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ITEM SH7

SOCIAL & HEALTH CARE SCRUTINY COMMITTEE – 11 DECEMBER 2002

REVENUE AND CAPITAL BUDGET 2003/04 AND MEDIUM TERM FINANCIAL PLAN 2004/05 TO 2007/08

Report by Director for Business Support & County Treasurer

1. This covering report sets out the position on the Revenue and Capital Budget 2003/04 and the Medium Term Financial Plan (MTFP) 2004/05 –2007/08 and summarises the information on which Scrutiny’s views are sought. The following annexes are attached;

• the starting point for the budget and the total amount of proposals for additions to the budget (annex 1),
• these proposals extended over the life of the Medium Term Financial Plan (annex 2), and
• all current grants and known liabilities, which are expected to be transferred into the general Revenue Support Grant (annex 3).
  
  Budget Process 2003/04 - 2007/08 - Summaries and Capital Options - (download as .xls file)
  Budget Process 2003/04 - 2007/08 - Bids pa (download as .xls file)
  Budget Process 2003/04 - 2007/08 - IT Bids (download as .xls file)
  Budget Process 2003/04 - 2007/08 - Analysis of Statutory and Non-Statutory Expenditure (download as .xls file)
  Budget Process 2003/04 - 2007/08 - Summareis and SSA Transfers (download as .xls file)
  

  2003/04 – 2007/08 Budget Process: Capital Options & Priorities Programme Area: Social & Health Care
  
  Information for Scrutiny (download as ppt.file)

2. The further supporting papers make up the booklet, which accompanies this report;

• a list of options and priorities for the budget for the whole Council (cross service) and for each programme area with supporting information,
• A summary of all ICT/E-Government related priorities which appear in the former list,
• the base budget for 2002/03 annotated into statutory and non – statutory and,
• the highest priority capital schemes in the preparation pools for each programme area.

3. The Executive on October 1 2002 endorsed the proposal to revise the starting point for the budget. The rationale for this was as follows; the MTFP envisages a reduction in the Council Tax increase to 7% in 2003/04, following an increase of 9.8% this financial year; that represents a budget requirement of £482.3m; budget pressures to spend beyond this planned figure are very substantial; and the Government is proposing changes to the grant arrangements that will probably result in substantially lower sums for Oxfordshire.

The Revised Base

4. The revised starting point for the MTFP is the base budget for 2002/3 to which the minimum of expenditure has been added which is considered to be unavoidable for the purposes of prudent financial management. The revised base is calculated as follows:

Budget 2002/03 Pay/price increases at 3% Local Government Pay award National Insurance increase Capital financing costs Insurance premiums/fund Use of reserves Savings Balances (at this stage) Base Budget

£m 451.2 14.1 1.7 1.8 3.3 0.9 -0.9 -3.4 3.0 471.7

Fund for Budget options and priorities

5. The Executive has proposed a fund of £14.1 million calculated as shown below which is assumed to be the amount available to allocate.

Budget for 7% Council Tax increase Add: Local Government pay award National Insurance increase Sub total Base Budget 2003/04 (as above) Fund for Budget Pressures

£m 482.3 1.7 1.8 485.8* 471.7 14.1 14.1

* The Council Tax increase this assumes is discussed later at paragraph 26.

The Executive’s Budget Strategy

6. The Executive’s Budget Strategy presented at their meeting of October 1 invites members to consider all spending pressures, including: demography, exceptional inflation; policy and budget plans; new service pressures; and new political priorities. This does not disqualify any particular items of expenditure, but is intended to help members to judge relative priorities and ‘put them back in control’ of spending decisions. In previous budgets these items appeared as allowed variations.

The Process

7. The Director(s) for the programme areas in conjunction with the relevant Executive member(s) were requested to come forward with a list of their options and priorities in ranked order. The process dictated that lower assessed priorities were discounted in order to make the exercise more focused around the programme areas highest ranked priorities. The specific criteria that the options and priorities were required to meet are set out below:

• Clear evidence of need
• Linkage to five Strategic Objectives
• Impact on Performance Indicators & CPA Score
• Whether government imposition is funded
• Alternative funding sources
• Compensating budget reductions
• Any taper of government contributions
• Linkage with capital programme

8. The list of options and priorities across all areas of the Council and for each programme area is listed in the supporting booklet Information for Scrutiny with the supporting information to demonstrate that the criteria set out above are met. The total amount at £27.7m is nearly double the estimated fund available. It will be necessary to give adequate consideration to the whole Council (cross service) and the programme areas in coming to decisions about spending priorities, since clearly the list far exceeds the funds available (£14.1m). Members are asked to consider the list of options and priorities, and in particular for their own areas, in order to make informed decisions about the whole Council’s budget requirement, and then how they would wish to see the £14.1m allocated. It would be prudent to have reached decisions about a considered reserve list which exceeds this, should the final figure available be higher. Members should be aware that equally the final figure could be lower.

Cross Service Priorities

9. The corporate or whole Council priorities cover; property (repair and maintenance of buildings and control of asbestos are the biggest areas), ICT/E-Government implementation and Job Evaluation. These areas relate to the whole Council and not specific programme areas. Ultimately, spending in these areas is reallocated across all programme areas.

ICT/E - Government

10. The total of all ICT/ E – Government related bids comes to £6.3m (see summary in booklet, page 44) allowing for service area ICT systems, the roll out of the new Management Information System (MIS), the implementation of Broadband and the E-Government agenda (including internal systems re-engineering and any expenditure on a contact centre. Given the complexities of arriving at a coherent ICT strategy for the Council, which prioritises ICT expenditure in line with this, then it is suggested that members indicate at this stage any ICT related priorities they would particularly favour. The newly appointed strategic head of ICT will be asked to provide a rationale for all ICT options and priorities put forward and to recommend these for funding as part of the overall ICT strategy. He will be asked to feedback to Executive after December 12 when he has agreed his strategy and recommendations with the County Council Management Team (CCMT). This will minimise the risks of continuing to allow programme areas to develop their own ICT strategies, which may conflict with the overall strategy.

Job Evaluation

11. The sums included for job evaluation are estimates given all the other factors that have come into play since the exercise was begun. These include the effects of the Local Government pay settlement, staged over 2 years, and the raising of the minimum wage level – and the possible future fall out from the restructuring (i.e. appointing Strategic Directors and Heads of Service). It is proposed that Job Evaluation be phased in from 2003/04.

Programme Areas

12. The programme areas have put forward bids that total some £21.4m, we will need to add to this the pressure emerging from the firefighters’ pay settlement. In order to help members make decisions about what should be added to the budget and what should be met from the re-prioritised base budget, then the base budget for each programme area, annotated between statutory and non-statutory, and contracted/non-contracted is provided in the booklet (page 51).
13. The major issues outstanding for Learning and Culture concern the awaited funding changes to establish a schools and non-schools block, and the expected transfers to SSA (see annex 3). There will be a risk for all these areas, that we receive less in SSA than we were currently receiving in grant. For the teachers’ pension increase similarly there could be a shortfall in what we receive compared to our costs. These issues will be revisited when we receive our settlement.
14. In focusing on highest priorities, nothing is included in Environment, Roads and Transport for the Highway Maintenance backlog, the Decriminalised Parking Project which was a recommendation of the Environment Scrutiny Review on Parking on Bus Routes, and the Waste Management Joint Strategy which is the subject of a bid for funding to DEFRA. The Director is pursuing how these issues might be tackled by other means.
15. In rebasing the budget, the policy and budget plans in the MTFP were withdrawn, allowing the Directors and relevant Executive member(s) to re-evaluate these. This has meant that the programme areas have also benefited where a policy and budget plan would have fallen out of the budget in the MTFP. This is most notable for Social and Health Care who benefit by around £5.8m.Of this £5.0m was one off funding provided for the projected 2001/02 overspend. The £5.8m credit helps to reduce the pressure on the Social and Health Care budget, and could cover their current projected overspend of around £3m this year.

Links to the Oxfordshire Plan

16. All listed items are annotated to show their links to the Oxfordshire Plan. Whilst some of these are sustaining current levels of service , there are others, which may be new initiatives, contained within the plan.

Public Service Agreement (PSA)

17. The negotiations on the PSA are now well progressed with the Office of the Deputy Prime Minister, and are all but finalised for 10 out of the 12 targets. The PSA, once signed off will attract pump-priming grant (PPG) of £1.4m. Members will need to decide where they wish to allocate additional funds to achieving the targets beyond the PPG initial allocations, whether these should be the first call against any Performance Reward Grant (PRG) received at the end of the period in 2006/07 and 2007/08, which could be as much as £12.9m with £6.7m promised to schools and the districts at this stage.

Efficiencies

18. The Directors were requested by Executive in their Budget Strategy produced for 2002/03 and the MTFP to find efficiencies, which could be cash releasing, service enhancing or performance improving and report back initially in the summer 2002. Subsequently CCMT agreed to find savings for the 2003/04 budget, which would help to create headroom in the budget up to a target of £5m in 2003/04. Initially £3.4m was identified by Directors as savings. Some £1.3m mostly in Learning and Culture is being revisited due to the revised approach to passporting. There are further efficiency targets of £5m per year from 2004/05 as required by the Financial Strategy adopted by the Executive formally on October 1 2002. These have yet to be considered by Directors but would reduce the pressure on the budget in future years.

Strategic Overview

19. Members are reminded that a number of strategic measures have been employed in supporting the budget in previous years. The end results of employing these falls in subsequent years. In 2002/03 mainly and earlier years the budget requirement has been reduced by the use of reserves. The MTFP includes provision of £1.4m in 2003/04 and £1.5m in 2004/05 and 2005/06 for the repayment of those reserves. The budget in 2003/04 assumes a one- off use of the surplus on the Insurance Fund. This is currently assessed as £2.1m.
20. There are a number of outstanding issues under review, which may still have an impact on the final fund to be allocated. In particular, the position on general balances will need to be revisited in the light of both known pressures and the latest risk assessment. Work is on going to assess all potential liabilities, which might affect this, for example; the actuarial review of the Insurance Fund. For this reason, it is important to emphasise that the budget exercise cannot be finalised at this early stage.
21. In addition, the final settlement for RSG, the capital settlement, the transfers of earmarked grants into the formula funding (these are listed at annex 3), and the issues around passporting for Learning and Culture and Social and Health Care means that there are significant issues outstanding which will influence the final outcome. That said, the process is well progressed against the timetable for previous years.

Capital Priorities

22. The capital programme in 2002/03 is some £107m. The Capital Strategy for Oxfordshire was submitted to GOSE in July this year. This set out an ambitious agenda for change in allocating capital resources in a corporate and cross cutting context and against the priorities of the Oxfordshire Plan. We have just had news that our rating remains satisfactory and has not yet achieved a good rating. This indicates that we must continue to re-appraise the way we allocate capital in order to gain the rewards of a good rating. All approved schemes in the future are to be subject to a rigorous option appraisal. A further report on implementing the capital strategy will go to Executive in January 2003.
23. The Director(s) in conjunction with the Executive member(s) have revisited and re-evaluated where appropriate the capital schemes in the preparation pool. The programme areas currently have schemes within their preparation pools, which come to £7.1m for 2003/04, £13.9m for 2004/05 and £10.3m in 2005/06 excluding the Local Transport Plan (LTP). This rises to £23.1m, £30.2m, and £27.4m once the LTP is added in.
24. Members are asked to agree in principle the priorities in the pool, alongside their decisions on revenue spending priorities. There are a number of capital schemes appearing which may be priorities for the Council but have so far no identifiable means of financing. Once the capital allocation is announced then the capital strategy is the means by which the Council will seek to address some of these priorities. This means looking at revenue and capital as a whole and the possibilities offered by the Private Finance Initiative, public and private partnership, unsupported borrowing via the prudential guidelines and other options.

Medium Term

25. The current published MTFP will need to be revised in light of the budget decisions taken and will take account of the implications for forward years. There are important outstanding issues after 2003/04 around repayment of reserves (see paragraph 19), the effects of the externalisation of Homes for Older People, the pension revaluation and the advent of prudential guidelines and costs of any Private Finance Initiative we undertake.

Potential Council Tax Increase

26. The Executive have indicated the parameters for their likely Council Tax increase as:
    

This is the estimated percentage increase, which a budget requirement of £485.8m represents.

27. The 8% assumed as a result of the Government change to the methodology for formula distribution was based on the information provided as part of the consultation process. Of the 40 possible different outcomes, it was calculated that at worst we could lose £43m of RSG, and at the other end of the spectrum gain £18m. The most probable outcome is a loss in formula funding which could be substantial. The current working assumption is that we could lose grant of £14m equivalent to around 8 percentage points on our Council Tax in 2003/04.
28. Executive will be kept informed, via the Society of County Treasurers, how the budget requirements and proposed Council Tax increases for other County Councils are progressing, for comparative purposes.

Next Steps

29. This covering report is primarily concerned with the proposals for additions to the budget. Members are reminded that a full Budget report for 2003/04 and MTFP for 2004/05 to 2007/08 will be presented to Executive on January 21. This report will be available to the Corporate Scrutiny Committee at its meeting on January 10. The Director for Business Support and County Treasurer will publish separately a commentary on the Local Government finance settlement and the announcement on the Annual Capital Guidelines expected in early December. No firm date has been issued.
30. Each of the Scrutiny Committees is invited to offer its comments on the budget proposals at their December Meeting. An informal meeting of the Executive will consider the initial feedback at an awayday scheduled for December 17. Corporate Governance Scrutiny will give Executive the overall comments and views expressed by Scrutiny on January 10 2003. The Executive will also take account of the views of the public in a community consultation workshop on January 11 and from a survey of the citizens’ panel carried out in December 2002. Executive will propose their budget at the meeting of January 21 to be debated and adopted at Council on February 4 2003.

RECOMMENDATION

31. Scrutiny is RECOMMENDED to;

1. note and offer comments on the revised base for the budget;
2. scrutinise the options and priorities put forward for all areas of the Council, and in particular for their own area;
3. recommend how the fund of £14.1m should be allocated, and an amount in excess of this as a reserve list;
4. note and offer comments on the prioritised capital schemes in the preparation pools for the programme areas.