Budget & Capital Programme - Executive Summary

Budget Report 2016/17

Budget & Capital Programme - Executive Summary

1This report describes the provisional Local Government Finance Settlement (four-year funding) announced on the 17 December 2015 and its implications for the Council’s 2016/17 budget and medium term financial plan.

2The 2016/17budget is based on a proposed Council Tax increase in Luton’s share of the tax of 1.95%, in order to minimise the level of reductions in key services and jobs that would otherwise be required.In addition to the Council Tax increase there is a 2% precept for adult social care which will be sued to fund the costs arising from looking after vulnerable people. This level of increase has not been permitted in previous years, but the provisional local government settlement included an announcement that Councils like Luton, with social care responsibilities, are now able to increase their Council Tax (including adult care precepts) by up to 4%.

3The major changes in the budget compared with 2015/16 are as follows:

• An increase of £4.3m in estimated Council Tax income, due to the 1.95% tax increase, the changes in the Council Tax Support Scheme previously agreed, an increase in the number of chargeable dwellings, and a reduction in the number of benefits claimants which means more people in work.
• An increase of £1.22m due to a ring fenced precept of 2% of Council Tax to help meet the costs of Adult Social Care.
• A reduction in the Revenue Support Grant, the general grant currently provided to Councils, of 23% in cash terms, and, according to the Government’s own figures, of 25% on a like-for-like basis. (This difference is due to the fact that some 2015/16 specific grants have ended, and the funding has been rolled into the 2016/17 Revenue Support Grant.)
• Budget savings/income increases of £11.4m that impacts on the General Fund net spend, together with £1.3m of Public Health savings due to the reduction in the Public Health Grant. These savings are estimated to result in staff reductions of 20.4 full time equivalent posts. However, there are 15.4 full time equivalent vacancies currently in the areas of work affected, so the number of redundancies is expected to be very low.
• Additional dividend, rental income and interest totalling £11.76m.
• Growth pressures totalling £6.3m, of which the largest single item is a £1.5m additional national insurance liability arising from the Government’s previously announced ending of the pension rebate for ‘contracted out’ pension schemes. The other major spend pressures are the costs of care, for both adults and children, and the adult social care, and allowance for a 1% pay award in 2016/17.
• Increase in contingency totalling £3.3m due to additional risk and pressures in adult and children social care costs, and homelessness.

4The Government has announced that it will continue to reduce the revenue support grant substantially each year, with the aim of replacing it with a full redistribution of business rates by the end of this parliament. This presents the Council with a major strategic challenge in the medium term, as it needs to become financially self-supporting. Although the Council may opt for certainty in RSG funding, the detailed guidance has yet to be published. Hence the Business Rate Retention scheme may pose a greater risk to the Council if the top up grant of £10.8m is not protected.

Background

5This document sets out the Revenue and Capital budget and the Council tax for the 2016/17 financial year and the Medium Term Financial Plan.

6There are 3 major changes in the 2016/17 local government financial settlement

a)The first is that the Government has ended the Council Tax Freeze Support Grant,

b)The second is that the Government is allowing those Councils, like Luton, with social care responsibilities to increase their Council Tax by 2% on top of a maximum increase of 2% in respect of other costs.

c)The third is that the Government is no longer reducing the level of revenue support grant by the same amount for each council, a method which meant that those who are most grant dependent – in general, those relatively least affluent – suffered the largest budget reductions.

7This does mean that, subject to the decision taken on the Council Tax increase, the Council is able to generate additional yield from Council tax to help fund services and increase spending power, a key measurement for the government in this settlement.

8The current financial system rewards those Councils who are able to increase their business rates income, and penalises those who are unable to do so. Business development is therefore one of the principal keys to the Council’s future financial health.

9In this context, it has to be noted that the Council receives a double-benefit from business development at London Luton Airport. In addition to any business rates increase there, its wholly-owned Airport Company (who is the freehold owner of the land on which the airport operates) receives concession-fee income on a per passenger throughput basis

10This is particularly important currently as the scope for business development elsewhere in Luton is much more limited than in most Councils. This is because it is a very intensively-developed area already, and has a significant need for additional housing, with all thenecessary infrastructure and cost associated with that, such as additional school provision and refuse collection.

11In order to keep future costs to a minimum, the Council also needs to ensure there continues to be a focus on skills development, and on ensuring people stay safe and well, physically and mentally. The financial importance of skills development is because if additional jobs created in Luton do not go to Luton people, the costs of the Council Tax Support scheme (which now falls wholly on the Council), will increase, and people will find it harder to pay their Council Tax. The financial importance of physical and mental health is because the costs of care are by far the largest part of the Council’s expenditure, and the more people who are able to live in safety within family or peer groupings, the greater the feeling of personal dignity and the lower the costs to the Council and Council Tax payers.

12The 2016/17 provisional financial settlement includes indicative grants figures up to 2019/20. Further, the Government is proposing to offer any council a four year funding settlement if it demonstrates that it will achieve efficiency savings (to be approved by ministers) to balance the budget over that period. The detail of what is required, and how definite the grant figures will be, is not yet clear. This will potentially offer planning certainty. The government has also hinted that Councils may have to draw on their reserves to smooth the path, which is against the advice given by CIPFA. The provisional grant settlement for 2016/17 is25% less than that offered in 2015/16 on a like-for-like basis, and 45% below that offered in 2014/15, with reductions continuing to 2019/20 on a fairly even basis.

13The final report of the Independent Commission on Local Government Finance produced in February 2015 suggested that by 2018/19, local government could be capable of becoming largely financially self-sufficient, by retaining and redistributing between each other the taxes which Councils collect. Following on from this, the Government is consulting on a new deal which requires local authorities to make efficiency savings (as yet unspecified) in return for allowing local government to keep 100% of the rates they collect from business, give individual councils the power to cut business rates to boost growth and give elected city-region mayors the power to levy a business premium for local infrastructure projects, with the support of local business. The system of top up and tariffs which redistributes revenues between local authorities will be retained, but the Uniform Business Rate will be abolished.

14It will be important that Luton has an expert, influential voice in the redistribution debate, as it is likely that the Council will be one of those in need of redistribution. The initial suggestion is that such redistribution would be between authorities in the same geographical area.

15The introduction of the opportunity to raise additional funding for Social Care via a ring fenced precept on the council tax of 2% will enable Luton to raise £1.222m. This has been included in the proposed Council Tax level, which for Band D is £1,292.49.

16In addition, the Government is proposing in future years to add further funding for Social Care via the Better Care Fund. Nationally, the additional funding will total £1.5bn, back-loaded and starting in 2017/18 with £105m, increasing to £825m in 2018/19 and reaching £1.8bn in 2019/20. This is partially funded by taking £800m from the New Housing Bonus, so there is only £700m of new money.

17The Council receives a number of specific grants from Government. Specific issues in relation to these grants in 2016/17 are described in Paragraphs 19 to 20 below.

18The amount receivable from the Education Services Grant is dependent on the number of pupils educated in local authority schools – it reduces on a per pupil basis when pupils move to academies or free schools. The budgeted reduction for 2016/17 is £343k.

19Some specific grants, principally those relating to the implementation of the Care Act, have ceased in 2016/17. The Care Act grants have been rolled into the Revenue Support Grant. Some specific grants including independent living fund are yet to be announced and may have an impact on the budget estimates.

20Since Luton is relatively grant dependent, with a low Council Tax base (the average property in Luton is valued between bands A and B for Council Tax purposes, and Luton’s Council Tax level is below the national average), the high levels of revenue support grant reduction have a very significant impact on the Council. This means that the Council needs to be prepared to make major savings and increase its income on an ongoing basis, in order to seek to meet the aims initially set out in the Prospectus 2013-2016 to:

• Lead the borough to financial security and set it on course for future prosperity;
• Deliver essential services that residents rely on;
• Manage on much less funding from Government than in previous years.

21Update on 2015/16 budget monitoring. The development of the 2016/17 budget has to take into account the current monitoring position in order to have useful insight on the challenges and risk expected in the new financial year. At the end of quarter two, the monitoring of the revenue budget showed a net overspend, after contingency, of £2.74m. The Council took decisive action and introduced a moratorium with a view to bring spend back to budget. The additional pressures faced by services which are in the main demand led have been considered as part of the growth challenge process. This will be kept under review and necessary measures will be put in place to address any overspend.

Local GovernmentFinance Settlement 2016/17

22Following The Chancellor’s Autumn Statement and Spending Review 2015, the local governmentprovisional finance settlement was announced on 17 December 2015. It sets out the provisional figures for 2016/17 and indicative figures for the following three years. This will be followed by a series of consultation with regard to changes to New Homes Bonus and Business Rates retention scheme. The settlement is based on the concept of Core Spending Power which is explained in detail below.

23The key points regarding the 2016/17 provisional Financial Settlement are as follows::

•Four-year allocations – providing certainty for planning purposes.

•Still significant cuts in funding around £28M over 4 years, fairly evenly distributed.

•Some notable assumptions regarding Local Authority spending power i.e. year on year increases in council tax by 2% and an additional 2% for Adult Social Care

•Additional funding for Adult Social Care – additional ring fenced preceptof 2% providing an additional £1.2m for Luton in 2016/17.

•Improved Better Care Fund – an additional £1.5bn made available to local authorities. However this is back loaded, ring-fenced andnot entirely new money.

•Council Tax referendum limits – 4% for upper tier authorities like Luton

•No Council Tax freeze scheme for 2016/17

•New Homes Bonus unchanged until 2018/19 – significant reduction thereafter

•Care Act new burdens added to settlement i.e. part of RSG

•Guaranteed four year budgets – figures provisional and subject to Council producing an efficiency plan - terms and conditions yet to be published.

•Ability to use capital receipts for transformational projects including revenue until 31 March 2019

•Retained business rates subject to further consultations. It is suggested that new burdens transferred with 100% retentions could include:funding for Public Health, attendance allowance, older people element of HB etc.

24It is worth noting that certain specific grants have yet to be declared and lacks clarity e.g. Independent Living Fund. Moreover there is no guarantee that these grants will be protected in future years. Hence the four year settlement poses some significant risks and uncertainties as DCLG officers have admitted that the settlement may change if the fiscal position for the exchequer changes.

25The above key points are further explained in detail below and form the basis for the preparation of 2016/17 budget and the Medium Term Financial Plan (MTFP).

Core Spending Power (CSP)

26The finance settlement sets out a new measure to show changes in funding or spending – new Core Spending Power (CSP) over the Spending Review period 2016 -2020. The distribution method takes into account the resources available to councils including ability to raise council tax. As a result the Council’s Revenue Support Grant (RSG) has been reduced to £10.7m by 2019/20. It is worth noting that these are provisional figures and may be subject to further changes in future years. The CSP consists of the following elements:

• Settlement Funding Assessment made up of Business Rates Baseline Funding and RSG
• Council Tax Requirement – council ability to raise council tax
• Social Care Precepts – 2% to fund adult social care responsibilities.
• Additional Improved Better Care Fund – to fund adult social care responsibilities
• New Homes Bonus – mainly for new-build homes.

27The tables below show the impact on the Council for the year 2016/17 based on the provisional finance settlement.The reduction in Core Spending Power for the Council is-3.55% which is above England average and that of Unitary Authorities. In monetary terms, the gap in funding when compared with our nearest neighbour amounts to £11.2m. Officers and the Leader of the Council met with Marcus Jones MP, Minister for Local Government on 14 January 2016 and raised their concerns especially when the Council is heavily dependent on grant from central government.

Core Spending Power-Average – 2016/17.

England Average / Unitaries without Fire & Rescue / Luton Unitary Authority
Reduction / Reduction / Reduction
-2.8% / -3.03% / -3.55%

Core Spending Power - Neighbouring Authorities.

Spending Power Analysis / Government. Analysis 2016/17
Authority / %age change
Luton / -3.6
Central Bedfordshire / -1.8
Bedford / -0.2
Hertfordshire / -2.8
Buckinghamshire / -2.0
Unitary Authorities without Fire – average / -3.1
England without the GLA / -3.0

Gap in Funding based on Core Spending Power PerHead.

Core Spending Power Per Head -2016/17
Neighbour Average / Unitaries / Luton
£712.11 / £717.42 / £659.03
Luton compared to Neighbour Average / Luton compared to Unitaries without Fire & Rescue
Gap In Funding / Gap In Funding
-£11.198m / -£12.318m

Note based on Luton population of 210,962.

Council Tax

28The formal resolution of the council tax for 2016/17(including preceptor amounts), as required by the Local Government Finance Act 1992, will be considered by Council at its meeting on 22 February 2016. The following paragraphs consider the Council’s share of the Council Tax.

29In a change of policy the government is proposing to allow additional yield from council tax to help fund services and increase spending power on adult social care, a key measurement for the government in this settlement. The settlement proposes a 2% increase in council tax. This proposal is to be identified separately on council tax bills. At this stage it is not clear how the ring-fence will work, but the funding will be in addition to the Better Care Fund. An increase in council tax of 2% will yield additional income of £1.222m as per the Green Book and the equivalent spending power for Adult Social Care.

30For 2016/17 the government is not proposing a new freeze grant, which is in line with the policy change on council tax. It should be noted that while previous freeze grants will be maintained for those authorities who took them up between 2011/12 and 2015/16, the Council chose not to because the grants tended to benefit those authorities with higher historic council tax levels and large tax-bases, due to a richer mix of higher banded properties, which is not the case with Luton. It is also worth noting that the previously freeze grant has now been mainstreamed into RSG and will be gradually reduced.

31The settlement has confirmed that under the provisions of the Localism Act, the Government will maintain the normal referendum threshold limit at 2%, with the addition of the 2% for adult social care responsibilities; therefore 4% in total for unitary authorities like Luton. The S151 officer will have to provide information to demonstrate that the additional precept has been allocated to adult social care in 2016/17 and subsequent years. Any tax increase above 4% will require the Council to hold a referendum.

32The increase in Council Tax for the taxpayers of Luton depends upon the levels of Council Tax set by the Council, the Police Commissioner, and the Fire Authority. Levels of proposed tax increases are shown in the table below assuming Police Commissioner, and the Fire Authorityraise their precept by 1.99%.

33Despite the Council Tax increase of 1.95%, the Council still demonstrates significant value for money. The table in Appendix E shows that the average council tax for a Band D property and also per dwelling for the authority in 2015/16. The table below shows council tax per head of population when compared to neighbouring authorities and other unitaries without Fire & Rescue services. If we follow a similar comparison as use above for Core Spending Power, the gap in funding for the Council amounts to £6.7M when compared with neighbour average and £17.8M when compared with other unitary authorities.