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MAIDSTONE BOROUGH COUNCIL
RECORD OF DECISION OF THE Cabinet
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Decision Made: |
08 July 2009 |
BUDGET STRATEGY 2010/11 ONWARDS
Issue for Decision
To consider the strategic budget issues for 2010/11 onwards including the revenue and capital spending programme and to give any early view on the level of Council Tax increase.
Decision Made
1. That the current Medium Term Financial strategy as set out in Appendix B of the report of Management Team be noted and that it be updated in line with best practice to integrate service and financial planning for the next 3 year planning period.
2. That the levels of council tax set out in Appendix F of the report of Management Team be used for budget planning purposes but the final council tax level will be set as low as possible.
3. That the “Most Likely” scenario set out in Appendix F of the report of Management Team forms the basis of the need to identify savings of £1.4 million in 2010/11 and that officers work with Cabinet Members to present proposals for savings at the December Cabinet meeting.
4. That the current Capital Programme be noted.
5.
That
the use of public consultation to inform the budget strategy be supported and
that officers bring a report setting out the most effective consultation
methods to the next Cabinet meeting.
6. That the timetable for the 2010/11 Budget Strategy, as set out below, be approved.
Reasons for Decision
Background
This Authority has, for many years, adopted best practice
and has considered strategic budget issues at this stage in the municipal
year. This allows for the early consideration of key issues, with a view to
setting a balanced budget for the following financial year at the Council
meeting in February 2010.
The budget strategy needs to be considered
in the context of the strategic plan and the resources necessary to
deliver the key priorities identified therein. Although
the correct context
is with the strategic
plan for 2010 - 2013, this will not be considered
by Cabinet until later
in the year, at which time this budget strategy will be aligned with the priorities it will contain. The strategic plan 2009 - 2013 contains five priority themes for which major elements of this budget strategy provide
support and any necessary growth. The five priority
themes are:
● A place to achieve, prosper and thrive
● A place that is clean and green
● A place that has strong, healthy and safe communities
● A place to live and enjoy
● A place with efficient and effective public services
Appendix A of the report of Management Team is the budget
summary for 2009/10 which was agreed by Council in February in 2009. This was
developed in the context of the Strategic Plan 2009-2012.
The outturn position for 2008/09 was reported to the Cabinet
meetings in May and June 2009. Those reports identified a global issue in
relation to income generation due to the economic climate for 2008/09. The
2009/10 budget strategy process identified resources to support income
generation during 2009/10 which will naturally carry forward into the 2010/11
base position. Income generation remains a key issue for monitoring during
2009/10 and any significant consequences will be included in quarterly budget
monitoring reports to Cabinet during the year.
For further background information, the following is also attached to the report of Management Team.
a) The currently agreed Medium Term Financial Strategy is set out at Appendix B;
b) The current statement of balances projected to 2010 is detailed in Appendix C, this takes into account the final outturn position for 2008/09 as previously reported;
c) The current capital programme is set out at Appendix D as amended to reflect Cabinet’s decision on Growth Point funding in May 2009;
d) The
current projection for the use of Capital Receipts is set out in Appendix E;
Strategic Projections
The strategic projection is a financial model used
annually by Cabinet
to concisely project
the effect of major local and national priorities on
the future financial
circumstances of the
Council. In the past Cabinet has used a document that models
the most likely outcome,
amending and updating
the document as knowledge
of the internal and external environment
changes. Current
best practice suggests
that the strategic projection should be a scenario planning tool and
that a number of models ranging from a best-case, to a worse case should be developed and used.
Officers developed
three alternative models best, worst,
and most likely
cases, for Cabinet to
consider. All three alternatives include a number of assumed factors such
as inflation rates, capital expenditure levels and resources available
to finance that expenditure, government
actions in relation
to general grant
levels and the council tax increase
for each year. The models will be maintained and amended as more accurate information becomes
available during the
year. Cabinet
decided the factors that
form the scenario
that they wish to
adopt. Future reports will now focus on the chosen
scenario, providing details of the others as background information.
The models are attached as Appendix F of the report of Management Team and are based on a series of financial assumptions. As the assumptions have been compiled separately for each of the three scenarios the most appropriate way to display the necessary information is in a matrix which is given in Appendix G of the report of Management Team. In addition, the following general assumptions have been made:
a) With regard to the medium term, no assessment has been included in any scenario for the potential impact of government changes to local government finance following the Lyons review;
b)
It is assumed that members will continue with the previous policy on balances i.e. to maintain
levels of uncommitted
balances of at least 10% of net revenue spend. As a result of the current level of balances as set out in Appendix C it is assumed that no contribution to balances for
2010/11 onwards will be required;
Appendix F of the report of Management Team shows that, based upon the assumptions
detailed, a significant level of saving will be required to insure the provision of a balanced budget
without the threat
of council tax capping. The level of saving for each year, and for each of the three scenarios,
is shown in the table below.
|
Year |
Best Case Scenario |
Most Likely Scenario |
Worst Case Scenario |
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2010/11 |
1,366 |
1,921 |
2,853 |
|
2011/12 |
422 |
864 |
1,489 |
|
2012/13 |
116 |
509 |
1,035 |
|
2013/14 |
10 |
379 |
509 |
|
2014/15 |
142 |
268 |
670 |
The annual savings figure is based on the assumption that
savings required for each of the previous years have been achieved in the base
budget and not from use of balances.
At this early stage in the budget cycle the strategic projection, and
therefore the level
of savings required,
will inevitably move
according to changing
requirements in council
priorities, external factors and the progressive
development of more
accurate information with
regard to the above assumptions.
It was noted that the strategic projection
is intended to include the necessary
resources to fulfil all
developing partnerships and strategies. Any necessary changes
to the strategic
projection will be
reflected in future
budgets strategy reports.
Key Risks
In developing the budget strategy
over the following
months a number of key
risks must be addressed. These risks are identified
in the strategic
projections but constitute key risks for the council financial stability and are significant enough to be brought to the Cabinets
attention individually.
The national concessionary fares scheme
has badly affected
this Authority.
From April 2011 the
Government may transfer
the service to the county council and officers believe
there is a high risk of significant cost increases
in the final year along with potential transfer costs in
2011/12. The council has been notified of a potential claim for adjudication
by one of the major bus operators in the Maidstone area. Were this adjudication
claim to be successful, at a level similar to the claim affecting
East Kent during
2008/09, the cost to the Council could be £0.4 million. The opinion of the Council's consultant
is that there is currently opportunity
to partially mitigate this
risk through negotiation
with the bus operator.
The capital programme, as agreed at Cabinet in May 2009, is funded in its entirety from capital grants, revenue funding and capital receipts
in 2010/11. As previously reported to
Cabinet, over the
forthcoming three financial
years, assumed capital
receipts and grants
in excess of £7 million are included
in the financial
projections. There
remains a significant
risk, in the current economic climate,
that these capital
receipts will not
be delivered in
the short term
and the council
may need to borrow to finance
its capital programme
and insure the
achievement of its
strategic objectives.
The Homes and Communities Agency (HCA) has indicated in
discussions with officers that the resources that have been utilised for grant
aid since the Governments recent actions to reinvigorate the housing market are
depleting. This means that a future shortage of resource is looming. Although
the Council has been very successful at levering additional resources from the
HCA in 2008/09 and 2009/10 it is probable that the future shortage of resources
will have a significant effect on the Council’s programme of support for RSL’s.
For the last four years the Council has received Strategic
Housing grant aid from the Government. This has been utilised, through
programmes such as the rent deposit scheme, to support persons who would
otherwise become homeless. The Department for Communities and Local Government
has suggested that this grant may be terminated in the near future and Cabinet
may wish to consider the benefit of maintaining the scheme against the risk of
additional costs of housing homeless families.
Throughout 2008/09 Cabinet received quarterly budget monitoring reports which identified a significant
shortfall in income
generated throughout the Council's services. Cabinet, and service management, took action to contain the effect of this shortfall which was £1.5
million in the full year. A significant risk was
identified in the
2009/10 budget strategy process
relating to the continuance of this income shortfall into the
current financial year and to mitigate this Cabinet included £0.5 million in budget strategy
growth to contain
that possibility in
the current financial
year. The
first Budget Monitoring Report for 2009/10 will be completed in time
for the August
Cabinet and current
indications suggest that there continues
to be a significant level of
shortfall in income
generation in many services that have
incurred shortfalls in 2008/09 such as development control, commercial rents
and park and ride. A number of the actions taken to control
this in both 2008/09 and 2009/10 have yet to be seen to take full effect and an analysis will be contained in
the quarterly report to the next Cabinet. The strategic projection for
the previous budget cycle included an assumption that
£0.2m would be
necessary in 2010/11 and at present it is proposed to maintain this level
of additional provision.
Current economic conditions suggest continued problems although the future predictions are less reserved than they have been, suggesting stability or slight improvement.
a) From March 2009 through to the current monthly figures, RPI has seen a year on year decrease; current figures for May 2009 are -1.1%. CPI inflation is 2.2% and the current prediction is for inflation to remain stable or slightly increase.
b) Interest rates are likely to increase slightly throughout the year, from a current average of around 1.5%. This will not be as critical to the Council’s financial position as the maturity of its longer term high rate investments and the reduction in balances available for investment.
c) If, as
predicted, economic growth shows an increase over the current year, there will
be an increasing benefit to income generating services. At this point in the
budget strategy process it would be prudent to maintain the current provisions
against income shortfall.
Key Opportunities
a) In 2009/10 the budget strategy provided for a 2.5% increase in inflation. The agreed pay rise for the current year was 1% which means a balance exists within the 2009/10 budget and therefore in the balance brought forward into the current strategic projections. This figure approximates to £0.24m and can be utilised to directly reduce the level of saving required in 2010/11
b)
The Chief Executive’s review
of structure,
completed between February 2009
and May 2009, occurred
in two stages. The second stage created a saving of £0.1m. This saving has been utilised
in 2009/10 to cover the cost of
the restructure but will be available from 2010/11 to directly reduce the level
of saving required.
c)
Previous years strategic projections have included an assumption of
achieving £0.4m in efficiency savings. This year it is proposed to set this
target more generally, requiring feedback from budget managers to identify
efficiency first. However in previous years zero inflation on non-contractual
items has formed part of the efficiency saving. This would generate
approximately £0.1m that would directly reduce the level of saving required.
d) Appendix
C of the report of Management Team details the projected level of balances
which, at £3.1m at the beginning of 2010/11, is above the minimum level of
working balances agreed by Cabinet. This level is 10% of net revenue
expenditure and would be £2.3m for 2010/11. This resource could be utilised to
cover the cost of short term growth items such as concessionary fares if the
transfer to the County Council occurs as expected. Alternatively it could
remain in balances until performance against income targets for 2009/10 can be
better assessed.
Capital Programme
At the May 2009 meeting Cabinet agreed proposals for the use
of growth point funding. The report and decision included other revisions to
the Capital Programme to match Cabinets key priorities. The programme agreed
at that meeting is set out in Appendix D of the report of Management Team.
This programme currently offers the best options for achieving Cabinet’s key
priorities, given current information relating to resources available to fund
the programme.
The Cabinet decision in May 2009 incorporated consideration
of the utilisations of capital receipts. The detail of this is set out in
Appendix E of the report of Management Team. The programme is reliant upon the
future sale of surplus assets and the receipt of grant and external funding in
excess of £7m.
The approved capital programme given in Appendix D of the
report of Management Team assumes a need to borrow in 2011/12 to complete the
programme. In order to facilitate this possibility the prudential indicators
that form part of the current treasury management strategy included potential
to borrow up to £4m. The strategic projections at Appendix F of the report of
Management Team consider differing levels of use with the most likely scenario
incorporating borrowing of £2m in 2009/10.
These issues will be carefully monitored throughout 2009/10
and developments will be reported to Cabinet as part of the quarterly budget
monitoring reports.
Consultation
Previous Cabinets have felt it best practice to consult the
public on budget options during the autumn period. This has taken a variety of
forms over previous years. Budget Consultation is an essential element of the
overall Corporate Governance arrangements of the Council and is also an
important element in the External Auditors assessment of the Authority’s Use of
Resources arrangements.
In recent years the methods used for consultation have
included focus groups for stakeholders including businesses, staff and young
people, road shows and Borough Update surveys with incentives. Budget
consultation occurring through the website is achieved through a budget
simulator. This allows the public to identify preferences for service savings
and service development with the objective of setting a Council Tax increase
that they consider satisfactory. In previous years the results of the
simulator have closely matched the priorities of the Council and the results of
other consultations. This fact and the fact that over 700 responses have been
received suggest that this consultation has been successful. The results of
the exercise are reported to Cabinet and in the past have validated decisions
taken as part of the budget strategy process.
The various consultation exercises have been combined with a
general information programme to help the public understand the cost of Borough
Council’s services.
In view of the increased importance of LAA2, and the LSP, it
will also be appropriate for the Cabinet to consider a consultation exercise
with the Authority’s partners and to seek those partners to consult the Council
in their budget proposals.
Previous experience of consultation has demonstrated that
early identification of the focus of the consultation and advance preparation
produce a more effective result. Cabinet will need to consider, at this stage,
the focus of the Consultation which could follow previous years and cover a
broad range of services at a high level in order to match results to Council
priorities. Alternatively Cabinet may wish to focus on an issue or range of
services, for example discretionary spend areas identified by successive
Cabinets through the service priority matrix. Cabinet agreed that officers
should bring a report to the next Cabinet meeting outlining the consultation
options.
Time Table
Cabinet considered the timetable for their consideration of
the Budget Strategy. The updated timetable given below has enabled previous
Cabinets to achieve full consideration of all issues in a timely manner.
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Action |
Date |
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Initial consideration by cabinet, including reference to Corporate Services Overview and Scrutiny Committee |
8th July 2009 |
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Consideration by Corporate Services Overview and Scrutiny Committee |
4th August 2009 |
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Detailed Consideration by Cabinet Members of budgets, savings options, service enhancements and fees and charges |
September to October 2009 |
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Public Consultation |
September to November 2009 |
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Cabinet review of budget strategy including reference to Corporate Service Overview and Scrutiny Committee. Data updated by previous activity and external factors |
9th December 2009 |
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Consideration by Corporate Services Overview and Scrutiny Committee |
12th January 2010 |
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Reference back to Cabinet from Corporate Services Overview and Scrutiny Committee |
13th January 2010 |
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Approval by Cabinet Members |
January to February 2010 |
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Approval by Cabinet and reference to Council |
10th February 2010 |
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Approval by Council and setting of Council Tax |
3rd March 2010 |
Conclusions
This first budget strategy report for 2010/11 onwards commences
from a strong base of a balanced budget for 2009/10. In addition regular
monitoring throughout 2008/09 has provided information about key risks to the
budget. These key risks have been identified, along with known opportunities,
and form part of the strategic projection.
The strategic projection has been presented as three
models. The most likely case model contains the current assessment of internal
and external financial factors by officers. It should be noted that the
scenarios offer a varied level of Council Tax increases set at levels that
avoid the threat of council tax capping and that the scenarios could change
over the course of the year.
In view of the detailed analysis of the risks it is prudent
at this stage to identify savings of approximately £1.9m. This can be offset
by the available opportunities identified. This would require setting a target
for savings, including the efficiency target, of £1.4m.
The capital programme has been recently reviewed and the current format was approved by Cabinet in May 2009. At this stage the most appropriate action is continued monitoring in relation to slippage in the scheme and its funding.
Alternatives considered and why rejected
An alternative course of action would be for Cabinet not to
consider the initial Budget Strategy at this stage and to defer to
consideration of the issues to a later time in the financial year. However,
based on practical experience of previous financial years, both Members and
officers have generally agreed that an early consideration of budget issues is
beneficial in terms of forward planning. The flexibility of amending the
Strategy as the year progresses has been acknowledged as an efficient method of
delivery of a Strategy at the end of the timetable.
With reference to the specific issues and assumptions, it is inevitable that Cabinet needed to take a view on these and assess, at this early stage, the impact in future years. It was the purpose of the report of Management Team to initiate discussion and to facilitate the opportunity for Members to raise issues and to include other issues in their initial projection. Regular updates will be presented to future meetings of the Cabinet to reflect decisions taken here and at future meetings.
Background Papers
None
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Should you be concerned about this decision and wish to call it in, please submit a call in form signed by any two Non-Executive Members to the Scrutiny Manager by: 17 July 2009 |