Top

Top

 

 

Agenda Item No. 8(f)

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 2 MARCH 2016

 

REFERENCE FROM CABINET:  22 FEBRUARY 2016

 

C3081      Final Proposals for the Revenue Budget 2016/17 (L) (Scrutiny Committee - Corporate Resources) –

 

Cabinet members were asked to consider the final proposals to the Revenue Budget before making their recommendations to Council, in respect of the final revenue budget for the financial year 2016/17. 

 

The Council was required under statute to fix the level of Council Tax for 2016/17 by 11 March, 2016. The final decision on the budget could not be delegated and had to be made at a meeting of Council. 

 

General

 

The Council’s approved Final Revenue Budget Proposals for 2015/16 included savings targets for the period 2016/17 and 2017/18 of £17.8m. These figures excluded schools which were funded 1% above the relevant percentage change in Block Grant received by WG in the form of the Minimum Funding Commitment (MFC). No indication of future changes in funding had been received from WG and therefore the savings targets took as their starting base a projected 4% reduction in 2016/17 and a 2% reduction in 2017/18.

 

The 2015/16 Medium Term Financial Plan (MTFP) approved by Cabinet on 14 December, 2015 (minute no. C3013 refers) predicted the potential for an increase in the level of savings required from 2017/18 onwards. The indication from WG at the time the MTFP was produced was for further reductions in funding.  The MTFP was therefore produced using the assumption of a reduction in funding of 4% in 2016/17 and 3% reductions in both 2017/18 and 2018/19.  Savings totalling £17.8m were identified for the period 2016/17 to 2017/18, with a shortfall in funding across the 3 years to 2018/19 of £13.1m.  The shortfall for 2016/17 was £3.247m.

 

Anticipated Outturn 2015/16

 

An overall net underspend of £492k had been projected for 2015/16. 

 

Revenue Settlement 2016/17

 

Welsh Government’s provisional settlement figures for the Council showed a total Standard Spending Assessment (SSA) of £213.878m, which represented an adjusted decrease of £94k over 2015/16. There was one transfer into the Revenue Settlement Grant which was £1.255m and related to the Outcome Agreement grant.

 

WG required each local authority to compare its total budget for education to its IBA (Indicator Based Assessment).  It had to then report on the reasons why it may have chosen to set a budget for education that differed from its IBA (provisionally £95.180m for the Vale of Glamorgan). The report would need to be made available for consideration by the Council’s Schools Budget Forum, full Council and by WG. A proposed draft of this report was attached at Appendix A to the report. 

 

The Council’s provisional figures from WG for the Revenue Support Grant (RSG) was £112.501m and for Non-Domestic Rates £37.942m. These totaled a provisional Aggregate External Finance (AEF) of £150.443m for the Council.  On 10 February, 2016 WG advised the Council that it had updated the provisional AEF and the revised figure would be £150.448m.

 

When taking into account the above, the effective provisional reduction in AEF for the Council was 2.14% (£3.3m). This was £2.8m less than the 4% (£6.1m) assumed in the MTFP.

 

Final notification of the level of all 2016/17 WG grants had not yet been received, however, a reduction in the Families First grant of £179k (11.7%) had been confirmed.  £46k had been received in 2015/16 for the Language and Play grant however this had been discontinued with effect from 31 March, 2016.  An indicative allocation had been received for the Education Improvement Grant which for the whole consortia indicated a 5% reduction across the region.  For this council, this could amount to a reduction of around £245k but an actual deduction had not yet been confirmed.  The majority of this grant reduction would sit with the schools but there were some centrally funded budgets that would also be affected.  The Post 16 grant was reduced by 2.75% which equated to £181k, although, the actual amount per pupil had increased but there was an apparent decrease in the notional number of pupils in the Vale and therefore there would be a reduction.  The Environment and Sustainable Development (ESD) Single Revenue Grant would reduce by £110k, however, a grant from Natural Resources Wales for Biodiversity of £35k would be discontinued and this expenditure was expected to be funded from the ESD grant from 2016/17 onwards.  There was a strong indication from WG that the Transition Funding Grant, used for implementing policy changes following the Housing (Wales) Act 2014, would reduce in 2016/17. Further reduction in funding was anticipated for the Youth Offending Service however final confirmation had yet to be received.

 

The Council received funding for collaborative initiatives.  Funding under the Regional Collaboration Fund (RCF) was due to come to an end on 31 March, 2016 however, it was now anticipated that this would continue for a further 6 months. Funding from the Intermediate Care Fund (ICF) which was used to build on effective working across health, social services and housing, to improve the planning and provision of integrated services, has been included in Health’s budget and would increase for 2016/17.   The Council would continue to work with Health to take forward schemes which had a proven effectiveness across community and acute environments, linking out-of-hospital care and social care to strengthen the resilience of the unscheduled care system.  The level of funding to be allocated to the Council was yet to be determined.  The Delivering Transformation Grant which was received to implement the introduction of the Social Services and Well-being (Wales) Act 2014 would continue into 2016/17 and was used for collaborative working with Cardiff Council.

 

Budget Strategy 2016/17

 

Cabinet approved the Budget Strategy and Timetable for 2016/17 on 27 July, 2015 (minute no. C2865 refers). As part of this strategy, Directors were requested to continue to progress the Reshaping Services Programme. 

 

The 2016/17 initial revenue budget proposals showed a provisional shortfall against base budget of £10.774m rising to a possible £18.601m if all cost pressures were to be funded. If all assumed savings of £12.17m were achieved, this would leave a shortfall in 2016/17 of £6.431m.  The Budget Working Group (BWG) had undertaken further work to formulate the final revenue budget proposals contained in this report.

 

In particular, the BWG had regard to the need to achieve a balanced budget both for 2016/17 and in future years. This included:

 

  • The results of consultation with the Schools Budget Forum, scrutiny committees and external stakeholders;
  • Ways in which cost pressures could be reasonably reduced or mitigated;
  • A further review of the proposed savings for 2016/17 onwards;
  • The progression of the Reshaping Services programme;
  • The existing financial strategies in place for Education & Schools, Social Services and Other Services;
  • Possible increases in council tax;
  • The projected funding position for 2017/18 and 2018/19; and
  • The potential to use substantial levels of reserves as part of a defined financial strategy and to allow a more thorough review of options for savings and their implications, alternative methods of service delivery and collaborative ventures.

 

During 2016/17, additional pressure would be placed on staffing budgets as a result of various changes and these pressures had been considered by the BWG.  The introduction of the National Living Wage from 1 April, 2016 would provide for a minimum hourly rate of £7.20 for workers aged 25 and above.  There would be further pressure in future years when the rate continued to increase to at least £9.00 per hour by 2020.  The impact on the cost of directly employed council staff from 1 April, 2016 was estimated to be approximately £60k and therefore these costs would need to be met from within existing service budgets. 

 

This change would however have a significant effect on services the Council commissions from external organisation, in particular for Social Services.  The projections included an assumed pay award of 1% for 2016/17 however it was acknowledged that an agreement had yet to be reached.  There would also be an increase in employers National Insurance contributions which took effect from April 2016 and £930k (excluding schools) had been built into the budgets.  With regard to schools, in recent years they had received an increase in funding which was in line with the MFC and the same was proposed for 2016/17.  The BWG considered that the MFC of £1.655m would cover the additional costs to schools as a result of the change in employer National Insurance contributions.

 

Proposed Budget 2016/17

 

The proposed budget for 2016/17 had been set in line with the current financial strategy and a summary of the overall position was attached at Appendix C to the report.

 

Asset rentals were accounting adjustments reflecting charges to services for the use of assets. They did not constitute “real” expenditure and were reversed out and replaced by the cost of capital within Policy. Similarly IAS 19 changes were technical accounting adjustments to the costs of pension contributions, which were reversed out in Policy. Neither of these adjustments were therefore a part of the total expenditure of the Council.

 

Recharges/transfers related to movements in charges between internal Council Services and the transfer of functions. Overall there was a neutral impact on the budget.  

 

Budget Adjustments had a net total of £505k and related to £600k for the reversal of one off funding previously provided to services, less the £1.105m reduction in the use of the Social Services Fund in 2016/17.

 

Inflation (excluding schools) totalled £1.613m of which £1.005m related to general price increases and a 1% allowance for pay awards amounts to £608k.

 

The BWG had reviewed and updated the cost pressures. Those which could not be mitigated or reduced were included within the Net Growth figure of £8.104m. The breakdown of this sum was shown at Appendix D attached to the report.

 

The savings had also been reviewed by the BWG and where necessary had been reprofiled over the 3 year period.  Where possible, some savings had been brought forward, while for others, it was considered that further time would be required for their implementation.  For 2016/17 these totalled £9.289m and details were included at Appendix E attached to the report.

  

As previously proposed, it was intended that £1.5m of the Council Fund Reserve would be used during 2016/17.

Services

 

Learning and Skills

 

 

Educ &

Schools

Libraries

Adult Comm Learning

Youth Service

Catering

Art

Total

 

 £’000

£’000

£’000

    £’000

£’000

£’000

£’000

Budget 2015/16

94,086

2,359

265

1,043

1,756

0

99,509

Recharges/Tfrs

(1,532)

(23)

(7)

23

7

113

(1,419)

Inflation

191

18

14

7

34

1

265

Net Growth

1,733

18

6

17

2

1

1,777

Savings

(507)

(296)

(2)

(7)

(352)

0

(1,164)

Changes in Asset Rentals/IAS 19               

375

(25)

1

(2)

42

0

391

 

Budget 2016/17

 

94,346

 

2,051

 

277

 

1,081

 

 

1,489

 

115

 

99,359

 

WG had continued to build into the settlement protection for schools via their Minimum Funding Commitment, which was equivalent to 1% above the change in the Assembly’s block grant funding allocation from the UK Government. To fulfil WG’s commitment, councils needed to ensure that their net Individual Schools Budget (ISB) was increased by at least this percentage and then adjusted for changes in pupil numbers.

 

The 2016/17 MFC of 1.8% had been applied to the net Individual Schools Budgets. The protection applied to schools in these budget proposals was, therefore, in accordance with the Minimum Funding Commitment and more information on the exact calculation for the Vale’s schools was shown in Appendix A attached to the report.

 

The net growth as shown at Appendix D related to the net MFC increase of £1.655m and the increase in employers national insurance contributions, excluding schools.  This was a significant increase in funding for schools, in light of the Education SSA decreasing by £579k from 2015/16.  It was acknowledged that the change in employers national insurance contributions, estimated to be £1.2m for schools, had a significant impact on staffing budgets and the BWG therefore considered that it was necessary to provide funding to mitigate such an increase.  This level was substantially higher than the net MFC of £263k provided in 2015/16 and funding to this high value was seen as a one off and could not be guaranteed for future years if there were further reductions in the WG settlement. It was also acknowledged that funding for schools was a high priority from both external consultation and the Scrutiny Committee (Lifelong Learning).

 

Savings for Learning and Skills in 2016/17 totalled £1.16m.  Full details of the savings were shown at Appendix E attached to the report.  During 2015/16, there had been pressure within the Inclusion Service in relation to inter authority recoupment.  A saving of £625k was originally included in the savings target for 2016/17 for Additional Needs.  Work was ongoing, not only to achieve this saving, but to reduce the pressure in the service.  It was acknowledged by the BWG that further time was required to implement changes and therefore the savings target had been reprofiled over a 3 year period.

 

It was suggested that the Schools Budget Forum be consulted before any final decision was made on the split of the funding between Central Education and the Schools. It was recommended that delegated authority be given to the Director of Learning & Skills to determine the split in the light of that consultation, subject to the minimum WG target for the ISB being met.

 

Social Services

 

 

Children & Young People

Adult

Services

  Business Mgmt. &

Innovation

YOS

Total

 

£’000

£’000

£’000

£’000

£’000

Budget 2015/16

14,497

37,418

319

672

52,906

Recharges/Tfr

(55)

(204)

(47)

6

(300)

Adjustments

315

790

0

0

1,105

Inflation

136

470

1

10

617

Net Growth

262

2,164

34

13

2,473

Savings

(290)

(700)

(12)

(5)

(1,007)

Changes in Asset Rentals/IAS 19

(7)

(32)

0

0

(39)

Budget 2016/17

14,858

39,906

295

696

55,755

 

The latest projected outturn for Social Services in the current financial year indicated an overspend of £100k. There remained continued pressures on the service, particularly in relation to the cost of adult care packages which was projected to outturn this year £850k over budget.  This overspend related mainly to domiciliary care packages provided for frail elderly clients.  When the full year effect of this year’s commitment was projected into 2016/17, it was anticipated that this could result in an additional £500k of expenditure. 

 

The details of the net growth were shown at Appendix D and included the employers increase in national insurance contributions.  Having regard to the current financial pressures and the results of the budget consultation, where concerns were raised by the Social Care and Health Scrutiny Committee and the Cardiff & Vale University Health Board, the BWG acknowledged that there were significant issues in this area.  Not only was there an increase in the population, but clients were increasingly frail with complex needs.  There was a ‘knock on’ effect from pressures within Health and work was being undertaken to ensure integration between the two services. However, this would take some time to show results and make a significant impact.  There were also pressures on the service from changes in legislation such as the Social Services and Well-being (Wales) Act 2014 which would come into force on 1 April, 2016 and the introduction of the National Living Wage.  The Social Services SSA for 2016/17 had increased by £2.2m from 2015/16.  Taking all these factors into account, it was proposed that an additional £2.2m should be included in the budget. In addition, it was acknowledged that the full impact of the introduction of the Act was not fully known, therefore, it was proposed that the Council’s current projected revenue underspend of £492k, as reported to Cabinet on 8 February, 2016 as part of the latest budget monitoring report, was transferred into the Social Services Legislative Changes reserve to fund, in the short term, possible increased costs.  The actual financial impact on both Adults and Children’s Services would be assessed as implementation of the Act progresses. 

 

While it was recognised that there were great pressures on the Adult Services budget as demand was very volatile, the Director of Social Services was asked to mitigate, where possible, the ever increasing demands and should review and implement alternative ways of working and managing demand.

 

Savings for Social Services in 2016/17 totalled £1.0m.  The full detail of the savings were shown at Appendix E attached to the report. 

During 2012/13, the Social Services Budget Programme was established which outlined a series of savings for future years and provided the required funding for the managed reduction of the budget, via the setting up of the Social Service Fund.  The greater the delay in achieving the savings, the higher the use of funding required to cover budget shortfalls. This had to be set against the need to allow sufficient time to ensure that the savings were achievable and sustainable. The following table provided the time-frame for recovery and showed the continued use of the Social Services Fund.

 

Financial

Year

 

Savings

Target

Use of

Fund

 

 

£’000

£’000

2016/17

 

1,012

970

2017/18

 

605

650

2018/19

 

320

330

2019/20

 

330

0

 

 

 

 

Total

 

2,267

1,950

 

 

 

 

 

 

 

 

 

 

 

The Director of Social Services had to continue to review the Social Services Budget Plan and take the necessary action to achieve the level of savings required in accordance with the above timeframe. 

 

Environment and Housing

 

 

Visible

 

Transport

Building

Regulatory

Council Fund Housing

Total

 

£’000

£’000

£’000

£’000

£’000

£000

Budget 2015/16

21,675

3,731

0

2,326

1,218

28,950

Recharges/Tfr

(689)

1,475

(25)

(283)

(111)

367

Adjustments

(500)

0

0

0

0

(500)

Inflation

204

43

10

18

9

284

Net Growth

931

8

15

26

13

993

Savings

(2,193)

(427)

0

(27)

(361)

(3,008)

Changes in Asset Rentals/IAS 19

640

4

0

(4)

(24)

616

Budget 2016/17

20,068

4,834

0

2,056

744

27,702

 

The details of net growth were attached at Appendix D to the report and included the increase in employers national insurance contributions.  As part of the consultation process, residents considered recycling to be a high priority service and, therefore, the BWG thought it appropriate to provide £430k to support the increase in Waste Recycling.  As part of a previous year’s budget setting, £340k was included as a saving target for the introduction of town centre car parking charges. As a result of the outcome of public consultation and to support the economy of the Vale’s town centres, this was now being reconsidered and it was proposed that the budget was reinstated for the coming year, pending a final decision.  As part of the closure of the 2014/15 accounts, £500k was transferred into the Visible Services reserve to fund the Big Fill initiative during 2016/17. 

 

Savings for 2016/17 were shown at Appendix E and totalled £3.0m.  £1m of this saving would be achieved by the Prosiect Gwyrdd waste plant contract that was due to be fully operational during 2016/17.  A saving of £1.1m was included in 2016/17 as part of the Tranche 1 Reshaping Services programme for Highways.  Work had been ongoing, however, it was now considered that this sum would not be achieved from this one area alone and would need to incorporate wider service areas.  Proposals were currently being finalised and therefore the BWG considered that reprofiling the saving over 2 years was appropriate.   

 

Following further review of the savings by the BWG and as a result of consultation, some of the savings identified for 2016/17 had been reprofiled or reduced e.g. Public Conveniences, street cleaning.

 

Managing Director & Resources

 

 

Resources

 

Regen

Develop Mgt

Private Hsing

General Policy

 

Total

 

£’000

£’000

£’000

£’000

£’000

£000

Budget 2015/16

963

 

2,246

1,238

11,047

17,996

33,490

Recharges/Tfr

494

162

(72)

133

635

1,352

Adjustments

0

0

0

0

(100)

(100)

Inflation

265

32

17

111

22

447

Net Growth

235

38

29

10

1,549

1,861

Savings

(1,177)

(232)

(273)

(39)

(2,389)

(4,110)

Changes in Asset Rentals/IAS 19

140

(74)

19

0

(1,053)

(968)

Budget 2016/17

920

2,172

958

11,262

16,660

31,972

 

There had been a transfer into the settlement for the Outcome Agreement grant of £1.255m.

 

The details of net growth were shown at Appendix D and included the increase in employers national insurance contributions, committed growth of £150k for the provision of debt charges.  As a result of the Welsh Language (Wales) Measure 2011, the Welsh Language Commissioner had recently issued legal Compliance Notices to all Councils in Wales that specified how we must provide and improve services for Welsh speakers.  The requirements would be implemented over the coming months across the Council.  £100k had therefore been included to cover the additional costs to be incurred by the Council.

 

Savings for 2016/17 were detailed at Appendix E and totalled £4.11m.  Included as part of the Tranche 2 Reshaping Services programme was £700k which was to be achieved from the Corporate Workstream in 2017/18. The implementation of this review had already commenced and savings of £350k could be brought forward into 2016/17.  They would be achieved from the review of grant funding provided by the Council to external organisations and a review of the Policy budgets. 

 

Financial Strategy for 2017/18 to 2018/19

 

The 2014/15 final budget proposals were informed by a budget review exercise that included the reappraisal of the Council’s financial strategy. Consequently, separate strategies were put in place for Education & Schools, Social Services and all Other Services.

 

The BWG had continued to have regard to the continued appropriateness of these strategies given the significant level of savings that now had to be found, the relative size of the Education & Schools and Social Services budgets as a proportion of the Council’s net budget requirement and the results of the consultation process.

 

It had been assumed that the MFC for schools would remain for 2016/17. Education & Schools increases should at least match the overall percentage change in the Council’s budget as amended for adjustments to the council tax reduction scheme (CTRS) and the council tax base. The Council would continue to strive to ensure that the budget for Education would be the same proportion of the Council’s total budget as the Education SSA was to the total SSA where it was feasible to do so. This would be dependent on future settlements.

 

The BWG considered that the principles applied above to Education & Schools also continued to apply to Social Services. It was proposed that the financial strategy for all Other Services remained in place. This would require services to manage downwards or meet the bulk of their cost pressures through additional savings.  For the purpose of these projections, it had been assumed that the financial strategies set out in the report for Education & Schools and Social Services would continue to be applied.

 

The Council also needed to consider its corporate priorities as set out in the draft Corporate Plan, through the 4 well-being outcomes which were:- 

 

  • An Inclusive and Safe Vale;
  • An Environmentally Responsible and Prosperous Vale;
  • An Aspirational and Culturally Vibrant Vale; and
  • An Active and Healthy Vale.

 

The outcomes demonstrated the Council’s commitment to the Well-being of Future Generations Act which aimed to improve the social, economic, environmental and cultural well-being of Wales and ensured that the needs of the present were met without compromising the ability of future generations to meet their own need.  The investment in Education and Social Services supported the well-being outcomes and the aspirations of the Future Generations Act.  Even with reductions in funding, where practical, the Council would strive to maintain those Other Services that also contributed to this agenda.  Additional funding had been allocated to sustain recycling services, while the introduction of car parking charges in town centres was being reconsidered, with the view of maintaining and stimulating economic growth in these areas.

 

WG had not provided the Council with indicative settlement figures for 2017/18 onwards.  The MTFP was based upon a cash reduction of 3% in both 2017/18 and 2018/19. Each 1% change in AEF affected the Council by approximately £1.5m.  It was assumed that the same levels of reduction were used for these projections.

 

Pay and price inflation (excluding schools) was estimated at £3.3m based upon a 1% per annum uplift for both areas over the two years.  This assumption would be reviewed again when the next iteration of the MTFP was produced. 

 

In August 2014, Cabinet agreed in principle to instituting a Reshaping Services strategy and change programme.  The programme was the Council’s proactive response to central government’s austerity drive that had created a period of unprecedented financial pressure in the public sector.  As part of the Final Revenue Budget Proposals for 2015/16, saving areas totalling £2.25m were identified for Tranche 1 of the programme which were to be undertaken during 2016/17 and £4.35m for Tranche 2 to be implemented during 2017/18.  These savings targets were large and required substantial input for their achievement.  As detailed by service area above, some of the targets had been reprofiled over a number of years to ensure their successful and considered implementation.  Appendix F attached to the report showed the proposed savings targets for 2017/18 and 2018/19. 

 

Cost pressures for future years had been considered and assessed by the BWG and totalled £5.8m for 2017/18 and 2018/19.  Details were attached at Appendix G to the report. The Chancellor announced the introduction of the Apprenticeship Levy in the Summer budget 2015 and consultation had been undertaken with employers as to how it could operate. The government’s conclusion was that the Levy would be set at 0.5% of the employer’s pay bill and would be collected as part of the PAYE system.  The Levy would only be payable on pay bills in excess of £3m.  The government was engaging in further discussion and the final proposals were not yet concluded however the planned introduction date was 1 April, 2017 and the potential impact on the Council could be around £500k.  This had been included in future years cost pressures.  It was anticipated that the National Living Wage would increase from the £7.20 which was being introduced in April 2016, however, it had not yet been confirmed what the increase would be per year and therefore an initial estimate had been included.  Any further cost pressures would need to be managed down or mitigated by Services in order to avoid further savings targets being required.

 

There was also an assumed reduction in the use of the Council Fund Reserve over the period.  The projections included a £1.5m use of the Council Fund Reserve in 2016/17 with no further call on the reserve thereafter, thus the required £7m minimum balance considered necessary by the Council’s Section 151 Officer should be maintained. 

 

Assuming a council tax increase in each of the two years of 2% and adjustments for ‘one-off’ items flowing from the 2016/17 budget, the table below showed the projected shortfall for the period. It was emphasised that these projections were based upon information available at the time and they would be subject to change e.g. changes in AEF.  The projection was also based upon the assumed achievement of a high level of savings.  The position would be reassessed as part of the MTFP and future year budget setting processes, to identify if the savings were not achieved or were not implemented in the year required, or additional cost pressures were not mitigated.

 

 

Financial Projections   to 2018/19

2017/18

2018/19

Total

 

£’000

£’000

£’000

Assumed Decrease in AEF (3% and 3%)

4,513

4,378

8,891

Cost Pressures (inc MFC for Schools)

3,956

1,835

5,791

1% Pay and 1% Price Inflation (excl.   schools)

1,629

1,645

3,274

Net Savings Targets

(7,021)

(762)

(7,783)

Assumed 2% Gross Council Tax Increase

(1,257)

(1,282)

(2,539)

Adjustment for ‘One Off’ Items *

320

320

640

(Surplus)/Shortfall in   Savings Required

2,140

6,134

8,274

 

Reserves

 

Reserves were 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 could be transferred to the Council Fund surplus and then set aside for other purposes or used to reduce council tax.

 

The Council had always taken a prudent approach with regard to Specific Reserves and used them to mitigate known risks (financial and service) and contingent items, e.g. Insurance Fund.  Other Reserves had been established to fund Council priorities, e.g. Visible Services and in particular the Capital Programme, e.g. School Investment Reserve, Project Fund, Building Fund. This was important as the Council had limited capacity to realise sufficient sums from the sale of assets for capital investment. Sums had also been set aside to assist in budget management. The Housing Revenue Account Reserve was ring-fenced to Housing and the majority would be used to fund improvements to the Council’s housing stock.

 

The Council presently benefitted from a reasonable level of reserves, however, they were not inexhaustible and had taken years of careful financial management to develop to their current position.  After several years of real term reductions in funding and with the continuation of austerity measures into the foreseeable future, there was reducing contingency in the normal operational council budgets and the management and use of reserves would become increasing important to be able to continue to provide services and to mitigate risks, while still trying to deliver corporate priorities.

 

The level of reserves had to be considered in the context of the financial risk facing the Council over the coming years.

 

One of the main risks to the Council’s financial planning was the uncertainty as to the level of funding to be received from WG in future years.  No indication had been provided by WG after 2016/17 however as stated in the recent WG draft budget debate “cuts for Wales were as much a reality for the future as they had been in the past”.  Projections had been based on the assumed cash reduction in AEF of 3% in both 2017/18 and 2018/19.  Each 1% change in AEF affected the Council by approximately £1.5m.

 

Projecting forward on this basis, there was a gap in funding in the coming years that would need to be identified.  Savings of £25.3m needed to be achieved over the next 3 years, of which £17.1m had been identified.  This figure was extremely challenging and there was significant pressure on services to deliver these existing savings in full and on time. There was a risk of non-achievement of these savings and the ability to identify and implement further savings given the already high level of savings previously delivered by services.  Reserves had been set up where possible to facilitate this process e.g. Early Retirement Fund, Library Fund, Reshaping Services Fund.

 

There were risks in the budget and the most significant of these were set out in the report. Social Services care packages budget was currently overspending.  Even though additional funding had been proposed for 2016/17, further action would need to be undertaken by the Director of Social Services to achieve a balanced budget.  The budget recovery plan for Social Services required an estimated £2m from the Social Services Fund to cover revenue expenditure over the next 3 years to give the Service time to plan and implement remedial action, in order to bring their expenditure within their base budget.

 

Pay and price inflation was a further risk.  From 2016/17 onwards, provision had been made in the budget at a rate of 1% for each element. The Consumer Price Index had been gradually reducing and for the year to December 2015 was 0.2%.  Services would need to manage spending if inflation rose about the 1% included in their budgets.

 

The budget proposals assumed that any reduction in specific grant would be matched by a reduction in expenditure. Details of all specific grants had not yet been finalised and there was a risk that should grants be cut and it was not possible to reduce expenditure correspondingly, the Council could overspend. This risk should be mitigated by the fact that Services should have in place “exit” plans for any specific grant ceasing and were usually aware of likely developments in the level of grant. In the first place each Service would be expected to fund any shortfall from its revenue budget. There were however some reserves held to cover future grant reductions but these could only be seen as a contingency in the short term e.g. Adult Community Learning and Youth Offending reserves.  The payment of redundancy costs, when a grant ceased, was not normally allowed as eligible expenditure to be set against the grant and therefore it was for the council to set aside funds to cover this eventuality.  A Grant Exit Strategy reserve was being held under the Social Services heading to fund such costs if they arose and in the main related to the Flying Start grant. 

 

Legislative changes provided a major risk to the Council.  The impact of the introduction of the Social Services and Well-being (Wales) Act 2014 would be assessed over the coming year and the Social Services Legislative Changes reserve had been increased to mitigate issues in the short term.  The introduction of the National Living Wage and the Apprenticeship Levy would put further pressure on staffing budgets.  There was uncertainty for future recycling costs as a result of Article 11 of the Revised Framework Directive which were yet to be confirmed.  In addition, the impact of changes to welfare reforms were at present not clear and a reserve was held for this purpose.

 

There were risks associated with climate change, in particular energy costs and the Council held an Energy Fund to implement energy saving initiatives.  The effect of adverse weather conditions increased the cost of running and maintaining the Council’s infrastructure and provision needed to continue to be set aside to fund works over and above that held in the normal operational revenue budget, as covered for instance by the Bad Weather reserve.

 

Whilst covered by a separate report on the agenda, it was important to point out that a large proportion of the reserves were held for capital expenditure as well as for revenue purposes.  There was a large commitment required for the future development of local schools and for the risks in maintaining aging premises.  Also, the Council relied heavily on its IT infrastructure and the Wales Audit Office had recommended that a corporate technology development fund should be held.

 

As part of the usual Budget process, an examination of the level of reserves was undertaken to ascertain their adequacy and strategy for use. The reserves were examined with a view to their level (i.e. whether the amount held in the fund was sufficient to requirements) and purpose (i.e. whether the need to hold the fund was still relevant). 

 

The requirement for each specific reserve had also been considered in light of the Council's priorities and it had been deemed necessary to move funding from lower priority areas to higher priority areas.  As a result, it was proposed that £131k of the Property, £29k of the Council workshops and £116k from the Shops reserves were unearmarked and transferred to the Council Building Fund to allow for the continued investment in the Council’s property assets. It was also proposed that the £283k Exchequer reserve was unearmarked and transferred into the Welfare Reforms reserve to fund potential pressures when the scheme became fully operational.

 

The estimated level of the Council Fund Reserve at 1 April, 2016 was £10.041m. The proposed budget for 2016/17 assumed a use of £1.5m from the Council Fund Reserve to fund revenue expenditure. On this basis the reserve was estimated to fall to £8.541m at the end of 2016/17. The strategy for 2017/18 onwards assumed no further use of the Council Fund Reserve to fund the revenue budget.

 

The Section 151 Officer’s view was that the minimum level for the Council Fund Reserve was £7m. This was considered sufficient to cover unforeseen expenditure whilst, in the short term, maintaining a working balance. Unforeseen expenditure could be substantial and several instances could occur in a year. Whilst there was no set requirement for the minimum level for the Council Fund Reserve, some commentators used 5% of the net budget as a guide. For the Vale this was about £10.7m. However, in view of the prudent approach the Council took with regard to Specific Reserves, £7m was considered a reasonable minimum.

 

The Schools Balances were unspent budgets delegated to individual schools.  It was projected that the aggregate nursery, primary and secondary balances would be £1.6m surplus at 31 March, 2016. 

 

Attached at Appendix H to the report was a schedule showing the reserves and the anticipated balances at 31 March, 2016, 2017, 2018 and 2019.  The Appendix set out the title of the reserve together with its purpose. A summary of the position was set out below:

 

 

 

Summary of Estimated   Reserves Projected to 2018/19

Est.  Bal.

31/3/2016

Net

Movement

Est. Bal.

31/3/2019

 

£’000

£’000

£’000

General Reserves

10,041

(1,500)

8,541

Specific Reserves :

 

 

 

-         Insurance   Fund

1,373

0

1,373

-         Capital   Reserves

25,032

(11,557)

13,475

-         Other   Specific Reserves

21,244

(12,314)

8,930

Total Council Fund Reserves(excl. Schools)

57,690

 

(25,371)

32,319

Schools Balances

1,644

(54)

1,590

 

 

 

 

Total Council Fund   Reserves

59,334

(25,425)

33,909

 

It was projected that there would be a large fall (42.9%) in the level of reserves over the 3 year period as substantial calls on funds were made. However, these were still deemed to be adequate as known risks were largely covered and the Council Fund Reserve was at a reasonable level, not expected to fall below £7m.

 

The total budget shown at Appendix C was £213.288m. After adjusting for discretionary rate relief of £200k, it was £790k below the Council’s SSA of £213.878m. The 2015/16 budget was £0.562m below the SSA.

 

The Council’s SSA (IBA) was an indication of the relative resources needed to provide a standard level of service. It was based on statistical data and formulae, any of which could be flawed in assessing need. It was used primarily as a method of distributing AEF and was not an absolute indicator of a required spending level for a particular service in a particular area. It was for local councils to best determine their own spending priorities in light of local circumstances.

 

If the Council decided to budget at £213.288m, deducting from this Revenue Support Grant of £112.506m, redistributed non-domestic rates of £37.942m produced a requirement of £62.84m to be met from council tax. Dividing this by the council tax base of 56,550, gave a level of council tax for this Council’s purposes (excluding police and community council precepts) for Band D properties of £1,111.23. This was an increase over the current year of £41.67 or 3.9%.  The proposal was subject to the final settlement being received from WG. 

 

The average of the Council Tax set by councils in Wales for 2015/16 at Band D was £1,088, whilst the Vale of Glamorgan’s was £1,069.56. The BWG’s view was that the proposed increase in Council Tax at 3.9% was a reasonable compromise between the pressure on services, particularly in light of the reduction in AEF and consequent level of savings required and the financial pressures facing council taxpayers.

 

The proposed budget used £1.5m of the Council Fund Reserve. The estimated balance on the Council Fund at 31st March 2017 was £8.5m. The use of reserves for funding recurrent expenditure was clearly not sustainable. With the proposed strategy, it was currently estimated that by 2017/18 no use of the Council Fund Reserve would be required.

 

The 2015/16 MTFP projected a shortfall in funding over the next 3 years of £13.1m even after the identification of £17.8m of savings, thus resulting in the potential requirement for £30.9m of savings. The £13.1m shortfall in funding had now been reduced to £8.3m over the next 3 years through various sources, including a lower than anticipated reduction in the WG settlement of £2.6m, an increase in Council Tax above the assumed figure of 2% plus a change in the Council Tax base totalling £1.8m, a review of cost pressures resulting in a reduction of £1.2m (including changes to one off adjustments) and a reduction in identified savings of £0.8m.  The savings target for the next three years was now £25.3m.

 

In order for the Council not to be exposed to unacceptable risk it was essential that all Services maintained their expenditure within budget and that this was a major priority for Directors, Heads of Service and all Managers.  Any further cost pressures would need to be managed down or mitigated by Services.

 

The budget proposals would have implications for the Council’s employees and there would be a loss of jobs.  The reduction for 2016/17, excluding schools, was estimated to be around 65 in full-time equivalents (FTE).  Although the impact on individuals was likely to be mitigated as a result of natural wastage and the deletion of vacant posts, it was, nevertheless, expected that there would be a number of redundancies. 

 

The above figures did not include the staffing implications related to budget pressures within schools as the details needed to be considered by individual Governing Bodies and supported by the Director of Learning & Skills. Individual schools would also be impacted by whether they had growing or falling pupil numbers. There were, however, likely to be staff reductions and redundancies depending on each schools circumstances. The Director of Learning & Skills would need to establish the impact of the budget on employees in schools.

 

The Council had an Avoiding Redundancy Procedure that would be followed and included a requirement for the Council to search for suitable alternative employment. The numbers of employees referred to were those impacted in the budget.

 

The trades unions would continue to be consulted on the details of any potential redundancies once known, as would the Government Department for Business Innovation and Skills in accordance with the Council’s own local procedures and statutory requirements.

 

In light of the staffing implications it was essential to ensure that consultation with the trades unions was carried out in accordance with the Council’s Avoiding Redundancy Policy and related legal requirements. A Change Forum met regularly with the trade unions to help co-ordinate the consultation process and deal with cross-directorate issues.

 

The number of potential redundancies over the next few years had required strengthening of the Council’s redeployment processes, the tightening of the Council’s vacancy control processes and the pursuit of other measures as set out in the Council’s Workforce Plan. Where appropriate this could involve a targeted search for voluntary redundancies/reduced hours.

 

In his conclusion of his presentation of this item, the Leader drew attention to paragraphs 103 to 108 of the report, the “Statement of Section 151 Officer on Robustness of Estimates”. He commented that the Local Government Act 2003 required that the Section 151 Officer (currently the Head of Finance) must report on the robustness of the estimates, which were to be approved by Council and that this Section constituted that assurance.

 

In view of the uncertainties of the current and future economic climate there was increased risk facing the Council’s financial position and, as a consequence, the delivery of services. This had been recognised and referenced within the report, where relevant, together with actions that could be taken to manage that risk.

 

Savings were regarded as extremely challenging but achievable and had been carefully examined with risk and measures to mitigate them identified. It was important to stress the importance of the mitigating actions being implemented and the need to consider equality impact assessments.

 

Estimats in the budget report were robust subject to any reservations/ qualification or other commentary contained in the report. All services’ expenditures were under pressure and there was always a risk that a service may overspend, particularly in light of unforeseen circumstances.

 

A measure to guard against this would be to monitor the budget during the year and to identify problems as they arose and put in place remedial action. Key to this would be the delivery of savings including those required under the Reshaping Services programme. Cabinet, Scrutiny and Managers continued to have a key role in reviewing and maintaining budgetary performance.

 

Reserves had been again reviewed and were considered adequate to cover contingencies and the risks stated in the report.

 

This was a matter for Executive and Council decision

 

Cabinet, having considered the report and all the issues and implications contained therein

 

RESOLVED –

 

That the following be recommended to Council:

 

(1)       T H A T the budget for 2016/17 be fixed at £213.288 million including a provision of £200,000 for discretionary rate relief to rural shops and post offices and charitable organisations.

 

(2)       T H A T the budgets for 2016/17 as set out in Appendix C attached to the report, and the totals as set out below be approved:

 

 

£’000

Education and Schools

94,346

Libraries

2,051

Adult Community Learning

277

Youth Service

1,081

Catering

1,489

Art Development

115

Children & Young People

14,858

Adult Services

39,906

Business Management & Innovation

295

Youth Offending Service

696

Visible Services

20,068

Transportation

4,834

Building Services

0

Regulatory Services

2,056

Council Fund Housing

744

Resource

920

Regeneration

2,172

Development Management

958

Private Housing

11,262

General Policy

16,660

Council Fund Reserve

(1,500)

Grand Total

213,288

 

(3)       T H A Tthe recommendations regarding Net Growth for 2016/17 as set out in Appendix D attached to the report and Savings for 2016/17 as set out in Appendix E attached to the report be approved.

 

(4)       T H A T the proposed draft report on Education Budget and Indicator Based Assessment (IBA) attached at Appendix A to the report be endorsed and the Director of Learning and Skills make arrangements for it to be forwarded to the School Budget Forum and Welsh Government.

 

That the following be approved by Cabinet:

 

(5)       …………….

 

(6)       …………….

 

(7)       …………….

 

(8)       …………….

 

(9)       …………….

 

(10)     …………….

 

Reasons for decisions

 

(1)       To set the 2016/17 budget in line with statutory requirements.

 

(2)       To allocate budgets to services.

 

(3)       To reduce risk to services and balance the budget.

 

(4)       To present the report to the Schools Budget Forum and Welsh Government.

 

(5)       …………….

 

(6)       …………….

 

(7)       …………….

 

(8)       …………….

 

(9)       …………….

 

(10)     …………….

 

 

Report to Cabinet

 

Share on facebook Like us on Facebook