Moody’s upgrades Lancashire’s outlook due to easing of pressure on reserves
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Credit rating agency Moody’s has upgraded Lancashire County Council’s financial outlook from “negative” to “stable”, citing the authority’s progress in reducing its four-year cumulative savings target by two-thirds.
While the authority’s “Aa3” rating remains unchanged, Moody’s Public Sector Europe team said it expects Lancashire’s financial performance to “improve considerably” by the 2022/23 financial year.
The agency said the improved outlook is a result of a projected cumulative savings requirement of £381.8m set out in 2018’s medium-term financial plan.
This figure is set to reduce to £123.8m under the plan’s latest incarnation, preventing the county from exhausting its reserves during the period.
“The majority of the savings proposals have received cabinet approval and Moody’s expects them to be implemented over the next four fiscal years,” its update said.
“The considerable reduction in the funding gap has also improved Lancashire’s projected reserves position.
“Whereas in its 2018 MTFP, its reserve balance was expected to be depleted by FY2021, its reserves are now sufficient to last post-FY2023, significantly relieving the downwards pressure on its credit profile.”
A report to Lancashire’s budget-setting full council meeting in February said a benchmarking exercise over the previous 12 months had identified a number of service areas where the authority was “high cost” in comparison to other top-tier peers.
The report said that £77m in further savings had been found from 42 individual “service challenge reviews” designed to understand the reason for the differences and then plan the delivery of better services at a lower median cost.
It added that a second phase of the process would look at “a number of areas” where more detailed analysis and investigation was required. The document said that phase would also take a more strategic view of “cross-cutting issues that could provide the potential for additional savings proposals”.
According to the report, as of February Lancashire was still predicting a funding gap of £47.3m by 2022/23, and projecting that reserves of £10.2m would be required to balance the 2019/20 budget.
However the document said the £10.2m figure was a “significant improvement” on the approximately £40m a year of reserves that the county had used to fund revenue gaps over the past three years.
“This follows strong financial control during the current financial year as evidenced by the forecast revenue underspend,” it said – referring to an anticipated £8.5m underspend.
Moody’s said the decision to keep Lancashire’s rating at Aa3 reflected both the county’s expected moderate debt levels for the course of its medium term financial plan and its “relatively strong” levels of usable reserves.
Data provided to February’s budget-setting meeting said that the council’s treasury portfolio as at November 30 last year showed net borrowing of £577.3m.
The figure derived from total borrowing of £1.083bn offset with investments of £506m .
The document showed a capital financing requirement of £1.097bn as of March 2020, rising to £1.109bn in March 2021 then falling back to £1.085bn at the end of March 2022.
Moody’s noted that its decision to maintain Lancashire’s Aa3 rating also reflected the credit challenges faced by the county, including the “execution risk” on its savings programme and continued pressures on demand-led services such as adults’ and children’s social care.
Angie Ridgwell, the county’s chief executive, director of resources and s151 officer, welcomed Lancashire’s upwardly revised outlook.
“The Moody’s rating update reflects positively on the council’s improving, although still challenging, financial position,” she told Room151.
“The credit rating helps in representing Lancashire County Council as a credible counterparty for capital markets activity, and can assist in lowering the overall cost of infrastructure financing.”
Ridgwell joined the authority on an interim basis in January 2018 from the Department of Business, Energy and Industrial Strategy where she was director-general for finance and corporate services.
Her position was made permanent in October.
