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Agenda Item No

 

The Vale of Glamorgan Council

 

Scrutiny Committee (Corporate Resources): 26th June 2012

 

Report of the Director of Finance, ICT & Property

 

Interim Medium Term Financial Plan 2012/13 to 2016/17 and 2013/14 Budget Process

 

Purpose of the Report

1.             To submit the draft Interim Medium Term Financial Plan 2012/13 to 2016/17 (including the proposed 2013/14 Budget Process and Timetable) for review.

Recommendation

1.             That Scrutiny Committee be requested to review the contents of the draft Interim Medium Term Financial Plan for 2012/13 to 2016/17 including the budget process and timetable for 2013/14 and the proposals for undertaking a Budget Review and to refer any comments to the Cabinet meeting of 9th July 2012.

Reason for the Recommendation

1.           To allow for scrutiny of the Medium Term financial planning process and the budget process for 2013/14.

Background

2.             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 and the budget strategy for the next financial year. 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.

3.             This iteration constitutes an Interim Plan as it does not attempt to provide the financial framework. This will be developed through a full Budget Review to be undertaken prior to the development of the Final Budget Proposals for 2013/14.  The Final 2012/13 – 2016/17 Medium Term Plan will be produced following completion of this exercise.

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. These are due to be reviewed during 2012 and will reflect any changed priorities resulting from the Budget Review as well as any limitations imposed as a result of the changing financial circumstances in which the Council has to operate.

5.             This Interim 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 financial resources that will be available to the Council to meet these demands;

·         Match the predicted expenditure and resources and provide the framework to undertake a Budget Review whilst setting out the Budget Process for the next financial year.

Relevant Issues and Options

Interim Medium Term Financial Plan

6.             The draft Interim Medium Term Financial Plan is attached covering the period 2012/13 to 2016/17. An Executive Summary is included at pages 2 – 6 of the Plan. Any comments of this Scrutiny Committee will be referred to the 9th July 2012 meeting of Cabinet.

7.             Funding levels for 2013/14 to 2014/15 are based upon indicative figures received from WG. No indicative figures are yet available for 2015/16 onwards and as such the 2014/15 changes have been replicated. The use of indicative figures does not provide the level of certainty required for forward planning. Although they constitute the best available information on future resources at the time, their accuracy cannot be guaranteed and any changes to the figures used could have a significant financial impact.

8.             Initial projections present the following picture showing a projected cumulative revenue shortfall to 2016/17 of almost £19.6 million.

Matching Predicted Resources to Expenditure

2013/14

£000

2014/15

£000

2015/16

£000

2016/17

£000

Real Term (Inc.)/Dec. in Resources

    (989)

       963

       995

    1,023

Cost Pressures

  9,371

    5,590

4,005

3,605

Existing Corporate Savings Targets

  (2,872)

  (2,133)

0

0

Shortfall

  5,510

    4,420

5,000

4,628

 

9.        It should be noted that in arriving at this shortfall, there will inevitably be additional cost pressures arising between now and 2016/17 which are as yet unknown and little provision has been made for service development. Clearly, although savings through efficiencies 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. A key outcome from the Budget Review will, therefore, be to identify the relative priorities between different services given the financial challenges which lie ahead.

10.        From a Capital Programme perspective, the expected decrease in the Council’s General Capital Funding allocation in 2013/14 and specific capital grants from WG for 2013/14 onwards, coupled with limited capital receipts, gives the Council little room for manoeuvre in progressing its priorities in this area. As such the Council will have to look to mitigate this situation in so far as it is able by reappraising all schemes and looking 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.

2013/14 Budget Process

11.        The outcome of the Budget Review will inform the 2013/14 Final Revenue           Budget Proposals to be reported to Cabinet and Council in February/March 2013.           However, in order to be in a position to meet the statutory deadlines, much of the work on quantifying the resource requirements of individual services needs to be carried out in advance of the provisional settlement.

12.        In order to establish a baseline, therefore, services should prepare initial revenue budgets for next year based on the cost of providing the current level of service together with any approved policy decisions and including any net savings target. This means the cost of price increases and pay awards should be included.

13.        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 identify and achieve recurrent efficiency and other savings, including (but not restricted to) those identified in the 2012/13 Final Revenue Budget Proposals.

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

14.        The Housing Revenue Account is ring fenced, in as much as all expenditure on the service must be financed from income generated.  The major determinant in assessing the rent charges is the level of subsidy granted by the WG and this is not usually released until December of each year.

15.        Having regard to the above, it is, therefore, proposed in respect of the 2013/14 Budget Process that Directors be instructed to prepare initial revenue budgets for 2013/14, in accordance with a timetable agreed by the Director of Resources, 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 2012/13 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 Director of Resources;

·         Budget reports to include revised estimates for 2012/13;

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

·         Minimum efficiency and other savings targets to be met as detailed in the 2012/13 Final Revenue Budget report. Any savings made directly by services over and above individual service targets to count towards future efficiency saving targets.

·         Individual services will continue to draw up Service Plans that set out the aims and objectives for the service and any possible future developments.

16.        Formal bids must be made for all capital schemes, irrespective of whether they may be present in the current indicative 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.

17.        It is expected that the revenue costs of service development will need to be met from within the respective services (in particular, from the efficiency 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 as part of the Budget Review.

18.        Some of the consultation work carried out for the Community Strategy/Corporate Plan will assist in informing the budget decision-making process. Services may conduct their own consultation arrangements when deciding on their own capital bids and priorities or use the data from previous exercises. Scrutiny Committees may wish to refer to these consultations when considering the budget or conduct consultations of their own.

19.        The proposed timetable for the 2013/14 Budget is for Cabinet to make its initial revenue and capital budget proposals in November 2012. The capital bids considered and prioritised will include those recommended to the BWG 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 2012, including the Cost Centre Analyses in order to inform the Budget Review process.

20.        Scrutiny Committees will be asked to make comments on the proposals and in particular to consider the prioritisation of the capital bids and revenue cost pressures. 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 on completion of the Budget Review, will submit its recommendations to Cabinet in January/February 2013. Cabinet will formulate its final proposals and submit them to a meeting of full Council to be held in March 2013 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.

 

Timetable for 2013/14 Budget Process

To be completed no later than

Cabinet considers the initial budget proposals and draft Corporate Plan

19th November 2012

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

18th December 2012

Cabinet make its final proposals on the budget and Corporate Plan

25th February 2013

Meeting of Council to consider budget and council tax resolution and to approve Corporate Plan

6th March 2013

Resource Implications (Financial and Employment)

21.        Although the figures contained within the Medium Term Financial Plan must be treated with caution, due to the uncertainty surrounding the predictions of expected resources, the Plan is currently indicating a significant shortfall of available funding from 2013/14 onwards which it is proposed to address as part of a Budget Review but which is expected to see a continuation of the Council's programme for efficiency and other savings. 

22.        It will be important to ensure that appropriate consultation takes place with the trades unions in relation to the staffing implications of this report. The level of consultation may 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.

Legal Implications (to Include Human Rights Implications)

23.        The Council is required under statute to fix the level of Council Tax for 2013/14 by 11th March 2013 and in order to do so will have to agree a balanced budget by the same date.

Crime and Disorder Implications

24.        None as a direct consequence of this report.

Equal Opportunities Implications (to include Welsh Language issues)

25.        None as a direct consequence of this report.

Corporate/Service Objectives

26.        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

27.        This report is a matter for Executive decision by the Cabinet. However, Council must approve the final 2013/14 budget proposals.

Consultation (including Ward Member Consultation)

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

Relevant Scrutiny Committee

29.        Corporate Resources.

Background Papers

Vale of Glamorgan Corporate Plan 2010 – 2014

Contact Officer

Alan Jenkins, Tel: 01446 709254

Officers Consulted

All Chief Officers.

Responsible Officer:

Sian Davies, Director of Finance, ICT and Property