Agenda item

(Directorate of Finance & ICT) To consider the attached report (FPM-024-2013/14).

The Director of Finance and ICT presented a report detailing the proposed Council Budget for 2014/15, which would enable the Council’s policy on the level of reserves to be maintained throughout the period of the Medium Term Financial Strategy. The budget was based on the assumption that Council Tax would be frozen and that average Housing Revenue Account rents would increase by 4.91% in 2014/15.

The annual budget process commenced with the Financial Issues Paper (FIP) being presented to this Committee on 19 September 2013. The paper was prepared against the background of cuts in public expenditure, ongoing difficulties within the economy and highlighted the uncertainties associated with Central Government Funding, Business Rates Retention, Welfare Reform, New Homes Bonus, Development Opportunities, Reducing Income Streams, Waste and Leisure Contract Renewals and Organisational Review.

In setting the budget for the current year it had been anticipated using £44,000 from the general fund reserves. The limited use of reserves in 2013/14 was not significant as the MTFS at that time was predicting the use of just over £1.3 million 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 additional reductions in support grant and the potential top-slicing of New Homes Bonus. The projection showed a need to achieve net savings of £700,000 on the 2014/15 estimates, followed by £700,000 in 2015/16 and 2016/17 and £200,000 in 2017/18 to keep revenue balances above the target level at the end of 2017/18. The FIP established the following budget guidelines for 2014/15: the ceiling for CSB net expenditure be no more than £14.07million including net growth/savings; the ceiling for DDF net expenditure be no more than £0.142million; and the District Council Tax would be frozen.

The Director of Finance and ICT reported that the 2013/14 financial year had new locally retained business rates, vastly reduced Revenue Support Grant and Local Council Tax Support (LCTS). The Formula Grant had reduced by £2.66million or 31% over the last three years and from 2014/15 the Formula Grant had not been separately identified so a different comparison was needed. The draft figure for 2014/15 of £6.375million was slightly higher than the previous figure of £6.290million but the 2015/16 figure at £5.393million was slightly lower than the previous figure of £5.40million. The funding position in 2015/16 was £735,000 worse than had been anticipated in the February 2013 MTFS and this had been allowed for in the MTFS. Local Council Tax Support based on the draft settlement, was proposed to reduce the funding to parish councils by 12.5% for 2014/15 (£40,034) and 15.4% for 2015/16 (£43,156).

The predicted total amount of non-domestic rates for 2013/14 had been set as £31,888,336, from which the Council retained less than £3million, due to the tariffs imposed by Central Government. These tariff amounts within the system were now fixed for an extended period and the DCLG had stated that the system would not be re-set until 2020. Although the tariff payments would be increased annually by inflation, the Council had been given an indicative tariff figure for 2014/15 of £10.148 million. The unexpected changes to the system in the Autumn Statement included reducing the annual increase from the RPI value of 3.2% to 2%, providing a discount of £1,000 for some retail premises and extending the doubling of small business rate relief, which should be fully compensated.

The Director of Finance and ICT reminded the Cabinet Committee that the final LCTS scheme for 2013/14 aimed to reduce expenditure of £8.95 million to £7.68 million to provide a saving of 14%. The settlement figures for 2013/14 included sufficient grant to compensate authorities for the reduction in tax base and to cover both the loss to the local councils and the loss to this Council. The scheme had been carefully monitored through the year and the revised estimate for the year was £7.56million, a reduction of approximately £120,000 or 1.6%. Both the Benefits Cap and the Removal of Spare Room Subsidy had now been introduced and the full effects of these changes would not be evident for some time.

For the New Homes bonus, the Council was due to receive approximately £550,000; it was proposed to add this to CSB income. There were concerns in September with a DCLG consultation proposing to top slice £400million of funding from the NHB, for  the Local Growth Fund which would of been administered by Local Enterprise Partnerships (LEPs), but this would not now be happening and the MTFS was adjusted.

The re-development of the Winston Churchill in Debden would bring additional income from NHB and retain business rates and the long lease for the Sainsbury’s site at Torrington Drive, had meant it was possible to make adjustments to the capital and revenue budgets. There were several other schemes still in progress such as the possibility of a retail park in Loughton and a mixed use redevelopment of the St Johns area in Epping, but given the lack of certainty about which of the potential sites would progress, the MTFS and capital projections did not include either any capital financing requirement or any revenue projections.

The income position had improved in the subsequent four months with Development Control which had seen a potential shortfall of £40,000 turn into a potential surplus of £40,000. The combined potential shortfall was still significant at £85,000 but this was an improvement of £145,000 on the previous position. The CSB income from the North Weald Market would need to be reduced by £200,000. The pay and display charges in the Council’s off-street car parks had not been increased for five years and the study by Price Waterhouse Coopers in 2011/12 predicted that modest changes in the fee structure could boost income by more than £300,000. A charging structure which provided £150,000 of additional income had been requested by Cabinet.

The current waste contract expires in November 2014 and a procurement exercise was underway for the new contract. The leisure management contract had been extended for the three years, although the net expenditure of over £2million for leisure facilities was not sustainable in the long term given the Council’s financial position.

The organisational review would take effect from April 2014 and would be based on a four directorate structure which would provide a CSB saving of approximately £350,000, although in order to achieve this, a one-off cost of £370,000 had been incurred. Each Director would be reviewing their new directorate to identify both savings and areas in need of additional investment and some adjustments to resources may be necessary during 2014/15. The Chief Executive was still to set out in detail his plans for transformation and a budget of £150,000 had been included at this stage.

The Cabinet Committee was reminded that the MTFS was based on a number of important assumptions, including the following:

·         No council Tax increase for 2014/15 and 2015/16

·         Future Government funding will reduce by 3% for 2016/17 and 2017/18.

·         CSB growth has been restricted and the CSB target for 2014/15 of £14.07 million has been achieved. Known growth beyond 2014/15 has been included but will be subject to a further review to help identify savings.

·         All known DDF items are budgeted for, and because of the size of the Local Plan programme the closing balance at the end of 2017/18 is anticipated to reduce to   £0.48m.

·         Maintaining revenue balances of at least 25% of NBR. The forecast shows that the deficit budgets throughout the period will reduce the closing balances at the end of 2017/18 to £7.5m or 59% of NBR for 2017/18, although this can only be done with further savings in 2015/16 and subsequent years.

Members had indicated that the Council should benefit from the Council Tax freeze grant for 2014/15 and 2015/16.

The Director of Finance and ICT reported that the balance on the Housing Revenue Account (HRA) at 31 March 2015 was expected to be £3.084million, after a surplus of £210,000 in 2013/14 and a deficit of £0.5million in 2014/15. 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 rent increase was set with an average rent increase of 4.91% for Council dwellings.Both the Housing Repairs Fund and the Major Repairs Reserve were expected to have positive balances throughout the medium term.

Finally, the Director of Finance and ICT drew the Cabinet Committee’s attention to the Council’s Capital Programme, which currently indicated £91million of expenditure over the next five years with £3million of usable capital receipt balances at the end of the period. The £190million of debt for the HRA self-financing had meant that the Council was no longer debt free and the Prudential Indicators and Treasury Management Strategy had been amended.

Recommended:

(1)          That in respect of the Council’s General Fund Budgets for 2014/15, the following guidelines be adopted:

(2)          That, including the revised revenue estimates for 2013/14 be agreed, the 2014/15 HRA budget be agreed;

(a) That the application of the rent increases and decreases proposed for 2014/15, in accordance with the Government’s rent reforms and the Council’s approved rent strategy, by an average overall increase of 4.91% be noted;

(b) That vacant properties be rented out at the target rent from 5.04.14; and

(3)          That the Chief Financial Officer’s report to the Council on the robustness of the estimates for the purposes of the Council’s 2014/15 budgets and the adequacy of the reserves be noted.

Reasons for Decisions:

The decisions are necessary to assist Cabinet in determining the budget that will be placed before Council on 18 February 2014.

Other Options Considered and Rejected:

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