Meeting Date / 5 December 2012
Report Title / Medium Term Financial Plan and 2013/14 Budget
Portfolio Holder / Cllr Duncan Dewar-Whalley Cabinet Member for Finance
SMT Lead / Abdool Kara, Chief Executive
Head of Service / Nick Vickers, Head of Finance
Lead Officer / Nick Vickers, Head of Finance
Key Decision / Yes
Classification / Open
Forward Plan / Reference number:
Recommendations / 1. To note the draft proposals.
2. To note the Medium Term Financial Plan
1 Purpose of Report and Executive Summary
1.1 This report sets out the Council’s Medium Term Financial Plan and the Budget proposals for 2013/14.
1.2 The Chancellor of the Exchequer makes his Autumn Budget Statement on 5 December and the Local Government Finance Settlement for 2013/14 and 2014/15 is expected to be announced on 19 December.
1.3 The context of this budget reflect two overriding issues:
· the continued reductions in public expenditure which once again means that the Council faces further falls in Government funding; and
· the most significant changes in how local authorities are financed for a generation, in particular from the part localisation of business rates. This is a huge change and its practical impact is only starting to become clear. This does, unfortunately, introduce a much greater degree of uncertainty on funding than we would normally have.
1.4 In light of the new funding arrangements and the lack of any reliable figures for the actual Grant Settlement outcome for the Council, it is not going to be possible to finalise key elements of the budget, in particular the proposed level of Council Tax, in this report.
1.5 This report will go forward to Scrutiny Committee and the Cabinet Member for Finance will provide that committee with updated information before its meeting on 23 January. A further budget report will then go to Cabinet on 6 February.
2 Background
Corporate Plan
2.1 In April 2012 Cabinet agreed a new Corporate Plan for the period 2012-15. This set out the high level corporate priorities as:
· Embracing Localism
· Open for business
· Healthy environment
2.2 These objectives are broken down into a number of sub-objectives.
2.3 In setting the budget we have reflected the need to appropriately resource these priorities where funding is required – primarily through one-off funding.
National Economic Background
2.4 In June 2010 the Coalition Government announced its high level financial targets:
· to balance cyclically adjusted current budget by the end of a rolling 5 year period in 2016/17, and
· to see public sector net debt falling as a share of Gross Domestic Product in 2015/16.
2.5 To achieve this the Government commenced reductions in spending totalling £81bn. However, the Communities and Local Government Department was one of the hardest hit with a 51% reduction.
2.6 For local authorities in aggregate this translated into headline reductions in funding of -11% for 2011/12, then -6%, -1% and -6%. For Swale the figures were -15% in 2011/12 (£1.5m) and -11% in 2012/13 (£1.6m). Our forecasts for 2013/14 and 2014/15 based on modelling undertaken by LG Futures were -2% and then -10%. Our main concern is that CLG will make additional funding reductions for 2013/14.
2.7 In July the Local Government Association published a Funding Outlook for Councils from 2010/11 to 2019/20 (LGA) which concluded:
· their model shows a likely funding gap of £16.5bn a year by 2019/20 – or a 29% shortfall between revenue and spending pressures,
· they have also modelled the funding available for individual services within the projected resource constraints. On the assumption that demand in social care and waste are fully funded other services face cuts of 68% by the end of the decade. Assuming that capital financing and concessionary fares are also funded in full, the modelling cash cut for remaining services moves to over 90%, and
· overall Government spending cuts have already prioritised areas such as schools, health and pensioners at the expense of local government and the priority for funding care within the local government sector leaves very little resource for other services.
2.8 The Autumn Budget Statement by the Chancellor of the Exchequer will give indications of longer term Government plans for public expenditure and the Settlement should give the 2013/14 and 2014/15 grant allocations to the Council.
Localisation of Business Rates
2.9 The Government announced in July 2011 a Local Government Resource Review – Proposals for Business Rates Retention. Currently business rates levels are set nationally by central government, and collection authorities such as Swale collect business rates and pay them to Central Government. The business rates are then recycled to local authorities through the Formula Grant. There is no relationship between the amount of business rates collected locally and the amount each local authority gets back via this grant.
2.10 The original proposals would have seen all business rates income collected locally being allocated between the collecting local authority and the preceptors (KCC, Police and Fire). This reflects the principle of incentivising local authorities financially to encourage new businesses to be established. This is a very welcome change of policy. The main principles of the latest scheme are:
· the government will retain 50% of receipts from business rates;
· with a central share of 50% the amount local authorities will be able to keep of business rates will be lower than the Comprehensive Spending Review 2010 amounts for 2013/14 and 2014/15. The Government propose to provide for the remaining CSR2010 allocation through the Revenue Support Grant. The RSG gives Government greater flexibility to reduce local government funding;
· Local Government will retain 50% of any growth in non-domestic rates above a rate predicted by HM Treasury. However, due to the operation of the levy, individual authorities may receive only a small proportion of any growth. It will also need to manage any reduction in non-domestic rates locally, though floor arrangements will be put in place; and
· government has decided to use fixed national shares of NDR by tier to split receipts.
2.11 Much of the detail of how the new arrangements will operate is still emerging.
2.12 In practice the key elements of how the new scheme will operate are:
· a baseline will be established for 1 April 2013 based on 2012/13 Business Rates data;
· there will be Tariff (pay to the Government) and Top Up (payment from the Government) Councils – Swale will be a Tariff Council;
· Tariffs and Top Ups will be uplifted each year by RPI;
· local authorities can retain Business Rates earned in excess of predicted growth in the baseline, less any contribution to national safety nets;
· after paying half of any additional Business Rates growth to the Government, the remaining funds will be divided 80:20 between the District and County/Fire levels; and
· a range of existing grants will be merged in the new Revenue Support Grant.
2.13 It needs to be emphasized that uncertainties around the new business rates and grant arrangements mean that the funding projections we utilize from the Local Government Association and LG Futures have been very volatile due to huge variations in CLG indicative figures. This is why key budget decisions have to wait for the actual settlement to be received.
Council Tax Benefit
2.14 The Government has planned to make a 10% saving on the total national cost of Council Tax Benefit, saving some £400m. At the same time from 1 April 2013 the funding will be delegated to local authorities. Local authorities will be given a grant equivalent to 90% of Council Tax Benefit. Each billing authority is then required to determine a local scheme for working age claimants, pensioners are 100% protected. For Swale the total cost is around £160,000, but for the preceptors it is much larger, £8m for KCC.
2.15 Through the Kent Forum a County-wide approach to the issue has been agreed, with the precepting councils providing financial support to the billing authorities. The Council has been out to consultation on options for a 15% or 18% reduction in support. A separate report is made to this meeting reflecting the Government’s new one-off grant for 2013/14 which seeks to limit the impact on non-pensioner claimants to 8.5%.
2.16 We will need to monitor very closely the impact of the policy on administrative costs and on recovery rates and from this the level of bad debts.
Council Tax
2.17 For the last two years the Council has set a zero Council Tax increase and has received Council Tax Freeze Grant equivalent to a 2.5% increase. The 2011/12 grant is for five years, and the 2012/13 grant for one year. The Government has recently announced it will provide Council Tax freeze grant at 1% for 2013/14 and 2014/15. It has also announced that any Council seeking to increase Council Tax by more than 2% would have to hold a referendum.
2.18 The combination of a low Council Tax and a low Council Tax base is a major constraint on the level of services the Council can provide to the residents of the borough, and on the performance levels which can be achieved. The Government Council Tax freeze grant over the last two years has effectively taken this away as an issue for us.
2.19 The proposed level of Council tax for 2013/14 will be determined after details of the settlement are known.
Staff Pay
2.20 The Council has maintained a two-year pay freeze for staff ie. there has been no general pay award but staff not on the top of their grade have received incremental progression. The Chancellor of the Exchequer has indicated that over the next two years he expects staff pay increases to be limited to a maximum of 1%. Provision is made in the Revenue Budget 2013/14 for a 1% pay increase (costing £118,000 in 2013/14), and in-addition for staff increments (costing £106,000 in 2013/14). Formal discussions on pay with Unison have commenced.
Inflation
2.21 The Council’s major contracts are all inflation linked, either to RPI or CPI, as at specific points in the year. The Medium Term Financial Plan was based on RPI reducing to 2.5%, and in September it was 2.6%. These contractual price increases are built into the Revenue Budget 2013/14.
New Homes Bonus
2.22 The New Homes Bonus is a specific Government grant where match funding is provided based upon the additional Council Tax from new properties for a six year period. This is a very important revenue stream for the Council which is forecast to be:
2012/13 / £1,200,0002013/14 / £1,506,000
2014/15 / £1,824,000
2015/16 / £2,142,000
2.23 Actual allocations will be confirmed in late 2012/early 2013.
2.24 The Medium Term Financial Plan assumes that this revenue stream will support base expenditure, subject to a £250,000 annual contribution to the Regeneration Fund.
Reserves
2.25 The good financial management of the Council has enabled it to increase reserves, which stood at £12.3m at 31 March 2012. In this exceptionally difficult financial environment it is entirely legitimate to make use of reserves to fund important initiatives such as Sittingbourne Town Centre Regeneration, and if necessary to support service delivery. Options in a very low interest rate environment for generating higher returns will be considered. The exact position on the use of reserves will become clearer when final funding allocations are received from Government.
Capital Expenditure
2.26 The approach to Capital Expenditure will be in line with the agreed Capital Strategy and be based on:
· the Council remaining debt free;
· use of Specific Government Grants – the most important of which is Disabled Facilities Grant; and
· use of the limited Capital reserves and receipts.
Community Impact Assessment
2.27 Most of the savings required for the 2013/14 budget identified thus far do not impact on service levels or access to services by communities. However, where this is the case, then the responsible Head of Service will make arrangements to carry out the Community Impact Assessment in line with national legislation in order to inform Cabinet and Council decision making.
Fees and Charges
2.28 A comprehensive review of fees and charges levied by the Council is undertaken annually and is reported as a separate agenda item to this meeting. The Council has to maintain a careful balance between maximizing income to prevent further service reductions, and responsibility and equity to local people.
2.29 Key areas of income are:
· Planning Fees (£580,000): the Government has announced a 15% increase in fees. This will help the Council achieve the budgeted level of fees in 2013/14;
· Car Parking Income (£1.4m): this is a major income stream and Swale has some of the lowest car parking charges in the county. The budget proposals do reflect some small increases in long term parking rates; and
· Penalty Charge Notices (£170,000): the budget proposals do reflect a predicted higher level of PCNs than in 2012/13.
3 Proposal
Medium Term Financial Plan
3.1 The purpose of the Medium Term Financial Plan is to forecast the financial position over the next three years to assist the Council in meeting its objectives as set out in the Corporate Plan.
3.2 The Medium Term Financial Plan is attached in Appendix I. The main features not already addressed are set out in Appendix II:
· Unavoidable Cost Pressures;
· Growth Items;
· Service Savings;
· Increased Fees & Charges; and
· Loss of Income.
Council Tax
3.3 The Council will determine whether to accept the 1% Council Tax freeze grant for 2013/14 after the settlement is known.
Reserves
3.4 The main principles on the management of reserves moving forward will be:
· maintain a prudent level of reserves to allow the Council to deal with unexpected one-off events; and
· fund one-off items of expenditure against the Council’s highest priorities, as determined by Members.
Capital Strategy
3.5 The Council’s priorities for the use of available capital funds as set out in the agreed Capital Strategy, will be: