Members AGREED to take agenda items 4,5 and 6 together.

Caroline Holland introduced the reports. She drew members’ attention to the key areas:

·         the council’s revenue budget was overspent in 2014/15 for the first time in many years. There were three main service areas that were overspent and steps have been taken to address these to limit possibility of overspend in 2015/16. However, current forecast is for an overspend of £1.2m in 2015/16

·         the level of general fund reserves was reduced in 2014/15 for the first time in several years

·         total capital expenditure in 2014/15 was less than predicted in November 2014. There has already been some slippage in the 2015/16 capital budget

·         the collection fund for business rates has fallen in 2014/15 following new government regulations that have resulted in a large increase in the number of appeals and therefore provisions required

·         the pension fund accounts have been reported to the Pension Fund Advisory Panel and to General Purposes Committee where members were reasonably happy with its performance.  The council is looking to change its pension fund manager to get even better returns in future. A one-off £10m deficit funding transfer from reserves was put in as planned to reduce the impact on future years.

In response to questions about the pension fund, Paul Dale said that the method of evaluating the pensions liability differed from that used in the private sector and that the gap was much lower in cash terms. He added that the return on investment achieved was reasonable and that Merton is in a better position than most councils.

Caroline Holland explained that the policy on the use of the reserves and balances is set out in the council’s medium term financial strategy. General fund balances are intended to meet unexpected items such as the 2014/15 overspend. Earmarked reserves can only be used for the purpose for which they are earmarked.

Members expressed concern at the £1.2m projected overspend for 2015/16 and asked whether the causes of the 2014/15 had been addressed. Caroline Holland outlined the three areas of major overspend and that, of these, adult social care costs and, to a lesser extent, children’s social care remained an area of concern to her. She said that more work would be done to challenge budget managers and to see if monies could be released from corporate items to address genuine budget pressures elsewhere. In response to a question, she said that the council was likely to need to draw on general fund reserves again this year.

Members also questioned whether sufficient was being done at this early stage in the financial year to bring the projected overspend under control. Caroline Holland said that analysis was being undertaken and that it is important to track progress on achievement of savings that had already been agreed as underperformance on this would also impact on the 2015/16 outturn prediction. Paul Dale said that he would be meeting with assistant directors and cost centre managers to address overpends.

In response to a question about the importance of challenge so that only essential capital schemes are funded, Caroline Holland said that this does happen but she would welcome members’ support on this.

ACTION: Caroline Holland undertook to provide task group members with appendix 4: on street parking account 2014/15.