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Agenda Item No. 4

 

THE VALE OF GLAMORGAN COUNCIL

 

SCRUTINY COMMITTEE (CORPORATE RESOURCES): 10TH DECEMBER, 2013

 

REFERENCE FROM SCRUTINY COMMITTEE (SOCIAL CARE AND HEALTH): 2ND DECEMBER, 2013

 

 

"           INITIAL REVENUE BUDGET PROPOSALS 2014/15 (DSS) -

 

The Council was required, under statute, to fix the level of Council Tax for 2014/15 by 11th March 2014 and in order to do so would have to agree a balanced Revenue Budget by the same date.  To be in a position to meet the statutory deadlines and requirements for consultation as set out within the Council’s Constitution, much of the work on quantifying the resource requirements of individual services needed to be carried out before the final Revenue Support Grant (RSG) settlement was notified to the Council.    The Council’s provisional settlement was announced on 16th October, 2013.  The Council’s Standard Spending Assessment (SSA) represented the Welsh Government’s (WG) view of the relative resources required to provide a standard level of service in each local authority in Wales and its primary use was to allocate RSG to these authorities.  For 2014/15 the Council’s provisional SSA was £214.384m.  

 

The Council had also been advised by the WG of its 2014/15 allocation in relation to RSG (£118.834m) and NNDR (£38.941m).  Together, these sums constituted the Council’s Aggregate External Finance (AEF).  This represented a cash reduction of 4.5% (£7.4m) for 2014/15 and was a larger reduction than the 4% projected in the Council’s Medium Term Financial Plan. 

 

The Council would also receive a sum provisionally set at £1.236m via the Outcome Agreement Grant (OAG) for 2014/15.  This grant was an unhypothecated grant (i.e. not earmarked for particular services).  It was noted that the Council was not necessarily guaranteed to receive the full amount of the OAG.  The amount for 2014/15 would be determined by a rating score of the Council’s performance in achieving its 2013/14 Outcome Agreement targets.

 

There were transfers into the RSG settlement for 2014/15.  The relevant transfer for this Committee is £119,000 for the First Steps Initiative.

 

It is the Council's contention that WG had not included all the required adjustments to make the AEF comparative between years and that there was an actual cash reduction to the Council of 4.9%.  As part of the consultation process on the provisional settlement, the Leader of the Council was responding to WG on this issue.  Pay and price inflation results in a much higher decrease in real terms. The September Consumer Price Index stood at 2.7%.

 

WG had provided an indicative settlement figure for 2015/16 which showed a further cash reduction of 1.63% (£2.6m).  The MTFP was based on a cash reduction of 4%.   WG had not given any indication as to the level of settlement for 2016/17, however the MTFP was based on a further 4% cash reduction.  The assumptions made in the MTFP would, therefore, be reconsidered by the Budget Working Group (BWG) as part of the final budget proposals.

 

With regard to the revised budget for 2013/14, Appendix 1 to the report set out the necessary adjustments to the original estimate for this period which were required to be made as follows (there was no overall effect on the net budget of the Council):

 

·                Asset Rents, International Accounting Standard (IAS) 19, and Recharges etc. – these relate to accounting items and expenditure outside the control of Services. They reflect charges to Services for the use of capital assets, changes to inter service recharges, superannuation increases not required and adjustments in respect of pensions to comply with accounting standards.  The overall impact on the Council was nil.

 

The following table compared the amended budget with the projected outturn for 2013/14:

 

 

2013/14

2013/14

Variance

 

Amended

Original

Projected

 (+)Favourable

Directorate/Service

Budget

Outturn

 (-) Adverse

 

£’000

£’000

     £’000

 

 

 

 

Children and Young People

14,660

14,660

                           0

Adult Services

36,124

36,124

                           0

Business Management and Innovation

298

298

                           0

Grand Total

51,082

51,082

                           0

 

The current forecast was an overspend of £140k, however, further work was being undertaken this year to address this position and a balanced budget was forecast at year end.

 

Children and Young People's Services - The major issue was the need to manage continued pressure on the children’s placements budget.  The current projected outturn for the jointly funded Residential Placements budget for Looked After Children is an overspend of £518k.  Any overspend at year end will be funded in proportion to the original contributions made to the joint budget i.e. £467k (90%) Social Services and £51k (10%) Education.  In addition to the joint budget, a high cost placement provision of £1.46m was established as part of the budget setting process for 2013/14.  To date, £223k of the provision has been committed, which is in addition to expenditure incurred within the joint budget.  There are potential underspends elsewhere in Children’s Services of around £310k which could be used to offset this position.  The increase in expenditure on the joint residential budget has resulted in a reduction in expenditure of £170k on alternative means of provision and accommodation costs required for the current cohort of children.  In addition, other areas of underspend are £50k on the legal expenses budget, £50k additional adoption income and £20k on administrative staff.  The BMI division is anticipated to underspend and any variance is apportioned to the service areas, therefore £20k of the underspend will be allocated to Children’s Services.  It is currently anticipated that there will be a £157k overspend.

 

Adult Services - The major issue is the continuing pressure on Community Care Packages, the Division's most volatile budget and the one most dependent upon levels of service demand which are not entirely within the Council's direct control.  At present, the projected year end position is an overspend of £829k which is after the reduction in budget to accommodate the savings target for the year of £685k. This overspend is also after the approval to release £646k from the £1.5m cost pressure allocated to Social Services, as part of the budget setting process for 2013/14.  This follows the decision by Welsh Government to provide funding of this value for the First Steps Initiative for 2013/14.  First Steps funding will be transferred into the RSG in 2014/15 however it will be at a reduced level of £119k.  Actions, therefore, still need to be taken to review all processes and to address this shortfall.   There are potential underspends elsewhere in Adult Services of around £553k which could be used to offset this position.  These areas are £237k following the closure of Bryneithin, £226k on staffing and £41k on Premises.  With the levels of savings required for 2014/15 and 2015/16, budgets are being re-examined during 2013/14 with a view to their possible realignment as part of the consideration of new models of service delivery . Future savings are planned for these areas and some positions and premises costs are lower than expected as a result of the commencement of some of these plans ahead of schedule.  The BMI division is anticipated to underspend and any variance is apportioned to the service areas, therefore £49k of the underspend will be allocated to Children’s Services.  This results in a currently anticipated overspend of £276k.

 

Areas of savings have been identified this year which are £293,000 over the required target.  This can be used to offset the overspend identified above and with further work being undertaken to address the remaining £140,000, a balanced budget is projected for year end.

 

The Cabinet approved the Budget Strategy for 2014/15 on 29th July 2013 and, as in previous years, required all Directors to make the following provisions:

 

·                Supplementary estimates would only increase the base budget if Council had given specific approval to this effect. Increases met by virement within a year would 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 had been given for additional funding.

·                The effect of replacing grant from outside bodies that had discontinued would not be treated as committed growth. In addition, before any project or initiative that was 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 would 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 would be expected to identify and achieve recurrent efficiency and other savings, including (but not restricted to) those identified in the Interim Medium Term Financial Plan.

·                It was envisaged that the costs of service development would need to be met from within the respective Directorates.

 

Having regard to the above, it was, therefore, proposed in respect of the 2014/15 Budget Strategy that Directors be instructed to prepare initial revenue budgets for 2014/15, 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 2013/14 final revenue budget report;

·                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 2013/14;

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

 

As a result of the reduction in the provisional settlement, the Authority would now have to identify additional savings to those originally approved for 2014/15.  It had also been necessary to revisit the cost pressures facing services in order to build up a complete and up to date picture of the financial position of the Council.  The updated list of cost pressures for this Committee was shown in Appendix 2 to the report.  These were not shown in any order of priority.

 

When approving the Budget Strategy for 2014/15, Directors were asked to consider bringing forward the implementation of future years' savings ahead of the scheduled date.  This message was reinforced by Cabinet when approving the MTFP, where Directors were also asked to identify additional areas for savings.

 

The 2013/14 budget included approved savings targets for the years 2014/15 to 2016/17.  Details of the approved areas for savings for 2014/15 for this Committee, are shown in Appendix 3 to the report, however, at present it was not proposed that any savings be brought forward for Social Services over and above those already approved.  The savings did not include the cost of potential redundancies.

 

A summary of the overall base budget for 2014/15 was attached at Appendix 4 to the report.  This had been arrived at by adjusting the 2013/14 budget for items such as inflation and unavoidable growth, but did not include identified cost pressures or savings.  These were shown as a note to the table and were further detailed in Appendices 2 and 3 respectively.  

 

Asset Rents, IAS 19 and Recharges etc. related to accounting items and expenditure outside the control of the relevant Services.  These reflected charges to Services for the use of capital assets, changes to inter service recharges, superannuation increases not required and adjustments in respect of pensions to comply with accounting standards.

 

Recharges / Transfers - to reflect mainly transfers of functions and responsibilities between services. 

 

The total figure for inflation related to general price increases and a 1% allowance for pay awards.

 

Committed Growth – This related to £119,000 for First Steps Improvement Package.

 

Once the base budget for 2014/15 for the Council as a whole had been established, it must then be compared to the funding available to identify the extent of any shortfall.  With a provisional AEF of £157.775m and Council Tax at a current level of £53.567m, total available funding would be £211.342m.  When compared to a base budget of £221.196m, this would result in a funding shortfall for 2014/15 of £9.854m.  This shortfall was mainly attributable to the reduction in funding from WG, an increase in pay and price inflation and the requirement to fund committed growth.

 

If all identified cost pressures were funded for the whole of the Council, this would increase the shortfall to £15.838m.  If all proposed savings were achieved for the whole of the Council, the shortfall would be reduced to £8.539m as shown in the table below.

 

Projected Budget Shortfall 2014/15

 

 

£000

Funding Available

 

Provisional AEF

157,775

Council Tax

53,567

Provisional Funding Available

211,342

 

 

Base Budget

221,196

 

 

Provisional Shortfall Against Base Budget

9,854

 

 

Assume all Cost Pressures funded

5,984

 

 

Provisional Shortfall with Cost Pressures funded

15,838

 

 

Assume all Savings Achieved

(7,299)

 

 

Provisional Projected Shortfall for 2014/15

8,539

 

This level of shortfall was unprecedented.

 

Further work would be undertaken by the BWG when formulating the final budget proposals for 2014/15, which would include a review of the use of reserves, a possible increase in Council Tax, a review of all cost pressures, possible savings and the current financial strategies, in order to achieve a balanced budget.  The BWG would also look at the impact on the 2015/16 budget.

 

It would be extremely difficult in the short term to meet all of the budget shortfall through further savings next year.  This may require consideration of the use of substantial levels of reserves in 2014/15, thus allowing a more thorough review of options for savings and their implications, alternative methods of service delivery and collaborative ventures.

 

The General Fund Reserve as at 31st March 2014 was projected to stand at £11.858m.  The 2014/15 base budget proposal included the use of £1.5m from the General Fund reserve.  Cost pressures for 2014/15 include £500k for a reduction in the use of reserves, in line with the existing financial strategy.  A further reduction of £500k was also scheduled for 2015/16.  In light of the unprecedented funding shortfall, this strategy needed to be reviewed.  At this stage, it was proposed that a use of reserves to a maximum of £3.5m could be used in 2014/15.  The Section 151 Officer believed that the minimum balance on the General Fund Reserve should be no less than £7m.

 

The use of reserves to fund recurring expenditure can only be countenanced as part of a specific strategy to achieve a balanced budget in future years.  The consequence of such actions will be to increase the level of savings required in 2015/16 onwards.

 

In terms of the role of the Cabinet Budget Working Group, this Group would be holding a series of meetings with the relevant Cabinet Members and officers to consider the budget proposals.  Any recommendations from this Group would be submitted so that the Cabinet could make its final budget proposal by no later than 24th February 2014; before making its recommendation the Cabinet Budget Working Group would consider the comments made by all the Council’s Scrutiny Committees.

 

The Cabinet’s final budget proposals would be considered by Council on 5th March 2014. 

 

Committee had been asked to review the level of cost pressures with a view to suggesting ways in which these could be managed downwards and/or mitigated.

 

In considering the Analysis of Revenue Cost Pressures for the Directorate as itemised in Appendix 2 to the report, Members were advised that following further analysis, the following would be removed from the list:

 

·                  Change in Youth Justice Board Funding Arrangements             £38,000

·                  Increase in minimum foster care allowance                              £20,000.

 

It was proposed that the remaining cost pressures should remain.

 

A Member enquired as to the level of projected Outcome Agreement Grant and was advised that for last year, the Council had been awarded the full amount.  The figure for this year had not yet been determined.

 

A Member also enquired as to the expected level of funding expected from the Welsh Government for the First Steps Initiative and was informed that the final settlement was expected to be made on 3rd December, 2013.

 

Committee were also advised that a sum of £34,000 allocated for Foster Care savings had not been included in the targeted savings.  This saving would be used to offset any additional savings to be found by the Directorate.

 

In response to a question from a Member, the Director informed the Committee that the Social Services Directorate had consistently made savings over the past 5 years and that the current Budget Programme included plans for further savings in the years ahead that were regarded as achievable.  The overall intention was to change the way in which demand for services was managed and to make more savings urgently would risk a more severe impact upon service users and carers.

 

Questions were asked about the future of Hen Goleg, and Members were advised that the Directorate was awaiting a report on the physical condition of the building.

 

Members expressed concern at the level of cost pressures facing the Directorate and felt that Scrutiny Committee (Corporate Resources) should be informed of the wish of the Scrutiny Committee that the pressures be fully funded.

 

Having regard to the above and related issues it was

 

RECOMMENDED -

 

(1)       T H A T the amended budget for 2013/14 as set out in Appendix 1 to the report be noted.

 

(2)       T H A T the Initial Revenue Budget Proposals for 2014/15 be noted together with the cost pressures in the Social Services Directorate as amended at the meeting.  It was the view of the Scrutiny Committee (Social Care and Health) that these cost pressures would need to be fully funded in view of the ever increasing demand for Adult Services’ Community Care Packages and the difficulties in predicting the requirement for children’s residential placements:

 

Reasons for recommendations

 

(1)       In acknowledgement of the Scrutiny Committee’s responsibility for monitoring the budget.

 

(2)       In order that the Scrutiny Committee (Corporate Resources) is informed of the comments of the Scrutiny Committee (Social Care and Health) prior to making a final proposal on the budget."

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