To consider the proposed General Fund revenue and capital estimates for 2011/12 and revised figures for 2010/11 in accordance with the Budget Strategy and the Medium Term Financial and Capital Strategies and Projections, and the consequent level of Council Tax for submission to the Council.

1.  That appropriate recommendations regarding Council Tax and spending levels for 2011/12 be recommended to Council on 2 March 2011 based upon Decisions 2 - 14 below.

2.  That the revised revenue estimate for 2010/11, as set out in Appendices A and B of the report of Head of Finance and Customer Services, be agreed.

3.  That there are no further budget issues identified in the third quarter budget monitoring report be agreed.

4.  That the revenue estimate for 2011/12, as set out in Appendices A and B incorporating the growth and savings items set out in Appendices C and D of the report of Head of Finance and Customer Services, be agreed

5.  That to continue to set an appropriate level of working balances for Cabinet’s day to day activities at a level equivalent to the level set in 2010/11 of £2.3m be agreed.

6.  That the creation of a budget for the direct financing of capital expenditure from revenue, as an ongoing resource, be agreed.

7.  That the use of the additional revenue support grant for the direct financing of capital expenditure from revenue, as a one off resource, be agreed.

8.  That the use of the remaining VAT refund for financing of capital expenditure, as a one off resource, be agreed.

9.  That the capital programme as option (b) given at Appendix J of the report of Head of Finance and Customer Services, noting that a detailed report on the High Street Regeneration project will be brought to the next meeting of the Cabinet, be agreed.

10.  That the funding of the capital programme, as set out in Appendix I of the report of Head of Finance and Customer Services, noting that funding is dependent upon additional capital receipts, capital grants and other contributions in future years, be agreed.

11.  That a report be brought to the September 2011 meeting on prioritised uses of future funding available for the capital programme.

12.  That the Medium Term Financial Strategy, as set out in Appendix K of the report of Head of Finance and Customer Services and the resultant Financial Projection set out in Appendix F of the report of Head of Finance and Customer Services, be endorsed.

13.  That Council Tax be frozen for the year 2011/12.

14.  That the minimum level of general fund balances be set at £2m for 2011/12.

15.  That the responses (attached as Appendix A) be sent to the Corporate Services Overview and Scrutiny Committee with regard to their reference on the Capital Budget.

At the July meeting, Cabinet considered the initial projection for 2011/12 onwards and agreed the following:

a)  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;

b)  That the scenario to be adopted is the “most likely” as outlined in the strategic projections in the report of Management Team;

c)  That the extent of the Capital Programme for 2011/12 onwards be noted;

The initial projection was selected by Cabinet as the most likely of three scenarios.  The key assumptions from that scenario were:

a)  An inflation rate of 2% per annum over the period, but dropping to 1% in years 2 and 3;

b)  Anticipated grant reductions of £3.2m or 32% over four years.  This was assumed to be evenly spread over the four years;

c)  Additional resources would be required for a number of initiatives including the Local Development Framework, the homelessness strategy and the leisure centre;

d)  A continuation of the annual increase in the national concessionary fares scheme, to facilitate transitional costs of the transfer of the scheme to KCC;

e)  The use of all available capital receipts to fund the capital programme, reducing the level of investment income;

f)  A need to borrow up to £2.0m to finance capital expenditure, creating a need for revenue resources to service the debt;

g)  That the current policy to maintain a minimum balance of 10% of net revenue spend is maintained;

h)  That future Council Tax increases be equivalent to the 2010/11 increase for the purpose of developing the strategy;

i)  That a 0.5% increase in the Council Tax Base be assumed;

A number of risks were identified as part of the initial projection as follows:

a)  The uncertainty surrounding the spending review and its effect upon the formula grant assumptions made in the strategy;

b)  The potential non-delivery of the capital receipts from the sale of assets assumed during the programme period, leading to the possible need for additional borrowing to finance the capital programme.

c)  The potential future loss of Homes and Community Agency (HCA) grant aid to the Council’s capital programme following the intensive investment programme since 2008/09.

Following these decisions a further report to agree the approach to budget consultation for 2010/11, was approved by Cabinet.

At its meeting on 22 December 2010, Cabinet considered the latest information relating to the budget strategy for 2011/12 onwards and agreed the following as the basis of formal consultation with Corporate Services Overview & Scrutiny Committee:

a)  That a provisional spending level of £20.21 million for 2011/12 and a Council Tax freeze in line with the Government’s proposal be agreed;

b)  That working balances be set at £2.3 million at this time and to monitor this level as part of the standard budget monitoring during 2011/12;

c)  That the draft medium term financial strategy as set out in Appendix G of the report of Management Team and its connection to the draft strategic plan be noted;

d)  That the results of the budget consultation be noted;

e)  That the changes to the budget pressures as set out in the report be agreed;

f)  That the revised strategic projection, as set out in Appendix A of the report of Management Team be agreed;

g)  That payment by annual instalment of the Council’s contribution to fund the pension fund deficit for the three years 2011/12 to 2013/14 be agreed;

h)  That savings identified in Appendix B of the report of Management Team be agreed;

i)  That the proposed additional use of balances, as detailed in Appendix D of the report of Management Team, be agreed;

j)  That the provisional Capital Programme, as detailed in Appendix C of the report of Management Team, be agreed.

The Budget Strategy has been developed in parallel with the Cabinet’s consideration of a number of other plans.  It is the intention of the Budget Strategy to address the financial consequences of the government’s actions to reduce the budget deficit in a sustainable manner.  This has required a significant level of budget savings over the five years of the medium term financial strategy. However the proposals in the report of the Head of Finance and Customer Services delivered a balanced budget without the use of balances to finance long term commitments.  In particular the Budget Strategy incorporates the following:

a)  The Strategic Plan/The Sustainable Community Strategy – the budget strategy has been developed in parallel with the revisions to the strategic plan.  The medium term financial strategy has been produced to ensure the efficient use of the Council’s resources in delivering the strategic objectives.

b)  The People Strategy – budget provision is included for employee costs.  Some changes to the total reward package have been made in order to meet the Council’s budget pressures. Provision to meet the conditions of the Government’s proposed pay freeze has also been included.

c)  The Asset Management Strategy – the budget requirements identified in the strategy have been previously included within the budget strategy and have been maintained for 2011/12 onwards.  The asset management strategy recognises the pressure on the capital programme from the need for future funding and assesses options for the appropriate utilisation of assets, the pressures upon the capital programme are considered as a complete package and not as individual schemes.

d)  ICT Strategy – the development of this strategy has been supported by the work carried out this year to combine development of the strategic plan and medium term financial strategy.  Resources for this strategy are limited due to available funding however resources for invest to save developments in ICT remain available and the ICT steering group promote projects of this nature.

e)  Strategic Risk Register – the strategic risks are reviewed regularly by Audit Committee and Cabinet.  The responses to the risks are, where appropriate, incorporated into the budget strategy.

f)  Other Strategies – appropriate resources to aid various other strategies are incorporated into the budget strategy.  These include strategies such as Climate Change, Equalities, Regeneration and Integrated Transport.

Since Cabinet considered the budget strategy in December 2010, economic indicators have been updated and the changes since the December report are given below:

a)  Consumer price index inflation rose to 3.7% in December 2010 (3.2% in October 2010);

b)  Retail price index inflation rose to 4.8% in December 2010 (4.5% in October 2010);

c)  Growth for the final quarter of 2010 contracted by 0.5% (an increase of 1.8% was seen in quarter three);

d)  The latest unemployment rate for November 2010 is 7.9% (7.7% in September 2010);

e)  The Monetary Policy Committee has continued to hold the base rate at 0.5% for the period.

The continuation of inflation at levels higher than the target rate of 2% was identified as a risk of the budget strategy at this time last year.  These high levels coupled with increases in unemployment and a lack of certainty around growth makes predictions for 2011/12 and beyond difficult and this is recognised in the risk assessment of the medium term financial strategy.

Revenue Estimates

Appendix A of the report of the Head of Finance and Customer Services set out an overall summary of the revised revenue estimates for the current year, compared to the original estimates, and proposals for 2011/12.  Appendix B of the report of the Head of Finance and Customer Services set out the budget summaries for each Cabinet Members’ portfolio of services.  This information, along with the detailed estimate breakdown and commentaries on budget changes, will be reported to Council on 2March 2011.

Revised Estimate 2010/11 

The revised revenue estimate given in Appendix A of the report of the Head of Finance and Customer Services gives a value of £25.39m which compares to an original estimate of £23.39m.  This will require an additional £2m contribution from balances.  This contribution equates to the value of the decision made by Cabinet in June 2010 to carry forward resources from 2009/10 of £2m.

Original Estimate 2011/12

The estimate proposed for 2011/12 is summarised at Appendix A of the report of the Head of Finance and Customer Services and given in further detail in Appendix B of the report of the Head of Finance and Customer Services.  The estimate shows a budgeted cost of services of £21.14m.  After planned use of balances totalling £0.90m the budget requirement for 2011/12 will be £20.24m.

Cabinet will recall that the budget has been based on a number of initiatives completed during the year.  These include:

a)  A new strategic plan which has been developed to achieve a smaller number of key outcomes that are focused on the Council’s three priorities.  This has enabled a clearer focus for the medium term financial strategy.

b)  A budget consultation exercise to identify public opinion on the importance of services and Cabinet’s initial focus for budget savings.

c)  A longer term focus for the development of efficiencies and budget savings to align the medium term financial strategy with the Government’s strategy to reduce the budget deficit.

Appendix C of the report of the Head of Finance and Customer Services gives details of the items of growth that are incorporated in the proposed estimate and Appendix D of the report of the Head of Finance and Customer Services gives details of the savings that are incorporated in the proposed estimate.

Statement of Reserves and Balances

Appendix E of the report of the Head of Finance and Customer Services is a statement of the General Fund Balances. The statement identifies the use of balances as agreed at previous Cabinet meetings, unallocated general balances and the additional proposals outlined in this report for the use of unallocated balances.

The Cabinet noted that, based on decisions to date, the projected balance at 31^st March 2011 is £3.2 m. Of this balance £2.7m remains unallocated. Cabinet will be aware that it has set a working balances level of £2.3 m at its December meeting and this leaves a usable balance of £0.4 m.

In addition to the general balance available to the Cabinet, at 31^st March 2011 there will also remain £1.5 m of the refund from HM Customs and Excise for the Fleming VAT claim. The total value of usable balances is therefore £1.9 m.

Proposals for the use of balances have been limited to those issues that require one time financial support and do not create an ongoing revenue commitment for the Council. It was not considered prudent to utilise balances to create a balanced budget and no budget pressures have been put off to future years by these plans for the use of balances.

In addition to the level of working balances, agreed by the Cabinet as £2.3 m for 2011/12, it is necessary to quantify the minimum level of General Fund Balances. This is the limit below which Cabinet cannot go without the authority of Council. In recent years this has been set by Council at £2 m. As there has been no change to the level of working balances by Cabinet and it was agreed that this level of minimum balances be retained for a further year.

Government Grant

The report to Cabinet in December 2010 incorporated government grant of £6.5 m. This was a 16.58% reduction over the adjusted 2009/10 grant and commenced a two year settlement. The Government also announced intentions to amend the formula grant process during that time so that a new grant arrangement would commence in 2013.

On 31^st January 2011 final confirmation of the 2011/12 grant was received from the government and is £31,926 more than previously notified. This increase is for the year 2011/12 and the provisional settlement for 2012/13 has been reduced by £69,355.

Strategic Assessment of the 2011/12 Revenue Estimate

The revenue estimate 2011/12 has been developed in line with the MTFS and the Strategic Plan in order to produce a balanced budget that includes resources to achieve strategic objectives.

The revenue estimate produces a budget requirement of £20.242 m. this can be balanced by a Council Tax freeze on a tax base of 60,303.1 as agreed by General Purposes group in December 2010. This requires acceptance of the four year Government grant and a minor contribution from the collection fund adjustment. The figures are given in the table below:

The Cabinet were aware that the Government has offered a cash frozen, four year grant equivalent to a 2.5% increase in Council tax to any authority who either freezes or reduces their level of Council Tax for 2011/12. Cabinet indicated at its December meeting that a freeze and acceptance of the Government grant should form the basis of the Council Tax level for planning purposes and the report of the Head of Finance and Customer Services was developed on that basis.

The Cabinet could have considered an alternative approach, a 1% increase in the Council Tax level would equate to a £134,000 increase in resources. In order to achieve a change in the total resources for 2011/12 the increase would need to be greater than the 2.5% grant available from central government. It is possible that an increase of more than 2.5% will attract Government attention and bring the possibility of capping.

Although an increase at 2.5% does not change resources for 2011/12, any actual increase in the Council Tax will be a permanent increase in resources whereas the grant will only last for four years at which point the resources will cease. The consequence of this can be seen in the financial projection at Appendix F of the report of the Head of Finance and Customer Services.

Capital Programme

The budget strategy incorporates estimates for both revenue and capital expenditure. Appendix G of the report of the Head of Finance and Customer Services sets out details of the capital programme 2010/11 to 2014/15 as considered and provisionally approved by Cabinet in December 2010.

This programme requires prudential borrowing in the three years from 2012/13 to 2014/15 of £6 m. This value would be above the limit currently agreed by Council as part of the Council’s prudential indicators by 2014/15.

In considering the programme at its December 2010 meeting, Cabinet agreed the programme provisionally for consultation with Corporate Services Overview and Scrutiny Committee. The reference from the Committee on the full budget strategy, including the capital programme, was considered by the Cabinet and responses to their recommendations are attached at Appendix A.

As part of the consideration by Cabinet Members and officers since the December meeting each scheme within the programme has been reviewed to identify he minimum level of activity required for each scheme to complete its commitments and priority activities.

That work has created a programme that comes close to a complete freeze on schemes within the programme without creating extensive damage to the Council’s priorities or increasing the pressure on service revenue budgets. This programme does not include the uncommitted final stage of the High Street Regeneration project and is detailed in Appendix H of the report of the Head of Finance and Customer Services.

In tandem with this work officers reviewed the proposals for the high street improvements and considered alternative options that deliver a phased completion of the works with each phase improving a distinct section of the high street area.

This proposal creates a phase one that completes works in the High Street / Bank Street down to the end of Bank Street and a phase two that completes the remainder of the High Street. Phase one can be split further into a) and b) which completes the High Street and Bank Street sections separately. The review has assessed the suitability of the phased approach, each phase’s contribution to economic regeneration and the overall cost of the scheme in sections and concludes there is merit in a phased development.

In addition to the review of schemes within the programme, officers also completed a review of the funding available to the programme and updated the grants, contributions and approved asset sales used within the programme. In addition a number of previously unused sources have been assessed including:

a)  The first year’s new homes bonus, estimated at £0.8 m.

b)  The unused balance of the VAT reclaim under the Fleming arrangements, currently £1.5 m.

c)  The creation of a contribution to the capital programme from revenue by utilising the resources identified in the MTFS for future years debt repayment. Repayment of any borrowing will take priority over the use of this resources and the amount available for use as direct revenue funding will depend on the option considered and the level of borrowing actually required.

d)  The use of the minor increase in the revenue support grant as a one off contribution to the capital programme.

A detailed funding analysis was given at Appendix Iof the report of the Head of Finance and Customer Services.

In considering the possible increased funding, the reduced programme and the options for the High Street Improvement scheme a further three proposed programmes were given in Appendix J of the report of the Head of Finance and Customer Services for the Cabinet to consider. These were:

a)  The programme detailed at Appendix Hof the report of the Head of Finance and Customer Services combined with the funding detailed at Appendix I of the report of the Head of Finance and Customer Services, leading to a balance of £1.2 m in resources unused by 31^st March 2015.

b)  The above option a) combined with the implementation of both parts of phase one of the High Street Regeneration, leading to a need for further funding of £0.35 m by 31^st March 2015.

c)  The above option a) combined with the implementation of the full High Street Regeneration, leading to a need for further funding of £0.5 m in 2013/14 and £1.2 m in 2014/15. A total of £1.7 m by 31^st March 2015.

The programme reviewed has a timeline equivalent to the spending review period 2011/12 to 2014/15 and utilises the majority of resources currently available to the Council. The programme assumes a consistent level of grant aid towards disabled facilities grant during the period and the development of a contribution within the revenue budget for direct spending on the capital programme. Projecting these resources forward into 2015/16 and beyond the Council could have £450,000 for disabled facilities grants and a further £300,000 from revenue for a minor programme of other capital schemes.

As the changes to local government finance become clearer over the forthcoming years it is likely that the Council will see a greater emphasis on support for capital schemes such as infrastructure and regeneration from other sources such as partnerships with both the public and private sector. At this time the possibilities are being explored but it is too early to be clear as to how the Government is likely to develop its plans.

A base level of funding can be secured for future years and there remains the potential of further asset sales to enhance that base. Future years’ programmes will be considered as the medium term financial strategy is updated for 2012/13 and beyond. The Cabinet may wish to request details to be considered later in the coming financial year as part of the budget strategy process for 2012/13 including options for the prioritisation of future schemes and the potential to repay any borrowing required to achieve the current programme.

Medium Term Financial Strategy

Appendix K of the report of the Head of Finance and Customer Services is the Medium Term Financial Strategy (MTFS). The strategy is focused on the period of the spending review, with a fifth year to incorporate the consequences of the actions taken within the spending review period.

The strategy incorporates all the improvements developed in the 2010/11 budget strategy period. Additional changes are to incorporate a risk assessment within the strategy and to develop savings proposals to significantly reduce the risk of future reductions in funding over the spending review period.

The financial projection that complements the MTFS identifies the growth items detailed in Appendix C of the report of the Head of Finance and Customer Services and the overall level savings detailed in Appendix D of the report of the Head of Finance and Customer Services. The financial projection considers the targeted need for growth and savings over the period of the MTFS and incorporates a number of assumptions about inflation and changes in local and national initiatives. At this stage the Cabinet has identified proposals to match the savings levels indicated in the financial projection for the years 2011/12 to 2013/14.

The MTFS may require amendment following consideration by Council on 2^nd March 2011. The final version will be published as part of the budget documents on the Council’s website following the Council meeting.

Future Actions to Set the Council tax for 2011/12

It is a statutory requirement of this Authority to resolve the level of Council Tax for the area. In addition the precepts of Kent County Council, the Police Authority, the Fire Authority and Parishes are required. These will all be incorporated into a resolution to the Council meeting on 2^nd March 2011.

At the Council meeting it will be necessary for Council to resolve the following:

a)  Agree gross revenue expenditure, including parish precepts

b)  Agree gross revenue income

c)  Agree net revenue expenditure including parish precepts

d)  Identify parish precepts as “special items” to be levied on the tax base as set out in Appendix L of the report of the Head of Finance and Customer Services

e)  Agree the level of formula grant to be received and the level of collection fund adjustment

f)  Declare this authority’s basic Council Tax rate i.e. c) above less e) above divided by the tax base as approved by General Purposes Group in December 2010

g)  Declare this authority’s tax rates for the urban and rural areas

h)  After receipt of the precepts from Kent County Council, the Police Authority and the Fire Authority, declare the overall tax rate for all parts of the area.

It is the intention to collate these decisions and incorporate them into the necessary resolutions to achieve the above.

In addition it is necessary for the section 151 Chief Finance Officer to give her opinion to Council, when setting the above requirements, that the budget calculations are based upon robust estimates and that the level of reserves is sufficient for the purposes of the budget exercise. Based upon the process undertaken this year, and the information contained within the report of the Head of Finance and Customer Services, it is not anticipated that this opinion will include any adverse comments.

The major alternatives were included within the report of the Head of Finance and Customer Services.

The Cabinet could have recommended to Council the setting of a Council Tax level above the level that would be considered adequate by Government.  It would be possible for central government to use capping powers to enforce an adjustment to the Council Tax level which would be at cost to the Council.

The setting of a balanced budget is a statutory obligation. To choose not to set a budget and a Council Tax level for 2011/12 is not an option.