Minutes Sussex Lodge
BUDGET AND COUNCIL TAX REPORT – 2016/17
(As presented to the Corporate Management Committee on 21 January 2016)
1.Introduction
The following report was presented to Council in February 2016 with the recommendations of the Corporate Management Committee for approving the budget and setting the council tax for 2016/17.
This report covers the General Fund only, providing a greater level of detail on the contents of the budget proposals of the Corporate Management Committee to the Council for 2016/17. The Housing Revenue Account budget is recommended to Council by the Housing Committee.
2.Background
The General Fund budget is the Council’s annual budget which needs to be approved by Council prior to the end of February each year. It is the financial representation of the Council’s policies and activities for the following year and legally must be a balanced budget i.e. the plan for resources expended must be matched by income available, including drawing upon General Fund reserves and balances. It is high profile in that the activities are funded by Government grant, fees and charges, retained business rates and council tax. The setting of the council tax is a key component of the general fund budget. Members have made it clear they wish to set a budget which does not rely on the General Fund working balance to fund ongoing expenditure and maintain balances above the level judged to be a minimum for cash flow and contingency purposes.
Over the medium term the General Fund working balance is to fund pump priming initiatives (mainly those which future reduce costs or generate income streams) and short term pressures. Earmarked reserves are created to fund specific known or likely future costs.
This report concentrates on the General Fund Revenue Budget and seeks to set out the approach taken in establishing the base budget, the planned expenditure for 2016/17 and the amount of resources available to fund those activities. This also covers actions required to bridge the gap between income and planned spending in order to deliver a balanced budget for approval by Council.
The Medium term Financial Strategy also forecasts to 2019/20 the costs of current policies (including estimates of inflation) to ensure the Councils policies are affordable in the medium term.
It should be noted that there will be separate reports on other components of the 2016/17 budget which will have some overlap with the General Fund Revenue Budget. These are the Medium Term Financial Strategy 2016/17 to 2019/20 (attached as appendix 1), the Capital Strategy & Programme and the Council’s Borrowing and Investment Strategy.
3.Context
The Government announced in December 2015 the Local Government Finance Settlement. The impact is a continued and significantly higher reduction in the funding for local Government in 2016/17 than was anticipated in February 2015. Government hasmade it clear it anticipates further reductions in local authority funding over the next four years as part of the ongoing program to reduce the national deficit. Section 5 below provides more detail. The Medium Term Financial Strategy gives further details of the Councils strategy to replace lost government grant with new sources of income from investing in the Borough’s assets or to reduce running costs via a business “transformation” program with minimal reduction in service.
4.Medium Term Financial Strategy
The overall MTFS has not changed significantly over the last year. The resource available from Government has changed radically which does require the Council to re-visit priorities over the next 12 months. Also new cost pressures mainly related to refuse collection, recycling, the commercial strategy and customer services. The Members’ overarching continuing strategy is one which;
•Ensures an adequate level of working balances to fund unexpected or unknown expenditure in the following year and leave an uncommitted balance of at least £2.3m.
•One off or time limited items of expenditure can be funded from balances. Since 2012/13 the Council has balanced its income and expenditure without the use of its working balance, indeed in each year a contribution has been made to the working balance. The Government Grant settlement announced in late December 2015 removed £959,000 more resources than anticipated. Removing resources from the 2016/17 and future year’s budget in a matter of weeks would not be practicable. The budget for 2016/17 contains significant savings but the MTFS is still showing a call on the General Fund working balance greater than planned. In the summer each year elected members, mainly committee chairs and vice chairs, begin preparing policy initiatives for the following year which maintains sustainable service delivery within resources available. This process will continue during the summer of 2016.
•The Capital Strategy shows the receipts available and prudential borrowingwill be mainly used to fund assets which generate a revenue income to support the Councils priorities. The strategy also demonstrates resources are available to fund short life assets (heavy plant and equipment, CCTV renewal etc.). The Council is expecting to receive over £10m in capital receipts in 2016/17 from the Addlestone One development and the Bourne car park development which will be retained to fund unforeseen capital expenditure over the next four years.
•Over the next two financial years there will be restructures effecting employees of the Council. While set up costs, including redundancy costs, are not known at this stage, there is capacity in both capital receipts and the General Fund working balance to fund these one off costs.
•An investment strategy which maintains a low risk environment but seeks to maximise the yield on the Councils investments and cash flows.
•Robust financial monitoring and reporting procedures to allow an adequate planning horizon to make adjustments to the budget in an orderly fashion.
The additions to the MTFS for 2016/17onwardsare around prudent financial provisions and risk management. These include:
- A move to funding more short life assets from revenue rather than capital receipts. Most of the IT equipment is already financed from revenue, but a repair and renewals fund will enable annual contributions to be made to replace refuse collection vehicles, CCTV equipment etc. For 2016/17 the reductions in Government funding means the fund may not be set up as planned in 2016/17, but it continues to be a realistic aspiration.
- Business ratepayers have around £30m of outstanding appeals with the Governments valuation office. A number of other factors, collection rates and government levies mean the income retained by the Council is volatile. Provision has been made in the collection fund provision to repay any refunds which may be backdated to 2010. For 2016/17 the Surrey business rates pool has been enlarged to include the neighbouring London Borough of Croydon. The pool has been reconfigured with some district councils leaving the pool and Runnymede BC joining the pool. This gives the greatest financial advantage to the pool members and reduces risk around any movements in the collection rate and tax base.The existing pooling arrangements will give Runnymede an additional £300k a year. Government have committed that all of business rates collected will remain with local government by the end of this Parliament, but what is yet to be determined is the share for Surrey Councils and more importantly the split between the County Council and Runnymede BC. In addition the Council maintains an earmarked reserve of £380k to equalise any call on the general fund working balancewhich seeks to minimise fluctuations in the impact of a surplus or deficit on this Councils portion of the taxpayers collection fund
Members from the Corporate Management Committee, the Property Sub Committee, the Transformation Board and other Member groups have been working since early summer on preparing robust strategies to deliver services and reduce costs. The remainder of the report gives the detailed changes to the 2016/17 budget and proposes a tax level for 2016/17. It also summarises the projected over spend for the current financial year in the “probable spend 2015/16”
5.Government Grants
New Homes Bonus is a reward grant based on the number of new homes built and the number of long term empty properties brought back into use. The grant is due to be reviewed in 2016/17. Over the last few years the Council has been successful in reducing the number of long term empty homes to less than 100. The total number of dwellings in the borough is just under 35,000.
One of the main components of the New Homes Bonus is a payment of £1,468 for each new home built (average band D tax in 2014/15).
At this stage of the planning process it has been assumed no new grants will be made available and the existing grant wound down over the next 4 years. If the reward grant does continue in 2017/18 this will give council options around using it to fund capital expenditure, pump prime new initiatives etc. The table below shows a forecast of the grant due under the current scheme.
The tables below shows the reduction in Government Grant forecast. Government has undertaken to provide Councils who produce an efficiency plan with a four year certainty plan. In January the detail has not been received but officers assume this will not be onerous and based on the figures presented in this report. Government have also indicated Councils will take on new responsibilities in exchange for the certainty on future settlements.
The table below is extracted from government published figures for the national settlement. Using a mix of reserves, retained business rates and increases in council tax the Government estimates that by 2019/20 local government revenue funding will be £40.5 billion, comparable in cash terms to the spending in 2015/16
The table below shows the data provided by government specifically for Runnymede BC. In the MTFS approved by Council in February 2015 it was assumed that RSG would reduce significantly in 2016/17 then be reduced in stages to zero by 2019/20.
The actual settlement shows the Council will receive no RSG by 2018/19 and will have a “tariff” of £300k in 2019/20. The exact mechanism for paying the tariff is still to be determined by government in 2016, but it is assumed it will come from the business rates retained.
The section highlighted shows that the reduction for 2016/17 is only £66k higher than officer predictions from February 2015. It is the cumulative effect of a £959k reduction over the next four years which means the Council, over the summer of 2016, will revisit long term spending and income generation plans.
As new homes are built in the Addlestone and DERA developments this will increase the tax base and may attract New Homes Bonus. The financial strategy of the Council is to place less reliance on the New Homes Bonus in supporting the revenue budget, but to use it to fund its regeneration and investment plan while seeking to reduce its base budget in the medium term through efficiency savings and income generation.
6.Base Budget 2016/17
The base budget can be described as the planned expenditure on services based on existing policies and practices, before consideration of any new growth or savings in order to produce a balanced budget. The process for determining the Council’s 2016/17 base budget has been robust and includes:
•A base budget challenge – every area of the budget was examined by a team of officers to challenge every budget manager on areas in their budget where savings could be made
•A number of new cost pressures arose in the first half of the current financial year which resulted in Supplementary Revenue Estimates being agreed, many of which continue into 2016/17 and beyond.
•A complete zero base budget review of staffing levels.
•Regular budget monitoring meetings with budget holders to ascertain the spending pressures in 2015/16 which would continue and opportunities for further savings.
•a review of all costs to ensure, as far as possible, the budget accurately reflects the cost of the service.
•a review of respective income levels. Fees and charges have been agreed for 1 April 2016. These are based on the budget manager’s view of their markets and the impact of any increase on overall income.
Runnymede Borough Council members have made it clear they set a balanced budget for 2013/14 and in future years which does not rely on the general fund working balance to support recurring expenditure. The working balance may be used to fund one off project costs, transformation costs or contribute to funding capital expenditure. As the reductions in RSG, outlined in section 5 above, are much steeper than planned, the MTFS assumes the Council will wish to make considered long term plans over the summer of 2016 rather than introduce short term expenditure reductions over a short time scale.
For this reason no savings have been included which could not realistically be achieved subject to Council approval.
The Capital Strategy continues with an “invest to save” element which seeks to invest capital resources in commercial assets which generate a long term, sustainable income to support other services.
7.Budget Assumptions
When undertaking the above workand constructing the base budget, various assumptions have been made. The budget set must include provision for pay and price increases through to 31 March 2017.The major assumptions are set out below:
•Inflation has been added to the budget for essential items only including business rates, energy and fuel. Consumable expenses, mainly in the back office, have not been increased. This approach has been agreed with budget managers. The “more for less” approach is consistent with the Council procurement strategy.
•Investment income and borrowing costs have been prepared using conservative investment rates but do assume an increase in borrowing costs in the latter half of 2016.
•A staff pay award has been included at 1% from 1 July 2016. The assumption in February 2015 was that a 2% pay award would be offered. Increments have still been included for those staff not at top of their scale. In manager briefings it has been made clear that the timing and percentage increase of any award may need to be revisited should the Council’s financial position change. In the past all staff budgets have been completely funded. Historically there has always been turnover in the staffing establishment. The budget assumes each Corporate Head of service and the Chief Executive will keep some posts vacant for part of the year to achieve a 2% vacancy factor.
•Fees and charges have been reviewed and a modest increase in overall yield has been added to the budget. While this creates a budget pressure, it does ensure income targets are set realistically in the current climate.
•While the cash reserves of the Council are relatively healthy, the investment income remains depressed due to low interest rates and reducing balances. It is anticipated interest rates, and inflation rates, will remain low for much of 2016/17.
8.Council tax levels and Freeze grants
The Council has been largely able to freeze its council tax since 2011/12 when the freeze grant was introduced. In return for not increasing Council tax, the Government offered the equivalent of a 2% increase as a four year grant. At the same time it introduced legislation requiring a Council to undertake a local referendum if it wished to increase its tax by more than 2%. Since 2011/12 no local authority has sought resident’s views on an increase of more than 2%.
Runnymede Borough Council set a Band D tax of £136.89 a year in 2010/11, one of the lowest council tax levels in the UK and froze the tax between 2011/12 to 2012/13. In 2013 Government recognised those councils with a very low tax base faced significant financial pressures as reductions in grant reduced their ability to continue to deliver services. For 2013/14 the Government gave specific permission for low tax setting authorities to increase tax by up to £5 a year. Runnymede BC consulted extensively using local press and the business community on a tax rise of 3.6%, just over 9p a week for a Band D taxpayer. The table below shows the tax for a Band D taxpayer.
For 2016/17onwards the Government have discontinued freeze grants. However Government have recognised that as part of reducing the RSG they assume an increase in council tax. Low tax councils, including Runnymede, can increase their 2016/17 band D Council tax by up to £5 a year without a referendum being held.
Over the last four years at least the Council has collected over 99% of tax due within the year, but has prepared estimates on the basis of collecting 98%. The following year we pay the surplus in the collection fund to the Councils general Fund and the two preceptors. For 2016/17 it is not unreasonable to budget for a 99% collection rate.
The table below shows council tax levels assuming a 1.98% tax increase. The second table assumes the £5 increase is applied.
Should members accept the government proposal to increase the tax by £5 a year in 2016/17 it is assumed this will be a one year offer and future increases will be limited to less than 2%
The table below demonstrates the effect on a band D taxpayer
