Agenda item

Report of Deputy Chief Executive.

Cabinet lead member: Councillor Gill Mattock.

(1) Updated MTFS and associated plan 2016-20 approved.

(2) Balance of assumptions made in strategy agreed.

(3) Emerging budget proposals for 2017/18 to be brought to cabinet in December prior to detailed consultation and that the MTFS be re-presented if material changes arise in the interim.

(4) Principal risks of strategy (appendix1) agreed.

15.1 Cabinet considered the report of the deputy chief executive (and chief finance officer) giving an update on the council’s financial strategy which focussed on the general fund for the period up to 2020.  A separate report on the 30-year housing revenue account business plan would be presented to cabinet in the autumn.  The council was faced with reducing support from government and in order to protect front line services needed to find efficiency savings and new income streams to maintain a balanced budget.  The ability to raise council tax was limited to 2% (or £5 per band D property) per annum.  The use of reserves was only valid for one off expenditure in order to keep the budget sustainable.

15.2 The medium term financial strategy (MTFS) was a rolling 4 year strategy that took into account:

• The external financial environment.
• The overall financial demands of services.
• The council’s existing and projected financial resources.
• The council’s political priorities and stated aims.
• The council’s sustainable service delivery strategy.
• The council’s corporate plan.
• The major service strategies and plans.

The MTFS had last been approved in July 2015 and set the backdrop for the 2016/17 budget setting process as well as a informing a 3-year rolling service and financial planning cycle. 

15.3 Over the life of the last parliament the government effectively reduced the general support to the council by some 50% in cash terms which equated to over 60% in real terms.  Government funding was expected to fall a further 30% over the current parliamentary cycle to 2020. 

15.4 To protect front line services the council had put in place a priority based budget system that had kept pace with the scale of cuts to funding and made provision for reinvestment in services.  The council aimed to become less dependent on day to day revenues to run services, instead opting to use any spare financial capacity to enhance the capital programme.  The council’s DRIVE programme provided the programme to deliver efficiencies that support the council’s corporate plan. The MTFS and capital strategy identified and directed resources at a strategic level, which were then compounded via the service and financial planning and budget setting process.

15.5 In setting recent annual budgets the council had achieved its “golden rule” of meeting its ongoing budget requirement from ongoing resources in each year.  Technically, the rule applied to the cycle of the MTFS, and it was reasonable to use reserves to smooth out the budget as savings accrued over the cycle.  By not using reserves in this manner it had meant that reserves over the minimum level were available for one off investments in services decided via the service and financial planning process.

15.6 The council, as a registered social landlord, was obliged to run a housing revenue account (HRA) that was statutorily ring-fenced from its general fund.  A 30-year rolling business plan had been adopted for the HRA.  The council was working in partnership with Eastbourne Homes Ltd. (EHL), a wholly owned subsidiary, to deliver efficiency savings in partnership using shared services.  All savings accruing to the HRA were reinvested in housing services.  During the last 2 years over £600,000 of ongoing efficiencies had been realised with £500,000 built into the EHL repairs budget and an overall reduction of £100,000 being realised in the management fee paid to EHL by the HRA.

15.7 Members highlighted the potential impact of the government’s recent housing reforms and in particular the levy on ‘high value’ asset sales to be paid to government to fund housing association right to buy sales.  An estimated £6-8m per annum would be taken out of the housing revenue account at a time when the council faced rising demand for accommodation and the provision of temporary and emergency accommodation was increasing.

15.8 The government had set an objective to eliminate the nation’s budget deficit by the end of the parliament.  This would involve various measures that would reduce the amount of resources to local government including:

·         A further reduction in general central government support 2017-2020.

·         Reducing the amount of resource available to the Department for Communities and Local Government as it was not a “protected department” which would impact on specific grants.

·         Increasing in the funding for new homes bonus (NHB) paid for by further reducing the revenue support grant (RSG) which was set to be zero for the council by 2019.

·         A further year on year reduction in housing benefit administration grant (on top of the £250,000 cumulative reduction in the last 5 years).

15.9 The actual effect of the national deficit reduction programme to this council had been the amount made available via the revenue support grant (RSG).  The council received £8.9m in RSG in 2010/11, £2.8m in 2016/17 and reducing to zero by 2019. Whilst a scheme to retain an element of business rates was introduced in 2013 with an announcement due in the coming year of a move to increase retention to 100%, there was little or no prospect that this would achieve an increase in the overall level of funding available.

15.10 The report set out the council’s strategy in relation to dealing with the effects of inflation in the costs of goods and services and pay, pension costs, fees and charges, interest rates, council tax, government grants and retained business rates, savings, the scope for new or enhanced service provision, the housing revenue account, reserves and the mitigation of risks.  Appendix 1 to the report set out the potential risks and mitigating measures available to the council. 

15.11 Taking all known factors and assumptions, as outlined in the report, the council needed make an average level of new additional savings and/or new income streams of around £3m over the next 3 years.  Savings would chiefly come from the council’s joint transformation programme, procurement and new income streams.  Although this was in line with the average of savings that the council had achieved over the last 6 years, new ideas and initiatives would be required.  It was noted that there were often significant lead-in periods to achieving savings so targets would need to be set at a higher level internally to offset any such delays.

15.12 The 2015/16 draft accounts showed the balance available to the general fund to be c.£3.6m.  This was the assumed starting point for the MTFS. There was a planned draw on reserves to meet non-recurring expenditure in subsequent years at around £100,000 per annum.  No assumption on underspends was made in the strategy.  The previous MTFS recommended a minimum general fund reserve of at least £2m.  The budget paper in February 2016 itemised the risks and as they had not changed significantly in the interim, it was assumed that the minimum level of reserves should be fixed at £2m for the MTFS.  The MTFS summary (appendix 2) showed that the general reserve would be reduced over the life of the MTFS to an estimated £2.8m excluding any windfalls or underspends.  The council had set aside £500,000 from general reserves in the economic regeneration reserve to pump prime initiatives aimed at promoting the local economy and creating new income streams for the council to help offset the reductions in government funding.

15.13 The council’s service and financial planning process would further refine the strategy and a draft budget for 2017/18 would be presented to cabinet in December.  Cabinet was advised that the paper had been written prior to the 23 June EU referendum and that resolution 3 below had been worded to allow for an update to the MTFS in the event that there were material changes to the assumptions in the paper.  The council was likely to be affected by changes in the nation’s financial circumstances and was sensitive to a wide range of factors including interest rates, pay and prices among others.

15.14 Resolved (key decision): (1) That the updated medium term financial strategy and associated plan 2016-20 as summarised in appendix 2 of the report be approved.

(2) That the balance of assumptions made in the strategy be agreed.

(3) That that the emerging budget proposals for  2017/18 be brought to cabinet in December prior to detailed consultation and that the MTFS be re-presented if material changes arise in the interim.

(4) That the principal risks of the strategy set out in appendix1 of the report be agreed.