Agenda item

(Director of Finance & ICT) To consider the attached report (FPM-022-2012/13).

The Assistant Director (Accountancy) presented a report detailing the proposed Council Budget for 2013/14, which would enable the Council’s policy on the level of reserves to be maintained throughout the period of the Medium Term Financial Strategy (MTFS). The budget was based on the assumption that Council Tax would be frozen and that average Housing Revenue Account rents would increase by 4.36% in 2013/14.

The Assistant Director advised that the Financial Issues Paper (FIP) was prepared against the background of cuts in public expenditure, ongoing difficulties within the economy and highlighted the uncertainties associated with Local Government Resource Review, Business Rates Retention, Welfare Reform, New Homes Bonus, Double-Dip Recession, Development Opportunities, Community Budgets, and Organisational Review. There was now greater clarity on some of these issues, but several of them would not be resolved for some time.

In setting the budget for the current year it had been anticipated adding £13,000 to the general fund reserves. This was possible as the savings achieved during the budget process last year had exceeded the target and produced a Continuing Services Budget (CSB) balance below that which had been anticipated. The small addition of £13,000 was welcome as the MTFS at that time was predicting the use of just over £1million of reserves to support spending in the following three years.

The revised four year forecast presented with the FIP took into account all the additional costs known at that point and highlighted the structural reform to local authority finances due to the local retention of business rates and the Government’s programme of welfare reforms. This projection showed a need to achieve savings of £250,000 on the 2013/14 estimates, £400,000 in 2014/15 and 2015/16 and £200,000 in 2016/17 to keep revenue balances above the target level at the end of 2016/17. The FIP established the following budget guidelines for 2013/14: the ceiling for CSB net expenditure be no more than £14.91million including net growth/savings; the ceiling for District Development Fund (DDF) net expenditure be no more than £0.560million; and the District Council Tax to be frozen.

The Assistant Director reported that the Government’s Comprehensive Spending Review had only provided two years worth of figures instead of the usual four because of the Government’s desire to radically change the system of funding local authorities. The figures for 2013/14 and 2014/15 were only received late in December 2012. Under a new system, the Council had been placed in band 3 which meant that its reduction in Formula Grant had been limited to 9.4%, or £606,000. The final Grant figure of £6.05million had been £313,000 lower than anticipated.

The Government had introduced a new scheme of Business Rates Retention, but the detailed regulations and guidance was still awaited. For Epping Forest, the predicted amount of non-domestic rates to be collected in 2013/14 had been set at £31.888million. Of this, 40%, or £12.755million related to the Council, but the amount of business rates to be retained by the Council had already been set by the Government at £2.909million, and the difference (being £9.846million) had to be paid to the Government as a ‘Tariff’ to be used to top-up Councils whose income from non-domestic rates fell below their expected amount.

The Assistant Director reminded the Cabinet Committee that Council Tax Benefit was being abolished and replaced with Local Council Tax Support, as part of the Government’s Welfare Reform measures.. The scheme adopted by the Council in December should reduce current expenditure from £8.95million to £7.68million. The national introduction of a weekly benefits cap had been deferred until September 2013, whilst there was no further news regarding the introduction of a single Universal Credit.

For the New Homes bonus, the Council was due to receive approximately £550,000; it was proposed to add this to CSB income. The Council had received £1.269million over the last three years, which had offset 40% of the reduction in Formula Grant. No additional income from the New Homes Bonus beyond 2013/14 had been allowed for. The Double Dip recession was putting pressure on the Council’s income streams, and these would need to be closely monitored throughout 2013/14. There were development opportunities available to the Council which could increase its income in the long-term, however given the lack of certainty at the current time, these had not been included in the budget for next year. There was the possibility of an organisational review in the next twelve months, following the appointment of a new Chief Executive, but nothing had been included in the budget for this at the current time.

The Cabinet Committee was reminded that the Medium Term Financial Strategy was based on a number of important assumptions, including the following:

·                     Future Government funding would reduce by 2% for 2015/16 and 2016/17.

·                     CSB growth had been restricted and the CSB target for 2013/14 of £14.91 million had been achieved. The known growth beyond 2014/15 had been included but would be subject to a further review to help identify savings.

·                     All known DDF items were budgeted for, and because of the size of the Local Plan programme the closing balance at the end of 2016/17 was anticipated to reduce to  £1.63m.

·                     Maintaining revenue balances of at least 25% of NBR. The forecast indicated that the deficit budgets throughout the period would reduce the closing balances at the end of 2016/17 to £7.8m or 57% of NBR for 2016/17, although this could only be done with further savings in 2014/15 and subsequent years.

Due to further savings identified, the CSB total for 2013/14 was £538,000 lower than expected, and it was therefore proposed to reduce the CSB target to £14.37million. Although the DDF profile for 2013/14 was £303,000 higher than expected, it was still expected to have sufficient funds available through to the end of the MTFS. Members had indicated that the Council should benefit from the Council Tax freeze grant available for 2013/14. Therefore, the Council Tax would not be increased for 2013/14.

The Assistant Director reported that the balance on the Housing Revenue Account (HRA) at 31 March 2014 was expected to be £3.683m, after a deficit of £938,000 in 2012/13 and a surplus of £127,000 in 2013/14. The estimates for 2013/14 had been compiled on the new self-financing basis and so the negative subsidy payments had been replaced with borrowing costs. The process of Rent Restructuring to bring Council rents and Housing Association rents in convergence was continuing. The rent increase for 2013/14 was likely to see a narrowing of this gap with an average rent increase of 4.36% for Council dwellings. The HRA had had substantial balances for some time and this position was expected to continue under self-financing.  Both the Housing Repairs Fund and the Major Repairs Reserve were expected to maintain positive balances throughout the medium term.

Finally, the Assistant Director drew the Cabinet Committee’s attention to the  Council’s Capital Programme, where priority had been given to those schemes that would generate revenue in subsequent periods. The Programme currently indicated £83million of expenditure over the next five years with £7.8million of usable capital receipts available at the end of the period. The Council’s Treasury Management Strategy had also been amended to allow for the £185.456million borrowed to pay for the self-financing of the Housing Revenue Account.

The members present asked a number of questions, to which the Assistant Director gave the following answers:

·                     The Council did receive an allowance of £173,000 from the Government for collecting non-domestic rates, but the true cost of collection was much higher.

·                     An item had been included in the CSB to improve collection rates for non-domestic rates, but if these collection rates worsened then the other authorities would have to take their share of the decrease.

·                     The New Homes Bonus was originally top-sliced from the Council’s formula Grant, so the presumption was that if the New Homes Bonus was abolished then the Council would receive an increase in its Formula Grant.

·                     A substantial amount of the DDF increase for 2013/14 was actually carry forwards of agreed expenditure for 2012/13.

·                     A further return of £68,000 was expected from the administrators for Heritable Bank in respect of the Council’s investment in 2013/14.

·                     The current Medium Term Financial Strategy indicated that the Council would not breach either of its longer-term guidelines in the period to March 2017.

With currently more than 500 appeals lodged with the Valuation Office regarding properties in the District, if each one of these was successful then the Council would face a significant shortfall in its income. Based on previous experience, and following discussions with the Valuation Office, a prudent provision had been calculated and included in the budget for 2013/14. This appeared to be an area of concern for the Government but no regulations had yet been issued about how the Council could treat such refunds. It was suggested that the Council should lobby the Department of Communities & Local Government about the unfairness of the current non-domestic rates appeals system.

RECOMMENDED:

(1)        That, in respect of the Council’s General Fund Budgets for 2013/14, the following guidelines be adopted:

            (a)        the revised revenue estimates for 2012/13, and the anticipated        reduction in the General Fund balance of £29,000;

            (b)        a reduction in the target for the 2013/14 CSB budget from    £14.91million to £14.37million (including growth items);

(c)        an increase in the target for the 2013/14 DDF net spend from £560,000 to £863,000;

            (d)        no change in the District Council Tax for a Band ‘D’ property to retain         the charge at £148.77;

(e)        the estimated reduction in General Fund balances in 2013/14 of £44,000;

(f)         the four year capital programme 2013/14 – 16/17;

(g)        the Medium Term Financial Strategy 2012/13 – 16/17; and

(h)        the Council’s policy on General Fund Revenue Balances to remain that they be allowed to fall no lower than 25% of the Net Budget Requirement;

(2)        That, including the revised revenue estimates for 2012/13, the 2013/14 HRA budget be agreed;

(3)        That the application of the rent increases and decreases proposed for 2013/14, in accordance with the Government’s rent reforms and the Council’s approved rent strategy, by an average overall increase of 4.36% be noted; and

(4)                           That the Chief Financial Officer’s report to the Council on the robustness of the estimates for the purposes of the Council’s 2013/14 budgets and the adequacy of the reserves be noted.

Reasons for Decisions:

The decisions were necessary to assist the Cabinet in determining the budget that would be placed before the Council on 19 February 2013.

Other Options Considered and Rejected:

The Cabinet Committee could decide not to approve the recommended figures and instead specify which growth items they would like removed from the lists, or ask for further items to be added.