Contact your Parish Council
![](https://meetings.maidstone.gov.uk/SiteSpecific/mbc_files/mobbutton.jpg)
Decision details
Budget Strategy 2011/12 Onwards
Decision Maker: Cabinet.
Decision status: Recommendations Approved
Is Key decision?: Yes
Is subject to call in?: Yes
Purpose:
To give initial consideration to a Budget
Strategy for 2011/12 and beyond.
Decision:
1. That for planning purposes, the Council Tax increase for 2011/12 and future years be set at 2.5% to inform the strategic projections provided in Appendix F of the report of Management Team.
2.
That the scenario to be adopted is the “Most
Likely” as outlined in the
strategic projections in the report of Management Team.
3.
That the extent of the Capital Programme for 2011/12
onwards be noted.
4. That the timetable for the Budget Strategy 2011/12 be noted.
Reasons for the decision:
This
Authority has, for many years, adopted best practice and 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
March 2011.
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 2011 update to the strategic plan
for 2009-2013, 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 current 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
Work on
the Medium Term Financial Strategy is linked to the strategic plan
and the service plans, which will consider resources over a three
to five year timespan to ensure
alignment of budgets and priorities.
Attached at Appendix A of the report of Management Team is the
budget summary for 2010/11 which was agreed by Council in March
2010. This was developed in the context
of the Strategic Plan 2009-2012.
For
further background information, the following is also
attached.
a)
The currently agreed Medium Term Financial Strategy
is set out at Appendix Bof the report of Management Team;
b)
The current statement of balances projected to 2010
is detailed in Appendix C of the report of Management Team, this
takes into account the final outturn position for 2009/10 reported
to cabinet in June 2010;
c) The current capital programme is set out at Appendix D of the report of Management Team; and
d)
The current projection for the use of Capital
Receipts is set out in Appendix E of the report of Management
Team.
The Local Context
The outturn position for 2009/10 was reported to the Cabinet meetings in May and June 2010. These reports showed that income generation continued to be difficult for the Council. During 2009/10 the Council took action on the budget expectations for income reducing targets by £0.6m and through management action by a further £0.5m. In 2010/11 budget strategy and other actions reduced income targets by a further £1m. These adjustments, giving a total reduction in income expectation of £2.1m, will naturally carry forward into the base position for the development of the 2011/12 budget.
As a counterpoint to this loss of income, salary slippage was available to cover other overspending areas. This resource, created by the vacancy rate, is an annual occurrence that is diminishing as staffing levels reduce.
The 2009/10 outturn also reported a significant receipt from HM Revenue & Customs due to the Council’s claims under the Fleming arrangements. The net effect after costs and commitments is £1.7m which has been added to balances for use in 2010/11. This is shown in Appendix C of the report of Management Team which also reports unallocated balances of £0.7m along with the minimum working balance of £2.3m.
The
2010/11 budget, detailed at Appendix A of the report of Management
Team, is a balanced and deliverable budget that creates a base
spending position of £22.8m for the commencement of the
current Medium Term Financial Strategy.
The National Context
The economic conditions that have existed since 2008/09 have forced significant change on the public sector. In local government this has created increased demand and therefore increased the cost of welfare services such as housing benefit and homelessness. It has also reduced demand and therefore reduced the income generated by other services such as parking and planning. For all organisations declining interest rates and declining cash balances have meant significant reductions in investment income.
At the depth of the recession there are indicators of growth in the market coupled with debate about the extent of this move out of recession. Irrespective of these facts, it is clear that the public sector will continue to suffer from the effects of the recession long after the private sector has recovered.
Tabulated below are national indicators of growth and debt given as calendar year results:
Index |
2008 |
2009 |
2010 |
|
|
|
PREDICTED |
Growth |
3.5% |
-3.6% |
1.2% |
Budget Deficit |
£34.4 bn |
£101.3 bn |
£157.6 bn |
Debt |
£614.4 bn |
£796.9 bn |
£1,060 bn |
Tabulated below are inflation and interest indicators at each year end over the period of the recession and the position for May 2010:
Index |
March 2008 |
March 2009 |
March 2010 |
Current |
|
|
|
|
|
RPI |
3.8% |
-0.4% |
4.4% |
5.1% |
CPI |
2.5% |
2.9% |
3.4% |
3.4% |
Base Rate |
5.25% |
0.5% |
0.5% |
0.5% |
7 Day LIBOR |
5.71% |
0.67% |
0.55% |
0.55% |
Through the budget speech on 22nd June 2010 the Government introduced a five year plan of actions to achieve economic growth. A major objective of the plan is a move away from borrowing through targeted reductions in debt (expressed as a percentage of Gross Domestic Product [GDP]). A central element to this objective is £30 billion annual spending reductions until 2014/15. This has been reported as a 25% reduction in public sector spending over four years.
The most direct effects of this plan upon local government are:
a) The spending reduction, which equates to 25% over the next four years, is expected to see a proportionate effect upon support for local government when details are announced in the spending review expected in October 2010;
b) A two year freeze on public sector pay has been introduced for all employees earning more than £21,000 per annum. Those earning less than this sum will receive a flat rate increase of £250 per annum;
c) Arrangements will be made to enable local authorities to freeze Council Tax for 2011/12.
There are also a number of measures that will have either a lesser effect or an indirect effect upon local authorities:
a) A review of public sector pensions which may have a future effect;
b) Changes to small business rate relief and benefit payments both of which are administered by local authorities;
c) A change to the VAT rate from January 2011 which will effect local government charges for those services that include VAT;
d) Changes to employer national insurance through raised thresholds;
e) A commitment to make no further cuts in capital spending beyond those already announced.
As part
of the Governments in-year saving, announced on 10th
June 2010, a number of grant based initiatives including Housing
and Planning Delivery Grant (HPDG) and Local Authority Business
Growth Incentive Scheme (LABGI) were stopped. These grants were targeted at a priority issue for
the Government but were considered ineffective. The Government intends to introduce an alternative
incentive for Housing and Business Growth.
Another
grant amended as part of the announcement on 10th June
2010 was the Local Area Agreement reward. This grant effects the funding for Local Strategic
Partnerships and has been halved.
In addition to the national changes detailed above there is a major factor that exists on a county wide scale. Kent County Council, the pension authority, is completing a triennial actuarial review of the pension fund. This review will aid the calculation of accurate deficits for each authority’s share of the fund. Consequently, it is expected that the contributions required to fund the deficit will change. Due to the economic decline this change is expected to be significant and adverse.
Strategic Projection
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. Scenario planning was used by
Cabinet for the first time last year and officers have again
developed three alternative models best, worst, and most likely
cases, that the Cabinet
considered.
All
three alternatives included a number of assumed factors such as
inflation rates, capital expenditure and capital resources
available, government actions in relation to general grant levels
and the council tax increase for each year. The model will be maintained and amended as more
accurate information becomes available during the year. Cabinet agreed that the “Most Likely”
scenario be adopted and future reports will be focused on this
scenario, providing details of the others as background
information.
The models were attached at Appendix F of the report of Management Team and were based on a series of financial assumptions. As the assumptions were compiled separately for each of the three scenarios the most appropriate way to display the necessary information is in a matrix which is shown at Appendix G of the report of Management Team.
Appendix F of the report of Management Team shows that, based
upon the assumptions detailed, a significant level of saving will
be required to ensure the provision of a balanced
budget. The level of saving for each
year, and for each of the three scenarios, is shown in the table
below.
Year |
Best Case Scenario £000 |
Most Likely Scenario |
Worst Case Scenario |
2011/12 |
2,086 |
2,771 |
3,527 |
2012/13 |
984 |
1,647 |
2,414 |
2013/14 |
1,583 |
2,168 |
3,257 |
2014/15 |
353 |
844 |
1,407 |
2015/16 |
397 |
976 |
1,454 |
The
annual savings figures are 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 change
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 budget
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’s financial stability and are
significant enough to be brought to Cabinet’s attention
individually.
The
current revenue support grant (RSG) settlement will be formulated
from the 2010 spending review to be completed by October
2010. In previous years this has
been a three year indicative settlement. The previous three year settlement from 2007 was
0.5% per annum. In line with the
Governments stated aim it is likely that there will be no change to
the RSG formula over the forthcoming three years. There may be changes, in the longer term, as the
resources required for some policies, such as a Council Tax freeze,
have not yet been identified. In
addition pre-election policies of the current Government included
planned changes.
The
Government has immediately made £6.2bn in savings across the
public sector for 2010/11. The impact
of these savings on local government directly totals £1.2bn
and has come in the form of reductions in specific
grants. The Council is expecting to
receive £48.8m in specific grant in 2010/11 from central
government and these are detailed in Appendix H of the report of
Management Team. The affected specific
grants for the Council are HPDG & LABGI, neither of which are
detailed in Appendix H of the report of Management Team because
they are awarded based upon in year performance. Decisions on how such grants are utilised by the
Council are delegated to responsible Cabinet Members and are
excluded from base budget.
It is likely that the Government will maintain this approach to savings and efficiency through specific grant in future years. Using two separate sources of information, two possible projections can be made:
a) Although Government plans will not be known until the autumn, the Budget on 22nd June 2010 outlined the total spending reductions across the public sector as 25% of current expenditure. This target distributed across local government on the basis of all government grants would mean reductions of £0.8m.
b)
In addition research by Deloittes on behalf of the Local Government
Association suggests a likely target of £750m across local
government. This target, distributed on
the basis of net revenue spend, would mean grant reductions of
£0.4m for the Council.
Throughout 2008/09 and 2009/10 Cabinet received quarterly budget monitoring reports which consistently identified significant shortfalls in income generated through council services. Action taken by Cabinet and service management ensured that the consequences of the shortfalls was minimised. The economic downturn gave rise to the problems with income generation which still exist. The budget for 2010/11 includes strategic growth to control the ongoing effect on income. It is likely that the risk of further income shortfalls exists for the remainder of the medium term financial strategy. The 2010/11 strategy assumed further shortfalls of £0.1m in 2011/12 and a levelling of income at this reduced level for the remainder of the medium term.
The
triennial review of the pension fund is expected to produce an
increase in the value of the liability of the Council. The
actuaries performing the review on behalf of Kent County Council
are expected to provide individual district council reports in
November 2010. Until such time as the report is available a model
has been provided by Kent County Council that predicts a range of
possible outcomes from no increase to an increase of
£1.2m.
The
Capital Programme as agreed by Council in March 2010 is funded by a
mixture of resources, the major elements being revenue support,
capital receipts and grants/contributions from government and other
institutions. As advised in 2009/10
Cabinet will be aware of the risks associated with the effects of
the economic climate upon asset sales and the government’s
savings plans upon government grant.
The
current economic indices and commentary suggests changes are
appearing in the economy. These include
initial measures of growth, rising inflation and a growing interest
in property and land for development.
a)
For the first three quarters of 2009/10 RPI slowly
rose from negative by December 2009, with the return to 17.5% VAT,
RPI was over 2%, by March 2010 RPI had increased to
.3%. The current year on year increase,
for May 2010 shows a reduction to 3%;
b)
The Bank of England base rate remains at
0.5%. It first reached this low in
March 2009. Interest rates were
expected to rise slightly during 2009/10 but there has been no
indication of this in the Council’s investments;
c)
Economic growth is evident however the Office for
Budget Responsibility has recently downgraded forecasts and
predicts 2.6% growth in 2011.
Key
Opportunities
The Council has a track record of successfully addressing key risks in the budget and it has a balanced budget for 2010/11 that is based on a sound budget strategy without the use of balances to fund current service costs. In addition the delivery of value for money is embedded in Council decision making through a number of strands of activity such as business transformation, invest to save funding, robust procurement, regular benchmarking, performance measurement and joint working.
Balances can be utilised for one time costs and Council has
confirmed a minimum balance, below which Cabinet cannot go without
renewed permission, of £2m. Cabinet has agreed a minimum
working balance of £2.3m which is 10% of net revenue spend.
Available balances above that limit are £0.7m uncommitted
general balances and £1.7m from the VAT refund detailed in
section 1.3.
The average council tax increase for 2010/11 was 1.8%. In recent years this has been a benchmark for potential capping. The Government has indicated its desire for no council tax increase in 2011/12. The 2010/11 medium term financial strategy assumed a 2.5% increase in council tax for the Council, valued at £0.3m. Although the Government has stated that it will provision any lost income it will, at best, be based on an increase considered suitable to the government. The LGA bulletin on the Budget provides the following information regarding this freeze:
“The Chancellor announced that the Government will help councils to freeze or reduce council tax in 2011/12. The Budget documentation assumes that this help will be given assuming a loss of revenue to authorities of 2.9% - the average of the three years’ most recent council tax increases. The Government assumes that this will lead to a loss of revenue of £625m.”
In
considering the possible options for Council Tax, Cabinet agreed to
a 2.5% increase purely for the purpose of planning a strategy
development.
Capital
Programme
Appendix D of the report of Management Team shows the current
Capital Programme, as agreed by Council in March 2010, and amended
for slippage from 2009/10, as agreed by Cabinet in May
2010. As part of the process of
developing the MTFS the programme for 2013/14 will need to be
developed. At this stage no resources
have been identified to support the programme beyond 2012/13 and
the column for 2013/14 is set at zero.
The
programme reported has been amended for changes to revenue
contributions agreed as part of the carry forward of resources from
2009/10. In addition £1.9m is
available from usable capital receipts carried forward from
2009/10. All other receipts and grants
used in funding the programme are assumed values at this
stage.
The
capital receipts that have been assumed from asset sales relate to
four assets currently being marketed.
These are Armstrong Road Depot, 13 Tonbridge Road, 26 Tonbridge
Road and Hayle Place.
The
capital grants that have been assumed in the programme relate to a
mix of annual grants for private sector housing work and specific
grants from the Heritage Lottery Fund.
Two grants in the programme are currently identified as specific
risks. These are the Growth Point Grant
and the Gypsy Site Grant.
The
programme currently requires prudential borrowing in 2011/12 and
2012/13. The total borrowing currently
planned is £2.6m. The Council has
set a prudential borrowing limit of £4m and the planned
borrowing is currently within this limit. Revenue resources to service £4m borrowing
form part of the financial projections given at Appendix F of the
report of Management Team.
These
issues are subject to enhanced monitoring by officers in 2010/11 in
recognition of the risks in the timing of funding. Cabinet will receive quarterly reports and part of
the normal monitoring reports.
In
addition to these monitoring procedures, the constitution and
legislation provide further mechanisms for the control of projects
within the programme. Examples include the constitution’s
control over the acceptance of tenders for projects within the
capital programme and the legislative sanctions against expenditure
incurred without appropriate resources being in place.
Consultation
It is
normal practice to consider the options for budget consultation at
an early stage each year. This year a
separate report on options and costs will be presented to Cabinet
in August 2010.
Timetable
Cabinet
considered the timetable for the Budget Strategy. The updated timetable given below has enabled
previous Cabinets to achieve full consideration of all issues in a
timely manner.
Action |
Date |
Initial consideration by Cabinet, including reference to Corporate Services Overview and Scrutiny Committee. |
14 July 2010
|
Consideration by Corporate Services Overview and Scrutiny Committee |
3 August 2010 |
Detailed consideration by Cabinet Members of budgets, savings options, service enhancements and fees and charges |
September to October 2010 |
Public Consultation |
September to October 2010
|
Cabinet review of budget strategy including reference to Corporate Service Overview and Scrutiny Committee. Data updated by previous activity and external factors |
22 December 2010 |
Consideration by Corporate Services Overview and Scrutiny Committee |
10 January 2011 |
Reference back to Cabinet from Corporate Services Overview and Scrutiny Committee |
12 January 2011 |
Approval by Cabinet Members |
January to February 2011
|
Approval by Cabinet and reference to Council |
9 February 2011 |
Approval by Council and setting of Council Tax |
2 March 2011 |
Conclusions
The
report of Management Team detailed a series of financial pressures
on the medium term financial strategy for 2011/12
onwards. The most significant
were:-
a)
Government plans to reduce public sector expenditure
by 25%, which will impact the Councils resources through reduced
Government Grant. The estimated impact
is £0.8m per annum;
b)
The triennial review of the pension fund which is
expected to result in an increased cost to Kent
employers. The estimated impact is
£0.5m per annum;
c) A number of national and local initiatives that require budget growth. These items are detailed in Appendix F of the report of Management Team.
The
report identified a number of opportunities available to the
Council to assist in reducing the financial pressures. These included:-
a)
Opportunity to benefit from financial support to
maintain a Council Tax freeze in 2011/12;
b)
A two year public sector pay freeze reducing the
level of inflation required;
c)
The full year effect of the Chief Executive’s
review of structure;
d) Balances of £0.7m and other resources set aside for priorities of £1.7m from VAT refunds.
The capital programme contains a series of risks in relation to the resources available. These risks have been outlined in the report of Management Team and similar reports during 2009/10. The major risks relate to the delivery of some grants and advances and the timing and value of certain asset sales.
The situation outlined in the report of Management Team showed a significant level of financial pressure over the five year period of the strategy. The required level of efficiency and savings required to formulate a balanced budget in 2011/12 is in excess of £2m for all scenarios developed and is £2.7m for the most likely scenario.
Alternative options considered:
An
alternative course of action would be for the Cabinet not to
consider the initial Budget Strategy at this stage and to defer
consideration of the issues to a later time in the financial
year. However, based on practical
experience of previous financial years, both the Cabinet 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 within the report of Management Team, it was inevitable that the Cabinet would need 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 the Cabinet 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 discussions at this meeting and future meetings.
Reason Key: Expenditure > £250,000;
Wards Affected: (All Wards);
Details of the Committee: None
Representations should be made by: 21 June 2010
Other reasons / organisations consulted
Internal
Consultees
Management Team, Heads of Service and
Members
Contact: Email: paulriley@maidstone.gov.uk.
Report author: Paul Riley
Publication date: 16/07/2010
Date of decision: 14/07/2010
Decided: 14/07/2010 - Cabinet.
Effective from: 24/07/2010
Accompanying Documents:
- Cabinet, Council and Committee for Budget Strategy 2011/12 Onwards
PDF 133 KB View as HTML (1) 123 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 1
PDF 39 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 2
PDF 91 KB View as HTML (3) 115 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 3
PDF 33 KB View as HTML (4) 10 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 4
PDF 64 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 5
PDF 19 KB View as HTML (6) 10 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 6
PDF 24 KB View as HTML (7) 10 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 7
PDF 24 KB View as HTML (8) 10 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 8
PDF 24 KB View as HTML (9) 10 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 9
PDF 24 KB View as HTML (10) 10 KB
- Cabinet, Council and Committee for Budget Strategy 201112 Onwards enc. 10
PDF 23 KB View as HTML (11) 10 KB