ENCLOSURE 12A.1 CANNOCK CHASE COUNCIL CABINET 15 DECEMBER 2011 PORTFOLIO HOLDER: LEADER OF THE COUNCIL REPORT OF HEAD OF FINANCIAL MANAGEMENT DRAFT GENERAL FUND REVENUE BUDGET 2011-12 TO 2014-15 1. Purpose of Report 1.1 To set out the background to the draft General Fund Revenue Budget for 2012-13 and the forward projections to 2013-14 and 2014--15 as a basis for consulting on the revenue budget. 2. Recommendation 2.1 The Cabinet is asked to consider the information in this report and to note that a balanced budget exists for the three year budget period based upon a) The Council Tax assumptions approved in February 2011, or b) A Council Tax freeze in 2012-13. 2.2 In light of the above to determine whether a Budget for consultation is recommended in advance of the formal budget setting process. 2.3 To note further reports on the General Fund Revenue Budget and Reserves and Balances will be presented to Cabinet at its meeting in February in order that the actual budget for 2012-13 can be determined. 3. Key Issues 3.1 The Council has since 2008-09 adopted a budget process whereby a draft budget is prepared for consultation in advance of the formal Budget setting meetings in February/March. 3.2 The Councils budget process is based upon a medium term financial plan( minimum of three years) enabling the resource implications of future years to be reflected in current decision making and enabling a smooth transition in the implementation in re-allocating resources in accordance with the Corporate Plan. 3.3 The 2008-09 process was based upon relative certainty in resources with the three year Government Settlement covering the period 2008-09 to 2010-11. Subsequent budgets have however been clouded in uncertainty pending the out come of the 2010 Comprehensive Spending Review. Nevertheless the focus in recent years has been on savings with shortfalls of £870,000 (2009-10); £673,000 (2010-11) and £710,000 (2011-12) being identified as part of the budget process and necessitated Cabinet to consider saving proposals in December for implementation by the following 31 March.
Transcript
ENCLOSURE 12A.1
CANNOCK CHASE COUNCIL
CABINET
15 DECEMBER 2011
PORTFOLIO HOLDER: LEADER OF THE COUNCIL
REPORT OF HEAD OF FINANCIAL MANAGEMENT
DRAFT GENERAL FUND REVENUE BUDGET 2011-12 TO 2014-15
1. Purpose of Report
1.1 To set out the background to the draft General Fund Revenue Budget for 2012-13 and the forward projections to 2013-14 and 2014--15 as a basis for consulting on the revenue budget.
2. Recommendation
2.1 The Cabinet is asked to consider the information in this report and to note that a balanced budget exists for the three year budget period based upon
a) The Council Tax assumptions approved in February 2011, or
b) A Council Tax freeze in 2012-13.
2.2 In light of the above to determine whether a Budget for consultation is recommended in advance of the formal budget setting process.
2.3 To note further reports on the General Fund Revenue Budget and Reserves and Balances will be presented to Cabinet at its meeting in February in order that the actual budget for 2012-13 can be determined.
3. Key Issues
3.1 The Council has since 2008-09 adopted a budget process whereby a draft budget is prepared for consultation in advance of the formal Budget setting meetings in February/March.
3.2 The Councils budget process is based upon a medium term financial plan( minimum of three years) enabling the resource implications of future years to be reflected in current decision making and enabling a smooth transition in the implementation in re-allocating resources in accordance with the Corporate Plan.
3.3 The 2008-09 process was based upon relative certainty in resources with the three year Government Settlement covering the period 2008-09 to 2010-11. Subsequent budgets have however been clouded in uncertainty pending the out come of the 2010 Comprehensive Spending Review. Nevertheless the focus in recent years has been on savings with shortfalls of £870,000 (2009-10); £673,000 (2010-11) and £710,000 (2011-12) being identified as part of the budget process and necessitated Cabinet to consider saving proposals in December for implementation by the following 31 March.
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3.4 A three year balanced budget was set in February 2011 however this was based upon only a two year Government Settlement covering 2011-12 and 2012-13 with the Government undertaking a Review of Local Government Finance.( The 2012-13 settlement was re-confirmed on the 8 December 2011)
3.5 The review is ongoing and the exact outcomes are not likely to be known until the Autumn of next year nevertheless recent consultation exercises show that Local Government Finance will change dramatically.
3.6 Future funding will be based upon retention of a relevant share of Business Rates; New Homes Bonus Grants and ad hoc Government Grants rather than the traditional Formula Grant allocation based upon an assessment of the Relative Needs and Resources of each authority. The new funding regime is intended to operate from the 1 April 2013, although New Homes Bonus is currently in place.
Business Rates Retention
3.7 The Retention of Business Rates consultation model is complex with references to “Tariffs”/”Top ups” and “Levy “ but essentially consists of two elements :
a) the Starting Position (2013-14) – Business rates are retained equivalent to the Formula Grant assessment as determined for 2012-13
b) Growth incentives (2014-15 onwards) - The difference between assessed Business Rates for 2013-14 and the Starting position will be paid over to the Government and will be effectively fixed. Therefore if there is future growth in business rates the council is better off and vice versa if business rates contracts.
3.8 In accordance with the Consultation proposals the Financial Projection includes two scenarios for 2013-14 whereas 2014-15 reflects the full implementation of the deficit funding requirement as identified in the 2010 Comprehensive Spending Review.
3.9 The consultation document refers to no authority being worse off at the start of the scheme but adds the caveat “ as compared to what it would have been under the current scheme”. Two allocations exist for the baseline – before and after floor damping. The impact of the two scenarios for Cannock Chase Council would see the status quo of government funding being maintained if floor damping is applied but an ongoing reduction of £438,000 if the baseline is set before damping. (Annex Three reveals this worst case scenario.)
3.10 Business Rates retention for 2014-15 in the consultation model is based upon the overall control totals as determined for Local Government in the 2010 Comprehensive Spending Review with a 5.4% national cash reduction between 2013-14 and 2014-15. The financial projection assumes a 7% reduction for this Council and is broadly in line with a Local Government Association model.
New Homes Bonus Grant
3.11 New Homes Bonus grant was consulted on as part of the 2011-12 funding arrangements and the final scheme determined in February 2011. The scheme effectively rewards this council with funding for a six year period equivalent to £1,430 for each new property classed as affordable housing and £1,150 for other new properties.
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3.12 Provision of £200,000 was made in last years budget for such a grant however additional funding for future years could not be determined since this was to be top sliced from reductions to the Formula Grant allocations. Authorities therefore who can not deliver at the average growth across the country were therefore likely to see an additional reduction in grant funding in 2012-13 and subsequent years..
3.13 In accordance with the Business Rates Consultation model the grant will now be top sliced from the Business Rates allocation at the outset of the scheme and any surpluses refunded to local authorities on a pro rata basis. The reduction is reflected in the 2014-15 model as referred to in paragraph 3.10.
3.14 New Homes Bonus Grants can be determined from the Annual Council Tax Base Returns made in October of each year. The scheme is based upon net new properties as calculated by deducting Demolitions and Long Term Empty Properties from the Dwellings on the Valuation List.
3.15 In light of the material increase in vacant properties in the district and its impact on affordable housing , and after taking into account the proposed New Hones Bonus grant scheme, Council at its meeting of the 8 December 2010 determined to remove the 50% discount for long term empty properties.
3.16 The impact has been to reduce Long Term Empty Properties from 654 in 2010 to 383 in October 2011. Although the impact on the Council Tax Base was not as high as anticipated due to an increase in Discounts and Exemptions of occupied properties there has been additional New Homes Bonus Grant to more than offset the lower than anticipated increase in Council Tax Base.
3.17 The Minister for Housing and Local Government announced provisional allocations on the 1 December 2011 with Cannock Chase Council combined grant for years 1 and 2 amounting to £584,000, an increase of £384,000 on the budgeted allocation. .This has been reflected in the latest Budget Projection attached.
Localisation of Council Tax Support
3.18 The Government have also recently consulted on proposed changes to the criteria and funding of Council Tax benefits. The proposal is to abolish the current scheme and replace it with a locally determined discount scheme.
3.19 In financial terms the scheme will change from a 100% reimbursement scheme to a fixed , rather than demand lead, allocation or grant but reflecting the reduced national expenditure on Council Tax Support of 10%.
3.20 The scheme effectively reduces the amount of Council Tax support provided to claimants and hence should at the outset be financially neutral for budgeting purposes however this will be dependant upon how the baseline grant is determined.
3.21 In future years the Council will need to bear the cost of additional take up of the scheme including increased demand from its ageing population and increases in eligibility arising from increased unemployment together with any associated impact of Council Tax increases. There is also the risk that the Council will incur additional costs in recovering Council Tax from household exposed to the reduction but cannot afford to pay with arrears and write offs potentially increasing due to the additional Council Tax payments to be collected.
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3.22 The scheme is planned to be implemented with effect from April 2013 and an evaluation of the actual scheme will be undertaken as a priority.
Cost of Maintaining Existing Services
3.23 This paper sets out the calculation of the draft standstill budget for 2012-13, 2013-14 and 2014-15 together with the forecast outturn for 2011-12, and identifies a number of issues identified by officers where either additional spending may be required or money may be saved. It also provides a background to the consultation on the level of the Council Tax for District Council purposes.
3.24 Annex One to the report represents the estimated expenditure requirements for a standstill budget and
includes a listing of the more significant variations to the Budget approved by Council in February 2011. 3.25 In considering the standstill budget Members should note that the budget approved in February
incorporated ongoing savings arising from Shared Services together with provisional figures for the Third Party Management of Leisure and Cultural Services.
Third Party Procurement – Culture and Leisure Services
3.26 Cabinet at its meeting of 17 November 2011 approved Wigan Leisure and Culture Trust as the operator
for the above services for an initial contract period of 10 years. 3.27 The tender process resulted in additional savings, above and beyond the minimum saving requirement
of £540,000 as reflected in existing budgets, for 2012-13, 2013-14 and 2014-15. of £193,200 , £239,800 and £82,450 respectively
Budget Pressures 3.28 The Council continues to suffer from a downturn in Customer and Client Receipts reflecting the current
financial climate with income from Planning, Car Parks; Cemeteries, Land Charges, Industrial Estates, Building Control, Markets etc all expected to show significant under achievement of income targets at outturn and into 2012-13
3.29 The Chancellor as part of its Autumn Statement announced a 1% pay cap for 2013-14 and 2014-15 after
the current pay freeze comes to an end. Anticipated savings as a result of the pay cap, as compared to the budget assumptions are estimated to be £186,000 in 2013-14 rising to £280,000 in 2014-15.
Reserves and Balances
3.30 A local authority is required by law to set a balanced budget but at the same time ensure its financial
standing by maintaining adequate reserves and balances 3.31 Annex Two provides details in relation to the Financing element of the Budget, and is at this moment
provisional.
3.32 The financing statement also includes a provisional use of reserves following a preliminary review of earmarked reserves. A draft schedule of earmarked reserves is attached as Annex Four and will be re-evaluated in the final budget setting process.
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3.33 The standstill budget Working Balance have been set on accordance with the provisional Risk Analysis (Annex Six) for the 2012-13 to 2014-15 Budget, however it should be noted that a number of the risks are dependant upon forthcoming announcements in November/December of this year.
Balanced Budget
3.34 This paper does not set a Balanced Budget as such, but instead sets out the background and identifies issues, to allow members to present their draft proposals for consultation for the District Council budget and Council Tax.
3.35 Annex Two sets out the estimated standstill position for each of the above factors. It can be seen from Annex Two that a Balanced Budget can be set based upon the assumptions in relation to Council Tax increases as determined as part of the 2011-12 budget process.
3.36 The table at the bottom of Annex Two shows, for illustrative purposes, the savings required in order to balance the budget, or additional resources generated, based on Council Tax increases of 0%, 2%, and 3%.
Council Tax Freeze
3.37 The Government published on the 14 November the terms under which funding would be made available to help councils freeze their council tax in 2012-13.
3.38 The scheme is voluntary and applies separately to each billing and precepting authority with a grant equivalent to a 2.5% increase in Band D Council Tax multiplied by its Council Tax Base.
3.39 This amounts for Cannock Chase to £150,450 but is a one off payment rather than an ongoing payment as issued for 2011-12. The grant in that year compensated the Council for the loss of Council Tax income in subsequent years due to the Council Tax being set at a lower level in 2011-12.
Council Tax Referendum
3.40 In contrast provision will exist as part of the Localism Bill to veto excessive council tax increases by means of a referendum. Details of the final proposals were announced on the 8 December with excessive Council Tax increases determined to “Council Tax increases that exceed 3.5%”. Authorities planning to set excessive Council tax increases would be required to draw up shadow budgets. Both budgets would be approved as part of the Budget process and a referendum held in May. If the rise in Council Tax is rejected the shadow budget would be adopted immediately and refunds made to residents in accordance with predetermined timetable.
4. Conclusions and Reason(s) for the Recommendation(s)
4.1 Members will note that a balanced budget can be achieved for the 2012-13 to 2014-15 based upon the 2.5% indicative increase per annum (as per last years Budget). A Council tax freeze in 2012-13 together with indicative 2.5% increases in subsequent years will also provide a three year balanced budget
4.2 The resources available for 2013-14 and 2014-15 are uncertain at this stage and are dependant upon the outcome of consultations in relation to the review of Local Government Finance and the implementation of the Comprehensive Spending Review. The details of the basis for future funding
ENCLOSURE 12A.6
is likely not to be known until the Autumn of 2012 and the adoption of a standstill budget at this stage will enable full consideration of all issues to be made as part of the 2013-14 budget process.
4.3 Future resources are effectively going to be performance related and a financially neutral position has been taken, this results in year deficits in 2014-15 and 2015-16 with a potential ongoing shortfall from 2015-16 of £14,000 per annum. This however could be accommodated within the Working Balances available enabling a Transformation Budget Strategy to be developed in readiness for 2015-16 or earlier if required.
4.4 An ongoing deficit of £430,000 per annum would exist from 2015-16 under the worst case scenario( Damping arrangements not applied) however working balances would still be sufficient to enable a Transformation Budget Strategy to be developed in readiness for 2015-16.
4.5 Cabinet is asked to determine whether a consultation budget for the period 2012-13 to 2014-15 should be recommended enabling the results of the consultation budget to be considered in setting the formal budget in February 2012
5. Other Options Considered
5.1 There are no other options in respect of this report.
6. Report Author Details
Bob Kean, Head of Financial Management, Ext. 4334
ENCLOSURE 12A.7
REPORT INDEX
Contribution to Council Priorities Section 1 Contribution to Promoting Community Engagement Section 2 Financial Implications Section 3 Legal Implications Section 4 Human Resource Implications Section 5 Section 17 (Crime Prevention) Implications Section 6 Human Rights Act Implications Section 7 Data Protection Act Implications Section 8 Risk Management Implications Section 9 Equality and Diversity Implications Section 10 List of Background Papers Section 11 Report History Section 12 Annexes to the report Annex 1
ENCLOSURE 12A.8
Section 1
1. Contribution to Council Priorities 1.1 The revenue budget reflects the agreed priorities of the Council as reflected in the Corporate Plan.
The standstill budget expresses the cost of continuing with the Council’s current policies into the future whereas Delivering Change both determines and re-allocates resources in accordance with agreed priorities.
Section 2 2. Contribution to Promoting Community Engagement 2.1 The Determination of a budget for Consultation reflecting Council Tax increases and changes to the
level of services is an essential part of Community Engagement.
Section 3 3. Financial Implications -Details of matters to be considered 3.1 District Council Budget 3.1.1 The Council is required to prepare a revenue budget for the District Council, together with setting a
Council Tax to meet not only its own needs but also those of the County Council, the Police Authority, the Fire Authority and the various Parish Councils within the District area.
3.1.2 This paper sets out the calculation of the indicative standstill budget for this Council for 2012-13, 2013-14 and 2014-15, for consultation purposes only, and identifies a number of issues identified by officers where either additional spending may be required or money may be saved. The report similarly does not determine the level of Council Tax for 2012-13.
3.1.3 The Council is legally required to prepare a balanced budget. This paper does not do that, but instead sets out the background and identifies issues, to allow members to present a District Council budget and Council Tax for consultation.
3.2 Standstill Budget 3.2.1 The initial stage of budget preparation is undertaken by the Chief Executive, Director and Head of
Service as part of the business planning process. This is known as the preparation of the standstill budget, which expresses the cost of continuing with the Council’s current policies into the future. As part of the process, a reassessment of the current year’s spending is also made.
3.2.2 This process is still ongoing with the budget attached being based upon such work to date together with Corporate Monitoring to the end of October. The budgets are still to be agreed with the Director and Heads of Service however at this stage no material changes are expected.
ENCLOSURE 12A.9
3.2.3 The “Standstill” net expenditure has thus been estimated as follows:
3.2.4 Within the above figures, there are a number of material variations from the approved and projected budgets. The calculation of these figures is set out at Annex One, which also a listing of the more significant variations. The variations reflect current budget pressures as determined from the outturn to October (Annex Five) together with likely additional commitments arising from current policies in future years.
3.2.5 An analysis of Annex Five reveals a continuing downturn in Customer and Client Receipts reflecting the current financial climate with income from Planning, Car Parks; Cemeteries, Land Charges, Industrial estates, Building Control, Markets etc all expected to show significant under achievement of income targets at outturn. A forecast overspend on such key volatile budgets of £200,000 is forecast but compensating one off savings exist in 2011-12 as reflected in an outturn within original approvals..
3.3 Council Tax 3.3.1 The Council Tax for District Council purposes is determined by a number of factors:
♦ The Council’s net general fund revenue expenditure
♦ The amount of Revenue Support Grant (RSG) paid by the government
♦ The Council’s share of the national non-domestic rate pool
♦ Any surplus or deficit on the Council’s collection fund
♦ Any decisions by the Council to use reserves to support the budget 3.3.2 The amount of Revenue Support Grant has effectively been determined by the recent
Comprehensive Spending Review (CSR10) and proposed changes to the Local Government Financial Settlement.
3.3.3 The CSR 2010 covered the period 2012-13 to 2014-15 however only a two year settlement was agreed as part of last years Local Government settlement covering the period 2011-12 to 2012-13.
3.3.4 Details for 2013-14 and 2014-15 were deferred pending a review of Local Government Finance including proposals for Business Rates Retention. A consultation period ended in October this year on such proposals however the exact details of funding will not be known until the Summer/Autumn of 2012.
£ million
2011-12 Outturn 13.803
2012-13 Standstill 11.843
2013-14 Standstill 11.584
2014-15 Standstill 11.933
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3.3.5 The Business Rates consultation paper is set within the framework of the 2010 Comprehensive Spending Review and the Table below is extracted from that document.
2010-11 2011-12 2012-13 2013-14 2014-15
£ billion £ billion £ billion £ billion £ billion
Control Totals 28.5 26.1 24.4 24.2 22.9
CSR Deficit Reduction Headlines
7.1% 14.2% 21.3% 28.4%
Frontloaded Projection
12.2% 20.9% 22.6% 28.4%
3.3.6 Council Tax Base figures are to be considered by Council at its meeting of the 14 December with figures showing a reduction of nearly 0.6% on the assumptions contained in the Medium Term projection.
3.3.7 The Council Tax Base before applying collection difficulties is estimated to be 30,856.35 as compared to the Medium Term Projection forecast of 31,037.37 a reduction of 181.02 The reduction reflects an increase in single person discounts (58 Band D equivalents) and Second Homes (48) together with a downturn in new properties
3.3.8 The Council is now formally required to report on its level of reserves and balances and the adequacy of such reserves as determined by the Section 151 Officer.
3.3.9 An interim review of earmarked reserves has been undertaken as part of the standstill budget and a draft schedule of earmarked reserves is attached as Annex Four and will be re-evaluated in the final budget setting process.
3.3.10 The level of balances is effectively determined by an assessment of the strategic, operational and financial risks facing the authority with an underlying level set at 5.5% of net operating expenditure (the minimum as recommended by the Audit commission).
3.3.11 The current level of balances are at this minimum level requirement and have been re- evaluated as part of this report whereby a detailed risk analysis has been undertaken taking into account the policies and strategies of the Council; assumptions about inflation and assesses the risks associated with the key volatile budgets of the Council. This is detailed at Annex Six
3.3.12 A preliminary assessment of the standstill budget at this moment in time indicates that the level of balances should be set in accordance with Annex Six and this will be reviewed at the next stage of the budget process since a number of factors will change over the coming weeks
3.3.13 Annex Two sets out the estimated standstill position for each of the above factors.
ENCLOSURE 12A.11
3.3.14 The table at the bottom of Annex Two shows, for illustrative purposes, the savings required in order to balance the budget, or additional resources generated, based on Council Tax increases of 0%, 2%, and 3% .
3.3.15 As a rough guide a 1% increase in Council Tax is approximately equivalent to £60,000 per annum which if sustained over the three year period would generate £60,000 in 2012-13, £120,000 in 2013-14 rising to £182,000 in 2014-15. .
3.4 Budget Strategy
3.4.1 A comprehensive Delivering Change process was undertaken as part of the 2011-12 budget process to ensure every aspect of the Budget and Service Delivery was subject to review. In light of the savings implemented in 2011-12, the potential surplus identified for 2012-13 but more importantly the uncertainties that exist, particularly arising from the Review of Local Government Finance, 2013-14 and 2014-15 a standstill approach has been adopted foe Delivering Change. The key themes identified incorporating: Asset Management; Procurement; Efficiency; Outsourcing; Shared Services; Income Generation together with the identification of the minimum levels of service for both Mandatory and Discretionary Functions will be further evaluated for potential implementation once the outcome of the current funding views are known.
Section 4
4. Legal Implications 4.1 The legal implications are set out throughout the report including the statutory requirement for the
Council to set a balanced budget.
4.2 In preparing a revenue budget for the district the Council is legally obliged to consult with its relevant stakeholders. Statutory budget consultees include trades unions, the voluntary sector and the business sector; however it is best practice to consult on its actual proposals with a wide range of consul tees as possible.
Section 5
5. Human Resource Implications 5.1 In accordance with the Council’s normal practice a series of employee and trade union briefings will
be programmed to take place at the same time as the Council’s budget proposals are made available to the public.
5.2 Further targeted briefings and consultations will take place with both employees and trade unions once the Council’s final budget proposals are determined.
Section 6 6. Section 17 (Crime Prevention) 6.1 Not applicable
Section 7 7. Human Rights Act Implications 7.1 There are no identified implications in respect of the Human Rights Act 1996
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Section 8 8. Data Protection Act Implications 8.1 There are no identified implications in respect of the Data Protection Act
Section 9 9. Risk Management Implications 9.1 The consultation process enables the public and other consultees to be engaged in the budget
setting process and in addition to fulfilling a statutory requirement contributes to ensuring the vision and aims and objectives of the council are effectively managed.
9.2 A detailed risk assessment of the budget itself is undertaken as part of the budget process and is
used to determine the level of balances to be maintained by the Council. 9.3 A preliminary risk assessment has been undertaken to ensure the financial standing of the authority
is maintained by assessing the amount of balances that are required to meet unexpected events or emergencies. In addition the strategic, operational and financial risks that face the authority have been assessed and a sensitivity analysis undertaken to identify the overall level of balances required in setting budgets for future years
. 9.4 The maintenance of balances ensures that the impact of any such variances on future year’s
budgets, services and achievement of objectives is pro-actively managed by the authority.
Section 10. 10. Equality and Diversity Implications 10.1 In preparing a Balanced Budget for consultation Cabinet will need to ensure that due regard is
made to Equality and Diversity Implications as well as financial considerations. The standstill budget will reflect the Councils current Equality and Diversity policy whereas changes to service provision will need to be addressed as part of the Delivering Change process.
Section 11 11. List of Background Papers Annexes Annex One Estimated Expenditure Requirements Annex Two Financing Requirement Annex Three Worst Case Scenario Annex Four Schedule of Earmarked Reserves Annex Five Key Volatile Budget Monitoring – April to October Annex Six Risk analysis
Total 10,414,050 6,038,789 6,316,174 277,385 226,000
KEY VOLATILE BUDGETS
Details Origianal
Budget
Actual Variance Forecast
Outturn
ANNEX SIX
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
RESOURCES
Level of Government Support/RSG settlement/Business Rates Retention
The risk for the level of Government Support or Revenue Support Grant has been determined at a high level by the CSR 2010 and the 2011-12 Formula Spending Assessment. This initially covered the period 2011-12 and 2012-13 with confirmation of this year’s actual allocation expected shortly. The CSR 2010 covered a four year period and details of how further reductions will be allocated across 2013-14 and 2014-15 and the different tiers of Local Government will not be known until next year The Government are however determining proposals for long term change to how local authorities are funded through the local government resource review, including local retention of business rates Future funding will not be guaranteed or assessed on a needs basis but will be dependant on its relative growth in terms of both New Homes and Business Rates. Although this gives councils greater freedoms and removes dependency on Central Funding it passes on greater risks with not only pay awards and inflation entirely falling on the Council but also its core funding will reduce if Business Rates contracts. Final details of the scheme are awaited and how the risk is to be shared in two tier authorities will be a key element in determining working balances It is not clear at this stage whether the key Data variables of need such as Population; levels of unemployment that influence the settlement will be updated in advance of the new funding regime .
- Ceiling and Floors Low + 0.438
+ 0.438
+ 0.110
+ 0.110
The Council is projected to receive protection under Floor arrangements of £438,000 in 2012-13. A revised funding mechanism is proposed for 2013-14 that replaces the current Formula Assessed funding with Business Rates Retention The starting point is however intended to be equivalent to the 2012-13 settlement, but with an option to allocate funding prior to floors which would result in an ongoing loss to the Council of £438,000
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
Level of Government Support/RSG settlement
- Council Tax Base Low The traditional three/four year RSG settlement is based upon the Governments prediction of resources available to the authority as assessed by its Council Tax Base. As detailed above, RSG will be replaced with Business Rates retention. Nevertheless the Government intends to undertake periodic reviews to ensure the balance between needs and resources are not lost. Whether Council Tax bases will play a role in reviews has yet to be determined. Regardless of this a review before 2015-16 is unlikely.
- Top up or Tariffs Med + 0.060
+ 0.120
+ 0.030
+ 0.060
The proxy for Government Support in the form of Business Rates Retention will involve an authority receiving Top up funding – if its retained business rates are less than the traditional Government Support – or paying a Tariff – if its business rates are greater than its assessed level. The consultation document proposes that top up or tariffs are either fixed in cash terms or index linked. The exact details of whether CCDC is a Tariff or Top Up as not yet been determined but it is likely to be a top Up. If Top Up Funding is not index linked it will result in a loss of a funding of an additional £30,000 per million per annum of Top up Funding.
-Volatility in Business Rates
Low +/- 0.342
+/- 0.288
+ 0.086
+ 0.072
The council will be exposed to volatility or reduction in its business rates due to the failure or temporary closure of a key industry. This is particularly acute for Cannock chase with Rugeley power Station representing 11% of its rateable value. This may be mitigated by the two tier split; safety nets (subject to thresholds) and potential pooling arrangements
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
Council Tax Base Med +/- 0.060
+/- 0.060
+/- 0.030
+/- 0.030
The Council Tax Base for 2012-13 based upon a cut off point each year and although such figures are up to date at November 2011 they will vary as properties become occupied /unoccupied etc whereas provision will also exist for the impact of new properties coming in line during the next financial years The current Council Tax base before consideration by Council includes an option to remove part or the entire discount on second homes which may have an impact on collection although this is considered to be only marginal. The major risk relates to whether the forecast increase in Council Tax base can be achieved. The increase is dependant upon new properties being built and the maintenance or reduction in the number of properties subject to exemptions or discounts . The growth in 2011-12 was less than expected but the budget assumes an increase of 1% in 2013-14 and 2014-15 respectively. A 1% variation amounts to approximately £60,000
Council Tax Low + 0.100
Council Tax increases are likely to be capped if considered excessive by the Government. The Council tax level determines the resource base for future years and any capping will impact upon the delivery of the Medium Term Plan. No provision exists for the additional administrative costs of rebilling estimated to be Current projections are below last years threshold of 3.5 %
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
New Homes Bonus Low + 0.200
- 0.200
+ 0.050
- 0.200
The New Homes Bonus Grant represented a material risk in the 2011-12 draft budget due to the scheme not being finalized and future years funding being subject to top slicing from the Formula Grant settlement. The final scheme enables the 2012-13 budget to be determined with a high degree of accuracy since it is determined past performance as reflected in changes in Council Tax Base returns (October to October) and the provision of affordable housing. The risk relates to future years funding , indirectly in how much is top sliced from Government support as part of the Business Rates retention and directly in the number of net new properties being completed by October next year. This is outside the control of the council however the assumptions used in forecasting future Council Tax Bases can be used to predict New Homes Grant including the affordable housing allocation. The risk can also be partly managed by ensuring a pro active approach in ensuring properties are assessed for eligibility for Council Tax purposes as soon as practically possible and in addition Long Term empty properties are effectively managed. New Homes Bonus is provided as part of a six year rolling programme with the 2011-12 grant falling out in 2017-18. Hence due to a new CSR being in place for 2015-16 and the constraints for ongoing house building in the district the funding cannot be guaranteed post the current Medium Term Timeframe. In order to mitigate this risk a stepped increase is only included in projections for 2013-14 pending the amount of Business Rates top slicing being determined as part of the 2013-14 determination
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
Realism of standstill budget
The budget is based upon realistic estimates with the strategy assuming that all budgets will be controlled within agreed levels. Budgets being reflected in service plans / Business Plans. However a number of budgets are not within the control of the council or involve a risk element.
Staff turnover Med + 0.320
+ 0.330
+ 0.340
+ 0.160
+ 0.165
+ 0.170
The budget contains annual savings of approximately £0.320m and reflects year on year savings on employee expenses. The authority has over recent years implemented the Single Status review; Gershon and Efficiency savings and in 2011-12 over £1.4million ongoing reduction in its budget. These have mainly centred on employee budgets and together with the temporary use of vacancies to deliver shared Services savings, pending transformation, will increase the risk of turnover not being achieved.
Rent Rebate Subsidy Med/ Low
+ 0.100
+ 0.100
+ 0.100
+ 0.020
+ 0.020
+ 0.020
Provision of £100,000 additional net subsidy exists within the budget for the maintenance of LA Subsidy error rate within the additional subsidy threshold and the maintenance of overpayments collection rate. Although the Council have achieved the 100% subsidy level an increase in demand for the Benefits service; increased staff turnover or increase in errors will affect this performance
Localisation Of Council Tax
+ 0.780
+ 0.780
+ 0.100
+ 0.100
The Government have proposed a 10% reduction in Council Tax Benefits however this is intended to be passed directly onto claimants unless a local authority offsets the loss of Government support itself. Exact details of the scheme are awaited and how the risk is to be shared with precepting bodies. A 10% loss in Council Tax grant amounts to £780,000 with a perceived risk at this stage of 14% being this Councils share of Council Tax
Actuarial Valuation High 0.234 0.170 Actuarial valuation of pension funds are undertaken every three years and due to both legislation and volatility in stock markets can have major implications for future years’ budgets. The risk to the authority has been mitigated by actions taken by the authority together with county wide agreements whereby increases or reductions arising from the triennial valuation are limited to 1.0% per annum enabling stability to be applied in the budget setting process. The next valuation is due in 2013 and will be implemented with effect from 2014-15. The Pension fund are considering reviewing the Stabilisation process that currently manages risk and although the Hutton report may provide respite to employers it is more likely to partly mitigate future increases rather than offer savings. In accordance with normal arrangements following outsourcing the Council becomes fully responsible for existing pension’s liability at the date of transfer for that service r. This could be analysed over the 20 year deficit recovery period in accordance with the funding strategy of the pension fund or by a lump sum payment. The outsourcing itself could have annulled current stabilisation procedure agreement has been reached with the actuary to maintain current contribution rates until 2014-15. The actual deficit will be determined at the date of transfer and the Council will fully evaluate whether a lump sum payment or annual contribution should be applied and a further report submitted to Cabinet. A lump sum payment will mitigate future ongoing risks to the Council
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
Leisure Outsourcing Med + 0.733
+ 0.061
Leisure outsourcing is scheduled to take place with effect from 1 February 2012 with gross savings in 2012-13 of £733,000 per annum. Any delay behind the 1 April is likely to result in a loss of savings of £61,000 per month and additional support service costs until the date of transfer. The actual date of transfer will be known at formal budget setting time and will be factored into the budget.
Shared Services Low/ Med
+ 0.300
+ 0.300
+ 0.300
+ 0.100
+
+
Additional provision of £300,000exists within the 2012-13 budget arising from the implementation to transformation plans for each service. Savings to date reflect planned savings based upon deleting existing vacancies, sharing systems and standardising working practices however future year’s savings are based upon transformation of the service using the LEAN approach. Risks will exist in delivering such savings in accordance with the timeframe and the capacity of the organisation to support both the cultural and organisational change at a time when the authority itself is downsizing The risk has been mitigated by undertaking transformation work based upon the materiality of savings and a work programme has been managed by programme board to ensure savings will be delivered to the required level for 2012-13. Savings in a number of areas have been combined with support savings arising from leisure outsourcing or are dependant upon other variables nevertheless a contingency plan exists to ensure savings are delivered. The greatest risk however relates to the appointment and approval process for the Head of Service post for Financial Management and its impact on that services transformation and savings
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
Customer & Client Receipts
Car Park Income Med + 0.102
+ 0.102
+ 0.102
+ 0.050
+ 0.050
0.050
Car park income for 2011-12is down on 2010-11/ 2009-10 income and reflects a real terms reduction in demand with charges remaining the same as in 2010-11. This has been reflected in outturn and forward projections, however an increases is planned for 2012-13 and the secondary impact of the recession may have an impact on the additional income forecast in future year’s budgets.
Planning Fees Med/ High
+ 0.200
+ 0.2000
+ 0.100
+ 0.100
Planning Income has been the main recipient of the impact of the current economic climate and is some 30% down on pre recession figures. Income was predicted to increase to its normal levels over a three year period through de-regulation of planning fees income and an upturn in the economy. Latest projections however are some £100,000 down on this forecast and this will continue into 2012-13. Remedial action will be required thereafter. However will still exist. This has been extrapolated through the budget period hence potential additional income may arise in later years both
Local Land Charges Low + 0.020
+ 0.020
+- 0.010
+ 0.010
Local Land Charges have suffered a much higher downturn to planning fees with a forecast shortfall of a further £25,000 in 2011-12 and this is likely to be ongoing with income now being less than 50% of its 2007-08 levels. The ongoing shortfall has been reflected in future years budgeted The magnitude of the losses and the impact on the competitiveness of the service will need to be closely monitored.
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
Inflation etc Low Annual inflation has been assumed at 0% for pay in 2012-13 and 3% in 2013-14 with 2.0% thereafter , 1% prices and 1% income and are currently considered adequate
Pay awards Low The Government as part of its Emergency Budget stated that Public Sector pay will be frozen for 2 years but there will be a £250 a year flat-rate pay rise to the 1.7 million workers whose annual salary is less than £21,000. Local Authority Employers do not believe that this is affordable and no provision exists in the budget. The Chancellor announced as part of its Autumn Statement that a 1% cap would apply for 2013-14 and 2014-15 which negates the high risk element that existed (due to length of existing the pay constraint).Normal policy is that any excess above the budgeted pay award will be managed via efficiency savings . A 1% pay award is equivalent to £93,000
Energy Low/ Med
Energy prices are still subject to volatility and although a time lag exists between changes in wholesale fuel and energy costs and actual charges the budget reflects the latest revision of contracts for energy supply.
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
Interest Rates Med/ High
+/- 0.042
+/- 0.042
+/- 0.090
+ 0.030
+ 0.030
Interest rates are in line with the Councils Treasury Strategy. However any reduction in Interest Rates would have a detrimental impact upon the General Fund in the medium term and vice versa A 0.25 % variation amounts to £18,000 for the General Fund Any Variation is likely to impact upon 2014-15 in particular
low
Rates Med + 0.012
+ 0.024
+ 0.036
+ 0.012
+ 0.012
+ 0.012
Business rates are determined by the Government via the NNDR multiplier each year. Variations to the Budget will arise whereby Multiplier increase is in excess of the normal inflation rates of the authority. Details for 2011-12 are still awaited. Any such variation in future years will have an impact of £4,000 per %.
General Low/Med/
High
+ 0.014
+ 0.053
+ 0.068
+ 0.026
+ 0.034
Provision for general inflation excluding the above factors has been reduced from 2% to 1% although contract inflation has been assessed at 4% Consumable budgets are controlled within such cash limits and hence risk is mitigated. However if inflation continues at the current levels of 5.2% issues may exist in future years.
RESERVES AND BALANCES RISK ANALYSIS
ASSUMPTION RISK MAXIMUM COST REQUIRED BALANCES COMMENTS
12-13 13-14 14-15 12-13 13-14 14-15
Implementation of Policy option savings
No policy option details are available at this stage of the Budget Process.
Growth options N/A N/A N/A
Saving Options N/A N/A N/A
ITEMS NOT INCLUDED IN THE BUDGET
- Equal Pay No provision exists within the budget for any successful litigation against the Council over Equal Pay Claims. Any claim will be contested as part of due legal process. The Risk Issues highlighted above, including the reduction in Government Funding and the deficit on the budget clearly indicates that any successful claim could only be financed by a compensating saving being implemented as a priority.
- Future legislative implications
0.100
Potential Legislative changes have been referred to in the above analysis with a presumption that any other material changes will be covered by the New Burdens policy and respective lobbying by District councils network and the LGA
SUB – TOTAL 0.503 0.0819 0.768
General Contingency
0.250 0.250
Future year’s budgets reflect the ongoing aggregate implications of assumptions that have a high risk identified in 2014-15 unless separately identified.
