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ITEM CC8

COUNTY COUNCIL – 10 FEBRUARY 2004

REVENUE BUDGET AND CAPITAL PROGRAMME

Report of the Executive

1. This report presents the Executive’s proposals for a Revenue Budget, Medium Term Financial Plan and Capital Programme for the Council’s consideration. It is the culmination of the series of "badged" reports which have been provided to all members to file in their green budget binders. Reference will be made in this report to previous badged reports and members are asked to refer to their copies.
2. The report is in three parts, dealing separately with revenue and capital and concluding with detailed recommendations. These include the required detailed calculations of the budget requirement and precept and indicators for the purpose of the new "prudential guidelines" system of capital financing which will come into effect from 1 April 2004. Detailed technical background is contained in the reports by the Head of Finance to the Executive on 14 January 2004 (EX5D – badged report A9) and 27 January (EX7 – badged report A11). The Head of Finance is also carrying out a technical appraisal and risk assessment of the Executive’s budget proposals and also of those subsequently published by the Opposition and will report as necessary to the Council.

REVENUE

3. The Executive has been working on the Revenue Budget with the County Council Management Team since the 2003/04 budget was set in February 2003. Over that time, specific areas have been examined in pursuit of efficiency savings, identifying savings of £2 million against a target of £3 million. In addition, a series of short reviews has been carried out to examine base budgets across the Council. The Executive intends to continue and intensify this process in 2004/05 because later years contain target efficiency savings of £5 million per annum which must be delivered if there is to be headroom in the budget for ongoing pressures and new initiatives.
4. The Budget for 2004/05 which the Executive is now recommending the County Council to set is attached, together with a proposed Medium Term Financial Plan (MTFP) 2004/05 to 2008/09. The documents submitted for the Council’s approval comprise: Summary Headline MTFP (Annex 1) (download as .xls file); Proposed MTFP 2004/05 to 2008/09 (Annex 2) (download as .xls file); and Proposed Budget Allocations and Expenditure Proposals . This is followed by a note of the Council Tax and Precept calculations (Annex 4) (download as .rtf file) which the Council are required to make on the basis of the finally agreed (Annex 3) (download as .xls file) budget; the existing agreed virement arrangements (Annex 5) which are recommended to be retained for a further year; a schedule of comments received from Scrutiny Committees and the Executive’s response to the points made (Annex 6) (download as .rtf file); and a summary of the outcome of the recent Budget Workshop (Annex 7) (download as .rtf file).
5. Because of the timing of the Government’s announcement of the final Local Government Expenditure Settlement the Executive was obliged to formulate its budget proposals in advance of the announcement. The final settlement was announced on 29 January. The effect on Oxfordshire was to reduce our formula grant by £0.252m because of an increase in the assumed income from Council Tax, but this is offset by an increase in our Formula Spending Share by £0.068m. The net effect is a reduction of £0.2m allowing for some other very minor changes.
6. The impact therefore is either to increase the proposed Council Tax increase by 0.1% or to require a reduction in the expenditure proposals by £0.2m to retain the proposed increase at 6.25%. The attached budget proposals retain the council tax increase at 6.25% and reduce by £0.2m the amount proposed to be added to property for 2004/05 only (repairs and maintenance £0.1m and the working environment fund £0.1m). Since the effect is ongoing, this reduces the contingency in later years.

Headlines

7. Headline figures from the Budget and Medium Term Financial Plan are as follows:

	2004/05	2005/06	2006/07	2007/08	2008/09
Council tax increase (%)	6.25	6.0	5.5	5.5	5.0
Amount of contingency to spend (£m)	15.7	8.9	8.0	7.5	7.3
General Reserves at end of period (£m)	6.6	9.8	12.8	12.9	13.4


The Executive’s Budget Strategy

8. The Budget Strategy remains as stated in Executive Report EX5A of 14 January 2004 (badged report A6), namely:
   
   

1. to set a Council Tax with an increase significantly lower than the 13.4% set for 2003/04, that is broadly consistent with the Medium Term Plan adjusted for central government grant and function changes and that gives a level of Council Tax that is sustainable in future years. This objective is not helped by uncertainty as to the continuation of the additional Revenue Support Grant of £4.4 million ("Brown’s Bonus"); and
2. to meet the highest priority service needs, bearing in mind the government’s passporting requirements for schools, to strengthen the corporate centre of the Council and to meet a number of corporate priorities including the question of balances which are largely unavoidable; and
3. to have regard to the Council’s aim to improve its Corporate Performance Assessment scoring and to direct resources where that can best be achieved.
   
   

The Level of Council Tax

9. The Council Tax increase of 6.25% for 2004/05 lies almost midway between:
   
   
1. the 4% level set in the Minimum Budget model published in Executive Report EX5E of 14 January 2004 (badged report A10) - which that report stated was "clearly too little" in terms of meeting service and corporate needs; and
2. the 8.3% increase that meeting the full range of spending pressures listed in Annexes 2 and 3 of that report would have implied.
   
   
10. In reaching a 6.25% increase, the Executive has been mindful of the very considerable service needs of Directorates and the requirements of the Council’s Comprehensive Performance Assessment which particularly requires investment in the Corporate Centre as well as improvement in some service areas.
11. The Executive has been specifically influenced by the very high level of Council Tax in recent years, particularly the rise of 13.4% in the current year which has impacted severely on those on low and fixed incomes and which, at a national level, the Audit Commission found to be caused significantly by the government’s shifting of funds from south to north and the imposition of new costs and duties without adequate central government funding.
12. The use of a Citizen’s Panel and, particularly, the nationally recognised MORI One Day Budget Workshop that has been cited as good practice by the Office of the Deputy Prime Minister, has provided very helpful evidence of the public’s expectations in terms of Council tax levels. These consultations have provided evidence of support for moderate increases above the general inflation rate to meet service needs. The Executive has taken careful account of these consultations. Its proposal for a council tax increase of 6.25% is, however, lower than the figures emerging from the MORI workshop, and this reflects a concern to minimise increases after last year’s unusually high level. Executive Report EX5E of 14 January 2004 (badged report A10) contained a full summary of the MORI exercise and key points are repeated in Annex 5 to this Report.
13. Finally, the Executive has been aware of the government’s expectation that a Council Tax increase will be in "low single figures". The Leader of the Council has recently received a letter from Mr Raynsford, Minister for Local Government, in which he indicated his concern to read media reports of a potential Council Tax increase for Oxfordshire of between 7% and 9%. It is regretted that the Leader of the Council’s request in response to the letter from Mr Raynsford for guidance about the continuation of the additional Revenue Support Grant of £4.4 million announced on 10 December has elicited no response to date.

Meeting Service Needs

14. The Budget at Annex 3 (download as .xls file) includes a number of investments in key service areas of which the following are the most noteworthy:

	Service Area	£m	Justification
(a)	Learning & Culture Schools Block (delegated) Schools Block (non delegated) Redundancy costs to be met centrally   Library opening hours Youth service	3.8 1.1 0.8   0.1 0.2	To meet passporting needs and school staffing cost pressures To meet out-county placement pressures Unavoidable – to deal with funding shortfall in 2003/04 and falling pupil numbers in 2004/05 To meet government standards To meet acknowledged under-funding
(b)	Social & Health Care Services for older people Services to adults with learning disability	1.3 0.7	To meet CPA needs to strengthen this area To meet growing demand
(c)	Environment & Economy Highway maintenance   Public transport subsidy Revenue cost of progressing capital schemes	0.6   0.3 0.2	For surface dressing and drainage and to take account of the Scrutiny Review of Highway Repairs and Drainage To address part of the shortfall of £1 million in rural bus subsidies To enable the Executive to work on the Local Transport Plan 2006/11
(d)	Across the Council Job evaluation	2.4	Additional costs of implementing Job Evaluation to provide fair pay to mainly low paid front-line workers




Strengthening the Corporate Centre

15. The Budget at Annexes 1 - 3 (download as .xls file) includes a number of investments to strengthen the corporate centre of which the following are the most noteworthy:

16. Looking forward to 2005/06 the advice on the Settlement has now been updated. The Head of Finance’s report to the Executive on 14 January (EX5D - badged report A9) indicated that there would be an increase in total formula grant of 6.1% in 2005/06. We have now received a revised forecast of FSS and TFG 2005/06 national control totals from Somerset County Council (who provide financial advice to all the County Councils). Based upon this, we have revised the 6.1% increase to 6.9% which gives us an extra £2.7m to add to the contingency in that year.
17. However, there is a great deal of uncertainty about the 2005/06 Settlement as many other changes might affect our grant. These include, most notably, the amount of increase in the schools passport. The 6.9% increase assumes an increase in Education FSS of 5.9% and therefore a passport of £15m. The current assumptions for 2005/06, based on 3% inflation for schools and the full year effects of 2004/05 policy and budget plans, allow for around £10m to be added to the schools budget, so another £5m would need to be allocated from the contingency in that year.
18. The restated contingency for 2005/06 is £8.9m (£2.7m additional less £0.2m adjustment for the 2004/05 Final Settlement). Of this £5m could be needed to meet the passport. Whilst this does appear tight, and is dependent upon £5m of efficiencies being delivered, there are already full year effects and additional expenditure of £7.4m built into 2005/06. This includes an £5.2m for Social & Health Care. This means that services will need to plan carefully for 2005/06 not to exceed their allocations.
19. There may be an uplift for data from the 2001 Census which was not fully implemented and could add another £2.1m next year. Introducing these data opens up the possibility that other formula changes will be made to the FSS system that might reduce the benefit to Oxfordshire. The effects of including the rest of the 2001 Census data will be looked at throughout 2004 and this will give us a better idea about what we might receive. It seems prudent to assume the additional £2.7m (based on an increase of 6.9%) but not to factor in any other possible changes at this stage.

Beyond 2005/06

20. Current forecasts assume a 3.0% growth in TFG in 2006/07 onwards. The next spending review will be in July 2004. This will restate the position for 2005/06 and provide the first indications of national grant totals for 2006/07 and 2007/08. We expect grant increases to be smaller in the current economic climate.

Conclusion

21. This Budget and Medium Term Financial Plan strike a balance between significant service needs, the Council’s ambition to move from Fair to Good and Excellent in its CPA rating and to minimise the increase in the Council Tax without damaging service and corporate needs.
22. The requirements of the Head of Finance and the District Auditor to increase balances to 2% of budget requirement have been met in the medium term.
23. The Contingency to spend in later years is not generous and depends on continued efficiency savings. The Executive is committed to pursuing this programme with vigour.

CAPITAL

24. With the introduction of Prudential Guidelines from 2004/05 the financial controls around the capital programme are changing significantly. The impact of Prudential Guidelines and an overall description of the position relating to capital funding and the future programme are given in detail in report EX7 by the Head of Finance to the Executive on 27 January (EX7 – badged report A11) and its accompanying booklet.

Capital Allocations

25. The government’s capital settlement allocations are split between Education, Transport, Fire and Social Services. Key aspects are as follows.
26. The main part of the Capital Settlement for Education totals £26.1m - £22.5m to be funded by supported borrowing and £3.6m to be received through the standards fund. The impact is to leave Education with a surplus of resources by 2004/05 of £9.4m and a further £7.7m in 2005/06. The Executive proposes that, in line with established methodology, Learning & Culture should be allowed to bring forward Education projects to the value of £17.1m with £9.4m in 2004/05 and a further £7.7m in 2005/06, these projects to include:

• £0.9m for modernisation and £1.0m for Schools Access Initiative received as part of the settlement;
• Early Years development totalling £0.5m in 2004/05 rising to £0.75m in 2005/06 and £1.0m in 2006/07 linked to the revenue expenditure proposals for the Foundation Stage of Learning.

27. Almost £24m supported borrowing has been allocated through the Transport Settlement. In addition the resources available to Transport include an additional £1.5m in both 2004/05 and 2005/06 as planned repayments of a revenue/capital switch undertaken in 2001/02 and 2003/04. These resources have been offset by payments under the existing capital programme. Again in line with established methodology Environment & Economy will bring forward a detailed transport capital programme to the Executive in March recommending how these resources should be allocated.
28. £0.5m of supported borrowing has been allocated for Social Services in 2004/05. This block now shows a surplus of £3.8m in 2004/05 rising by a further £3.4m to £7.2m in 2005/06. Of the £3.8m surplus some £0.7m reflects a surplus of resources on the capital transactions on the Homes for Older People contract and will be put into a reserve to offset the date on which the full revenue costs of the contract impact on the revenue budget. (It is currently estimated that a further £0.6m will need to be put in the reserve in 2005/06.)
29. The Government supported borrowing for the Fire Service in 2004/05 will be around £0.6m. It is believed that this support is in relation to Fire Service Vehicles, which the Council funds from the revenue budget. The resources would be available to help meet capital programme priorities generally.

Balance of Funding in 2004/05

30. After taking the above into account the programme shows a surplus of £12.4m at the end of 2004/05. Against this there are numbers of commitments:

• Surplus on City Schools project to be carried forward £0.7m
• Education use of available resources £9.4m
• Homes for Older People – set aside surplus resources £0.8m

31. The Executive has endorsed a list of capital projects recommended by the Capital Programme & Asset Management Steering Group to be funded from these unallocated resources totalling just over £2m, with a further two projects to be met from additional borrowing under Prudential Guidelines. The list of these projects is at Annex 8 (download as .rtf file). There is therefore a shortfall of £0.5m to meet the proposed additions to the programme. This is considered to be de minimis in relation to the programme overall and could be covered by natural slippage on the programme.

Prudential Indicators

32. The introduction of the Prudential Guidelines arrangements brings greater flexibility to the County Council’s capital programme by allowing additional borrowing to support the programme above the level of borrowing supported by the Government. The key aspects for the Council are that our capital spending decisions are prudent and affordable and that our treasury management practices comply with a code of practice. The Council has to agree a range of Prudential Indicators before the start of the financial year and detailed proposals to satisfy this requirement, based on the funding and programme proposals outlined above, are set out in Annex 9 (download as .rtf file).

RECOMMENDATIONS

33. The Executive RECOMMENDS the Council:

1. (in respect of Revenue) to approve:

1. a Medium Term Financial Plan as set out at Annex 2;
2. a budget for 2004/05 as shown in the first year of that Annex and incorporating the expenditure proposals shown in Annex 3;
3. a budget requirement for 2004/05 of £547.960m;
4. the Council Tax and Precept calculations set out in Annex 4 and in particular:

1. a precept for 2004/05 of £212.592m;
2. a Council Tax for Band D equivalent properties of £924.80;

5. retention for 2004/05 of the existing virement arrangements as set out in Annex 5;

2. (in respect of Capital) to approve a Capital Programme for 2004/05 based on Annex 8 and the "After 2003/04 Starts" in the booklet accompanying Executive Report EX7A of 27 January 2004, including:

1. allowing Learning & Culture to bring forward education capital projects totalling £17.1m phased at £9.4m in 2004/05 and £7.7m in 2005/06, subject to those projects being approved by the Executive and subject to the inclusion in that allocation of the proposal for Early Years totalling £0.5m in 2004/05 rising to £0.750m in 2005/06 and £1.0m in 2006/07;
2. allowing Environment & Economy to bring forward transport capital projects in line with the approvals received in the Transport Capital Settlement, subject to those projects being approved by the Executive and to the Director for Environment & Economy explaining his intended allocation of the reward funding £2.4m and the performance bonus £0.336m;
3. transferring the estimated surplus from the Homes for Older People contract of £0.7m at the end of 2004/05 to a reserve to meet future revenue budget costs;
4. the prudential indicators set out in Annex 9 in respect of:

1. Estimates of Capital Expenditure;
2. Estimates of the Ratio of Financing Costs to the Net Revenue Stream;
3. Estimates of the Capital Financing Requirement;
4. the Authorised Limit for External Debt;
5. Operational Limit for External Debt;
6. Estimates of the Incremental Impact of Capital Investment Decisions;

3. to authorise the Head of Finance to effect movement between the separately agreed prudential limits for borrowing and other long term liabilities within the total authorised and operational limits for any individual year, in accordance with option appraisal and best value for money for the authority and subject to report from time to time on any such action taken.

KEITH R MITCHELL
Leader of the Council

MARGARET GODDEN
Deputy Leader of the Council

January 2004

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