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  Agenda Item No. 6

 

The Vale of Glamorgan Council

 

Learning and Culture Scrutiny Committee: 11th December 2017

 

Report of the Director of Learning and Skills

 

Initial Revenue Budget Proposals 2018/19

 

Purpose of the Report

  1. To submit for consultation the initial revenue budget proposals for 2018/19 and to inform Scrutiny Committee of the amended original budget for 2017/18 for services which form part of this Committee's remit.

Recommendations

It is recommended that:

  1. The amended revenue budget for 2017/18 as set out in Appendix 1 be noted.
  2. The initial revenue budget proposals for 2018/19 be considered and any recommendations, including those relating to cost pressures and savings, 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 2017/18 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 10th October 2017. The final settlement is likely to be received in December 2017.
  2. The Council is required under statute to fix the level of Council Tax for 2018/19 by 11th March 2018 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 2017/18

  1. Appendix 1 to this report sets out the Amended Budget for 2017/18 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.
  3. The following table compares the amended budget with the projected outturn for 2017/18. The service is anticipating drawing down from reserves this year.
 

        2017/18

2017/18

Variance

 

Amended

Projected

 (+)Favourable

Directorate/Service

Budget

Outturn

 (-) Adverse

 

           £'000

£'000

     £'000

Learning and Skills

         

   

Schools

82,957

82,957

0

Strategy, Culture, Community Learning & Resources

11,014

11,004

                      +10

Strategy and Regulation

235

201

                      +34

Achievement for All

3,840

4,187

                     -347

School Improvement

1,102

1,054

                      +48

Additional Saving to be Found

0

         (255)

                    +255

       

Grand Total

99,148

99,148

                          0

       
  1. The forecast position for the Learning and Skills non-school budgets is an overspend of £879k, which will be partially met by drawing down £624k from the directorates reserves. The Directorate is requested to look at ways of mitigating the remaining overspend of £255k in order to deliver an outturn within budget at year end.
  2. Schools - The delegated budget relating to schools is expected to balance as any under/over spend is carried forward by schools.
  3. Strategy, Culture, Community Learning & Resources - It is projected that the service will outturn at a favourable variance of £10k after drawing down £340k from reserves. There is an adverse variance of £66k relating to the schools long term supply scheme, however, premiums will be increased from April 2018 to ensure the scheme is sustainable in the future. There is an adverse variance of £50k anticipated on education and transport which is managed within the Environment and Housing Directorate. There are also adverse variances of £24k in relation to primary school rates revaluations and £7k relating to legal fees. This is offset by favourable variances of £88k relating to staff vacancies, £34k on ICT SLA income from schools, pension payments of £28k and union backfilling of £7k. The Catering service will draw down £109k from the Catering reserve to outturn at budget to fund urgent gas works required in schools as well as the school holiday enrichment programme. The Schools Invest to Save Reserve will be used to cover the £50k adverse variance in relation to redundancies in schools, which is covered by a statutory requirement to be funded centrally. £107k from the Rationalisation reserve will be used to fund revenue costs in relation to the Barry Secondary school transformation, £22k from the Rationalisation Reserve will be used to fund one off staffing costs at Penarth Learning Community, a further £20k of the Rationalisation Reserve will be used to fund the cost of Welsh immersion for primary pupils transferring from English medium to Welsh medium schools and £16k will be transferred from the rationalisation reserve to cover amalgamation costs at St Helens Primary school. £16k of the Library reserve will be used to purchase new tills for Libraries.
  4. Strategy and Regulation - It is anticipated that this service will outturn with a favourable variance of £34k due to vacancies within the Business Support section.
  5. Achievement for All - This service is currently predicted to outturn with an adverse variance of £631k which will be partially met by transfers from reserves of £284k resulting in an adverse variance at year end of £347k. A £403k adverse variance is projected on the recoupment income budget. This budget is set for recouping income from other local authorities that purchase placements at Ysgol Y Deri. The budget has been under pressure for a number of years as a result of a demographic increase in the number of Vale pupils presenting with complex needs which has resulted in less placements being available for other authorities to purchase. In addition, other authorities have developed their own provision and the level of demand has reduced. The adverse variance will be partially offset by a transfer from the School Placement Reserve of £200k. It is anticipated that the Social Inclusion and Wellbeing service will overspend by £122k due to increased pressure on the alternative curriculum budget for pupils that have either been excluded or cannot be educated at school and the costs of the remodelled guidance to engage provision which is a NEETS prevention service. This overspend will be partially offset by a transfer from the Youth reserve of £47k and a transfer from the Excluded Pupil reserve of £37k. A £140k adverse variance is projected for the pupil placements budget. Occasionally the needs of very complex pupils cannot be met within the Vale of Glamorgan resources and placements are purchased from independent schools or other authorities. Unit costs are typically very high and as a result this budget can be volatile as one new pupil can have a dramatic effect on the outturn. The above will be offset by a favourable variance on staffing of £34k.
  6. School Improvement - It is anticipated that this service will underspend by £48k due to a part year vacant senior post.
  7. Provision has been made within the budget to make unsupported borrowing debt repayments in relation to the Schools Investment Strategy of £598k per annum and any favourable variance on debt repayments will be directed into the Schools Investment Strategy.

Savings 2017/18

  1. As part of the Final Revenue Budget Proposals for 2017/18, a savings target of £640k has been set for this Committee. Attached at Appendix 2 is a statement detailing each savings target with an update of progress.
  2. Each savings target has been given a RAG status. Green indicates that it is anticipated that the target will be achieved in full within the year, amber indicates that it is considered that the saving in the year will be within 20% of the target and red indicates that the saving to be achieved in year will be less than 80% of the target.
  3. It is anticipated that all savings will be achieved this year.

Budget Strategy 2018/19

  1. Cabinet approved the Budget Strategy for 2018/19 on the 31st July 2017, min no. C45.
  2. The Budget Strategy for 2018/19 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 2017/18 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 2018/19 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 2017/18 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 2017/18.
  • 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 2017/18 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) 2017/18 to 2020/21 was presented to Cabinet on 18th September 2017 min no. C74.
  2. It assumed a reduction in WG funding of 3% for the years 2018/19, 2019/20 and 2020/21. This resulted in the requirement to find savings of £20.941m over this period, with £9.326m currently having been identified. There was therefore further savings to be identified of £11.615m over the 3 year period.
  3. The latest Plan factored in a managed level of cost pressures, a notional increase in Council Tax of 2.6% each year, price inflation of 0.5% and annual pay awards of 1.6% each year from 2018/19.

Provisional Settlement 2018/19

  1. The Council's provisional settlement was announced by WG on 10th October 2017.
  2. WG has advised the Council that its provisional SSA (Standard Spending Assessment) for 2018/19 is £221.296m. 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 £111.174m and a share of the Non- Domestic Rates (NDR) of £40.822m. Together these figures constitute the Council's provisional Aggregate External Finance (AEF) of £151.996m. WG reports that this represents a cash reduction of 0.4% (£670k) for 2018/19. However, when taking into account new responsibilities, this actually represents a cash reduction of 0.56% (£859k). This is a smaller reduction than the 3% (£4.486m) projected in the MTFP.
  4. As part of the settlement, WG has also provided an indicative figure for the change in AEF for 2019/20 which is a further reduction of 1.5%.

2018/19 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 and an updated list for this Committee is shown in Appendix 3. These are not shown in any order of priority.
  2. Details of the proposed areas for savings for 2018/19 to 2019/20 for this Committee are attached at Appendix 4. The savings do not include the cost of any potential redundancies. Further work is ongoing to identify future projects that will realise savings for the Council.
  3. A summary of the overall base budget for 2018/19 for this Committee is attached at Appendix 5. This has been derived by adjusting the 2017/18 budget 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. Inflation has yet to be allocated to services pending the final agreement of pay inflation and the level and approach for allocating general price inflation. Adjustments shown include the following:
  • 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.
  • Recharges/Transfers - Relates to changes in inter-service and inter Directorate recharges.
  1. Once the base budget for 2018/19 has been established, it must then be compared to the funding available to identify the extent of any shortfall. With a projected AEF of £151.996m and Council Tax at a current level of £66.166m, total available funding would be £218.162m. When compared to a base budget of £221.748m, this would result in a funding deficit for 2018/19 of £3.586m.
  2. If all identified cost pressures were funded, this would increase the shortfall to £10.636m. If all proposed savings were achieved, the shortfall would be reduced to £3.910m. As WG has provided an indicative reduction for 2019/20 of 1.5% the impact of this is also shown in the table below.

Projected Budget Shortfall

      2018/19

      2019/20

 

£000

£000

Funding Available

   

Provisional AEF

151,996

149,716

Council Tax (Assumes no increase) *

66,166

66,166

Projected Funding Available

218,162

215,882

     

Base Budget

221,748

220,201

     

Projected Shortfall Against Base Budget

3,586

4,319

     

Assume all Cost Pressures Funded

7,050

4,483

     

Projected Shortfall with Cost Pressures funded

10,636

8,802

     

Assume all Savings Achieved

(6,726)

(2,600)

     

Projected Shortfall

3,910

6,202

     

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

  1. This shortfall is based on the assumption that the savings target of £6.726m set for 2018/19 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 2018/19 targets, not all savings may be achieved in full from 1st April 2018 and therefore the potential for reprofiling savings will need to be assessed when setting the budget for 2018/19.
  2. The above projections include an assumed pay award for 2018/19 and the possible impact of the National Living Wage which averages an increase of 1.6%. The current assumptions will be assessed as part of the Final Budget Proposals report when further information is available.
  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 2018/19. 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.
  4. The BWG will consider the results of the budget engagement process in determining priorities for future savings and service delivery.
  5. The BWG 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. They will also ensure that the budget proposals reflect the 5 ways of working which are:-
  • Looking to the long term: The budget proposals are a means of planning for the future and should take a strategic approach to ensure services are sustainable and that future need and demand for services is understood.
  • Taking an integrated approach: The budget proposals should consider and encourage ways of working with partners.
  • Involving the population in decisions : As part of the budget proposal process there will be engagement with residents, customers and partners.
  • Working in a collaborative way: The budget proposals should recognise that more can be achieved and better services can be provided by collaboration and this way of working in the future should be encouraged.
  • Understanding the root cause of issues and preventing them: The budget process is proactive and will allow an understanding of the financial position so that issues can be tackled at the source during the process.

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 and to consider proposals for savings. 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 14th December 2017.
  2. The BWG held a series of meetings in November 2017 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 19th February 2018 and that Cabinet's final budget proposals will be considered by Council at a meeting to be held on 28th February 2018 to enable the Council Tax to be set by 11th March 2018.

Resource Implications (Financial and Employment)

  1. Based on the assumption that all cost pressures will be funded in full, the estimated funding shortfall for 2018/19 will be £3.910m and £6.202m in 2019/20, assuming no increase in Council Tax.
  2. WG has not issued details regarding the level of funding post 2019/20, 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, in particular the Capital Programme, e.g. School Investment Strategy Reserve. This is important as the Council has limited capacity to realise sufficient sums from the sale of assets for capital investment.
  5. As a result of a projected underspend in 2017/18 under the Policy heading, a transfer of £2m into the Schools Investment Strategy reserve to fund Band B 21st Century Schools initiatives has been approved.
  6. The Council Fund Reserve as at 31st March 2018 is projected to stand at £10.609m. 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 £10.9m. 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 and at this stage of the budget process no transfers between reserves are proposed.
  8. Appendix 6 sets out the actual reserves as at 31st March 2017 for this Committee and shows the estimated reserves balance for each year up to 31st March 2021.
  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.

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 2018 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 2018/19 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 2017/18 to 2020/21

Budget Strategy 2018/19

Contact Officer

Carolyn Michael

Operational Manager - Accountancy

Officers Consulted

Corporate Management Team

Responsible Officer:

Paula Ham

Director of Learning and Skills