Glossary of key terms can be found at the end of this publication. The narrative that follows this now provides some informal commentary on the Councils financial performance, the balance sheet and future financial outlook. 4. Financial Performance 2019/20 The 2019/20 budget and funding The Council operates within a challenging financial environment and framework. Its net budget for 2019/20 was £280.6m of which 76% is funded from the Welsh Government Revenue Support Grant and 24% from local Council Tax. This means every 1% change in the grant we receive from Welsh Government is equivalent to a 3.2% change in Council Tax.