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Cabinet
Tuesday, 15 November 2005

CA151105-06

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ITEM CA6

CABINET – 15 NOVEMBER 2005

REVENUE BUDGET & CAPITAL PROGRAMME: SERVICE AND FINANCIAL PLANNING 2006/07 – 2010/11

Report by Chief Executive and Director for Resources

Introduction

  1. This report is the second in a series informing members on the service and financial planning process and issues for 2006/07 and the medium term. The report sets out the latest information on the Council’s financial position. It also provides an update on CCMT’s budget management proposals for 2006/07 and outlines areas of uncertainty. A summary Budget Fact Sheet, the second in the series will be published alongside the report to give an easily accessible step by step guide of the key issues as they emerge.

    2. Executive Summary

  2. The Medium Term Financial Plan (MTFP) includes a sum available to allocate for 2006/07 of £9.2m. This is dependent upon achieving efficiencies/savings of £5.0m. CCMT have already identified £4.3m of efficiencies as part of the budget process leaving a shortfall of £0.7m. In addition, £0.5m of previously agreed policy plans are no longer required which reduces the existing commitments in the MTFP. Based on these two changes, the sum available to allocate is currently £9.0m.

  3. The Directorates have identified non-discretionary pressures against the contingency. For all other pressures which represent policy choices, Directorates have been asked to identify how they intend to fund these. There is some additional one off money available to fund one off pressures which is currently estimated to be between £1.1 and £3.5m.

  4. The final amount required for balances is being reviewed and a full risk assessment undertaken. There remains substantial uncertainty around the outcomes for Oxfordshire of the Formula Funding Share (FSS) and grant review. The provisional settlement will be known in early December and this will make the funding position much clearer. There is little flexibility around the capital programme with £1.9m available to allocate in 2008/09.

  5. All services are required to produce their service and financial plans for 2006/07 (and beyond) by the end of January 2006. The next stage of the process will be for Scrutiny to review the budget proposals put forward by CCMT in December.

    6. 2006/07 Net Expenditure and Funding

  6. The table on the next page sets out the starting point for the 2006/07 budget per the revised MTFP and shows the anticipated changes based on latest information. Changes from the previous report are explained in the following paragraphs.

    7. Previously Agreed Policy Plans

  7. The 2003/04 MTFP included potential increases in pension costs associated with the Homes for Older People contract from 2005/06 of £0.5m. This represented the past service deficit in respect of those staff transferring to the contract. It has now been determined that this sum is not required. In addition, with the proposed transfer of Firefighters pensions out of Formula Spending Share, to be funded instead by a specific grant, the ongoing policy plan relating to increases in pension costs based on predicted Firefighter retirements in future years will no longer be required. This is £0.09m in 2006/07 and £0.286m in 2007/08.

    Starting Point for 2006/07 Budget per Revised MTFP    
      Revised MTFP Latest Position
      £m £m
    Gross Budget 2005/06 777.5 777.5
    Less:    
    Specific Grants 2005/06 123.9 123.9
    Income 2005/06 69.6 69.6
         
    Equals: Budget Requirement 2005/06 584.0 584.0
         
    Add new 2006/07 items:    
    (i) Inflation 15.3 15.3
    (ii) Previously Agreed Policy Plans 1.0 0.5
    (iii) Other Variations Agreed in MTFP 0.2 0.2
    (iv) Efficiencies and Savings -5.0 -4.3
    (v) Available to Allocate to Council Priorities 9.2 9.0
         
    Equals: Budget Requirement 2006/07 604.7 604.7
         
    Funded by:    
    Total Formula Grant (assuming 3.2% increase) 367.2 367.2
    Council Tax (including surpluses) (assuming 4.375% increase) 237.5 237.5
         
    Total Funding 2006/07 604.7 604.7
         

  8. As part of the 2005/06 budget, £0.25m of savings relating to Telecommunications were included as a Policy Plan. At its meeting on 20 September, the Cabinet agreed a supplementary estimate to reinstate the savings of £0.25m. Actual savings arising from the contract are now expected to be £0.112m in a full year. As a consequence of this, there is a shortfall in the base budget of £0.138m.

  9. These changes reduce the commitments arising from previously agreed policy plans from £1.0m to £0.5m in 2006/07 and from £2.7m to £2.4m in 2007/08.

    10. Efficiencies and Savings (and the Efficiency Savings Strategy)

  10. Work on the procurement element of the efficiency savings strategy has identified potential savings next year of £0.3m. The Procurement Team is working with Directorates to achieve other efficiencies which should come on line in 2006/07. However these are only in the exploratory stage and it is too early to include any potential savings in future years budgets.

  11. Some potential has also been identified for increasing income by £0.4m. This includes increasing fees and charges income by 3%, which is 1% above the MTFP assumptions.

  12. CCMT have agreed that the balance of savings required should be allocated out to Heads of Service on a pro-rata basis. £4.4m equates to 1.72% saving for each service. As last year, services were expected to focus initially on the scope for making further efficiency savings on top of those achieved this year.

  13. Services have provisionally identified how they intend to meet these targets although further work needs to be undertaken to verify their achievability. An initial response indicates efficiencies of £3.6m, which when added to the procurement and income generation savings totals £4.3m, compared with £5.0m target.

    14. Savings Targets – Provisional Intentions of Services

    £m

     

     

    Procurement

    0.3

    Income Generation

    0.4

     

     

    Learning & Culture

    0.5

    Social & Health Care

    2.2

    Environment & Economy

    0.8

    Community Safety

    0.0

    Resources

    0.1

     

     

    TOTAL

    4.3


    Sum Available to Allocate to Council Priorities

  14. The Medium Term Financial Plan (MTFP) includes a sum available to allocate to Council Priorities of £9.2m, which is the amount of funding available within the constraints of a 4.375% Council Tax after taking into account items already agreed (inflation, on-going policy plans and other approved variations). This sum is however dependent on achieving £5.0m of efficiencies and savings as set out in the MTFP. It should be noted that the sums already agreed can be reviewed as part of the budget process to ensure they are still relevant and required.

  15. The table above shows that currently savings identified total £4.3m, which falls short of the sum required by £0.7m. This shortfall is partly compensated for by £0.5m of previously agreed policy plans which are no longer required, reducing the existing commitments in the MTFP. As a result of this, the sum available to allocate is revised down by the net difference from £9.2m to £9.0m.

  16. Potential calls against this sum relating to pressures have already been identified and these are currently being reviewed. As the sum available to allocate is not sufficient to cover the potential pressures and other priorities for funding, CCMT and Heads of Service are to undertake further work. This includes:

    • CCMT to agree a list of pressures deemed non-discretionary which will be funded from the sum available to allocate

    • Heads of Service to ensure that savings have been identified to match each pressure

    • Heads of Service to prioritise each pressure and saving

    • Heads of Service to set out for each of the pressures and savings identified, the scope and consequences of not providing funding, or removing funding in terms of outputs and outcomes

  1. This work will be carried out over the next few weeks and a detailed schedule of pressures and choices as to how these could be funded will be available for Scrutiny Committees to consider in December.

    2. Additional One-off Funding in 2006/07

  2. There is expected to be some unbudgeted one-off funding available for 2006/07, from the following sources:

    • additional interest income expected from higher balances

    • expectations around PSA reward grant

    • the Local Authority Business Growth Incentive (LABGI) Scheme

    • collection fund surpluses (above that assumed in the MTFP)

  1. It is too early to be able to quantify exactly how much additional funding will be available, but it is expected to be between £1.1m and £3.5m. The Head of Finance & Procurement has advised that this one-off funding should be used to finance one-off pressures, or where there is a clear course of action to deal with on-going pressures post 2006/07.

    2. Integrating Service and Financial Planning

  2. Stage 2 of the process for integrating service and financial planning has now been completed. This part of the process was for services to define the services that are delivered currently in terms of outputs and outcomes (not inputs). This establishes current service levels, which ties in with the basic service structure of the County Council defined at Stage 1 of the process.

  3. Consideration is now being given to a proposed format for developing new service plans. It is intended that they will reflect the work already done on defining outputs and outcomes and will include:
    • Key outcomes which we aim to achieve
    • How we will measure success, including key milestones
    • Outputs or milestones by which we will judge progress towards intended outcomes including key performance indicators and analysis of risk
    • Service budgets

  1. The development of the service plans forms stage 3 of the service and financial planning process and is scheduled for completion by the end of January 2006.

    2. 2005/06 Financial Monitoring

  2. The latest projected position for financial monitoring is set out in the table below.

    3.  

    2005/06 latest projected variation

    (- indicates under spend)

     

    £m

    Learning & Culture

    1.267

    Social & Health Care

    0.738

    Environment & Economy

    -0.258

    Community Safety

    0.400

    Resources & Chief Executive’s Office

    -0.074

     

     

    TOTAL

    3.180

  3. The major areas of overspend relate to Home to School Transport and Premature Retirement Compensation in Learning & Culture, Children and Families and Learning Disabilities in Social & Health Care, the Youth Offending Service in Community Safety and Supporting People. Environment & Economy have redirected underspends of £0.716m and unexpected income of £0.241m in Transport against alternative priorities and this should help alleviate pressures which would otherwise impact in 2006/07.

  4. Where there are overspends which are liable to continue in future years, these should have been identified as part of the budget process. Likewise any underspends which are likely to continue should also be reviewed.

    5. Beyond 2006/07

  5. The MTFP includes a sum to allocate in 2007/08 of £15.1m. This is based on a 5% increase in formula grant arising from the 2004 Spending Review. Included in this was an expected increase in Schools FSS of 6.8%. Based on this assumption, and what is already included in the MTFP for increases in schools block spending, it is anticipated that £8.6m of the £15.1m will need to be passed onto Schools via the Dedicated Schools Grant (DSG) reducing the available contingency to £6.5m. The sums to allocate in 2008/09 and 2009/10 are £6.5m and £6.9m respectively based on 3% growth across all services. At this stage it is also assumed that the increase in funding for 2010/11 will be 3%. The £5.0m efficiency target continues up to 2008/09 only and a decision will need to be taken around whether this should continue after that.

  6. Some pressures for future years have already been identified and were detailed in the previous report. These include increases in Landfill Tax after 2008/09, and possible revenue effects of the Homes for Older People contract in 2007/08.

  7. In addition, the Government’s measure of inflation, the Consumer Price Index (CPI) rose to 2.5% in September. The MTFP assumes annual increases of 2.0% for inflation on all non-pay items, which may not now be considered sufficient. The MTFP also includes increases of 2.5% each year for pay inflation, given increases in recent years for all Council workers have been up to 3%, and Directorates have been absorbing the shortfall in funding since 2004/05, the amount set aside in future years should be reconsidered.

  8. The table below shows the latest position in respect of the sum still available to allocate for years after 2006/07.

    9.  

    2007/08

    2008/09

    2009/10

     

    £m

    £m

    £m

    Sum available to allocate per revised MTFP

    15.1

    6.5

    6.9

    Less:

     

     

     

    DSG Increase

    8.6

     

     

    Landfill Tax

     

     

    0.8

    Homes for Older People

    1.6

     

     

    Additional 0.5% Inflation - Pay

    0.8

    0.8

    0.8

    Additional 0.5% Inflation – Non pay

    0.6

    0.6

    0.6

     

     

     

     

    Current sum available to allocate

    3.5

    5.1

    4.7

    Balances and Reserves

  9. The Financial Monitoring Report elsewhere on the agenda identifies that forecast balances at 30 September are £12.442m, with further potential calls of £0.650m relating to the anticipated overspend on Supporting People, which is intended to be returned to balances in 2006/07. Balances also include £2.0m from interest on cash balances up to half of which may need to be returned to the Capital Programme to maintain its value.

  10. The projected net expenditure for 2006/07 based on a 4.375% Council Tax increase is £604.7m. The Financial Strategy for the Council states that we should aim to maintain balances at 2% of our net budget. This is the estimated total required to cover known and anticipated risks and to allow for unforeseen circumstances. A full risk assessment to establish the prudent minimum level for balances is being revisited as part of the budget process. To achieve balances of 2% (if that is still deemed to be the correct level following the risk review) would require minimum balances of £12.1m. A further £4.1m contribution is already allowed for in the MTFP, depending on the outcome of the risk assessment it is possible that not all of the £4.1m contribution to balances will be needed.

  11. As the grant settlement is expected to be tight in 2006/07, there is a growing interest at the Treasury and ODPM about the use of reserves. A full analysis of projected reserves for 2006/07 is being undertaken currently and will be reported in the next Service & Financial Planning Report to Cabinet on 20 December.

    12. Total Formula Grant Forecast

  12. The MTFP total formula grant forecast for 2006/07 is £367.2m. Of this, an estimated £285.9m will be DSG, this assumes a 6.8% increase (the government have promised at least 6%). This potentially leaves £81.3m as the residual grant figure. If the DSG is higher, the residual grant will be smaller.

  13. Our forecast assumes that the benefits of the extra resources announced for the 2005/06 Settlement, (estimated at that stage to be worth around £6.2m for Oxfordshire) would not continue and that having deducted this we would then receive a 5% increase in grant.

  14. Uncertainty about the grant forecast continues, for various reasons, including:
  • Continuation of extra resources announced for 2005/06
  • The FSS formula and grant review
  • The uncertain effects of grant floors
  • The introduction of DSG
  • Draft amending reports

  1. The FSS Formula and grant review includes over 40 options for changing the system. Very recently, revised versions of three of the options that have significant effects on Personal Social Services (PSS) have been announced. Including these three very recent changes, the 19 best options for change in the review would now increase our grant by £3.349m, whereas the 20 worst options would lead to a loss of £31.953m. Thus there is a continuing high risk of large grant losses as a result of the review.

  2. Grant floors would probably delay the effects of the worst FSS and options. However, large losses would worsen our grant position, in the years after 2006/07. Grant floors might, in our most favourable forecasts, guarantee that our residual grant in 2006/07 would be no less than the notional amount for 2005/06 (of £88.234m). This would obviously be much more favourable than the £81.3m that we are currently assuming. This wide range illustrates the continuing uncertainty about the grant consultation announcement that is now expected in December.

  3. In the longer term, the introduction of DSG seemed likely to leave the Council slightly worse off, perhaps by £1.3m. Schools in contrast, could be £0.8m better off. However the consultation suggests that the government might include grant changes and grant floors that protect the Council against at least some and possibly all of the effect of introducing DSG, at least in 2006/07.

  4. Draft amending reports have recently been issued for 2004/05 and 2005/06. These show minor changes in both years to give a £0.043m increase in grant relating to 2004/05 and a £0.089m reduction in grant relating to 2005/06.The net amount (a grant loss of £0.046m) will be deducted from our grant payments during 2006/07.

    5. Capital Programme

  5. In February 2005 the Council agreed a three-year capital programme covering 2005/06 to 2007/08, which allocated all the available resources at that time.

  6. In February 2006 the Council will need to agree an updated three-year programme adding 2008/09 as the new year three. The Directorates have been asked to bring forward capital proposals for consideration against the resources available for 2008/09. These proposals will be brought forward in a future report to Cabinet, with a recommendation from the Capital Steering Group as to which schemes should be supported for inclusion in the three-year programme to be agreed by Council.

  7. The Council has in the past agreed a number of criteria for the capital programme. These include that Learning & Culture can bring forward a schools programme in balance with the resources available, Transport can bring forward a programme which allocates resources approved in the Local Transport Plan, and that the Council would utilise all credit allocations given by Government departments. Credit approvals given by Government departments attract grant through the revenue support grant mechanism. The costs of new borrowing to fund the capital programme are therefore broadly matched by additional Government grant.

  8. The capital programme is currently forecast to be in surplus by £22.6m at the end of 2005/06. This surplus will be mostly used up over the years 2008/09 as planned in the agreed capital programme, leaving a residual balance of £0.9m.

  9. In addition it is anticipated that the Council will receive a further £1m of credit allocation for 2008/09 in relation to fire and social services.

  10. This leaves £1.9m of resources available to fund new capital proposals in 2008/09. A the programme is in surplus up to 2008/09 there is an option to bring forward any projects considered urgent into years earlier than 2008/09.

  11. It may be prudent not to allocate all available capital resources fully at this stage, so that there would be a contingency available for any urgent capital issues that arise over the next three years. It may be appropriate at the stage to plan for only £1m of new capital projects, proposals for which will be brought forward from the Capital Steering group.

    12. Prudential Borrowing

  12. Prudential Borrowing is available in addition to government supported borrowing through credit allocations. The Council has to show that any additional borrowing taken under Prudential Borrowing is prudent and affordable. This is monitored by Council approving a series of Prudential Indicators each year.

  13. The Council has a policy to use Prudential Borrowing, but only where there are savings that meet the additional borrowing costs incurred. (Otherwise the revenue consequences of the borrowing would need to be positively justified as a policy change as an addition to the revenue budget.) To date the main commitment under Prudential Borrowing is tackling backlog maintenance in the Council’s buildings for which £25m has been allocated over six years. Further projects may come forward in the future requiring Prudential Borrowing and these will be brought to Cabinet for approval as they arise.

    14. RECOMMENDATIONS

  14. The Cabinet is RECOMMENDED to :

          1. note the report;

          2. refer the identified budget pressures in the respective service areas, and the choices as to how these could be funded, to the Scrutiny Committees for consideration and advice, on the basis of schedules to be drawn up and presented to the committees by the Head of Finance & Procurement with the relevant service officers, following consultation with the appropriate Cabinet Members.

JOANNA SIMONS
Chief Executive

JOHN JACKSON
Director for Resources

Background Papers: Nil

Contact Officers:
Sue Scane, Head of Finance & Procurement Tel. 01865 816399
Paul Edwards, Corporate Performance Manager Tel. 01865 815307
Lorna Baxter, Strategic Financial Planning Manager Tel. 01865 816087
Mike Petty, Strategic Finance Manager Tel. 01865 815422

November 2005

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