AGENDA ITEM 5

BOROUGH OF POOLE

CABINET

12th December 2007

DRAFT MEDIUM TERM FINANCIAL PLAN 2008/09 TO 2010/11

UPDATE

PART OF THE PUBLISHED FORWARD PLAN - Yes

STATUS – STRATEGIC POLICY

1.Purpose & Policy Context of Report

1.1This report updates members on the development of the Medium Term Financial Plan 2008/11 (MTFP) and progress on the 2008/09 budget, following;

  • Consultation with the scrutiny committees and the area committees
  • The Comprehensive Spending Review 2007
  • The Local Government Financial Settlement and the Dedicated Schools Grant announcement
  • Updated information on savings targets and budgetary pressures.
  • The Four Block Model
2.Decisions Required

Cabinet recommends to Council;

2.1The budget strategy for 2008/09 be developed in accordance with the MTFP set out on the 2nd October 2007 subject to the following actions being added:

  • Portfolio Holders continue working with the Management Team to address the issues raised in the report with particular reference to the ‘current areas of uncertainty’ section (paragraph 9.7) and report back in February 2008 on their proposals, for inclusion within the 2008/09 budget and the MTFP 2008/11.
  • Further to the recommendation from Resources Overview Group, Cabinet recommend to Council the implementation of a 15.9% employer pension contribution rate over a 20 year deficit period following advice from the Dorset Pension Fund Actuary.
  • Cabinet note the response from the Head of Financial Services to the Council motion of February 2007 as set out in paragraphs 6.1 – 6.4.
3.Background

3.1On the 2nd October 2007 Cabinet approved a number of recommendations with regard to the Council’s Draft Medium Term Financial Plan. The recommendations were;

i)Management Team develop a series of options with Cabinet Members that will enable the issues raised in this report to be addressed.

ii)Any growth in respect of the refreshed Corporate Strategy ‘Striving for Excellence’ to be met by redirecting existing resources.

iii)No further reserves other than the £1m already approved for 2008/09 and 2009/10 be used to support the revenue budget over the period of the plan.

iv)The Council’s general operational unearmarked reserves to be set at a minimum level of £5m over the period of the plan.

v)The need for Service Units to meet their savings and efficiency targets over the period of the MTFP continues.

vi)The Business Transformation Programme plays a central role in protecting services by developing a comprehensive strategy to deliver savings and improvement. Central to this will be the Asset Management Strategy.

vii)Cabinet note the issue relating to passporting the full Dedicated Schools Grant increase onto Individual Schools Budgets.

viii)Expenditure in 2007/08 to be contained within original budget estimates.

4.0Consultation Feedback

4.1During October and November 2007 the Leader has presented to area committees the Draft Medium Term Financial Plan and received feedback on the issues raised. The feedback from the meetings is attached at Appendix A. The feedback from the Canford Heath East and West Creekmoor and Oakdale Area meeting will be distributed at the meeting.

4.2In addition, the draft MTFP was also presented to two of the three scrutiny committees by portfolio holders. This feedback is attached at Appendix B. The Community Support and Education Scrutiny is taking place at the same time as this meeting and therefore feedback will be included within the minutes.

5.0Comprehensive Spending Review 2007

5.1The Comprehensive Spending Review 2007 (CSR07) was announced on the 9th October 2007 and covers the period 2008/09 to 2010/11. A Comprehensive Spending Reviewis the Government's main tool for deciding how much funding will go into public services. They are undertaken every two to three years by HM Treasury.

5.2The Treasury sets the overall limit for public spending. It then allocates resources between departments, according to the Government's priorities. These budgets are known as Departmental Expenditure Limits (DELs). It is then up to each government department to decide how best to manage and distribute this spending within their own areas.

5.3The full report can be accessed via the following link:

5.4In addition, the Local Government Association produced a paper in response to the CSR07 which can be accessed via the following link,

5.5The key points of the CSR07 were:

  • A 1% real term funding increase for councils over the period of the CSR07
  • A Government expectation that this will enable local authorities to keep

council taxincreases well below 5% in each of the next three years.

  • At least £5 billion of former specific grant and Local Area Agreement (LAA)

ring-fenced grant will be delivered in the form of general grants which are

not ring-fenced(Revenue Support Grant (RSG) and Area-Based Grant ABG).

  • By 2010/11, £900 million previously paid through specific grants will have

been rolled into RSG, and at least £4.1 billion of grants will be paid through

Area Based Grant.

  • The settlement announces Local Authority Business Growth Initiative (LABGI) funding of £50m for 2009-10 and £100m in 2010-11, with no funding outlined for 2008-09. This compares to approximately £1bn allocated since 2006/07.
  • The Government is consulting on the technical detail of a new power to

allow councils to implement a Supplementary Business Rate from 2010-11.

  • A 3% cashable efficiencies target (£4.9bn over CSR), with councils supported

by funding of £150m and the continuation of the capacity building grant.

  • A single set of priority outcomes for local government working alone or

in partnership, a single set of 198 national indicators, and there will be

no mandatory targets for LAA. Any and all targets reflecting national

priorities – to a maximum of 35 – will be negotiated through LAAs.

5.6The impact for the Council is outlined on more detail later in the report.

6.0 The Government Four Block Model

6.1The following motion was made at Council in February 2007 “This Council, in support of the Fair Funding campaign, request the Head of Financial Services to produce a detailed, evidenced, technical report that demonstrates that the Relative Needs Formula has been applied incorrectly, OR, the Relative Needs Formula is unfair to Poole to the extent of £30M per annum.”

6.2The 3 Year local government settlement now announced still remains based upon the ‘Four Block Model’. This model was explained to members in a seminar during the summer.

6.3Whilst it is clear that Poole does significantly less well in terms of attracting government funding there is no indication that the model as established has been applied incorrectly.

6.4The lack of transparency within the model of what is happening certainly does not help a fair judgement to be arrived at . Given that the Council currently receives total formula grant of £26m any future changes are unlikely to generate a further £30m.

7.0Local Government Financial Settlement 2008/09

7.1The Council’s Local Government Financial Settlement for 2008/09 – 2010/11 was announced on the 6th December 2007. The Formula Grant the Council will receive in 2008/09 will be £26,032,000. This is an increase on the adjusted 2007/08 grant of 2%. The 2007/08 adjustment relates to over £2.3m of specific grant now being included within the formula grant.

7.2The Council received the minimum increase of 2% which compares to a unitary average of 5%. Increases in 2009/10 and 2010/11 have also been announced and will be 1.8% and 1.5% respectively. The Council is the 4th lowest funded unitary council per head.

7.3The amount the Council now receives in ‘top up’ (floor protection) to ensure it receives the basic increase has increased to £1.13m from £66,000. This poorer position relates to changes made to the four block model which adversely affects the Council. Members should note that without the floor protection the Council would receive £1.13m less in grant and the Government could remove this protection in future years.

7.4The Dedicated Schools Grant (DSG) indicative allocation was also within the range expected at £67,326,000 (4.4% per pupil including top ups). However, this figure will change as pupil numbers are confirmed in January 2008.

7.5The Local Government Minister’s statement is attached at Appendix D.

7.6Information regarding specific grants and capital funding will continue to be analysed as the details emerge during December and January.

7.7The Government have made a commitment to move away from specific and ringfenced grant to give local authorities greater flexibility in how the government funding they receive is used. Appendix C gives some background to these changes. The Head of Financial Services and the Management Team will be reviewing this change and will discuss any potential redirection of this funding with the Portfolio Holders before making any final recommendations in January.

7.8In addition, there have been changes to the formula methodology which overall have had a negative impact on Poole as demonstrated by the increase in the floor protection.

8.0Dedicated Schools Grant Settlement (DSG)

8.1The Department for Children, Schools and Families announced the settlement for schools funding on 12 November 2007. The key points for Poole are:

  • National and Poole increase in DSG grant:

2008/9 / 2009/10 / 2011/12 / 3-yr growth
Poole / 4.4% / 3.6% / 4.2% / 12.8%
Nationally / 4.6% / 3.7% / 4.3% / 13.1%
  • In 2008/9 Poole now ranks low at 142 out of 150. With falling pupil numbers the actual cash increase in the grant received will be lower.
  • The basic per pupil amounts have increased by

2008/9 3.1%

2009/102.9%

2010/112.9%

  • The Minimum Funding Guarantee (MFG) for schools is 2.1% in each year, therefore there is headroom of 1% in 2008/9 falling to 0.8% in both 2009/10 and 2010/11. The MFG is 1% below cost pressures for all years. This is to reflect efficiencies expected each year and allow a possible redistribution of funding between schools. Some redistribution may be required to reflect the Government’s strategy of targeting more of the available funding to minimise the impact of a pupil’s relatively deprived background on life outcomes.
  • Standards Funds – Schools. The overall increase for Poole schools is 8% over the 3 years, plus there isadditional funding for 3 & 4 year olds in the private, voluntary and independent providers as well as maintained schools to take the total increase to 15%. This latter increase is to reflect the increase in funded entitlement of nursery education from 12.5 to 15 hours per week with increased flexibility for parents.

8.2The Director for Children’s Services in conjunction with Financial Services will compile a consultation document for the Schools Forum to confirm how funding for pupils will be allocated in January.

8.3As was highlighted in the report to Cabinet on 2nd October 2007 the expectation from the Government will be for some real growth in Individual Schools Budgets (ISB) and nursery providers. Whilst all schools will receive the Minimum Funding Guarantee of 2.1%, the average increase likely to be passed onto Individual School Budgets in total will be below this expectation with no real increase in funding over the three years, given the pressures on central Special Education Needs budgets to be met from the Dedicated Schools Grant. Schools Forum will need to formally approve this higher level of central retention of the Grant. Approval will be required from central government if this is not forthcoming.

8.4The Director of Children’s Services is currently working with the Heads of Strategy, Quality and Improvement and Integrated Services to reduce the call on the Dedicated School Grant for central expenditure to enable a higher increase than is currently indicated to be passed onto schools each year.

8.5Government grants to support the school advisory function of the council have continued to decline as expected.

9.0MTFP Update

9.1An updated MTFP is attached at Appendix E. Refinement of the MTFP will continue throughout December and January. The key issues since the initial draft version was presented in October are:

9.2Pension Costs

9.2.1As a result of the recent actuarial valuation of the Dorset County Pension Fund the Head of Financial Services has recommended to Resources Overview Group (29th November) that the Council’s current contribution rate be reduced to 15.9% from 17.1% of pensionable pay. This has generated an approximate saving of £190,000 in 2008/09. This actual saving will be clarified as the budget setting process continues.

9.3Waste

9.3.1A reduction of £318,000 against the 2008/09 forecast increase has been possible due to additional work on the forecast volumes of waste being undertaken including increases in the use being made of the blue bin scheme. The revised forecasts have also had a beneficial impact in 2009/10 and 2010/11.

9.4Capital Costs

9.4.1A revised net capital cost estimate has been calculated and has a beneficial impact of approximately £800,000. This is due to re-profiling of capital expenditure and a revised assumption on interest rates.

9.5Corporate Contingency and other items

9.5.1The provision for above inflationary increases has been clarified since October and key items that have now been included are;

Street Lighting Energy costs £325,000

Bus Subsidies and bitumen£144,000

9.6Formula Grant

9.6.1As mentioned earlier in this report the formula grant settlement has been announced at £26,032,000.

9.7Current Areas of Uncertainty

9.7.1Grants

A total of £2.3m worth of specific grants have now been included within the general formula grant. Confirmation as to how the Council now wish to treat this unringfenced funding will need to be considered. Details of the grants are as follows:

  • Access and system (Adult Social Services)£1.49m
  • Delayed discharges (Adult Social Services)£0.28m
  • Children’s Services grant£0.39m
  • Waste Performance £0.14m

Former specific grants which will now be categorised as Area Based Grants are still being identified but will require consideration as to their use.

The Council has been awarded an indicative Growth Point grant of £3.5m capital £145,800 revenue. The intention will be for the planned use of this resource to be built into the Council’s MTFP.

At this stage the Local Strategic Partnership will determine the use of the uncommitted element of the LPSA reward grant.

9.7.2Equal Pay

Whilst work on the equal pay project is continuing the final outcome in terms of gradings and salary costs has yet to be fully determined. The Council’s Corporate Risk Register had identified this issue as ‘amber’. However, at this point in time, prior to agreement with Trade Unions being achieved it is currently considered a ‘red’ risk.

There is a possibility that the current resource set aside and used to meet the financial impact (approximately £2m) may not be sufficient. The current budget has been built up over 3 years with a forecast of an approximate 3% impact on the current salary budget (this was based upon the experience of other unitary authorities at the time). The most recent Local Government Employers report has indicated that for upper tier authorities the average settlement has been 4.3% of the pay bill. If this were the case for Poole a further provision of £1.2m would be prudent to meet the potential costs.

At this stage no additional requirement over and above the £2m already within the MTFP has been provided for. The Management Team, the Head of Personnel and Training Services and the Head of Financial Services are working together to progress the project within its agreed objectives.

Members need to note that should additional resources be required at a 4.3% level or above this will have a significant impact on the 2007/08 position as well as next years budget and longer term plans.

9.7.3Savings Targets

The savings target set for Service Units for 2008/09 is £1.7m. A number of Service Units have identified their savings targets. However, some are finding it more difficult. Therefore, it is intended that during January, Portfolio Holders, working with the Management Team, confirm the position.

9.7.4The following are Items not currently provided for within the MTFP or assumptions included but now considered at risk

  • Additional future equal pay costs above 3% of the paybill including, incremental drift, pay award and the cost of additional leave entitlement.
  • Additional demand in the learning disabilities service. (Risk up to £500,000)
  • National concessionary fares scheme costs in excess of the specific grant which has been announced at £596,000
  • Posts within CYPSQI where specific grant funding will cease. The Head of CYPSQI is working to mitigate this issue (Risk up to £210,000)
  • Increase in staffing and other costs in CYPSC (Risk up to £180,000)
  • Uniformed wardens and weed control ECPS (Risk up to £100,000)
  • Complaints Investigation, Legal and Democratic Services (Risk up to £10,000)
  • Revenue contribution to capital
  • Pump priming funding for reducing Poole’s carbon footprint
  • Additional income of £250,000 generated through increased planning fees and activity.

9.7.5Reserves Position

The recommendation in the October report was that unearmarked reserves are maintained at £5m with no further planned use of them to support the budget from 2010/11. This position remains the same, however, there may be a need to use reserves for dealing with equal pay. This was a potential planned use outlined during the 2007/08 budget report.

10.2008/09 Summary Position

10.1The current summary position is shown in Appendix E. This shows that at this point in time, with an assumed Council Tax increase of 5%, a funding gap of £817,000 exists, however, given that the items mentioned above, this position will change.

11.2007/08 Current Budget Position

11.1The budget monitoring to the end of October shows a positive position at this stage of £864,000. There is potential for this forecast to move significantly depending on the outcome of equal pay, which could worsen the position and a potential LABGI award which could have the opposite effect.

12.2009/10 and 2010/11

12.1Appendix E continues to highlight the need to not only continue to make Service Unit savings at a similar level as 08/09 but also, in total, make over £4m of savings. The Council requires a robust strategy to deliver this and achieve its ambitious programme of projects. In order to address this issue the Council will be looking to work with the LIFT SW Partnership (SW Centre of Excellence) to access government funding provided to assist in delivering efficiencies to pump prime the business transformation and efficiency strategy.

13.Capital and Projects

13.1The capital programme is currently being reviewed with potential funding of approximately £3m (including revenue contribution to capital) still to be allocated for 2010/11. A significant capital receipt in relation to sale of land at Sterte has not as yet been factored in to the funding that may be available.

13.2Potential projects being considered that may require financial support are:

  • Hamworthy Library
  • Planning Computer System
  • Town Centre Regeneration
  • Materials Recycling Facility
  • Affordable Housing
  • Transportation Infrastructure Maintenance
  • Future ICT Improvement
  • Capitalisation of equal pay back pay
  • Employee First
  • Beach Hut Replacement
  • Replacement of car parking pay machines (recommended by the Transport Advisory Group 8 November 2007)
  1. Housing Revenue Account

14.1The final HRA Subsidy Determination will not be available until mid January 2008 which leaves a very short period to produce the final rent calculations schedules and the HRA budget. The indications at this stage are that average rent increases will be in the region of 6.5%.