Agenda item

(Director of Resources) To consider the attached report (FPM-026-2016/17)

The Director of Resources presented a report detailing the proposed Council Budget for 2017/18, which used £108,000 from reserves but maintained the Council’s policy on the level of reserves throughout the period of the Medium Term Financial Strategy (MTFS). Over the course of the MTFS, the use of reserves used to support spending peaked at £139,000 in 2019/20 and reduced to £78,000 in 2020/21. The budget was based on the assumption that Council Tax would be frozen and average Housing Revenue Account rents would decrease by 1% in 2017/18.

The annual budget commenced with the Financial Issues Paper (FIP) being presented to the Committee on 14 July 2016, which continued the earlier start to the process and reflected the concerns over the reform of financing for local authorities. It highlighted the uncertainties associated with Central Government Funding, Business Rates Retention, Welfare Reform, New Homes Bonus, Development Opportunities, Transformation, Waste and Leisure Contracts and Miscellaneous including recession, income streams and pension valuation.

In setting the budget for the current year, Members had anticipated using £36,000 from the General Fund reserves which was possible as the MTFS approved in February 2016 had shown a combination of net savings targets and limited use of reserves. The limited use of reserves in 2016/17 was not significant as the MTFS at that time had been predicting the use of just under £0.38 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 potential reductions in New Homes Bonus. The projection showed a need to achieve additional net savings of £250,000 on the 2017/18 estimates, followed by £150,000 in 2018/19 and £100,000 in 2019/20 to keep revenue balances comfortably above the target level at the end of 2019/20. The budget guidelines for 2017/18 were therefore established as; the ceiling for CSB net expenditure be no more than £13.11 million including net growth/savings; the ceiling for DDF net expenditure be no more than £0.26 million; and the District Council Tax  be frozen.

The Director of Resources reported that Members had decided that the offer from DCLG of a four-year settlement had been accepted and figures were very much as expected with the SFA reducing over the four years by £2.43 million or nearly 45%.

The full retention of business rates had proven to be disappointing with the funding increasing from £3.02 million in 2015/16 to £3.32 million in 2019/20, an increase of £0.3 million or 9.9% and the tariff paid to the Treasury increasing by a similar percentage from £10.23 million to £11.17 million. Furthermore, the Councils retained business rates would exceed the SFA in 2019/20, incurring an additional tariff of £0.28 million and a disincentive to local authorities in devoting resources to economic development. The Council Tax had not increased since 2010/11 and the Cabinet Committee had advised that the Council Tax would not increase whilst the General Fund balance remained comfortably above the minimum requirement. The settlement confirmed the Council Tax referendum limit remaining at 2% and the Council would continue to phase out in equal steps the Parish/Town Local Council Tax Support as previously advised in 2017/18, 2018/19 and then stopping in 2019/20.

The Director of Resources advised that the DCLG had again under estimated the Council business rate income, with the Council receiving over £0.75 million in 2014/15 through Section 31 grants and was anticipated to reduce to £0.7 million in 2015/16 and £0.4 million in 2016/17 with the retail relief coming to an end. The Council remained in a business rates pool for 2016/17 and this would be monitored for 2017/18. Furthermore, the first year of the new rating list would be in 2017/18, which was meant to leave authorities no better or worse off, although adjustments could be required in 2018/19. The DCLG had also introduced three levels of transitional relief, which had created software issues and the submission to DCLG of the NNDR1 being delayed. This had been compounded by the introduction of a new system of “Check, Challenge, Appeal” for businesses to use in challenging their bills. There were also hundreds of appeals that were still outstanding on the current list and calculating an appropriate provision for appeals remained extremely difficult. The total provision against appeals was currently close to £5 million.

The Director of Resources advised that 100% local retention of business rates which had been widely welcomed, would mean that local government would retain it all, although the Government had advised that the policy would be fiscally neutral. Therefore any additional funding would be matched by a transfer of additional responsibilities that had previously been centrally funded and demand led with any increases and recessions reducing the funding available. The new system was expected to be implemented by 2019/20, although it looked unlikely and another consultation was expected early in 2017/18.

The welfare reforms had been expected to increase demand for LCTS and the chances of the scheme not becoming self-financing in 2016/17, although no major reductions in the tax credits and the introduction of the National Living Wage had seen the scheme closer to self-financing and no significant changes being made in 2017/18. Also the Benefits Cap reduction to £20,000 per household was likely to cause greater changes in people’s behaviour and working patterns. The lower cap had been phased in across the country during 2016/17 and so far 150 cases in the district had been affected and would probably become more evident in 2017/18. The Universal Credit (UC) continued to progress with the district scheduled for “full service” in September 2018 and the grant paid to local authorities to administer housing benefit and LCTS had been substantial reduced by £59,000 in 2016/17 and £42,000 in 2017/18, which represented a cut of over 8%.

The anticipated changes to the New Homes Bonus (NHB) received in 2016/17 had been included in the CSB with further reduction in 2018/19, allowing for a reduction of £1.1 million, however the DCLG had advised reductions of £2.5 million over the period from 2016/17 to 2020/21. The reason for the much larger reduction was the introduction of a baseline of 0.4% for 2017/18, meaning that only growth above 0.4% of the taxbase qualified for NHB. This meant that the NHB for 2017/18 would be £16,000 instead of £320,000. The consultation included the possibility of a baseline at 0.25%, so the imposition of this much higher baseline was a nasty surprise and was likely to be the case going forward as well, hence the reduction to £0.2 million by 2020/21. Also the reduction to the number of years the bonus was made payable from 6 to 4 had been confirmed with the full reduction being in 2018/19. Other proposals included within the consultation were to withhold NHB from authorities that had not got a Local Plan in place; or a reduction in payments, where planning approval had been granted on appeal. Although these had not been introduced for 2017/18, they would be considered again for 2018/19. The final settlement could provide some relief but to be prudent no additional support had been anticipated in the MTFS.

With regards to development opportunities the construction of the retail park was now progressing well, although there were still issues with the highways department at Essex County Council (ECC). The negotiations were also continuing with potential tenants and indications were that the projected rent levels should be achieved and the budgeted allowance for tenant incentives would not be exceeded. The professional advisors had stated that the annual rental income of £2.7 million was achievable and the MTFS included a prudent view, reducing this to £2.2 million to allow for any shortfall, management costs and interest. Progress had finally been made with the mixed use re-development of the St Johns area in Epping. The land acquisition from ECC took much longer than anticipated but was concluded in December 2016. Finally the former Winston Churchill pub site had also been progressing well and the Council had retained an interest in the ground floor retail element, which would be worth approximately £350,000.

Delays in the new housebuilding programme and the development schemes meant that it was possible to finance the capital programme in 2016/17 without any additional borrowing.  However, this would not be possible for 2017/18 and going forward, a different way of thinking would be required as capital would no longer be freely available and borrowing costs would be a key part of any options appraisals.

The target of £100,000 of savings had been achieved with savings generated across the Council. There were many transformation projects underway that would continue on into 2017/18 and beyond. The key accommodation review was well underway and a report was scheduled for Cabinet in March 2017, to determine the future of the current civic office site. Strong progress had also been made with the work on customer contact and this had the potential to significantly change the structure and working practices of the Council. The Invest to Save budget had an additional £0.2 million allocated in the 2016/17 revised estimates and an update on how the various schemes were progressing had been made to the Committee in November 2016.

The Waste Contract had been procured at a lower cost and the savings were included in the MTFS. However, issues with recycling and service delivery mean that CSB growth of nearly £0.5 million had been included in the revised estimates for 2016/17 together with £0.2 million of DDF expenditure. These costs were not sustainable in the long term and various options were already being discussed with Biffa at the Waste Management Partnership Board. The Leisure Management contract was due to expire in January 2013 but an option was exercised that extended the contract for three years. The new contract would begin on 1 April 2017, with a new provider for a period of 20 years and over the lifetime of the contract the average CSB savings would be more than £1 million per year. The payments under the contract varied considerably between years and so the CSB savings were phased in over the first four years of the contract.

In addition, there were a number of other issues that needed to be considered which included the general economic cycle and the potential for a recession. The pension contributions based on the March 2016 valuation showed that the scheme was now 85% funded and the options for payments over the next three years had been reduced to 19 years, which had created a small amount of CSB growth in 2018/19 and 2019/20.The new apprenticeship levy required a significant expansion of the existing apprenticeship programme with CSB growth of £129,000 in 2017/18.

The Cabinet Committee were reminded that the strategy had been based on a number of important assumptions, including the following:

•           Future Government funding would reduce as set out in the draft settlement, with Revenue Support Grant turning negative in 2019/20;

•           CSB growth had been restricted with the CSB target for 2017/18 of £13.11 million achieved.  The known changes beyond 2017/18 had been included but if the new leisure contract failed to yield the predicted savings other efficiencies would be necessary;

•           It had been assumed that the retail park would achieve the revised opening date in 2017 and that income would be in line with the consultant’s projections;

•           It had been assumed that no transitional relief would be provided to reduce the impact of the reduction in New Homes Bonus;

•           All known DDF items were budgeted for, and because of the size of the Local Plan programme a transfer in of £0.5 million from the General Fund Reserve would be required in 2018/19 to ensure funds were available through to the end of 2020/21;

•           Maintaining revenue balances of at least 25% of NBR. The forecast showed that the deficit budgets during the period would reduce the closing balances at the end of 2020/21 to £5.7 million or 45% of NBR for 2020/21, although this could only be done with further savings in 2018/19 and subsequent years.

The Director of Resources reported that the balance on the HRA at 31 March 2018 was expected to be £2.022 million, after a surplus of £494,000 in 2016/17 and a deficit of £1.674 million in 2017/18. The estimates for 2017/18 had been compiled on the self-financing basis and so the negative subsidy payments had been replaced with borrowing costs. The next three years required the reduction to Council rents of  1%, would impact on the HRA Business Plan and would be reviewed during 2017/18.The budgets for 2017/18 and revised 2016/17 had a deficit in 2017/18, although the HRA had adequate ongoing balance.

Finally, the Director of Resources drew the Cabinet Committees attention to the Council’s Capital Programme which totalled nearly £125 million over the five year period and it was anticipated that the Council would still have £1.7 million of capital receipt balances at the end of the period. (One-four-one amounts to be used in the house building programme). The £185 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 Committee expressed their thanks to B Palmer, P Maddock and their Officers for their work on the Council’s budgets, forward thinking and looking after the Council.

Recommended:

(1)        That in respect of the Council’s General Fund Budgets for 2017/18, the following guidelines be adopted;

(2)        That including the revised revenue estimates for 2016/17, the 2017/18 HRA budget be recommended for approval;

(3)        That the rent reductions proposed for 2017/18, by an average overall fall of 1% be noted;

(4)        That the Chief Financial Officer’s report to the Council on the robustness of the estimates for the purposes of the Council’s 2017/18 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 21 February 2017.

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.