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Agenda Item No. 5

 

The Vale of Glamorgan Council

 

Environment and Regeneration Scrutiny Committee: 6th  December 2016

 

Report of the Director of Environment and Housing

 

Initial Revenue Budget Proposals 2017/18

 

Purpose of the Report

  1. To submit for consultation the initial revenue budget proposals for 2017/18 and to inform Scrutiny Committee of the amended original budget for 2016/17 for services which form part of this Committee's remit.

Recommendations

It is recommended that:

  1. The amended revenue budget for 2016/17 as set out in Appendix 1 be noted.
  2. The initial revenue budget proposals for 2017/18 be considered and any recommendations be passed to the Corporate Performance and Resources Scrutiny Committee as the lead Scrutiny Committee.

Reasons for the Recommendations

  1. To advise Committee of amendments to the 2016/17 budget.
  2. In order that Cabinet be informed of the recommendations of Scrutiny Committees before making a final proposal on the budget.

Background

  1. The Council's budget is determined largely by the Revenue Support Grant (RSG) settlement set by the Welsh Government (WG). The provisional RSG settlement was received from WG on the 19th October 2016. The final settlement is likely to be received in December 2016.
  2. The Council is required under statute to fix the level of council tax for 2017/18 by 11th March 2017 and in order to do so, will have to agree a balanced revenue budget by the same date. To be in a position to meet the statutory deadlines and the requirements for consultation set out in the Council's Constitution, much of the work on quantifying the resource requirements of individual services needs to be carried out before the final RSG settlement is notified to the Council.

Revised Budget 2016/17

  1. Appendix 1 to this report sets out the Amended Budget for 2016/17 for this Committee, together with the necessary adjustments to be made to the original budget.
  2. Asset Rents, International Accounting Standard (IAS) 19, Transfers and Recharges - These adjustments have no overall effect on the net budget of the Council. These are accounting adjustments largely outside the control of services. They reflect charges for the use of capital assets, changes to inter-service recharges and transfers and pensions adjustments to comply with accounting standards. Also included are transfers of functions and responsibilities between Directorates. Cabinet on 6th June 2016 approved the transfer of £62k from Development Management to Resources as a result of the transfer of the Drawing Office.
  3. The following table compares the original budget and amended budget with the projected outturn for 2016/17.
 

2016/17

2016/17

2016/17

Variance

 

Original

Amended

Projected

(+)Favourable

Directorate/Service

Budget

Budget

Outturn

(-) Adverse

 

£'000

£'000

£'000

£'000

Environment and Housing

       

Visible Services

15,850

15,865

15,935

-70

Transportation

4,834

4,836

4,766

+70

Building Services

0

0

0

0

Regeneration

2,172

2,123

2,123

0

Development Management

958

962

962

0

Total

23,814

23,786

23,786

0

         
  1. The projected outturn for the services within the remit of this Committee is a balanced budget when compared to the amended budget.  The paragraphs below highlight any variances within each service.
  2. Highways & Engineering - It is anticipated that this section will have a favourable variance of £230k at year end. It is projected that the employee's budget will be £366k underspent due to vacant posts currently within the service. Due to the slight delay in rolling out the LED replacement programme there will be an overspend on Energy costs of around £80k. Vehicle costs are projected to be £100k over budget which is mainly due to the increased cost of the newer Winter Maintenance fleet. Due to the high number of schemes undertaken for other departments, the anticipated spend on subcontractors and materials are over budget by around £282k, however, this will be offset by higher than anticipated income of £326k.
  3. Waste Management - It is projected that the Waste Management section will have an adverse variance of £300k at year end. This will however be covered by anticipated favourable variances within other sections in Visible & Transport services. As reported in previous months, there has been a slight delay in rolling out changes to waste collection routes and therefore it is anticipated that employee costs will be £255k higher than budget and transport costs £435k higher than budget. To offset this, an underspend of £295k is expected on waste disposal costs. Departmental support costs recharged to Waste Management are also around £50k lower than budgeted. Anticipated income for the department is also around £45k greater than estimated.
  4. Transportation - It is anticipated that there will be a favourable variance of £70k within this service. This is due to staff vacancies and additional income relating to concessionary fares.
  5. Building Services - The Building Maintenance and Building Cleaning & Security Services are presently expected to outturn on target.
  6. Regeneration - This budget covers Economic Development, Countryside and Tourism & Events functions. The budget is anticipated to outturn on target. The income from the Vale Enterprise Centre workshops is under budget as it is proving difficult to let the persistently vacant units as they are in need of some refurbishment. To that end, a capital bid has been submitted, in order to invest in the fabric of the buildings with a view to achieving the income targets set. The service has elsewhere identified additional income streams which are anticipated to mitigate the loss of workshop income.
  7. Development Management - It is anticipated that this service will outturn on target. There is an adverse variance relating to the Local Development Plan (LDP) as expenditure was delayed from 2015/16, however, funding was set aside in reserves for this purpose in the last financial year and will therefore be drawn down to offset this position. Planning fee income is less than the anticipated profile for September. This is considered to be due to uncertainty in the construction market as a result of the referendum for the United Kingdom's exit from the European Union.

Savings 2016/17

  1. As part of the Final Revenue Budget Proposals for 2016/17, a savings target of £9.289m was set for the Authority. Attached at Appendix 2 is a statement detailing the savings targets relating to this Committee for 2016/17 and the projected outturn. Services are working towards fully achieving their savings targets however at this stage of the year it is anticipated that not all the savings will be made.
  2. Environment - While progress has been made towards achieving the savings, there has been a delay in commencing some of the schemes and therefore the full year target is not anticipated this financial year. £1.2m has been included in the capital programme for the installation of LED lighting. Installation will be undertaken this year however a full year saving will not be achieved until 2017/18. Also as previously stated, waste collection rounds have been revised from 1st August 2016 with the aim of reducing the resources required. However it is unlikely that the full saving will be made in 2016/17. The £50k saving relating to Public Conveniences will not be achieved this year as options are currently being explored, however, Prosiect Gwyrdd is anticipated to make a higher saving than required and this is partly offseting the shortfall on other savings. Where savings will not be achieved in year, services will seek to cover the shortfall on a one off basis from other areas.
  3. Regeneration and Development - There has been a delay in the exit from the JobFit contract which has resulted in a predicted shortfall against the savings target for Regeneration. Savings required from the Vale Enterprise Centre workshops are not being realised as some units are difficult to let due to their poor condition and investment will be required in the building to achieve this saving in future years.

Budget Strategy

  1. Cabinet approved the Budget Strategy on the 25th July 2016 min no. C3257.
  2. The Budget Strategy for 2017/18 outlines that in order to establish a baseline, services should prepare initial revenue budgets based on the cost of providing the current level of service and approved policy decisions and including the existing savings target. This means the cost of price increases and any allowable pay awards should be included as advised by the Head of Finance.
  3. Increases to budgets approved during the course of a financial year can restrict the freedom the Council has to allocate its resources to priorities during the following budget cycle when it is aware of all the competing demands. Consequently:

- Supplementary estimates will only increase the base budget if Council has given specific approval to this effect. Increases met by virement within a year will not be treated as committed growth.

- Directors should find the cost of increments and staff changes from their base budget unless the relevant specific approval has been given for additional funding.

- The effect of replacing grant from outside bodies that has discontinued will not be treated as committed growth. In addition, before any project or initiative that is to be met either wholly or partly by way of grant may proceed, the exit strategy must be approved.

- Certain items of unavoidable committed growth will continue and these include the effect of interest changes and the financing cost of the capital programme, increases in taxes, increases in levies and precepts charged by outside bodies and changes to housing benefits net expenditure.

- Services will be expected to achieve savings already approved by Cabinet as part of the 2016/17 final budget proposals and Directors are asked to continue work on achieving their Reshaping Services savings targets.

- It is envisaged that the costs of service development will need to be met from within the respective directorates.

  1. Having regard to the above, it is therefore proposed in respect of the 2017/18 Budget Process that Directors be instructed to prepare initial revenue budgets in accordance with a timetable agreed by the Head of Finance. Preparation should be on the following basis:

- Capital charges, central accommodation costs and central support costs to be estimated centrally.

- Services to prepare baseline budgets on current service levels as set out in the 2016/17 Final Revenue Budget report.

- Budgets to be broken down subjectively and objectively in as much detail as deemed appropriate by the Head of Finance.

- Budget reports to include revised estimates for 2016/17.

- Full account to be taken of the revenue costs, other than debt charges, of new capital schemes coming into use.

- Minimum savings targets to be met initially as detailed in the 2016/17 Final Revenue Budget report. Any savings made directly by services over and above individual service targets to count towards future saving targets or to meet unavoidable service cost pressures.

- Directors will continue to draw up Service Plans that set out the aims and objectives for the service and any possible future developments and efficiencies.

 - As stated previously, it is expected that the revenue costs of service development will need to be met from within the respective services (in particular, from the savings made). As such, no revenue bids are initially to be made. However, services may still be asked to identify and prioritise any burgeoning revenue cost pressures for consideration.

Medium Term Financial Plan

  1. The Medium Term Financial Plan (MTFP) 2016/17 to 2019/20 was presented to Cabinet on 26th September 2016 min no. C3330.
  2. It assumed a reduction in WG funding of 3% for the years 2017/18, 2018/19 and 2019/20. This resulted in the requirement to find savings of £24.146m over this period, with £7.783m currently being identified. There was therefore further savings to be identified of £16.363m over the 3 year period.
  3. The latest Plan factored in a managed level of cost pressures, a notional increase in council tax of 2% each year, price inflation of 1% and annual pay awards of 1% each year from 2017/18.
  4. In 2016/17, the Minimum Funding Commitment (MFC) for schools, equivalent to 1% above the WG's block grant settlement was an increase of 1.8%. The Plan stated that if the Council's funding from WG reduced by 3% in 2017/18, it would expect the MFC to be at a lower level and included a figure similar to the 2015/16 MFC which was based on an increase of 0.6%.

Provisional Settlement 2017/18

  1. The Council's provisional settlement was announced by WG on 19th October 2016.
  2. WG has advised the Council that its provisional SSA (Standard Spending Assessment) for 2017/18 is £215.917m. SSA represents WG's view of the relative resources needed to provide a standard level of service in each local authority in Wales and its primary use is to allocate RSG to these authorities.
  3. The Council will receive from WG Revenue Support Grant of £109.193m and a share of the Non- Domestic Rates (NDR) of £40.976m. Together these figures constitute the Council's provisional Aggregate External Finance (AEF) of £150.169m. WG reports that this represents a cash reduction of 0.2% (£0.352m) for 2017/18. However, when taking into account new responsibilities, this actually represents a cash reduction of 0.35% (£0.53m). This is a smaller reduction than the 3% projected in the MTFP.

2017/18 Initial Budget Proposals

  1. As part of these initial proposals, it has been necessary to revisit the cost pressures facing services in order to build up a complete and up to date picture of the financial position of the Council and an updated list relating to this Committee is shown in Appendix 3. They are not shown in any order of priority. The final proposal for the increase in the National Living Wage from 1st April 2017 has yet to be announced, however, it is considered that the 2017/18 pay rates used in these budget proposals for Vale of Glamorgan staff should cover the potential increase.
  2. Details of the proposed areas for savings for 2017/18 to 2018/19 for this Committee are attached at Appendix 4. The savings do not include the cost of any potential redundancies. As part of the Budget Strategy 2017/18, Directors were requested to continue to progress the Reshaping Services Programme. As part of the 2016/17 budget setting process it was recommended that Tranche 3 of the Reshaping Services programme should commence. A review is being undertaken in order to identify future projects and the Council is currently developing proposals.
  3. A summary of the overall base budget for 2017/18 for this Committee is attached at Appendix 5. This has been arrived at by adjusting the 2016/17 budget for items such as inflation and unavoidable growth, but does not include identified cost pressures or savings. These are shown as a note to the table and are further detailed in Appendix 3 and 4 respectively. Adjustments shown include the following:
  4. Asset Rents, International Accounting Standard (IAS) 19 - Relates to accounting items outside the control of services. They reflect charges to services for the use of capital assets and adjustments in respect of pensions to comply with accounting standards.
  5. Recharges/Transfers - Relates to changes in inter-service and inter Directorate recharges.
  6. Inflation - The figure for inflation relates to general price increases and a 1% allowance for pay awards.
  7. Once the base budget for the whole of the Council for 2017/18 has been established, it must then be compared to the funding available to identify the extent of any shortfall. With a projected AEF of £150.169m and Council Tax at a current level of £62.84m, total available funding would be £213.009m. When compared to a base budget of £216.996m, this would result in a funding deficit for 2017/18 of £3.987m. This deficit is mainly attributable to the allocation of committed growth and pay and price inflation.
  8. If all identified cost pressures for the Council as a whole were funded, this would increase the shortfall to £11.447m. If all proposed savings were achieved, the shortfall would be reduced to £4.426m as shown in the table below.

Projected Budget Shortfall 2017/18

£000

   

Funding Available

 

Provisional AEF

150,169

Council Tax (Assumes no increase) *

62,840

Projected Funding Available

213,009

   

Base Budget

216,996

   

Projected Shortfall Against Base Budget

3,987

   

Assume all Cost Pressures Funded

7,460

   

Projected Shortfall with Cost Pressures funded

11,447

   

Assume all Savings Achieved

(7,021)

   

Projected Shortfall for 2017/18

4,426

   

         * This assumes no increase in Council Tax at this stage.

  1. This shortfall is based on the assumption that the savings target set for 2017/18 will be achieved in full. However, a high proportion of these savings relate to Reshaping Services schemes which reflect a new way of working and therefore require a lengthy period of time to implement. While all services are working towards achieving their 2017/18 targets, not all savings may be achieved in full from 1st April 2017.
  2. The above projections include an assumed pay award of 1% for 2017/18 and the possible impact of the National Living Wage. Any changes to the current assumptions will be assessed as part of the Final Budget Proposals report.
  3. Further work will be undertaken by the Budget Working Group (BWG) in order to achieve a balanced budget for the final budget proposals for 2017/18. This will include a review of the use of reserves, a possible increase in council tax, a review of all cost pressures, possible changes to the approved saving targets, a review of the inflation assumptions and the current financial strategies. The BWG will also consider the results of the budget engagement process in determining priorities for future savings and service delivery. It will also ensure that budget proposals consider the requirements of the Well-being of Future Generations Act and the Council's 4 well-being outcomes as detailed in the Corporate Plan.
  4. There will be difficulties in maintaining the quality and quantity of services in the future without exploring opportunities for collaboration and alternative forms of service delivery. The Council will continue to develop its Reshaping Services programme via Tranche 3 schemes.

Next Steps

  1. The next stage is for the estimates to be submitted to Scrutiny Committees for consultation. Committees are asked to review the level of cost pressures with a view to suggesting ways in which these could be managed downwards and/or mitigated. Corporate Performance and Resources Scrutiny Committee is the lead Scrutiny Committee and will consider both the Initial Revenue Budget Proposals and any recommendations that other Scrutiny Committees have made. The responses of Scrutiny Committee must be made no later than the 13th December 2016.
  2. The BWG held a series of meetings in November 2016 with the relevant Cabinet Members and officers to consider the budget proposals and they will submit their recommendations so that the Cabinet may make its final budget proposal. Before making its recommendation, the BWG will consider the comments made by Scrutiny, together with the results of consultation. The final proposals to Cabinet will include a review of the financial strategies required to achieve a balanced budget, which is sustainable in future years. Currently, the approved timetable requires Cabinet to approve the final budget proposals by no later than the 20th February 2017 and that Cabinet's final budget proposals will be considered by Council at a meeting to be held on 1st March 2017 to enable the Council Tax to be set by 11th March 2017.

Resource Implications (Financial and Employment)

  1. Based on the assumption that all cost pressures for the Council as a whole will be funded in full, the estimated funding shortfall for 2017/18 will be £4.426m, assuming no increase in Council Tax.
  2. WG has not issued details regarding the level of funding post 2017/18, however, it is anticipated that there will be further reductions in funding for Local Government going forward. It is therefore important that Directors achieve approved savings and look to mitigate further cost pressures through alternative means of service delivery and collaborative ventures.
  3. Reserves are a way of setting aside funds from budgets in order to provide security against future levels of expenditure and to manage the burden across financial years. Funds no longer required may be transferred to the Council Fund and then set aside for other purposes or used to reduce council tax.
  4. The Council has always taken a prudent approach with regard to specific reserves and uses them to mitigate known risks (financial and service) and contingent items, e.g. Insurance Fund. Other reserves have been established to fund Council priorities, e.g. Visible Services and in particular the Capital Programme. This is important as the Council has limited capacity to realise sufficient sums from the sale of assets for capital investment. Sums have also been set aside to assist in budget management, e.g. Early Retirement Fund.
  5. The projected outturn for the Policy budget in 2016/17 is a favourable variance of £4m. In the Initial Revenue Budget Proposals report presented to Cabinet on 14th November 2016, it was proposed that £3m of this sum would be transferred into the Visible Services reserve and £1m would be placed in the Council Building Fund, both to fund proposed capital schemes. However, Cabinet on 14th November 2016, minute number C3362, resolved that the transferring of money into these reserves was considered to be premature, given the context of the budget and therefore recommended "That the sum of £4 million be set aside to the General Fund and consideration be given for that allocation to be used to offset the shortfall in the revenue budget and/or used for capital schemes, the details of which will be considered by the budget working group before the final revenue proposals are presented to Cabinet and Council for approval". The impact of this change on the Capital Programme is discussed further in the Initial Capital Programme Proposals report elsewhere on this agenda. The Council Fund Reserve as at 31st March 2017, including the £4m detailed above, would stand at £12.572m, with further commitments to be agreed as part of the final budget setting proposals.
  6. The Section 151 Officer currently believes that the minimum balance on the Council Fund Reserve should be no less than £7m. This is considered sufficient to cover unforeseen expenditure whilst, in the short term, maintaining a working balance. Unforeseen expenditure can be substantial and several instances can occur in a year. Whilst there is no set requirement for the minimum level for the Council Fund Reserve, some commentators use 5% of the net budget as a guide. For the Vale this is about £10.6m. However, in view of the prudent approach the Council takes with regard to specific reserves, £7m is considered a reasonable minimum.
  7. The Council presently benefits from a reasonable level of reserves, however, they are not inexhaustible and have taken years of careful financial management to develop to their current level. As part of the usual Budget process, an examination of the level of reserves is undertaken to ascertain their adequacy and strategy for use. A view to their level (i.e. whether the amount held in the fund is sufficient to requirements) and purpose (i.e. whether the need to hold the fund is still relevant) has been taken. The requirement for each specific reserve has also been considered in light of the Council's priorities. No transfers are proposed at present for reserves that are held for services within the remit of this Committee.
  8. Appendix 6 sets out the actual reserves as at 31st March 2016 for the services within this Committee's remit and shows the estimated reserves balance for each year up to 31st March 2020.
  9. The Council is planning to use a considerable amount of its specific reserves over the coming years, however, as reserves are a non-recurring means of funding, they can only be used as part of a specific financial strategy. The use of all reserves will be reviewed further, by the BWG, as part of the final budget setting process.
  10. Not all the identified savings relate to staffing, however, the impact on staffing levels could be a potential reduction. Although the impact on individuals is likely to be mitigated as a result of natural wastage and the deletion of vacant posts, it is, nevertheless, expected that there will be a number of redundancies. The trade unions will be consulted on the details of any possible redundancies once known.

Sustainability and Climate Change Implications

  1. The promotion of sustainability and action to arrest climate change is central to the work of the Council and a key consideration when allocating scarce resources to meet the needs of the present without compromising the ability of future generations to meet their own needs.

Legal Implications (to Include Human Rights Implications)

  1. The Council is required under statute to fix its council tax by 11th March 2017 and in order to do so will have to agree a balanced revenue budget by the same date.

Crime and Disorder Implications

  1. The obligations of the Council with regard to Section 17 of the Crime and Disorder Act 1998 needs to be fully considered in the budget decision making process.

Equal Opportunities Implications (to include Welsh Language issues)

  1. These initial budget proposals have due regard to the requirements of the Council's Strategic Equality Plan including the Equalities Act 2010 and Public Sector Equality Duty for Wales. The subsequent development of individual strategies for achieving savings will require the completion of Equality Impact Assessments. This involves systematically assessing the likely (or actual) effects of policies on individuals who have a range of protected characteristics under the Act.

Corporate/Service Objectives

  1. Funds allocated in the budget contribute to the wide range of Corporate/Service Objectives as set out in the Corporate Plan.

Policy Framework and Budget

  1. This report is following the procedure laid down in the Constitution for the making of the budget and so does not need to be referred to Council. However, the final 2017/18 budget will require the approval of full Council.

Consultation (including Ward Member Consultation)

  1. The Corporate Management Team has been consulted on this report. The initial budget proposals will be the subject of consultation with Scrutiny Committees. The Trade Unions and Schools forum will also be consulted.

Relevant Scrutiny Committee

  1. The lead Scrutiny Committee is Corporate Performance and Resources.

Background Papers

Medium Term Financial Plan 2016/17 to 2019/20

Budget Strategy 2017/18

Contact Officer

Carolyn Michael

Operational Manager - Accountancy

Officers Consulted

Corporate Management Team

Responsible Officer:

Miles Punter, Director of Environment and Housing