Agenda item

(Director of Resources) To consider the attached report (FPM-021-2017/18).

The Director of Resources presented a report detailing the proposed Council Budget for 2018/19, which added £1.14 million to reserves and 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 to support spending peaks at £326,000 in 2020/21, reducing to £285,000 in 2021/22. The budget had been based on the assumption that Council Tax would not increase and that average Housing Revenue Account rents would decrease by 1% in 2018/19.

The annual budget process commenced with the Financial Issues Paper (FIP) being presented to the Sub-Committee on 20 July 2017 and continued the earlier start to the process, which reflected 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, Miscellaneous, including recession and pay awards.

In setting the budget for the current year members had anticipated using £100,000 from the General Fund reserves, which had been possible as the MTFS approved in February 2017 showed a combination of net savings targets and limited use of reserves. The limited use of reserves in 2017/18 had not been significant because the MTFS at that time had predicted 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 uncertainties around income from business rates. The projection showed a need to achieve additional net savings of £300,000 on the 2018/19 estimates, followed by £250,000 in 2019/20 and £150,000 in 2020/21, to keep the revenue balances comfortably above the target level at the end of 2020/21.

The budget guidelines for 2018/19 were therefore established as; the ceiling for CSB net expenditure be no more than £12.92 million including net growth/savings; the ceiling for DDF net expenditure be no more than £0.929 million; and the District Council Tax would  continue to be frozen.

The overall position was that considerable progress had been made on Transformation with expenditure and savings being included in the budget for 2018/19 and significant additional expenditure was expected for the expansion in community safety budgets, to help address the district wide problem of anti-social behavior.

The Director of Resources reported that the DCLG four-year settlement had been accepted and the Settlement Funding Assessment (SFA) had reduced by £6,623 for 2018/19 and by £49,756 for 2019/20, which had meant that overall the SFA had reduced by £2.48 million or over 45%. The Local Government Information Unit briefing on the draft settlement showed that the Council had the sixth largest reduction in funding of all authorities.

The Council Tax had not increased since 2010/11 and the Cabinet Committee had been very clear in July 2017 that the Council Tax would not be increased while the General Fund balance remained comfortably above the minimum requirement. The most significant change in the Council Tax referendum principles for 2018/19 was an increase of £12 per band D property being allowed for Police and Crime Commissioners (PCC) in Essex which would be an increase from £157 to £169.

Regarding the Business Rate Retention, the Essex group had been unsuccessful in piloting 100% business rates retention, although the DCLG had confirmed that the current pooling arrangement would be allowed to continue. The net effect of the pooling was that the council had been better off for pooling by £118,000 in 2015/16 and £393,000 in 2016/17. Current monitoring of the pool indicates that there would again be a significant benefit in 2017/18 althoughwider co-operation in attempting to construct an Essex wide bid had meant that authorities which were outside the pool for 2017/18 such as Southend and Chelmsford would now join the pool for 2018/19, which brought a greater element of risk and may not beneficial for 2019/20.

The business rate income anticipated very little growth after 2016/17, despite the building of the retail park and other known likely developments within the district. The estimates for 2017/18 would be the first year which had been billed using the new rating list and the basic tariff for 2018/19 had reduced by £125,520 and subsequently £216,807 for 2019/20. However, the tariff had still increased by more than £0.5 million in 2019/20, which caused a reduction in expected income from £4.7 million to £4.2 million and would be particularly challenging for estimating business rates. There were also still hundreds of appeals outstanding on the old list, which were difficult to produce a uniform percentage to apply. The one property in the south of the district still caused concern as the rateable value approached £6 million and if the appeal was successful, there would be a significant shortfall. The total provision against appeals was currently close to £4.2 million.

The scheme of Local Council Tax Support (LCTS) would see no significant changes being proposed for 2018/19. The introduction of the Benefits Cap and the further reduction by £6,000 had resulted in around 139 cases with the average weekly loss being £49.15. There had been the introduction of several measures for Universal Credit (UC) to ease the roll out, such as the removal of the seven-day waiting period before a claim could start; those already on Housing Benefit would continue to receive their award for the first two weeks of their UC claim; and the relaxation on the rules on awarding and recovering advances to make it easier for claimants to have the housing element of their award paid direct to their landlords.UC was also being rolled out based on Job Centres and the District was covered by seven, therefore not all new claimants would be fully covered until December 2018.Furthermore, the grant paid to local authorities to administer housing benefit had received substantial reductions of £42,000 in 2017/18 and £29,000 in 2018/19.

The reductions in New Homes Bonus (NHB) for 2017/18 had been far greater than had been anticipated with qualifying properties reducing, meaning that £16,000 for 2017/18 would be received instead of £320,000. The baseline at 0.4% had eliminated most of the growth and would severely limit the income from NHB going forward with no additional NHB being awarded for 2018/19 and the Council being £50,000 worse than had been anticipated with NHB income from 2016/17 to 2020/21 reducing by £2.6 million.

The Director of Resources advised that there had been some slippage in the programme for the retail park and the highways issues had caused part of the project to be over budget with the Council approving a supplementary estimate of £741,000 on 21 December 2017. Most of the large units were now occupied and trading before Christmas, with only three units under negotiation. The professional advisers had stated that an annual rental income of £2.7 million would be achievable and the MTFS had included a prudential amount of £2.5 million, to allow for any shortfall, management costs and interest. There were still delays with the mixed use re-development of the St Johns area in Epping, although it appeared to be nearing a conclusion and the former Winston Churchill pub site had also suffered delays. The income from these projects had been reduced and re-phased to later periods.

Progress had been made on all three of the key transformation projects regarding accommodation, people and technology. Unfortunately the accommodation works had been put on hold pending a meeting with Historic England and could be different to what had been envisaged. The People Strategy and the Common Operating Model had been agreed by Cabinet on 7 December 2017. The fundamental change in the organisational structure and significant reduction in top management had been planned with the estimates for 2018/19 included. The replacement for the Chief Executive would also be key in driving forward the transformation to deliver the benefits in terms of customer service and efficiencies. The Technology Strategy covered the period from 2018 to 2023 and would help provide a better service to the public whilst improving the efficiency of the Council’s working practices.

The waste contract had been procured at a lower cost with the savings being included in the MTFS, although issues with recycling and service delivery had meant that CSB growth of nearly £0.5 million had to be included in the revised estimates for 2016/17, together with £0.2 million of DDF expenditure. There had been discussions held with the service provider to recover the additional £0.5 million of CSB expenditure but no cost savings had yet been provided. The new leisure management contract started on 1 April 2017 with Places for People for a period of 20 years and the average CSB savings would be more than £1 million per year with the CSB savings being 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, potential for a recession and a possible increase in the annual pay bill of 2% for 2018/19 and 2019/20.

Members were reminded that the MTFS was based on a number of important assumptions, including the following:

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

• That CSB growth had been restricted with the CSB target for 2018/19 of £12.92 million achieved and known changes beyond 2018/19 had been included but if the new leisure contract failed to yield the predicted savings, other efficiencies would be necessary;

• That it had been assumed that the retail park would be fully let in 2018 and that income would be in line with the consultant’s projections;

• That all known DDF items were budgeted for, and because of the size of the Local Plan programme a transfer in of £1 million from the General Fund Reserve would be required in 2017/18 followed by a further £1.1 million in the next two years to ensure funds were available through to the end of 2020/21; and

• That the revenue balances of at least 25% of NBR were maintained.

The forecast showed that the deficit budgets at the end of the period would reduce the closing balances at the end of 2021/22 to £6.27 million or 48% of NBR for 2021/22, although this could only be done with further savings in 2020/21 and subsequent years.

The balance on the HRA at 31 March 2019 was expected to be £2.053 million, after deficits of £1,353,000 in 2017/18 and £0.447 million in 2018/19. The estimates for both years had been compiled on the self-financing basis and so the negative subsidy payments had been replaced with borrowing costs. The requirement to reduce rents by 1% per annum would continuedinto 2019/20 and during 2017/18 and Members decided to proceed with phases 4 to 6 of the new house building programme and revert to the decent homes standard for the maintenance of existing properties.These significant changes had impactedon the HRA Business Plan and would be kept under review during 2018/19 to determine any further necessary measures. The Capital Programme which totaled over £127 million over five years, anticipated that the Council would still have £2.1 million of capital receipt balances at the end of the period although these were one-four-one amounts and to be used in the house building programme. In order to finance the capital programme it was currently envisaged that £28.4 million of borrowing would be required.

The Cabinet Committee expressed their thanks to B Palmer, P Maddock and all the Officers involved in the Council’s budget. There were some significant challenges ahead and development opportunities’ would be important to the success of the council’s finances.

Recommended:

(1)          That in respect of the Council’s General Fund Budgets 2018/19, the following guidelines be adopted:

(2)                                                              That the revised revenue estimates for 2017/18 and the 2018/19 HRA budget be recommended for approval;

(3)                                                              That the rent reductions proposed for 2018/19, would give 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 2018/19 budgets and the adequacy of the reserves be noted;

(5)                                                              That the Director of Resources be authorised to make minor amendments and corrections to the figures above.