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ITEM EX6B

EXECUTIVE – 22 JANUARY 2002

REVENUE BUDGET AND MEDIUM TERM FINANCIAL
PLAN 2002/03 TO 2005/06

Report by Director for Business Support & County Treasurer

1. An update on the Medium Term Financial Forecast was reported to the Executive on 27 November 2001. This report catalogues the decisions taken and information received since then, most notably the Local Government Finance Consultation on the 4 December. The report contains information on budget pressures faced by services and the Council generally. It also notes the broad intentions of the Executive as set out in its Draft Budget Strategy of 27 November 2001.
2. A booklet is attached to this report which includes key financial information and analysis of the draft Medium Term Financial Plan. A booklet containing detailed financial information for each service area and a review of charges will be placed in the Members’ Resource Centre and will be made available upon request.
   
   Departmental ICT Budgets and Reserves 2001-02 - (download as .rtf file)
   Comparison of 2002/03 Draft Budget and the Standard Spending Assessment (SSA) - (download as .rtf file)
   Draft Medium Term Financial Plan 2002/03 to 2005/06 and Revenue Budget 2002/03 - (download as .rtf file)
   Programme Areas - Cultural Services (download as .rtf file)
   Programme Areas - Education (download as .rtf file)
   Programme Areas - Environmental (download as.rtf file)
   Programme Areas - Public Protection (download as.rtf file)
   Programme Areas - Social Services (download as .rtf file)
   Programme Areas - Strategy & Resources (download as .rtf file)
   Preparation Pools - (download as .rtf file)
   Review of Charges - (dowload as .rtf file)
   Summary of Budget Pressures 2002/03 to 2005/06 - (dowload as .rtf file)
   
3. In addition there are further annexes on specific topics giving details as follows:-

Annex 1 Strategic Measures and Use of Reserves

Annex 2 Budget pressures and recommendations from Scrutiny Committees

Annex 3 Council Tax and Limitation of Council Tax & Precepts (Capping)

Annex 4 (dowload as .rtf file) Productivity Savings

Annex 5 Raising performance through e-government

Medium Term Financial Plan

4. The Council agreed a Medium Term Financial Plan for 2001/02 to 2003/04 at their meeting in February 2001. Parameters for compiling the 2002/03 budget and updating the Medium Term Financial Plan were set out in a report to the former Strategy & Resources Committee in September 2001. This report collates this information, updating it for known changes.

2002-03 Local Government Finance Consultation

5. The draft settlement was announced on 4 December 2001 and details of the settlement along with implications for the Council were circulated to all members by letter dated 5 December 2001.
6. The Forecast for 2002/03 assumed a budget requirement (before sixth form funding changes) of £459.7 million, which implied a Council Tax increase of 6.3%. As a result of the better than expected provisional settlement the Council Tax increase reduced to 5.1%. This figure was based on the assumption that the Council Tax Benefit Subsidy Limitation (CTBSL) Scheme would continue, although there was no mention of it in the consultation data. The budget forecast was revised to £443.6m, reflecting the transfer of sixth form funding to the Learning and Skills Council, not incorporated into the September Forecast.

Abolition of CTBSL

7. The intention to abolish the CTBSL scheme was announced in the White Paper ‘Strong Local Leadership – Quality Public Services’. It was subsequently confirmed in a letter from the DTLR dated 11 December 2001 that the Government has decided to abolish the scheme with effect from 2002/03. This further reduced the Council Tax requirement to 4.3%.

Social Services – additional service transfer

8. The Social & Health Care Scrutiny Committee met on 19 December 2001. The draft budget for 2002/03 included service transfers relating to Children Leaving Care of -£1.2m, compared with -£0.2m reported in the September Forecast, arising from a further £1m grant than originally expected. This further reduces the Council Tax increase to 3.4%.

No Capping for 2001/02 Budget

9. There has been formal notification from the DTLR that the County Council will not be capped in relation to the 2001/02 budget. In a response to a question in the House of Commons as to whether the Secretary of State intended to use his reserve capping powers this year in respect of any local authorities’ council tax increases, the Minister for Local Government confirmed on 11 December that the reserve capping powers will not be used this year.

Updated Provisional Settlement Data

10. On 28 December the DTLR updated the provisional settlement data to take into account the basic credit approvals notified to authorities on the 13 December, final council tax base figures and updated information on Learning and Skills Council allocations. The effect of these changes is to reduce Revenue Support Grant by £58,000 and to reduce the Education SSA by £71,000.

Notification of Council Tax bases

11. Notification from the Districts of Council Tax bases (after taking into account non-collection rates) was received by 11 January (subject to written confirmation). The actual taxbase is lower than the estimate used in the September Forecast and as a consequence this increases the Council Tax increase to 4.0%.

Latest Forecast

12. Taking into account the revised data from the DTLR and the draft budgets for each service area reported to Scrutiny Committees (updated for any known changes), the draft budget for 2002/03 before taking into account expenditure pressures is £442.3m. This is a 2.2% increase on the previous year’s budget, although the true increase is masked by the sixth form funding transfer. On a like for like basis the increase is about 6.7%.
13. The movement from 2001/02 to the 2002/03 draft budget is analysed below:

	£000	£000	%
2001/02 Budget		432,825
Service Transfers		-1,692	-0.4
Inflation to 2002/03 outturn prices		14,758	3.4
Previously agreed policy & budget plans		4,184	1.0
Allowable variations Demographic growth LSC Income (Sixth forms) Other Service Variations Strategic measures, use of reserves etc	3,009 -17,319 2,907 3,610	-7,793	-1.8
		442,282	2.2

14. The draft Medium Term Financial Plan covers the period 2002/03 to 2005/06 and is based on the parameters set out in the Financial Forecast in September 2001. The draft MTFP produces Council Tax increases of 4.0%, 3.8%, 2.3% and 3.0% over the four years and budget requirement increases of 2.2%, 5.6%, 3.4% and 3.7% (although see reference to 2002/03 budget increase in para 12). It should be noted that, in the light of no Government spending plans beyond 2003/04, a 3% increase in service SSAs has been assumed for 2004/05 and 2005/06.
15. The calculation of the Council Tax for 2002/03 is set out in Annex 3, along with the capping powers available to the Secretary of State if the budget and council tax increases are considered excessive.
16. The main variations to the latest forecast for 2002/03 compared to the original plan agreed in February can be summarised as follows:

	£000
Original Plan	458,164
Education Variations Service Transfers Inflation Demography Policy and Budget Plans LSC Income Other Variations	-374 1,264 -190 -1,804 -17,319 2,107 -16,316
Other Variations Service Transfers Inflation Demography Policy and Budget Plans Other Service Variations Variations in Strategic Measures	-673 591 -74 -20 700 -90 434
Draft Budget	442,282

15. In proposing a final MTFP to Council, the Executive will need to take into account the pressures identified in this report, the potential threat of capping, the issues raised in the Strategic Overview and the outcome of the Community Workshop scheduled for 12 January 2002.

Strategic Measures and the Use of Reserves

16. The draft Medium Term Financial Plan has been updated for the latest estimates of capital financing costs. Details of the additional costs are provided in Annex 1 to this report.
17. Advice on the appropriate level of balances is contained within the Strategic Overview report. Information on the use of other reserves is included in Annex 1.

The Executive’s Draft Budget Strategy

18. The Executive produced its Draft Budget Strategy on 27 November 2001. This paper was presented as a draft to Scrutiny Committees to inform their recommendations to the Executive on prioritising expenditure pressures and setting the overall budget. However, whilst it provided a clear and firm vision of the Executive’s intentions, it acknowledged the need to take account of the Local Government Provisional Finance Settlement and the Single Capital Pot allocations as well as other outstanding information before finalising the strategy.
19. The financial strategy sets out a strategic vision accompanied by a number of specific proposals on overall strategic policy and funding of corporate and service priorities, put forward as part of the Budget Strategy.
20. The Budget Strategy included a proposal to add £1m to the Environmental Services budget towards the elimination of potholes and the improvement of pavements and public transport. It is now proposed that most of this additional funding be used to meet the on-going Policy and Budget Plan saving of £997,000 and that the expenditure pressures identified in the report to the Environment Scrutiny Committee be funded from the Highway Maintenance budget. The resulting shortfall in Highway Maintenance would be offset by allocating a greater proportion of the transport capital settlement to structural maintenance. This proposal will provide more stability to the revenue budget in the future.
21. In the current year the target will be achieved by savings on the Public Transport Revenue Support budget, with the resulting shortfall being made up from accrued On Street Parking Account surplus. This may not be an option for future years when the surplus on the On Street Parking Account may need to be used to fund the development of Park and Ride.

Budget Pressures and Recommendations from Committees

22. The revised Forecast does not allow for expenditure pressures which are unavoidable or priorities for the Council. Net pressures totalling £20.8m were identified by services and reported to Scrutiny Committees in December. Updates to these figures have increased this total to £21.4m. In addition a further £2.4m has been incorporated into the Social Services pressures for the revenue shortfall on the Homes for Older People (HOPS) externalization and proposals on how this will be funded are detailed in Annex 2.
23. In addition to the service pressures there are pressures of £4.6m which affect the Council generally, including corporate ICT pressures. Further details on corporate pressures are included in Annex 2 and details of all pressures and savings are shown in the booklet circulated with this report. Annex 5 provides information in support of a bid for additional resources for ICT.
24. Specific recommendations from Scrutiny Committees to the Executive on the Draft Budget Strategy and priorities are also included in Annex 2.

Productivity Savings

25. The Executive’s Draft Budget Strategy included a commitment to secure 2% productivity improvements that are either cash releasing, service enhancing or performance improving. Directors were asked to bring forward proposals to achieve £1m productivity savings in the first year of the MTFP, rising by £1m per annum thereafter. An indication of the distribution of the savings over the programme areas (based on 2001/02 controllable budgets) is given at Annex 4. The base figure of £210 million principally excludes Schools and Strategic Measures. A list of all the excluded items is given in the annex.

Future Developments

26. The Local Government White Paper sets out a number of reforms to the local government finance system. The abolition of council tax benefit subsidy limitation has been mentioned above. As predicted in the September Forecast report, the Government intends to introduce new grant distribution formulae for 2003/04, to institute regular freezes on formula changes and to make floors and ceilings a permanent feature of the revenue grant distribution system. The issue of most concern for 2003/04 is the potential loss of the Area Cost Adjustment element of the SSA formula. The Government also intends to legislate to place a new statutory duty on the Chief Finance Officer to report to the authority, at the time the Council Tax is set, on the robustness of the budget calculations and the adequacy of reserves, and there is also an intention to take powers to enable the Secretary of State to specify in regulations a statutory minimum level of reserves.
27. The third Spending Review setting out the Government’s national spending plans for 2003/04 to 2005/06 is expected in July 2002.
28. In the light of potential changes to both national spending totals and the grant distribution formulae, the Executive will need to be prudent in committing future years’ resources.

Consultation on School Budget Proposals

29. Schools have been consulted on two proposals:

• Meeting the costs of a teachers pay award in excess of 3.5% from their delegated budgets;

• Not increasing AWPU rates in line with inflation if demography is greater than already provided for; and allocating a sum for Social Deprivation.

30. Further key information is required before the Council can set its budget on 5 February:

• the Flood Defence Levy for 2002/03, expected shortly;
• information from the Districts on collection fund surpluses, which is expected shortly;
• the final Local Government Finance Settlement, expected at the end of January.

31. The teachers’ pay award from April 2002 is not expected until early February and may not be known when the budget is set, in which case an estimate will have to be used.

Format

32. The budget to be agreed by Council will be presented in the old programme committee format. For the Medium Term Financial Plan publications the budget will be re-formatted in line with Executive responsibilities.

Best Value Requirements

33. After the 2001/02 budget was agreed in February 2001 various technical adjustments had to be made to meet the requirements of the Best Value Accounting Code of Practice (BVACOP). This did not change the overall budget requirement, but altered the distribution of the budget between central and service budgets. As a consequence the final Education Budget for 2001/02 was £1.2m over SSA.
34. For 2002/03 further technical adjustments relating to pension costs will be required in order to comply with the Code. This again will have an impact on the extent to which the Education and Social Services Budgets vary from SSA.

Implications for People Living in Poverty

35. Any reductions in services, particularly those provided by Social Services, are likely to have significant impact on poorer people who rely on the services provided disproportionately.
36. Increases in Council Tax are likely to hit the relatively poor, albeit mitigated by Council Tax Benefit.

Environmental Implications

37. There are no environmental implications arising directly from this report, although the final budget decision will have implications.

Staff Implications

38. There are no implications arising directly from this report. However, the final budget and medium term financial plan may have implications if the current level of services cannot be maintained.

Financial Implications

39. There will be significant financial implications for the authority with whatever budget is proposed by the Executive. Not only will this impact on services to the public, but workload pressures on certain staff increase significantly during the process of agreeing a budget and subsequently implementing it. It is expected that these implications will be contained within existing resources.

RECOMMENDATIONS

40. The Executive is RECOMMENDED to:

1. include the sum of £0.75 million in the budget for 2002/03 specifically to commence the development of a contact centre and for other e-government infrastructure initiatives as outlined in Annex 5 to the report;

1. a medium term financial plan for the Council;
2. a budget for 2002/03;
3. a budget requirement for 2002/03;
4. a precept for 2002/03; and
5. a Council Tax for Band D Equivalent Properties;

CHRIS GRAY
Director for Business Support & County Treasurer