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Agenda Item No

 

The Vale of Glamorgan Council

 

Cabinet Meeting: 11 August, 2014

 

Report of the Leader

 

Medium Term Financial Plan 2014/15 to 2017/18

 

Purpose of the Report

1.         To submit the draft Medium Term Financial Plan 2014/15 to 2017/18 for consideration and approval.

Recommendations

That Cabinet be requested to:

1.         Endorse the contents of the draft Medium Term Financial Plan for 2014/15 to 2017/18 and refer the Plan to Corporate Resources Scrutiny Committee for information.

2.         Give delegated authority to the Managing Director, in consultation with the Leader, to finalise the process and timetable for engagement with stakeholders regarding the budget.

3.         Approve the change to the Social Services Budget Programme to rephase the £970k Service Remodelling saving to £320k in 2017/18, £320k in 2018/19 and £330k in 2019/20.

That Council be requested to:

4.         Agree the proposal to use a minimum of £4m of the General Fund Reserve between 2016/17 and 2017/18, but up to a maximum use which does not result in the balance on the reserve falling below a reasonable level as determined by the Section 151 Officer.

Reasons for the Recommendations

1.         To facilitate the integration of medium term financial planning into the corporate planning and budget process.

2.         To enable the engagement process to be progressed.

3.         To amend the Social Services Budget Programme.

4.         To provide adequate resources to fund future revenue budgets as part of the financial strategy.

 

Background

2.         The budget strategy for 2015/16 was approved by Cabinet on 30th June 2014 (Minute No. C2363). This established a baseline for services to prepare initial revenue budgets for 2015/16 based on the cost of providing the current level of service and approved policy decisions and including any net savings targets set. It also set out the timetable to be followed and required 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.         The purpose of the Medium Term Financial Plan is to link the Council’s strategic planning process with the budget process and to ensure consistency between them. It is a mechanism that attempts to match future predicted resources and expenditure, identify potential shortfalls and provide the financial framework for the next 3-5 years. It is not the budget setting process that allocates detailed budgets for services. Its purpose is to inform members and to suggest a way of dealing with the future financial pressures facing the Council.  The draft Medium Term Financial Plan for 2014/15 to 2017/18 is attached at Appendix 1.

4.         The Plan forms an integral part of the Authority’s corporate framework for performance management, and should be considered in the context of the core values and priorities set out in the Corporate Plan.

5.         This iteration of the Plan builds upon the work done as part of the 2014/15 budget process as detailed in the Final Revenue Budget Proposals report approved by Council on 5th March 2014 (Minute No. 884 refers). Significantly, however, previous assumptions regarding future funding settlements from Welsh Government have been revised following a letter issued on 24th June 2014 by the Minister for Local Government and Government Business to all Welsh local authorities.

6.         This letter raised the prospect of the 2015/16 settlement being a reduction of up to 4.5% in cash terms. The indicative figure for the Vale for 2015/16 had previously been advised as a reduction of 1.64% with each 1% additional reduction equating to approximately £1.5 million less funding. In addition, the Minister has stated that local authorities should assume that the current trends in local government funding will continue and that local authorities should scenario plan for a range of challenging settlements beyond 2015/16.

7.         This Medium Term Financial Plan, therefore, attempts to:

·               Identify the main financial implications resulting from the increased pressure falling upon Council services, including pay and price inflation, legislative and demographic changes;

·               Estimate the reduced financial resources that will be available to the Council to meet these demands in light of the Minister's letter;

·               Match the predicted expenditure and resources and provide a framework to develop a financial strategy towards achieving a balanced budget for the next 3 financial years.

 

Relevant Issues and Options

8.         The draft Medium Term Financial Plan is attached covering, for revenue, the period 2014/15 to 2017/18. An Executive Summary is included at pages 2 – 6 of the Plan. With the exception of the Minister's letter, Welsh Government has not yet given any indication of local government funding levels for 2015/16 to 2017/18. However, the timeframe for the budget process necessitates use of the best available information at the time if a balanced budget is to be achieved by the statutory date. The assumptions made in the Plan are, therefore, based upon the contents of the Minister's letter and the subsequent views of key commentators (including the Welsh Local Government Association) as to the prospects for local government funding over the next few years.

9.         It should be noted that the use of the above information does not provide the level of certainty required for forward planning. The basis of these latest assumptions, therefore, can in no way be guaranteed and any changes to the figures used could have a significant financial impact. However, every indication is that restrictions in public sector funding will continue for the foreseeable future and the failure to prepare for further reductions now could have far greater consequences for service delivery in the future.

Initial estimates present the following picture showing a projected savings target between 2015/16 and 2017/18 of £32m, comprising of £18m of savings already identified and £14m yet to be allocated. 

Matching Predicted Resources to Expenditure

2015/16

£000

2016/17

£000

2017/18

£000

Real Term Decrease in Resources

9,210

8,170

5,070

Cost Pressures

1,303

6,316

3,422

Identified Savings

(8,857)

(8,706)

(645)

Costs to be met within Schools

(362)

(371)

(380)

Additional Shortfall

1,294

5,409

7,467

 

10.      The matching exercise indicates that there remains £1.3m of savings to be identified for 2015/16 and this is after already identifying £8.8m.  The achievement of the identified savings is by no means guaranteed, but failure to deliver this level of savings will significantly impact on the Council achieving its required financial strategy which will now be based on an estimated reduction of £32m by 2017/18.

11.      It should be noted that in arriving at this shortfall, there will inevitably be additional cost pressures arising between now and 2017/18 which are as yet unknown and little provision has been made for service development. Clearly, although savings will continue to remain a major expectation of future budgets, it is unlikely that the Council will seek to or be able to fund all cost pressures.

12.      As a result of the high level of savings required, there will be difficulties in maintaining the quality and quantity of services without exploring opportunities for collaboration and alternative forms of service delivery.  The only realistic option facing the Council in future years is to commence a programme of reshaping and transforming services.

13.      To ensure that the budget set for 2015/16 continues to address the priorities of Vale residents and the Council’s service users, the budget setting process will incorporate in-depth, targeted engagement with a range of key stakeholders.  This will be a process of collaboration – with staff, with trade unions, with public sector partners, with the voluntary sector, with service recipients and with the Vale’s communities (including its Town and Community Councils).  .

14.      In July 2014, WG published its White Paper on Devolution, Democracy & Delivery for reforming local government.  Legislation to merge and reform authorities is not planned for introduction before May 2016 although WG intends in the Autumn of 2015 to publish for consultation a draft Bill explaining how the mergers will work, including provisions to enable the wider reform.  As such, the proposals in the Bill could have a significant impact on the Council’s ability to undertake its strategic forward financial planning. Any issues that become apparent following publication of the draft Bill, will, therefore, be taken into account as part of future budget processes.

15.      A key outcome from the 2014/15 budget process was to re-examine the relative priorities between different services given the financial challenges which lie ahead and to reaffirm the specific financial strategies for Education & Schools and Social Services.  In light of the level of savings to be found by 2017/18, a further review will be necessary in order to ascertain whether it is viable to continue with these financial strategies. 

16.      Other options which are recommended within the Plan for exploration as part of the 2015/16 budget process are:

·               Consider the results of the budget engagement process in determining priorities for future savings and service delivery

·               Review the appropriateness of the current financial strategies for Education and Schools, Social Services and Other Services

·               Review feasibility of increasing  the use of the General Fund Reserve as part of the financial strategy

·               Further reviewing the level of cost pressures with a view to services managing and reducing demand and mitigating pressures

·               Services funding their own residual cost pressures through reviewing their existing budgets and revised/alternative means of service provision

·               Services meeting their own pay and price inflation, superannuation increase etc through reviewing their staffing structure in line with changes to service delivery and workforce planning requirements

·               Reviewing the priorities for funding statutory and non-statutory services, including establishing minimum levels of services provision

·               Pursuing options for reshaping services including means of alternative service delivery in order to attempt to maintain the level of service while reducing the cost of provision.  This is considered further in a separate report to Cabinet on 11th August 2014 entitled Reshaping Services – A New Change Programme for the Council

17.      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 upon and implemented. The strategy set out in the 2014/15 final revenue budget proposals assumed the further use of a minimum of £4M General Fund Reserve between 2015/16 and 2016/17. As the savings targets set for these years are based on this assumption, any reduction in the use of the Reserve would increase the level of savings required. However, the 2014/15 Medium Term Financial Plan has identified a significant increase in the level of savings required.  As such, it may be necessary to increase the use of reserves in the short term subject to the General Fund reserve balance not falling below a figure which the Section 151 Officer deems to be a reasonable minimum.

18.      From a Capital Programme perspective, an expected decrease in the Council’s General Capital Funding allocation in 2015/16 and specific capital grants from WG, coupled with limited capital receipts, continues to give the Council little room for manoeuvre in progressing its priorities in this area. As such, the Council looked to mitigate this situation as part of the 2014/15 Final Capital Programme proposals in so far as it was able by reappraising all schemes and looked to progress only those which are deemed to be a key corporate priority, whilst also seeking to gain assurance that such schemes are delivered on time and within budget.

19.      This has resulted in a Capital Programme being agreed for the period 2014/15 to 2018/19. Any amendments will be dependent on future funding levels and for the most part are expected to relate to changes in phasing of the existing approved programme. However, unless contractually committed, formal bids will need to be made for all capital schemes, irrespective of whether they may be present in the current Capital Programme.

 

Resource Implications (Financial and Employment)

20.      Although the figures contained within the Medium Term Financial Plan must be treated with caution, particularly due to the uncertainty surrounding the predictions of expected resources, the Plan is currently indicating a significant increased shortfall of available funding to 2017/18 and requires £32m of savings to be found between 2015/16 and 2017/18.  

21.      The impact on staffing levels of the identified savings, shown in Appendix 2 of the Medium Term Financial Plan, could be a potential reduction of up to 150 Full Time Equivalents (FTE), however, there still remains £14.1m of savings yet to be identified and therefore the eventual impact on job numbers could be much greater. However, if two thirds of the remaining projected shortfall of £14.1m was met by staff reductions, based upon an estimate average salary of £30k, this would equate to a further reduction of approximately 313 FTEs. 

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

23.      As part of the closure of accounts process for 2013/14, a transfer of £609k was made into the Social Services Fund, which now stands at £6.224m.  During 2015/16 and 2016/17, there are large saving targets included in the Social Services Budget Programme for service remodelling as a result of collaborative working.  It is considered that a longer time frame is required for these savings to materialise in cash terms and it is recommended that the current savings target of £475k in 2015/16 and £495k in 2016/17 are re-profiled to £320k in 2017/18, £320k in 2018/19 and £330k in 2019/20.

Sustainability and Climate Change Implications

24.      None as a direct consequence of this report.

Legal Implications (to Include Human Rights Implications)

25.      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

26.      None as a direct consequence of this report.

Equal Opportunities Implications (to include Welsh Language issues)

27.      None as a direct consequence of this report.

Corporate/Service Objectives

28.      The Medium Term Financial Plan is produced in support of all the Council’s objectives as set out in the Corporate Plan.

Policy Framework and Budget

29.      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)

30.      The Medium Term Financial Plan has been drawn up following consultation with all chief officers.

Relevant Scrutiny Committee

31.      Corporate Resources

Background Papers

Vale of Glamorgan Corporate Plan 2013 – 2017

 

Contact Officer

Alan Jenkins - Head of Finance Tel 01446 709254

 

Officers Consulted

All Chief Officers

 

Responsible Officer:

Sian Davies

Managing Director

 

 

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