To consider the financial position of the revenue and capital budgets at the end of each of the first three quarters of the financial year. It also includes a summary of Treasury Management performance as at the end of each quarter.

1.  That the satisfactory revenue position at the end of the third quarter 2010/11 be noted.

2.  That the slippage in the capital programme to 2011/12 as set out below be agreed:-

Play Area Improvements  £25,000

Support for Social Housing  £29,000

Mote Park Regeneration  £86,000

3.  That the detailed report on treasury management activity be noted.

The constitution delegates the financial responsibility for individual budgets to the relevant director and the overall responsibility to the Responsible Financial Officer.  In consideration of this fact, whilst appreciating the need for Cabinet to remain fully aware of the Council’s financial situation, Cabinet agreed to continue to receive these quarterly reports during 2010/11, with the addition of a section reporting on treasury management performance.

Revenue

The budget used in the report of the Head of Finance and Customer Services is the revised estimate for 2010/11, as detailed in the Budget Strategy report.  Actual expenditure to December 2010 includes all major accruals for goods and services received but not paid for by the end of the quarter.

Analysis at a summary level of the full year budget, the profiled budget and expenditure to December 2010 is set out in Appendix A to the report of the Head of Finance and Customer Services.  The profiled budget shows the total amount expected to be spent by December 2010 after considering the expected pattern of spend throughout the year for each budget head.

Appendix A to the report of the Head of Finance and Customer Services shows a favourable variance of £0.90m which compares to a favourable variance of £0.79m at the end of quarter one 2010/11. The comparative position at the end of quarter three in 2009/10 was an adverse variance of £91,451. 

A detailed analysis of the variance at cost centre level shows two thirds of all cost centres are reporting minor favourable variances, which mirrors the position at the end of quarters one and two. 

A detailed analysis of cross service issues identifies three specific issues of note:

a)  A specific analysis of employee costs shows a favourable variance across the Council of £0.28m after allowance for the cost of temporary and agency staff.

b)  It is good practice to consider areas of adverse variance reported in previous years in order to identify continued problems.  The major area of difficulty in recent financial years has been income generation.  A review of fees and charges across the Council to the end of the second quarter had shown that income had been in line with budgeted figures. However, in the third quarter income has fallen short of the target, with actual income of £5.288m against a budget of £5.471m, a shortfall of £0.184m.   

c)  Buildings maintenance budgets are showing an overspend of £59,000 at the end of the third quarter. This is mainly down to additional maintenance works that were required at the Crematorium, and one-off expenditure at Maidstone House. Due to the responsive nature of some of the works in this budget this can lead to unanticipated expenditure from time to time.  

Significant favourable variances exist in a number service areas and details of these areas are given below:-

a)  13 Tonbridge Road – following the demolition of the site there has been a business rates refund of £31,000. 

b)  On-Street Parking – income from parking meters has been £29,000 greater than anticipated, and there is also an underspend of £17,000 on controlled running costs.    

c)  Concessionary Fares – this is showing a particularly favourable variance of £217,000, which is a consequence of lower than expected spend to date in relation to the cost of travel. The budget had been increased with the expectation of increased spend in 2010/11, but to date this has not been the case.  

d)  Planning Policy – it was reported in quarter one that the level of spend was expected to increase in this area after a slow start due to uncertainty over government intentions. However, this spend has not yet transpired, and the favourable variance is currently at £169,000, compared to £109,000 at the end of quarter two. The expenditure in this area relates to the Local Development Framework, and it is anticipated that there will more significant expenditure in the final quarter. Additional resources are being brought in to progress the LDF work, and any remaining budget will be carried forward into 2011/12 to continue this work.

A number of significant adverse variances also exist and are detailed below:-

a)  Interest & Investment Income - this budget is currently showing an adverse variance of £36,000, which is as a result of interest rates remaining lower than initially anticipated. The Treasury Management section later in this report goes into further detail on the specific circumstances. 

b)  Land Charges – fees & charges income is showing a shortfall of £30,000. This is a reflection of the current low level of activity in the housing market, and because we can no longer make a charge for personal searches. This will be an issue going forward and officers are investigating how the problem can be addressed in the future.     

c)  IT Operational Services - controlled running costs are overspent by £34,000, the main element being software maintenance. There is also an ongoing requirement for budget strategy savings which will need to be identified by year end.     

d)  Pay & Display Car Parks - the adverse variance of £33,000 on this cost centre is caused by under achieved income. Penalty Charge Notice income is currently £44,000 below target, with Pay and Display income £20,000 below target. However £15,000 of this is due to reduction in income during the period of snow. This income shortfall is offset by a £32,000 underspend on controlled running costs. Management action is being taken to address this situation by looking at the controlled running costs with a view to reducing the overall shortfall by the end of the financial year.

At this stage the report identifies no major risks that require action.  The major adverse variances identified in paragraph 1.4.7 are expected to be resolved by the end of the current financial year, and the revenue budgets in total continue to show an underspend.

Balances

Balances as at 1^st April 2010 were £8.3m as previously reported.  The current medium term financial strategy assumes balances of £3.7m by 31^st March 2011. The major reason for the movement in balances during 2010/11 relates to the use of carry forwards approved by Cabinet in May 2010.

Within the overall balance given above, the 2010/11 budget strategy assumes £0.3m of resources set aside for LDF and £0.8m of general balances will be available.

The issues raised above are considered after allowing for the minimum level of balances of £2.3m.

Collection Fund

The collection rates achieved for the third quarter, and the targets set, are set out below.  The rate is given as a percentage of the debt targeted for collection in 2010/11.

In both cases the rate achieved is slightly above target.

Prior year arrears collection is on target and officers will continue to pursue payment of any developing arrears along with the arrears from prior years. 

The value of Council Tax to be collected is based upon an assumption about the number of properties in each band during the year.  Since October 2009, when the figures were collated for the calculation of Council Tax, the number of properties has increased by 1.0% whereas the increase built into the budget was 0.4%. This additional increase will provide extra resource to ensure the collection fund does not enter deficit at the year end.

Capital Expenditure

Set out in Appendix B to the report of the Head of Finance and Customer Services is a summary of the current capital programme for 2010/11, as agreed by Cabinet in May 2010. This includes the initial capital programme for the financial year plus amounts carried forward from 2009/10.  It has also been adjusted for slippage into 2011/12 that was agreed in the first and second quarter reports.

The table in Appendix B to the report of the Head of Finance and Customer Services gives the following detail:

Capital expenditure to the end of the third quarter of 2010/11 is shown as £4.3m, against a current budget of £8.3m.

Following the enhanced monitoring process instigated this year to enhance control of the programme officers anticipate that £0.1m will need to be re-profiled into 2011/12. This is detailed in Appendix B to the report of the Head of Finance and Customer Services.  Details on the individual major items are:

a)  Play Area Improvements – the current work programme anticipates that a number of schemes will not be completed in the current financial year, so £25,000 can be taken as slippage into 2011/12. 

b)  Support for Social Housing – the latest projected figures for the current schemes have identified that a further £29,000 can be taken as slippage into 2011/12.    

c)  Mote Park Regeneration – based on the current work programme it has been identified that £86,000 can be taken as slippage into 2011/112.

Capital Financing

The agreed capital programme 2010/11 to 2012/13, originally approved by Council in March 2010, identifies sufficient resources to finance the 2010/11 programme. It also identifies potential future need for prudential borrowing of £2.5m.

This programme has been updated for 2010/11, by Cabinet in May 2010, to account for fourth quarter slippage from 2009/10. The current years programme is given at Appendix B to the report of the Head of Finance and Customer Services, and following slippage previously agreed by cabinet and the deletion of budgets identified as no longer being required, the programme totals £8.3m for 2010/11.

The financing of this programme requires £3.2m in capital receipts, £3.5m in grants and contributions and £1.6m in revenue support.

Resources that can currently be confirmed are:

The former Coombe Quarry Park & Ride site has now been sold, and this has generated a capital receipt of £861,000.

Based on the current projected expenditure shown at Appendix B to the report of the Head of Finance and Customer Services there are now sufficient resources to fund the programme for the current year without the need to borrow.

The approved slippage, as set out in 2 above, will mean that expenditure of £0.2m that was originally approved will be removed from 2010/11.

The identified slippage does not reduce the overall pressure on the capital programme over the current three year period.  Anticipated funding is still required in full and there continues to be a minimum potential expectation of £3.7m in prudential borrowing.  

Treasury Management

The Council has adopted and will incorporate into its Financial Regulations, the CIPFA Code of Practice on Treasury Management 2009 (Revised) in Local Authorities.  This Code covers the principles and guidelines relating to borrowing and investment operations. In February 2010 the Council approved a Treasury Management Strategy for 2010/11 that was based on this code. This required that Cabinet should be informed of Treasury Management Activities quarterly as part of greater budget monitoring.

Cabinet agreed in August to receive an enhanced report on Treasury Management to cover levels of activity and current market conditions in more detail on a quarterly basis.

The Council’s Treasury Management Advisors, Sector Treasury Management, predict a mild and steady improvement in the economy based on the following key factors:

a.  MPC [Monetary Policy Committee] inflation forecast being below target in two years’ time.

b.  The first bank base rate increase is expected to be in 2011, and will reach 3.25% by March 2013.

c.  Long term PWLB rates are expected to steadily increase to reach 5.7% by early 2014.

As at 31 December 2010 the Council held £37.7m in investments. This is detailed in Appendix C to the report of the Head of Finance and Customer Services. The investments with no maturity date shown in the appendix are investments in accounts that can be called immediately, or at a maximum of 30 days notice.

During the first three quarters of the year investment income is below target with interest received of £263,000 against a budget of £299,000.

The average rate of interest received on the Council’s investments over the period has been 1.5%. During the first half of the year the average rate was 1.9%. The target for 2010/11 was set against an assumption of a revised average interest of 1.56%. The original estimate for 2010/11 assumed an average interest rate of 3%, but market rates have remained lower than expected to date this year.

Despite the lower than expected rates received this has been partially offset by a slightly higher than anticipated level of investments during the first half of the year.  Actual average investments over the period totalled £23.8m against an assumption of £23.7m.

The budget monitoring process could be left to officers.  The Constitution already requires officers to report budget variances to the relevant Cabinet Member in specific circumstances.  The absence of any such reports would then suggest that no specific items have been identified for consideration.

If such an approach were taken Cabinet Members would have a reduced financial awareness.  This could restrict Cabinet’s ability to meet service requirement and achieve the Council’s corporate objectives.