AUDIT AND RESOURCES COMMITTEE

Tuesday 11 July 2017

CABINET

Thursday 13 July 2017

PROVISIONAL OUTTURN FOR THE YEAR 2016/17

Report of the Corporate Director Support Services - Chief Financial Officer

RECOMMENDATION TO AUDIT AND RESOURCES COMMITTEE:

It is recommended that Audit and Resources Committee consider the Provisional Outturn report and make recommendations to Cabinet as appropriate.

RECOMMENDATION TO CABINET:

It is recommended that Cabinet consider the following:

(1)General Fund Revenue position as at 31March 2017;

(2)Community Investment Programme (CIP) as at 31 March 2017.

And approve:

(3)the revenue transfer of £150,000 to the Local Plan Development Reserve (paragraph 10)

(4)the amended Fees and Charges for Transportation and Engineering services (paragraph 25) and

(5)a£20,000 Budget Management item for Eastleigh Business Centre (paragraph24).

SUMMARY
This report presents the Council’s provisional financial position for 2016/17. There is a provisional underspend of £28,000compared to the rolling budget after transfers to reserves and budget management items of £323,000 are taken into account. The details provided within the report are subject to external audit and could change.
Capital expenditure for 2016/17 was £73.3M which represents 95% of the rolling budget.
Statutory Powers
Local Government and Housing Act 1989, Sections 41 and 42
Local Government Act 1972, Section 151

Introduction

  1. Preparation of the 2016/17 final accounts for audit is progressing well and in accordance with statutory requirements the Statement of Accounts were prepared by 30 June 2017.
  1. Reporting the total expenditure and income measured against the approved Budget for both the revenue and capital accounts helps to advise Members of the services’ performance, performance against grant budgets and also performance of CIP schemes. In turn this assists with the planning process for the Medium Term Budget Strategy. Portfolio Leads have received information specific to their areas of responsibility and are encouraged to discuss any issues with service managers.
  1. It should be noted that all of the amounts in this report are subject to audit by the Councils external auditor – EY. The accounts will be availablefor public inspection for four weeks from 3rd July 2017 – 11th August 2017 and will be formally signed off by 30th September 2017.
  1. For 2016/17 the net General Fund expenditure was £351,000 lower than the final rolling budget (Appendix A). Once approved Budget Management items of £323,000 (Paragraph 24) are taken into account the favourable balance reduces to £28,000.The figures reported in Appendix A assume the adoption of the recommendations in this report to transfer funds to the CIP and reserves.
  1. The report contains, in the Appendices, details of the following:

Appendix / Description
A / General Fund Monitoring including portfolio statements
B / Community Investment Programme Monitoring
C / Risk Assessment
D / Treasury Management

Provisional General Fund Revenue Outturn for 2016/17

  1. The provisional General Fund outturn, including the effect on the General Fund Reserve compared to the final Budget, is summarised in the table below and detailed in Appendix A.

Revised Budget
£000 / Rolling Budget
£000 / Provisional
Outturn
£000 / Variance
£000
Services position / 9,758 / 21,216 / 20,759 / 457
Non-service related items / (9,725) / (21,251) / (21,145) / (106)
Transfer from/(to) General Fund Reserve / 33 / (35) / (386) / 351
Budget Management / 0 / 0 / 323 / (323)
Net saving / 33 / (35) / 63 / 28
  1. The net budgetary position has moved only slightly from the revised position to the rolling year end budget. However, the allocation of budgets between services and non-service related items has varied significantly. This is primarily due to accounting treatment of revenue expenditure funded from capital under statute(£11M) which is seen every year.

Revenue Monitoring

  1. The financial performance of all services has been discussed with Spending Officers. The reasons for any variances have been discussed with Management Team and actions are being taken where necessary. Significant service variances on controllable costs and incomes are discussed in paragraphs 9 - 24 below. These are variances not related to staffingor general movements to/from reserves.

£000's
Income and Expenditure - Para 9 / 236
Reserve transfers - Para 10 / (191)
Corporation Estates Income - Para 11 / 77
Housing & Council Tax - Para 12 / (438)
Point Operation - Para 13 / (67)
The Berry - Para 13 / (39)
Corporate & Democratic - Para 14 / 188
Recycling - Para 15 / 23
Refuse Collection - Para 16 / 61
Street scene - Para 17 / (25)
Restrictive Covenants - Para 18 / 20
Combined heat and power - Para 19 / 67
Renewable Energy - Para 20 / 29
Car Parks - Para 21 / (24)
Staffing - Para 22 / 363
Eastleigh Business Centre - Para 25 / 32
Other / 39
Total / 351
  1. The Income and Expenditure Account is showing a favourable variance of £236,000 against the budget. This covers a number of areas including:
  • The charge for Minimum Revenue Provision being £45,000 lower than estimated during the budget process. This is due to the number of vehicles purchasedbeing lower than anticipated,
  • There is a cost of £178,000 relating to the interest cost of borrowing to fund schemes whilst under constructionwhich has been charged to the revenue account this year. When the budget was constructed it was planned to capitalise these costs however it is more cost effective to absorb them into the revenue account.
  • Non Domestic Business Rate income has increased compared to the budget by £395,000. The budgets were prepared prudently at the safety net level in case the increased income, which first arose in 2015/16, did not continue. It is likely that the Council will continue to generate additional income from business rates and this will assist in the delivery of efficiency targets for future years.The Quarter 2 Monitoring will report the forecast position to Members and funding changes will be reflected in the Medium Term Budget Strategy and the revised budget.
  1. There are a small number of transfers both to and from reserves which should be brought to the attention of members:
  • The Council priority to produce an adopted Local Plan continues to require additional staff resources within the Planning Policy Section including the employment of consultants to help delivery. It is recommended that a transfer of £150,000 is made to the Local Development Plan Reserve to fund ongoing costs of the Local Plan (Recommendation 3).
  • Planning fee income exceeded the budget by £53,000; prior approval has been given for this amount to also be transferred to the Local Development Plan Reserve which will then have a balance of £351,000.
  • £12,000 was transferred to an earmarked reserve in previous years for work on the South Hampshire Strategic Employment zone. This work has now been completed and the remaining money has been transferred back to revenue representing a saving.
  1. Corporate Estates includes additional income of £18,000 due to reimbursement of costs relating to the negotiation and completion of property option agreements. In additionService Charge Insurance payable by the Council and recharged to the leaseholder has a net favourable effect of £59,000 on the budget.
  1. The Housing Benefits and Council Tax Support service is showing a significant adverse variance of £438,000. This is primarily relating to a prudent increase of £371,000 in the bad debt provision for housing benefit debts. The decision to increase the provision has been taken due to the introduction of universal credits from 12 July 2017 for the council. It is considered that this may make the recovery of income more difficult as income goes directly to individuals and won’t be recoverable direct from housing benefit payments. This approach to bad debts is mirrored in other Councils within the area. There is also a net unfavourable variance of £60,000 on housing benefit payments and subsidies although this is difficult to predict with payments out of over £30M annually.
  1. The Point and The Berry are showing adverse variances of £67,000 and £39,000 respectively. It should be noted that these shortfalls have been robustly addressed within the proposed structure, led by the Commercial Business Manager and by working to expand current networks to improve the Council’s performance in this regard. The losses in 2016/17 are primarily because of a fall in income for both theatres due to:
  • Areduction in the level of donations and funding secured from private donors, benefactors and external bodies in comparison with previous years. The Council works to generate income to supplement creative activity and in common with other providers of Arts and Cultural Services, we have been adversely affected by a challenging market place resulting in a shortfall in the targeted level of income.
  • Areduction in the number of events being hosted at our venues, comprising largely of the hiring of space within each venue for a wide range of activities.This also coincided with the loss of the Council’s Business Development Officer, with attempts to recruit a suitable replacement proving unsuccessful.This reduction in the number of hirers also impacted adversely on the Café and Bar, both of which have seen reductions in income.
  1. Corporate and Democratic coreis showing a favourable variance of £188,000. This includes the reversal of a provision of £220,000 at the end of the financial year for a VAT Partial Exemption Calculation. This provision was held to counter any costs arising from previous claims for VAT if the Council did not meet the specific requirements of partial exemption. These costs will now not arise. In addition, broker fees arising from council’s borrowing activity has exceeded the budget by £64,000. This is largely due to the timing of payments over year end and will be a one off cost. Within this area there has also been a saving of£32,000against the budget for progressing the devolution/combined authority work.
  1. The Recycling service hasrealised a saving of £23,000 against the rolling budget due to £8,000additional income from the sale of glass and £15,000 for recycling credits. This was not forecast in the December Monitoring as Quarter 3 sale of glass figures were not received until March. The quarter 4 actual charges have now been received and this reflects the final outturn.
  1. Refuse Collection is showing a favourable variance of £61,000 for 2016/17. There has been an increase in income from Indestructible Refuse and missed\contaminated bins of £8,000. The Kitchen Waste Services has a £34,000 favourable variance due to a change in the company that process the food waste.Hampshire County Council will be renewing the contract for food waste processing in June 2017 and this will be reflected in the September 2017 Quarterly Monitoring Report. There has been a saving of £72,000 from the reduction in use of fuel due to more efficient operation of the fleet. These savings have been offset by costs of external vehicle hire exceeding the budget by £53,000. This is be due to a number of refuse vehicles being in the latter stages of their operational lives and therefore requiring more repairs. The Vehicle Replacement Programme for 2017/18 includes replacing 10 vehicles.
  1. Street scene has incurred additional external hire costs leading to a £26,000 adverse variance. This is due to a vehiclethat has not yet been replaced via the Vehicle Replacement Programme. The replacement programme has been reviewed in conjunction with the potential requirements of the service and vehicles will be orderedduring 2017/18.
  1. The Council has received income for releasing a number of Restrictive Covenants under the £10,000 level for capital receipts. This hasled to a total favourable variance of £20,000.
  1. As highlighted in the December Cabinet Report, the Combined Heat and Power contract has continued to improve performance with a surplus likely for the Council. The contract price is paid at a variable rate with monthly reconciliations. Due to administration issues at Fleming Park there has been a delay with figures but the current reconciliation is showing a favourable variance of £67,000.
  1. Renewable Energy; through installation of solar panels on buildings, the Council has been able to achieve a net surplus through feed-in tariffs and grid sales which has led to a favourable variance of £29,000. As payments are agreed several months in arrears the extent of the forecast favourable position was not known at the revised budget setting stage. This was highlighted in the December Monitoring report.
  1. Parking Services has a shortfall for Penalty Charge Notice income of £24,000 due to staff vacancies, as previously reported.

Staff Monitoring

  1. The net underspend on staffing and associated costs for 2016/17 is £363,000. Staff costs represent a significant proportion of the Council’s controllable revenue expenditure and as such are closely monitored in detail, by individual post, during the financial year. The staffing budget stood at £19M for 2016/17. Costs included £1.3M for the service redesign programme which are funded from capital receipts. The underspend is largely attributable to:
  • vacancies in the Revenues and Benefits service (£260,000) where staff recruitment has been difficult, however service provision has been maintained through the use of short term Capita contracts
  • vacancies in parking services (£149,000) which compensate for losses of income (paragraph 21)
  • Budget management items totalling £282,000
  • Savings across Support Services due to vacancies throughout the year of £165,000.
  • Netted off by the shortfall of £474,000 on the efficiency target which is met in 2016/17 from staff savings.
  1. The phased restructuring of the Council has inevitably had an impact on staff turnover and related costs with a number of vacancies being held for longer. The service redesign programme is seeing a reduction in staff costs and the level of target turnover saving (currently £175,000) will need to be reviewed for future years based on the emerging staffing structure.

Budget Management

  1. Cabinet has previously approved the process of carrying forward unspent budgets for Future Eastleigh, Planning Performance Agreements and staff recruitment and retention budgets. In addition to these budget movements, it is also recommended that a budget of £20,000 be carried forward for the Eastleigh Business Centre. This is for website design in order to further promote the business centre. This work and expenditure will commence in 17/18 after service redesign has taken place. The table below details the individual budget management items:

£
Eastleigh Business Centre(recommendation 5) / 20,000
Future Eastleigh / 95,410
Development Management Planning Performance Agreements / 119,970
Corporate Recruitment and Retention / 87,450
322,830

Fees and Charges

  1. The Council’sFees and Charges Report was approved at the November 2016 Cabinet. Since the report was approved the Council agreed to the amended HCC Agency Agreement which means the Council can now charge for Temporary Orders/Notices for Road Closures except for those for HCC Works. It is recommended that charges detailed in the table below are approved (recommendation 4)

Highways
Road Closures–Temp Orders / Current
£ / 1 Apr 2017
£ / Change
%
All Other / 1120.00 / 1140.00 / 1.79
Emergency Road Closures – Temporary Notice / Current
£ / 1 Apr 2017
£ / Change
%
All Other / 300.00 / 306.00 / 2.00
Road Closure for Public Event - first application / Current
£ / 1 Apr 2017
£ / Change
%
Charitable bodies / FREE / Free
All / 440.00 / 450.00 / 2.27
Road Closure for Public Event - second application: / Current
£ / 1 Apr 2017
£ / Change
%
Charitable bodies / 214.00 / 220.00 / 2.80
All others / 440.00 / 450.00 / 2.27
Additional Highway Enquiries / Current
£ / 1 Apr 2017
£ / Change
%
Search Fees / Statutory / Statutory
Tables and chairs on the highway / 200.00 / 210.00 / 5.00
Tables and chairs on the highway – renewal / 100.00* / 100.0 / 0.00
  • Renewal charge reduced to £65 if paid within 28 days
/ 65.00 / 65.00 / 0.00
Access Charges / Current
£ / 1 Apr 2017
£ / Change
%
Administration Charges including Site Visit / 85.00 / 90.00 / 5.90
White Lining Cost / 10.00 / 10.00 / 0.00
Disabled Bay Applications / Current
£ / 1 Apr 2017
£ / Change
%
Administration Charges including Site Visit / n/a
White Lining Costs / n/a
Hire Charges: Traffic Management Signs & Cones / Current
£ / 1 Apr 2017
£ / Change
%
Road Closure Signs & Barriers / n/a / TBC
Cones / n/a / TBC

Community Investment Programme

  1. Financing of capital expenditure during the year relied substantially on the use of prudential borrowing. Of the total capital expenditure in 2016/17 approximately 95%has been financed from borrowing. The annual cost of borrowing is £3M.
  1. However in 2017/18 the net income generated will exceed the cost of borrowing by £4.7m, with the net benefit being utilised to support service delivery. A summary of capital financing is shown below:

£000
External resources: New Homes Bonus / 287
Other Grants / 1,491
Developer’s contributions / 1,511
Prudential borrowing / 69,463
Internal Resources: Revenue contribution to capital / 565
Capital Receipts / 70
Total capital expenditure in the year / 73,387
  1. Appendix B provides a summary of the CIP budgets and spend to the end of March 2017 across the programme boards. The underspend of £3.8M relates primarily to the timing of spend on the housing projects for Stoneham, Woodside and Romsey Road which account for £1.5M.

Efficiency and Improvement

  1. As Members are aware there is a significant ongoing priority to achieve service efficiencies to ensure that we meet our Efficiency Strategy targets in the coming years. The Medium Term Budget Strategy allocated a target of £2.7M, which as part of this process has not been achieved in 2016/17 however as per Paragraph 22 resources have been found to finance this:

2015/16 / 2016/17 / 2017/18 / 2018/19
£000 / £000 / £000 / £000
Target / 950 / 2,700 / 3,700 / 4,700
Achieved / 1,651 / 2,226 / 1,756 / 1,810
Shortfall/(Excess) / (701) / 474 / 1,944 / 2,890

Future Eastleigh & Service Redesign

  1. The overall service redesign programme is budgeted to deliver net savings of almost £1.8M per annum once fully implemented. This includes a commitment to additional staff training of £100,000 per annum. This programme represents a fundamental transformation of the Council and it is reassuring to note that with the phases launched to date financial savings are being delivered in line with the budgeted model. The table below provides a summary of the budgeted split across years based on latest financial information:

2016/17 / 2017/18 / 2018/19 / 2019/20 / Ongoing
£000 / £000 / £000 / £000 / £000
Redundancy Costs / 1,112 / 1,838 / 200
Consultancy Costs / 200 / 122
Training Cost / 100 / 100 / 100
Additional Licence Cost / 300 / 400 / 400 / 300
Implementation team Cost / 380 / 400
Functional Support / 75 / 75
Cost of Capital / 19 / 22 / 119 / 117
Saving / 0 / (1,500) / (2,300) / (2,300) / (2,300)
Net Cost/(Saving) / 1,767 / 1,254 / (1,578) / (1,681) / (1,783)
  1. The costs in years 1 and 2, totalling £3M, have been funded from capital receipts from sale of property. This has taken advantage of the Government initiative on the Flexible Use of Capital Receipts which allows new capital receipts to be applied to fund revenue costs which will generate ongoing savings to Councils net service expenditure.
  1. The original service redesign business case forecast what the future activity of the Council would look like and translated this into an estimate of the staffing numbers that would be needed to deliver these ambitions. The number of full time equivalents (FTEs) at the start of the programme was mapped from activity analysis done by Council Officers and Ignite’s“Future Model” was applied. This forecast that the staffing structure would be reduced, on average by 19%. Cabinet will see from the table in Appendix E that this efficiency percentage is different for each category of the organisation depending on the experience of where efficiencies can be generated. It should be noted that as part of the modelling done for this work some staff and services were considered “out of scope” for various reasons.
  1. To date Phases 0 (Management), 1a (Strategy), 1b (Support Services) and 2a (Mobile locality) have been restructured with the budgeted savings being achieved through the restructuring. Currently the Council is consulting on the structures for phases 2b (Commercial activities) and 3 (service delivery). Early indications are that the restructure costs should achieve the efficiency targets although there will be transitional costs whilst systems are bedded in. The Medium Term Budget Strategy will build in any transitional costs which will be better known once the consultation process is concluded.

Treasury Management Outturn