Contact your Parish Council
MAIDSTONE BOROUGH COUNCIL
RECORD OF RECOMMENDATION OF THE EXECUTIVE
Recommendation Made: Insert Date /
|
Medium Term Financial Strategy and Budget Proposals 2023/24
|
|||||||||||||||||||||||||||||||||
|
Issue for Decision
To consider the proposed budget for 2023/24. It brings together revenue and capital budget proposals for 2023/24, including a proposed level of Council Tax, requirement for 2023/24 so that a balanced budget may be approved.
The budget proposals are consistent with the Medium Term Financial Strategy approved by the Executive on 8th February 2023. The budget proposals have been considered by the Policy Advisory Committees and the Executive.
The budget includes proposed changes by the Executive for inclusion of an additional £400k increase in the budget envelope for pay that will be funded by unringfenced grant in 2023/24. The ongoing costs will increase the budget gap from 2024/25 onwards and new savings will need to be identified to balance the budget.
The report also seeks approval of the proposed : · Capital Programme 2023/24 to 2027/28 · Council’s level of earmarked reserves and general fund balances. · Treasury Management, Investment and Capital Strategies for 2022/23.
|
|||||||||||||||||||||||||||||||||
|
Recommendations Made
1. To agree the updated Strategic Revenue Projection set out in Appendix A; 2. To agree the proposed a £8.19 annual increase to £284.49 Band D Council Tax for 2023/24; 3. To agree the Revised Estimates for 2022/23 and the Budget Estimates for 2023/24 set out in Appendix A; 4. To agree the Statement of Earmarked Reserves and General Fund Balances as set in Appendix A; 5. To note the projected level of General Fund balances in Appendix A exceeds the agreed minimum level of £4 million; 6. To agree the Resources of Capital Programme set out at Appendix A; 7. To agree the Capital Programme set out at Appendix A; 8. To agree the Treasury Management Strategy, Investment Strategy and Capital Strategy set out in Appendix A; 9. To agree the updated Medium Term Financial Strategy set out in Appendix A; 10. To agree the appropriate matters for decision to set a balanced budget for 2023/24 and the necessary level of Council Tax in accordance with the Local Government Finance Act 1992 and the Localism Act 2011, including the decisions made above. 11. To note that the Council’s Council Tax base for the year 2023/24 has been calculated as 67,161.69 in accordance with Regulation 3 of the Local Authorities (Calculation of Council Tax Base) regulations 1992. 12. To note that in accordance with Government guidance the yield from business rates has been calculated as £60,758,711. 13. To note that the individual parish area tax bases set out in Appendix B are calculated in accordance with regulation 6 of the Regulations and are the amounts of the Council Tax Base for the year for dwellings in those parts of the Council’s area to which a special item relates. 14. To agree that the Council Tax requirement for the Council’s own purposes for 2023/24 (excluding Parish precepts) is £19,106,829. 15. To agree that the following amounts now be calculated by the Council for the year 2023/24 in accordance with Section 32-36 of the Local Government Finance Act 1992 as amended by the Localism Act 2011. a. £81,470,243 being the aggregate of the amounts which the Council estimates for the items set out in Section 32(2) of the Act taking into account all precepts issued to it by Parish Councils. b. £59,646,750 being the aggregate of the amounts which the Council estimates for the items set out in Section 32(3) of the Act. c. £21,823,493 being the amount by which the aggregate at 15(a) above exceeds the aggregate at 15(b) above, calculated by the Council in accordance with Section 32(4) of the Act as its Council Tax requirement for the year. (Item R in the formula in Section 32(4) of the Act). d. £324.94 being the amount at 15(c) above (Item R), all divided by the figure stated at 11 above (Item T in the formula in section 33(1) of the Act), calculated by the Council, in accordance with Section 33 of the Act, as the basic amount of its Council Tax for the year (including parish precepts). e. £2,716,664 being the aggregate amount of all special items (Parish precepts) referred to in Section 34(1) of the Act (as per the attached Appendix B). f. £284.49 being the amount at 15(d) above less the result given by dividing the amount at 15(e) above by the tax base given in 11 above, calculated by the Council, in accordance with Section 34(2) of the Act, as the basic amount of its Council Tax for the year for dwellings in those parts of its area to which no Parish precept relates. 16. To note that for the year 2023/24 Kent County Council, the Kent Police & Crime Commissioner and the Kent & Medway Fire & Rescue Authority have stated the following amounts in precepts issued to the Council, in accordance with Section 40 of the Local Government Finance Act 1992. 17. To agree that, having calculated the aggregate in each case of the amounts at 15 (d), and 16 above, the Council, in accordance with Section 30 (2) of the Local Government Finance Act 1992, hereby sets out in Appendix C, the amounts of Council Tax for the year 2023/24 for each of the categories of dwellings shown.
|
|||||||||||||||||||||||||||||||||
|
Reasons for Recommendation
2.1 This section sets out revenue and capital budget proposals for 2023/24 as follows:
- Background - Updates to budget proposals - Updates to Strategic Revenue Projection - Revenue Estimates - Capital Programme - Treasury Management Strategy - Balances / Earmarked Reserves
Background
2.2 The framework for the annual budget setting process is set out in the Medium Term Financial Strategy (MTFS). The MTFS 2023/24 – 2027/28 was considered by this Corporate Services Policy Advisory Committee on 6 January 2023 and subsequently approved by the Executive at its meeting on 8 January 2023. 2.3 The core MTFS scenario (Scenario 4) assumed that, even after increasing the Council Tax by the maximum possible within the referendum threshold, there would still be a budget gap of £2.5 million in 2023/24, mainly owing to the impact of inflation on the Council’s costs, with a steadily increasing budget gap in subsequent years. 2.4 This position has now improved, following the Chancellor’s Autumn Statement on 17 November 2022 and the Provisional Local Government Finance Settlement, announced on 19 December 2022. In addition, savings proposals totalling £1.1 million for 2023/24 have been developed. Whilst the longer term position remains challenging, these recent developments have had a positive impact, such that the Council can set a balanced budget for 2023/24, provided that the savings proposals are adopted and Council Tax is increased up to the referendum threshold. 2.5 Separately from ongoing income from Council Tax and Business Rates, the Local Government Finance Settlement confirmed the following unringfenced government grants:
The Funding Guarantee effectively substitutes for New Homes Bonus, which has reduced from £4.2 million in 2022/23 to £1.9 million in 2023/24. 2.6 The Council has had a longstanding policy of deploying New Homes Bonus to support the capital programme. This has helped the Council to implement an ambitious programme, including major new developments at Union Street and Brunswick Street, together with the acquisition of the Lockmeadow Leisure Complex and Maidstone House, whilst employing minimal external borrowing and containing pressure on the revenue budget. 2.7 In the Autumn of 2021, the Leader of the Council announced his ambition to for the council to build 1,000 affordable homes in the shortest period possible. This will require external borrowing on a scale not previously undertaken by the Council. In order to ensure the availability of funds for the first phase of this programme at a guaranteed cost, the Council has committed to forward borrowing of £80 million, to be drawn down between 2024 to 2026. Any such borrowing must meet the Prudential Code requirement to be sustainable and affordable. 2.8 The provision of affordable housing involves an inherent requirement for subsidy, as the level of borrowing required could not be sustained by affordable rents alone. It is anticipated that some of this subsidy will be met through external grant, but there will be a residual requirement for the Council to provide a subsidy, which has been estimated as £50,000 per unit. 2.9 Accordingly, in 2022/23 New Homes Bonus was set aside for a Housing Investment Fund, from which the subsidy element of each new unit of affordable housing will be funded as and when they are brought into use. It is envisaged that the residual amount of 2023/24 unringfenced government grants shown in paragraph 2.5 will likewise be transferred to the Housing Investment Fund. This is consistent with previous decisions of the Council and with the Medium Term Financial Strategy, which has been considered regularly by the Policy Advisory Committees and the Executive throughout the last 12 months. 2.10 In 2022/23 New Homes Bonus was also subject to a top slice of £1 million for strategic and spatial policy and plan making, in recognition of the requirement for a range of policies including a new Town Centre Strategy and the need to complete the review of the Local Plan including the Examination. It is estimated that ongoing Local Plan expenditure amounts to £500,000 per annum, of which £200,000 is already included in the base budget. It is therefore now proposed that £300,000 of unringfenced government grant for 2023/24 will be set aside for the unavoidable costs of spatial policy and plan making, with this sum being built into the revenue budget on an ongoing basis ie in subsequent years savings will be needed elsewhere in the council's budgets to make base budget provision for spatial planning/plan making. 2.11 A specific provision has also been built into the strategic revenue projections at the request of the Executive to increase the Pay Budget Envelope by £400k. This is in addition to the assumptions above. It is to be funded in 2023/24 from unringfenced government grant (Funding Guarantee). In years 2024/25 onwards these costs will increase the budget gap and will need to be funded by further savings.
2.12 This has the effect of reducing the amount available for the Affordable Housing programme by £400,000. The amount of subsidy per home has been estimated at £50,000, so to deliver the programme over a period of ten years, £5 million has to be set aside every year. It should be noted that the figure of £50,000 is an estimate, and could be significantly higher if less subsidy is received from external funders (eg Homes England) and/or construction costs escalate.
2.13 The balance of one-off funding will be set aside for the 1,000 Affordable Homes Programme. The proposals deplete the available resource for the 100 Affordable Homes Programme. Whilst the exact amount of subsidy required over the lifetime of the programme can not be calculated precisely at this stage, it would however be prudent to maximise the amount of transfer to the Housing Investment Fund, given the risks associated with delivering the capital programme at a time of high inflation and extreme pressure on resources in the construction sector.
2.14 A critical issue here is the date, currently projected to be 2027/28, on which the Council opens a Housing Revenue Account (HRA), which it is required to do if it provides 200 or more affordable homes. The transfer of housing into an HRA must be at a level which ensures it does not require further subsidy, so the Housing Investment Fund will need to provide the necessary subsidy for these homes – currently assumed to be £10 million (£50,000 x 200) - at the point of transfer.
Other updates to Strategic Revenue Projection
Council Tax
2.15 The Executive agreed at its meeting on 25 January 2023 that the Council Tax Base for 2023/24 would be 67,161.69. This is in line with the increase in the Council Tax Base assumed in the MTFS. The agreed Council Tax Base will yield total Council Tax income of £19,106,829 if Band D Council Tax is increased by 3% (£8.19).
2.16 Assuming the maximum potential increases in precepts from other organisations, the overall level of Band D Council Tax would be as follows:
2.17 The Council Tax base report to the Executive on 25 January 2023 projected a surplus of £616,000 as at 31 March 2023, which will be credited to the General Fund in 2023/24. This amount is after an adjustment to spread the abnormal deficit suffered in 2021/22 across three years, as prescribed by legislation. 2.18 Within the Council Tax base, allowance has been made for the Council Tax that may currently be collected on empty homes and second properties. However, the Regeneration and Levelling-Up Bill that is currently passing through Parliament will allow Councils to collect further Council Tax on such properties. 2.19 Currently, if a property has been unoccupied and unfurnished for 2 years but less than 5 years, then a 100% council tax premium can be applied to the property. The Bill is proposing to shorten that 2-year period to 1 year. This will encourage owners to bring properties back into use so they are not left empty for extended periods. 2.20 So far as second homes are concerned, it will become possible to charge a council tax premium on second homes. Second homes are already liable for Council Tax, but the Bill proposes that councils may apply a 100% council tax premium on second homes. This would mean an owner of a second home in the borough would pay double the normal council tax charge. 2.21 The earliest that both of these changes can come into effect is 1 April 2024. However, approval must be granted by the Council to implement the changes at least 12 months before then, so it is proposed to include a provision to do so in this year’s budget. Business Rates
2.22 The Business Rates income estimate for 2023/24 is based on the recently completed NNDR1 return that has to be provided to the Department for Levelling Up Housing and Communities each January.
2.23 The Business Rates baseline, ie the notional amount of business rates due to the Council, after payments to preceptors and the government’s tariff, excluding any growth, is £4.186 million, as set out in the Provisional Local Government Finance Settlement. As described above, the government has increased the Business Rates baseline by inflation even though business rate payers will not face an increase. This is worth an additional £592,000 compared with the amount anticipated in the MTFS.
2.24 The NNDR1 return indicates that, as in previous years, business rates will be higher than the baseline, owing to growth in excess of inflation over the years since the baseline was set in 2013/14.
2.25 Kent County Council and eight of the Kent districts continue to pool their business rates growth, which has the effect of reducing the levy on business rates growth that would otherwise be payable to central government. As previously agreed by Council, Maidstone’s 30% share of the saving on the levy is ringfenced for investment in the Council’s economic development strategy. A further 30% represents a Growth Fund, spent in consultation with Kent County Council. Neither of these amounts are reflected in the Strategic Revenue Projection, as they have been earmarked for specific purposes.
2.26 As with Council Tax income, an adjustment is made in respect of the deficit arising in 2022/23.
Unringfenced government grant
2.27 As announced in the Local Government Finance Settlement, unringfenced government grant will be received in 2023/24 comprising New Homes Bonus (£1.9 million), Services Grant (£132,000) and the Funding Guarantee Grant (£2.6 million). These are unringfenced revenue grants that may be deployed by the Council at its discretion, so for accounting purposes they are included within the Council’s revenue resources along with Council Tax and Business Rates.
2.28 The Council has previously ringfenced New Homes Bonus payments for capital expenditure. Similarly, in 2022/23, £3.2 million was transferred to a Housing Investment Fund, which will be used to subsidise the Council’s Affordable Housing programme. It is proposed that the residual amount of unringfenced government grants will be transferred to the Housing Investment Fund in 2023/24. As set out in paragraph 2.10 and 2.11 above, the proposed transfer of £3.961 million. Inflation
2.29 For the purpose of the draft Medium Term Financial Strategy presented to the Executive in November 2022, it was assumed that the cost services would increase by 5% for the rate of inflation was assumed. The detailed budget proposals in the SRP at Appendix A now include line-by-line estimates for individual categories of expenditure. In some cases the assumption is for a higher increase, eg where contract prices are linked to inflation indices.
2.30 The assumption in relation to pay costs in the Medium Term Financial Strategy was a 6% increase in the pay envelope, representing 5% for basic pay and 1% to allow for increments awarded as staff move up the spine points on their pay grade. The Executive has now recommended that the staff pay budget be increased by £400,000. Under the Constitution, responsibility for undertaking negotiations and consultation with staff through their trade unions on all matters relating to employment lies with the Chief Executive as the Head of Paid Service. These matters include the annual pay settlement, as the Council is not part of any national pay agreements. An increased budget envelope would give the Chief Executive greater flexibility in agreeing a pay settlement for 2023/24.
Revenue costs of capital programme
2.31 A review of the budget provision for the revenue costs of the capital programme, ie financing costs and Minimum Revenue Provision, in the light of the 5-year capital programme proposals, indicates that the budget does not need to be increased for 2023/24. It will increase in subsequent years in line with the expansion of the capital programme.
Summary
2.32 The updated Strategic Revenue Projections indicate that there will be a budget gap in 2024/25. The likely impact of a business rates reset and the implementation of fair funding means that a still larger deficit is projected in 2025/26, and this deficit will increase over the remaining term of the MTFS.
Revenue Estimates
2.33 Attached at Appendix A is a summary of the revenue budget for 2023/24, based on the assumptions above. The summary shows the Original Estimate 2022/23 as approved by Council in February 2022; the Revised Estimate 2022/23 calculated as part of the budget development work completed this year; and the Estimate for 2023/24 based upon the details set out in this report. The Estimate for 2023/24 is analysed between gross expenditure, income and net expenditure, so that Members may see clearly how income generated by the Council contributes towards expenditure budgets.
2.34 Appendix A presents the Committee with the budget structured in line with the relevant Policy Advisory Committees and separately structured in line with the strategic priorities set out in the Strategic Plan.
2.35 The Revised Estimate 2022/23 shown in Appendix A totals £23.232 million. This figure is net of all income with the exception of the use of balances and the council tax requirement.
2.36 The Estimate for 2023/24 shown in Appendix A totals £25.777 million. This incorporates all the items discussed above. The figure is net of all income with the exception of Council Tax and Business Rates income. It excludes precepts.
Capital Programme
2.37 A draft Capital Programme was reported to the Executive at its meeting on 25 January 2023. The Capital Programme totals £202 million over five years. Details are set out Appendix A. Treasury Management Strategy
2.38 The framework for funding the capital programme and the Council’s activities generally is set out in the Treasury Management Strategy. The Council has adopted CIPFA’s Code of Practice for Treasury Management in Public Services, which requires the Council to produce three linked strategy documents: a Treasury Management Strategy, an Investment Strategy and a Capital Strategy. These are included as Appendix E and have already been considered by the Audit, Governance and Standards Committee at its meeting on 16th January 2023.
2.39 In summary, the Treasury Management Strategy envisages that the capital programme will be funded by borrowing, as permitted subject to the guidance set out in the Prudential Code. In 2012 the Council approved in principle the use of prudential borrowing. The proposals set out in this report indicate a need for up to £194 million of prudential borrowing over the lifetime of the capital programme. The revenue costs of this borrowing are reflected in the Strategic Revenue Projections.
Balances / Earmarked Reserves
2.40 Attached at Appendix A is a statement of general fund balances and details of earmarked reserves. The earmarked reserves incorporate a capital reserve that includes all of the retained New Homes Bonus and other revenue support to the capital programme available from previous years.
2.41 Unallocated General fund balances are estimated to be £11.362 million by 31 March 2024. In considering the level of reserves that should be maintained the Committee should consider the minimum below which the Committee cannot approve the use of balances without agreement by the Council. It was agreed by Council at its meeting on 24 February 2021 that the minimum level of balances be increased to £4 million and no change is proposed to this amount.
2.42 It can be seen that the level of reserves is in excess of the minimum level of £4 million. The level will need to be reviewed as part of the regular MTFS review in 2024/25 as the ongoing financial uncertainty in the UK economy may require a revision to this policy.
Medium Term Financial Strategy
2.43 Attached as Appendix A is the Medium Term Financial Strategy, updated to reflect the latest position as described in this report.
2.44 The financial projection that complements the Medium Term Financial Strategy is the Strategic Revenue Projection given at Appendix A. The financial projection considers the need for growth and savings over the period of the Medium Term Financial Strategy and incorporates assumptions about inflation and changes in local and national pressures.
2.45 The financial projection that complements the Capital Medium Term Financial Strategy Statement is the capital programme given at Appendix A.
Guidance from the Monitoring Officer
2.46 The Local Government Act 2003 (as amended) requires Council to adopt the annual budget which is recommended by the Policy and Resources Committee. The Council has a statutory obligation to set a balanced budget differentiated by services, which is sufficient to meet estimated revenue expenditure, levies, contingencies, any deficits estimated to be brought forward from previous years, and any amounts required to be transferred between funds required under the Local Government Finance Act 1992 and related legislation. In compliance with the principles of administrative law, members are required to take into account relevant considerations and disregard irrelevant ones. Any decision made must be one that only a reasonable authority, properly directing itself could have reached.
2.47 Members must act prudently taking into account the professional advice of officers, in particular the statutory obligations placed upon the Director of Finance and Business Improvement, the S151 officer. Members can make alternative proposals in achieving a balanced budget but are exposed to a personal risk if they disregard clearly expressed professional advice. Members are required to have regard to the guidance of the S151 officer on the budget estimates and adequacy of reserves. The wider duties placed on the Council relating to its financial affairs must be taken into account. This includes the distinction between revenue and capital expenditure specified within the Local Government and Housing Act 1989.
2.48 Prudential borrowing limits must be set by the Council having regard to the Chartered Institute of Public Finance and Accountancy (CIPFA) Prudential Code. The Code sets a framework for self-regulation of capital spending, enabling Councils to invest in capital projects without any limit, so long as they are affordable, prudent and sustainable taking into account prudential indicators which must be monitored. It is a criminal offence for a member with arrears of Council Tax which have been outstanding for two months or more to attend any meeting of the Council or one of its committees at which a decision affecting the budget is to be made – the Local Government Finance Act 1992, section 106. To avoid criminal liability, relevant members must make a declaration at the outset of the meeting that he or she is in arrears and will not be voting on the decision for that reason. The member concerned must then abstain from voting.
2.49 The Local Government Finance Act 1988, Section 114 (3) provides that the chief finance officer of a Council (the S151 Officer) shall make a report to Council under this section if it appears to him that the expenditure of the authority incurred (including expenditure it proposes to incur) in a financial year is likely to exceed the resources (including sums borrowed) available to it to meet that expenditure. It means that no new expenditure is permitted, with the exception of that funding statutory services. Existing commitments and contracts will continue to be honoured. Full Council must consider the implications within a period of 21 days from the issue of a Section 114 notice.
2.50 Having set a budget for the new municipal year, the Council is under a duty to monitor that budget during the year and to take remedial action if at any time it appears likely that expenditure will exceed available resources.
3 CONSULTATION RESULTS AND PREVIOUS COMMITTEE FEEDBACK
3.1 The Executive received an initial report on the MTFS at its meeting on 20 July 2022 and has subsequently received further reports on the development of the budget for 2023/24.
3.2 A Residents’ Survey was carried out in Autumn 2022 to obtain their views on the issues to be considered when setting a budget. The findings were reported to Policy Advisory Committees and the Executive in January 2023.
3.3 Detailed budget proposals were considered by the Policy Advisory Committees and the Executive during January.
3.4 [insert para re the Executive considering the report on 8 Feb]
|
|||||||||||||||||||||||||||||||||
|
Alternatives considered and why rejected
2.1 Option 1: To recommend a budget as set out in this report, including the proposed increase in Council Tax.
The Council is statutorily required to set a balanced budget in time for the new financial year and in time for council tax billing to be achieved. This option allows this requirement to be met.
2.2 Option 2: To recommend a revised balanced budget. Any changes must remain cost neutral by replacing growth with a saving or by reallocating resources.
2.3 The preferred option is Option 1. This ensures a balanced budget, avoids the need to make further savings above and beyond those already considered by the Executive and Policy Advisory Committees and maximises the resources available for the 1,000 Affordable Homes programme.
|
|||||||||||||||||||||||||||||||||
|
Background Papers
|
|
I have read and approved the above decision for the reasons (including possible alternative options rejected) as set out above.
Signed:_________________________________________________ FIELD_MEMBER_TITLE
|
|
Full details of both the report for the decision taken above and any consideration by the relevant Policy Advisory Committee can be found at the following area of the website
Call-In: Should you be concerned about this decision and wish to call it in, please submit a call-in form signed by any three Members to the Proper Officer by: 5pm Insert Call in Expiry date |