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ITEM EX7

EXECUTIVE – 7 SEPTEMBER 2004

REVENUE BUDGET AND CAPITAL PROGRAMME 2005/06 – 2007/08

Report by Director for Resources

Introduction

  1. This report is the first in a series that will inform members on the budget process and issues for 2005/06 and the medium term.

  2. Members were issued with a green folder for the 2004/05 budget process and all Executive and Council reports and budget briefing notes were copied for inclusion on the file. Whilst this gave a comprehensive set of papers held in one place, there were some member concerns around factors such as folder size, duplication of material and complexity of information. Therefore, this year, we have simplified the process. Detailed reports will go to the Executive as set out in the attached timetable. Members may wish to continue to use their green folder to file these reports and any other briefing material on the budget. However, in accordance with members’ wishes, duplicate copies will not be issued. The Head of Finance will publish a series of short fact sheets to accompany the reports. These will provide all members with easily accessible and up to date key facts and data. The first fact sheet, backing up this report, will be issued separately to all members in a wallet for ease of filing. Seminars on the Budget 2005/06 and medium term will be held in the autumn and new year to help keep members informed and answer queries. The timetable will be issued shortly.

  3. This report restates some of the previously published data, and sets out the latest information on the Council’s financial position. It also updates the information on likely central government funding for 2005/06 and the medium term, as far as we can ascertain at this stage. This is based on the Government announcement on the Spending Review 2004 in July. As we were finalising this report, we received further information from Somerset County Council on behalf of the County Councils Network. This will be set out in a supplementary note that will be circulated in the week before the Executive. However, that information reinforces the importance of delivering the strategy set out in this report.

  4. There are two other reports on the agenda, which also need to be considered alongside this report. These are on the review of financial management and a strategy for revitalizing and improving SAP. The budget planning process for 2005/06 and the medium term should demonstrate the Council’s commitment to the improvements set out in the financial management review recommendations, and should form part of the response to that report. The strategy for revitalizing and improving SAP is part of the response to improving financial information and processes and essential if the council is to make efficiency savings.

  5. The report sets out CCMT’s budget management proposals for 2004/05 to meet the key priorities for the Council within the constraints of a 6% Council Tax increase for approval by the Executive. It outlines some of the risks within the proposals and other areas of uncertainty and sets out a proposed timetable for the budget process.

  6. The following annexes are attached:

    7. Annex 1: Published Medium Term Financial Plan (download as .xls file)

    (Annex 1a; Annex 1b (download as .xls file); Annex 1c (download as .xls file);

    Annex 2: Spending Review 2004

    (Annex 2a & Annex 2b (download as .xls file)

    Annex 3: Budget Planning Administrative Timetable

    Executive Summary

  7. The Council’s current Financial Plan for 2005/06 includes an increase in expenditure of 6.7%; increased government grant of 6.8% and an increase in Council Tax of 6%. The increase of £36.7m or 6.7% includes pay and price inflation of £16.1m; ongoing policy and budget plans of £12.8m; a contingency available to allocate of £9.3m; known function changes relating to Preserved Rights clients in Social & Health Care of £3.4m; all offset by efficiency savings of £4.9m. The increase in government grant of 6.8% was a broad assessment made before this year’s government spending review.

  8. Since the Plan was agreed in February this year, the government’s Comprehensive Spending Review 2004 has been announced (in July) which indicates that the increase in government grant may be lower at 6.1%. This is based on national assumptions. If confirmed, this would result in a shortfall against the Plan of £2.6m.

  9. The report sets out the latest known position on potential calls against the contingency. This comes to broadly £10m. At this stage, it appears that the planned contingency of £9.3m would be fully utilised and exceeded. It is prudent to plan for a contingency of £10m. This requires an increase of £0.7m.

  10. CCMT have come up with budget management proposals to meet the £4.9m efficiencies target and to create some additional headroom for other emergent pressures. This has proved foresighted. The proposals need to meet the requirement to make £4.9m efficiencies in the Plan and around a further £3.3m to cover the shortfall in government grant (£2.6m) and around a further £0.7m to meet potential further pressures on the contingency.

  11. The proposals outlined in the report are as follows: Service Heads have been asked to contribute savings of £6m in total which is around a 2.4% cut in expenditure, and there are proposals to find an additional £2m corporately from the corporate efficiency savings programme which is being overseen by the Best Value & Audit Committee. The Service Heads are expected to come forward with their suggestions on how to achieve the £6m reduction by the end of September. It is not possible to count on the savings being delivered until this exercise is complete. The report contains some further detail on the process to secure the corporate savings. However, no actual savings can be counted on at this stage and there is, similarly, a level of risk in assuming these savings will be found, which needs to be carefully evaluated in agreeing the proposals.

    12. Published Medium Term Financial Plan

    2005/06 Net Expenditure and Funding

  12. The following table sets out the starting point for the 2005/06 budget as set out in the published MTFP.

    13.  

     

    Gross Budget 2004/05

    Less:

    Specific Grants 2004/05

    Income 2004/05

    Equals: Budget Requirement 2004/05

    Add new 2005/06 items:

    Inflation and Other Variations

    Ongoing Policy Plans

    Known Function Changes

    Efficiency Savings

    Contingency

    Equals: Budget Requirement 2005/06

    Funded by:

    Total Formula Grant (assuming 6.9% increase)

    Council Tax (including surpluses) (assuming 6.0% increase)

    Total Funding

    £m

    742.5

     

    121.6

    73.1

    547.8

     

    16.1

    12.8

    3.4

    -4.9

    9.3

    584.5

     

    356.2

    228.3

    584.5

  13. The published MTFP (reprinted in Annex 1 (download as .xls file) along with the assumptions behind the plan) implies an increase in budget of 6.7% and an increase in council tax of 6.0%. This is followed by lower council tax increases of 5.5% in 2006/07 and 2007/08. Total Formula Grant (TFG) has been assumed to increase by 6.9% to £356.2m in 2005/06 and 3.0% from 2006/07 onwards.

  14. Additional resources already built into the 2005/06 budget as part of the MTFP are £16.1m for inflation, strategic measures and changes to reserves and balances and £12.8m for on-going policy plans agreed in previous years. Of the £16.1m, £15.8m is attributed to inflation. The major components of the £12.8m are; £6.3m for Social & Health Care (£1m shortfall in the access and capacity grant in 2005/06; £0.9m additional costs from the Homes for Older People contract; £1.3m above average inflation for older services; £1.7m extra resources to increase market capacity for adult services; £1.4m additional spending in 2004/05 for adult services funded from one off measures); across the Council £1.8m to fund the extra costs of job evaluation and £2.4m extra pension costs following the revaluation of the pension fund; £0.8m for waste management, arising from the annual increase in landfill tax; £0.8m for pupil numbers, excess of clawback over compensation.

  15. However, the funding assumptions behind the plan now need revisiting as a result of the Spending Review as follows.

    16. Impact of the Comprehensive Spending Review 2004

  16. The Spending Review 2004 includes:

  • Revised National FSS (Formula Spending Share) Control totals for 2005/06 and totals for 2006/07 and 2007/08 for the first time.

  • Aggregate External finance Figures for the same years, which includes business rates and formula grant;

  • Proposals about efficiency savings expected from local authorities;

  • Proposals to introduce three year revenue and capital settlements for local government from April 2006.

  1. If we assume that Oxfordshire can expect FSS and grant increases in line with national averages, we can broadly predict likely levels of change in our needs and funding over the next three years. However, care needs to be taken, as the amount Oxfordshire actually receives will depend on our individual formula allocation. As this report was being finalised we received additional information on this which will be sent out in the supplementary note.

  2. The published MTFP includes an unallocated contingency of £9.3m in 2005/06 based on a 6.9% increase in TFG (as shown in the table above). The Spending Review suggests that our original assumption about this increase was too high. An increase of 6.5% in TFG as suggested would reduce the available contingency by £1.3m to £8.0m. Alternatively an increase of 6.1% (reflecting grant increases in the Spending Review 2004 which are 0.4 percentage points lower than the national FSS increase) would reduce the contingency by £2.6m to £6.7m. To sum up, if the government cuts Oxfordshire’s grant funding and the Council tax increase is held to 6%, it will reduce the contingency from £9.3m to £8.0m if the TFG increase is 6.5% and to £6.7m if the TFG increase is 6.1%. The Head of Finance has assumed the £2.6m in order to be both prudent and cautious.

    3. Council Tax

  3. Our assessment of the figures in the Comprehensive Spending Review suggests that the government is planning for increases in the council tax of 6.7%, 5.5% and 5.1% from 2005/06 to 2007/08. However, it is important to note that these increases reflect the cash raised from council tax, not the increase in the Band D council tax. Since the council tax base tends to increase each year, and will also include more tax on empty properties in 2005/06, the resulting increase in the national Band D tax rate should be less than 6.7%. This suggests that, although an increase of 6.0% may be within government parameters in 2005/06, the Council’s planned increase in the following two years may need to be lower than 5.5% to avoid criticism/capping.

  4. Further details coming out of the Spending Review 2004 are attached at Annex 2.

    5. Contingency

  5. The contingency is dependent on achieving £4.9m of efficiency savings as shown in the table above. There are currently estimated to be calls on contingency in 2005/06 as follows:

    6. (a) Required to meet schools passport

    £5.5m

    (b) Pension Fund Revaluation

    £1.1m

    (c) Additional Contribution to Balances (replacing £3m over 2 yrs)

    £1.5m

    (d) SAP Revitalisation and Improvement Programme

    £2.0m

    TOTAL

    £10.1m

    These are explained further below.

    (a) Schools Passport

  6. In the March 2004 Budget, the Chancellor announced the following increases in Education FSS for the next three years: 2005/06 – 5.9%, 2006/07 – 6.8%, 2007/08 – 6.0%. Assuming an estimated increase of 5.9% in 2005/06, the Schools’ Block FSS would be £267.8m. After taking account of inflation (£7.6m) and ongoing policy plans (£1.8m) already allocated to the schools’ block within the published MTFP, an additional £5.5m is estimated to be required to meet the passport of £14.9m.

    7. (b) Pension Fund Revaluation

  7. Within the total ongoing policy plans, provision has been made (at outturn prices for each year) for the estimated effect of the 2004 Pension Fund Revaluation as follows:

    8.  

    2005/06

    £m

    2006/07

    £m

    2007/08

    £m

    2003/04 Policy Plans (*)

    1.0

    2.0

    3.0

    2004/05 Policy Plans

    0.9

    1.9

    3.0

    CUMULATIVE TOTAL

    1.9

    3.9

    6.0

    (*) Excluding £0.5m provision in 2005/06 related to HOPs contract.

  8. The key issues now emerging from our actuary are that, whereas in 2001 we were funded to 91% of the estimated liabilities, the equivalent indicative figure for 2004 is 63%. This reflects significant falls in the stock market since the 2001 valuation improved assumptions about life expectancy, and some worsening of assumptions in respect of inflation and the gilt market.

  9. The County Council has a current pay bill of around £100m in respect of members of the pension scheme. Following the 2001 valuation, our employers’ contribution rate is 15%. The indicative figures would require an increase in our contribution rate to 31% if we used the previous valuation assumption. These assume a 100% target funding level along with a 25 year recovery period stepped up over three years.

  10. Current estimates are that this approach would require an additional £3m in 2005/06, 2006/07 and 2007/08. That means that we need to add a further £1.1m in 2005/06 and the following two years over and above the resources already allocated. Given that we have to fund our pension liability this is largely outside our control except to the extent that we can choose, to a certain extent, the period over which to top up the fund.

    11. (c) Balances

  11. The latest position for 2004/05 forecasts a total drawdown of balances of £2.750m leaving balances of £2.978m. The detail is set out below and it should be noted that this is a fairly exceptional year to the extent to which balances have been called upon. It is therefore assumed that a "normal" drawdown in the following years will be more likely to be in the region of £1m, but this will need careful monitoring. The table shows that, in order to stay within the budget assumptions published in the MTFP and achieve reserves of 2% of our budget requirement (or £12m) by 2006/07, £1.5m would need to be added in both 2005/06 and 2006/07.

    12. Latest Position

    2004/05

    £000

    2005/06

    £000

    2006/07

    £000

    Estimated Balances at start of year

    4,734

    2,978

    7,615

    Less City Schools

    -3,651

     

     

    Planned variation in MTFP

    4,645

    3,645

    3,555

     

     

    492

    510

    Subtotal

    5,728

    7,115

    11,680

    Estimated/known use of balances (see below)

    Addition to balances

    2,750

    -1,000

    1,500

    -1,000

    1,500

    Estimated Balances at end of year

    2,978

    7,615

    12,180

    Balances as a % of Published

    Budget Requirement (*)

    0.%

    1.3%

    2.0%

    (*) Assuming the published Council Tax increases of 6.0% in 2005/06 and 5.5% in 2006/07.

    The potential and known calls against balances in 2004/05 are as follows:

    S&HC Projects Approved to date

    SAP Consultancy

    Financial Management Review

    SAP Revitalisation Project

    HOPs Shortfall

    Other potential draws on balances in year

    TOTAL

    *£0.300m

    *£0.050m

    *£0.050m

    £1.000m

    £0.800m

    £0.550m

    £2,750m

    (*)Starred items are specific amounts already agreed.

    (d) SAP Revitalisation and Improvement Programme

  12. There is a separate report on this elsewhere on the agenda. This suggests that, in order to revitalise SAP and maximise its use across the authority, we need to invest an additional £7m over the next three years. Of this, £1m would be a call on balances in 2004/05. Before any further investment after 2004/05 is made, a full business case for the investment is required. There would be an additional pressure of around £2m per annum in the following years.

    13. Other Factors

  13. Latest information shows a shortfall on Homes for Older People of £0.800m this financial year, which could be a call on balances. This increases to £0.950m for 2005/06. The reason for the shortfall is explained by the slippage of a capital receipt on the sale of a residential home. The effect of this slippage is that there will be insufficient capital surplus in 2004/05 and 2005/06 to meet the additional revenue costs of the HOPs contract. The original plan, which is regularly reviewed and updated had envisaged that the capital receipt from this sale would be in 2004/05 and available to offset the additional revenue costs. At this stage the pressure for 2005/06 has not been automatically built into the contingency, and may need to be covered from the existing budget.

  14. The latest estimates are that the contingency figure within the MTFP could be up to £2.6m less due to the Comprehensive Spending Review at £6.7m.There are around £10m identified calls against the contingency for 2005/06. This leaves a potential gap of £3.3m. CCMT have come up with budget management proposals for 2005/06 to find efficiencies of £8m. This would cover the efficiencies target within the MTFP of £4.9m and provides most of the additional cover towards the potential gap of £3.3m. The risk section later in the report picks up possible changes to our funding assumptions.

    15. CCMT Budget Management Proposals 2004/05

  15. Prior to the Spending Review 2004, the County Council Management Team (CCMT) began discussing with the Leader and Deputy Leader the budget strategy for next year. As explained above, the existing MTFP includes significant increases in spending for some services next year. However, we also have to achieve efficiency savings of £4.9m as part of that plan and face some significant financial risks. At this stage CCMT were conscious that the Spending Review 2004 and other events might have an adverse impact on the Council’s financial position. The Budget Management Proposals described below were deliberately designed to provide a degree of financial cover to help the County Council cope with these risks.

  16. CCMT propose that there should be a new approach to budget setting next year. In addition it is hoped that the proposals encourage managers to take more responsibility for financial management and that any savings made are through efficiency savings as far as possible.

  17. Traditionally, Directors have put forward a long list of bids for services that cannot be accommodated within the resources available. They will not be pursuing this approach for next year. Services (and Directorates) will be expected to live within the resources made available for their service(s). The growth that has already been included in the MTFP, including £12.8m of ongoing policy and budget plans (see Annex 1(c)) will be revisited and re-evaluated as part of the budget process. This high level budgeting approach is consistent with normal practice in other organisations and is intended to give managers as much freedom as possible in the way that they use the financial resources available to them to achieve their service planning objectives. It is also important that they explore options for maximising the income that can be achieved. There are new legal powers that should be used if it is appropriate to do so.

  18. Overall the proposals will require the Council to make savings of £8.7m and will place direct pressures on services of £6.7m.

    19. Proposal

     

    (a) Limit funding for Green Book Pay Award to 2.5% (unfunded pressure)

    £0.7m

    (b) Reduce controllable budgets by 2.4% (required to meet efficiencies target and pressures/funding shortfall)

    £6m

    (c) Corporate Efficiency Savings Programme

    £2m

    TOTAL EFFICIENCY GAINS

    £8.7m

    Of the £8.7m total, £0.7m is an unfunded pressure (a) relating to the Green Book Pay Award to be absorbed by the Directorates. £6m cash saving from Heads of Service (b) and £2m cash saving from the corporate efficiency savings programme (c) are required to meet the efficiencies target in the MTFP of £4.9m and the £3.3m potential further gap in the Plan.

    (b) Reduce Controllable Budgets by 2.4%

  19. Heads of Service have been asked to find a 2.4% saving on their controllable budgets. This exercise will be completed by the end of September, and it is planned to report the outcome back to the Executive in November. That response will identify what steps each Head of Service will take to work within their budget, what decisions may be required (e.g. by the Executive and Council) and what communication is necessary (to employees and/or users).

    20. (c) Corporate Efficiency Savings Programme

  20. The Best Value & Audit Committee on 23 June 2004 received a report setting out the planned Best Value Review Programme entitled ‘Value for Money’. The paper produced by the Director for Resources identified the following work streams: procurement; business process re-engineering (BPR); using ICT effectively (another dimension of BPR); shared services and income generation.

  21. The Procurement Team currently has an action plan to procure savings of around £0.500m in 2004/05 (part year effect) and savings in excess of £1m in 2005/6. Further work is going on to verify this work and ensure that these cash savings can be secured. The first call on these savings will be to meet the existing savings targets (£0.1m in 2004/5; £0.3m in 2005/6) and the costs of strengthening the Procurement Team which it is essential to meet if we are to maximise savings in this area. Strategic procurement is new to Oxfordshire and there is still much to be done, in terms of improving systems to enable efficiencies to be realised. Some degree of risk around the targets for 2004/05 and for 2005/06 exists. The element of risk needs to be carefully evaluated in coming to a final proposed budget for 2005/06 and the medium term.

    22. (d) Other efficiency workstreams

  22. The CCMT budget management proposals assume that the corporate efficiency savings programme will produce total savings next year of £2m. This will require savings of up to £1m from the other workstreams. A BPR review of recruitment practices cross Council has been undertaken and is due to report back in September. The review appears to be successful in that it pinpoints ways in which better working across the Council can secure efficiency savings of around £0.600m (although not all of these may be cash releasing). However, further work needs to take place to ascertain to what extent these will be cash savings realisable for 2005/06. Work is being undertaken to identify the scope for other savings from BPR and the other workstreams. An update on this work will be reported to the Executive in November. The £2m from the corporate efficiency savings work programme can not be relied upon at this stage. The risks around achieving this will need to be carefully evaluated before it can be included as a definite saving.

  23. Overall the £4.9m per annum efficiency saving built into the MTFP represents less than 1% of our net budget in each year. This is broadly equivalent to the cashable saving of 1.25% proposed by the Government.

    24. Summary

  24. The aim of the CCMT Budget Management Proposals is to address the efficiencies target in the published MTFP and to provide for the gap left from the expected reduction in grant from government announced by the Comprehensive Spending Review. Although the latter was not announced at the time the proposals were formed, CCMT’s desire to provide some cover for either changes to our grant assumptions or additional pressures arising in 2005/06 appears to be justified.

    25. Beyond 2005/06

  25. The published MTFP assumes that Total Formula Grant will increase by 3.0% per annum in 2006/07 and 2007/08. The Spending Review adds both extra spending and grant in those two years.

  26. However, the council tax increase assumed in the published plan for 2006/07 and 2007/08 is 5.5%. The Spending Review suggests an increase in the council tax of 5.5% in 2006/07 and 5.1% in 2007/08. However, it is important to note that those increases reflect the cash raised from council tax, not the increase in the Band D Council Tax. Since the council tax base tends to increase each year, the resulting increase in the national Band D tax rate increase should be less than these amounts in each year. That means that council tax increases of 5.5% may be higher than the national average in those years. Since the planned contingency is around £8m in each year, the position in 2006/07 and onwards is likely to remain very tight.

    27. Schools Funding

  27. Since the Budget, the Government has announced further changes to school funding from 2006/07 when the Schools Block FSS allocation will be replaced by specific grant. However, the Spending Review figures assume that there is no change as a result of this. If our FSS is replaced by specific grant, our formula grant would reduce accordingly, leaving the council tax increase broadly unchanged. It is unclear what impact the removal of schools budgets from our net expenditure would have on the 2% balances target.

  28. We will provide further updates about 2006/07 and onwards as the information becomes available.

    29. Risk Analysis

  29. The MTFP includes £4.9 million efficiency savings. The Spending Review 2004 suggests we may be £2.6m million worse off than in the MTFP assumption on total formula grant. In order to meet this target and provide some additional cover for the anticipated gap in funding that has emerged, CCMT have proposed budget management arrangements to secure £8m cash releasing savings. This sum is made up of the following:

    • Heads of Service have been asked to contribute £6m, by reducing expenditure across services by around 2.4%. They are due to come forward with their proposals by the end of September.

    • A further £2m has been identified from the corporate efficiency savings programme.

  1. Both these areas have a degree of risk around them, because the actual savings are not yet identified. It is not possible to say whether the £6m target for Heads of Service is acceptable until the results have been analysed. However there are other risks that we must consider as follows.

    2. Formula Allocation Issues

  2. The Spending Review 2004 only provides national figures that at this stage allow us to make assumptions about Oxfordshire’s individual funding allocation. However, there are various unknown factors that will impact on our actual funding.

    3. Census Data: General Population Estimates

  3. 2001 Census data has been used to calculate the population figures included in the formula grant calculations since 2003/04. On 8 July, revised population estimates were issued for 15 local authorities that increased their figures. It is virtually certain that these revised estimates will be used to recalculate grant figures for the 2003/04 and 2004/05 settlements. Revised grant figures will be issued in "amending reports" at the time of the 2005/06 settlements. The result of this is likely to be that grant figures for 2003/04 and 2004/05 will be reduced slightly. Grant payments in 2005/06 will be reduced to recover any "overpayment" of grant.

  4. No population estimates for Oxfordshire were changed in the 8 July announcement though we have some concerns about our population figures. When new population data from the 2001 Census data was first introduced for 2003/04, we lost around £4m of grant as a result.

    5. Census Data: Use of Other Data from the 2001 Census

  5. Much other data is now available from the 2001 Census and we had expected Oxfordshire to benefit if this data was included in the 2005/06 FSS and grant calculations. However this data will not be used until 2006/07 at the earliest even though the corresponding population estimates are being used. As an example of what this means in practice, one might imagine a family of two adults and children, where the relationship has broken up and one of the adults has left Oxfordshire. This is reported on the 2001 Census form for that household by the remaining adult. The government has chosen to use the fact that one person has left Oxfordshire to reduce our population estimate and grant, but ignores the fact that there are now more children living in households containing only a single adult in Oxfordshire - which would increase our grant.

    6. Capping

  6. On 12 July, it was announced that six authorities were to be 'capped' for increasing both their council tax and spending by too much in 2004/05. ODPM continue to say that the government is looking for council tax increases of 3% in 2005/06, even though the underlying cash increase in the council tax required by the 2004 Spending Review is 6.7%. Increases of 3% could only be achieved if authorities increase spending by less than the increases suggested by the government in the 2004 Spending Review. When combined with the requirement to passport given increases to education this would have severe effects on all other services.

    7. Continuation of £340m additional grant paid to authorities in 2004/05

  7. In December 2003 the Chancellor unexpectedly announced that a further £340m of grant (of which Oxfordshire’s share was £4.4m) would be given to authorities to help hold down increases in the council tax. Since the 2004 Spending Review figures were issued on 14 July, it has become clearer that this additional grant has not been included in the 2005/06 grant figures. Thus the possibility of another sudden late announcement of extra grant during the RSG consultation period from November 2004 to January 2005 is, if anything, increased. This increases uncertainty and makes planning difficult. This is a very important point not to lose sight of, which would have a major impact on our planning assumptions.

    8. Balance of Funding Review

  8. On 20 July, the Balance of Funding Review reported. This review has been looking at the local finance system and the gearing-up effect that it has had on council tax. The Review might have led directly to firm recommendations for changes in the local taxation system. Instead, the government immediately set up another inquiry, to be chaired by Sir Michael Lyons, which will collect more evidence and report by the end of 2005.

    9. Local Authority Business Growth Incentive Scheme

  9. On 4 August 2004, some more proposed details of the Local Authority Business Growth Incentive (LABGI) scheme were announced for consultation. We are advised that this consultation period ends on 29 October 2004. The scheme aims to give local authorities an incentive to increase the growth of business rateable values in their areas. At present, all business rates are paid into a national pool, from which they are distributed to all authorities. Thus the benefits of growth in one area are spread across the whole of England. Under the new LABGI scheme, if the growth in business rate income from a district increases by more than a given target, the local authorities in that area will keep a share of the extra income generated for that year. There are many complications, to set and review targets, to limit the amount of extra income that can be retained locally and to allow this to increase in future years.

  10. There is uncertainty about the effects of this scheme on the Council. We do not know how well each of our districts will perform compared to the targets and we do not know how well other authorities in England will perform. If the rest of England performs very well, the effect might be to divert business rates to them, which we might otherwise have shared. It may be very difficult to establish what the net effect of the scheme is. We have supported this proposal because it should encourage economic development and strong and successful partnerships with local businesses.

  11. However one proposed feature of the new scheme gives grounds for concern. This is the proposal to share the rates retained locally 'approximately 35% to the upper tier and 65% to the lower tier'. This is quite different from the normal division in which county council’s we (the 'upper' tier) get 91% and the districts get 9% of business rates. Thus to the general uncertainty about the effects of LABGI might be added the certainty that the scheme will divert a larger share of business rates to districts. Of course it can be argued that the growth in business rates might not have taken place if it had not been for economic development effort by the districts as a result of the scheme and, in the long run, benefits will flow into the national pool and to support all authorities.

    12. County Council Elections and General Election

  12. County Council elections and a general election are expected in 2005. Both of these could impact on funding and policies in future years.

    13. Council Tax increase

  13. Although at this stage it appears that a 6.0% increase in 2005/06 may be acceptable, the Government may indicate that they would like to see lower increases. Each 1% reduction in the Council Tax increase would reduce funding by £2.0m.

    14. Implementation of efficiency savings nationally.

  14. It is currently unclear how the government will expect individual authorities to meet their efficiency proposals.

    15. Preserved Rights Grant Function Change

  15. Preserved Rights Grant will partially transfer into FSS in 2005/06 (more). The MTFP includes a £3.4m addition to S&HC budgets to reflect this change. Social & Health Care have confirmed that they will need the £3.4m to fund existing preserved rights clients. However, there may be some change to this figure, because some of the grant may remain for 2005/06. This is being investigated.

    16. Capital Programme

  16. The Capital Programme is agreed by Council each February as part of the Budget Setting Process. There are three key links between the Capital Programme and the Revenue Budget as follows:

  • The costs of borrowing to fund the capital programme fall on the Revenue Budget
  • Revenue consequences of capital schemes need to be met from within the Revenue Budget
  • The Council can use revenue monies to pay for capital projects

Under the prudential guidelines Councils can borrow to fund additional capital spending providing they have the revenue budget provision to pay for the costs of borrowing and repaying the debt.

Prudential Guidelines

  1. Under the Local Government Act 2003 the Council has been given more freedom to borrow to fund the capital programme. The Council has to demonstrate that the additional borrowing is prudent, affordable and sustainable. It does this by setting a number of prudential indicators each year that are approved by full Council.

  2. Our current approach has been cautious. We have assumed that borrowing under the prudential guidelines will be used to fund Invest to Save projects, which must demonstrate that savings cover the debt charges generated by the borrowing. This must be demonstrated by the preparation of a full business case for approval by the Executive. However, in addition the Medium Term Financial Plan allows for the revenue costs of additional borrowing under the prudential guidelines of £2m per annum from 2004/05.

    3. Homes for Older People

  3. The Council has entered a contract with the Oxford Care Partnership, which involved the externalization of the Council’s Homes for Older People. The contract resulted in increased costs to the revenue budget, which reflects the costs of investment required to bring the Homes up to registration standard.

  4. In the early years of the contract there is an identified stream of capital receipts, which are being used to offset the date at which the full revenue costs hit the revenue budget. These costs are built into the Medium Term Financial Plan. There is currently a review of the provision of homes in West Oxfordshire, which could have implications on the date that the full revenue costs are to be met from the revenue budget. Other funding problems identified arising from slippage of a capital receipt are identified earlier in the report.

    5. Available Capital Resources

  5. After allowing for Schools and Transport capital resources, the remaining capital resources are available to meet other Council capital priorities. A significant number of bids has been identified, most of which can not be funded given the limited resources available (unless prudential guidelines are used) It is recommended that the Directorates be requested to identify and prioritise capital bids for 2005/06 to 2009/10, which can be considered against available resources.

  6. There are some commitments already against the available resources, these being £0.103m for Standlake store in 2005/06 and £0.405m for the Pegasus Theatre (with a further £0.375m in 2006/07) for schemes that attract lottery funding.

    7. Three Year Capital Programme

  7. The Council’s Capital Strategy requires the development of a three year forward capital programme. This is also a requirement under Prudential Guidelines where the Council is required to agree a total capital programme for three forward years as part of the budget process. RSM Robson Rhodes also make recommendations on this point.

  8. It is proposed that the Capital Programme & Asset Management Steering Group be asked to bring forward proposals to the Executive for an indicative capital programme for 2005/06 to 2007/08.

    9. Budget Process and Timetable

  9. Annex 3 shows the proposed timetable for the 2005/06 budget process.

    10. RECOMMENDATIONS

  10. The Executive is RECOMMENDED to:

          1. note the report;
          2. approve the CCMT budget management proposals set out in the report;
          3. ask officers to continue to pursue with government the issue of whether the £4.4m of additional grant received in 2004/05 will be continued for 2005/06;
          4. ask the Capital Programme & Asset Management Steering Group to bring forward proposals for an indicative capital programme for 2005/06 to 2007/08;

 

JOHN JACKSON
Director for Resources

Background Papers: Nil

Contact Officer: Jenny Hydari Assistant Head of Finance (Accountancy) Tel. 01865 815401

August 2004

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