BOROUGH OF POOLE

COUNCIL EFFICIENCY & EFFECTIVENESS

OVERVIEW AND SCRUTINY

24JANUARY 2011

MEDIUM TERM FINANCIAL PLAN 2011/12 TO 2013/14

UPDATE REPORT

PART OF THE PUBLISHED FORWARD PLAN – YES

STATUS – STRATEGIC POLICY

1Purpose

1.1The purpose of this report is to:

a)note the progress made in developing the Medium Term Financial Plan 2011/12 to 2013/14 (MTFP) and the Council’s Budget for 2011/12 and the further work now in hand to ensure a balanced budget position for 2011/12;

b)note Cabinet’s approval of the key assumptions and principles to be observed in developing the Council’s financial strategy;

c)advise Overview & Scrutiny of the budget proposals for their consideration;

2Decisions required

2.1It is recommended that Overview and Scrutiny:

a)note the content of the report, review and comment on:

  • Growth proposals – including any “one-off” proposals.
  • Savings, Efficiencies and additional income proposals.
  • Base budget contingency items
  • “Next steps” work specific to the Efficiency & Effectiveness Portfolio.

b)Note the assumptions and decisions referred to in the report.

c)Articulate any comments, suggestions or recommendations the committee would wish to forward to Cabinet for consideration.

d)note the need for Management Team and Portfolio Holders to ensure that final proposals for service savings, efficiencies and capital programme priorities are ready for inclusion in the final MTFP to be reported to Cabinet and Council in February 2011.

3Background

3.1The Medium Term Financial Plan (MTFP) is a 3-year plan that is reviewed, updated and rolled forward on an annual basis to deliver the Council’s priorities. The Council’s budgeted net expenditure in 2010/11 is approximately £98m. Council expenditure is funded primarily through local Council tax and government grants. The balance of funding is derived variously from fees, charges, rents and other sources of miscellaneous income.

3.2The MTFP is fundamental to the Council’s Policy and Service Planning cycle. The plan outlines the likely challenges to be faced by the organisation and seeks to align resources to priorities in setting out the overall financial direction of the Council over the coming three years. The annual Budget is produced in accordance with the parameters of the MTFP, with specific proposals for the year ahead. It is brought forward for Council approval in late February.

3.3 During 2010/11 a substantial review of the Council’s MTFP has been required as a consequence of the change of Government and the resulting policies of the new Coalition including their primary focus on reducing the country’s deficit while securing economic stability at a time of continuing uncertainty in the global economy.

3.4An update report on the MTFP and Budget was brought to Cabinet on the 13 July 2010.This set out the significant financial pressures faced by the Council over the forthcoming MTFP period and the urgent action required at that time to re-balance the in-year position for 2010/11further tothe in-year funding cuts made by the Coalition Government following the elections in May 2010.

4Re-balancing the in-year position for 2010/11

4.1Further to the July update report work has been on-going to ensure the Council successfully re-balance the 2010/11 position. This has been vital in dealing with emergent in-year budget pressures locally as well as a series of further cuts in funding announced by Government since July. It is essential for the Council to achieve a net nil position or better on the General Fund by the end of 2010/11 to enable it to deal with the far bigger financial challenge that lays ahead over the period of the forthcoming MTFP.

4.2The overall in-year position has moved month on month since July and these changes have been reported to Cabinet in the monthly Budget Monitoring reports of the Chief Finance Officer. To date the in-year pressures experienced by the Council over and above the original Budget set for 2010/11 amounted to £6.284m as at the end of October 2010, in addition to budgeted savings and efficiencies previously scheduled to be found in 2010/11 totalling £4.263m. The additional £6.284m is mostly due to in-year funding cuts by Government of £4.356m and additional local pressures of £1.928m. The local pressures experienced in this period are due in the main part to extraordinary service demands experienced in Adult Social Care and a reduced level of income received by the Council from planning fees, parking charges and returns on investments all of which remain depressed following the recent recessionary period.

4.3It is to the Council’s great credit that quick action has been taken to address the in-year position. In doing so, every effort has been made to protect priority services and minimise the impact of these cuts on the public. As a result the General Fund is currently forecast to outturn at an overspend of £68k as reported in the October Budget Monitoring report presented to Cabinet on the 7 December 2010.

4.4Whilst great progress has therefore been made, further action is on-going to ensure we achieve a net nil position or better by the end of March 2011. There are continuing cost pressures in Adult Social Care and an issue which has arisen in the last half of the financial year is a number of Councils seeking to transfer costs of individuals living in Poole to Poole’s Adult Social Care Services.

5Overall Financial Strategy

5.1To ensure the Council developed meaningful and robust options for members to consider in setting the Budget for 2011/12,Cabinet agreed that the following guiding principles would be adhered to in taking work on the MTFP forward:

a)Service Unit Heads and Strategic Directors would work within existing 2010/11 budget limits in dealing with in-year pressures in their base budgets.

b)In-year austerity savings would be taken corporately and used to help dampen off service pressures in 2010/11 that arise as a result of action being taken to sustainably re-base services or functions and on-going contract arrangements during the current year in preparation for 2011/12 onwards.

c)Proposals would be prepared to include taking Government cuts where they fall from 2011/12 onwards to enable members to make informed and clear decisions about local priorities and rationing choices in future years in setting the Budget for 2011/12 and beyond.

d)Future options must allow the organisation to achieve sustainable Budget cuts that do not rely on the medium to long term use of reserves.

e)In developing options, Strategic Directors and Service Unit Heads would be mindful of the criteria being used by Government Departments to inform the autumn CSR;

f)Future options would assume that the Council would seek to maintain ‘priority’ jobs and functions that will be needed over the short, medium and long term to deliver the Council’s future ambitions. This would not necessarily mean all jobs in all ‘front-line’ services as many of the cuts announced by Government directly affect the ‘front-line’ if the cuts are taken where they fall. Equally Cabinet were mindful of the fact that great pressure would be put on certain ‘back-office’ support functions in the short to medium term to enable the Council to re-base its position from 2011/12 onwards.

g)No further commitments would be made against anything where grants have either been removed or un-ring-fenced by Government during 2010/11 and all current spend in these areas would be slowed down or suspended if possible until we have greater clarity regarding the future position following the autumn CSR and subsequent local government finance settlement expected sometime in December 2010.

h)The Capital Programme would be refreshed later in the financial year further to member’s consideration of the Council’s future ambitions in light of changes in national policy. In the meantime, no expenditure should be incurred on any scheme unless associated capital and revenue funding streams are known to be secure and the grant monies and/or capital receipts to be relied upon have been received.

5.2Exhibit 1 below sets out the latest three year forecast showing the anticipated £19.7mresourcing gap over future years as at the end of November 2010. This summary forecast is based on the following assumptions:

a)a forecast reduction in Government funding totalling £8.422m in 2011/12. This assumes that Government cuts in grant funding over the next four years will be front-loaded in 2011/12, resulting in an actual cut in Formula Grant of 13.8% in 2011/12 based on the figures issued by Government as part of the CSR as announced on the 20 October 2010.

b)that the Council will receive a new direct grant of £1,774m in lieu of the Council otherwise increasing local Council Tax rates in 2011/12. The amount expected is based on the Government’s promise to fund the equivalent of a 2.5% increase in Council Tax for those Council’s who achieve a 0% increase in Council Tax rates when setting their Budgetsfor 2011/12.

c)that the funding floor protection that exists currently in the Local Government formula grant model will remain throughout the period of this MTFP. There is a risk that this might be withdrawn by Government at some point in the future. Removal of the floor would have a significant impact on the Council’s overall financial position, equivalent to a loss in base funding of approximately £1.3m in 2011/12.

Exhibit 1Revised summary forecast position as at November 2010

2011/12 / 2012/13 / 2013/14
£000's / £000's / £000's
Base budget brought forward / 98,097 / 95,923 / 93,501
Additional resource pressures / 9,247 / 4,927 / 7,616
Specific service grants ceased or cut / 4,698 / 1,145 / 1,037
Savings, efficiencies and other changes / (11,684) / (3,308) / (719)
Initial assessment of required resources / 100,358 / 98,687 / 101,435
Annual Growth Requirement / 7,854 / 7,238 / 7,092
Annual Percentage Increase / 8.6% / 7.3% / 6.7%
Cumulative Growth Requirement / 22,184
Cumulative Percentage Increase / 24.4%
Base budget brought forward / 98,097 / 95,923 / 93,501
Government Formula Funding Grant Changes / (3,724) / (2,422) / (2,180)
Council Tax Surplus (prior year adjustment) / (224) / 0 / 0
Council Tax Freeze Grant / 1,774 / 0 / 0
Initial Assessment of Funded Budget / 95,923 / 93,501 / 91,321
In-year resourcing pressure (Nov 2010) / 4,435 / 5,186 / 10,114
Cumulative pressure (Nov 2010) / 4,435 / 9,621 / 19,735

5.3It is also important to note that it has not been possible to factor into the MTFP as it stands the financial consequences to the Council arising from various Ministerial announcements made since May 2010 principally in respect of the Education and Social Care agendas in addition to the changes proposed in respect of Housing and Benefits. This is because we have not received sufficient information from Governmentas yet about how these changes will be effected, the funding consequences to the Council or any surety about the timing of any given transfer of resources despite our attempts to obtain clarity from the relevant Departments. It is very likely that all of these matters will impact significantly on the Council’s financial position over the period of the MTFPsubject to the various Government reviews and consultation exercises now taking place but which are not due to report until the new year. However, it is hoped that the publication of the settlement figures in mid December willhelp to clarify the position before Council is required to set its Budget in February 2011.

6Next steps

6.1Clearly more work is now needed if the Council is to ensure a balanced budget position for 2011/12 and beyond. Whilst challenging, a balanced budget position for 2011/12 must be achieved over the next few months and it is anticipated that it will be accomplished through a combination of the following actions by mid January 2011:

a)completing the work now in hand to determine the extent to which the current Efficiency Review programme can deliver further savings, efficiencies and income generation;

b)take forward discussions with staff and unions to implement a range of savings proposals relating to the costs of employment through out the Council;

c)the prioritisation of scarce resources to core priorities and essential service demands.Management Team and Portfolio Holders now need to ensure that final proposals for service savings, efficiencies and capital programme priorities are ready for inclusion in the final MTFP and Budget;

d)continue to implement the austerity measures introduced as part of the July MTFP Update Report to create as much head-room as possible within the Council overall financial position.

6.2The scale and speed of the budget reductions which the Council is required to make are well outside of our normal pressures and experience. As a consequence, a number of actions have had to start in anticipation of the final budget. In particular, because cuts on this scale inevitably lead to redundancies, the formal redundancy processes have had to start or else the financial consequences of delay would have resulted in more budget pressure and more redundancies (e.g. if the process had been delayed until the end of February 2011 an extra £600,000 cut would have been needed).

7Efficiency & Effectiveness: November 2010 MTFP Proposals

7.1Consideration of the current Medium Term Financial Plan position of the Efficiency & Effectiveness portfolio of services needs to be seen in the context of a £7.5m base budget for 2010/11 (as set out below). As part of the Medium Term Financial Planning process Senior Responsible Officers have been challenged as to the potential for reducing the resource requirements for any of the services that makes up this base budget position.

Exhibit 2 - 2010/11 Base Budget – Efficiency & EffectivenessPortfolio

Gross
Expenditure / Income / Net Expenditure
£000's / £000's / £000's
Financial Services / 6,029 / (4,232) / 1,797
Property Services / 5,538 / (5,528) / 10
Legal & Democratic Services / 5,016 / (2,666) / 2,350
Information, Communication & Technology / 3,043 / (3,019) / 24
Human Resources / 2,549 / (2,583) / (34)
Strategy Team / 1,686 / (325) / 1,361
Strategic Directorate (Corporate Management costs) / 1,286 / (993) / 293
Customer Services / 1,244 / (100) / 1,144
Corporate Communications / 510 / (19) / 491
Town Centre Management / 257 / (204) / 53
Annual Growth Requirement / 7,854 / 7,238 / 7,092
Annual Percentage Increase / 8.6% / 7.3% / 6.7%
Cumulative Growth Requirement / 22,184
Cumulative Percentage Increase / 24.4%
Total Base Budget 2010/11 / 27,158 / (19,669) / 7,489

7.2The table below summarises the initial baseline financial assessments for those services that make up the Efficiency & Effectiveness portfolio. Members should note that the table only summarises the position at the end of November 2010. As highlighted in section 6 of this report further work will be undertaken which will mean the figures as presented will change over the coming months prior to their final approval by Council in February 2011.

Efficiency & Effectiveness:Summary Forecast

Exhibit 3 - Medium Term Financial Plan (Extract) as at November 2010

2011/12 / 2012/13 / 2013/14
£000's / £000's / £000's
Base budget brought forward / 7,489 / 7,402 / 7,286
Specific Grant Reductions / 17 / 0 / 0
Grant Related Efficiencies & Service realignments / (17) / 0 / 0
Payaward / 0 / 138 / 345
Other pay changes / 302 / 169 / 112
Growth proposals / 467 / 101 / 121
One-Off proposals / 362 / (329) / (53)
Savings, Efficiencies, Income, Service Realignments / (1,218) / (195) / (148)
Latest Budget Requirement / 7,402 / 7,286 / 7,663
In year resourcing pressure / (87) / (116) / 377
Annual Growth Requirement / 7,854 / 7,238 / 7,092
Annual Percentage Increase / 8.6% / 7.3% / 6.7%
Cumulative Growth Requirement / 22,184
Cumulative Percentage Increase / 24.4%

7.3The summary MTFP forecast for the portfolio shows a year on year net saving of £87,000 between 2010/11 and 2011/12 with a cumulative net pressure over the 3-years of £174,000. This represents anincrease of 0.6% on the 2010/11gross expenditure of the portfolio.The following sections of the report set-out more detail in relation to grant changes; growth proposals and savings, efficiencies and income generation for each of the four main service areas.

7.4As part of the development of the Medium Term Financial Plan, reductions in Government funding have been assumed either as a direct consequence of known government policy including the comprehensive spending review announcements, known time-limited grants expiring, or the continuation of in-year 2010/11 announced cuts.

Within the Efficiency & Effectiveness Portfolio it is currently assumed that there will be a £17,000 reduction in the Home Office Area Based Grant and a consequential corresponding reduction in the expenditure of the Poole Safe Together Partnership. However this needs final confirmation as the Home Office will not announce details of their grants to Local Authorities until mid-January 2011.

7.5In relation to growth proposals, the following assumptions have been made for all services:

7.5.1Pay award – the Local Government Services pay award has been assumed to remain low for the duration of the MTFP period. Currently it is assumed that the 2010/11 pay freeze will also apply for 2011/12 with a modest 1% increase in 2012/13 following to a return to more normal levels from 2012/14.

7.5.2Other pay changes – Principally this item allows for the impact of incremental drift on the pay bill of the Authority.

8Financial Services

8.1Medium Term Financial Plan Proposals

The following sets out the lay proposals in the Medium Term Financial Plan as they relate to Financial Services excluding the Benefits Service. This is because the proposals relating to the Benefits Service are set out separately within the report taken to the Communities Overview & Scrutiny on the 4 January 2011. The proposals herein therefore only represent one part of the overall picture of changes impacting Financial Services as a whole.

8.1.1Grant Changes

Specific grants made by Government impacting Financial Services budgets (excluding Benefits) relate exclusively to the National Non-Domestic Rates and Collection Fund Administration Grant. The Government have made no cuts to this funding. The volume of work undertaken in this area has increased by 25% since 2009/10 and is expected to remain at this level or above for the foreseeable future. The increases in workload during this time have been accommodated within existing resources. In light of the overall financial position of the organisation no growth bids have been submitted to support increased service requirements for 2011/12. It is anticipated that the service will be able to manage on this basis at the current level of investment through further planned productivity gains arising from the Efficiency Review of Revenues & Benefits Services during 2010/11.

8.1.2Growth Proposals

Growth proposals for Financial Services include;

a)£14,000 from 2011/12 to enable the unit to cover the cost of various new software contracts necessary to support the development of the Council’s corporate infrastructure for strategic procurement purposes (this includes the regional web-portal system to provide an automated Supplier Contract Management System and all procure-to-pay functionality for e-tendering, e-invoicing and e-purchasing facilities);

b)£20,000 from 2012/13 and a further £21,000 from 2012/13 to cover the impact of inflation on the Council’s insurance premiums. The corporate contract for insurances is subject to renewal during 2011/12 when coverage and prices will be re-negotiated. Any savings arising from this contract renewal will be offered as additional savings back to the Council. As the extent to which it may be possible to make savings on the renewal are not yet known they have not been factored in savings proposals set out at 8.1.3 at this time.