Agenda item

(Director of Resources) To consider the attached report (FPM-028-2015/16).

The Director of Resources presented a report detailing the proposed Council Budget for 2016/17, that woulduse £36,000 from reserves and enable the Council’s policy on the level of reserves to be maintained throughout the period of the Medium Term Financial Strategy (MTFS). The use of reserves would peak at £345,000 in 2017/18 and reduce to £3,000 in 2019/20. The budget was based on the assumption that Council Tax would not be increased and that average Housing Revenue Account rents would decrease by 1% in 2016/17.

 

The annual budget process commenced with the Financial Issues Paper (FIP) being presented to this Committee on 20 July 2015 and reflected concerns over the reform of financing for local authorities, highlighted the uncertainties associated with Central Government Funding, Business Rates Retention, Welfare Reform, New Homes Bonus, Development Opportunities, Income Streams, Waste and Leisure Contracts and Transformation.

 

In setting the budget for the current year Members had anticipated using £42,000 from the General Fund reserves, which had been possible because the MTFS approved in February 2015 showed a combination of net savings targets and limited use of reserves that adhered to the policy on reserves over the medium term. The limited use of reserves in 2015/16 was not significant as the MTFS had predicted the use of just over £0.84 million of reserves to support spending in the following three years.

 

The revised MTFS presented with the FIP took into account all the changes known at that point and highlighted the additional reductions in support grant. The projection showed a need to achieve net savings of £150,000 in 2016/17 and 2017/18, followed by £350,000 in 2018/19 and 2019/20, to keep the revenue balances comfortably above the target level at the end of 2019/20. Therefore the budget guidelines for 2016/17 had been established as the following;

 

(i)                                            That the ceiling for CSB net expenditure be no more than £13 million  including net growth/savings;

(ii)                                           That the ceiling for DDF net expenditure be no more than £0.55 million; and

(iii)                                          That the District Council Tax would increase by 2.5%.

 

The Director of Resources reported that the draft figures supplied by Central Government immediately before Christmas had set out the Settlement Funding Assessment (SFA) and also introduced a new concept of Core Spending Power. Over the next four years the SFA would be reduced by £2.45 million or nearly 45% and the possibility of retaining full retention of business rates looked disappointing, only increasing by £0.28 million or 9.3% up until 2019/20.Also during this time the tariff the Council payed back to the Treasury increased by a similar percentage from £10.23 million to £11.17 million and because the retained business rates would exceed the Councils SFA in 2019/20, an additional tariff would result in a negative Revenue Support Grant of £0.28 million in 2019/20.

 

The overall funding reductions across the period using Core Spending Power (CSP) were much lower, with a fall of £2.05 million or 13.5% and the policy of providing additional grant to limit increases in Council Tax was now over, with the Government removing grants from the funding system. Local authorities were to fund themselves from Council Tax and retained business rates with the draft settlement showing that Council Tax figures were to be increased by 1.75% per annum throughout the period and that significant increases had been assumed in the taxbase as well to get to the overall increases. It had been assumed that Members had not wanted to increase the Council Tax while the General Fund balance remained comfortably above the minimum requirement and there was limited flexibility to increase Council Tax by more than the assumed 1.75% as the draft settlement maintained the referendum limit at 2%. The overall reduction in SFA of 16.3% was common to each element of the Funding Assessment and funding to parish councils had been reduced on the same basis, as in previous years and it had been proposed to reduce this by 16.3% (£39,192) for 2016/17. These amounts need to be seen in the light of the total parish precepts for 2015/16 being over £3 million.

 

The Council was currently in a business rates pool for 2015/16 and was likely to be in a pool again for 2016/17, therefore no levy had been payable to the Treasury but some growth would have to be shared with Essex County Council and Essex Fire Authority. The rate of growth in the business rate income had been far higher than DCLG estimated and included a number of adjustments and the introduction of retail rate relief which was included in the Section 31 grant. This had become so significant now, that for 2015/16 revised and 2016/17 it had been shown separately in the MTFS. In 2014/15 the Council received over £0.75 million of Section 31 grant, which had been anticipated to reduce to £0.7 million in 2015/16 and £0.4 million in 2016/17 due to retail relief coming to an end.

 

The Director of Resources advised that it was felt that authorities had seen income in excess of the DCLG estimates because of errors in the DCLG calculations on the potential losses on appeals. Currently, the Council had over 450 appeals still outstanding with the Valuation Office, with one property in the south of the district being appealed which had a rateable value approaching £6 million and could result in a shortfall, if successful. Therefore the total provision against appeals was currently close to £4 million. The revised 2015/16 figure included losses on business rates of £253,000 and a surplus on Council Tax of £211,000 and the 2016/17 figure includes losses on business rates of £544,000 and a surplus on Council Tax of £275,000. It was felt unlikely that the Council would get any more fresh appeals on the current rating list and so no further losses were anticipated beyond 2016/17. No surpluses were anticipated on the Council Tax going forward and neither business rate deficits nor Council Tax surpluses were anticipated beyond 2016/17, consequently the Collection Fund Adjustment line had no amount included from 2017/18 to the end of the MTFS.

 

With regards to Welfare Reforms, the reductions in tax credits had not taken place in the Chancellor’s budget and so the Local Council Tax Support (LCTS) scheme would become closer to self-financing in 2016/17. Furthermore the Benefits Cap, limiting the total amount of benefits a household could receive in a year to £20,000 would be phased in across the country during 2016/17 and was likely to cause greater changes in people’s behaviour and working patterns. There was also slow progress with Universal Credit (UC), which would see the Council dealing with UC cases in February 2016 for new single claimants. There was still no clarity over the time period and process for the migration of our existing housing benefit claims to UC and the DWP was still to decide on the role it wanted local authorities to perform under the new system. Finally the DWP were achieving their savings through reducing the grant paid to local authorities to administer housing benefit and the reduction for 2016/17 would be £73,000, which was a cut of over 16%.

 

The New Homes Bonus (NHB) had seen the Council receive nearly £2.1 million for the first 5 years of NHB in 2015/16. As part of the draft settlement the Government issued a technical consultation on NHB which aimed at reducing the overall cost by £800 million or 55%. The cumulative effects on the MTFS were reductions to £2.2 million in 2017/18 and £1.4 million in 2018/19 because of the assumed reduction of 50% for new NHB in 2017/18 due to the Local Plan being a  work in progress. By 2019/20 the figure had improved as the relatively poor year of NHB due to lower than average growth in 2014/15 dropped out of the calculation and was replaced by a year assumed to be closer to the average. The consultation on the proposed changes to NHB closes on 10 March 2016 and it was intended to submit a draft response to the Resources Select Committee on 9 February 2016 with the future versions of the MTFS being adjusted once the exact nature of the changes were known.

 

With regards to Development Opportunities, the Council now had sole ownership of the Langston Road site and had awarded the contract for highways works. Therefore it had been appropriate to start building approximate amounts into the MTFS. The professional advisers had stated that an annual rental income of £2.5 million was achievable and a prudent approach had been taken and the amount had been reduced to £2 million, to allow for any shortfall, management costs and interest. The main construction contract had been unsuccessful tendered and therefore the projected opening date for the park had moved back from Christmas 2016 to Easter 2017. The net rental income in the MTFS included £0.26 million for 2017/18, increasing to £1.65 million in 2018/19 and then the full £2 million in 2019/20. The progress on the site in the St Johns area of Epping had been much less encouraging but an amount had been included in the capital programme to allow the land purchase to proceed although no other amounts had been allowed for in the MTFS.

 

The income position had been overall very positive, including a possible surplus of £50,000 for Off Street Parking, £75,000 for Building Control, £200,000 for Development Control and on target for Licensing and Fleet Operations; although Lands Charges could possible see a shortfall of £50,000. Another key income was the North Weald Market, as the contract had now been re-let and the declining  income had been stopped. The new operator had made a positive start and the contract included an income share, so the revenue could grow again in subsequent periods.

 

Two of the Council’s high profile and high cost services are provided by external contractors, Biffa for waste and SLM for leisure. Following an extensive competitive dialogue procedure Biffa took over the waste contract in November 2014. The contract hand over and the first six months of the new service went well, although in May 2015 the service was re-organised on a four day week basis and considerable difficulties were encountered. The service had now been stabilised with Biffa committing significant additional resources. The service was procured at a lower cost and the savings were included in the MTFS.

 

The leisure management contract was due to expire in January 2013 and was extended for a further three years and has now been extended again to allow a procurement exercise to be completed. There was an intention to follow a similar route to the waste procurement with the use of competitive dialogue and the MTFS anticipated that the new contract would commence during 2016/17 and included CSB savings of £75,000 in 2016/17 and a further £175,000 in 2017/18. The size and timing of these savings would be kept under review as the competitive dialogue procedure progressed.

 

The transformation budget of £150,000 was included in the DDF for 2014/15 to allow the Chief Executive to take forward Transformational Projects. The funding had now been re-phased with £33,000 in 2015/16 and £77,000 in 2016/17. The bulk of the money, approximately £110,000, was being spent on a fixed term 18 month contract for the Head of Transformation. The remaining £40,000 was being used by Legal Services for electronic records and document management.The MTFS included a saving of £100,000 from transformation in 2016/17 and the Head of Transformation is working on a number of ideas to deliver efficiencies.

 

The Invest to Save budget of £0.5 million had a number of schemes coming forward including the use of LED lighting in the car parks and investing in additional equipment for the Grounds Maintenance Service with just over half of the funding being allocated so far.

 

The MTFS in July 2015 included net CSB savings of £660,000 for 2016/17 and the revised 2015/16 budget had net savings of £573,000. The most significant item not already covered above, was a change in the rate at which local authorities had to pay National Insurance contributions. From 2016/17 the contributions would increase to 13.8%, which added £450,000 to the CSB. No adjustment had been made to the MTFS in July 2015 for this change as the Local Government Association had been campaigning for funding for this change in accordance with the New Burdens Doctrine. This doctrine requires the Government to match new costs imposed on local authorities with new funding. However the Government had determined that the doctrine did not apply in this case. As greater savings had been achieved than had been allowed for in July 2015, the inclusion of the additional £450,000 for the change in national insurance payments had only pushed the projected CSB £250,000 above the target. The updating of the estimates for business rate income had meant that despite this increase in the CSB the projected use of the General Fund in 2016/17 had reduced by £115,000 and so the higher level of CSB was clearly affordable and it had been proposed to increase the CSB target to £13.25 million.

 

The DDF net movement for 2016/17 was £0.697 million and the largest cost item was £552,000 for work on the Local Plan. The Local Plan was a substantial and unavoidable project and from 2015/16 to 2018/19 DDF funding of £1.47 million had been allocated to it. Other significant items of expenditure included £110,000 for the planned building maintenance programme and £68,000 for document scanning in Development Management.

 

The DDF programme was £147,000 above the target for 2016/17. However, this needed to be balanced with the reduction in 2015/16 as the predicted spend in the previous MTFS of £1.844 million had been reduced by £0.795 million to £1.049 million. Therefore taking the two years together there was a net decrease in DDF spending of £0.648 million and it was proposed to increase the DDF ceiling for 2016/17 from £0.55 million to £0.697 million. The DDF was predicted to continue to have funds available through to the end of the period covered by the MTFS.

 

The Director of Resources reported that the balance on the HRA at 31 March 2017 was expected to be £2.01 million, after deficits of £69,000 in 2015/16 and £493,000 in 2016/17. The estimates for 2016/17 had been compiled on the self-financing basis and so the negative subsidy payments had been replaced with borrowing costs. The requirement for the next four years was to reduce rents by 1%. This change was one of several that had impacted on the HRA Business Plan and a review would be undertaken during 2016/17, to determine the necessary measures to respond to the changes and the contribution to the Self-Financing Reserve had been suspended and although there were deficits in both years the HRA had adequate ongoing balances.

 

Finally, the Director of Resources drew the Cabinet’s Committee’s attention to the Council’s Capital Programme which currently exceeded £171 million of expenditure over five years, with £3.5 million of usable capital receipts at the end of the period, although these were one-four-one amounts to be used in the house building programme. The £190 million of debt for the HRA self-financing had meant that the Council was no longer debt free and the Prudential Indicators and Treasury Management Strategy had been amended. The size of the Capital Programme would mean that additional borrowing would be required during 2016/17.

 

Members congratulated Officers on their work for the budget.

 

Recommended:

 

(1)          That in respect of the Council’s General Fund Budgets for 2016/17, the following guidelines be adopted:

 

(a)        the revised revenue estimates for 2015/16, and anticipated decrease the General Fund balance by £1.55 million;

 

(b)        an increase in the target for the 2016/17 CSB budget from £13.0 million to £13.25million (including growth items);

 

(c)        an increase in the target for the 2016/17 DDF net spend from £0.55 million to £0.75 million;

 

(d)        no change in the District Council Tax for a Band ‘D’ property, to retain the charge at £148.77;

 

(e)        the estimated decrease in General Fund balances in 2016/17 of £36,000;

 

(f)        the four year capital programme 2016/17–19/20, including the use of £3 million of the General Fund balance in 2015/16;

 

(g)        the Medium Term Financial Strategy 2015/16 – 19/20;

 

(h)        the Council’s policy on General Fund Revenue Balances to remain that they are allowed to fall no lower than 25% of the Net Budget Requirement.

 

(2)          That the HRA budget 2016/17 including the revised revenue estimates for 2015/16 be recommended for approval;

 

(3)           That the application of rent reductions proposed for 2016/17 will give an average overall fall of 1%; and

 

(4)          That the Chief Financial Officer’s report to the Council on the robustness of the estimates for the purposes of the Council’s 2016/17 budgets and the adequacy of the reserves be noted.

 

Reasons for Decisions:

 

The decisions were necessary to assist Cabinet in determining the budget that would be placed before Council on 16 February 2016.

 

Other Options Considered and Rejected:

 

Members could decide not to approve the recommended figures and instead specify which growth items they would like removed from the lists, or Members could ask for further items to be added.