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ITEM EX6A

EXECUTIVE – 22 JANUARY 2002

STRATEGIC OVERVIEW

Report by Director for Business Support & County Treasurer

  1. Members will already have received three detailed reports; Revenue Budget 2002/03 and Medium Term Financial Plan (MTFP), Capital Programme 2001/02 to 2003/04 and the Monthly Monitoring Report for the current year. It is clear that they are inter-linked and this strategic overview seeks to clarify the links. Furthermore the draft budget strategy produced by the Executive notes that strategic measures including capital/revenue flexibility may need to be deployed to assist the Revenue Budget in 2002/03.

  2. The Council is facing one of the most challenging budget scenarios for some years. This arises principally from the following areas: Education reaches maximum exposure on City Schools cash flow in 2002/03. The total combined amount to be supported on revenue and capital is £9.0m. Social Services have unprecedented pressures on the revenue budget and at the same time, the externalisation of Homes for Older People project (HOPs) still needs to bed down and the Asylum Seekers invoices issue remains. Finally there is the implementation of E-Government, with pressures to be addressed on Broadband and associated major IT projects. It is challenging that all of these converge in the same financial year. The remainder of the report seeks solutions to the problems undoubtedly faced.

    3. Revenue Outturn and Capital Programme

  3. As shown in the report on the estimated outturn for the current year 2001/02, elsewhere on the agenda, there is a potential over commitment on the Council’s main revenue reserves of £1.690m. This potential over commitment will need to be covered by the end of year balance on the capital reserve, which is forecast to be £4.7m. Discussions around this are on-going with the District Auditor. In connection to this, a further updated report on Social Services adds another £1.0m to the forecast overspend in 2001/02.

    4. Strategic Measures

  4. A package of strategic measures involving a capital/revenue switch totalling £3.0m has been identified to help ease the pressures on the Revenue Budget for 2002/03. Overall there is a technical maximum of £5.0m of revenue expenditure capable of being capitalised in the current year and another £5.0m in 2002/03. A capital/revenue switch of £3.0m, £2.0m in the current year and £1.0m from 2002/03 can be found from the Local Transport Plan capital allocation, to be repaid in years three and four of the plan. This is the upper limit of what can be found to help the budget and still ensure delivery of a viable Local Transport Plan within the period of the current LTP. There is then a further capital/revenue switch required on the HOPs project of £2.4m next year funded from surplus HOPs capital resources, with similar requirements in future years.

  5. It has been decided not to accrue reserves over the life of the plan to meet the long- term revenue costs of £2.1m when the HOPs contract is fully implemented. This would be difficult to justify given the need to find strategic measures to ease the budget next year. However, the future shortfall will need to be borne in mind and addressed at a future point in time.

  6. Further strategic measures have been identified as follows: (a) deferring the payment of interest on reserves due in 2002/03 of £0.4m, bearing in mind £2.5m of deferred interest is already defrayed to support City Schools capital overspend in 2001/02 and 2002/03; and (b) a further borrowing from schools balances of £0.5m. In 2003/04 a contribution of £2.5m from the insurance fund is available assuming capital receipts on City schools are realised in that year

    7.   City Schools Re-Organisation

  7. Turning to the cash flow on City schools there is a planned capital shortfall of £6.1m in 2002/03 to be covered from £2.5m Insurance Fund surplus, £2.5m deferred interest on reserves, and £1.1m from deposits placed by schools. It is important that the single biggest capital receipt comes in, during 2002/03, so that the cash flow is not worsened and that the balance of receipts are achieved in 2003/04.

  8. The cumulative planned revenue costs of £1.7m by the end of the current year will be charged to the Committee Carry Forward Reserve and the deficit covered by the capital reserve. Looking at the overall risk assessment, there will be no capital reserve at the end of 2002/03 to cover the cumulative revenue costs of £3.0m. It is also highly unlikely that there will be sufficient funds in the Committee Carry-Forward Reserve either.

  9. The risk assessment on City Schools carried out in September 2000 envisaged that there could potentially be difficulties in this regard. My advice would be to make a further increase in revenue balances at least in 2002/03.

    10. Revenue Balances

  10. This leads on to a consideration around the issue of revenue balances. Advice hitherto has been that the current figure of £3.0m should be increased by £1.5m to £4.5m (i.e. 1% of the 2002/03 budget). This is in line with previous advice from the County Treasurer and District Auditor on the minimum level of revenue balances to be held. This has proved to be adequate in the past (although arguably not in the current year).

  11. In view of the issues outlined above, I feel it would be prudent to increase balances by a further £3.0m to £7.5m to ensure the City Schools shortfall is covered. However, taking into account all of the pressures facing the Council then I recommend an overall increase of £3.0m would at least put revenue balances at £6.0m, half of which on the present scenario could be set against City Schools leaving £3.0m for all other normal risks.

    12. New Initiatives

  12. The draft strategy highlights injections of new money for developing areas, like the Modernisation Fund. It would be appropriate to create a new fund to be drawn down on the authority of the Chief Executive. The other major area of new investment is in E-Government, and it is recommended that new investment should go to the New Technology Fund, for which the drawing down arrangements will need to be reviewed. Initially the draft budget report has identified funding for corporate IT initiatives, but in due course Departmental pressures will need to be prioritised as they emerge through a new IT Business Plan for the Council.

    13. Risk Assessment

  13. A detailed financial risk assessment has been drawn up. The funding relationships between all the different factors in play are complicated. There are a number of potential risks, particularly around the final pay award for APT&C staff being above the 3% included in the budget; potential liabilities on pension rights, and in the area of IT around obtaining partnership income on Broadband. There are also risks associated with HOPs, realising capital receipts and the asylum seekers invoices issue. In the main, these will not all affect the budget next year.

  14. It is fair to say that the single biggest outstanding risk is the Social Services revenue budget. It should also be noted that of £1.0m of productivity savings in the Executive’s draft budget strategy, £0.4m would relate to Social Services, and there must be considerable doubt that this is practical. This raises doubt about the fairness of continuing with the productivity savings for other services. But, in any event each Strategic Director will still be required to come forward with a report on how 2% productivity savings can be achieved in relation to working towards a PSA – and this clearly needs to be rigorously actioned. For Social Services a detailed analysis of further reported pressures on the current budget will be made at the Budget Working Group on the 15 January and at Scrutiny on the 18 January. An update on the position will be given following this meeting.

    15. Council Tax

  15. Finally in relation to Council Tax, the Council needs to be aware of the impact of the budget both in terms of the immediate year and cumulatively, especially since 1998/99. Current indicators suggest that a Council Tax increase of less than 10% for next year would put Oxfordshire with the majority of Councils, which appear likely to have increases of between 8.5 and 10%. If any further information reveals a significant departure from this, members will be updated. However, our cumulative position from 1998/99 (the base year for the capping regulations) would still rank us at or very near to the top for Council Tax increases and at the top for budget requirement increases in comparison with other County Councils.

    16. Future Years

  16. Members are reminded that there is considerable uncertainty surrounding future years, with a Spending Review, changes to the SSA formulae and possible loss of ACA from 2003/04.

    17. Conclusions

    • The Council will need to employ some strategic measures to achieve a Council Tax between 8.5 and 10%, dependent upon the amount of expenditure pressures to be included in 2002/03;

    • Balances will need to go above 1% of the revenue budget based on the reasons set out;

    • The Council needs to retain sufficient flexibility in future years to respond to possible funding changes and loss of ACA but also to be able to safeguard repayment of any strategic measures employed;

    • The outcomes on the MORI Community Workshop need to be taken account of in setting the budget.

Staff and Environmental Implications and Implications for People Living in Poverty

  1. There will be an impact on all of these areas depending on how the final budget is deployed

    2. Financial Implications

  2. This report is directly concerned with the financial implications affecting the Council.

    3. RECOMMENDATION

  3. The Executive is RECOMMENDED to receive the report and to take into account the issues raised when considering the reports on the capital and revenue budgets and recommending a Budget and Council Tax for 2002/03 and the Medium Term Financial Plan to the County Council.

 

CHRIS GRAY
Director for Business Support & and County Treasurer

Background Papers: Nil

Contact Officer: Jenny Hydari Tel: 01856 815401

January 2002

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