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Matter which the Chairman had decided was urgent by reason of the need to report this matter to the meeting of Scrutiny Committee (Corporate Resources) on 10th December, 2013

Agenda Item No. 13(i)

 

THE VALE OF GLAMORGAN COUNCIL

 

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

 

REFERENCE FROM SCRUTINY COMMITTEE (HOUSING AND PUBLIC PROTECTION): 4TH DECEMBER, 2013

 

"           INITIAL REVENUE BUDGET PROPOSALS 2014/15 (DDS AND DVSH) -

 

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 (MTFP). 

 

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 as it depended on the extent to which the Council met its obligations under the Outcome Agreement. 

 

There were transfers into the RSG settlement for 2014/15 as follows:

 

Council Tax Reduction Scheme Administration Subsidy - £177k. This was previously received as a direct grant from the Department for Work and Pensions.

 

It was 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 amended 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, Transfers and Recharges – these relate to accounting adjustments largely outside the control of Services. They reflect charges to Services for the use of capital assets, changes to inter service recharges and transfers and pensions adjustments 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

Youth Offending Service

653

653

                       0

General Fund Housing

           1,150

         1,000

                 +150

Public Protection

2,564

2,564

                0

Private Housing

11,270

11,270

                       0

Grand Total

15,637

15,487

                 +150

 

The projected outturn for this Committee was a favourable variance of £150k when compared to the amended original budget.

 

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.  Directors have assessed future year savings in order to establish those that can be brought forward to supplement the 2014/15 savings.  In doing so, regard had been given to those savings which are time bound and cannot be accelerated.  Details of the approved areas for savings for 2014/15 for this Committee, together with proposals for savings to be brought forward were attached at Appendix 3 to the report.  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.  The total cost pressures for 2014/15 for the services within the remit of the Scrutiny Committee were £170k.

 

Asset Rents, IAS 19 related to accounting items outside the control of the relevant Services.  These reflected charges to Services for the use of capital assets and adjustments in respect of pensions to comply with accounting standards.

 

Recharges / Transfers – relate to changes in inter-service recharges and from the transfer of functions and responsibilities between services. 

 

Inflation - the inflation figure related to general price increases and a 1% allowance for pay awards.

 

Committed Growth – This included transfers into RSG of £177k for Council Tax Reduction Scheme Administration Subsidy. 

 

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. 

 

Having regard to the above and related issued 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 including cost pressures and savings proposals be noted, subject to the Scrutiny Committee (Corporate Resources) being requested to ask the Cabinet to investigate the feasibility of utilising charities / third sector organisations to assist in the procurement of furniture in respect of savings proposals V11 and V12 for 2014/15. 

 

Reasons for recommendations

 

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

 

(2)       In acknowledgement of the budget proposals for 2014/15 and in order that the Scrutiny Committee (Corporate Resources) is informed of the comments of the Scrutiny Committee (Housing and Public Protection) prior to making a final proposal on the budget."