(OPEN TO THE PUBLIC) / ITEM NO.
REPORT OF THE DIRECTOR OF AND LEAD MEMBER FOR CORPORATE SERVICES
TO THE CITY COUNCIL ON WEDNESDAY, 18th FEBRUARY, 2004
Subject : 2004/05 REVENUE BUDGET AND CAPITAL PROGRAMME
RECOMMENDATIONS : Members are requested to:
- Approve a revenue budget of £280.403m for 2004/05 ;
- Approve the Council Tax levy in accordance with the formal resolutions contained in Appendix 12 ;
- Approve the HRA budget for 2004/05 ;
- Request each Lead Member and Director to monitor rigorously the implementation of the accepted savings and expenditure against budget on a regular basis, to identify and report to Budget Scrutiny Committee any alternative savings which may be necessary to compensate for any savings not achievable in full and to ensure that overall net expenditure is contained within budget, and for the Lead Member and Director of Corporate Services to report monthly to Budget Scrutiny Committee on progress with the budget on a corporate basis ;
- Approve a capital programme of £114.602m as set out in Appendix 19.
- Agree to the list of assets for disposal in 2004/05 as set out in Appendix 18 to allow the Director of Development Services to proceed to market those sites where a commitment to dispose has not already been made.
- Approve the prudential indicators for 2004/05 to 2006/07 as set out in Part 4.
EXECUTIVE SUMMARY : This report is produced in four parts :-
- 2004/05 Revenue Budget and Council Tax
Identifies that the approximate outturn expenditure for 2003/04 is expected to show a net underspend of £0.5m against the budget, and consequently the balances held in reserve at 31st March, 2004 will be £6.5m as planned.
Sets out the details of the RSG formula changes made by the Government and the settlement for 2004/05 for Salford, which allows for a 4.4% increase in formula grant and is once again amongst the lowest increases of metropolitan districts.
Identifies that a projected budget requirement of £280.403m is required to deliver the desired outcomes for 2004/05, which would result in a 3.5% Council Tax rise for Salford's services.
Identifies that the budget would also enable the Council to :-
-maintain its investment in keeping the City clean ;
-provide sufficient resources for Social Services to meet demands from vulnerable clients ;
-provide sufficient resources for schools to meet their cost pressures, continue to spend in excess of FSS and meet the passporting calculation set by the DfES.
As part of the budget strategy for 2004/05, a risk assessment of reserves has been undertaken which indicates the level of reserves to be sufficient to meet the expected key risks and capitalising certain expenditure previously charged to revenue will continue, but at a reduced amount of £3m.
It is estimated that a deficit of £0.966m will be incurred on the Collection Fund at 31st March, 2004 to ensure that the shortfalls in previous years’ Council Tax collection arising from population drift is made good. Salford's share is £0.852m.
The Greater Manchester Police and Fire Authority precepts will increase by 7.5% and 7.4% respectively.
The resultant Council Tax levy, subject to confirmation of the Police and Fire precepts and after allowing for the Collection Fund deficit, will be £857.00 at Band A and £1,285.49 at Band D, an increase of 3.9%. Single person households will pay 25% less.
Responses from the public have been taken into account in framing the budget.
- 2004/05 HRA Revenue Budget
Identifies that the approximate outturn expenditure for 2003/04 is expected to break even against a gross budget of £130.7m, and consequently the balances held in reserve at 31st March, 2004 are estimated to be £2.1m or 1.6% of the gross budget.
Identifies that a balanced HRA revenue budget can be achieved for 2004/05 that will maintain the Council’s investment in the management and maintenance of Council dwellings, provided the Council approve a proposed average rent increase of £1.75 per week and an increase in service charges of inflation + 0.5% as permitted by Government.
Identifies that the HRA will restore balances to a minimum level of 3%, as recommended by the Audit Commission, by the 31st March 2005.
- 2004/05 Capital Programme
Identifies that funding is available for a capital programme of £114.602m in 2004/05.
Identifies how the capital programme will be managed during the year to ensure that expenditure will be contained within available resources.
- Prudential Indicators for 2004/05 to 2006/07
The Local Government Act 2003 and the Prudential Code for Capital Finance produced by CIPFA with statutory backing under the Act introduces a new requirement upon local authorities to set 3-year forward indicators of capital expenditure to be financed from borrowing, the affordability of that borrowing from the revenue budget and housing rents and the limits that will be adopted in the management of the Council’s borrowing and investments.
The report sets the initial prudential limits for the next three years. Future reports may be brought back to Council should it be considered necessary to amend these limits.
BACKGROUND DOCUMENTS :
- Letters from the ODPM dated 19th November 2003, 11th December 2003 and 29th January, 2004 entitled "Local Authority Finance (England) : Revenue Support Grant for 2003/04 and Related Matters”
- Reports to Budget Scrutiny Committee dated 11th December, 2003, 7th January 2004 and 4th February 2004 re 2004/05 revenue budget.
- Budget Consultation Report 2004/05 and responses from the public.
- Reports to joint meeting of Housing and Corporate Services Lead Members, 26th January 2004 re housing rents and service charges, and the proposed NPHL management fee.
- CIPFA Code of Practice on Capital Finance.
- Local Government Act 2003 and regulations thereunder.
ASSESSMENT OF RISK :
Paragraph 8 in Part 1 of this report contains an assessment by the Director of Corporate Services of the risks associated with the 2004/05 revenue budget.
SOURCE OF FUNDING :Revenue Budget, HRA Revenue Budget and Capital Programme.
LEGAL ADVICE OBTAINED :
The Head of Law and Administration has been consulted in the preparation of this report.
FINANCIAL ADVICE OBTAINED :
This report has been prepared by the Head of Finance in consultation with the Director of Corporate Services, the Head of Housing and the Director of Regeneration.
CONTACT OFFICER : John Spink Tel No : 793 3230E-mail :
WARD(S) TO WHICH REPORT RELATES : All wards
KEY COUNCIL POLICIES :Budget Strategy
INTRODUCTION
This report is presented in four main parts and is designed to pull together the key components of the Council’s budget into a single document.
It is also presented in this format in order to ensure that inter-related decisions between the revenue budget and the capital programme, and between the General Fund and HRA revenue budgets, are taken at the same time and can be seen to be consistent between the different funding sources.
Finally, it also allows the new requirement for the Council to set 3-year forward prudential indicators under the Local Government Act 2003 and CIPFA’s Prudential Code for Capital Finance to be integrated with the budget setting process, as required by the Code.
The four parts to this report seek the approval of members of the Council to :-
Page
Part 1 - The proposed revenue budget and Council Tax levy 2004/05(Pink) 6
Part 2 - The proposed HRA revenue budget 2004/05(Green)21
Part 3 - The proposed capital programme 2004/05 (Yellow)28
Part 4 - The proposed prudential limits 2004/05 to 2006/07.(White)35
A summary of the recommendations is contained in Part 5.40
Appendices to each of the parts follow Part 5 and have the same colour coding.
PART 1
THE REVENUE BUDGET AND COUNCIL TAX LEVY FOR 2004/05
- REVIEW OF 2003/04
1.1.The major issue with regard to the expected outturn for 2003/04 is a forecast overspend of £1.1m by Social Services as a result of the need to respond to increase in demand for services from vulnerable clients.
1.2.All other directorates are indicating that they will contain expenditure within their budget.
1.3.At a corporate level, a one-off windfall income, which was not budgeted for, has been received from the backdated appeal against the rateable value of certain leisure centres and other Council property amounting to approximately £1m. It should be noted that there remains appeals outstanding against further leisure centres, although current indications are that these will not be determined until 2004/05.
1.4.Another item of unbudgeted income is an expected Airport dividend of £0.6m based on their forecast of trading results.
1.5.A net underspend at outturn of approximately £0.5m is therefore expected, taking these items into account.
- LEVEL OF GENERAL RESERVES
2.1.As a consequence of the above, and bearing in mind the budgeted contribution of £1m to reserves in 2003/04, the level of general reserves as at 31st March, 2004 is estimated to be as follows :-
£m
Balance at 1st April, 2003 5.0
Add : Budgeted contribution to reserves 2003/041.0
Forecast underspend 2003/04 (as per paragraph 1.5 above)0.5
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Forecast balance at 31st March, 20046.5
2.2.This level of reserves is equivalent to 2.4% of the 2003/04 net revenue budget.
2.3.The outstanding appeals against the rateable values on leisure centres should produce another £0.5m based on the appeals already determined. Assuming that this refund is committed to reserves this would give available reserves during 2004/05 of £7m, equivalent to 2.6%.
2.4.Section 25(1)(b) of the Local Government Act 2003, which comes into effect for the 2004/05 revenue budget, requires the chief financial officer to report to the authority on the adequacy of the proposed financial reserves and guidance from CIPFA is that local authorities, on the advice of their chief finance officers, should make their own judgement on a minimum level of reserves. CIPFA states that a well-managed authority with a prudent approach to budgeting should be able to operate with a relatively low level of general reserves and that chief financial officers should take account of the strategic, operational and financial risks facing the authority.
2.5.It has been the practice up to now to work towards a minimum target of 3% of the net revenue budget, which was set as a medium-term financial objective in considering the 2000/01 revenue budget and working towards that goal has been rigidly adhered to ever since.
2.6.However, the introduction of new legislation and guidance, together with the fact that the CPA assessment of financial health provides for the use of a financial risk management process to justify the level of reserves as an alternative to a % target to be set, now provides an opportunity to reassess the level of reserves using a risk-based approach.
2.7.This approach is now becoming more widely used amongst local authorities and it is known that some neighbouring authorities have also begun to use it to justify a lower level of general reserves in cash terms than are held by Salford.
2.8.A risk assessment has therefore been undertaken to establish what should be a minimum level of general reserves for Salford. The details are provided at Appendix 1. Whilst the assessment is not an exact science, and views may differ on what constitute key financial risks and their evaluation, it indicates that the minimum level of general reserves during 2004/05 should be in the region of £7m.
2.9.This position would be achieved in 2004/05 based upon the scenario set out above, and thus no further contribution to general reserves would be required in 2004/05.
- THE 2003/04 REVENUE SUPPORT GRANT (RSG) SETTLEMENT
Background to the National Settlement
3.1.The Government has needed to consider a number of problems which arose with the changes introduced for the 2003/04 RSG settlement, and developments which have arisen since then.
Council Tax increases
3.2.This has been the biggest single issue for the Government in relation to the local government finance settlement.
3.3.The level of Council Tax increase for 2003/04 averaged almost 13% and this has led to the development of opposition to further high increases, most notably from pensioners. One local authority, Kent CC, had indicated its intention to use powers in the Local Government Act 2003 to limit the increase for pensioners at the expense of other taxpayers, although this has receded as a result of legal and administrative challenges.
3.4.On 10th December 2003 the Chancellor of the Exchequer in his pre-Budget speech announced an extra £340m funding for local government through RSG in addition to the main RSG funding announced on 19th November 2003 and this was undoubtedly due to the political pressure to avoid a repeat of the excessive increases in 2003/04.
3.5.The Government has announced its intention to cap those authorities with excessive increases and given notice to introduce legislation to require authorities to hold a referendum for proposed increases more than twice the rate of inflation. The Local Government Minister has also written recently to 31 local authorities who have publicly intimated a Council Tax increase in excess of 5% that they face the possibility of being capped.
Schools Funding
3.6.The 2003/04 RSG settlement caused much debate about the impact upon schools funding and the widespread complaint from headteachers that funding increases from Government passported by local authorities were insufficient to meet spending commitments, with the consequential loss of teaching jobs.
3.7.Part of the issue for some authorities was that their total FSS increase was less than their schools funding increase, requiring cuts in non-schools services. The Secretary of State for Education has therefore been considering options by which sufficient funds can be passported through to schools without impacting upon other services, and has written to local authorities to outline the level of guaranteed minimum funding increase per pupil that he will expect to be passported through to schools' budgets. The Secretary of State has also reversed his intention to transfer Standards Fund grant into RSG for 2004/05 and 2005/06.
Census data
3.8.Some local authorities expressed their dissatisfaction with the population data that was used from the 2001 Census data for the first time in the 2003/04 RSG settlement. The Office for National Statistics (ONS) has been reconsidering the data during the summer and amended the population data for many authorities, including Salford. The Government had also planned to use other 2001 Census data for the 2004/05 RSG settlement, but the initial exemplifications indicated wide fluctuations in grant entitlement at an individual authority level and so the Government has reverted to using updated 1991 Census data to maintain stability. Population data is the only data from the 2001 census currently in use in the RSG formulae.
3.9.the Government intends to introduce further 2001 census data into the 2005/06 RSG settlement.
The National Grant Settlement Details
3.10.The Government has announced that it expects local authorities in England to spend a total of £73.4 billion, an increase of 6.2%.
3.11.The funding for this expenditure comes from three sources, as follows :-
£billionincrease
Government Grants, comprising :-
Revenue Support Grant27.0+ 12.2%
Specific Grants 12.8+ 12.4%
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39.8 + 12.1%
Business Rates15.0- 3.8%
Council Tax18.6+ 2.9%
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Total Assumed Spending (TAS)73.4+ 6.2%
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3.11.The Revenue Support Grant from the Government is a grant towards the general expenditure by local authorities and is based upon what the Government expects each local authority to spend if they all delivered the same level and standard of service, ie Total Assumed Spending (TAS)
3.12.The Special Grants from Government are aimed at providing grant support to specific services or initiatives the Government wishes to see local authorities give priority to, eg grants for schools to improve standards in education and improve the condition of school buildings, or grants to Social Services to improve services for children, adults and the elderly. There has once again been a substantial increase in Special Grants of 12.4% in 2004/05 (16% in 2003/04).
3.13.The Government also determines the amount of money to be raised from businesses by determining the rate in the £ all businesses must pay on the rateable value of their property. The rate in the £ for next year will be 45.6p, an increase of 2.7%. The reduction in income from business rates in 2004/05 is due to reductions in rateable value following appeals by businesses.
3.14.The RSG settlement assumes that, on average, local authorities in England will be increasing their Council Tax bills by 2.3%, but due to an increase in the number of properties across the country, the increase in Council Tax revenue is expected to be 2.9% and that the average Band D Council Tax for a standard level of service will be £1,061.
3.15.Average Council Tax bills last year were £908 and average Band D bills were £1,102. A 2.3% increase would mean the average next year would be £929 and £1,127 at Band D
3.16.Details of the national grant settlement are contained in Appendix 2.
Impact of the National Grant Settlement on Salford
3.17.The Formula Spending Share (FSS) announced by the Government for Salford for next year is £270.510m, an increase on a like-for-like basis of 3.5%,after adjusting for function and grant changes. This is less than the average increase of 4.9% for all local authorities because of changes to the data, especially population, used in its calculation.
3.18.Salford has received the lowest initial increase in Formula Grant Allocation (FGA) (which includes both RSG and NNDR) in Greater Manchester and amongst metropolitan districts at 3.5%. Over the past 3 years Salford has the second lowest cumulative grant increase of all metropolitan districts. The additional RSG announced by the Chancellor of the Exchequer raised this increase to 4.1% and the final RSG settlement to 4.4%.
3.19.The Government assumes for the purposes of determining grant that Salford will raise £60.2m from Council Tax next year (+ 2.1%) and to receive £60.4m from business rates (- 4.5%), leaving £149.9m (+ 8.5%) to be provided in Revenue Support Grant by the Government.
3.20.Details of the impact of the Revenue Support Grant settlement on Salford are contained in Appendix 3.
- 2004/05 REVENUE BUDGET
Development of the Budget Strategy
4.1.Forecasts of spending requirements began in March last year and have been refined as developments have unfolded during the year, particularly as the financial strategy was developed during the Autumn, as the RSG formula change options were exemplified in September, as details of the RSG settlement were announced early in November (and amended in December), as submissions were received from directorates during December and implications for services and outcomes considered during December and January.
4.2.The medium-term financial strategy should address the major issue facing the City of the change in demographic structure. The Cabinet's ambition is to make Salford a place where not only the young and old choose to live, but where families with children stay and are attracted to. The Cabinet's view is that this can be achieved through the implementation of the Council's six pledges. Prudence and efficiency also require that the strategy addresses the key messages emerging from the CPA assessment, the IDeA peer review, best value and service inspections, and PSA targets, together with the key messages from consultation with the public in previous years and also in December and January.