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Agenda Item No. 6

 

The Vale of Glamorgan Council

 

Scrutiny Committee (Social Care and Health): 1st December 2014

 

Report of the Director of Social Services

 

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 Corporate Resources Scrutiny Committee 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 :-

- £336k from Children and Young People to Education, in respect of the transfer of responsibility for the Children and Young People's Partnership.

- £19k to Children and Young People from Education, as an additional contribution towards the jointly funded Residential Placements budget for looked after children.

 

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

 

 

 

                          

Children and Young People

14,240

13,940

                           +300

Adult Services

36,512

37,312

                           -800

Business Management and Innovation

301

301

                                0

 

 

 

 

Total

51,053

51,553

-500

 

7.         The projected out turn for the Social Services Directorate is an overspend of £500k when compared to the amended original budget. 

8.         Children and Young People's Services - The service is currently anticipated to outturn £300k under budget at year end.  The major issue affecting this service is the need to manage continued pressure on the children’s placements budget.  Currently, however, the budget for the jointly funded Residential Placements for Looked After Children is projected to outturn within budget.  There are potential underspends elsewhere in Children's Services relating to team budgets of £52k, £54k relating to administrative staff, £50k on legal expenses, £60k due to additional adoption income and £84k on alternative means of provision and accommodation costs required for the current cohort of children. 

9.         Adult Services - The service is currently anticipated to outturn £800k over budget at year end.  The major issue is the continuing pressure on Community Care Packages, the Division's most volatile budget and the one most dependent upon levels of service demand which are not entirely within the Council's direct control.  At present, the projected year end position is an overspend of £1m as a result of increased demand for services, particularly for frail older clients.  The service will strive to manage demand, not only to avoid a further increase in the overspend, but also to reduce the overspend.  Actions still need to be taken to review all processes and to address this shortfall.   The annual deferred income budget for 2014/15 has been set at £725k and at 31st October 2014 income received to date was on target.  The year end projection is still set at a £100k underrecovery as house sales slow over the winter months.  This position is included as part of the projected overspend on the Community Care packages budget.  There are potential underspends elsewhere in Adults Services of around £200k which could be used to offset this position.  These areas are £114k on staffing, £19k on transport, £38k on premises and £29k on supplies and services.  With the levels of savings required for 2015/16, budgets are being re-examined during 2014/15 with a view to their possible realignment being earlier than planned. 

 

Budget Strategy

 

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

11.      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.

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 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.

 

13.      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

 

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

15.      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.

16.      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

 

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

18.      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.

19.      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.

20.      There were transfers into the RSG settlement for 2015/16 for this Committee as follows:

   - Integrated Family Support Service - £280k

   - Autistic Spectrum Disorder - £40k

21.      In addition transfers out of the settlement for this Committee were as follows :

   - National Adoption Service - £10k

 

2015/16 Initial Budget Proposals

22.      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.

23.      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.

24.      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:

25.      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.

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

   - £336k from Children and Young People to Education, in respect of the transfer of responsibility for the Children and Young People's Partnership.

   - £19k to Children and Young People from Education, as an additional contribution towards the jointly funded Residential Placements budget for looked after children.

27.      Budget Adjustment - This relates to the £124k reduction in the use of the Social Services Fund in 2015/16.

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

29.      Committed Growth - Relates to the net transfers into the RSG as previously detailed.

30.      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.

31.      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)

 

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

33.      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.

34.      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.

35.      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

 

36.      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.  Corporate Resources Scrutiny Committee 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.

37.      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.

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

39.      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)

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

41.      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.

42.      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.

43.      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.

44.      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 and it has been deemed necessary to move funding from lower priority areas to higher priority areas.  As a result, it has been proposed that some specific reserves are unearmarked and transferred to the Schools Investment Strategy Reserve to allow for the continued investment in school buildings and their development.  Appendix 5 sets out 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.

45.      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

46.      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)

47.      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

48.      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)

49.      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

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

Policy Framework and Budget

51.      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)

52.      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

53.      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:

Phil Evans, Director of Social Services

 

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