ITEM EX5AEXECUTIVE – 14 JANUARY 2004BUDGET STRATEGY 2004/05 TO 2006/07
Report by
the Leader and Deputy Leader of the Council
Medium Term Financial Plan 2003/04 to 2007/08 1 The Council’s Medium Term Financial Plan set at the February 2003 Council predicted a Council Tax increase for 2004/05 of 9.1%. This was after a 13.4% increase in the current year which was almost exactly the average increase for 2003/04 for County Councils and the second lowest for the South East Counties with only Kent coming in lower at 12.5%. It was predicated on an expected increase in Total Formula Grant of 3.4%.
2 The predicted Council Tax increase of 9.1% was derived from a planned increase in budget of 5.9%. This highlights the high gearing effect of the Council Tax system.
Local Government Settlement
3 This was announced on 19 November 2003 and was better than expected. The expected 3.4% increase in government funding turned out to be 5.9% compared to the Adjusted 2003/04 Formula Grant. The main reason for this was the schools funding which continued almost all the damping grant the Council had expected to lose albeit it is presented in a slightly different format. Thus, while grant increased by £8.7 million, the Council is required to increase school funding by £4.3 million more than expected. This leaves £4.4 million more grant and, if used to reduce the Council Tax, would take the Council Tax increase down from 9% to 7%.
Audit Commission Report
4 With brilliant timing, the Audit Commission published its report into the causes of high Council Tax rises in 2003/04. It laid the blame at three causes:
The report also referred to the very high gearing effect caused by the relatively small proportion of local government expenditure financed by local taxes. The government is currently engaged on a Balance of Funding Review which may address this issue.
Gordon Brown’s Bonus
5 Like a bolt out of the blue, on 10 December, the Chancellor of the Exchequer, swiftly followed by the Local Government Minister and both clearly stung by the Audit Commission report, announced additional Revenue Support Grant for local councils which gave an extra £4.4 million to Oxfordshire. This would translate to approximately 2 percentage points off the Council Tax and if applied in reducing Council Tax would lead to an increase of 5%.
The Specific Grants Conundrum
6 The 2003/04 Budget included Specific Grants totalling £91 million. During the year, additional Specific Grants amounting to £12 million have been announced giving a total of £113 million. It is expected that £4 million will be transferred into the Formula Spending Share; that £4 million will cease; that £8 million will be available in new grants and that £6 million will be added to existing grants. This gives an expected level of Specific Grants for 2004/05 of £109 million. Many of these are ring-fenced but some are not.
7 Of the estimate of £109 million Specific Grants, £35 million have been confirmed to date and the balance await confirmation. It is likely that the Council will have to set its budget before many of the Specific Grants are confirmed. This is no way to run a £700 million business.
Savings found during 2003/04
8 A target of £3 million savings was set in February 2003 to be found during the year to support spending in 2004/05. A great deal of hard work has been put into a number of base budget reviews and service "star chambers". These have delivered near to £2 million of efficiency savings and these are expected to be brought to £2 million by the end of 2003/04.
The budget contingency
9 The 2004/05 spending plans included a contingency to cover spending needs of £11 million. As well as new initiatives, this is meant to cover such items as demographic changes and contract price rises which used to be added in automatically but which must now be included in budget bids. Given that the savings have come in at only £2 million, this contingency is reduced to £10 million.
10 Given that the government has increased the school passporting requirement and provided the grant to fund it, it is probably reasonable to increase the contingency by £4.3 million and the impact of function changes, a further £0.8 million. This gives a revised contingency of £15 million of which £4.3 million is committed to schools.
Expenditure proposals
11 The Executive has been considering spending proposals and has carried out a number of prioritising exercises to match these against available resources. Scrutiny committees have had full details of the spending pressures and the opportunity to give advice to the Executive.
Budget strategy
12 Our budget strategy is threefold: (a) 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"); (b) 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 (c) 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.
13 Within this strategy, we face a number of scenarios which are set out below:
None of these scenarios will allow us to address any but the most pressing of needs.
14 There is more work to be done between the drafting of this report and the production of a draft budget for consideration by Corporate Governance Scrutiny Committee and there is the Community Budget Workshop to be held on Saturday 10 January. The Executive will complete its draft budget by 12 January for presentation at the meeting on 14 January.
Keith
R Mitchell Margaret
Godden
January
2004
|