DRAFT

MEDIUM TERM FINANCIAL STRATEGY

REVENUE 2015/16 ONWARDS

 

 

 

Index                                                                                 Page

 

 

Introduction                                                                            1

 

Expenditure                                                                            2

 

Funding                                                                                  4

 

Balances & Earmarked Reserves                                              7

 

Efficiency                                                                                8

 

Consultation                                                                           9

 

Risk Management                                                                 10

 

1.           INTRODUCTION

1.1        This financial strategy form one of two strategies that aim to support the Council's corporate objectives as identified in the strategic plan 2015 - 2020. Whilst achieving this, major issues relating to resources and facing the Council in the medium term are considered where they relate to the day to day revenue activities of the Council. For issues relating to the capital programme see the strategy regarding capital.

1.2        Set out in the document is the revenue spending plan of the Council at a high level. The success of this plan will depend upon the resources available to the Council and the approach taken to ensure that those resources are aligned with corporate objectives and are being controlled in a way that ensures long-term stability. This is achieved through the development of the plan over a five year period.

1.3        Recent years have seen significant change in resources and responsibilities in the public sector. This has had a major impact on the Council’s strategy that includes plans to develop ways to mitigate the risks relating to the retention of business rates. In addition the Council has developed a strategy that will focus on the opportunities available to the Council to act more commercially and generate income from appropriate assets.

1.4        Although this document is developed for the medium term with an outlook of five years, the Council reviews the strategy on an annual basis for the following period in order to reflect changes in circumstances which impact upon the strategy. The review is completed to coincide with the annual review of the strategic plan to enable Members and Officers to ensure changes are appropriately reflected in both documents through links to the strategic plan key outcomes.

 

1.5        This year the Council ahs amended its budget documentation to better link with the strategic plan by summarising the budget by the priorities listed in the strategic plan. In addition, production of this strategy, the revised budget statement and the balanced budget it facilitates support the key outcomes of the strategic plan in their own right.

1.6        The Council consults with a wide range of stakeholders and partners during the development period and give serious consideration to their views and responses.

 

 

2.           EXPENDITURE

2.1        This financial strategy adopts a high-level review of the corporate objectives and budget pressures over the five-year period. This approach ensures a focus on factors that may influence the Council’s stated aim to maintain working balances and ensure that they are used for specific and special activities and not to balance the budget. The strategic revenue projection assumes that the level of balances will be maintained, over the five year period, at or above the working level set annually by Cabinet.

 

2.2        Detailed proposals for dealing with financial pressures and service demand are set out in the priority based budgets in the full revenue estimate. The major pressures assumed in the strategy are set out below:

2.2.1   Pay and price inflation:

 

The strategic revenue projection considers the allocation for pay inflation on an annual basis. The increase must allow for any staff pay award, incremental increases earned through competence appraisal and increases in employer contributions such as national insurance or current pension costs.

 

Other costs are increased by a suitable inflation index balanced with the objectives of the strategy. Large elements of this cost will be tied to conditions of contracts which will specify the annual increase necessary, other costs will increase by the annual increase in an inflation index such as the consumer price index.  The strategy may intentionally use levels of increase lower than these indices to enhance general efficiencies.

 

Table 1 below details the factors used for each year of the current strategy.

 

[Table 1: Pay & price Indices]

 

2.2.2   Corporate objectives and key priorities:

 

In addition to these inflationary pressures the Council will develop and implement improvements to the corporate objectives identified in the strategic plan and, where significant, any local objectives identified in service plans.  This may place additional pressure on the revenue budget.

 

The financial projection will also provide, where necessary, resources for national statutory responsibilities where these are to be provided locally.

 

Table 2 below identifies the links between the financial projection and key objectives.

 

 

[Table 2: Strategic Issues, links to other documents]

 

 

3.           FUNDING

3.1        During the period since the spending review in 2010 the Government has completed a review of local Government finance and revised the system of formula grant and national non-domestic rates. From 1 April 2013 a system that enables the retention of part of the business rates collected by the Council brought significant risk to the level of funding available to the Council from revenue support grant and business rates.

 

3.2        The SRP assumes that the Council will make every effort to maximise resources this includes retained business rates, council tax yields and locally derived income.

 

·                     In order to maximise potential income from business rates growth the Council has developed a business rates pool in partnership with Kent County Council. The pool will enter its second year in 2015/16 increasing to cover the majority of Kent Councils and the strategy estimates significant income from this source;

 

·                     In order to maximise yield from council tax the council has increased its fraud work and is involved in the development of Kent wide fraud arrangements;

 

·                     In order to maximise its locally derived income the Council has introduced some commercial activities and is developing more.

 

3.3        Other grants and funding from government and public sector organisations is reducing and the Council does not place long term reliance on this source of income. Where the financial projection includes the use of fixed term grant or other time limited income sources the relevant Cabinet Member and senior officer are responsible for preparing and acting on suitable exit strategies at the end of the fixed term.

3.4        Government Grant:

 

Under the current system the finance settlement for 2015/16 is rolled forward from the previous year’s settlement after adjustments only for new government initiatives and policy.  The Government has confirmed the level of revenue support grant and the business rates baseline need for 2015/16 and indicative figures have been provided for 2015/16, these are given in Table 3 below. The grant continues to reduce from the levels received in prior years.

 

The Chancellor of the Exchequer confirmed in his Autumn Statement 2014 that reductions in Government funding will continue for the forthcoming parliament following the 2015 election. Reductions, greater than those experienced by local Government since 2010, are currently predicted during the next parliament.

Other grants received from the Government are similarly under threat from the effects of the Government’s strategy to reduce public sector expenditure. The strategy will assume future grant aid is likely to be at risk and will assume cash frozen values where no information to the contrary is available.

3.5        Retained Business Rates

 

As a result of the local government finance review which commenced in 2010, the Council now retains a part of the business rates it collects locally. In providing for the retention in this way the Government has passed on to the Council the risk related to the overall levels of business rates collected. Using a system of baseline funding levels, support for significant reductions and sharing of any increase the system ensures gains and losses that are experienced by the Council are limited but not negated.

 

The baseline funding level for this Council is £2.9m in 2015/16, which is a 2% increase over the previous year. Expected levels of income would provide the Council with significantly more income than that at £4.1m. This is a consequence of growth within the business rates system and the protective benefits of being a member of the Kent Business Rates Pool.

 

There remain significant risks to the Council:

 

a)   The business rates figure is estimated, based on the known factors and current records as at 31 December 2014. The prediction of the events that will occur between April 2015 and March 2016 is difficult and the system has only operated one year nine months providing little historic knowledge or trends on which to base future projections.

 

b)   The system requires the Council to reimburse successful rating appeals including backdated refunds to before the current system existed.

 

The strategy recommends that business rates growth is not utilised within year. This enables final confirmation after the values have been confirmed at the year end. The strategy also assumes resources to maintain a provision against loss will be retained from the overall business rates income.

 

3.6        Council Tax

 

The Council has a responsive approach to the level of Council Tax and will set this at an appropriate level commensurate with the needs of the strategic plan. In recent years it has set a small increase below CPI inflation levels and remains flexible on the level of increase for future years. The increase is set by the Council’s ability to otherwise set a balanced budget.

 

The Council must consider the need to set a balanced budget that enables it to provide the services required by its customers. The significant risks facing the future financial stability of the Council have been considered along with the strategic revenue projection’s assessment of the future reductions in resource levels that have been predicted to follow the next spending review. The strategy assumes an annual Council Tax increase of 1.99% in order to improve resource stability over the period.

 

In addition the Council has considered the levels of exemptions from Council Tax, for which it has flexibility, with the intention of improving the yield from Council Tax other than through the increase in the charge. This has meant local reductions in the period or level of some exemptions available in the borough.

 

3.7        Fees & Charges

 

The Council has a policy on the development of fees and charges that fall within its control. This policy ensures that an evaluation of market forces and links to either the strategic plan or service plans are drivers of change in price. This means that any increases in this funding source will be identified through each portfolio’s detailed budget preparation work.

For 2014/15 all fees and charges collected by the Council were considered by Cabinet and a range of increases were set in line with the policy statement.  Although the increase in each charge was considered and set appropriately for its individual circumstance, the overall position created a 1% increase in expected income.

 

The tables 3 and 4 below show the expected level of resources for each year of the strategy and any pressures that will affect the level income or its collection.

 

[Table 3: Resource and income levels]

 

 

[Table 4: Strategic Issues, links to other documents]

4.           BALANCES & EARMARKED RESERVES

4.1        The Council holds a series of balances and reserves in order to provide financial stability and protection from unforeseen circumstances or events. In setting the level of these balances and reserves an assessment is made of the potential risks and opportunities that could reduce or enhance those balances.

4.2        Revenue balances at 1 April 2014 totalled £13.51m and it is estimated that this balance will be £4.52m by 31 March 2015.

 

4.3        The major items reducing the balance are approved budget carry forwards of £7.62m from 2013/14 resources into 2014/15 for prior agreed purposes and a reserve of £0.83m set aside to resource the known deficit on the business rates at 31 March 2014.

 

4.4        The Government’s intention is to continue to reduce resources available to local Government and the Council will continue to set a balanced budget by identifying savings and efficiencies. As far as possible this will be completed as need arises but it may continue to be successfully completed in advance. While the Council does not expect underspends as significant as those seen in 2011/12 it will plan for the potential to underspend from savings delivered in advance of identified need.

4.5        During the development of this strategy Cabinet considered a recommendation from the Council’s external auditor regarding the maintenance of earmarked reserves and agreed that in four circumstances this would be appropriate. The estimated value of earmarked reserves for each year end is set out below.

 

 

[Table 5: Earmarked Reserves]

 

 

4.6        Excluding these earmarked reserves general balances are estimated to be at £4.5m by 31 March 2016 and allocations also exist of a further £1.4m identified by purpose.

 

 

 

[Table 6: General Balances]

 

 

5.           Efficiency

5.1        The Council’s strategic plan recognises value for money as underpinning the delivery of its priorities. This theme runs through service plans and by this the Council’s approach to efficiency is integrated in to all decision making.

5.2        The Council uses a number of measures to identify locations to achieve efficiency and gauge success. These include:

 

a)   Peer review and peer challenge.

b)   Benchmarking to measure unit cost and performance, comparing these over time and across similar councils throughout the country.

c)   Other benchmarking exercises undertaken by local managers to challenge service delivery in their own area.

d)   The identification of efficiency targets that match the Council’s need over the period of this medium term financial strategy.

 

5.3        Efficiency proposals are carefully measured for effect upon capacity, acceptable levels of service, quality standards, and the potential of shared service provision. All efficiency proposals consider the effect of fixed costs and the effect on the base financial standing of the Council and the opportunity for reinvestment of gains into priority services or toward achievement of corporate objectives.

5.4        The adoption of efficiency and VFM as part of this strategy helps to ensure that the strategic revenue projection will remain within available resources.

5.5        The strategic revenue projection identifies the need for savings to make a balanced budget, which must be considered in line with the development of efficiency savings. Table 7 below details the required saving for each year, based on the factors used in the financial projection, and the percentage of net revenue spend the given saving represents.

 

 

[Table 7: Annual savings requirement]

 

5.6        The Council has required the savings target to be met in the medium term and at this time proposals are in place to provide efficiency and savings to support the requirement through to 2016/17. The Council is continuing to develop long term proposals to ensure the future risk is mitigated at the earliest time.

6.           CONSULTATION

 

6.1        The Council has a co-ordinated approach to consultation on the budget process. To this end a programme has been proposed that ensures the focus of annual consultations avoids the review of similar themes and builds a body of opinion.

 

6.2        The Council consults annually on this strategy and the proposed budget for the forthcoming year. The intention of the consultation is to both inform and be informed by local residents, businesses and stakeholders.

 

6.3        In recent years the consultation has considered the level of Council tax increase acceptable and the service areas where reductions should occur, the elasticity of demand for services provided by the Council with a related fee and for this strategy the consultation focused on the long term factors faced by the Council due to the current economic climate and the relative importance residents place on a range of discretionary services provided by the Council.

 

6.4        For 2015/16 the Council produced a new strategic plan and consultation matched the budget to the strategic priorities.

 

7.           RISK MANAGEMENT

7.1        In outlining the resources available to the Council and the focus of those resources on the strategic priorities, this strategy must consider the barriers to achieving the resource levels assumed by the budget.

 

7.2        A full risk assessment of the strategy has been completed and forms part of the operational risk assessment of the services provided by the Head of Finance and Customer services.

 

7.3        Twelve major risk areas have been identified and action plans have been developed for each. The twelve areas are as follows:

 

1)         The level of balances;

2)         Inflation allowances;

3)         National strategy;

4)         Limitations on Council Tax increases;

5)         Fees and charges;

6)         Commercial Activity;

7)         Capital financing;

8)         Horizon scanning;

9)         Delivery of efficiency;

10)     Collection Fund, collection rates;

11)     Business Rates pooling;

12)     Medium Term Strategy.