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 Agenda Item No. 4

 

The Vale of Glamorgan Council

 

Scrutiny Committee (Economy and Environment): 2nd December 2014

 

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

 

Initial Revenue Budget Proposals 2015/16

 

Purpose of the Report

1.         To submit for consultation the initial budget proposals for 2015/16 and to inform Scrutiny Committee of the amended original budget for 2014/15 for services which form part of this Committee's remit.

Recommendations

It is recommended that:

 

1.         The amended budget for 2014/15 as set out in Appendix 1 be noted.

2.         The initial revenue budget proposals for 2015/16 be considered and any recommendations be passed to Scrutiny Committee (Corporate Resources) as the lead Scrutiny Committee.

Reasons for the Recommendations

1.         To advise Committee of amendments to the 2014/15 budget.

2.         In order that Cabinet be informed of the recommendations 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 8th October 2014.  The final settlement is likely to be received in December 2014.

3.         The Council is required under statute to fix the level of Council Tax for 2015/16 by 11th March 2015 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.

Revised Budget 2014/15

 

4.         Appendix 1 to this report sets out the Amended Budget for 2014/15 for this Committee, together with the necessary adjustments to be made to the original budget. 

5.         These adjustments have no overall effect on the net budget of the Council and are as follows:-

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 transfers and pensions adjustments to comply with accounting standards.  Also included are transfers of functions and responsibilities between Directorates as detailed below :-

Environment and Visible Services

 - £52k from Public Protection in respect of Emergency Planning.

Planning and Transportation

- £20k from Corporate and Customer Services in respect of the Authority's  Publications and Media Officer.

Leisure

- £24k from Corporate and Customer Services in respect of the Arts Development section.

6.         The following table compares the amended original budget with the projected outturn for 2014/15.

 

       2014/15

2014/15

Variance

 

Amended

Original

Projected

 (+)Favourable

Service

   Budget

Outturn

 (-) Adverse

 

          £’000

£’000

     £’000

Environment and Visible Services                   

18,183

18,183

                           0

Parks and Grounds Maintenance

3,564

3,564

                           0

Building Services

0

                0

                           0

Planning and Transportation

5,158

         5,158

                           0

Leisure

3,526

         3,526

                           0

Economic Development

833

833

0

Total

31,264

31,264

0

 

7.         The projected outturn for this Committee is a balanced budget when compared to the amended original budget. 

8.         Highways & Engineers – It is projected that the Highways & Engineers section will have a balanced budget at year end. It is projected that the employees' budget will be £261k underspent due to numerous vacant posts currently within the service. However due to the number of vacant posts, the anticipated spend on subcontractors is over budget by £180k.

9.         As previously reported, Highways have an estimated overspend on potholes, which is currently estimated to be £327k. There is also a projected overspend on street lighting energy costs of £100k, as required savings have not yet been made, however, a report was taken to Cabinet on the 20th October on the Street Lighting Energy Reduction Strategy. 

10.      Vehicle costs are projected to be £84k over budget which is mainly due to the increased cost of the newer Winter Maintenance fleet. There is also an overspend of £27k due to the Highways section paying cesspit emptying costs for which there is no budget.  A report will be brought to a future Cabinet by the Director of Visible Services and Housing on this issue.  Highways also have increased disposal costs of £65k for waste produced at the Pant-y-Lladron site, however, this is offset by an additional £45k income from Bridgend and Cardiff Councils who also use this site.

11.      The service also has to meet additional insurance costs of £120k. There has been a sharp increase in these costs due to the previous claims history for Highways, resulting in the service being charged a larger proportion of the overall Council insurance cost.

12.      As previously reported, Highways has not made required savings from car parking income, with the shortfall being £378k. Again a report will be brought to Cabinet on this matter in the near future by the Director of Visible Services and Housing.

13.      It is anticipated that other income received by the Highways section will be £165k higher than budgeted. This is due to increased Car Parking Enforcement income and also an increase in the amount of Highways works schemes undertaken for other departments.

14.      To assist with the budget pressures listed above, Cabinet previously approved a one off budget transfer of £350k from Policy to Highways.  It is also anticipated that a central recharge budget for energy of £460k will not be utilised this financial year so will also assist these pressures.

15.      Waste Management - It is projected that the Waste Management section will have a balanced budget at year end. Employee costs are projected to be over budget by £86k. A proportion of this is due to the staffing of Lifeguards on beaches for which there is no budget e.g. Rhoose Point.

16.      Vehicle costs are projected to be £130k over budget, however, vehicle telemetry meetings have now started with each department with the view to reducing the number of vehicles, therefore, this overspend may reduce.

17.      Also as previously reported, there is an increase in treatment costs for co-mingled waste of approximately £80k over the current budget. The department has also projected a spend of £36k on procurement costs for Prosiect Gwyrdd for which there is no budget. The department has also budgeted a spend of £50k on the Joint Organics Procurement with Cardiff Council, however, this can be met from £50k grant funding.

18.      To offset the overspends above, Waste Management should be able to make significant savings of around £500k this financial year from the interim contract for waste disposal with Viridor. The Council joined the contract on the 28th October 2014 and is now taking waste to the new site. This has been offset slightly by an increase in costs for our Household Waste Recycling Centre due to all residual waste that passes through the site now being sorted to take out recycling, prior to being sent to landfill, in an attempt to increase recycling in order to meet Welsh Government targets. The additional cost over the available budget is around £168k.

19.      Grounds Maintenance – It is anticipated that the Grounds Maintenance section will achieve a breakeven position at year end. Employee costs are projected to be £150k under budget due to vacant posts within the service. However, this has been offset by additional works undertaken by subcontractors, which amounts to around £125k over budget.

20.      It is also estimated that there will be a £30k saving on waste disposal by switching to a different contractor. There are, however, additional costs for insurance of £35k and high repair costs at Jenner Park which are projected to be £20k over budget.

21.      Building Services – The Building Maintenance and Building Cleaning and Security Services are expected to outturn on target.

22.      Planning and Transportation – The year-end projected spend on Planning and Transportation shows a nil variance against the revised budget. It is anticipated that there will be an underspend of £175k at year-end, mainly as a result of an increase in planning income. It is proposed to use this funding for capital regeneration projects within the Vale.

23.      Leisure, including Countryside – The projected outturn for Leisure and Countryside shows a nil variance against the revised budget. The Countryside function has undergone a restructure within the year and revised budgets reflect the assumption that the new structure is in place by Christmas. It is anticipated that there will be an underspend of £130k at year-end and it is proposed to use this funding for capital regeneration projects within the Vale.

24.      Economic Development – This service is currently projected to outturn within target.

Budget Strategy

 

25.      Cabinet approved the Budget Strategy on the 30th June 2014 min. no. C2363.

26.      The Budget Strategy for 2015/16 outlines that in order to establish a baseline, services should prepare initial revenue budgets based on the cost of providing the current level of service and approved policy decisions and including the existing savings target. This means the cost of price increases and any allowable pay awards should be included as advised by the Managing Director.

27.      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 achieve savings already approved by Cabinet as part of the 2014/15 final budget proposals and Directors are asked to consider bringing forward the implementation of these savings ahead of the scheduled date and also to consider areas for further savings.

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

28.      Having regard to the above, it was therefore proposed in respect of the 2015/16 Budget Strategy, that Directors be instructed to prepare initial revenue budgets for 2015/16, in accordance with a timetable agreed by the Managing Director. 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 2014/15 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 Managing Director.

- Budget reports to include revised estimates for 2014/15.

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

- Minimum savings targets to be met initially as detailed in the 2014/15 Final Revenue Budget report. Any savings made directly by services over and above individual service targets to count towards future saving targets.

- Directors will continue to draw up Service Plans that set out the aims and objectives for the service and any possible future developments and efficiencies.

 - As stated previously, it is expected that the revenue costs of service development will need to be met from within the respective services (in particular, from the 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.

Medium Term Financial Plan 2015/16

 

29.      The Medium Term Financial Plan (MTFP) 2014/15 to 2017/18 was approved by Cabinet on the 11th August 2014, min. no. C2432.

30.      The 2014/15 Final Revenue Budget Proposals set savings targets between 2015/16 and 2016/17 of £13.5m (excluding schools).  This was based on the anticipated reduction in funding from WG of 1.64% in 2015/16 and a further 1% in 2016/17. The indication from the WG Minister for Local Government and Government Business, at the time the MTFP was produced, was for substantial reductions in funding of up to 4.5%.  The MTFP was therefore produced using the assumption of a reduction in funding of 4.5% in 2015/16, a further 4% reduction in 2016/17 and a 2% reduction in 2017/18.  Savings totalling £18.2m were identified for the period 2015/16 to 2017/18, with a shortfall in funding across these 3 years of £14.2m.

31.      The Plan factored in a managed level of cost pressures, a notional increase in council tax of 2% each year, price inflation of 2% and annual pay awards of 1% each year from 2015/16.

Provisional Settlement 2015/16

 

32.      The Council's provisional settlement was announced by WG on 8th October 2014.

33.      WG has advised the Council that its provisional SSA (Standard Spending Assessment) for 2015/16 is £212.270m.  SSA 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.

34.      The Council will receive from WG Revenue Support Grant of £115.982m and a share of the Non Domestic Rates (NDR) of £36.525m.  Together these figures constitute the Council’s provisional Aggregate External Finance (AEF) of £152.507m. WG reports that this represents a cash reduction of 3.4% (£5.4m) for 2015/16. However, when taking into account an additional burden for the Local Government Borrowing Initiative for 21st Century Schools, this actually represents a cash reduction of 3.5%. This is a smaller reduction than the 4.5% projected in the MTFP and has been taken into account as part of the initial budget proposals for 2015/16.

2015/16 Initial Budget Proposals

35.      As a result of the anticipated reduction in future years settlements, the MTFP identified additional savings to those originally approved for 2015/16 as part of the 2014/15 budget setting process.  It has 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 MTFP included a list of cost pressures, which had expectations of services managing down part or all of the pressures, however an updated full list of cost pressures for this Committee is shown in Appendix 2.  These are not shown in any order of priority.

36.      When approving the Budget Strategy for 2015/16, Directors were asked to review savings already approved, with a view to implementing them ahead of the target date and to consider areas for further savings.  This message was reinforced by Cabinet when approving the MTFP.  Details of the proposed areas for savings for 2015/16 to 2017/18 for this Committee are attached at Appendix 3.  The savings do not include the cost of any potential redundancies.

37.      A summary of the overall base budget for 2015/16 for this Committee is attached at Appendix 4. This has been arrived at by adjusting the 2014/15 budget for items such as inflation and unavoidable growth, but does not include identified cost pressures or savings.  These are shown as a note to the table and are further detailed in Appendix 2 and 3 respectively.   Adjustments shown include the following:

38.      Asset Rents, International Accounting Standard (IAS) 19 - 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.

39.      Recharges/Transfers - Relates to changes in inter-service and inter Directorate recharges.  Included are transfers of functions and responsibilities between Directorates as detailed below:

Environment and Visible Services

- £124k from Public Protection in respect of Emergency Planning.

Planning and Transportation

- £36k from Corporate and Customer Services in respect of the Authority's  Publications and Media Officer

Leisure

- £52k from Corporate and Customer Services in respect of the Arts Development section

40.      Budget Adjustment - This relates to the reversal of one off funding previously provided to services.

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

42.      Once the base budget for 2015/16 has been established, it must then be compared to the funding available to identify the extent of any shortfall.  With a provisional AEF of £152.507m and Council Tax at a current level of £56.690m, total available funding would be £209.197m.  When compared to a base budget of £216.958m, this would result in a funding deficit for 2015/16 of £7.761m.  This deficit is mainly attributable to a reduction in funding from WG, an increase in pay and price inflation and the requirement to fund committed growth.

43.      If all identified cost pressures were funded, this would increase the shortfall to £13.438m.  If all proposed savings were achieved, the shortfall would be reduced to £4.581m as shown in the table below.

Projected Budget Shortfall 2015/16

 

 

£000

Funding Available

 

Provisional AEF

152,507

Council Tax

56,690

Provisional Funding Available

209,197

 

 

Base Budget

216,958

 

 

Provisional Shortfall Against Base Budget

7,761

 

 

Assume all Cost Pressures Funded

5,677

 

 

Provisional Shortfall with Cost Pressures funded

13,438

 

 

Assume all Savings Achieved

(8,857)

 

 

Provisional Projected Shortfall for 2015/16

(4,581)

 

44.      This shortfall is already based on the requirement to achieve a high level of savings in 2015/16. 

45.      The above projections include an assumed pay award of 1% for 2015/16.  The implications of the proposed pay award have not yet been assessed and will be included in the Final Budget Proposals report.

46.      Further work will be undertaken by the Budget Working Group (BWG) in order to achieve a balanced budget for the final budget proposals for 2015/16.  This will 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.  The BWG will also consider the results of the budget engagement process in determining priorities for future savings and service delivery.

47.      There will be difficulties in maintaining the quality and quantity of services in the future without exploring opportunities for collaboration and alternative forms of service delivery.  The Council has already commenced a programme of reshaping and transforming services, as approved by on Cabinet on 11th August 2014.

 

Next Steps

 

48.      The next stage is for the estimates to be submitted to Scrutiny Committees for consultation.  Committees are asked to review the level of cost pressures with a view to suggesting ways in which these could be managed downwards and/or mitigated.  Scrutiny Committee (Corporate Resources) is the lead Scrutiny Committee and will consider both the Initial Revenue Budget Proposals and any recommendations that other Scrutiny Committees have made. The responses of Scrutiny Committee must be made no later than the 16th December 2014.

49.      The BWG will hold a series of meetings in November 2014 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 23rd February 2015.  Before making its recommendation, the BWG will consider the comments made by Scrutiny, together with the results of consultation.  The final proposals to Cabinet will include a review of the financial strategies required to achieve a balanced budget, which is sustainable in future years.

50.      Cabinet’s final budget proposals will be considered by Council at a meeting to be held on 4th March 2015.

51.      The timetable for the 2015/16 Budget Process is shown below.

Timetable for 2015/16 Budget Process

To be completed no later than

Cabinet considers the initial budget proposals

 

17th November 2014

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

16th December 2014

Cabinet make its final proposals on the budget

 

23rd February 2015

Meeting of Council to consider budget and council tax resolution

 

4th March 2015

 

Resource Implications (Financial and Employment)

52.      Based on the assumption that all cost pressures will be funded in full, the estimated funding shortfall for 2015/16 will be £4.581m.

53.      WG has not provided any specific details regarding the level of funding post 2015/16, however, it is anticipated that there will be further reductions in funding for Local Government going forward.  It is therefore important that Directors achieve approved savings and look to mitigate further cost pressures through alternative means of service delivery and collaborative ventures.

54.      Reserves are 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.

55.      The General Fund Reserve as at 31st March 2015 is projected to stand at £11.46m.  As detailed in the latest MTPF and as approved by Council on 29th September 2014, the 2015/16 base budget includes the use of £2.5m from the General Fund Reserve and there will be a further use of £1.5m in 2016/17.  The Section 151 Officer currently believes that the minimum balance on the General Fund Reserve should be no less than £7m.  This is considered sufficient to cover unforeseen expenditure whilst, in the short term, maintaining a working balance. Unforeseen expenditure can be substantial and several instances can occur in a year. Whilst there is no set requirement for the minimum level for the General Reserve, some commentators use 5% of the net budget as a guide. For the Vale this is about £10.7m. However, in view of the prudent approach the Council takes with regard to specific reserves, £7m is considered a reasonable minimum.

56.      As part of the usual Budget process, an examination of the level of reserves is undertaken to ascertain their adequacy and strategy for use.  A view to their level (i.e. whether the amount held in the fund is sufficient to requirements) and purpose (i.e. whether the need to hold the fund is still relevant) has been taken.  The requirement for each specific reserve has also been considered in light of the Council's priorities.  Appendix 5 sets out the Committee’s actual reserves as at 31st March 2014 and shows the estimated reserves balance for each year up to 31st March 2018.  The use of all reserves will be reviewed further, by the BWG, as part of the final budget setting process.

57.      Not all the identified savings relate to staffing, however, the impact on staffing levels  of all the Council wide savings, could be a potential reduction of up to 150 Full Time Equivalents (FTE).   Further staff reductions of over 350 FTEs may be required to achieve the savings yet to be identified.  The trade unions will be consulted on the details of any possible redundancies once known.  This figure does not include the staffing implications relating to budget pressures within schools, as details need to be considered by individual governing bodies.

Sustainability and Climate Change Implications

58.      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)

59.      The Council is required under statute to fix its Council Tax by 11th March 2015 and in order to do so will have to agree a balanced revenue budget by the same date.

Crime and Disorder Implications

60.      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)

61.      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

62.      Contributes to the corporate priority of Community Leadership by the provision of sound financial management.

Policy Framework and Budget

63.      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 2015/16 budget will require the approval of full Council.

Consultation (including Ward Member Consultation)

64.      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

65.      The lead Scrutiny Committee is Corporate Resources.

Background Papers

Medium Term Financial Plan 2014/15 to 2017/18

Budget Strategy 2015/16

 

Contact Officer

Carolyn Michael, Operational Manager - Accountancy

 

Officers Consulted

The Corporate Management Team has been consulted on this report

 

Responsible Officer:

Rob Thomas

Miles Punter

 

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