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Agenda Item No

 

The Vale of Glamorgan Council

 

Scrutiny Committee (Economy and Environment): 4th December 2012

 

Joint Report of the Director of Development Services and the Director of Visible Services and Housing

 

Initial Revenue Budget Proposals 2013/14

 

Purpose of the Report

1.             To submit for consultation the initial budget proposals for 2013/14 and to inform Scrutiny Committee of the amended original budget for 2012/13 for services which form part of this Committee's remit.

Recommendations

It is recommended that:

 

1.             The amended budget as set out in Appendix '1' be noted.

2.             The initial revenue budget proposals for 2013/14 be considered and any comments passed to Corporate Resources Scrutiny Committee as the lead Scrutiny Committee.

Reasons for the Recommendations

1.             To incorporate changes to the budgets.

2.             In order that Cabinet be informed of the comments of Scrutiny Committees before    making a final proposal on the budget.

Background

2.             The Council’s budget is determined largely by the Revenue Support Grant (RSG) settlement set by the Welsh Government (WG). The provisional RSG settlement was received from WG on the 16th October 2012 (and the final settlement is likely in December/January).

3.             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 revenue budget by the same date. To be in a position to meet the statutory deadlines and the requirements for consultation set out in the Council’s Constitution, much of the work on quantifying the resource requirements of individual services needs to be carried out before the final RSG settlement is notified to the Council.

4.             SSA (Standard Spending Assessment) represents WG's view of the relative resources needed to provide a standard level of service in each local authority in Wales and its primary use is to allocate RSG to these authorities. WG has advised the Council that its provisional SSA for 2013/14 is £218.838M.

5.             The Council's provisional RSG is £125.934M and its share of the Non- Domestic Rates (NDR) is £37.752M together these figures will constitute the Council’s provisional Aggregate External Finance (AEF).

6.             The Council will also receive a sum provisionally set at £1.246M via the Outcome Agreement Grant (OAG) for 2013/14. The OAG is an unhypothecated grant (i.e. not earmarked for particular services).The Council is not guaranteed to receive the full amount of the grant. The proportion of the grant eventually received in 2013/14 is determined by a ratings score of the Council's performance in achieving its 2012/13 Outcome Agreement targets.

7.             There will be a transfer into the RSG settlement relevant to this Committee as follows:

Local Government Borrowing Initiative (Highways) - £304k

 

The objectives of the scheme are to boost the Welsh economy and improve the local highway asset. The WG will provide an annual amount over 22 years to meet revenue pressures in order to free up the Local Authority’s own resources to undertake prudential borrowing for capital highway improvement investment over the 3-year period 2012/2015. 

 

Revised Budget 2012/13

 

8.             Appendix ‘1’ to this report sets out the necessary adjustments to the original estimate for 2012/13, which are required to be made as follows (there is no overall effect on the net budget of the Council).

  • Asset Rents, International Accounting Standard (IAS) 19, Transfers and Recharges - these are accounting adjustments largely outside the control of Services. They reflect charges for the use of capital assets, changes to inter-service recharges and functions and pensions adjustments to comply with accounting standards. The overall impact on the Council is nil.
  • A virement (transfer) of £150k from Policy to Leisure to reflect additional costs (staff cost arrears of £55k and income in advance of £95k) made to Leisure Centres.  These arise from a change in the timing of their charging to account as a result of the transfer to Parkwood Leisure.
  • A virement of £30k from Policy to Leisure to fund the shortfall in the saving target which will not be achieved as a result of the delay in the transfer to the National Trust. Both virements can be funded by savings within Policy.

9.             The following table compares the amended original budget with the projected outturn for 2012/13.

 

2012/13

2012/13

Variance

 

Amended

Original

Projected

 (+)Favourable

Directorate/Service

Budget

Outturn

 (-) Adverse

 

£’000

£’000

     £’000

Visible Services

 

 

 

Environment and Visible Services                  

17,645

17,662

                         17

Parks and Grounds Maintenance

3,284

3,267

                      (17)

Building Services

0

0

                           0

 

 

 

 

Development

 

 

 

Planning and Transportation

     5,044

         4,985

                      (59)

Leisure

       4,932

         5,100

        168

Economic Development

856

892

36

 

 

 

 

Grand Total

31,761

31,906

145

 

10.        Visible Services – The projected out turn for Visible Services shows a net zero variance when compared to the amended original budget.  Even though the overall budget has been balanced there are variances within individual Services.

11.        Highways & Engineers – It is projected that the Highways & Engineers section will have a favourable variance of £15k. It is projected that the employee’s budget will be £88k overspent within the Highways & Engineers service. This is mainly due to an overspend on agency staff in Engineers. However, the majority of agency staff time is charged to capital schemes. Premises & Repairs budgets are projected to be overspent by £426k which is mainly attributable to the level of repairs required to the highways network as a consequence of previous severe winters. To offset this, the income estimate has increased by £529k mainly due to the increased level of work done for capital schemes.

12.        Waste Management - It is projected that the Waste Management section will have a favourable variance of £48k. Employee costs are projected to have a favourable variance of £123k due to vacant posts. The Supplies & Services budget has a projected overspend of £189k mainly due to payments made for the new litter enforcement service. However the majority of this expenditure is offset by increased income from fines. The revised income estimate has a favourable variance of £114k.

13.        Parks and Grounds Maintenance - It is estimated that overall the Grounds Maintenance section will have a favourable variance of £17k. Employee Costs are projected to be £30k underspent due to vacant posts. Premises costs are projected to be £25k overspent however this is largely due to repair of the Beachcliff Wall at Windsor Gardens. Transport costs are projected to be £47k overspent due to the high number of vehicles required during the summer season. Supplies & Services budgets are estimated to be overspent by £55k. This is mainly due to increased levels of work done for other departments, which is offset by additional income. The income estimate is projected as a favourable variance of £114k to the original budget.

14.        Support – It is estimated that there is a £80k overspend compared with the original budget. This is due to the transfer of staff into the support section from elsewhere within Visible Services.

15.        Building Services – The Service is expected to out turn on target. Overall the recharge to Building Services clients for management costs has reduced by £19k.

16.        Planning and Transportation - The projected outturn for Planning and Transportation shows a favourable variance of £59k when compared to the amended original budget.

17.        This is because of savings on employee costs of £100k and internal recharges of £17k. There is also a net increase in Government grant and other grant income of £45k due to the inclusion of the current level of grant funding in the estimates. Internal recharge income has increased by £4k.

18.        This is offset by a £55k net reduction in contribution to funds due to a £31k reduction in the anticipated drawdown from the planning fees reserve and the need to make a revenue contribution to capital of £24k. There is an increase in Support charges of £26k in order to provide maternity cover. There is a net reduction in income of £21k. Supplies and Services have increased by £5k which reflects an increase of £64k grant expenditure now included in the estimates offset by savings of £59k found from within the division.

19.        Leisure – The projected outturn for Leisure shows an adverse variance of £168k when compared to the amended original budget.

20.        There is increased expenditure of £243k on supplies and services primarily due to the inclusion of anticipated expenditure not previously reflected in the estimates, mainly relating to corporate events and grants. Customer receipts have fallen £103k. There is an increase on third party of £4k and on internal recharge expenditure of £3k.

21.        This is offset by savings on employee costs of £104k. There is an increase in grant income of £81k as it was not previously fully reflected in the accounts. There is an increase in contributions from reserves of £53k.an underspend on premises costs of £50k and savings on transport costs of £14k. Additional internal recharge income totals £13k.

22.        In addition there is a further adverse variance of £130k in relation to the Leisure Centres. This is due to increased employee costs of £89k, reduced income of £56k, increased supplies and services costs of £34k, a net increase in premises and contributions to funds of £22k and increased transport costs of £4k this is offset by a saving of £75k relating to third party management payments.

23.        Part of the adverse variance within Leisure will be met from the savings from Planning and Transportation £59k.

24.        Economic Development – The projected outturn for Economic Development shows an adverse variance of £36k when compared to the amended original budget.

25.        Within Economic Development there is a favourable variance of £4k.There is a net increase in internal recharge income and expenditure of £31k and an increase on customer receipts of £25k.

26.        This is offset by increased expenditure on premises of £22k and on supplies and services of £6k having taken into account the increased use of reserves. There is also an increase of £24k on employee costs in relation to capital grant funded positions.

27.        Community Enterprise Centre, Employment & Training Services and Communities First grant funding transferred from Lifelong Learning to Economic Development during this financial year. It shows a £40k adverse variance against the amended original budget. There is a projected staffing adverse variance (£28k) within Community Enterprise Centre following the withdrawal of the Community services provided within the Centre, this variance is to be funded from reserves and partial use of the Communities First Management fee. In addition, the Employment Training Service is projected to outturn with an adverse variance of £120k due to a shortfall in income receipts from the Work Programme contract resulting from lower than anticipated job outcomes to date, this variance will be partly offset by provisions and reserves of £80k set aside in previous years. A review is being conducted in this Service to improve performance.

Base Budget 2013/14

 

28.        Cabinet approved the Budget Strategy and the Interim Medium Term Financial Plan on the 9th July 2012.

29.        The Budget Strategy for 2013/14 outlines that in order to establish a baseline 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.

30.        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 Medium Term Financial Plan.
  • It is envisaged that the costs of service development will need to be met from within the respective directorates.

31.        Having regard to the above, it is, therefore, proposed in respect of the 2013/14 Budget Strategy 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;
  • 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.

32.        A summary of the overall base budget for 2013/14 is attached at Appendix '2'. This has been arrived at by adjusting the 2012/13 budget for items such as inflation and unavoidable growth.

33.        IAS 19 /Asset Rents - relate to accounting items outside the control of Services. They reflect charges to Services for the use of capital assets and adjustments in respect of pensions to comply with accounting standards.

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

35.        Budget Adjustments - This comprises the estimated April 2012 pay award which did not materialise and therefore an adjustment has been made to remove this sum from Service budgets and the transfer of a sum into Services to fund the impact of job evaluation.

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

37.        Committed Growth relates to £216k for landfill tax and for the transfer into RSG for Local Government Borrowing Initiative of £304k.

38.        The savings total is made up of additional saving arising from the senior management restructure, removal of one-off  items included in the 2012/13 budget of  £120k (Dyffryn) for Leisure and £60k (reduced rent for 2yrs) for Economic Development. The largest proportion arises from the 2013/14 target for efficiency savings set in the 2012/13 budget.

39.        The Final Revenue Budget proposals for 2012/13 included corporate savings targets for Services to 2014/15.  The table below shows the savings targets.




Efficiency Savings Targets

2013/14

2014/15

TOTAL

 

£000

     £000

     £000

Visible Services & Housing

595

250

845

Development Services

130

47

177

Total Required for the Year

725

297

1,022

 

A detailed list of the savings targets shown above are attached at Appendix 3.

40.        A list of 2013/14 cost pressures as identified by Services is attached at Appendix 4. These are not shown in any order of priority. Some will need to be met for some services. They exclude the cost of redundancies, which may be incurred in order to maintain the budget within the resources available. These costs could be significant.

Budget Review

 

41.        The 2012/13 Final Revenue Budget Proposals set initial corporate savings targets for 2013/14 and 2014/15 of £3.175M and £2.950M respectively with the exact level of savings required, together with their impact from 2013/14 onwards, to be considered as part of a Budget Review to be undertaken following the Council elections in May 2012.

42.        The results of the Budget Review process will, therefore, inform the 2013/14 Budget Process. The purpose of the review is to ensure:

  • A sustainable budget is achieved within predicted funding levels
  • The budget is aligned to the Council’s priorities as set out in the Corporate Plan
  • Best value for money is being obtained, i.e. identifying efficiency savings, opportunities for income generation and better use of external grants

43.        The outcome of the review will be to put in place a 4-year financial strategy for the period to March 2017.

44.        The 2013/14 Review is supported by Cost Centre Analyses (CCAs) which provide details for each service area including:

  • Comparisons of the 2010/11 outturn, 2011/12 budget and actual outturn, and 2012/13 current year budget.
  • Separation of the largely controllable (e.g. salaries and wages) and uncontrollable (e.g. recharges from other departments) elements of income and expenditure.
  • Identification of the costs centres within Service Areas  
  • A copy of the Cost Centre Analysis is attached at Appendix 5.

45.        Each cost centre has been awarded a rating that measures its relative risk (based on the Council’s risk management strategy) and corporate priority. This is attached at Appendix 6. The following tables show the criteria used for the risk and corporate priority rating:

 Risk Assessment Matrix

 

 

 

 

 

Impact of Risk

 

Catastrophic

 

MEDIUM (M)

 

MEDIUM/HIGH (MH)

 

HIGH (H)

 

VERY HIGH (VH)

 

High

 

MEDIUM/LOW (ML)

 

MEDIUM (M)

 

MEDIUM/HIGH (MH)

 

HIGH (H)

 

Medium

 

 LOW (L)

 

MEDIUM (M)

 

MEDIUM (M)

 

MEDIUM/HIGH (MH)

 

Low

 

VERY LOW (VL)

 

 LOW (L)

 

MEDIUM/LOW (ML)

 

MEDIUM (M)

 

Very Unlikely

Possible

Probable

Almost Certain

 

Likelihood/Probability of Risk Occurring

 

 

Corporate Priority

Category

Score

Commitments and areas where the Council has no control over the expenditure, e.g. contractual and legal commitments, absolute minimum statutory service, taxes, etc.

3

Political Priority (publicly announced commitment e.g. items included in the Community Strategy, Corporate Plan)

2

“Invest to Save” and preventative expenditure

2

Statutory expenditure above the absolute minimum

1

46.        The Budget Working Group (BWG) is responsible for completing the Budget Review. In coming to its conclusions, the BWG will also use high-level information on the comparative spending levels of individual services across Wales together with the financial information included in the Cost Centre Analyses. The results of the relative risk and corporate priority assessment will also be factored in as part of this process.  Service developments in all areas will be dependent upon the eventual level of resources available.

47.        The shortfall in the 2013/14 budget for the Council as a whole is £8.426M assuming all cost pressures are met. Future resource requirements for the whole Council have also been assessed having regard to the likely future revenue settlements and cost pressure information provided by services to 2016/17 as shown below:

Matching Predicted Resources to Expenditure

2014/15

£000

2015/16

£000

2016/17

£000

Total

£000

Real Term decrease in resources

   702

1,934

1,963

  4,599

Cost Pressures

6,173

4,644

4,272

15,089

Existing Corporate Savings Targets

(2,133)

     0

     0

(2,133)

Shortfall

4,742

6,578

6,235

17,555

 

 

 

 

 

The initial projections show a cumulative shortfall of some £25.981M by 2016/17 including the shortfall on 2013/14. In view of the difficulty in predicting future levels of inflation and cost pressures, the above table needs to be treated with a degree of caution and the eventual position may be better or worse than stated. In particular, changes in future settlements from WG have a significant impact. The projection assumes the level of increase in 2014/15 in Aggregate External Finance (AEF) will be in line with the forward indication received from WG. However, for 2015/16 and 2016/17 no future indications have been received and so it has been assumed that there will be no increase. For each 1% difference in this assumption the impact on a year's shortfall would be £1.6M. So, for example, if the Council's AEF was 1% lower than predicted in both 2015/16 and 2016/17 the cumulative shortfall would increase by £3.2M.

48.        The Review will further develop the above projections. In addition it will examine the cost pressures to determine which will require funding.

49.        As a starting point to assist in dealing with the funding gap the savings areas previously put forward by Directors to meet the 2013/14 and 2014/15 targets are being analysed with a view to their implementation with effect from April 2013. These are included at Appendix 3.

50.        Clearly however, these will be insufficient. Consequently it is proposed to request Directors to formulate additional options for savings, additional income etc. over the next 4 years. This includes outlining the service implications and estimated HR implications (including potential redundancies, reductions in headcount and FTEs).

51.        In order to provide some guidance to Directors it is suggested that a target be set for each Director. Initially, it is proposed each Director should identify savings equivalent to their pro rata share of the shortfall based on their controllable expenditure. Over the 4 year period, this approximates to an average annually recurring reduction of about 6.5%. It is extremely unlikely that this will be the eventual outcome of the budget review but it should help officers focus and provide members with options. Schools have been excluded from the target and will be looked at during the review. The target sums are set out in the table below, and are in addition to existing targets.  They relate to the whole of the Directorates.

Annual Saving Target

2013/14

£000

2014/15

£000

2015/16

£000

2016/17

£000

Total

£000

Visible Services and Housing

1,166

   656

   912

   863

  3,597

Development

   662

   373

   517

   490

  2,042

Total

1,828

1,029

1,429

1,353

5,639

 

52.        An update of the progress on the Budget Review will be reported to Corporate Resources Scrutiny Committee in January 2013.  Comments of Scrutiny Committee will be considered by the BWG prior to preparing the final budget proposals for initial consideration by Cabinet and Council in February/March 2013. 

53.        Due to the 2013/14 Budget Process running in tandem with the review of the Corporate Plan it is essential that services have regard to the targets, objectives and key tasks contained within the Draft Plan when considering future cost pressures and options for savings.

 

Next Steps

54.        The next stage is for the estimates to be submitted to Scrutiny Committees for consultation. Corporate Resources Scrutiny Committee is the lead Scrutiny Committee and will consider both the Initial Revenue Budget Proposals and any comments that other Scrutiny Committees have made. The responses of Scrutiny Committee must be made no later than the 20th December 2012.

55.        It is also proposed to consult on the initial budget proposals with the Public, Local Service Board partners, Town and Community Councils and the Business sector.

56.        The Cabinet Budget Working Group will hold a series of meetings in November 2012 with the relevant Cabinet Members and officers to consider the budget proposals. They will submit their recommendations so that the Cabinet may make its final budget proposal no later than the 28th February 2013. Before making its recommendation, the Budget Working Group will consider the comments made by Scrutiny.

57.        Progress on the Budget Review will be reported to Corporate Resources Scrutiny Committee in January 2013.

58.        Cabinet’s final budget proposals will be considered by Council at a meeting to be held by the 11th March 2013.

Resource Implications (Financial and Employment)

59.        It is important that Directors balance their budgets. 

60.        Each year the purpose, nature and level of earmarked reserves are reviewed and will again be reviewed as part of the 2013/14 Budget Process. Appendix '7' sets out this Committee’s estimated reserves as at 31st March 2013.

61.        Each 1% increase in Council Tax will yield approximately £450k additional income. This is less than in other years as under the new Council Tax Support regime part of any increase is reduced by a corresponding increase in Council Tax Support.

Sustainability and Climate Change Implications

62.        The promotion of sustainability and action to arrest climate change is central to the work of the Council and a key consideration when allocating scarce resources to meet the needs of the present without compromising the ability of future generations to meet their own needs.

Legal Implications (to Include Human Rights Implications)

63.        The Council is required under statute to fix its council tax by 11th March 2013 and in order to do so will have to agree a balanced revenue budget by the same date.

Crime and Disorder Implications

64.        The obligations of the Council with regard to Section 17 needs to be fully considered in the budget decision making process.

Equal Opportunities Implications (to include Welsh Language issues)

65.        These initial budget proposals have due regard to the requirements of the Council’s Strategic Equality Plan including the Equalities Act 2010 and Public Sector Equality Duty for Wales. The subsequent development of individual strategies for achieving savings will require the completion of Equality Impact Assessments. This involves systematically assessing the likely (or actual) effects of policies on people in respect of disability, gender, sexuality (including gender identity), age, Welsh language, and racial equality.

Corporate/Service Objectives

66.        Contributes to the corporate priority of Corporate Resources by the provision of sound financial management.

Policy Framework and Budget

67.        This report is following the procedure laid down in the Constitution for the making of the budget and so does not need to be referred to Council. However, the final 2013/14 budget will require the approval of full Council

Consultation (including Ward Member Consultation)

68.        The Corporate Management Team has been consulted on this report. The initial budget proposals will be the subject of consultation with Scrutiny Committees. The Trade Unions and Schools forum will also be consulted.

Relevant Scrutiny Committee

69.        The lead Scrutiny Committee is Corporate Resources.

Background Papers

Interim Medium Term Financial Plan

 

Contact Officer

Carolyn Michael, Senior Group Accountant

 

Officers Consulted

The Corporate Management Team has been consulted on this report

 

Responsible Officers:

Rob Thomas, Director of Development Services

Miles Punter, Director of Visible Services and Housing