Agenda item

(Director of Resources) To consider the attached report (FPM-024-2014/15).

The Director of Resources presented a report detailing the proposed Council Budget for 2015/16, which would add £30,000 to the reserves and 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 2.2% in 2015/16.

 

The annual budget process commenced with the Financial Issues Paper (FIP) being presented to this Committee on 28 July 2014. The paper was prepared two months earlier than usual because of the concern over cumulative effect of reductions in public expenditure and highlighted uncertainties associated with Central government Funding, Business rates Retention, Welfare Reform, New Homes Bonus, Development Opportunities, income Streams, Waste and Leisure Contract renewals and Organisational Review. 

 

In setting the budget for the current year Members had anticipated using £243,000 from the General Fund reserves, which was possible as the MTFS approved in February 2014 showed a combination of net savings targets and limited use of reserves that still adhered to the policy on reserves over the medium term. The limited use of reserves in 2014/15 was not significant as the MTFS at that time was predicting the use of just over £1.7 million of reserves to support spending in the following three years.

 

The revised MTFS presented with the FIP took into account all the changes known at that point and highlighted the additional reductions in support grant. This projection showed a need to achieve net savings of £500,000 on both the 2015/16 and 2016/17 estimates, followed by £300,000 in 2017/18 and £200,000 in 2018/19 to keep revenue balances comfortably above the target level at the end of 2018/19. The FIP established the following budget guidelines for 2015/16: The ceiling for CSB net expenditure be no more than £13.15m including net growth/savings; the ceiling for DDF net expenditure be no more than £0.204m; and the District Council Tax to be frozen.

 

The Director of Resources reported that the 2013/14 financial year had seen new locally retained business rates, vastly reduced Revenue Support Grant and Local Council Tax Support (LCTS).

 

The annual reductions began in 2011/12 reducing by £2.66 million or 31% over three years and from 2014/15 Formula Grant had not been separately identified so a different comparison was needed. The draft figure for 2015/16 of £5.467 million was slightly higher than the figure of £5.393 million provided this time last year. Therefore three years under this new system, funding reduced by £1.815 million or by 24.9% and that over 5 years, funding had fallen by nearly 60%. The funding position in 2015/16 was £74,000 better than had been anticipated in the February 2014 MTFS. In updating the MTFS the changes had been allowed for but the lack of figures beyond 2015/16 required a larger element of educated guesswork than usual.

 

The reduction in Local Council Tax Support had been based on the overall reductions of 12.5% and 14.2% which were common to each element of the Funding Assessment. Funding to parish councils was therefore reduced on that basis in 2014/15 and a consistent approach was proposed to reduce this by 14.2% for 2015/16 (£39,793). These amounts need to be seen in the light of the total parish precepts for 2014/15 being over £3 million.

 

The 2013/14 figures for the total amount of non-domestic rate income fell approximately £1 million short of the £31.9 million target, translating  into a shortfall of just under £400,000 in the Council’s funding. However, part of the reason for the overall shortfall was the late changes made to the system to extend small business rate relief, cap increases in bills and introduce retail rate relief. These changes were not part of the original system design and as they were reducing business rate income for local authorities a compensation system of grants was constructed. The DCLG were very late confirming the amounts and dates of payments for the compensatory grants and this complicated the budgeting process. Ultimately though the compensatory grants meant the combined income from the various sources under business rates retention for 2013/14 was £56,852 higher than the baseline funding level and this meant in addition to the £9.85 million of tariff already paid, a levy of £28,426 also had to be paid on this excess income.

 

The other aspect of the system to reflect on was cash collection, which was important as the Council was required to make payments to the Government and other authorities based on their share of the rating list. These payments were fixed and had to be made even if no money was collected. Members recognised the increasing importance of cash collection in the new system and increased the CSB budget by £25,000 to fund legal action in difficult, high value cases, which provided a collection rate of 98.09%.

 

The LCTS continues largely unchanged into 2015/16 and both the Benefits Cap and the Spare Room Subsidy had now been in place a little while not causing major problems for many residents. There had been some demand amongst those deemed to be under-occupying to downsize but many have decided to stay where they were and pay a higher proportion of their rent themselves. A change that was currently being implemented was the Single Fraud Investigation Service (SFIS), this requires staff who investigate housing benefit fraud to transfer to the DWP. To prepare for this transfer in 2015/16 both the Internal Audit and Housing Benefit functions had restructures approved by Cabinet on 1 December 2014. There was no further update on the Universal Credit Scheme.

 

The New Homes Bonus (NHB) had seen the Council receive nearly £2.1 million for the first 5 years of NHB in 2015/16, although the future shape and possibly existence of NHB may depend on who wins the general election. If the scheme was entirely scrapped an alternative allocation system may not be as generous to this Council but the funding would not be completely lost as any new allocation system normally had floors and ceilings to prevent large fluctuations in funding in any one year. NHB for future years was not anticipated in the MTFS and given the uncertainty beyond the general election this was still a prudent assumption. The inclusion of the additional £252,000 in 2015/16 takes the NHB income in the CSB to just over £2m.

 

With regards to development opportunities the Heads of Terms for the re-development of the Winston Churchill public house site had been re-negotiated for ongoing revenue. An agreement had been reached to buy Essex County Council’s land in the St Johns area of Epping, making it easier to take forward the mixed use re-development of that area. The largest single scheme was the Langston Road shopping park development and on 16 December 2014 the Cabinet agreed an appropriate legal structure and associated documents to progress the scheme. Other possibilities for Waltham Abbey and North Weald were further off but should not be forgotten. The revenue benefits of the schemes had not been anticipated in the MTFS but some development budgets had been approved by Members and these were included in the capital and DDF programmes as appropriate.

 

The income position had improved further on the combined potential surplus of £60,000 reported in the FIP. In particularly for Development Control which was likely to see £80,000 of CSB growth and an additional £40,000 coming from pre-application charges. Last year saw the first change to parking fees for many years and a detailed study was underway to consider how the charging scheme might be amended in future to ensure short term spaces were available for shoppers. As part of the consideration of various business cases earlier in the budget cycle, Members agreed that a modest increase in income of £100,000 should be targeted for this area for 2015/16. The other key income stream worth commenting on was the market at North Weald. As the operator was experiencing financial difficulties the Council agreed to move away from a fixed rent to an income share, which should place the market on a more sustainable basis going forward but had meant that the estimate for CSB income from the market had been reduced by £310,000.

 

Two of the Council’s high profile and high cost services are provided by external contractors, Biffa for waste and SLM for leisure. The new waste contract commenced in November 2014 following a competitive dialogue procedure to achieve innovation and efficiency in the provision of this service. It was possible to procure the service at a lower cost than the previous contract and Biffa have made an encouraging start. Effective monitoring of the contract will be necessary to ensure it delivers the service improvements and cost savings that were included in the winning tender.

The leisure management contract was due to expire in January 2013 but an option was exercised that extended the contract for three years. A Leisure Strategy was approved by Cabinet in December 2014 to provide a vision for a new contract and achieve significant efficiencies and CSB reductions of £250,000, which had been included in the later years of the MTFS.

The Organisational Review was in phase two of the restructure and each directorate had now evaluated both opportunities to improve efficiency and areas that had been historically under resourced. This process has yielded some savings but also highlighted some additional funding requirements, such as economic development. The MTFS has been adjusted for the changes to the organisation from this second phase. Although it is likely that the further amendments will continue during 2015/16.

 

A budget of £150,000 was included in the DDF for 2014/15 to allow the Chief Executive to take forward Transformational Projects although none of this money had been spent to date. The Chief Executive was taking forward a flexible working and accommodation review. Early in the budget cycle he presented a business case and the projected saving of £100,000 had been included in the MTFS in 2016/17.

 

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

 

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

 

·           Future Government funding would reduce by 10% for both 2016/17 and 2017/18, with a smaller reduction of 5% for 2018/19;

·           CSB growth had been restricted and the adjusted CSB target for 2015/16 of £13.33m had been achieved. Known changes beyond 2015/16 had been included but if the new leisure contract and the accommodation review did not yield the predicted savings other efficiencies would be necessary;

·           All known DDF items were budgeted for, and because of the size of the Local Plan programme the closing balance at the end of 2018/19 was anticipated to reduce to £1.5 million; and

·           Maintaining revenue balances of at least 25% of NBR. The forecast shows that the deficit budgets during the period would reduce the closing balances at the end of 2018/19 to £9.3m or 74% of NBR for 2018/19, although this could only be done with further savings in 2016/17 and subsequent years.

 

The Director of Resources reported that the balance on the HRA at 31 March 2016 was expected to be £2.01 million, after a deficit of £1.01 million in 2014/15 and a surplus of £0.05 million in 2015/16. The estimates for 2015/16 had been compiled on the 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 2.2% 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 Resources drew the Cabinet Committee’s attention to the Council’s Capital Programme which currently indicated £113 million of expenditure over the next five years with nearly £2 million of usable capital receipt balance at the end of the period. The £190 million 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.

 

Councillor Knapman commented on the amount of reserves and that perhaps the Cabinet Committee should consider reducing that figure. The Cabinet Committee commented that where savings could be achieved it was better to do this than use up reserves.

 

Recommended:

 

(1)        That in respect of the Council’s General Fund Budgets for 2015/16, the following guidelines be adopted:

 

(a)          the revised revenue estimates for 2014/15, and the anticipated increase in the General Fund balance by £112,000;

 

(b)          an increase in the target for the 2014/15 CSB budget from £13.15 million to £13.29 million (including growth items);

 

(c)          an increase in the target for the 2015/16 DDF net spend from £0.204 million to £0.976 million;

 

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

 

(e)          the estimated increase in General Fund balances in 2015/16 of £30,000;

 

(f)           the four year capital programme 2015/16 -18/19;

 

(g)          the Medium Term Financial Strategy 2014/15 – 18/19;

 

(h)          the Council’s policy on General Fund Revenue Balance to remain that they are allowed to fall no lower that 25% of the Net Budget Requirement.

 

(2)        That, including the revised revenue estimates for 2014/15, the 2015/16 HRA          budget be recommended for approval;

 

(3)        That the application of the rent increases for 2015/16, by an average overall increase of 2.2% 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 2015/16 budgets and the adequacy of the reserves be noted.

 

Reasons for Decisions:

 

The decisions were necessary to assist Cabinet in determining the budget that would be placed before Council on 17 February 2015.

 

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.