AGENDA ITEM NO 11

BOROUGH OF POOLE

CABINET

14October 2014

MEDIUM TERM FINANCIAL PLAN

UPDATE REPORT

PART OF THE PUBLISHED FORWARD PLAN – YES

STATUS – STRATEGIC POLICY

1Purpose

1.1The purpose of this report is to advise Cabinet of the:

a)work done in refreshing the Medium Term Financial Plan (MTFP) as a consequence of the fundamental annual review undertaken at the end of July 2014.

b)details of the further significant cost pressures in Adult and Children’s Social Care and the consequential impact on the Council’s MTFP.

c)key assumptions and principles being adopted in taking forward work on the MTFP and Budget for 2015/16(Appendix A).

d)work done with the cross party Star Chamber in developing further savings, efficiencies and proposals to generate additional resources since the 15 July 2014 previous MTFP update report to Cabinet.

e)latest £12.6m funding gap in the Council’s Medium Term Financial Plan across the next 3 years with £4.4m required to be found to enable a balanced budget to be set for 2015/16.

f)work being done, with guidance from Star Chamber Members, to enable further proposals to be developed which will enable a balanced budget for 2015/16 to be set at Council on the 24 February 2015.

g)latest timetable for the development of the refresh of the MTFP and delivery of the Budget for 2015/16(Appendix B).

2Decisions Required

2.1It is recommended that Cabinet;

a)note the matters set out in this report and the work now in hand to develop further proposals to balance the 2015/16 Budget and MTFP 2015 to 2018.

b)endorse the key assumptions and principles being adopted in the ongoing development of the MTFP as set out in Appendix A

c)note the need for Officers and Members of the Council to bring forward and examine robust and realistic budget proposals through the autumn which will ensure that the proper and lawful duties of the Council can be satisfied and a balanced Budget for 2015/16 can be set.

d)Endorse the suggested response to the Technical Consultation on Local Government Finance Settlement 2015/16 (Appendix D)

3 Background

3.1The medium term financial planning process is designed to provide sound financial management and control arrangements which are integral to the good governance of the Council. Such arrangements help in supporting service delivery, accountable decision making and safeguarding stewardship whilst also optimising the use of available resources.

3.2The approach to the development of the Council’s MTFP was fundamentally redesigned in 2013. The change being a reflection of both the Council’s no overall control political balance as well as the strong consensus among Councillors and Officers that our process for scrutiny of the budget through the various Overview and Scrutiny Committees was no longer adding enough value. The new process, established via Council in April 2013, saw;

(a)the establishment of a cross party Budget Steering Group as a non decision making group tasked with shaping the MTFP, developing the underlying saving and efficiency strategy and acting as a “clearing house” for the difficult decisions which lay ahead.

(b)overall scrutiny of the MTFP and budget becoming the responsibility of the Council Efficiency & Effectiveness Overview & Scrutiny Committee with only items requiring a significant change in policy or service levels considered by their relevant Overview and Scrutiny Committee.

3.3In addition to these changes and at the request of the Council’s Management Team the Local Government Association undertook a financial health check on the Borough of Poole during 2013 which conclusions included;

  • Through its work to date the Council has managed to avoid the full impact of the squeeze on the public sector so far and minimised the impact on front line services.
  • In the main this has been achieved by careful financial planning, effective management, prudent resource assumptions and the use of reserves. Such options though are running out.
  • The future financial gap is enormous, particularly for an authority of Poole’s size. Future decisions will be more contentious.
  • The authority needs to establish outline options (a plan) to bridge the MTFP gap.
  • The process for annually reviewing earmarked reserves was supported but it was highlighted that if significant reductions are made to these then increases in unearmarked reserves will be required as they considered these to be on the low side given the future financial risks faced by local government.
  • Finally it was emphasised that the Council can by local decision, to a limited extent, change its resource base associated with Council Tax. The chances of the Council changing the national grant allocation system is remote in the extreme.

4Current Funding Gap: Latest Medium Term Financial Plan (MTFP)

4.1In 2014/15 and in each of the MTFP years the Council is planning to spend more than the permanent sources of income it has coming in. Therefore just like the national Government the Council has a structural deficit. However unlike the Government, the Council is not allowed to borrow to meet this revenue deficit, instead the difference is being plugged by the use of reserves(specifically earmarked reserves) to be used over a number of years to give the Council time to correct the inherent differential between expenditure and income.

4.2Exhibit 1 below sets the latest position in respect of the Council's Medium Term Financial Plan further to the end of July 2014 fundamental rebase of the plan and the guidance of the Star Chamber in respect of additional savings and efficiencies. This highlights that the Council needs to find in excess of £25m of efficiencies over the next 3 years to balance its MTFP. After consideration of proposals already put forward the cumulative funding gap across the 3 years of the plan now stands at £12.6m with perhaps of more immediate concern and significance being the £4.4m which has to be delivered within the next 5 months to ensure a balanced budget for 2015/16 can be set.

4.3Since July the deterioration in the 2015/16 position, despite additional savings and efficiency proposals having been identified, is principally related to further substantial pressures with Children's and Adult Social Care and Children's Services. These pressures can be detailed as follows;

£676,000Cost of Children in Care.Overall numbers in care remain relatively stable but the age and placement profile has changed with an increase in the 10 to 15 age range and a corresponding shift in placement usage specifically Independent Foster Agency and Residential Placements.

£30,000PAN Dorset Service for Children Young People at risk of

sexual exploitation.Local specialist provision which provides a persistent and assertive outreach approach.

£45,000Children's Services Senior Management capacity.Recommendation following the Test of Assurance of an additional post at senior level to support the Service Unit Head and Senior Managers in Children's Services in developing and integrating new national and local policy changes across the service.

£507,000Deprivation of Liberty Safeguards (DOLS).Anticipated tenfold increase in the annual demand for DOLS assessments as a consequence of a Supreme Court judgement handed down earlier this year which expanded the circumstances in which a judgement is due. Such judgements authorise the deprivation of liberty for people without the mental capacity to make informed decisions and usually take the form of restricting a person's right to leave or move freely about a place of residence such as a care home or hospital to prevent someone coming to harm.

4.4The Star Chamber has advised that these additional cost pressures should be allowed for planning purposes and as appropriate they be reviewed in the relevant member forums.

Exhibit 1: Medium Term Financial Plan 2014 to 2018 (4 Year version)

14/15 / 15/16 / 16/17 / 17/18 / Total
£m / £m / £m / £m / £m
Pressures
4.2 / Core Government Funding (includes Academies) / 5.4 / 3.3 / 2.5 / 15.4
1.4 / Adult Social Care - Growth (includes DOLS & Indep Living) / 2.2 / 1.8 / 1.3 / 6.7
0.6 / Pay award / 0.6 / 1.4 / 1.5 / 4.1
0.8 / Incremental Drift / 0.6 / 0.4 / 0.2 / 2.0
1.0 / Inflation and Other Growth Pressures / 0.5 / 0.2 / 0.2 / 1.9
0.6 / Waste Disposal Costs (landfill tax plus recyclate sales) / 0.3 / 0.1 / 0.2 / 1.2
0.1 / Transport Inflationary & Other Cost Pressures / 0.7 / 0.1 / 0.2 / 1.1
National Insurance (rebate withdrawn due Single State Pension) / 1.0 / 1.0
0.8 / Children’s Services (investment /sen transport/early help review) / 0.1 / 0.9
0.2 / Children’s Social Care – Growth (prev yr funded reserves) / 0.7 / 0.9
0.4 / Other grants reduced (Local welfare provision/Hbenefit) / 0.2 / 0.1 / 0.7
0.3 / Transport Car Parking Income rebase / 0.3
2013/14 Budget Amendment (reserve completed) / 0.3 / 0.3
0.5 / Investment in Council Priorities (One-Off) / (0.5) / 0.0
10.9 / Total Additional Annual Pressures / 10.8 / 8.7 / 6.1 / 36.5
10.9 / Cumulative Pressures / 21.7 / 30.4 / 36.5
14/15 / 15/16 / 16/17 / 17/18 / Total
£m / £m / £m / £m / £m
Additional resources
(1.6) / Council Tax – Tax base Increases (collection levels, expenditure LCTSS, discounts, new properties, collection fund surplus) / (0.3) / (0.1) / (0.6) / (2.6)
Council Tax - Increases (2016/17 + 2017/18 – 2%) / (1.3) / (1.3) / (2.6)
(0.5) / New Homes Bonus (new properties) / (0.2) / (0.4) / (0.6) / (1.7)
Financial Planning Reserve (even use of 3 years) / (1.6) / (1.6)
(0.7) / Council Tax Freeze Grants (2014/15 + 2015/16) / (0.7) / (1.4)
Savings & efficiencies
(3.4) / General saving & efficiency proposals / (2.2) / (0.9) / (0.7) / (7.2)
(2.7) / Adult Social Care savings & efficiencies / (1.4) / (0.3) / (0.2) / (4.6)
(1.6) / Adult Social Care & Children’s - Budget Rebase / (1.6)
Local Council Tax Benefit Scheme (assumed increase) / (0.4) / (0.2) / (0.6)
(0.4) / Application of reserves - to support 1 year extension of the current Local Council Tax Support Scheme (LCTSS) / 0.4 / (0.0)
(10.9) / Total annual extra resource & savings / (6.4) / (3.2) / (3.4) / (23.9)
(10.9) / Cumulative extra resources & savings / (17.3) / (20.5) / (23.9)
0.0 / Cumulative MTFP – Net Funding Gap / 4.4 / 9.9 / 12.6

4.4In addition, and in parallel with all businesses and home owners, the Council continues to experience significant pressure being asserted from ongoing energy prices increases.

4.5In response to the deterioration in the Council’s MTFP funding gap position, particularly for 2015/16, the Senior Management Team met with the Star Chamber to update the financial strategy to ensure Members can meet the Council's legal requirement to set a balanced budget in February 2015. This strategy is highlighted below;

15/16
£m pa / Source of Funding / Action
4.4 / Current MTFP Funding Gap
(0.7) / Additional saving identified but subject to further due diligence
These include potential further efficiencies associated with the Council's Corporate Property & Asset Management Plan, its Treasury Management policy and the extent to which further contributions to costs could be generated.
(1.6) / Fundamental s151 Officer review
The Council's Chief Financial Officer has undertaken a fundamental review of the Council's reserves, provisions and contingencies to determine the extent to which resources could potentially be released in support of the MTFP. This approach includes a reassessment of the Council's attitude to operational risks it faces. Although generally these resources will enable the immediate pressure to be mitigated and current services offered a degree of protection, one-off or short term injections of such resources are not a sustainable financial solution and the underlying (or structural) funding pressure will remain and will need to be addressed when these resources are used up. It also needs to be recognised that the Council is now planning to use in excess of £9m of its reserves in support of the MTFP over the next 3 years. The likelihood of any further contributions should be regarded as remote.
(1.0) / Better Care Fund / Social Care contribution
A £3.8bn National Better Care Fund was announced in the June 2013 spending review to ensure transformation in integrating Health and Social Care. It is important to highlight that within this £3.8bn there is no new money with the majority of the resources already funding critical services within a National Health Service (NHS) and trying to manage intense pressures such as demand on particularly acute services, rising costs such as those associated with Continuing Health Care and Government requirements including one to passport an extra £5 per person for everyone over 75 to general practitioners (GPs).
Putting this overall national financial context to one side locally the Dorset Clinical Commissioning Group (CCG) had previously expressed a strategic intention to develop services and financial plans which would enable them to passport £9.1m pro-rata across the 3 upper tier authorities to protect Adult Social Care in the 2015/16 financial year. For Poole this would have amounted to £1.8m. Over the summer negotiations have continued with the CCG indicating that due to their own financial position the amount is likely to be substantially reduced with the final decision not likely until around January 2015.
Therefore as part of this updated financial strategy the Council will now assume £1m of resources will be received from the CCG to enable it to offer a degree of protection to Social Care services. As part of this approach the Council will need to carefully consider reserves currently supporting partnership working with the CCG should the assumed contribution fail to materialise.
15/16
£m pa / Source of Funding / Action
(1.1) / Yet to be identifiedfurther savings, efficiencies, additional resources or service reductions. Including consideration of the use of localism, commercialism, charging for services, shared services, demand management and a review of employee costs.

4.6There are many risks associated with this strategy from the key assumptions around issues such as Government Grants, pay and price inflation, to the demand for services and their associated cost. It remains a fact that as a small Unitary Authority the Council is highly cost sensitive with relatively minor changes or shifts in key planning assumptions having a significant impact of the Council’s overall financial position as highlighted in Exhibit 2 below;

Exhibit 2:Council sensitivity to potential changes in assumptions

Impact on level of net expenditure or council tax requirement
£000’s
1% on pay / 563
1% on prices / 903
1% reduction in core Government funding / 348
1% change in council tax level / 652
Looked after Child (high cost - residential) – per child / 250
Looked after Child (medium cost – fostering) –per child / 15
Intensive homecare package for a disabled person / 94
Vulnerable Adults (learning disability – residential < 65) / 76
Older person’s supported residential care / 28
Increase in Landfill Tax
2014/15 forecast liability
(April 2014 £80 current per tonne threshold ) / 322
Extra £8 per tonne
Increase in the £3.0m cost of the Concessionary Fare Scheme to the Council / £30k per 1% increase in journey numbers

4.7Appendix C categorises the savings already assumed in the MTFP, and already included in the net £4.4m current funding gap for 2015/16, between;

a)Decisions already made by Members or Service Unit Heads.

b)Decisions subject to Member approval.

c)Decisions subject to public consultation and subsequent member approval.

This highlights a number of challenging and difficult decisions have been assumed in arriving at the current £4.4m funding gap and any deviation in their delivery will require potentially, equally as difficult, decisions to be made elsewhere to balance the 2015/16 Budget.

4.8However even if all these difficult decisions are made as currently planned there still remainsthe £1.1m of further savings, efficiencies and additional resources to find in order to balance the 2015/16 budget. Star Chamber has therefore requested that further proposals are brought forward during the Autumn for further consideration. Such proposals are unlikely not to have a direct impact on services provided by the Council. Mindful of the difficult decisions already assumed, the Star Chamber has asked Officers to bring forward proposals to the higher value of £1.5m. This will also allow for the potential for variations to the final proposals previously submitted and cover the possibility of further cost pressures emerging.

4.9In considering this position Members have recognised the need to keep their Council Tax assumption under constant review. The current MTFP planning assumptions continue to be;

a)2015/16Zero increase

By implication accepting an assumed Government Council Tax Freeze grant roughly equivalent to the resources a 1% increase would generate.

b)2016/172% Increase

c)2017/182% Increase

Alternatively for 2015/16 the Council could instead increase Council Tax by up to 2% which would generate up to an extra £600,000 in resources compared to those already assumed. Members are committed to continually reviewing this strategy through the period to Budget setting in February 2015 as the extra £600,000 would obviously offer a degree of protection from the consequences of some of the otherwise challenging decisions which now have to be made.

4.10In considering its Council Tax strategy members will also need to be mindful of the financial sustainability of their budget proposals with specific references to future years such as the outlook for 2016/17 and beyond. At this stage an additional £5.5m in savings, efficiencies and additional resources already needs to be found, over and above the amount required to balance 2015/16, over and above the £3.2m already identified for 2016/17, and having already utilised all available reserves and provisions. Assuming 2015/16 was otherwise balanced, then the extra £600,000generated from a 2% increase in 2015/16 would enable the 2016/17 £5.5m funding gap to be reduced to £4.9m as well as delivering an extra one-off amount of £600,000 in 2015/16 to invest in proposals which had the potential to reduce the pressure even further. The rationale for increasing now is that there is an annual Council Tax threshold, therefore the opportunity is one-off each and every year and the necessary ground in the overall rate of Council Tax could not be made up without going to the considerable expense (circa £200k) of a local referendum.

4.11It maybe worth reiterating that the acceptance of the Council Tax Freeze Grant in 2014/15 has meant that Poole’s share of the Council Tax (i.e. excluding Police and Fire)has not increased since 2010/11. This can be compared to other Dorset local authorities as shown in Exhibit 3 below. What is not shown is that Poole has also had the lowest Council Tax in Dorset for 14 years in a row.

Exhibit 3: Dorset Council’s Council Tax levels (Excluding Police and Fire levies) since 2011/12

5.National and Local Context

5.1Since 2010 the Government have reduced their core funding to Poole Council in the period to April 2016 by 55% as part of their Austerity programme, designed not to reduce the total national debt, but to stop it growing further (the structural deficit). This forced reduction in public expenditure is also having the inevitable consequential impact of a smaller public sector.

5.2Despite positive signs of economic recovery there are very clear indications are that all the major political parties are committed to the previously announced public spending reduction plans. Therefore regardless of the outcome of next May's national elections Poole can anticipate further grant reductions in the years ahead as set out in the 2013 Spending Review. That said,the consequences of the 2015 General Election maybe more immediate with some evidence that;