FIVE YEAR FINANCIAL PLAN

Transcription

1 FIVE YEAR FINANCIAL PLAN DERBYSHIRE COUNTY COUNCIL Peter Handford B.A. (Hons), CPFA

2 Director of Finance Approval and Authentication Name Job Title Signature Date Version History Version Date Author Reason Approved 0.1 December P Stone First Draft January 2015 P Stone Second Draft after PH comments January P Stone Further update January 2015 P Stone After further PH comments February 2015 After Council approval 1

3 Contents EXECUTIVE SUMMARY... 4 INTRODUCTION... 8 NATIONAL AND LOCAL CONTEXT... 9 Autumn Statement Budget Spending Review The Independent Commission on Local Government Finance Current Economic Climate Local Government Finance Settlement New Homes Bonus General Grant and Local Services Support Grant Local Welfare Provision Private Finance Initiative (PFI) Public Health Better Care Fund Safety Net Holdback Early Intervention Grant Top-Slice Independent Living Fund (ILF) Business Rates Pooling Fees and Charges Derbyshire Economy FIVE YEAR FINANCIAL PLAN Income: Business Rates Top Up Revenue Support Grant New Homes Bonus General Grant Local Services Support Grant (LSSG) PFI Grant Council Tax Use of Balances Expenditure: Price Inflation Pay Award Contingency for Price Increases

4 Debt Charges Interest Receipts National Insurance Contributions On-going Service Pressures One-off Revenue Support The Plan CAPITAL PROGRAMME RISKS Waste Disposal Deprivation of Liberty Safeguards (DoLS) Council Tax Business Rates SENSITIVITY Business Rates Revenue Support Grant Council Tax Pay Award Price Inflation Summary of Sensitivity Mapping RESERVES CONCLUSION REFERENCE DOCUMENTS

5 EXECUTIVE SUMMARY The Five Year Financial Plan (the Plan) is a medium term financial plan which sets out the overall shape of the Council s budget by establishing what resources are available for allocation to reflect Council and community priorities. The Council Plan sets out the service and organisational priorities. This is reflected in the development of the Plan. The Plan has been updated to reflect the outcomes from the Comprehensive Spending Review 2013; recent Budgets and Autumn Statements; as well as the Provisional Local Government Finance Settlement in December It shows that a total of 146m of budget cuts are required over the period to The Autumn Statement 2014 provided no indication of how further austerity measures beyond will impact on local government, although analysis of the Government s Departmental Expenditure Limits for the period to implies a cut of 33.2% over this period for unprotected departments, of which local government forms part. What is not clear at this stage is what proportion of this cut will be imposed on local government. The Council knows that its Revenue Support Grant (RSG) will be reduced by 34m (26.9%) in A reduction of 10% per annum is assumed thereafter, although details of funding cuts to local government will not be known until autumn It is also assumed that Council Tax Freeze Grant allocations (which are now included in the RSG allocation), will cease after This takes a prudent view, as Government have indicated that Council Tax Freeze Grant funding may be retained after , but again, this will not be confirmed until after this years General Election. Business Rates and Business Rates Top-Up are estimated to increase in line with the Government CPI target of 2% year-on-year. An allocation of 0.400m in New Homes Bonus is assumed in which is consistent with allocations in previous years. General Grants are based on allocations, thereafter it is assumed that only Education Services Grant (ESG) and Care Act Implementation Grant will be received. Council Tax increases of 2.5% per annum are forecast from onwards, but this is subject to the announcement of the annual Council Tax referendum principles, which will not be announced until details of the Local Government Finance Settlement are published. Any increase above the referendum limit would require a vote of approval by the local electorate. If the Council were to set Council Tax at 2%, instead of the planned 2.5% as a result of the referendum principle being set at a 2% threshold, it would result in a loss of income of approximately 1.4m per annum. The Council Tax referendum 4

6 principles have been set at 2% for and Taxbase increases of 0.7% are projected with a collection fund surplus of 0.600m per annum from There continues to be pressure on Adult Care costs as the growth in the number of clients and complexity of care increases. It shows that there is an underlying need for an annual uplift in the Adult Care budget by 10m - 14m per annum. In order to achieve this uplift in the Adult Care base budget it is proposed to use a combination of one-off support from the General Reserve and additional on-going funding, to be met from the Risk Management Budget and from cuts to other services. This will be achieved in the following way: Base Budget growth identified in Previous FYFP Additional Base Budget identified in Provisional FYFP (July 2014) Use of Risk m m m m m Management Budget Use of General Reserve Any additional income from Council Tax taxbase and collection fund surpluses over and above that identified in the Plan will help to manage a prudent balance on the Risk Management Budget over the medium term. A pay award of 2% per annum is assumed, although the Government indicated in the recent Autumn Statement that the Government will need to continue to reform and take tough decisions on public sector pay while it continues to reduce the current budget deficit until General price inflation of 1.5% is assumed in at a cost of 5m, on the basis that inflation remains low in the short-term, before rising to 2% per annum from The Council has maintained a Risk Management Budget for a number of years, the purpose of which is to provide a base budget from which the Council can help to manage some of the longer term risks and pressures. The Council will draw down on the budget over the medium term to assist with managing demographic growth in Adult Care (as outlined in the table above). 5

7 Date Total RESTRICTED In doing so, the Council will maintain a sensible balance on the budget in order to ensure that any unforeseen risks or pressures can be managed. The Council holds a Contingency Budget to accommodate non-standard inflation such as high energy prices. Therefore a sum of 1m has been set aside in each year from onwards. The Council faces a number of risks over the medium term, not least is the uncertainty of the level of Government funding. The degree of funding cuts will not be known until after next year s General Election. The Plan assumes that RSG will be cut by 10% per annum from , alongside growth pressures this results in savings required of around 20m - 30m per annum. If RSG were to be cut by 20% each year, this would result in a further reduction of approximately 7m each year, in which case further cuts of 7m per annum would need to be identified, on top of the 20m- 35m per annum already identified. The Plan shows that budget cuts of 146m are required over the five year period up to In order to understand how the Council s budget reductions targets have changed, the table below gives some idea of the way funding and pressures have changed over the years. Figures in bold type indicate the budget reduction agreed by Council for that particular year. The total budget reductions agreed from to amount to m, this being the sum that has been removed from departmental budgets. By the end of the decade the Council will have cut its budget by over 270m. m m m m m m m m m m m 07/12/ /01/ /06/ /01/ /07/ /02/ /10/ /07/ /01/

8 The Council has established a programme of budget cuts in order to achieve a balanced budget but it must ensure that the level of budget cuts identified is achieved. Non-achievement of the cuts will see the Council s General Reserve significantly depleted. The Council will draw down on General Reserves in order to address the pressure on Adult Care demographic growth and to provide general one-off budget support for service pressures. 7

9 INTRODUCTION The Plan sets out the Council s continued commitment to provide local services which represent the best possible value for money for Derbyshire residents. It builds on the achievements of the past and charts a clear course for the future in line with service priorities agreed as part of the Council planning process as well as the Council s financial and other resource strategies. Its purpose is to support corporate planning which will shape the Council s financial strategy and annual budgets. The Plan is a medium term financial plan which sets out the overall shape of the Council s budget by establishing what resources are available for allocation to reflect Council and community priorities. The Council Plan sets out the service and organisational priorities. This is reflected in the development of the Plan. The Council Plan sets out five pledges which are: A Local Derbyshire A Derbyshire that works A Healthy Derbyshire A Safer Derbyshire A Derbyshire that cares The previous version of the Five Year Financial Plan identified cuts of 157m were required over the period to The Plan has been updated and revised to show the position over the period to , which illustrates cuts in the region of 146m are required until the end of the decade. As a result, the Council has no choice other than to rethink its services and priorities. The Council has already put in place plans to identify the savings required, in order to achieve a balanced budget over the medium term. The Council has launched a campaign for a Fairer Deal for Derbyshire and is committed to an open and transparent debate about the detrimental impact of the funding cuts on local services. Demographic changes interact with these service priorities and pressures to create increased demands in excess of Government grant support, with the potential to impose Council Tax burdens beyond that which the tax was designed to withstand. The Government has introduced new legislation which has given local communities the opportunity to veto any proposed Council Tax increases that the Government deems excessive. The Council adopts a proactive approach in response to these demands through the identification of future pressures and associated risks, and development and implementation of plans to meet these pressures. 8

10 Most important of all, is the Council s commitment to continuous improvement and value for money. The Council challenges value for money through its positive approach to Best Value and performance management; internally set targets are designed to be ambitious and stretching. The Council is working in partnership with Derbyshire district and borough councils and Derby City Council, as well as other county councils regionally, to identify areas where efficiencies and service improvements can be achieved from collaboration. Service re-design has become an accepted and valuable tool in developing services to provide a clear customer focus. In summary, this Plan reflects a determination on the part of the Council to build on past successes, to focus on areas for improvement, to secure continued excellent value for money and to take the lead on developing new and better ways of delivering quality public services. NATIONAL AND LOCAL CONTEXT The Plan has been updated to reflect the outcomes from the Comprehensive Spending Review 2013, recent Budgets and Autumn Statements, as well as the detail announced as part of the Provisional Local Government Finance Settlement in December Autumn Statement 2014 On 3 December 2014, the Government announced details of the Autumn Statement which sets out the latest economic and fiscal forecasts for the UK economy. At the same time the Office for Budget Responsibility (OBR) published its economic and fiscal outlook, with its forecasts for the economy and public finances. The headlines were: A review of the structure of business rates will be carried out by the Government, reporting by Budget The review will be fiscally neutral and consistent with the Government s agreed financing of local authorities; The Small Business Rate Relief will be doubled for a further year to provide 100% relief from business rates for ; The business rate increase will be capped at 2% for a further year. Business rates for would have risen by the September RPI. A sum of 125m has been set aside to compensate local authorities for the difference between the 2% cap and the September RPI figure, as was the case for ; The Government will allocate a further 1bn from the 12bn Local Growth Fund announced in Spending Round 2013 for a second wave of Growth Deals. 9

11 The OBR s forecasts of economic growth, as measured by Gross Domestic Product have been revised upwards in the short-term but downwards in later years. Budget 2014 The Government announced the 2014 Budget on 19 March Local Government was specifically referred to within announcements of 200m to repair potholes in The Budget also included the announcement that Government plan to revalue the Local Government Pension Scheme (estimated to save 1bn in and ) and the Treasury s promise to hold a number of seminars on redesigning local services. At the 2013 Budget the OBR (Office for Budget Responsibility) forecast that GDP growth in 2013 would be 0.6%. In actual fact, the UK experienced growth of 1.8%. As a result the future years growth forecasts have also been revised. The OBR also predicts that the 2% CPI target will be met this year and into future years. Unemployment figures also indicate a fall in unemployment from 8% in 2010 to 5%. Spending Review 2013 On 26 June 2013 the Government announced the outcome of the Spending Review 2013 which details how the Government will spend 740bn across public services in Proposals include total savings of over 11bn in an aim to close the gap between what is raised in taxes and what Government spends. Although schools were a protected service as part of the review, local authorities generally were hit hard in terms of cuts from Government support. It was announced in the detail of the Review that local government spending will reduce from 54.8bn in to 54.5bn in , a reduction of 2.3% in real terms and 0.5% in cash terms, although the Government is still to provide details of how it has calculated the 2.3% reduction. In reality, there is a 26.9% reduction in the Council s Revenue Support Grant between and The impact of these unexpected cuts resulted in an additional 30m savings required over the period to The implication appears to be a transfer away from general grants into ring fenced allocations to meet particular Government priorities. Other announcements in the spending review included: and Council Tax Freeze Grant set at 1% increase on levels. Incentives to encourage collaboration between local authorities and other public sector bodies including a 100m fund to support upfront 10

12 costs of local authorities working together on services, 3.8bn funding pooled between NHS and councils to support and reward integrated working in An extension to the Troubled Families Programme including 200m available from DCLG. A 200m reduction to the Education Services Grant. The Independent Commission on Local Government Finance The Independent Commission on Local Government Finance was established in 2014 to examine the system of funding local government in England and bring forward recommendations on how it can be reformed to improve funding for local services and promote sustainable economic growth. The commission was founded, and is supported, by organisations working in local government who recognise that there is a real and pressing need for reform to the system and the way that it delivers for tax payers and local communities. The Commission will explore how an improved local government finance system could help to address five key challenges facing the country within the context of lower public spending: Promoting economic growth and investment in infrastructure. Ensuring sufficient housing is provided in every place. Integrating the health and social care systems to promote independent living, including preventing unnecessary health interventions. Achieving a welfare benefits system that promotes work and protects the vulnerable. Supporting families and developing young lives through early intervention. The Commission held its first meeting in May It issued a call for written evidence in June. The Council s response to the consultation was reported to the Cabinet Member for Strategy, Policy and Budget on 9 September An interim report was published in autumn 2014 with a view to publishing its final recommendations in early Current Economic Climate The Bank of England has been set an objective to meet the inflation target set by the Government. The inflation target is currently 2% based on the Consumer Price Index (CPI). The domestic recovery continues to be accompanied by a strengthening labour market. In the three months to May, employment rose by around 250,000, average hours worked rose strongly by 0.6%, and the headline LFS 11

13 unemployment rate fell to 6.5%. That suggests that labour market slack is being used up at a faster pace than expected three months ago. The UK economy grew by 1.9% in 2013, the strongest annual growth rate for six years. There has also been a revival in the housing market with housing transactions in Q up by more than 25% on a year earlier, accompanied by an increase in house price inflation. CPI inflation fell to 0.5% in December 2014, a fall of 0.5% from the November figure, its lowest rate since May 2000, helped by cheaper fuel prices. With inflation expected to remain low over the medium-term, it is unlikely that an increase in the base rate of interest will be seen anytime soon. Local Government Finance Settlement Details of the Provisional Local Government Finance Settlement were published on 18 December It marked the start of a four-week consultation period. The Settlement confirms details of the summer s Technical Consultation, which were: Continuation of Section 31 grant for the loss of income in respect of the Government s decision to cap the business rates multiplier at 2%, as announced in the 2013 Autumn Statement; Roll the Council Tax Freeze Grant into Revenue Support Grant; Adjustment of Revenue Support Grant to recoup the loss in Government tax revenue from local authorities, following the Government s decision to withdraw all state funded schools from the participation in Phase 2 of the Carbon Reduction Commitment Energy Efficiency Scheme. Following the Government s decision to cap the business rates multiplier at 2%, as announced at the 2014 Autumn Statement, the Government will again compensate authorities for any loss of business rates income, as it did for the financial year. This includes compensating top-up authorities for the fact that their top-up payments will be lower than they would have been had the multiplier not been capped. The Council will receive a compensating amount of 1.494m which is the estimated cost of capping for both and The Settlement Funding Assessment (SFA) is made up of Revenue Support Grant, Business Rates Top-Up (both of which are received directly from Government) and Business Rates which are received directly from the district/borough councils. Details of the allocations are summarised below: - 12

14 Settlement Funding Assessment m m Increase/ (Reduction) % Revenue Support Grant Business Rates Top-Up Business Rates The Settlement shows that there is a reduction in the Council s SFA of 14.1%, which compares with an average reduction of 13.9% for all county councils. Of the 34 county councils, Derbyshire has the second highest reduction in SFA. New Homes Bonus The New Homes Bonus (NHB) grant was introduced in April The scheme is aimed at encouraging local authorities to grant planning permission for the building of new houses and then share in the additional revenue generated. The Government has confirmed that the Council will receive an additional allocation for of 0.509m, making a total allocation receivable in of 2.224m. As in previous years, the Government has funded NHB from 250m set aside and a further 1bn which was top-sliced from Revenue Support Grant. The total amount due to be paid to local authorities in is 1.167bn. Therefore, the residual amount of 0.083bn is returned to authorities in proportion to their Start Up Funding Assessment. The Council will receive an allocation of 0.336m which has been included in General Grants. Whist any funding is generally welcome, it must be remembered that without the NHB the Council would receive a larger share of funding as the amount top-sliced to fund the NHB would be allocated on a more advantageous methodology. According to a recent analysis undertaken by the Local Government Chronicle, Derbyshire would have been 8.9m better off over the four-year period of to , had the funding remained as part of Revenue Support Grant and been allocated on a needs basis. General Grant and Local Services Support Grant A summary of the Local Services Support Grant and General Grant allocations for are set out in the table below. 13

15 General Grant m m Education Services Grant Local Reform and Community Voices Grant Business Rates Capping New Homes Bonus returned top-slice Care Act Implementation Local Welfare Provision Community Rights to Challenge SEN Reform Total Local Services Support Grant m m Extended Rights to Free Travel Lead Local Flood Authority Total Local Welfare Provision As part of the Local Government Finance Settlement provisional allocations were announced for which unexpectedly revealed that specific funding for local welfare provision would cease. The funding, formerly Community Care Grants and Crisis Loans, was only transferred to upper-tier local authorities in April As a consequence of losing a judicial review of the decision to withdraw funding, the Government was required to make a fresh decision on how local welfare provision should be funded in As a result, the Government published a consultation in October 2014 proposing a number of options. Disappointingly, the Settlement announced that there is no additional funding for local welfare support. The Government has separately identified 129.6m which will be incorporated into Revenue Support Grant. This is not additional funding; it merely identifies what Government thinks is the cost of Local Welfare Provision to be met from within existing grant funding. This is, therefore, a cut to local authority funding as the general grant paid in and of 1.828m will cease. 14

16 Private Finance Initiative (PFI) This grant is to support expenditure which is incurred in meeting payments to contractors for the capital element of school building projects previously undertaken through PFI and similar funding arrangements which have resulted in payments over a 25 year period. The capital payments due on these schemes will end in three phases between 2029 and The Council s allocation for is m. Public Health Public Health expenditure is funded from a ring-fenced grant. The budget is largely spent on drug and alcohol treatment services, sexual health services, health protection and promoting activities to tackle smoking and obesity and to improve children s health. The grant allocation for is m. In Summer 2014, the Government conducted a data collection exercise to confirm information on locally-agreed transfers between local authorities, Clinical Commissioning Groups (CCGs) and NHS organisations. As a result, errors to the Public Health baseline were identified and some authorities allocations, including the Council s, have been changed, in order to ensure transfers between local partners will no longer be necessary in the future. Consequently, the figure is approximately 0.090m less than , despite an announcement earlier this year that the funding would be equivalent to last year s allocation. Planning and paying for public health services for 0 to 5 year olds will transfer from the NHS in full to local authorities in October As part of the transfer, local authorities will be obliged to provide certain universal elements of the Healthy Child Programme. These are: antenatal health promotion review new baby review, which is the first check after the birth 6-8 week assessment 1 year assessment 2 to 2 and a half year review This will ensure that a universal health visiting service continues. The Government says that this service is essential to supporting the health and wellbeing of families and children at a crucial stage of development. These arrangements will be reviewed after a year. The Council will receive an allocation of 5.140m. Better Care Fund The Better Care Fund (BCF) was announced in June 2013 as part of the 2013 Spending Round. It provides an opportunity to transform local services so that people are provided with better integrated health and social care. The BCF will support the aim of providing people with the right care at the right place at 15

17 the right time. This will build on the work which CCGs and the Council are already doing for example, as part of integrated care initiatives, joint working and on understanding of patient/service user experiences. The BCF quantum at the national level will be 3.8bn in The allocation for Derbyshire in is m: m Funding from CCGs Erewash CCG Hardwick CCG North Derbyshire CCG South Derbyshire CCG Tameside and Glossop CCG Minimum Contribution Grants Disabled Facilities Grant Social Care Grant Other funding Additional CCG money for equipment Additional Local Authority money for equipment The ring-fenced funds of m will be transferred as part of a Section 75 agreement between the local authorities and the CCGs within Derbyshire. The majority of this resource is paying for existing services that are already commissioned jointly or by each partner. Any new money will have to deliver new/additional services that underpin the BCF Agenda. The funding can be used to improve health outcomes for clients and their carers. Derbyshire will look to invest in services jointly commissioned with health services, which include reablement, seven day services, better information sharing, joint assessments and reducing the impact on the acute sector. The resources for reducing the impact on the acute sector are performance related and will not be paid to the acute service if the targets are not achieved. The success of the BCF has national metrics underpinning its performance, including reducing admissions to residential care homes, effectiveness of reablement out of hospitals, delayed transfer of care, avoidable emergency admissions and patient service user experience. The new funding presents opportunities and risks to the Council which are the subject of detailed negotiation with the CCGs. 16

18 There are other funding streams, details of which are still to be announced. These are set out below. Safety Net Holdback The Business Rates Retention Scheme includes a safety net which protects local authorities from a reduction in their business rates income of more than 7.5% of their baseline funding level. To ensure that safety net payments are fully funded, the Government proposes to hold back a total of 50m. This funding would only be used if needed and any funding not used would be returned to authorities in-year, in proportion to their Start-Up Funding Assessment. It will not be known until later in the financial year what the quantum of the unused holdback will be. Any returned allocation will be added to the Risk Management budget in the first instance. It is difficult to estimate the level of funding that is expected to be returned to the Council, therefore a prudent approach has been taken and no estimated amount included in the budget. Early Intervention Grant Top-Slice In , the Government announced that 150m, which had been topsliced from the Early Intervention Grant, would be returned to local authorities as Adoption Reform Grant. In , there was a further extension to this, as well as a new Special Education Needs (SEN) Reform Grant. Whilst the Government has announced that it will provide 31.7m to help meet the costs of SEN Reform, details of the balance are still to be announced. Independent Living Fund (ILF) The ILF was originally set up in 1988, as an executive non-departmental public body sponsored by the Department for Work and Pensions. In December 2013, the Government made the decision to close the ILF on 31 March 2015 and transfer funding to local authorities to support users from April However, following a Court of Appeal judgment, the Government decided the ILF would be closed in June Consequently, local authorities will now receive 140m in funding for the period July 2015 to March 2016 to support users. Allocations will be paid as a general grant, but details of the allocations have not been published alongside the Provisional Finance Settlement and are not expected until March The current cost to the Council of providing ILF support is 2.625m per annum and it is anticipated that the Council will receive funding to cover these costs. Business Rates Pooling Under the Business Rates Retention Scheme, local authorities are able to come together, on a voluntary basis, to pool their business rates, giving them scope to generate additional growth through collaborative effort and to smooth the impact of volatility in rates income across a wider economic area. 17

19 The Council along with the eight district/borough councils, the city council and the Fire and Rescue Authority submitted a proposal to Government for a Derbyshire pool. Details were reported to Cabinet on 21 October Local authorities can withdraw from a designated pool, if after seeing the Provisional Local Government Finance Report, they no longer believe that pooling provides the opportunities they had previously thought. All members of the pool have agreed that the pool should proceed on the basis that the additional funding will provide an important enabler to drive forward economic growth and create a positive framework for investment across the county by improving business rates incentives and minimising the prospect of wasteful competition between authorities. As a result of the decision to pool, the Council s share of additional income is estimated to be 0.818m. The funding will be allocated to an Earmarked Reserve pending a decision on its use. In , there will be an opportunity to renegotiate the objectives and priorities of the business rates pool to ensure that they are more closely aligned with the strategy for the proposed Combined Authority. Fees and Charges The Council receives income for a range of fees and charges for different services including residential care, adult education courses and library fines. The income generated equates to approximately 78m per annum. The Council has adopted a Corporate Charging Policy to help standardise the approach to charging for services. Derbyshire Economy The latest economic review of Derbyshire (December 2014) indicates that the Derbyshire and East Midlands economies experienced a slowing in growth in Quarter 3 of 2014, according to the Derbyshire, Nottinghamshire and Leicestershire Chamber of Commerce s State of the Economy Index, with performance in the county falling behind that regionally. The county has above levels of labour market participation and in June 2014 the employment rate stood at 76.6% compared with 72.2% for England. In October 2014, the overall claimant count unemployment rate was lower in Derbyshire (1.6%) than England (2.1%), although hotspots still exist across the county where unemployment levels are very high, e.g. Ilkeston North (5.1%), Cotmanhay (4.2%) and Ilkeston Central (4.0%) in Erewash, Rother (4.5%) and Loundsley Green (4.0%) in Chesterfield, and Barms (4.0%) in High Peak. 26.6% of all unemployment claimants in Derbyshire have been out of work for more than a year, slightly less than the national average (29.8%). 18

20 Youth unemployment in Derbyshire stands at 2.8%, marginally higher than the England rate of 2.7%. In 11 out of 177 wards, the problem is particularly acute where the level of youth unemployment is more than double the national rate. In September 2014, annual house price growth in Derbyshire was 5.3%, below the 7.2% for England and Wales. 19

21 FIVE YEAR FINANCIAL PLAN The following key assumptions have been made when developing the Plan. Income: Business Rates This is the Council s share of Business Rates income under the Business Rates Retention Scheme. It assumes that business rates will continue to grow by 2.0% in each year of the Plan. This is based on current levels of growth in business rates in Derbyshire, set alongside expectations for wider economic growth. Top Up This is a grant received from Government under the Business Rates Retention Scheme. It assumes that the amount will increase with the Government s target CPI inflation year-on-year. Revenue Support Grant The indicative allocation shows a 26.9% reduction compared to the allocation. The austerity measures are expected to continue until the end of the decade, therefore cuts of 10% each year have been assumed from onwards. Details of public expenditure spending will not be announced by Government until after the General Election. The Comprehensive Spending Review 2013 confirmed that Freeze Grants awarded in and would be paid for a year further than originally announced i.e. up until the end of financial year It is assumed therefore that this funding will cease from onwards. However, following the Provisional Local Government Finance Settlement, the Government indicated that the Council Tax Freeze funding may be retained after , but this is unlikely to be confirmed until after the next General Election. The Council s Freeze Grant allocations are included in the RSG line, hence the significant fall in RSG in New Homes Bonus In , there is an assumption that the amount of New Homes Bonus will increase by approximately 0.4m. This will be the sixth year of the scheme. Under the final scheme design, local authorities will receive six years of grant based on Council Tax. 20

22 General Grant In , the amount of General Grant is based on the following: Education Services Grant m Business Rates Compensation m Returned New Homes Bonus top-slice m Local Reform and Community Voices m Adult Social Care New Burdens m SEN Reform m The Comprehensive Spending Review 2013 announced that 200m will be top-sliced from the Education Services Grant (ESG) quantum in Therefore the ESG allocation for assumes a reduction of approximately 20% compared to the allocation. The ESG is funding provided to local authorities to help fund central services provided to schools. The allocation is dependent on the number of local authority maintained schools. Any schools that become academies will result in a further reduction in the allocation. The assumption is that other than ESG and Adult Social Care New Burdens, no further General Grants will be awarded by the Government beyond Local Services Support Grant (LSSG) The LSSG for includes funding for Lead Local Flood Authorities and Extended Rights to Free Transport. It is assumed that LSSG will end after PFI Grant This grant is to support expenditure which is incurred in meeting payments to contractors for the capital element of projects undertaken through the Private Finance Initiative. Council Tax An increase of 2.5% is assumed from onwards but again this is dependent on the Council Tax referendum principles set by Government each year. Taxbase increases of 0.7% each year have been assumed from onwards. This is consistent with historic trends in the taxbase. A collection fund surplus of 0.600m is assumed each year from onwards. 21

23 Use of Balances There is a planned use of the General Reserve of 2m each year from onwards for general budget support. In addition, there will be one-off support for the Adult Care budget from to and for Public Transport for and Furthermore, there will be an additional call on the General Reserve of 1m in to cover the costs of the county council elections. Expenditure: Price Inflation The Consumer Price Index is forecast to continue to remain below the Government target in Therefore, a price increase of 1.5% is assumed in A general increase of 2% has been assumed in line with the Government s CPI inflation target from onwards. Pay Award The Comprehensive Spending Review 2013 announced an extension of the 1% cap on public sector pay until Increases of 2% thereafter have been assumed. Contingency for Price Increases An amount of 1m has been set aside in each year from onwards to accommodate non-standard inflation such as high energy prices. Debt Charges The Council s capital expenditure is partly funded from additional borrowing while 4% of the outstanding balance is repaid each year. The increases shown reflect the additional cost of debt charges relating to anticipated borrowing requirements. Interest Receipts The base rate of interest has remained at 0.5% since March The latest forecasts suggest an increase is not likely in the short-term. National Insurance Contributions Budget 2013 announced changes to Single Tier State Pension which means that members of a defined benefit scheme will no longer have the option to contract out of the State Second Pension. This will mean that employers will have to pay increased National Insurance Contributions. 22

24 On-going Service Pressures Demographic growth in respect of Adult Care and Looked After Children has been assumed in each financial year commencing The estimated impact of incremental waste costs has been assumed in each financial year. One-off Revenue Support One-off pressures up to the value of 2m per annum have been assumed, to be agreed as part of the Revenue Budget setting process, in addition to Adult Care demographic growth. County Council elections in will cost approximately 1m. These will be funded from the General Reserve. 23

25 The Plan FIVE YEAR FINANCIAL PLAN for to m m m m m FINANCED BY: Business Rates and Government Grants Business Rates Top-Up Revenue Support Grant New Homes Bonus General Grant Local Services Support Grant PFI Grant Sub Total Council Tax Use of Balances TOTAL FUNDING EXPENDITURE: Base Budget Price Inflation Pay Award Contingency for Price Increases Implementation of the Care Act National Insurance Contributions On-going Service Pressures Risk Management Budget One-off expenditure: One-off revenue support One-off SEN reform Elections Budget cuts required TOTAL EXPENDITURE Ongoing base budget TOTAL SAVINGS APRIL MARCH

26 Assumptions Price Inflation 2.00% 1.50% 2.00% 2.00% 2.00% Pay Award 1.00% 2.00% 2.00% 2.00% 2.00% Business Rate Growth 2.00% 2.00% 2.00% 2.00% 2.00% Top Up RPI 2.00% 2.00% 2.00% 2.00% 2.00% Revenue Support Grant Reductions % % % % % Council Tax Increase 2.00% 2.50% 2.50% 2.50% 2.50% Taxbase Increase 0.70% 0.70% 0.70% 0.70% 0.70% Taxbase 232, , , , , Collection Fund Position ( m) Council Tax ( /Band D) 1, , , , , Ongoing Service Pressures Adult Care Demographics CAYA Demographics Adoption Reform Care Leavers Waste

27 CAPITAL PROGRAMME The Capital Programme is developed following an assessment of capital bids received from each of the services across the Council. The capital expenditure recommendations have been determined from a detailed assessment of service department proposals for capital investment, utilising, as in previous years, a scoring mechanism to reflect the importance of each proposal in meeting a series of objectives, for example Capital Strategy, Asset Management and the Council Plan. Because the impact of capital expenditure and associated borrowing is spread over several years, it is important to consider the effect of any proposals in both the forthcoming and future financial years. There is ongoing revenue costs associated with borrowing. Details of the actual and estimated figures were reported to Cabinet on 27 January The Council s Capital Strategy is integrated into the Corporate Asset Management Plan process for service accommodation needs i.e. the on-going assessment of asset utilisation and building condition, with the key objective being to hold or provide only such assets as are necessary to meet service priorities. The strategy has regard to the availability of finance which continues at present to be provided mainly by traditional methods which include: Borrowing Grants & Contributions Revenue Funding Capital Receipts The Prudential Code provides flexibility in relation to borrowing for capital purposes by councils subject to tests of affordability and prudence. Government support, in the form of direct capital grants, or through support towards debt charges, is also available for specific capital projects. The level of grant support towards debt charges on post April 2006 supported schemes have reduced significantly, which has a severe impact on the affordability of capital programmes. The concept of supported borrowing was formally ended as part of the 2011/12 settlement. Other considerations, as part of option appraisal, include examination of the ongoing revenue implications of either carrying out or failing to carry out a specific scheme. It is regarded as imperative that such implications form a full part of the Council s expenditure planning processes. 26

28 RISKS The Plan shows that the Council is required to make substantial budget cuts over the medium term in order to maintain a balanced budget. If the target cuts cannot be achieved a drawdown on the General Reserve will be required to balance the budget. The Plan projects a long-term balance on General Reserve of around 20m - 35m over this period. This risk assessed minimum level of balances which the Council can call on in the event of unforeseen expenditure is 23m (see Audit Committee report 7 October 2014). There is a risk that this balance will be significantly depleted if the Council fails to achieve its budget cuts target. The latest views of bodies such as the Institute for Fiscal Studies is that significant public sector cuts are likely to be needed until the end of the decade, irrespective of which party wins the General Election. Local government has borne the brunt of the funding cuts to date, but it is unlikely to be protected from further cuts. Uncertainty lies with the level of cuts which local government will be required to make over the medium term. Local authorities have seen a real terms reduction of 37% in its funding between and Two recent National Audit Office reports have stated that in general terms, local authorities have coped well with the funding cuts in financial terms, although the reports raise concerns about the longerterm financial sustainability of single-tier and county councils. The reports reflect concerns over the capacity of some authorities to identify and make further cuts, given the level and scale of cuts already made. The Council has identified a programme of budget cuts required over the medium-term. Procedures are in placed to ensure that achievement against the targets is regularly monitored and reported to Members. The Council has robust procedures in place to ensure that mitigation against key financial risks is considered. These include: Regular review and update of the financial risk register which is reported to senior managers and Members Review of General and Earmarked Reserves at least annually, including projections for the General Reserve balance over the medium term Budget monitoring reports to Members which includes the latest budget position, progress against budget cut targets and the level of departmental Earmarked Reserves Reports to Audit Committee providing updates of the latest budget monitoring arrangements Consultation with Improvement and Scrutiny Committee on the latest Five Year Financial Plan 27

29 There are a number of areas of expenditure which have been identified as potential risks, where the cost over the medium term is uncertain. These are set out below. Waste Disposal It was announced in the Budget 2010 that the rate of landfill tax would increase by 8 per tonne each year from 1 April 2011 until at least There will be a floor preventing the rate from falling below 80 per tonne from to After it is envisaged that the rate will not drop below this figure and will be subject to inflation rate increases, to ensure that nationally the Council meets its European Union targets. Landfill Tax is a requirement of existing legislation, which stipulates the payment of Landfill Tax for each tonne of waste disposed of to landfill. The tax is set to increase by 2.60 per tonne from 1 April Following a period of reduction in waste arisings over recent years and based upon recent waste data (both nationally and locally), it is forecast that waste tonnages will increase by 2% in The Council has spent a number of years, in partnership with Derby City Council, attempting to deliver a waste treatment facility to divert residual municipal waste from landfill. In 2009 a long-term contract was awarded to Resource Recovery Solutions (Derbyshire) Ltd (RRS), commencing in 2010 for a period of 27 years. The original programme was for this facility to be operational in July The Council has been working with Derby City Council and RRS on the development of a revised project plan following the failure to secure planning permission. Following a successful outcome to the second planning inquiry, planning permission was effectively received in September This decision was challenged by objectors in the High Court in March 2013 and the Appeal Court in October 2013, with both challenges being dismissed. This legal process has further delayed the project, with financial close occurring on 20 August 2014 and the facility expected to open in April Deprivation of Liberty Safeguards (DoLS) The DoLS came into force in They are a set of legal requirements which ensure that individuals are only deprived of their liberty in a necessary and proportionate way and provide protection for individuals once a DoL has been authorised. A recent ruling effectively lowered the threshold for deprivation of liberty in care, which has led to a surge in DoLS applications in In the first quarter of , the Council has already received almost half the applications it received in the full year