Medium Term Financial Strategy
2015/16 – 2017/18
Introduction
1. The Medium Term Financial Strategy (MTFS), for the years covering 2015/16 to 2017/18, sets out how we plan to manage our finances over the next three years and how we can more closely align resources to the priorities set out in the Council’s other key strategic documents, the Corporate Plan and Organisational Development Strategy.
2. In an era of austerity, councils have to be more self-reliant, demonstrate longer term approaches to planning and be more outward looking. Harrogate is in a strong position and this strategy will ensure that this continues to be the case in the coming years.
3. The MTFS encompasses:
- A situational overview of the Council’s current financial position, both from an individual standpoint and in the wider context of other English district councils.
- The aim of continuing to be a thriving district against the backdrop of reducing Government support.
- Integrating Medium Term Financial Planning more fully into the Corporate Planning process.
- Setting out a longer term approach to managing our assets.
- The key considerations in the Council’s financial planning over the next three years.
Situational Overview
4. During a period of once in a generation funding reductions, as the government continues to rein in the national deficit, and as other councils across the country face uncertain futures, Harrogate has been able to freeze council tax for its residents for five consecutive years without cutting frontline services. This is a testament to the council’s strong record of financial management before and during the current “age of austerity”.
5. Since the Comprehensive Spending Review (CSR) in 2010, total local government funding in England has been reduced by approximately 30%. At the same time, there have been significant changes in the way Local Government services are funded including the introduction of localised business rates and the abolition of council tax benefit.
6. Harrogate has not been immune to the funding reductions and since 2010, its general grant allocation has reduced by £4.4m (44%). The table below shows that during the same period, our net spend has reduced by £5.2m.
Net Budget£000's
2010/11 / 24,872
2011/12 / 22,037
2012/13 / 21,221
2013/14 / 20,982
2014/15 / 19,718
Total Reduction / -5,154
7. However, against the backdrop of funding reductions, Harrogate has maintained its position nationally as a well-resourced council. As the 12th most populous of England’s 201 shire districts, in 2014/15 Harrogate has:
- The 5th highest net spend (services funded by council tax, revenue support grant (RSG) from government and localised business rates).
- The 10th highest taxbase (the number of band D equivalent properties council tax is levied on), reflective of the district’s high property values. All of the districts above Harrogate are situated in southern England.
- However, a net spend per head considerably lower at 27th out of 201 councils, reflective of the high population of the district.
8. Most importantly, following the introduction of localised business rates, 81% of Harrogate’s net spend is now locally generated (64% council tax, 17% business rates), with the residual 19% coming via RSG.
9. Each Council has a unique split of funding which is based on past decisions related to council tax, the size of its taxbase and previous funding allocations.
10. The government’s approach to funding allocations so far has been broadly based on blanket percentage reductions. The table below shows a basic example of the effects of this approach on two councils with different splits in their funding. Council A, like Harrogate, has a high proportion of its funding generated locally, whereas Council B is more reliant on government support. When a 30% reduction in RSG funding is applied, as could happen in 2015/16, Council B’s overall net spend is reduced significantly more than Council A’s. It should be noted that due to local circumstances, Harrogate is particularly susceptible to reductions in fees, charges and local income due to economic changes.
Council A / Council B£m / % / £m / %
Council Tax / 14.000 / 70% / 6.000 / 30%
Business Rates / 3.000 / 15% / 7.000 / 35%
RSG / 3.000 / 15% / 7.000 / 35%
Net Spend / 20.000 / 20.000
30% Reduction in RSG / -0.900 / -2.100
As a % of Net Spend / -5% / -11%
11. Given the pattern of funding reductions is likely to continue well into the next parliament as the government aims to bring the national budget into surplus, the continued effects of the example outlined above will become more pronounced, as councils with lower proportions of locally generated income experience significant reductions in their net spend. This will most likely lead to a situation where some districts thrive and others decline.
12. A thriving district council will demonstrate:
- self-reliance on income sources,
- investment in facilities and infrastructure,
- innovative and effective service provision,
- a long term approach to planning.
13. The thriving district’s fortunes will be underpinned by steady increases in their council taxbase and business rates yields, increases from other income sources such as planning and car parks, as well as falling local welfare costs.
14. A declining district council will demonstrate:
- no capacity to plan or invest in the future,
- a greater emphasis in cutting services,
- over reliance on government funding.
15. The declining district’s fortunes will be underpinned by static income from council tax, falling business rates yields, pressures on income budgets and rising welfare costs.
16. As well as the high levels of locally generated income funding our net spend, Harrogate clearly displays a number of other key characteristics of a thriving district, including the Harrogate International Centre (HIC) and business tourism impact on the council, the Innovate programme and the proposed office accommodation strategy.
17. However, we can and will do more to cement this status. This strategy will outline steps to further integrate the MTFS with the Corporate Plan so that our spend better reflects our priorities, as well as developing an approach to managing our assets that ensures we are best placed to meet future challenges.
Integrating Corporate and Financial Planning
18. One of the biggest challenges for any organisation is ensuring that its expenditure is aligned to its priorities. More often than not, historic spend will determine how much is invested in different activities which can lead to disparity between budgets and corporate priorities.
19. Harrogate’s latest Corporate Plan, covering the years 2014 to 2017 was approved by Cabinet in May 2014. This sets out our long term vision for the Harrogate district, our aim as an organisation, our corporate priorities and the long term outcomes that we want to achieve. Each year we publish our delivery plan, this details what we will do, what are targets are and how we will measure these. It comprises the following four priorities:
i) A Strong Local Economy
ii) A Sustainable Environment
iii) Supporting our Communities
iv) Excellent Public Services
20. One of the key aims of the MTFS will be to deliver budgets over the period that shifts our existing spend towards the priorities outlined above. This has to be a phased approach to ensure services can plan appropriately for change. We will achieve this via a number of means, including:
- Reprioritisation of spend: taking account of past performance, ensuring that service budgets are properly aligned.
- Innovate: Our transformation programme, which has realised over £1.2m in savings to date, has been and will continue to be an important catalyst for the changes we need to make.
- Organisation Development: This strategy provides a very clear plan for how the council as a whole and at all levels needs to develop and change to meet future challenges. Our strategy works by promoting a whole system change and culture shift which enables us to really improve our effectiveness.
- Workforce: We want a committed and motivated workforce which is skilled and flexible, which can adapt to the changing needs of both our customers and the council, and which feels valued and empowered. We want the right people, with the right skills at the right time, in the right place delivering excellent services.
- Reducing corporate overheads: internal reviews and the most recent External Audit report have both concluded that our central service costs are high. A key theme of this strategy will be to ensure that these services reduce their costs and are appropriate for the organisation we want to be, as outlined in the Corporate Plan.
- Office Accommodation: subject to consultation and Council decision, a move to new office accommodation on one site will help us deliver our priorities more effectively at the same time as creating scope for a leaner and more efficient organisation.
- Maximisation of our assets: maximising the value extracted from our asset base by ensuring it is fully utilised and fit for purpose. See paragraphs 22 to 32 for further detail.
21. Alongside this, it is imperative that we take stock of our financial processes to ensure that they add value and will help deliver the desired outcomes outlined above. This will include an assessment of the following, with further details reported to Members as appropriate:
- medium term planning,
- annual budget setting processes and timetables,
- budget monitoring,
- business unit approach to reserves and carry forwards,
- internal charging.
Developing a Longer Term Approach to Managing Our Assets
22. How an organisation manages its assets can have a significant bearing on its long term success. The organisation that can create capacity to invest in its asset base will have a far greater chance of meeting its objectives than the organisation who will not or cannot do so, and who as a result will have a higher likelihood of facing the challenges of gradual decline.
23. With its current strong and varied asset base, Harrogate is no different and it is therefore imperative that we develop such an approach to ensure we can continue to meet our priorities.
24. This approach will have a number of aspects, including:
- rationalising the current asset base so we only retain assets that help us deliver our priorities,
- maintaining the assets we do retain so that we can maximise the return from them and provide the best possible services to our residents,
- identifying opportunities for acquiring new assets that help us further achieve our corporate objectives,
- demonstrating flexibility in the way we fund such activity, whether by borrowing or developing sinking funds, so that we get the most from our financial resources.
25. The following section focuses on how we can manage our asset base so that it supports the council’s long term aspirations.
Planned Maintenance of Our Asset Base
26. The approach we adopt towards maintaining our asset base in the coming years will have a significant bearing on the extent to which we can deliver our priorities.
27. Should we continue with a policy of bias towards general reactive maintenance, we will reach a point whereby the services using those assets falter. The clearest example could be our approach to the HIC. The centre is already in poor condition in certain areas, particularly Halls A, B, C, D and the Main Auditorium. This is having an effect on the value of contracts negotiated for those spaces and is of particular concern as Halls A, B & C have the highest occupancy levels and generate around 35% of HIC’s overall lettings income. Ultimately this could lead to the occurrence of gradual decline discussed in earlier sections.
28. On the other hand, if we can create capacity that allows us to take a planned approach to maintenance and that will keep the assets we need in top condition, it will ensure the return from them is maximised.
29. Appendix 1 provides a detailed commentary from the Strategic Development team on the current circumstances and maintenance backlog in Harrogate, and a view on the level of investment required to tackle it.
30. To summarise the statement, the current net backlog covering the next five years is in the region of £8m, and whilst it will be difficult to remove this in its entirety over the period, by creating new capacity in this strategy that initiates a planned and prioritised approach, we can ensure that our key assets will be dealt with at the appropriate time.
31. It is anticipated an annual budget of £800k will facilitate this approach. Given the current financial climate, it will be difficult to allocate this all in one year. However, we can build the capacity of the base budget over the three year period of this strategy. It is therefore proposed that £200k is built in for 2015/16 and a further £300k in each of 2016/17 and 2017/18 to fully fund the budget. Where possible, one off funding from reserves should be identified to try and ensure £800k is available to spend in both 2015/16 and 2016/17 whilst the capacity is being created. We will also seek to identify excess savings, above those already assumed, related to the office accommodation strategy that can be reinvested in the remaining estate.