PAPER B. Purpose. 4. Specifically the report makes proposals for :-

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1 PAPER B Committee CABINET Date 10 TH FEBRUARY 2009 Title MEDIUM TERM REVENUE AND CAPITAL BUDGET STRATEGY 2009/ /12 AND COUNCIL TAX 2009/10 Report Author Purpose Dave Burbage, Director of Resources 1. This report outlines the Council s Revenue and Capital Budget position covering the next three years. In particular it updates and rolls forward the Medium Term Budget Strategy and Medium-Term Financial Plan (MTFP) that was agreed at Council on 20 th February The Medium-Term Financial Plan for the Council sets out the projected resources from Revenue Support Grant, assumed levels of Council Tax and fees and charges and projected costs at current levels of activity plus inflation and known service changes. 3. The overall Revenue and Capital Budget Strategy sets out how the Council will resource the key projects, changes and improvements that flow from the Councils Vision and strategic objectives, along with the redirection of resources over time to meet these priorities, whilst balancing the Budget Gap. 4. Specifically the report makes proposals for :- a) The level of investment in service improvement and improved efficiency b) The level of Capital investment c) The level of savings to be achieved d) The level and timing of use of balances e) The Council Tax base f) The Council Tax increase for 2009/10 Strategic Context 5. The Council s Corporate Plan was agreed by Cabinet in October 2008 as its main strategic planning document, providing a framework for the delivery of our services. It is a clear statement of the Eco-Island vision, strategic aims and priorities, and outlines the key actions which will support the delivery of these priorities. 6. The Corporate Plan is a key component of the authority s performance management framework and sets out how the authority s priorities are translated into action plans, and how the impact of those delivers outcomes for residents. 7. The themes in the Corporate Plan provide the basis for the setting of the Council s budget to deliver the key strategic improvement priorities that will make a difference to the way services are delivered and improved for residents and visitors. 1

2 8. In delivering on the corporate themes of a thriving island, a healthy and supportive island, a safe and well kept island and an inspiring island the activities outlined in the service plans to deliver the required outcomes are supported by service budgets. 9. The modernisation theme in particular is also dependent upon investing up front to deliver improved performance, value for money and securing efficiency savings; and enabling the Council to achieve an ongoing organisation and delivery that matches resources available over time. This approach is underpinned by the principle that the Council should focus its resources on its declared priorities and that partner agencies should also make their contribution to the investment in services to residents. However the Council will also seek to support and stimulate the local economy, wherever possible, through its policies. 10. The key elements of the Medium-Term Strategy are therefore to Invest in key projects, priorities and change in services that deliver improved outcomes for residents Maintain and improve core service delivery and performance so that we are an effective Council Maintain appropriate levels of Council tax increases Reduce costs to ensure we are an efficient organisation that delivers Value For Money Invest up front in transformation, ICT, and property rationalisation to deliver long-term savings Be clear and realistic about the priorities of the Council and its capacity to deliver Balance the Budget and deliver a sustainable organisation that lives within its means on an ongoing basis 11. The Council at its meeting on 25 th February will need to agree the overall Revenue Budget and Council Tax level for 2009/10 and therefore Cabinet needs to recommend the appropriate levels for consideration by Council. Medium-Term Budget Strategy 12. The Council adopted a three Year Budget Strategy (2008/9-2010/11) at its meeting on 20 th February 2008 which was based on the key features set out in paragraph 9 with the key underpinning investment and resources assumptions being :- Council Tax increases in line with inflation as measured by RPI at September, which is the measure by which pension and benefits uplifts are made. Investment to achieve the Vision and Aims to deliver improvement and excellence capital and revenue strategies to redirect resources to priorities 30m of prudential borrowing to fund Capital investment 5m revenue investment over three years 2

3 Savings of 12.37m over three years from achieving efficiencies and delivering value for money services from transforming services through working and delivering services differently and improving business processes Using Balances of 10.2m over three years Updated Medium- Term Financial Plan and Strategy 2009/ /12 to enable a planned realistic approach to deliver major change and savings 13. Because the Council adopted a three year strategy based on responsible financial management and use of reserves, the implementation of programmes of major change and a drive for a more efficient organisation the overall Budget Strategy for 2009/ /12 still remains the same. 14. Despite the significant impact of the recession, with an estimated net cost of some 4.4m, the Budget for 2009/10 provides for significant investment in service priorities and the change agenda, a Council tax increase of 3.5%, significant cost reduction and efficiencies and an ability not to have to implement more significant reductions in services. 15. Action has been taken during the last nine months in particular to minimise the impact of the recession and as part of the overall Budget Strategy to drive through efficiencies, commence the implementation of the Business Systems Improvement Project, review and reduce staffing levels, and develop our approach to transformation and rationalisation of properties. 16. In addition the Corporate Plan and Performance Management framework have been further developed which provide further enablers in ensuring resources are directed to priorities and performance and outcomes are linked to investment and value for money. 17. Overall changes to the Budget for 2009/10 to 2011/12 are summarised in Appendix 1 with a summary of service budget changes from 2005/6 set out in Appendix The overall Investment, spend and resource position can be summarised as 2008/9 2009/ /11 000, Gross Spend 324, , ,759 less Dedicated Schools Grant and Benefits 120, , ,254 Controllable base 203, , ,505 Income from fees and charges and direct 75,924 79,508 81,000 revenue grants Net Revenue Budget 127, , ,505 Revenue Support Grant 56,747 59,130 61,397 Council Tax 65, ,808 General Fund Balances 5,000 3,900 1,300 Total 127, , ,505 3

4 19. Within this the following levels of additional Investment, efficiencies and savings are provided for:- 2009/ / /12 000, INVESTMENT FROM REVENUE, RESERVES AND CAPITAL PROGRAMME 1. Key Service improvements Highways PFI 1,000 1,000 2,000 School Re-organisation Fire Service Modernisation 2. Upfront investment to deliver an efficient organisation Transformation BSIP inc. Capital 3,000 2, Property rationalisation 260 1,000 2,000 ICT Capital investment in Services Fire Service 0 3,000 5,000 Modernisation Leisure Facilities 1,700 3,000 3,000 Housing 3,500 3,500 3,500 Highways and transport 2,500 3,500 3,500 LTP 5,343 4,835 4,000 Public Toilets 1, CCTV TOTAL 21,100 23,500 25,000 EFFICIENCY SAVINGS Cost reductions/ 1,390 1,000 contingency review Restructuring/ 1,483 2,750 3,500 staffing/cost review/acc Containment of volume 2,350 growth BSIP 400 1, SERVICE REDIRECTION AND CHARGING Redirecting costs 358 Targeting need and 2, achieving more appropriate costs TOTAL SAVINGS 8,000 5,000 5,000 4

5 Other Considerations (a) Revenue Support Grant 20. The detailed schedule of savings is set out in Appendix The Revenue Support Grant (RSG) Settlement was announced last year on a three year fixed basis for 2008/9, 2009/10 and 2010/11.The announcement this year has confirmed that for 2009/10 the figures have not changed at all. The detailed figures are set out in Appendix In overall terms it is a settlement which provides no additional resource to councils to cope with the additional responsibility placed upon them and gives little scope for growth over the coming years. The position is made worse by the significant level of grant that is taken away through damping. For the IOW this is a substantial m over the three year period. This represents resources that are rightly due to the Island based on the need to provide services as reflected in the government s formulae. 23. When the grant is calculated some councils would attract a bigger percentage increase than others. In certain cases some councils would have a reduction in grant when their assessed need to spend went down or change in methodology meant a reduction. To protect those councils with reductions or very low increases the government introduced a floor whereby most councils were guaranteed at least a 2% increase. The extra cost was paid for by introducing a ceiling whereby those councils with the largest increases had their grant reduced, this is the process known as damping. 24. Under the National Concessionary Fares Scheme the Government applied as a general formulae to distribute grant for concessionary fares both within the RSG and as a special grant for 2008/9. Neither amount relates to the need to spend or the concessionary fares usage. 25. Although there are major losers and gainers no such protection mechanism has been introduced and the gap in funding for concessionary fares could amount to as much as 3.8m. This is close to the damping figure for 2009/10 of 3.860m. (b) Consultation 26. As part of the Budget Consultation a Questionnaire was placed in the One Island magazine in December which enabled residents to send in their views on priorities etc. In addition focus groups have been held with the voluntary sector, businesses, youth and older voices, staff and unions. Previous resident s surveys have also informed priorities. (A summary of the results of the consultation is attached at Appendix 5 and this has been taken into account when considering the detailed proposals). 27. Various presentations have been given and discussions held throughout the budget process including an all member seminar, group meetings and th nd to the Scrutiny Committee on the 18 December 2008 and 22 January The relevant minute from the 22 nd January meeting is attached at Appendix 6. (c) Medium-Term Financial Plan assumptions 28. The Medium-Term Financial Plan (MTFP) summarised in Appendix 1 sets out the projected resources and the projected costs of services over the next three years. It includes a range of assumptions about inflation and service pressures. The key assumptions are set out in Appendix 7. 5

6 29. Although the Council can only set its Budget and Council Tax for 2009/10 at this stage it needs to do this in the context of the three year position. A consistent deliverable strategy for Council Tax levels, investment and savings can only be achieved through Medium Term planning. (d) Balanced approach 30. Essentially the Strategic Budget choices facing the Council relate to a balancing act between a number of factors:- Capital investment Service improvement and growth Redirecting resources to new priorities And meeting the resource gap through:- Council tax increases Savings, efficiencies and reductions Increase in fees and charges Use of reserves 31. It also needs to consider the relative impact of these on residents, Council taxpayers, service users, business, voluntary sector and on the outcomes it is trying to achieve through the Vision. Capital Programme 32. The level of capital investment is dependent upon the resources available. These are essentially direct grant and support for specific schemes from government and other parties, capital receipts from disposal of assets, prudential borrowing and revenue contributions. 33. Whatever the resources available, however, the overall programme needs to directly reflect and support :- (i) (ii) (iii) The Council s Vision and strategic objectives The Capital Strategy that will help deliver them The relationship to the revenue budget strategy and Medium-Term Financial Plan 34. In the light of the stated priorities of the Council, the overall resources position and deliverability, officers have undertaken a review of the overall Capital Programme. This has looked more realistically at the profile spend on committed schemes, looked at uncommitted schemes and potential additional bids for schemes not yet in the programme such as the review of leisure facilities and Fire Service modernisation. 35. Schemes have been reviewed and included on the basis of the following classification ;- a) Children s Services/Schools projects to be met from specific funding allocations b) Local Transport and other Capital projects with specific allocations/grants c) Committed Schemes within the already approved capital Programme. 36. The remaining uncommitted schemes together with new bids have then been considered against the resources available, the capacity to deliver them and their match with the priorities of the Council. 6

7 37. The recommended revised programme is summarised in Appendix The overall position on Capital resources and investment would then be:- 2008/9 2009/ /11 000, Supported Borrowing 16, ,040 Prudential borrowing 13,529 10,806 11,195 Grants/contributions 8,232 25,037 35,484 Capital Receipts 2,300 1,920 1,900 Direct Revenue fair funding Total resources 40,533 45,536 57,991 Slippage of spend and (15,155) 15,155 resources from 2008/9 Adjusted resources 60,691 57,991 Total Programme 63,945 65,459 Less Provision for over programming at 15% of nongrant (3,254) (7,468) Net spend 60,691 57,991 Actual spend profile to be evaluated see para The spending performance on the Capital Programme continues to be problematic in that we over estimate what can be achieved in the year, do not project manage effectively enough and adopt a programme that we have not got the capacity or resource to deliver. 40. It is therefore proposed that the overall programme level is agreed with the broad allocation of resources as set out incorporating an element of over programming. Some schemes when slipped will have specific resources tied to them that will slip to which restricts the ability to direct resources to other schemes. 41. For every scheme and allocation a robust challenge and project review should be undertaken to determine the overall project plan, the logistics of achieving the project, the profiling of spend the risk management and the outcomes to be achieved. This should include the actions recommended by the Scrutiny Committee at its meeting on the 31 st July The relevant service Cabinet Member and the Cabinet Member for Resources, Residents and Fire Service are delegated to agree the individual schemes within the allocations set and that the final programme be reported to Cabinet at its meeting on 31 st March for final agreement. 43. For Fire Modernisation it will be necessary for Cabinet to consider a full report on the proposals, their rationale and detailed costings. Whereas provision has been made for potential revenue costs excluding the capital element it is likely that to accommodate some 8m of capital costs additional prudential borrowing may be necessary. 7

8 44. The revenue implications of the rest of the programme have been incorporated within the revenue budget summary in Appendix For prudential borrowing we need to demonstrate that the level of prudential borrowing is affordable and in line with prudential indicators set out in the statutory guidance. These are set out in Appendix 9 together with the overall Treasury management strategy. 46. Capital Receipts disposals have been based on a programme of identified sites and their potential proceeds as reported previously. The ability to generate additional capital receipts will be reviewed as part of the overall property rationalisation and Strategic Asset Management Strategy. Council Tax 47. The strategy assumes that the Council Tax increase will be in line with inflation as measured by the Retail Price Index (RPI) at September each year, for 2008/9 this was 3.9% and Council Tax was set at this level. For 2009/10 the comparable figure would be 5%.However since then the annual inflation as measured by the RPI has dropped significantly. The inflation suffered by the Council will be higher than this as a result of pay awards and contract costs and it does not reflect additional costs for increased service responsibilities or the true impact of the national concessionary fares scheme. 48. In striking a reasonable balance between Council Tax increases, making further savings and reductions and increasing fees and charges, and in line with the results of the Budget consultation it is felt that the 5% would be too high and that the assumed level set out in the Medium- Term Budget of 3.5% should be used. The Government has indicated that they will cap increases of over 5% and have written to all Councils urging increases to be lower than this. The formal Council Tax resolution will be reported to Council along with the final precept figures. At 3.5% a band D property would be 1,258.35p and increase of or 82 pence per week. The other bands are illustrated in Appendix 13. On top of this would be the Police precept and Parish precepts. 49. The Council Tax base for 2009/10 has been calculated at 54, based on the number of band D equivalents and an assumed collection rate of 99%. Savings and redirection 50. As set out in paragraph 19 a number of efficiency savings and redirection of resources are being proposed. These are set out in Appendix The strategy is aimed at concentrating savings on efficiencies and through transformation. Further savings require a planned approach and will only be realised over time after investment in new systems, service redesign and flexible working etc. 52. Ultimately in reducing costs and becoming an efficient organisation there will need to be a reduction in posts and people employed and a substantial reduction in the properties we use. 53. Taking into account the proposals in this report and the implementation of BSIP, transformation etc. it is thought that some 200 posts will need 8

9 to be shed, spread over the next two years. Some of these posts are already vacant and a range of HR processes will be followed to mitigate against compulsory redundancy e.g. targeted voluntary redundancy; flexible working patterns; early retirements; redeployment; reduction in use of temporary staff. 54. Any one-off redundancy costs and/or retirement costs will need to be met from savings or initially from reserves. Increase in Fees and charges 55. Income from fees and charges for Council services is normally assumed to rise by inflation year on year. Fees and charges for all Council services are subject to such an inflation factor except where specific circumstances dictate otherwise. For example, certain fees and charges are set by statute and the Council is obliged to use those statutory fees when charging for those services. With regard to locally set fees and charges, the Council may choose to levy more, or less, than the assumed rate of inflation for particular categories of income in any given financial year. 56. As part of the overall strategy and recognising the impact of the recession it is proposed that no general increase in charges are made for 2009/10. Indeed the Council recently announced a reduction in the price of school meal, a price level which will be held until The only specific increases proposed are :- Removal of free parking on Ryde Esplanade giving + 15k Reduction in level of discount on Chain ferry + 80k 57. The overall cost absorbed by the Council from not increasing all other fees and charges is some 600k covering over 500 separate fees and charges items. Use of Reserves 58. The agreed strategy over the three years is to use 10.2m of General Fund balances of which 3.9m would be used next year. Originally it was projected that there would be 15.2m of general fund balances available at 1 st April In the event there was an improvement to 16.0m thus there would still be an uncommitted balance of 5m always remaining as a minimum. 59. In addition a further 3m has been set aside for preparation costs of the Highways PFI. 60. A summary of the reserves position is set out in Appendix 10 with a risk assessment set out in Appendix The appropriate use of the general fund balances in this way enables the Council to deliver a coherent strategy, invest in priorities, modernise in a planned way and deliver appropriate Council Tax increases over time. 62. It also follows a prudent path and sustains a healthy level of reserves and provisions. 9

10 63. The summary of the overall cash limits for 2009/10 incorporating all the proposals in the report is set out in Appendix 12 Conclusion 64. The Council was facing a tight financial position as a result of the RSG settlement. This is made significantly worse by damping imposed by the government to take resources away from areas where need has been recognised in the formulae to protect councils whose need has reduced. 65. In addition the significant impact of the recession and the under funding of the Concessionary Fares this gives a very challenging financial position for next year and for the foreseeable future. 66. Because the Council adopted a three year strategy based on responsible financial management and appropriate use of reserves, the implementation of programmes of major change and a drive for a more efficient organisation the overall Budget Strategy for 2009/ /12 still remains the same. 67. The proposed strategy strikes a balance between, 1) the need to invest in capital infrastructure and to improve services and direct resources to the vision and priorities and 2) that of Council Tax, fees and charges, savings and use of balances. Legal Implications 68. The Council needs to set a balanced budget and Council Tax levels for 2009/10. In doing this it needs to ensure that it meets its statutory duties in relation to provision of services and in any change it introduces. The Government have indicated that Council Tax rises above 5% will be capped. Members should have regard to the statutory duties placed upon the Director of Resources as Chief Financial Officer. The Council may take decisions which are at variance with his advice, providing there are reasonable grounds to do so. However, Members may expose themselves to risk if they disregard clearly expressed advice, for example as to the level of provision required for contingencies, bad debts and future liabilities. Options 69. There are a number of options open to the Council in relation to the strategic choices it has particularly in the level of Investment, the level of capital investment, Council Tax increase, savings etc. The report highlights these choices and proposes an overall strategy to balance them. Evaluation/Risk Management 70. The key risks of this strategy relate to budget pressures being even higher than anticipated; savings and efficiencies not being achieved; proposed income levels not being achieved, inflation higher than expected. These risks are contained in the strategic risk register. The risk assessment set out in Appendix 11 matches the potential financial risks to reserves available to meet them. 71. General Fund balances of at least 5m will be maintained on top of earmarked reserves. Savings implementation plans will be adopted and rigorously monitored and budgetary control and reporting will be further strengthened. If savings from efficiencies and transformation are not achieved to the levels required then commensurate reductions will need to be made elsewhere. 10

11 Recommendations 72. Cabinet is asked to recommend to Council the overall Budget and Council Tax Strategy and in particular :- (a) The Medium-Term Financial Plan as set out in Appendix 1. (b) The use of 3.9m of balances in 2009/10. (c) The schedule of savings set out in Appendix 3. (d) An increase in the IOW Council element of Council Tax by 3.5% for 2009/10 (e) The overall Capital Programme set out in Appendix 8. (f) To agree to receive a further report at the Cabinet meeting on 31 st March on the individual capital projects and the outcome of actions set out in Paragraphs 41 and 42. (g) The Prudential Code Indicators, Treasury Management Strategy and Investment Strategy as set out in Appendix 9. (h) The overall Council tax base of 54, for 2009/10 Background Papers 73. Local Government Finance Settlement 2008/9-2011/12 th Presentation to Scrutiny Committee 6 December 2007 Presentations to Scrutiny Committee 18 th December 2008 and 22 nd January 2009 Appendices Attached Appendix 1 - Budget Forecast Summary Appendix 2 - Service Budget changes 2005/6 2008/09 Appendix 3 - Schedule of savings 2009/10 Appendix 4 - Revenue Support Grant Settlement Appendix 5 - Budget Consultation results Appendix 6 - Views of Scrutiny Committee 22 nd January 2009 Appendix 7 - MTFP 2009/10 to 2011/12 Inflation Assumptions Appendix 8 - Capital Programme schemes recommended Appendix 9 - Prudential Borrowing Indicators and Treasury Management Strategy Appendix 10 - Reserves and Balances Analysis Appendix 11 - Risk Assessment Appendix /10 Budget Forecast Cash Limits - Summary Appendix 13 - Council Tax Property Bandings Contact Point: Dave Burbage, Director of Resources, David.Burbage@iow.gov.uk DAVE BURBAGE Director of Resources CLLR BARRY ABRAHAM Cabinet Member for Resources, Residents and the Fire Service 11