Agenda item

The Committee considered a report by Mrs Hannah Doney, Head of Finance, advising the Committee on the latest position in respect of the evaluation of financial risks faced by the Council. It was recommended that the Committee review the Risk Register and make any comments it wished to make about individual risks.

Mrs Doney introduced the report, noting that there were no changes to the residual risk score after mitigation, but that officers had updated the inherent risk for risks around inflation and worsening of the Medium-Term Financial Plan (MTFP) position. This reflected the current economic environment, including interest rate risks etc. The residual risk score following implementation of risk controls and mitigation measures had remained the same because the Council was well placed to manage these risks.

There was a good level of general balances which were there to manage financial risk and there was a robust financial planning process. Because there was a good level of general balances in place, this meant that the Council would be able to manage the economic shocks that may emerge because of high inflation, high contract inflation; and higher than budgeted-for pay awards.

In response to questions by Members of the Committee, Mrs Doney provided the following information.

a)    Regarding FIN18, Business Rates Retention, there was a prospect of a change to the Business Rates Retention system. Presently, there was 50% retention which could move to 75% retention, but it was believed that this change had been put back to 2025/26.

The Valuation Agency Office had undertaken a re-evaluation, effective from 1 April 2023, which had significantly increased the rateable value of businesses in the district. Transitional relief was in place for businesses which had seen an increase in valuation. However, as the transitional relief stepped down, it was anticipated that there was a greater risk of appeals against the re-evaluation.

Should the appeals against re-evaluation be successful, this would have a significant impact on the income achieved by the Council as central Government had already fixed the tariffs for the amounts deducted by central Government. Therefore, there was the possibility of the Council’s business rates retention income falling below the Council’s minimum level which would mean that any growth within the Council’s budget would be lost.

Historically, the Council had always been a Member of the Hertfordshire Business Rates Pool (“Business Rates Pool”) which gave the Council the opportunity to retain more of its growth through pooling government funding. However, because of the perceived risk, it was possible that the Council could be financially worse off if it remained a Member of the Business Rates Pool and, therefore, the Council had ceased to be a Member. The Council’s membership of the Business Rates Pool for the year 2024/25 was presently under review. If it were the Council’s intention to rejoin the Business Rates Pool, it would have to give notice of its intention to do so by 10 October 2023.

Should the Council’s Section 151 Officer recommend rejoining the Business Rates Pool, there would be a report to Council in December 2023 ahead of the deadline for final notification of intention to rejoin the Business Rates Pool in January 2024.

b)    The purpose of Business Rate Pooling was to benefit all the Members of the Pool. Hertfordshire County Council and the respective District Councils had a combination of tariffs and top ups which, when pooled, allowed the local authorities that were Members of the Pool to retain differences in funding after a reckoning of the tariffs and top ups. If the business rates for a single Member of the Pool dropped, all the Members of the Pool were affected. Therefore, last year, the Members of the Pool took the view that, rather than risk any upside because of other Pool Member’s downside, it was better not to pool business rates for the financial year 2023/24.

When pooling worked, it was to the detriment of central Government as central Government allowed local authorities with pooling arrangements to retain more of the income from business rates than they would have been permitted to retain if they were not members of a Business Rates Pool.

RESOLVED: That the Committee note the report.