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Agenda Item No

 

The Vale of Glamorgan Council

 

Scrutiny Committee (Housing and Public Protection): 4th December 2013

 

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

 

Initial Revenue Budget Proposals 2014/15

 

Purpose of the Report

1.         To submit for consultation the initial budget proposals for 2014/15 and to inform Scrutiny Committee of the amended original budget for 2013/14 for services which form part of this Committee's remit.

Recommendations

It is recommended that:

 

1.         The amended budget for 2013/14 as set out in Appendix 1 be noted.

2.         The initial revenue budget proposals for 2014/15 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 2013/14 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 16th October 2013.  The final settlement is likely to be received in December 2013.

3.         The Council is required under statute to fix the level of Council Tax for 2014/15 by 11th March 2014 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 2013/14

 

4.         Appendix 1 to this report sets out the Amended Budget for 2013/14 for this Committee, together with the necessary adjustments to be made to the original estimate.  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. The overall impact on the Council is nil.

5.         The following table compares the amended original 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

 

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

7.         General Fund Housing - There is a projected year end favourable variance in the sum of £150k.  Employee costs are projected to be £50k underspent due to vacant posts and staff changes and expenditure on Emergency Temporary Accommodation is estimated to be £100k under budget.

8.         Public Protection - This service shows a balanced budget, however, there continues to be pressure on the Coroners Service in relation to mortuary fees.

9.         Housing Benefit/Council Tax Reduction - The year end projected position is a balanced budget. There is currently a favourable variance which is attributable to an underspend on the Council Tax Reduction Scheme of £200k, as the estimate allowed for an increase in claimants which has not occurred and an underspend of £100k on Housing Benefit subsidy receivable on recovered overpayments. This is a volatile budget and additional pressures could materialise in the remainder of the year which is why it is considered prudent to report a balanced budget at this stage. 

 

Budget Strategy

 

10.      Cabinet approved the Budget Strategy on the 29th July 2013 min no. C1427.

11.      The Budget Strategy for 2014/15 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.

12.      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 2013/14 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.

13.      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 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 2013/14.

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 2013/14 Final Revenue Budget report. Any savings made directly by services over and above individual service targets to count towards future 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 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.

Some of the consultation work carried out for the Community Strategy / Corporate Plan will assist in informing the budget decision-making process.  Scrutiny Committees may wish to refer to these consultations when considering the budget or conduct consultations of their own.

Medium Term Financial Plan 2014/15

 

14.      The Medium Term Financial Plan (MTFP) 2013/14 to 2016/17 was approved by Cabinet on the 7th October 2013 min no. C2042.

15.      The 2013/14 Final Revenue Budget Proposals set savings targets between 2014/15 and 2016/17 of £14.399m (excluding schools).  Even with these savings in place, the MTFP estimated a further revenue shortfall of £9.2m in 2014/15 and some £25.7m for the 3 year period 2014/15 to 2016/17.  This assumed that all cost pressures identified by services at that time were met and that the impact on schools was taken into account.

16.      The Plan was based on the anticipation of a substantial reduction in funding from WG and assumed a 4% decrease in cash terms per annum.  This was a significant reduction from the assumptions made as part of the 2013/14 budget setting process, which assumed a funding increase in cash terms of 0.7% in 2014/15 (as indicated by WG at that time) and no increase in 2015/16 and 2016/17.

17.      The Plan also factored in a notional increase in Council Tax of 2% each year, price inflation of 2% and annual pay awards of 1% per annum each year from 2014/15.

18.      It assumed that the minimum funding commitment for schools, equivalent to 1% above the WG’s block grant settlement, would only continue until 2014/15, which was the WG requirement at that time.

Provisional Settlement 2014/15

 

19.      The Council's provisional settlement was announced by WG on 16th October 2013.

20.      WG has advised the Council that it's provisional SSA (Standard Spending Assessment) for 2014/15 is £214.384m.  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.

21.      The Council will receive from WG Revenue Support Grant of £118.834m and a share of the Non- Domestic Rates (NDR) of £38.941m.  Together these figures constitute the Council’s provisional Aggregate External Finance (AEF) of £157.775m. WG reports that this represents a cash reduction of 4.5% (£7.4m) for 2014/15.  This is a larger reduction than the 4% projected in the MTFP.

22.      The Council will also receive a sum provisionally set at £1.236m via the Outcome Agreement Grant (OAG) for 2014/15. 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 as it depends on the extent to which the Council meets its obligations under the outcome agreement.

23.      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.

24.      It is the Council's contention that WG has not included all the required adjustments to make the AEF comparative between years and that there is an actual cash reduction to the Council of 4.9%.  As part of the consultation process on the provisional settlement, the Leader is 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%.

25.      WG has provided an indicative settlement figure for 2015/16 which shows a further cash reduction of 1.63% (£2.6m).  The MTFP was based on a cash reduction of 4%.   WG has 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 will, therefore, be reconsidered by the Budget Working Group (BWG) as part of the final budget proposals.

2014/15 Initial Budget Proposals

26.      As a result of the reduction in the provisional settlement, the Authority will now have to identify additional savings to those originally approved for 2014/15.  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 updated list of cost pressures for this Committee is shown in Appendix 2.  These are not shown in any order of priority.

27.      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.

28.      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 has 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 are attached at Appendix 3.  The savings do not include the cost of potential redundancies.

29.      A summary of the overall base budget for 2014/15 is attached at Appendix 4. This has been arrived at by adjusting the 2013/14 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:

30.      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.

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

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

33.      Committed Growth - It includes the transfers into RSG of £177k for Council Tax Reduction Scheme Administration Subsidy.

34.      Once the base budget for 2014/15 for the Council as a whole has 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 is mainly attributable to the reduction in funding from WG, an increase in pay and price inflation and the requirement to fund committed growth.

35.      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

 

36.      This level of shortfall is unprecedented.

37.      Further work will be undertaken by the BWG when formulating the final budget proposals for 2014/15, which 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, in order to achieve a balanced budget.  The BWG will also look at the impact on the 2015/16 budget.

38.      It will 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.

39.      The General Fund Reserve as at 31st March 2014 is projected to stand at £11.858m.  The 2014/15 base budget proposal includes 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 is also scheduled for 2015/16.  In light of the unprecedented funding shortfall, this strategy needs to be reviewed.  At this stage, it is proposed that a use of reserves to a maximum of £3.5m could be used in 2014/15.  The Section 151 Officer believes that the minimum balance on the General Fund Reserve should be no less than £7m.

40.      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. 

Next Steps

 

41.      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 comments that other Scrutiny Committees have made. The responses of Scrutiny Committee must be made no later than the 13th December 2013.

42.      The Cabinet Budget Working Group will hold a series of meetings in November 2013 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 24th February 2014.  Before making its recommendation, the Budget Working Group 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.

43.      Cabinet’s final budget proposals will be considered by Council at a meeting to be held on 5th March 2014.

Resource Implications (Financial and Employment)

44.      Based on the assumption that all cost pressures for the whole of the Council will be funded in full, the estimated funding shortfall for 2014/15 will be £15.838m.

45.      WG has indicated further reductions in funding for Local Government in 2015/16, with no indication received as yet for changes thereafter.  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.

46.      As reserves are a non-recurring means of funding, they can only be used as part of a specific financial strategy.  Each year the purpose, nature and level of earmarked reserves are reviewed and will again be reviewed as part of the 2014/15 Budget Process.  Appendix 5 sets out the estimated reserves for this Committee as at 31st March 2014.

47.      The impact on staffing levels of the identified savings for the whole of the Council could be a potential reduction of up to 76 Full Time Equivalents (FTE).   Not all of the identified savings relate to staffing.  However, if the remaining projected shortfall of £8.539m was met solely by staff reductions, based upon an average salary of £25k, this would equate to a further reduction of 342 FTEs.  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.

48.      The 2014/15 initial budget process is supported by Cost Centre Analyses (CCAs), which for this Committee is attached at Appendix 6 and which provides details for each service area including:

Comparisons of the 2011/12 outturn, 2012/13 budget and actual outturn, and 2013/14 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 cost centres within Service Areas.

Sustainability and Climate Change Implications

49.      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)

50.      The Council is required under statute to fix its Council Tax by 11th March 2014 and in order to do so will have to agree a balanced revenue budget by the same date.

Crime and Disorder Implications

51.      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)

52.      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

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

Policy Framework and Budget

54.      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 2014/15 budget will require the approval of Full Council

Consultation (including Ward Member Consultation)

55.      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.

56.      Externally, Vale Viewpoint, the Citizen's Panel for the Vale, will be consulted to ascertain what the public's priorities are in order to inform the budget process.  The Local Service Board, Town and Community Councils and Vale businesses will also be consulted.

Relevant Scrutiny Committee

57.      The lead Scrutiny Committee is Corporate Resources.

Background Papers

Medium Term Financial Plan 2013/14 to 2016/17

Budget Strategy 2014/15

 

Contact Officer

Carolyn Michael (Principal Accountant) (01446 709778)

 

Officers Consulted

The Corporate Management Team has been consulted on this report

 

Responsible Officer:

Rob Thomas

Miles Punter

 

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