Cabinet - Tuesday 6th August 2024 10.30 a.m.

August 6, 2024 View on council website  Watch video of meeting or read trancript
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Summary

The Cabinet agreed to adopt the 'Transforming Newham for the Future Plan', a new operating model that will involve £5.9 million in one-off investment costs and £13 million in recurring savings. Cabinet also approved a report that detailed a £22.2 million overspend in the 2023/24 financial year, a £40 million forecast overspend in the current financial year, and a possible £175 million budget gap over the course of the next three years, driven in the main by the ongoing and escalating temporary accommodation crisis in Newham. A public consultation is to take place in the autumn setting out the council's position and asking residents for their views on which services should be prioritised.

The Transforming Newham for the Future Plan

The 'Transforming Newham for the Future Plan' was presented by the Chief Executive, Abi Gbago, with a supporting introduction from the Mayor, Rokhsana Fiaz OBE. It sets out a strategic vision to respond to budget pressures and a challenging environment by creating a more resilient, efficient, and resident-centric council.

The plan was prepared following a comprehensive review by PricewaterhouseCoopers (PwC) of the council's operating model. The review found that the council faces an unprecedented budget gap over the next few years driven by temporary accommodation costs, demand for children's and adult's services, and inflation, but that there are numerous areas where the council could improve its productivity and efficiency.

The assessment also found:

a considerable amount of staff time is spent on administrative or repeatable tasks such as scheduling and data entry. Additionally, the review found that staff effort spent on enquiry handling and processing requests was 7% higher compared to a group of comparator London boroughs. (Cabinet Report - Our Transforming Newham for the Future Plan FINAL - August Cabinet)

The plan sets out to redesign how the council delivers services across four key areas:

  • Resident Access and Experience
  • Service Delivery
  • Strategic Operations
  • Enabling & Support Services

It focuses on enhancing digital capabilities and resident self-service options, optimising service delivery by deploying new data and technology solutions, creating more integrated working practices, uniting strategic functions for more effective coordination of the council's operations, and streamlining support services for greater efficiency and value for money.

The plan sets out eight strategic programmes to achieve these changes:

  1. Resident Access and Experience Transformation Programme: Aims to enhance early intervention, reduce contact demand by improving digital self-service, and create a more responsive and accessible service.
  2. Enabling Services Efficiencies Programme: Seeks to streamline and automate enabling processes, improve self-service for internal support functions such as Human Resources, Finance, Procurement, and Legal.
  3. Transformation and Change Capabilities Programme: Will build a more effective internal capability for designing and implementing change programmes across the whole council.
  4. Data Strategy, Efficiencies, and Skills Programme: Will create a more robust data infrastructure to enhance the council's strategic decision-making and operational delivery effectiveness.
  5. Technology Transformation Programme: Focuses on designing and implementing a new digital, data, and technology operating model, addressing technology risks, and preparing for future advancements.
  6. Workforce and Culture Programme: Aims to foster workforce development through skills enhancement, leadership training, and cultivation of a high-performance culture.
  7. Commissioning, Procurement, and Commercial Programme: Aims to improve spend control, income management, streamline procurement processes, and develop a more robust and strategic commissioning model.
  8. Integrated Service Delivery Models Programme: Focuses on designing and implementing integrated service opportunities that enhance service delivery and efficiency across functions, including the development of a new model for local, face-to-face service delivery hubs.

The cabinet report describes how this plan will be critical for supporting and enabling the delivery of savings and service efficiencies across the whole council. However, it also stresses that implementing the plan will be challenging and that considerable cultural change will be required across all parts of the organisation.

Summer 2024 Finance Review

The Summer 2024 Finance Review, which was presented by Councillor Zulfiqar Ali, Lead Member for Finance and Resources, detailed the council's financial performance in the 2023/24 year, the forecast for the current 2024/25 year, and projections for the medium-term financial strategy (MTFS). The report highlighted the mismatch between council funding, most of which comes from central government, and the demands on services. The report stated that:

“the cumulative impact of 14 years of cuts to core government funding to local Councils is taking its toll. Local government is facing one of the worst financial challenges with a complete misalignment between funding (which 70% comes from central government), with its needs and growing demand”. (Summer Finance Review Cover Report Cabinet 6th August)

The report identified three specific financial challenges:

  • Temporary Accommodation: Driven by a lack of affordable accommodation in London, and rent levels exceeding benefits levels, there was an overspend of £22 million on temporary accommodation in 2023/24, a £31.2 million forecast pressure on the 2024/25 budget, and a further £100 million projected overspend across the following three years. This is after £18.5 million of growth was allocated to the 2024/25 Temporary Accommodation budget, and an £11 million underspend on the overall budget in 2023/24, showing the severity of the problem. It was stated that:

    If Newham didn’t have the TA landscape it has, our budget last year and this year would have been balanced without major difficulties. (Summer Finance Review Cover Report Cabinet 6th August)

  • Adult Social Care: There was a £4.9 million overspend on Adult Social Care in 2023/24, and a further £7 million projected for the current year, driven by rising cost inflation exceeding the general rate of inflation, and increasing demand from an ageing population. The report stated that:

    Persistent increases in unit costs are the main cause of the increase in gross spend on placements. The cumulative impact of successive years of high inflation and increased levels of need is generating a significant underlying pressure on placements budgets for the directorate to contain. (2023-24 Outturn Report)

  • Children’s Services: There was a £6 million overspend in Children’s Services in 2023/24, and a further £9 million forecast pressure for the current year. This is being driven by substantial increases in cost inflation for looked-after children placements, and increasing costs in home to school transport provision. The report stated that:

    The May residential unit cost is 51% higher than the average cost in 2022/23. We have young people with very high needs that require extensive support to ensure they are able to remain safely in the community. (Summer Finance Review - Appendix B: Overall Financial Position 2024/25 (Period 2 / Quarter 1))

To address these financial challenges, the council has put in place substantial measures to mitigate the costs, which include selling capital assets, improving financial management, implementing tighter cost controls, and investing in transformation to drive efficiencies. A detailed report on the outturn position for the 2023/24 year was also approved (2023-24 Outturn Report), which highlighted:

  • Dedicated Schools Budget: The deficit on the dedicated schools budget, which has been building up due to high-needs placements, was reduced from £17.4 million to £12.8 million. It was noted that the legal protection preventing this deficit from being charged to the general fund ends in March 2026.
  • Housing Revenue Account: The Housing Revenue Account generated an in-year surplus of £7.8 million, all of which was taken to the HRA ring-fenced reserves.
  • Capital Programme: There was an underspend on the capital programme, with £350 million being delivered in the year, compared to a revised budget of £569.9 million. The cabinet also approved a further £31 million allocation to the capital programme for urgent and business-critical work, saving £29 million from the original £60 million allocation in the 2024/25 budget, and so generating £1.5 million in revenue savings each year.

It was also noted that the Medium Term Financial Strategy report showed a potential £175 million budget gap forming over the next three years, with £100 million of this gap anticipated for the next coming financial year.

Populo Living Investment

The Cabinet approved a report seeking to restructure the financing of the council's wholly-owned housing development company, Populo Living. Populo has delivered 795 homes since its formation in 2014, with a further 3,000 under construction, in planning, or awaiting approval.

In 2018, the Cabinet agreed to a report aligning Populo's activities with the Council's affordable housing programme, which meant that Populo is now expected to deliver homes at social rent levels, rather than solely market rents. This change was expected to reduce the council's short-term income from Populo, and increase long-term income. This has been compounded by the increase in interest rates in recent years, making the original financing model for the company unsustainable, and inhibiting the company’s capacity for further development. To address this, the report proposed restructuring the company’s financing arrangements.

There are two types of loans that the council provides to Populo:

  • Working Capital Loan: This is a revolving credit facility enabling Populo to manage its cash flow and fund its development activity. Populo’s current limit is £40 million.
  • Development Loan: This is used to fund the construction of new homes. This converts to a fixed-term investment loan on completion.

The report considered three options to restructure the company’s financing arrangements:

  1. Convert £30 Million of the Working Capital Loan to a 50-Year Fixed-Term Loan. This would see the Council start to receive interest and principal repayments in the shorter-term, but is a complex and expensive option to structure.
  2. Convert £30 Million of the Working Capital Loan to Equity. This would free up much-needed cash flow for Populo, allowing it to progress its development programme more quickly. The return for the Council would be dividends payable once all loans are repaid, which would take longer than under option 1.
  3. Split £30 Million of the Working Capital Loan on a 50:50 Basis Between a 50-Year Fixed-Term Loan and Equity. This would blend both options.

The Cabinet agreed with the officers' recommendation to pursue option 2, and also to reduce Populo's working capital loan facility to £10 million, amend the margin to 2% above the PWLB 50-year standard rate or the Council’s consolidated rate of interest, and extend the termination date from 2029 to 2040.

Contract Award of Corporate Internal Building Cleaning Contract

The Cabinet approved a report seeking to award a direct award contract for the cleaning of the council's corporate buildings to its wholly-owned trading company, Juniper Ventures. The contract will run for five years from 23 October 2024, with an estimated cost of £15 million.

The Council's corporate buildings are currently cleaned by Juniper under ad hoc arrangements. The report stated that this service was being delivered to a satisfactory standard but that a formal contract with a well-defined service level agreement, pricing mechanism, and performance indicators was needed to manage costs and performance more effectively and to secure greater continuity of service. It was noted that this would regularise an informal arrangement, and secure 66 frontline jobs for at least the next five years.

The report noted that Juniper pays the London Living Wage and that its employees are enrolled in the Local Government Pension Scheme, with the consequence that its costs are approximately 40% higher than those that could be tendered from a private contractor.

Royal Victoria Docks Bridge

The Cabinet discussed a report, which had been called in by the Overview and Scrutiny Committee (OSC), seeking approval to allocate £13.2 million to the Silvertown Partnership (TSP) towards the construction of a new pedestrian and cycling bridge across the Royal Victoria Dock.

The bridge would connect ExCeL to the Silvertown Quays regeneration site, replacing a poorly maintained and limited capacity existing footbridge, which was built in 2000. It would also unlock the full potential of the wider Royal Docks and Beckton Riverside Opportunity Area.

TSP have been granted planning permission for a new step-free bridge, and have secured a £233 million loan facility from Homes England to fund the early phases of the Silvertown regeneration, which includes the bridge. Following pre-application discussions with the Council, TSP have increased the width of the bridge to provide extra capacity for the wider Royal Docks area, however, the costs of the bridge have consequently risen beyond the capacity of the Homes England loan.

The report set out that transport modelling suggests that 32% of the bridge's usage would be by people outside of the Silvertown regeneration site, and proposed that the council pay for this 32% of the cost, which is £13.2 million. The Cabinet report argued that the bridge would have wide-ranging public benefits including:

  • Improving access to public transport and local amenities for residents on both sides of the dock;
  • Reducing travel times to the Elizabeth Line at Custom House station;
  • Promoting active and sustainable travel and;
  • Enhancing the Royal Docks as a visitor destination.

Following a call in by the Overview and Scrutiny Committee, the Cabinet decided to defer the decision to its September meeting.

The OSC raised several concerns, including:

  • Economic Benefits: The Cabinet report did not adequately set out the wider economic and regeneration benefits of the bridge, or quantify the rate of return on the Council's investment.
  • Bridge Specifications: The report did not adequately explain the extra specifications delivered by the proposed bridge, compared to what the developer had committed to deliver without the council's funding.
  • Financial Considerations: The Council does not have the resources to fund the bridge and doing so would mean making difficult choices between spending on the bridge or services.
  • Subsidy: The £13.2 million contribution would operate as a subsidy to developers, and could set a precedent for future projects.
  • Governance: The report was misleading in several ways and lacked important details.

The OSC recommended that the Cabinet provide more detail on the wider economic benefits of the bridge, the extra specifications being delivered by the increased funding, the financial implications of the proposal, and assurance that this would not set a precedent for subsidising private developers.

Attendees

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