Agenda item

Report of Deputy Chief Executive and Chief Finance Officer.

Cabinet lead member:  Councillor Gill Mattock.

 

Full council, at meeting on 17 February 2016, recommended to approve:

(a) General fund budget for 2015/16 (revised) and 2016/17 (original) as set out in appendix 1 to report including growth and savings proposals for 2016/17 as set out in appendix 2 to report.

(b) Increase in the council tax of 1.9% resulting in an unaltered ‘Band D’ charge of £228.51 for 2016/17.

(c) General fund capital programme and financing 2015/19 as set out in appendix 3 to report.

(d) Regarding the government’s offer of a 4-year settlement, council be minded to accept offer subject to receipt of further detail and decision on whether or not to accept delegated to chief finance officer in consultation with lead cabinet member.

 

61.1 Councillors Ungar and Di Cara addressed the cabinet.  Councillor Ungar said he was pleased to see the inclusion in the proposed 2016/17 capital programme of 2 schemes in Old Town; £25,000 for Old Town recreation ground to achieve ‘Green Flag Award’ status and £50,000 for the Green Street public conveniences.  Councillor Di Cara queried the figure given in the report for reserves.  The chief finance officer said that the £4m figure included other reserves such as that for the Devonshire Park project.

 

61.2 Cabinet considered the report of the deputy chief executive and chief finance officer setting out the general fund revenue budget proposals for 2016/17 and a 3-year capital programme 2015/19.  The medium term financial strategy (MTFS) had been revised in July 2015 and the cabinet had agreed a draft 2016/17 budget proposal last December.  The MTFS and resulting draft budget had been subject to extensive consultation and previously reported to cabinet and members of the scrutiny committee. 

 

61.3 The budget was the product of various plans and strategies as part of an integrated and corporate planning process and was linked principally to:

·         The medium term financial strategy

·         Asset management plans

·         The corporate plan

·         Workforce strategy

·         Treasury management strategy

·         Service plans

·         Housing revenue account business plan

·         DRIVE corporate transformation programme

·         Sustainable service delivery strategy

 

61.4 The chief finance officer had a legal responsibility to give positive assurances on the robustness of the estimates used in the budget and the level of reserves.  He commented that if the recommendations in his report were agreed then these assurances would prevail.

 

61.5 The budget proposals included:

·         An increase in the council tax in 2016/ 17 of 1.9%; the first increase for five years.

·         Overall savings/new income totalling £0.6m (4% of the net budget).

·         Efficiency savings of £0.5 (5% of the net budget).

• Inflation and unavoidable costs of £0.8m (5% of the net budget).

·         Other recurring service growth of £0.1m.

·         Non recurring service investments of £0.6m.

·         General reserves averaging in excess of £4m (against a minimum recommended of £2m).

·         Capital receipts of £0.4m invested in new capital schemes.

 

61.6 The budget represented management of financial risks by:

·         Building on a favourable outturn position.

·         Balancing the base budget requirement without needing to use reserves for recurring expenditure.

·         Identifiable and deliverable savings with accountability and no general unidentified targets.

·         Reserves well above the minimum level.

·         Zero basing of minor reward grants.

·         Providing the funding required for the DRIVE change programme to deliver the future savings required by the MTFS via the strategic change fund.

 

61.7 The underlying methods of local government financing had changed significantly in recent years including the wrapping up of grants in the base “Standard Funding Assessment” notably:

·         The council tax freeze grants (2011-15)

·         Some new burdens grants

·         Homelessness grant

 

61.8 For Eastbourne the headline figures of the government settlement were:

·         A further reduction in revenue support grant of £0.9m (30%) to £1.8m (reduced from £10.4m in 2010).

·         Partially offset by new homes bonus and section 31 grants (additional £0.2m in 2016/17).

·         Eastbourne would receive the second largest reduction in “spending power” of all local authorities in the 4 year period to 2020.

·         The government headline figure was a reduction of 16.4% , however this took into account the ability to raise council tax, predicted growth in the tax base as well as increases in the new homes bonus.

 

61.9 The national non-domestic business rate (NNDR) base had remained static largely as a result of the continued provision for appeals and resulting collection fund deficit, despite an inflationary increase which was linked to the September 2015 RPI at 0.78%.  In addition to the formula grant the government was currently proposing to add the council tax freeze grant for the current year 2015/16 (£85,400) by way of a section 31 grant.

 

61.10 The government had announced that the council would receive £1.2m in total of new homes bonus (NHB) due to the growth in housing in the area.  The grant was paid in tranches for six years.  The 2016/17 figure included all 6 tranches.  The funding was not guaranteed beyond the 6 year horizon for each tranche.  The government was financing the additional NHB from reductions in rate support grant (RSG), therefore, whilst volatile, it was currently the preferred method of distribution of resources.  A further proposal to limit future awards to 4 years was currently under consideration.  At the time of writing, retention of an element NHB/RSG had been made that could equate to £100,000 for the council.

 

61.11 The government had asked local authorities to say whether they wished to have a four year settlement from 2016/17.  There was a requirement to publish a four year efficiency statement that could only be varied by the full council.  Current advice was that the efficiency target element of the MTFS would suffice in this respect and cabinet was recommended to accept the proposal.

 

61.12 It was proposed that council tax increase by 1.9% for 2016/17; which would result in a band D rate of £228.51 (an increase of £4.32 over the whole year).  This would be the first increase for 5 years. The council was required to give an indication of likely future council tax rises.  It was still expected that council tax would rise by no more than 2% per annum for each of the next three years.  This was the government’s target for inflation and also the current ceiling on rises that would otherwise require a referendum in order to exceed.  Within this context, for 2016/17, the council would raise £7.7m from its share of the council tax.  This was determined by multiplying the council tax base of band D equivalent dwellings by the band D tax rate of £228.51.  This was unchanged from the tax base setting report submitted to cabinet on 9 December last.  In addition, there would be a distribution of £180,000 payable by the council to the collection fund due to a small collection fund surplus.

 

61.13 A summary of the resources available was given, as shown below:

	£’m
Government formula grant	(1.8)
Retained business rates (normal)	(3.9)
Retained business rates (East Sussex pool)	(0.2)
New homes bonus	(1.2)
Section 31 grants	(0.2)
Collection fund surplus	(0.2)
Council tax	(7.7)
Total resources available (rounded)	(15.2)

 

In order to achieve a balanced budget without using reserves, the council would need to set a net expenditure budget for 2016/17 of £15.2m.

 

61.14 In addition to the general grant distributed through the new formula grant system, which was given towards financing the council’s net expenditure, the government also provided some specific grants.  These specific grants would fund in part or in full, service costs.

 

Grant	2016/17 £’m
Housing benefit subsidy	(c.40.0)
Housing benefit administration	(0.6)

 

Housing benefit subsidy was intended to reimburse the council for the awards of benefit it made to eligible tenants in both the private and public rented sector.  Not only was this by far the largest single specific grant that the council received, but it was performance related.  It was noted that the council had improved its performance in recent years.  A new system of universal credits was due to be completed by 2019 which would see the caseload moved to the Department for Work and Pensions.  The administration grant had been reduced by 5% per annum for the last 5 years.  It was noted that the former homelessness grant (to assist with prevention and to find alternative accommodation other than bed and breakfast) had now been subsumed into the main grant system.

 

61.15 The detailed budget proposals were set out in appendix 1 to the report.  Movement from the 2015/16 budget to the 2016/17 proposed budget were summarised as follows:

 

Movement from 2015/16  base budget:	£m	£m total
Change in resources:
Government grants	0.5
Council tax surplus	(0.2)
Council tax	(0.4)
		(0.1)
Cost increases:
Inflation and unavoidable costs	0.7
Other growth and changes in income	0.1
		0.8
Savings: Efficiency savings	(0.5)
Increased income/other changes	(0.2)
		0

 

61.16 Details of proposed growth and savings were given in full in appendix 2 to the report.  The proposals set out in the report would allow full council on 17 February to approve a balanced budget in line with available resources and without the need to use reserves.

 

61.17 The council now followed a rolling 3-year financial planning cycle and the service and financial plans had been set out in detail for 2016/17.  The next MTFS due in July would project forward a further 3 years and continue to provide the basis of service and financial planning for the medium term.  It was noted that the significant level of the savings required for the next MTFS had already been identified.  Further reports to cabinet would detail the business plans under the transformation programme (DRIVE) and sustainable service delivery strategy (SSDS).  The government had set out a revised 4-year programme of reductions in funding and the council’s current MTFS already took account of this overall however the MTFS would be refreshed in July following the year end closedown.

 

61.18 The report detailed the principal financial risks the council was likely to face, as follows:

·         Housing benefit performance.

·         Inflation on goods and services.

·         Income from services linked to customer choice (theatres, tourism; sports centres, car parking).

·         Legal challenges.

·         Savings being delayed.

·         Excessive demand for services.

·         Failure to realise capital receipts to finance the capital programme.

 

61.19 On an exception basis, information on each of the risk areas identified above, together with any new and significant risks that might emerge over the course of the year, would be included in each financial performance report to cabinet and scrutiny during the 2016/17 financial year.  A corporate contingency budget of £140,000 (1% of the overall net budget requirement) for unbudgeted expenditure or reductions in income had been allowed.  This was in addition to the known inflation that had been built into service budgets. 

 

61.20 The chief finance officer was obliged to report on the adequacy of the proposed financial reserves, and determine the minimum level required.  There was no statutory minimum requirement, but reserves had to be set at a prudent level given the activities of individual councils and potential liabilities that they faced or might face in the future, i.e. a risk based approach.  The council’s earmarked reserves were reviewed at least annually for adequacy.  If at any time the adequacy was in doubt the chief finance officer was required to report on the reasons, and the action, if any, that he considered appropriate.  The council would always seek to contain any unforeseen additional costs within allocated annual budgets, including the contingency budget.  However, it was proposed that, in addition, the minimum level of general reserves should be set at £2m.  Should the budget recommendations be followed, the level of general fund reserves was projected at over £4m by March 2017.  In addition to acting as a potential buffer against future risks, this should create further opportunities for one off investments in the future.  The council had followed a process of consolidating its reserves into the corporate reserves above.  This better facilitated corporate priority planning.  The only other reserves that the council held had specific obligations attached (e.g. Section 106/partnership contributions).

 

61.21 The principles for formulating the capital programme were set out in the budget report to cabinet last December and the updated programme was given in appendix 3 to the report (proposed new schemes were shown in bold text) and showed a projected outturn for 2015/16 of £21.915; a total budget for 2016/17 of £12.822m; £15.884m for 2017/18; £19.855m for 2018/19; £6.555m for 2019/20 and £1.355 for 2020/21.  The council had a policy of only using borrowing for schemes that were ‘invest to save’ and could generate enough savings or additional income to service the financing costs.  In addition to schemes that qualified for borrowing, the council had a further £400,000 of capital receipts to apply to the programme.  No uncertain future capital receipts had been factored into the available resource so there would be opportunities to supplement the programme as the 3-year period progressed.  Potential disposals would be identified through the asset management plans.  The housing revenue account capital programme was set out in another report on the agenda (see minute 62 below) and was financed entirely from HRA resources.  Once approved it would be amalgamated with the general fund programme.

 

* 61.22 Resolved (budget and policy framework): That full council, at their meeting on 17 February 2016, be recommended to approve the following:

 

(a) A general fund budget for 2015/16 (revised) and 2016/17 (original) as set out in appendix 1 to the report including growth and savings proposals for 2016/17 as set out in appendix 2 to the report.

 

(b) An increase in the council tax for Eastbourne Borough Council of 1.9% resulting in a ‘Band D’ charge of £228.51 for 2016/17.

 

(c) A general fund capital programme and financing 2015/19 as set out in appendix 3 to the report.

 

(d) That with regard to the government’s offer of a 4-year settlement, as outlined in paragraph 61.11 above, the council be minded to accept the offer subject to the receipt of further detail and that the decision on whether or not to accept be delegated to the chief finance officer in consultation with the lead cabinet member for finance.