Your Councillors

POLICY AND RESOURCES COMMITTEE

23rd NOVEMBER 2016

Is the final decision on the recommendations in this report to be made at this meeting?

Yes

 

Second Quarter Budget Monitoring 2016/17

 

Final Decision-Maker

Policy and Resources Committee

Lead Head of Service

Director of Finance and Business Improvement

Lead Officer and Report Author

Ellie Dunnet

Chief Accountant

Classification

Public

Wards affected

All

 

 

This report makes the following recommendations to this Committee:

That the committee:

1.   Notes the revenue position at the end of the second quarter and the actions being taken or proposed to improve the position where significant variances have been identified, as set out in table 1, paragraph 2.8;

2.   Approves the proposed slippage in the capital programme of £1,417,894 into 2017/18 as detailed in paragraph 2.13;

3.   Notes the performance of the collection fund and the estimated level of balances at the year end; and

4.   Notes the performance in relation to the treasury management strategy for the second quarter of 2016/17.

 

 

This report relates to the following corporate priorities:

The budget is a statement, in financial terms, of the priorities set out in the strategic plan. It reflects the Council’s decisions on the allocation of resources to all objectives of the strategic plan. The issues raised in this report identify areas where financial performance is at variance with priority outcomes.

 

 

Timetable

Meeting

Date

Policy and Resources Committee

23 November 2016



Second Quarter Budget Monitoring 2016/17

 

 

1.        PURPOSE OF REPORT AND EXECUTIVE SUMMARY

 

1.1     This report provides the committee with an overview of the capital and revenue budget and outturn for the second quarter of 2016/17, and highlights other financial matters which may have a material impact on the medium term financial strategy or the balance sheet.

 

1.2     The first section of the report presents the revenue information specific to this committee’s services, and the remainder of the report provides an update on strategic and cross-cutting issues since both aspects fall into the remit of this committee.

 

1.3     Based on the information available to date, the year-end forecast for the revenue budget is an adverse variance of £445,000.  The actions being taken to address this overspend and individual variances within each service committee are set out later in the report at paragraph 2.8.

 

1.4     The capital spending at the quarter ending 30 September 2016 totals £4,409,536 from the annual budget of £16,618,040, which includes an adjustment for slippage previously agreed by this committee.

 

 

 

2.        INTRODUCTION AND BACKGROUND

 

2.1     The Director of Finance & Business Improvement is the Responsible Financial Officer, and has overall responsibility for budgetary control and financial management.  However in practice day to day budgetary control is delegated to service managers, with assistance and advice from their director and the finance section.

 

2.2     The medium term financial strategy for 2016/17 onwards was agreed by full Council on 2 March 2016.  This report advises and updates the committee on the current position with regards to both revenue and capital expenditure against the approved budgets, and also includes sections on Collection Fund performance and Treasury Management performance.

 

Second Quarter Results and 2016/17 Forecast – Revenue

 

2.3     Attached at Appendix I is a table detailing the current budget and

expenditure position in relation to the second quarter of 2016/17, to September 2016. The appendix details net budget per cost centre for this Committee. Actual expenditure is shown to the end of September 2016 and includes accruals for goods and services received but not yet paid for.

 

2.4     The columns of the table in the Appendix show the following detail:

 

a)   The cost centre description;

b)   The value of the total budget for the year;

c)   The amount of the budget expected to be spent by the end of September 2016;

d)   The actual spend to that date;

e)   The variance between expected and actual spend;

f)    The forecast spend to year end; and

g)   The expected significant variances at 31 March 2017.

 

2.5     The figures are analysed in three ways and set out in three tables which show the following levels of detail:

 

Table 1: by Committee;

Table 2: by Priority;

Table 3: by Expenditure Type.

 

2.6     Appendix I shows that of an annual budget of £19,428,410 there was an expectation that £7,825,130 would be spent in the first half of the year. At this point in time the budget is reporting an underspend of £405,058.  An overspend of £445,000 is projected at present for the year as a whole. 

 

2.7     Explanations for variances within individual cost centres which exceed or are expected to exceed £30,000 have been provided in accordance with the council’s constitution.

 

2.8     Each Committee has considered the major adverse and positive variances

reported within their service areas. In each case they have chosen to

either: develop plans to act further in resolving the issue; or to continue to

monitor the position and act if necessary at a later date. The variances identified to date and year end forecast variances are set out in summary below:

 

 

Positive

Variance

Q2

£000

Adverse

Variance

Q2

£000

Year end

Forecast

Variance

£000

Policy and Resources Committee

 

 

 

Commercial property - A net positive variance of £55,000 is forecast for the year.  Within this total, there are a number of rental issues and empty property rates which will be offset by rentals from new acquisitions and one-off additional income from units located at Parkwood Industrial Estate.

14

 

55

Investment Income / Audit Fee – As detailed later in this report, investment returns have continued to be low and the position is not expected to improve before year end.  It is hoped that this will be partially offset by the underspend against the audit fee.

 

-29

-25

Pensions backfunding – there is a £60,000 shortfall against pensions backfunding.

 

-31

-60

Gateway – The variance relates to loss of income from KCC vacating the Gateway at the end of September.  The new tenant is due to move into the Gateway in February following completion of the refit, so this will not present a problem in future years.

 

-5

-100

Policy and Resources total

 

 

-130

Heritage, Culture & Leisure Committee

 

 

 

Mote Park Café – This variance has arisen due to higher than budgeted agency costs and lower than expected income. The staffing structure has now been finalised, which will see reduced reliance on agency staff for the remainder of the year. Finance staff are working closely with the budget holders to monitor income and expenditure for the remaining part of the year.

 

-87

-125

Crematorium – This service is currently generating income above budget due to increased memorial sales.

73

 

100

Heritage, Culture & Leisure Total

 

 

-25

Strategic Planning, Sustainability and Transport Committee

 

 

 

Pay & Display Car Parks –Lockmeadow and King Street car parks have significantly outperformed against their income targets, despite the increased income budgets which were set for 2016/17.  This trend is expected to continue through to the end of 2016/17.   It should be noted that the forecast incorporates a shortfall of £50,000 for Mote Park car park.  This has been offset against the overall underspend in the forecast outturn.

174

 

300

On-Street Parking – the surplus position in this area is expected to be maintained through to the year end.  It should be noted that this surplus is ring-fenced.

29

 

60

Development Management – there is an overspend on staff costs including agency staff which is not being met by current income levels.  The Head of Service is aware of the problem and is exploring options for addressing the issue.

 

-187

-300

Building regulations – income is currently above budget in this area, and the underspend is expected to continue through to the end of the year.  It should be noted that this service is required to break even on a rolling three year basis.

39

 

50

Strategic Planning, Sustainability and Transport Total

 

 

110

Communities, Housing and Environment Committee

 

 

 

Street cleansing – An overspend of £60,000 is anticipated due to a previously agreed saving which will not be delivered this year.

 

-46

-60

Household waste collection – The variance relates to additional income from wheeled bins and bulky domestic collections.

38

 

40

Recycling collection – The variance relates to additional income from green waste bin hire.

28

 

50

Grounds maintenance – This service is currently generating additional income from external work.

27

 

30

Depot services section – An underspend is anticipated due to vacant posts within the section.

27

 

40

Temporary Accommodation – The level of demand for this service has continued to increase.  A number of actions have been taken in recent years to reduce the cost of providing temporary accommodation, and further options are being considered as part of the temporary accommodation strategy.

 

-261

-500

Communities, Housing and Environment Total

 

 

-400

GRAND TOTAL

 

 

-445

Table 1: Summary of significant variances by committee

 

2.9     The overall forecast for the council at the end of the second quarter is an increase in the overspend projected at the end of the first quarter, despite planned actions to address this.  Increased control in the following areas of spending have therefore been introduced across the council with immediate effect in order to improve the current position:

 

1. Recruitment;

2. Temporary staff;

3. Discretionary spending; and

4. Contractual commitments.

 

2.10 Finance officers are also working closely with budget managers in order to address the forecast overspend and return to a balanced position by the year end.

 

2.11 In accordance with best practice, virements are reported to this committee as part of quarterly budget monitoring. A virement represents the transfer of a budget between objectives that occurs subsequent to the formal

approval of the budget by Council. The following reportable virements were made during the second quarter of 2016/17:

 

Reason

Value £

Temp/Perm*

Pre-delivered savings from the Customer Services restructure.

15,500

Permanent

Business rates growth funding for public realm design (approved by Cabinet on 12 November 2014) transferred from earmarked reserve.

10,000

Temporary

Table 2: Reportable virements

 

* Temporary virements represent one-off budget transfers to fund a discrete project or purchase.  Permanent virements reflect alterations to the base budget which will be carried forward into subsequent years.

 

Strategic Level Capital Programme 2016/17

 

2.12 The capital programme was approved by Council on 2 March 2016.  Funding for the programme remains consistent with previous decisions of Council in that the majority of resources come from New Homes Bonus along with a small grants budget and a small number of capital receipts from asset sales. Previous decisions of Council, Cabinet and this committee have focused the use of New Homes Bonus on infrastructure projects where these are required by the infrastructure delivery plan that forms part of the Local Plan.

 

2.13 The current programme is set out in Appendix II and shows the approved budget and actual expenditure to date. The Appendix details the profile of expenditure that is forecast for the remainder of the year and identifies £1,417,894 that will require carry forward approval into 2017/18. The

major schemes that have incurred slippage relate to planned investment in property and play areas.  The committee is asked to approve the slippage at this stage.

 

2.14 The Council has the necessary resources to manage the programme in

2016/17, with the majority of funding coming from New Homes Bonus.

There are a small number of minor asset sales and government grant in

       relation to disabled facilities grants also funding the programme.

 

Reserves and Balances

 

2.15 The total of reserves and balances as at 1st April 2016 was £14.3m. The

current medium term financial strategy assumes balances and earmarked reserves totalling £6.7m by 31st March 2017. 

 

2.16 The below table summarises the activity which has impacted on reserves during the second quarter of the year, and the forecast position as at 31st March 2017:

 

 

£m

Opening balance

14.30

Capital funding to 30 September 2016

-4.41

Planning support – establishment of

2-way shared service

-0.07

Parks strategy - salaries

-0.04

Balance as at 30 September 2016

9.78

 

 

            Table 3: Balances at 30 September 2016

 

2.17 The position set out above allows for the minimum level of general

balances of £2.3m, as agreed by Council in March 2016, to be maintained.

 

Collection Fund

 

2.18 Due to the risks that surround the local council tax discount scheme and the pooling arrangements in place for business rates growth, the Council monitors the collection fund carefully.  This will become increasingly important in the later years of the current medium term financial strategy as the council will become increasingly reliant on the income it raises through council tax and business rates.

 

2.19 The collection rates achieved during the second quarter, and the targets set, are reported below. The rates are given as a percentage of the debt

targetted for collection in 2016/17:

 

 

Target %

Actual %

Amount collected

Council Tax

57.85

57.10

£54,625,957

Business Rates

57.82

56.83

£34,957,181


Table 5 : Collection Rates for Council Tax and Business Rates to September 2016

 

2.20 The targets for the quarter have been missed by a small amount in percentage terms.  However, while the percentage variances are small, the gross values of Council Tax and Business Rates collected each year are significant. Out of the total collectible debt for the year, these sums equate to £407,000 for Council Tax and £346,000 for Business Rates.

 

2.21 The Head of the Revenues and Benefits Partnership follows a recovery timetable and action will be taken before year end to attempt to bring the collection rate back to target.  Officers will continue to pursue payment of any developing arrears along with the arrears from prior years.

 

2.22 Income from retained business rates growth is currently higher than forecast, as detailed in the table below:



 

 

£m

 

(a)

Growth against baseline

2.90

 

(b)

Maidstone BC share of growth

1.45

(a)*50%

(c)

Levy payable at 50% rate

1.45

(a)*50%

(d)

Actual levy payable at 9.351%

0.27

(a)*9.351%

(e)

Pool benefit

1.18

(c) - (d)

 

MBC share of pool benefit

0.35

(e)*30%

 

KCC share of pool benefit

0.35

(e)*30%

 

 Growth fund share of pool benefit

0.35

(e)*30%

 

 Contingency

0.12

(e)*10%

Table 6: Business rates growth

 

2.23 The current benefit from membership in the Kent Business Rates Pool is £1.18m, which represents the difference between the levy of 50% which would have been payable on business rates growth if the council were not part of the pool, compared with the 9.351% payable as a pool member.  It should be noted that £0.12m of the retained levy will be set aside as contingency.

 

2.24 As agreed previously the 30% share of the pool benefit will be used to fund the delivery of the Economic Development Strategy, alongside the 30% growth fund share which is spent in consultation with KCC.

 

2.25 It should be noted that the above figures are forecasts only.  This is a highly volatile area and there is a significant degree of risk of fluctuations in the rates base arising from appeals and other factors.  This is therefore being carefully monitored in collaboration with pool members throughout the year.

Treasury Management

 

2.26 The Council has adopted and incorporated into its Financial Regulations, the CIPFA Code of Practice on Treasury Management in Local Authorities.  This Code covers the principles and guidelines relating to borrowing and investment operations.  In March 2016, the Council approved a Treasury Management Strategy for 2016/17 that was based on this code.  The strategy requires that this committee should formally be informed of Treasury Management activities quarterly as part of budget monitoring.

 

2.27 During the Quarter ended 30th September 2016:

 

·         After the UK voted to leave the EU, the bank rate was cut by Monetary Policy Committee (MPC) by 0.25% and further Quantative Easing (QE) was introduced to assist with banks so as to maintain the supply of credit to the economy.

·         The economy has grown 0.7% quarter on quarter compared to 0.4% in the first quarter of 2016/17.  However, future growth forecasts have been downgraded from the levels previously reported.

·         Inflation is expected to pick up due to a rise in import prices, dampening real wage growth and real investment returns.  The August quarterly Inflation Report from the Bank of England forecasts a rise in CPI to 0.9% by the end of 2016 and to rise closer to the Bank’s 2% target over the coming year.

 

Below is a table which shows the Bank of England Base Rate and the PWLB Rates for the first 6 months of 2016/17.

 

 

Bank of England Base Rate

 

PWLB Borrowing Rates – Fixed Rate, Maturity Loans (Standard Rate)

Date

 

 

 

4½-5 yrs

9½-10 yrs

19½-20 yrs

29½-30 yrs

39½-40 yrs

49½-50 yrs

 

 

%

 

%

%

%

%

%

%

01/4/2016

 

0.50

 

1.50

1.86

2.54

2.99

3.25

3.34

30/4/2016

 

0.50

 

1.59

1.99

2.68

3.11

3.34

3.42

31/5/2016

 

0.50

 

1.58

1.97

2.58

2.99

3.23

3.30

30/6/2016

 

0.50

 

1.24

1.51

2.11

2.55

2.79

2.86

31/7/2016

 

0.50

 

1.13

1.34

1.87

2.31

2.58

2.67

31/8/2016

 

0.25

 

1.12

1.25

1.67

2.02

2.23

2.31

30/9/2016

 

0.25

 

1.05

1.22

1.72

2.13

2.36

2.44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                Table 7: PWLB borrowing rates to September 2016

 

 

2.28 PWLB rates, around the time of the Referendum on 23rd June 2016, had reduced slightly due to the uncertainty around the result, however post Referendum, the 50 year rate has fallen further from 2.86% to 2.31% by the end of August.  Rates have started to pick up slightly towards the end of the quarter but are likely to remain low for the foreseeable future.

 

2.29 At this point in time, it is unwise for the Council to borrow ahead of need due to the cost of carry, counterparty risk and current forecasts indicating that rates are expected to remain low for the foreseeable future.

 

Current Investments as at 30 September 2016

 

2.30 The council held investments totalling £25.25m.  A full list of investments held is provided at Appendix III.  All investments are held in short term instruments (less than one year), with £11.25m available to be recalled instantly if required.  Investment income for this period is £106,000 against a budget of £135,000 and the average interest rate was 0.77%.  

 

2.31 Given the recent reduction in the Bank of England base rate, it is possible that investment income will fall below budget by year end.  In this event, any shortfall will be offset by surpluses elsewhere in the portfolio of this committee, for example, it is anticipated that there will be an underspend on the audit fee.

 


 

 

Borrowing

 

2.32 As at 30 September 2016, no requirement for short or long term borrowing had arisen.

 

 

3     AVAILABLE OPTIONS

 

 

3.1     In considering the strategic position on the revenue budget at the end of

September 2016 the committee has been provided with details of the actions each service committee plans to take on significant variances.

The committee can chose to note those actions and reconsider the

outcomes at the end of the second quarter or it could chose to take further

action.

 

3.2     The capital programme is reporting slippage of £1,417,894 and expenditure of £4,409,536. Details of the programmes where major slippage occurs have been detailed at paragraph 2.13. The committee could agree the slippage as proposed or take and alternative action such as removal of the budget or transfer of the budget to other schemes. If such alternative action is taken the councillors should be aware that the medium term financial strategy sets a hierarchy of priorities for the capital programme and any alternative scheme should be the highest priority unfunded scheme currently proposed.

 

3.3     Details of the performance of the collection fund and the level of available balances are both as expected and the committee need only note this information at this time.

 

3.4     Treasury Management is for information only as the Audit, Governance & Standards Committee takes responsibility for considering changes that

may be required, for reference on to Council. The committee could make

reference to the Audit, Governance and Standards Committee of any

issues that it may wish to be considered at a future meeting.

 

 

4         PREFERRED OPTION AND REASONS FOR RECOMMENDATIONS

 

4.1     The committee is requested to note the content of the report and approve the proposed slippage in the capital programme to enable more accurate monitoring of the programme in future periods.

 

 

5         CONSULTATION RESULTS AND PREVIOUS COMMITTEE FEEDBACK

 

5.1     The second quarter’s budget monitoring report has been considered by each

of the other three service committees the key issues and their

consideration is set out in table 1 at paragraph 2.8. 

 

5.2     This report will not lead to further consultation.

 

 

6         NEXT STEPS: COMMUNICATION AND IMPLEMENTATION OF THE DECISION

 

6.1     The second quarter’s budget monitoring report will be considered by the

service committees in November 2016, culminating in a full report to this

committee.

 

6.2     There are no significant issues arising from this report that require action from this committee. The success of actions by the other service committees to manage the pressures in their budgets will be regularly reported to this committee through later versions of this report.

 

 

7         CROSS-CUTTING ISSUES AND IMPLICATIONS

 

Issue

Implications

Sign-off

Impact on Corporate Priorities

This report monitors actual activity against the revenue and capital budgets and other financial matters set by Council for the financial year.  The budget is set in accordance

with the Council’s medium term

financial strategy which is linked to the strategic plan and corporate priorities.

Director of Finance & Business Improvement

Risk Management

The Council has produced a

balanced budget for both capital and revenue expenditure and income for 2016/17 This budget is

set against a backdrop of limited resources and an difficult economic climate. Regular and comprehensive monitoring of the type included in this report ensures early warning of significant issues

that may place the Council at

financial risk. This gives this

committee the best opportunity to take actions to mitigate such risks.

The issues set out in this report do not exhibit the level of potential risk identified in previous years.

Director of Finance & Business Improvement

Financial

Financial implications are the focus of this report through high level budget monitoring. The process of budget monitoring ensures that

services can react quickly to

potential resource problems. The process ensures that the Council is not faced by corporate financial problems that may prejudice the delivery of strategic priorities.

Director of Finance & Business Improvement

Staffing

The budget for staffing represents approximately 50% of the direct spend of the council and is carefully

monitored. Any issues in relation to employee costs will be raised in this and future monitoring reports.

Director of Finance & Business Improvement

Legal

The Council has a statutory

obligation to maintain a balanced budget this monitoring process

enables the committee to remain aware of issues and the process to be taken to maintain a balanced budget for the year.

Interim Deputy Head of Legal Partnership

Equality Impact Needs Assessment

The budget ensures the focus of resources into areas of need as identified in the Council’s strategic priorities. This monitoring report ensures that the budget is delivering services to meet those needs.

Director of Finance & Business Improvement

Environmental/Sustainable Development

No specific issues arise.

Director of Finance & Business Improvement

Community Safety

No specific issues arise.

Director of Finance & Business Improvement

Human Rights Act

No specific issues arise.

Director of Finance & Business Improvement

Procurement

No specific issues arise.

Director of Finance & Business Improvement

Asset Management

Resources available for asset

management are contained within both revenue and capital budgets and do not represent a significant problem at this time.

Director of Finance & Business Improvement

 

8         REPORT APPENDICES

 

The following documents are to be published with this report and form part of the report:

·         Appendix I: Second Quarter 2016/17 Revenue Monitoring – Strategic Level

·         Appendix II: Second Quarter 2016/17 Capital Monitoring

·         Appendix III: List of investments as at 30 September 2016

 

 

9         BACKGROUND PAPERS

 

None