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Agenda Item No 5

 

The Vale of Glamorgan Council

 

Scrutiny Committee (Social Care and Health): 30th November 2015

 

Report of the Director of Social Services

 

Initial Revenue Budget Proposals 2016/17

 

Purpose of the Report

  1. To submit for consultation the initial budget proposals for 2016/17 and to inform Scrutiny Committee of the amended original budget for 2015/16 for services which form part of this Committee's remit.

Recommendations

It is recommended that:

  1. The amended revenue budget for 2015/16 as set out in Appendix 1 be noted.
  2. The initial revenue budget proposals for 2016/17 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 2015/16 budget.
  2. In order that Cabinet be informed of the recommendations of Scrutiny Committees before making a final proposal on the budget.

Background

  1. The Council's budget is determined largely by the Revenue Support Grant (RSG) settlement set by the Welsh Government (WG). In previous years, the provisional RSG settlement was received from WG during October, with the final settlement being received during December. This year, however, the initial budget proposals have not yet been received.
  2. A statement on the timing of the Welsh Government's Budget for 2016/17 was released by the Minister for Finance and Government Business on 6th October 2015. It stated that the late timing of the UK Government's Spending Review presented WG with significant challenges for the preparation and publication of the Draft Budget 2016/17. WG will not know their Budget for 2016/17 until 25th November 2015. WG is facing unprecedented levels of uncertainty and consequently will not publish the Draft Budget for 2016/17 until 8th December 2015 and the Final Budget on 1st March 2016.
  3. A joint letter dated 26th October 2015 has been received from the Minister for Public Services and the Leader of the Welsh Local Government Association, outlining the outcome of their joint discussions regarding the timing of the release of the settlement. They provide a timetable which shows that local authorities will be advised of the Provisional Settlement on 9th December 2015 and of the Final Settlement on 2nd March 2016, however, the Final Budget will be debated by WG on 9th March 2016. They consider that the proposed timetable does not result in any legal or financial impediment to the budget process, however, they acknowledge that the timetable does present challenges.
  4. The Council is required under statute to fix the level of council tax for 2016/17 by 11th March 2016 and in order to do so, will have to agree a balanced revenue budget by the same date.
  5. Even with this lack of clarity on the funding position for 2016/17 and these unprecedented circumstances, in order 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 will need to be carried out before the initial and final RSG settlement is notified to the Council.

Revised Budget 2015/16

  1. Appendix 1 to this report sets out the Amended Budget for 2015/16, together with the necessary adjustments to be made to the original budget.
  2. Asset Rents, International Accounting Standard (IAS) 19, Transfers and Recharges - These adjustments have no overall effect on the net budget of the Council. 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.
  3. The following table compares the amended budget with the projected outturn for 2015/16.
 

        2015/16

2015/16

Variance

 

Amended

Projected

 (+)Favourable

Directorate/Service

Budget

Outturn

 (-) Adverse

 

           £'000

£'000

     £'000

     

                           

Social Services

     

Children and Young People

14,540

14,090

     +450

Adult Services

37,579

38,329

       -750

Business Management and Innovation

304

304

                            0

       

Total

52,423

52,723

-300

       
  1. The projected outturn for the Social Services Directorate is an adverse variance of £300k when compared to the amended budget. 
  2. Children and Young People's Services - This service is anticipated to outturn £450k under budget at year end. The key issue for this service continues to be managing the demand for the Joint Budget for Residential Placements for Looked After Children, however, currently it is forecast to outturn with a £250k underspend at year end. Work has been ongoing to ensure that children are placed in the most appropriate and cost effective placements, however, it should be noted that due to the potential high cost of each placement, the outturn position could fluctuate with a change in the number of looked after children. There are potential underspends elsewhere in Children's Services of £65k on staffing budgets and £135k on alternative means of provision and accommodation costs required for the current cohort of children.
  3. Adult Services -This service is currently anticipated to outturn £750k over budget at year end. This is due to a projected overspend on Community Care Packages of £950k as a result of increased demand for services, particularly for frail older clients. There is continued pressure on this area of the service to manage demand, not only to avoid a further increase in the overspend, but also to reduce the overspend. Whilst every effort will be made to improve this position, it cannot be guaranteed that this position will not deteriorate further by year end as this budget is extremely volatile and there is a continued increase in demand for services. The annual deferred income budget for 2015/16 has been set at £739k and as at 30th September 2015 income received to date was £74k under-recovered. It is currently being projected that this budget will outturn at £50k over budget by year-end and this adverse variance is included as part of the projected overspend for care packages. It is anticipated that there will be underspends of £200k elsewhere in the budget which can offset part of this overspend with £165k from staffing, £20k from Transport and £15k from premises.

Savings 2015/16

  1. Attached at Appendix 2 to this report is a statement showing the progress made to date against the 2015/16 savings targets. It is currently considered that all savings will be achieved. Care package savings have been allocated to Learning Disabilities and Mental Health services. Savings in these areas have been made, however, demand for services for frail older clients has created additional pressures and are resulting in an overspend against this budget.
  2. In light of the level of savings to be found in future years, it is imperative that approved savings are achieved in the required year.

Budget Strategy

  1. Cabinet approved the Budget Strategy on the 27th July 2015 min no. C2865.
  2. The Budget Strategy for 2016/17 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 Head of Finance.
  3. 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 2015/16 final budget proposals and Directors are asked to continue to progress the Reshaping Services Programme.

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

  1. Having regard to the above, it was therefore proposed in respect of the 2016/17 Budget Strategy, that Directors be instructed to prepare initial revenue budgets for 2016/17, in accordance with a timetable agreed by the Head of Finance. 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 2015/16 final revenue budget report.

- Budgets to be broken down subjectively and objectively in as much detail as deemed appropriate by the Head of Finance.

- Budget reports to include revised estimates for 2015/16.

- 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 2015/16 Final Revenue Budget report. Any savings made directly by services over and above individual service targets to count towards future saving targets or to meet unavoidable service cost pressures.

- 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

  1. The Medium Term Financial Plan (MTFP) 2015/16 to 2018/19 is to be presented to Cabinet on 14th December 2015, to coincide with the presentation of the Draft Corporate Plan.
  2. The 2015/16 Final Revenue Budget Proposals set savings targets between 2016/17 and 2017/18 of £17.822m for the authority as a whole, excluding schools. This was based on the anticipated reduction in funding from WG of 4% in 2016/17 and a further 2% in 2017/18, which was in line with the assumptions made in the latest MTFP.
  3. The latest Plan factored in a managed level of cost pressures, a notional increase in council tax of 2% each year, price inflation of 1% and annual pay awards of 1% each year from 2016/17.

Provisional Settlement 2016/17

  1. The Council has not yet received the provisional settlement from WG. This will not be published by WG until 9th December 2015. The Council is unable to wait until this date to commence its budget preparation for 2016/17 and therefore this report has been based on the projections previously used as part of the Medium Term Financial Plan 2014/15 to 2017/18.
  2. Based on the projection of a 4% reduction in funding from the WG in real terms, the Council is projected to receive £111.537m from WG as RSG and a share of the Non- Domestic Rates (NDR) of £34.845m. Together these figures constitute the Council's projected Aggregate External Finance (AEF) of £146.382m. It should be noted that a 1% change in AEF equates to around £1.5m.
  3. At this stage, no transfers in or out of the RSG have been assumed.

2016/17 Initial Budget Proposals

  1. As part of these initial proposals, it has 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 and an updated list for this Committee is shown in Appendix 3. These are not shown in any order of priority. A new cost pressure has been included for the introduction of the National Living Wage from 1st April 2016, which will provide for a minimum hourly rate of £7.20 for workers aged 25 and above. There will be further pressure in future years when it continues to increase to at least £9.00 per hour by 2020. This change has a significant effect on services Social Services commissions from external organisations.
  2. Details of the proposed areas for savings for 2016/17 to 2017/18 for this Committee are attached at Appendix 4. The savings do not include the cost of any potential redundancies. As part of the Budget Strategy 2016/17 Directors were requested to continue to progress the Reshaping Services Programme.
  3. A summary of the overall base budget for 2016/17 for this Committee is attached at Appendix 5. This has been arrived at by adjusting the 2015/16 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 3 and 4 respectively. Adjustments shown include the following:
  4. Asset Rents, International Accounting Standard (IAS) 19 - Relates 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.
  5. Recharges/Transfers - Relates to changes in inter-service and inter Directorate recharges.
  6. Budget Adjustment - This relates to the £1.105m reduction in the use of the Social Services Fund in 2016/17.
  7. Inflation - The total figure for inflation relates to general price increases and a 1% allowance for pay awards.
  8. Committed Growth - This sum relates to the increase in employers national insurance.
  9. Once the base budget for 2016/17 for the authority as a whole has been established, it must then be compared to the funding available to identify the extent of any shortfall. With a projected AEF of £146.382m and Council Tax at a current level of £59.874m, total available funding would be £206.256m. When compared to a base budget of £217.030m, this would result in a funding deficit for 2016/17 of £10.774m. This deficit is mainly attributable to a reduction in funding from WG and an increase in pay and price inflation.
  10. If all identified cost pressures were funded, this would increase the shortfall to £18.601m. If all proposed savings were achieved, the shortfall would be reduced to £6.431m as shown in the table below.

Projected Budget Shortfall 2016/17

 
 

£000

Funding Available

 

Projected AEF (Assumes 4% reduction)

146,382

Council Tax (Assumes no increase) *

59,874

Projected Funding Available

206,256

   

Base Budget

217,030

   

Projected Shortfall Against Base Budget

10,774

   

Assume all Cost Pressures Funded

7,827

   

Projected Shortfall with Cost Pressures funded

18,601

   

Assume all Savings Achieved

(12,170)

   

Projected Shortfall for 2016/17

6,431

   

 

* This assumes no increase in Council Tax at this stage.

  1. This shortfall is already based on the requirement to achieve a high level of savings in 2016/17.
  2. The above projections include an assumed pay award of 1% for 2016/17 and the impact of the National Living Wage. It also includes the increase in employers National Insurance which takes effect from April 2016. If any further changes are agreed to pay conditions, they will be assessed as part of the Final Budget Proposals report.
  3. Further work will be undertaken by the Budget Working Group (BWG) in order to achieve a balanced budget for the final budget proposals for 2016/17. This will include a review of the use of reserves, a possible increase in council tax, a review of all cost pressures, possible changes to the approved saving targets, a review of the inflation assumptions 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 and the impact of the revised Corporate Plan.
  4. 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

  1. 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 15th December 2015.
  2. The BWG will hold a series of meetings in November 2015 with the relevant Cabinet Members and officers to consider the budget proposals and they will submit their recommendations so that the Cabinet may make its final budget proposal. 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. Currently, the approved timetable requires Cabinet to approve the final budget proposals by no later than the 22nd February 2016 and that Cabinet's final budget proposals will be considered by Council at a meeting to be held on 2nd March 2016.
  3. As the Final Settlement will not be received from WG until 2nd March 2016, this timetable is now under review and will have to be revised based on achieving the deadline for setting Council Tax on 11th March 2016.

Resource Implications (Financial and Employment)

  1. Based on the assumptions that all cost pressures will be funded in full and that all savings will be achieved, the estimated funding shortfall for 2016/17 for the authority as a whole will be £6.431m.
  2. WG is not intending to issue details regarding the level of funding post 2016/17, 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.
  3. 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.
  4. The Council Fund Reserve as at 31st March 2016 is projected to stand at £10.041m. As agreed by Cabinet as part of the Final Revenue Budget Proposals 2015/16, the 2016/17 base budget includes the use of £1.5m from the Council Fund Reserve in 2016/17. The Section 151 Officer currently believes that the minimum balance on the Council 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 Council Fund Reserve, some commentators use 5% of the net budget as a guide. For the Vale this is about £10.8m. However, in view of the prudent approach the Council takes with regard to specific reserves, £7m is considered a reasonable minimum.
  5. 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. No transfers between reserves are proposed at present. Appendix 6 sets out this Committee's actual reserves as at 31st March 2015 and shows the estimated reserves balance for each year up to 31st March 2019. The use of all reserves will be reviewed further, by the BWG, as part of the final budget setting process.
  6. Not all the identified savings relate to staffing. Although the impact on individuals is likely to be mitigated as a result of natural wastage and the deletion of vacant posts, it is, nevertheless, expected that there could be a number of redundancies. The trade unions will be consulted on the details of any possible redundancies once known.

Sustainability and Climate Change Implications

  1. 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)

  1. The Council is required under statute to fix its council tax by 11th March 2016 and in order to do so will have to agree a balanced revenue budget by the same date.

Crime and Disorder Implications

  1. The obligations of the Council with regard to Section 17 of the Crime and Disorder Act 1998 needs to be fully considered in the budget decision making process.

Equal Opportunities Implications (to include Welsh Language issues)

  1. 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 individuals who have a range of protected characteristics under the Act.

Corporate/Service Objectives

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

Policy Framework and Budget

  1. 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 2016/17 budget will require the approval of full Council.

Consultation (including Ward Member Consultation)

  1. 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

  1. The lead Scrutiny Committee is Corporate Resources.

Background Papers

Medium Term Financial Plan 2014/15 to 2017/18

Budget Strategy 2016/17

Contact Officer

Carolyn Michael

Operational Manager - Accountancy

Officers Consulted

Corporate Management Team

Responsible Officer:

Phil Evans, Director of Social Services

 

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