Agenda item

To consider the attached report (FPM-021-18/19).

The Assistant Director Accountancy presented a report that set out the detailed recommendations for the Council’s budget for 2019/20. The budget added £0.51m to reserves and the Council maintained its policy on the level of reserves throughout the period of the Medium Term Financial Strategy (MTFS). Over the course of the MTFS the usage of the reserves would support the spending peaks at £1.153m in 2021/22, reducing to £0.384m in 2022/23. The budget was based on the assumption that Council Tax would not increase in 2019/20 and that the average Housing Revenue Account rents would decrease by 1% in 2019/20.

 

The annual budget process commenced with the Financial Issues Paper (FIP) being presented to this Committee on 26 July 2018, which continued the earlier start to the process and reflected concerns over the reform of financing for local authorities. It highlighted the uncertainties associated withCentral Government Funding, Business Rates Retention, Welfare Reform, New Homes Bonus, Development Opportunities, Transformation, Waste and Leisure Contracts and Miscellaneous, including recession and pay awards.

 

In setting the budget for the current year it had been anticipated £306,000 would be used from the General Fund reserves. There was expected to be a surplus of £994,000 on ongoing General Fund activities and it had been agreed to make a transfer of £1.3m to the District Development Fund (DDF) ensure it remained in surplus. Also, the MTFS approved in February 2018 showed a combination of net savings targets and use of reserves which adhered to the Council’s policy. Between 2017/18 and 2021/22 it was expected that a little under £1m would be used from the General Fund reserve bringing the balance down to £4.8m at the end of the period and this was above the target of 25% of the 2021/22 estimated Net Budget Requirement of £3.233m.

 

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 the savings targets could be left unchanged at £300,000 in both 2020/21 and 2021/22 and would keep revenue balances comfortably above the target level at the end of the final year. However, with significant uncertainties around funding beyond the next financial year it was making forward funding projections extremely difficult.

 

The budget guidelines for 2019/20 were therefore established as;

 

(a)          the ceiling for CSB net expenditure be no more than £12.9m including net growth /savings;

(b)          the ceiling for DDF net expenditure be no more than £0.553m; and

(c)          the District Council Tax to continue to be frozen.

 

The overall position on the budgets through the medium term was rather different now to what it was in July 2018 and considerable progress had been made on implementing the People Strategy. The savings target set for 2018/19 had been exceeded. In roads had also been made into meeting the 2019/20 target by virtue of the fact that some of the savings contributing to the 2018/19 target had only been a part year effect with the remainder falling into 2019/20. The original budget included an expansion in community safety spending to help address the district wide problem of anti-social behaviour had been funded by the 2.48% increase in the Council Tax.

 

There had been two important consultation papers issued, that requested responses by 21st February 2019 for the Fair Funding Review (FFR) and reforms to business rates retention, which would determine how local authorities would be funded in the medium term starting in 2020/21.

 

The Assistant Director Accountancy advised that this was the last year of the Ministry of Housing, Communities & Local Government (MHCLG) four-year settlement and the overall reductions had been £2.2m or over 40% with little information on future prospects. The provisional settlement figures were released on 13th December and the Council was still awaiting confirmation of the figures.

 

The Revenue Support Grant would disappear completely by 2019/20 with the Local Council Tax Support (LCTS) grant to parishes being phased out by this date as well.

 

The Council had taken part in the Essex bid to become 75% Business Rates pilot, which had been unsuccessful, although the Council would continue to be part of the Essex Business Rates Pool, which should mean some additional resources being available when compared to EFDC acting on its own. There had been no growth assumed for in 2020/21 and a new ratings list had only two years of data, which meant that there was very little data on appeals and there were still appeals outstanding on the old list. The total provision for these appeals was currently £3.39m. Furthermore the Council would receive £50,000 as a one-off windfall repayment in 2019/20 for the levy on business rates growth being higher than that paid out in safety net payments.

 

The scheme of Local Council Tax Support (LCTS) would see no changes to the maximum level of support being 75%. The Universal Credit (UC) was now live across the District for all new claims relating to those of working age and the existing claims for working age claimants would be migrated over a period of time up to 2023. One other aspect of welfare reform that continued was the DWP achieving their savings through reducing the grant paid to local authorities to administer housing benefit. Following a relatively modest reduction of £22,000 in 2015/16, £40,000 was taken in 2016/17 £42,000 in 2017/18 and £25,000 in 2018/19. A further reduction of £37,000 was proposed for 2019/20.

 

The Assistant Director Accountancy advised that during 2017/18, significant changes were made to the way New Homes Bonus (NHB) were allocated and the Council received £0.849m in 2018/19. The original estimate for 2019/20 was £0.7m but because of increased growth in housing provision and also a significant increase in empty properties being brought back into use the figure was £1.049m. The amount awarded for 2019/20 being £0.452m.

 

The retail park was now operational and all units were now let with the rent accounting for £2.498m. With regards to the negotiations of the mixed use re-development of the St Johns area in Epping falling through, the Council had taken the opportunity to redevelop the site. The capital cost of a new leisure centre was likely to be in the order of £16-20m and in order to pay for the construction the Council would need to borrow money. Although, it was the intention to produce a full development appraisal for the whole of the St John’s Road Scheme, that identified  what capital contributions could be available to off-set the costs of any new Leisure Centre, including the existing site in Hemnall Street and the sale of any housing units identified in the adopted Design and Development Brief. There was also the likely revenue to be generated by any retail/focal beverage units provided as part of the development. In addition, the majority of units at the former Winston Churchill pub site were under offer or in negotiation and £250,000 should be achievable when all units were let.

 

 

As regards to transformation projects, an in-principle decision had been made to relocate back office functions to a new building on Council owned land at North Weald. This would be funded from the capital receipt generated by the sale of the Conder building, the rear extension and car park and supplemented by existing capital provision held as a result of a number of Civic Office projects put on hold by the review which totalled a little under £1.2 million. The People Strategy target of £647,000 set for 2018/19 had been achieved and progress had already been made toward the 2019/20 target. The actual position was expected be a saving of £716,000, £504,000 from the General Fund and £212,000 from the HRA. The ICT Strategy progressed broadly on track though some projects had been affected by the accommodation review and some additional costs could arise from a review of the current server hosting arrangements. The remaining amount left on the Invest to Save (ITS) had been allocated to the accommodation review and if the fund was to be continued, the General Fund would need to provide the initial finance.

 

The waste contract had been procured at a lower cost and the savings had been included in the MTFS, however issues with recycling and service delivery had meant that the CSB growth of nearly £500,000 had been included in the revised estimates for 2016/17 and £200,000 of DDF expenditure. Furthermore, costs had increased in 2018 with the loss of recycling income of £150,000 and a one-off Capital cost of £200,000 and £50,000 ongoing CSB being required to meet the issues relating to the Chinese recycling market. This was not sustainable in the long term and options would need to be discussed. In addition, the Government’s Resources and Waste Strategy 25-year environment plan would be consulted on and would likely have an impact on service delivery and costs.

 

The Leisure Management contract had started with Places for People on 1 April 2017 for a 20 year period and the average CSB savings would be more than £1m per year.

 

In addition, there were a number of other issues that needed to be considered, including the general economy cycle and potential of a recession, the possibility of a no deal Brexit, the annual pay award based on increases of 2.5% in 2020/21 and 2021/22 and 2% thereafter and the addition of 11,400 properties to the district over the period of the Local Plan.

 

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

 

·                     Future funding for 2020/21 and beyond was subject to the Fair Funding Review and at this stage, there was little information on what funding would be available.

 

·                     CSB growth had been restricted with the CSB target for 2019/20 of £11.9m achieved. Known changes beyond 2019/20 had been included but if the new leisure contract failed to yield the predicted savings; the full savings from the people strategy did not materialise; or the waste management costs increased other efficiencies would be necessary.

 

·                     All known DDF items were budgeted for, and because of the size of the Local Plan programme a transfer in of £1.3m from the General Fund Reserve would be required in 2018/19 followed by a further £0.6m in 2019/20, to ensure funds were available through to the end of 2022/23.

 

·                     That the revenue balances of at least 25% of NBR be maintained.

 

The balance of the Housing Revenue Account (HRA) at 31 March 2020 was expected to be £2,081,000, after a deficit of £409,000 in 2018/19 and a surplus of £29,000 in 2019/20. 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. Also since 2016/17 local authorities had been required to reduce rents by 1% per annum and 2019/20 was the final year of this policy. It had come to light that there was a potential problem in 2019/20 because there were 53 weeks in that year and clarification was required on whether the 1% was required to be applied to the annual rent or weekly.

 

It was noted that priority would be given to capital schemes that would generate revenue in subsequent periods and new borrowing should only be taken out to finance schemes with positive revenue consequences. This had been incorporated into the Treasury Management Strategy. The capital programme totalled £97m over a five year period and it had been anticipated that the Council would still have £3.9m of capital receipt balances at the end of the period (although these were one-four-one amounts to be used in the house building programme). In order to finance the capital programme, it was currently envisaged that £8.2m of borrowing would be required.

 

Members expressed their thanks to the Assistant Director Accountancy and the officers involved in the Council’s budget process. There would be some significant challenges ahead, although prudent planning had put the Council in a good position.

 

Recommended:

 

(1)          That in respect of the Council’s General Fund Budgets for 2019/20, the following guidelines be adopted:

 

(a)           That the revised revenue estimates for 2018/19, were anticipated to reduce the General Fund balance by £0.7m;

 

(b)           That the target for the 2019/20 CSB budget would decrease from £12.1m to £11.9m (including growth items);

 

(c)           That the target for the 2019/20 DDF net spend would increase from £0.553m to £2.296m;

 

(d)           That the District Council Tax for a Band ‘D’ property would not change and be retained at £152.46;

 

(e)           That there would be an estimated increase in General Fund balances in 2019/20 of £0.51m;

 

(f)            The five-year capital programme 2018/19 – 2022/23;

 

(g)           The Medium Term Financial Strategy 2018/19 – 2022/23;

 

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

 

(2)          That the revised revenue estimates for 2018/19 and the 2019/20 HRA budget be recommended for approval ;

 

(3)          That the rent reductions proposed for 2019/20 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 2019/20 budgets and the adequacy of the reserves be noted.

 

Reasons for Decision:

 

The decisions were necessary to assist the Cabinet in determining the budget that would be put before Council on 21 February 2019.

 

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.