Medium Term
Financial Strategy
2009/12
Author: Director of Finance
Date: December 2008
1
- Contents
Section / Page
2 / Foreword and Executive Summary / 1
3 / Introduction / 2
4 / Achievement of MTFS Objectives / 4
5 / Council’s current financial position / 7
6 / Medium Term Environment / 11
7 / Availability of future funding / 15
8 / Budgetary Control & Financial Management / 22
9 / Opportunities, Risks and updated Policies / 24
Annexes
A / Definitions and Links to other Strategies and Plans / 27
B / Corporate Priorities and Objectives / 34
C / Objective 1: Keeping Local Taxation Low; Policies / 37
D / Objective 2: Increasing Resources Available; Policies / 38
E / Objective 3: Delivering Value for Money; Policies / 39
F / Objective 4: Delivering a Robust, Balanced and Sustainable Budget and Asset Base; Policies / 40
G / Council Tax Strategy / 42
H / Prudential Borrowing Policy & Methodology / 45
I / Council’s current financial position / 46
J / Comprehensive Area Assessment / 48
Associated Documents
i
ii
iii
iv
v
vi
v / Capital Strategy
Treasury Management & Debt Strategy
ICT Development Strategy
People Strategy
Value for Money Strategy
Procurement Strategy
Transformation Strategy
- Foreword and Executive Summary
As the Executive Member for Finance I am please to present Trafford Council’s third updateto its Medium Term Financial Strategy (MTFS), which covers the period 1 April 2009 to 31 March 2012.
Trafford is relatively under-funded by central Government in comparison to other local authorities, and has the eleventh lowest Council Tax in England. Though low-funded, year after year the Council is independently assessed as offering good value for money, high performing quality services and consistently exceeds the minimum national standards for financial management.
The objectives and supporting policies of the MTFS are designed to assist the Council in ensuring that the people of Trafford will continue to be provided high performing, efficient and effective services for now and into the future, whilst avoiding unnecessary tax burdens and ensuring best value for money. These objectives are:
Keeping the Council Tax low
Increasing the resources available to the Council
Delivering value for money
Delivering a robust, balanced and sustainable budget (both capital and revenue)
A review of achievement against the MTFS objectives for the last three years shows that the Council is generally delivering its financial intentions.
The current economic climate represents a period of uncertainty and instability which will affect both service demand and financial planning in the medium term.
In order to continue to deliver on our financial targets, the medium term policies reinforce the need for collaboration with partners, outcome-based effectiveness reviews, improved management information systems, transformational and customer-focused services, and higher goals in financial management across the Council.
I would like to thank my Executive colleagues, the Corporate Management Team and the Director of Finance for their assistance in the development and formulation of the Medium Term Financial Strategy 2009/12, and submit it to Council for approval.
John Tolhurst
Executive Member for Finance
Trafford Metropolitan Borough Council
11 December 2008
- Introduction
Section Outline
What is the purpose of a medium Term Financial Strategy (MTFS)?
How does the MTFS link to other Strategies and Plans?
What are the Objectives of Trafford Council’s MTFS?
What would you expect to find in a MTFS?
What is the purpose of a Medium Term Financial Strategy?
3.1The purpose of the Medium Term Financial Strategy is:
“To identify how the Council wishes to structure and manage available resources over the medium term (3 years), and to ensure that resource allocation is aligned with and supports Council priorities, and objectives contained within the Corporate Plan.”
3.2The Medium Term Financial Strategy (MTFS) is an assessment of the Council’s current financial position, and a determination of the financial position the Council wishes to be in the medium term (3 years) given the environment the Council operates in and what it wishes to achieve. In this way the Council not only secures delivering essential public services in the present, but also makes sure it is in a sustainable position to do so over the medium term and for the future.
3.3The Medium Term Financial Strategy is orientated towards the analysis and allocation of revenue budgets and reserves. The Capital Strategy and Treasury Management Strategy deal in more detail with capital assets and the consequences of borrowing for capital purposes. There are other associated strategies, each dealing with particular elements of the Council’s overall business activity:
Capital Strategy
Treasury Management & Debt Strategy
Value for Money Strategy (yet to be published)
Procurement Strategy
People Strategy
Transformation Strategy (yet to be published)
ICT Strategy
How does the MTFS link to other Strategies and Plans?
3.4The MTFS along with its associated strategies contains the fundamental and over-arching policies to ensure that available resources are aligned to the achievement of the Council’s goals and objectives. A diagram that illustrates this is attached at annex A. For reference, a summary of the Council’s priorities and objectives is given at annex B, and more detail can be found in the Corporate Plan
What are the objectives of Trafford Council’s MTFS?
3.5The most important aspects of the strategy are its objectives, which is what it intends to achieve, and its policies, which set guidelines for all other subordinate strategies and their delivery plans. The objectives for the Council’s MTFS are (see Annexes C to F for details on the policies supporting the objectives):
Objective 1: Keeping Council Tax (or other forms of local taxation) low; to keep Trafford within the lowest local taxation areas in the Country:
Objective 2:Increasing the resources available; to enable the delivery of the corporate plan and the overall Community Strategy
Objective 3: Delivering Value for Money; to obtain the highest benefit from all resources used in pursuit of the Corporate Plan and Community Strategy
Objective 4: Delivering a Robust, Balanced and Sustainable Budget and Asset Base; so that sufficient resources are allocated to priority services so that they can deliver essential services to customers at the required standard for the medium and into the longer term.
What would you expect to find in an MTFS?
3.6In addition to the Objectives and policies of the MTFS you would also expect to find:
A review of progress against the MTFS objectives(section 4)
An assessment of the current financial position (section 5, annex I)
A review of the Medium Term Environment and how that may impact on the Council (section 6)
For planning purposes, an estimate of the amount of resources available to the Council in the medium term (“Resource Envelope”), this will include (section 7):
- A Council Tax Strategy (annex G)
- A Fees and Charges Strategy (contained within the VFM Strategy)
- A Prudential Borrowing Policy and Methodology (annex H)
A review of Budgetary Control and Financial Management (section 8)
An assessment of Risks and Opportunities and how policies are changing (section 9)
- Review of the Achievement of MTFS Objectives
Section Outline
To identify how the Council has performed against the MTFS objectives over the last three years
To raise any future issues concerning performance against the MTFS objectives and targets
4.1The following is a summary of the achievement of the MTFS objectives over the last three year period.
4.2Generally the Council has performed well against its MTFS objectives. However, there is a trend towards over-spending in some areas of the budget and a small reliance on reserves to fund long term base budget. The medium term economic climate is likely to pose challenges for all of the MTFS objectives (see also sections 6 and 7).
Objective 1: Keeping Council Tax Low
4.3A comparison of the average amount of Council Tax payable at Band D in each of the 354 district areas in Englandshows Trafford Borough as low ranked for the last three years:
2006/07 / 2007/08 / 2008/09 / TargetCouncil Tax comparative ranking with all other districts in England / 8th / 8th / 11th / > 88th
(quartile 1)
4.4The Council Tax at Band D is amongst the lowest in England, and has been for some years.
4.5The Council Tax policy is to use annual increases of 5% for planning purposes, though this is subject to annual budget consultation and central Government’s capping regime. Increases of 5% are above the national average, and so it is possible that the Council will not maintain as low a ranking in the longer term.
4.6Due to reduced central Government support, Council Tax increases are the main source of new sustainable funding (see section 7), especially now that the Government assumes high levels of annual efficiencies before awarding grants.
Maintaining and investing in high quality essential public services isreliant on the annual increase in Council Tax as it becomes the only increase in sustainable funding over the medium term.
4.7Until recently the total revenue from Council Tax was not only increased by the annual tax level, but also by growth in the tax base, which is the number of taxable properties in the Borough (measured in Band D property equivalents). As Trafford is a desirable place to live, there has been steady growth in the building of new properties and an increase in total tax revenues. However, the current economic climate has already impacted on new housing build, reducing tax base growth to nil.
Objective 2: Increasing Resources available
4.8The Council can only spend as much as it receives, and the following table shows the growth in annual income above inflation:
2006/07 / 2007/08 / 2008/09 / TargetReal terms growth in the Council’s budget year-on-year / 2.9% / 2.5% / 3.7% / < 1.0%
4.9There has been significant real terms growth in Council services over the last three years. The current economic climate (discussed in more detail in sections 6 and 7) will have a significant impact on income and funding sources, as well as the needs of many vulnerable people for essential high quality public services.
Objective 3: Delivering Value for Money
4.10The Audit Commission has independently assessed the Council to have good systems and processes to identify and realise efficiency savings, and also that it has a good track record of delivering efficiencies:
2006/07 / 2007/08 / 2008/09 / TargetAudit Commission Use of Resources VFM scores (out of 4) / 3 / 3 / 3
(TBC*) / 3
* At time of publication the score for 2008/09 is subject to confirmation.
4.11In partnership with external experts the Council has engaged on an ambitious efficiency agenda over the last few years which has or is set to release a significant amount of resources to support Council priorities:
2006/07 / 2007/08 / 2008/09 / TargetReal cash savings delivered or expected / £2.0m / £3.4m / £4.5m / < £3.5m
4.12As a “low-tax and low-spending" authority, the Council has always been relatively efficient. With expert external assistance the majority of the areas where efficiencies could be cost-effectively generated have now been, or soon will be, reviewed and benefits realised. The Government has set efficiency targets for the medium term; however, the need to identify efficiencies to maintain essential high quality public services is clear without the Government reducing funding as an incentive. The challenge in the future will be in identifying, realising and maintaining efficiencies in a cost-effective manner, and particularly above Government funding assumed target levels
Objective 4: Delivering a Robust, Balanced and Sustainable Budget and Asset Base
4.13The capital needs of the Council are discussed in detail in the Capital Strategy, and the information technology needs or infrastructure is contained within the ICT Strategy.
4.14The primary test for “robustness and balanced” is whether the annual plan is delivered within the agreed budget. The following table summarises the out-turn or forecasted out-turn for the last three years:
2006/07 / 2007/08 / 2008/09* / TargetOut-turn variance against the agreed Budget / £(1.9)m
Under / £(2.1)m
Under / £0.7m
Over / > 0.0m
Nil or under
* The figure for 2008/09 is the estimated forecast as at the end of November 2008
4.15Due to unexpected demand over the last few years, there has been a need to spend above initial budget levels in demand led services. This is compounded with a reduction in over-achieving investment income targets, which are set to be even more difficult to achieve in the medium term economic climate.
4.16Latest best practice has recently been published by the Chartered Institute of Public Finance and Accountancy (Improving Budgeting: Modernising the Cycle), which may help set more realistic budgets, improve budgetary control, and assist in developing successful demand mitigation plans.
4.17A “sustainable” budget ensures that services which are to be delivered into the medium term and longer are not reliant on one-off funding sources such as reserves. The following table shows that there has been a steady reduction in the use of reserves to support base budget expenditure:
2006/07 / 2007/08 / 2008/09 / TargetOne-off funding used to support base budget / £2.0m / £1.3m / £0.9m / 0.0m
Nil
4.18Good progress has been made to reduce gradually the amount of reserves used to support the budget. However, the medium term economic climate poses a difficult challenge particularly with regard to falling investment income from the expected norm due to current and future anticipated base rate cuts.
4.19Base rates of 2% or lower will reduce investment income by nearly £1.5m, however, toward the end of the medium term base rates are expected to return to 4%+. It would be unnecessarily detrimental to services to reduce the budget in the short term by the income loss, only for this money to return to normal later. Applying the principle of sustainability, it is legitimate to use reserves to supplement the short term reduction in interest rates until the economy becomes more stable. MTFS policies have been amended to take this into account.
- Assessment of the current financial position of the Council
Section Outline
How much does the Council spend?
Where does the money to finance the budget come from?
On what does the Council spend its money?
How well is the Council controlling spending?
What future pressures does the Council face?
Expenditure and Income
5.1Details of the current budget and a summary of the Medium Term Financial Plan can be found in “Financial Plan 2008/09”. The summary of income sources, on what services the budget is spent on, and how those services spend the money is repeated at annex I:
Over 90% of the Council’s budget is orientated to mandatory services, such as Education, Social Services and Benefits. It is a legal requirement of the Council to provide these services to specified levels.
This leaves little of the budget for discretionary services, such as parks, sport, culture, leisure where either the need to provide the service and/or the service level is determined by the Council and not enforced by statute.
5.2The gross expenditure budget is bounded by the amount of income and funding available, i.e., the Council can only spend the income it has:
72% (£303m) of income is determined by the Government in the form of specific and general grants
- Trafford receives the lowest increase in Government funding, and has done for some years
7% (£35m) of the Council’s income comes from fees and charges, a significant number of which are determined by statute or regulation of central Government and not determined locally
2% (£7m) of income comes from investment income and the use of reserves
- The Bank of England has reduced base rates from 5¼% when the 2008/09 budget was set, to 2%. Each 1% reduction loses £0.8m of income, which is approximately the same as 1% on the Council Tax.
19% (£82m) of income comes from Council Tax, and although tax levels are determined locally by the Council, the Government reserves the power to prevent high Council Tax rises to ensure that “national average Council Tax increases remain substantially below 5%”
The majority of the Council’s budget is spent on statutory services, most of the total amount of budget available is determined by the Government, Trafford is one of the lowest funded Council’s in the country, and one of the lowest Council Tax levels, which is restricted by Government capping.
Budget Monitoring
5.3Current expenditure is monitored on a monthly basis starting in July for the first quarter (April to June). Revenue monitoring is done on a forecast to year end basis, including activity forecasting for those budgets which are sensitive to changing customer demand. Monitoring reports are available on the Council’s web site.
5.4Other than exceeding initially set budgets in the demand led services of Children and Adult social care being balanced with windfall investment income from improved interest rates and balances, the majority of the budget is controlled within Council set limits.
Reserves
5.5The Council holds a number of reserves, most of which are committed to future expected expenditure:
Table 1: Summary of reserve balances as at 31 March 2008
Reserve / Balance as at 31 March 2008(£m) / Comment
Schools / 11.8 / The majority of these reserves are delegated to schools and the money can only be used for schools related expenditure
Capital Projects / 2.9 / To finance schemes committed in the Capital Investment programme
Insurance / 3.5 / To meet the costs of insurable claims for which the Council has self-insured
Revenue Projects
-Local Area Agreement
-Service carry forwards
-Corporate projects
-Invest-to-save / 0.8
1.7
0.8
2.2 / Pump priming monies supporting achievement of reward targets
£1.4m committed in 2008/09
Maintenance and replacement programmes
To pump prime efficiency projects
General / 7.8 / Minimum reserve level set at £5.0m
Total / 31.5 / Of which £23.7m committed, and £5.0m held as minimum
5.6The General Reserve is held as a minimum working balance and also contains provisions to mitigate unexpected expenditure demands and emergencies that would not be covered by Government support or insurance.
5.7The current end-of-year forecast for the General Reserve is £7.1m after taking into account the forecasted out-turn for the 2008/09 budget. In addition, the Executive’s draft budget proposals for 2009/10 will utilise £0.6m to mitigate the reduction in investment income caused as a consequence of the current economic climate (this being in line with the updated MTFS policy on budget sustainability).