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Agenda Item No

 

The Vale of Glamorgan Council

 

Cabinet Meeting: 30 June, 2014

 

Report of the Leader

 

Budget Strategy 2015/16

 

Purpose of the Report

1.         To submit the Budget Strategy 2015/16 (including the proposed Budget Process and Timetable) for approval.

Recommendations

That Cabinet:

1.         Approve the Budget Strategy for 2015/16, including the requirement for Directors to prepare initial revenue budgets in accordance with a timetable agreed by the Managing Director.

2.         Request Directors to review savings already approved, with a view to implementing them ahead of the target date and to consider areas for further savings.

3.         Approve the following timetable for the 2015/16 Budget Process:

 

Timetable for the 2015/16 Budget Process

To be completed no later than

Cabinet consider the initial budget proposals

 

17th November 2014

Lead Scrutiny Committee responds to consultation and makes comments on budget proposals

16th December 2014

Cabinet make its final proposals on the budget

 

23rd February 2015

Meeting of Council to consider budget and council tax resolution

 

4th March 2015

 

Reasons for the Recommendations

1 -3    To enable the 2015/16 budget process to be commenced.  

 

Background

2.         The Medium Term Financial Plan (MTFP) is normally produced annually in July and incorporates the budget strategy for the next financial year.  As part of the 2014/15 final revenue settlement from Welsh Government (WG) the Council was advised of an indicative cash reduction in its 2015/16 settlement of 1.64%. Plans were consequently devised with a view to finding savings associated with this reduction and to meet unavoidable cost pressures.

3.         The Minister for Local Government and Government Business has recently given the strongest indication yet that the settlement could be worse than published. It is understood that WG officers are currently modelling reductions for 2015/16 based upon the indicative (-1.55% for Wales), -3% and -4.5%.

4.         Every 1% reduction in Aggregate External Finance (the funding received from WG through Revenue Support grant and the Non Domestic Rates Pool) reduces funding by approximately £1.5M for the Vale. This clearly has major implications for the Council. It is also anticipated that funding levels for local government will continue to reduce post 2015/16 but it is not known to what extent.  As such it has been necessary to model the potential financial impact of further reductions and establish the budget strategy for 2015/16 prior to the production of the next MTFP.

 

Relevant Issues and Options

5.         The current level of uncertainty as to future settlements does not provide any sound basis for forward planning. WG have previously established a minimum funding commitment for schools, equivalent to 1% above the block grant settlement that WG receive from the Treasury, for each year to 2015/16. This currently stands at a 0.6% increase and although it is uncertain whether this position will be extended further many commentators believe that it will.  It is also not known whether Social Services budgets will receive protection although the particular pressures on community care packages and the effects of the £55 cap on non-residential care effectively reduces the scope for significant further savings in this area anyway.

6.         Attached at Appendices A, B and C are the results of three different models each covering the period 2015/16 to 2017/18 but with different assumptions as to reductions in AEF. The models also include projections for unavoidable cost pressures (including the minimum funding commitment for schools), pay and price inflation, 'one off' items and assumed council tax income to reveal the potential total levels of savings that may need to be found. With regard to cost pressures it should be noted that these are not the gross pressures identified by services. Instead they represent the results of a rigorous exercise in demand management to mitigate their impact.

7.         It is emphasised that whilst the assumptions in the models are based upon the best available information their accuracy cannot be guaranteed. It is nevertheless vital that their potential financial impact upon the Council is considered as soon as possible.

 

 

8.         Scenario 1 (our current projection) takes the original indicative AEF of -1.64% for 2015/16 and assumes a further 1% reduction in 2016/17 and a 'flat lined' 0% in 2017/18. Scenario 2 assumes reductions over the three years of -3%, -3% and -2% whilst Scenario 3 is predicated on -4.5%, -4% and -4%. This gives the following results ranging from total savings required of £20.8M to £35.6M of which only £13.5M are currently targeted:

 

Initial Financial Projections

2015/16

2016/17

2017/18

Total

£'000

£'000

£'000

£'000

Scenario

1

 Total Savings Required

6,008

10,030

4,790

20,828

 Existing Savings Targets

6,005

7,513

       0

13,518

 Further Savings Required

        3

2,517

4,790

  7,310

 

2

 Total Savings Required

8,152

13,067

7,757

28,976

 Existing Savings Targets

6,005

  7,513

       0

13,518

 Further Savings Required

2,147

  5,554

7,757

15,458

 

3

 Total Savings Required

10,516

14,501

10,571

35,588

 

 Existing Savings Targets

  6,005

  7,513

         0

13,518

 Further Savings Required

  4,511

  6,988

10,571

22,070

 

 

9.         It should be noted that the Council's net budget for 2014/15 of £214.3M includes expenditure which cannot be reduced of £27.7M in respect of debt charges, precepts and council tax reduction scheme benefit.  Of the balance of £186.6M, £79.4M relates to schools (43%) and £52.4M to Social Services (28%). Protecting schools under the minimum funding commitment would in the above scenarios require all other services to find savings equivalent to between 7% and 21% of their budgets over 3 years. Excluding Social Services from further savings would leave the £54.8M remaining budget that constitutes all other services being reduced by between 13% and 40%. 

10.      Clearly, any of the above initial financial projections would mean a radical review of existing financial strategies and the services that the Council is able to provide in the future and their means of delivery. This may also require a review of the Corporate Plan priorities. These issues will be developed further in the July MTFP with a view to allowing the formulation of the specific budget proposals for 2015/16 and beyond. It is clear, however, that whatever strategy is taken forward it will involve the use of the General Fund Reserve to allow the specific savings required to be developed, consulted on and implemented. The current strategy as set out in the 2014/15 final revenue budget proposals assumes the use of a minimum of £4M General Fund Reserve between 2015/16 and 2016/17. As the savings targets set for these years is based on this, any reduction in the use of the Reserve would increase the level savings required. 

11.      Consequently, the Budget Strategy for 2015/16 proposes 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 targets. This means the cost of price increases and any allowable pay awards should be included as advised by the Managing Director.

12.      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 be 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 2014/15 final budget proposals and Directors are asked to consider bringing forward the implementation of these savings ahead of the scheduled date and also to consider areas for further savings.

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

13.      Having regard to the above, it is, therefore, proposed in respect of the 2015/16 Budget Process that Directors be instructed to prepare initial revenue budgets in accordance with a timetable agreed by the Managing Director. 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 2014/15 Final Revenue Budget report including detailed Cost Centre Analyses.

·               Budgets to be broken down subjectively and objectively in as much detail as deemed appropriate by the Managing Director.

·               Budget reports to include revised estimates for 2014/15.

·               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 2014/15 Final Revenue Budget report. Any savings made directly by services over and above individual service targets to count towards future saving targets.

·               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 part of the Final Capital Budget Proposals for 2014/15 to 2018/19, a 5 year programme was set for the Council.  This will, however, have to be reviewed and formal bids must be made for all capital schemes, irrespective of whether they may be present in the current Capital Programme. It will be the responsibility of each Director to co-ordinate capital bids for their services and to ensure that, in view of the limited resources that will be available, only the highest priority bids are submitted in the approved format in accordance with the Council’s approved project management methodology (including business plans where applicable). To this end the principles of sustainable development and better carbon management will be incorporated and evaluated.

·               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.

14.      The Medium Term Financial Plan will be produced in July 2014.  The proposed timetable for the 2015/16 Budget is for Cabinet to make its initial revenue and capital budget proposals in November 2014. The capital bids considered and prioritised will include those recommended to the Management Team by the Corporate Asset Management Group. Each Scrutiny Committee will be consulted and will receive the relevant initial proposals of the Cabinet in November/December 2014.

·               Scrutiny Committees will be asked to make comments on the proposals. Corporate Resources Scrutiny Committee will act as the lead scrutiny committee in this respect.

·               The budget will then be considered by the Cabinet Budget Working Group, which will submit its recommendations to Cabinet in January/February 205. Cabinet will formulate its final proposals and submit them to a meeting of full Council to be held in March 2015, having first taken any response from the lead Scrutiny Committee into account. It may be necessary for Scrutiny Committees, Cabinet and Council to hold special meetings in order to ensure that the budget may be approved within the statutory deadline.

·               Membership of the Cabinet Budget Working Group will consist of the Leader, Deputy Leader and Managing Director (Director of Resources).

Resource Implications (Financial and Employment)

15.      There is still considerable uncertainty surrounding the predictions of expected resources and anticipated reductions in public sector funding.  As part of the Final Revenue Budget Proposals for 2014/15, Directorates are currently required to save £13.5M between 2015/16 and 2016/17. The eventual savings target to 2017/18 is now likely to be much higher and has been modelled between £20.8M and £35.6M.

16.      It will be important to ensure that appropriate consultation takes place with the trades unions in relation to the staffing implications of the budget process. The level of consultation will increase over the coming months as the more detailed change proposals within service areas emerge. Such consultation will help to explore ways of reducing any adverse implications for staff

Sustainability and Climate Change Implications

17.      There are no direct implications arising from this report.

Legal Implications (to Include Human Rights Implications)

18.      The Council is required under statute to fix the level of council tax for 2015/16 by 11th March 2015 and in order to do so will have to agree a balanced budget by the same date.

Crime and Disorder Implications

19.      There are no crime and disorder implications.

Equal Opportunities Implications (to include Welsh Language issues)

20.      There are no equal opportunity implications.

Corporate/Service Objectives

21.      The budget strategy is produced in support of all the Council’s objectives as set out in the Corporate Plan.

Policy Framework and Budget

22.      This report is a matter for Executive decision by the Cabinet. However, Council must approve the final 2015/16 budget proposals.

Consultation (including Ward Member Consultation)

23.      The Budget Strategy has been drawn up following detailed consultation with all chief officers.

Background Papers

Vale of Glamorgan Corporate Plan 2013 – 2017

 

Contact Officer

Alan Jenkins Head of Finance

 

Officers Consulted

Corporate Management Team

 

Responsible Officer

Sian Davies

Managing Director (Director of Resources)