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ITEM CA8A

CABINET – 17 JANUARY 2006

SERVICE AND FINANCIAL PLANNING 2006/07 – 2010/11

Report by Cabinet Member for Finance

1. This report sets out the financial planning process and issues for 2006/07 and the medium term on which the Cabinet will base its recommendations to Council when it considers the budget on the 14^th February. It should be read alongside the service and financial planning report by the Director for Resources to the 17^th January Cabinet.
2. The report incorporates the financial strategy for the Budget and takes account of the provisional Local Government Finance Settlement, the views of the individual Scrutiny Committees and the latest information on the Council’s financial position from the Head of Finance & Procurement.

Strategy

3. The strategy is based on the Conservative Manifesto commitment to reduce the rate of increase of Council Tax each year during the four years of this administration. The MTFP has been amended by the Cabinet to show Council Tax increases of 4.375%, 4.25%, 4.125% and 4% for the years 2006/07 – 2009/10.
4. The strategy further comprises the following principles:

• The target of efficiency savings will be £5m for three years 2006/07 – 2008/09 and two years £4m 2009/10 – 2010/11 to provide headroom to allocate to non-discretionary pressures which are unavoidable.
• Policy choice pressures coming from Directorates should be met by compensating savings from each Directorate.
• Additional one-off income could be allocated to one-off pressures.
• Revenue balances will be maintained at a level commensurate with identified risks.

5. The basis for the provisional settlement has been radically changed by the Government to incorporate funding for schools being met entirely by a Specific Grant (DSG), i.e. there is no element of the Council Tax in schools’ block funding.
6. The calculation of the Total Revenue Support Grant (Revenue Support Grant and Business Rates) is based on an entirely new system which abolishes Formula Spending Share and Assumed National Council Tax levels, which are replaced by a calculation based on relative needs, relative resources, a fixed amount and a damping grant.
7. The amount of grant for the Council’s revenue expenditure, less the schools’ block, for 2006/07 is £91.5m which includes a damping grant of £8.2m. This grant will reduce over time and poses a risk to the Council’s MTFP.
8. Previously the Capital Programme was funded by FSS Capital to repay the principal and interest. The new system makes no allowance for the amount of borrowing allocation to each authority and might cause authorities to question whether or not to take up increased borrowing allocations.

Expenditure Plans

9. Following the settlement the sum available to allocate to expenditure was £8m. This has been revised to £12.1m following the addition of increased interest on balances and the reduction of the contribution to balances, previously estimated at £4.1m. Council Tax surpluses have been increased to £2.1m compared with £1.2m in the MTFP; this assumed amount is only provisional at this stage.

Efficiency Savings

10. This has been revised to show savings of £4.7m, a shortfall of £0.3m against the target of £5m. Whilst the savings become more difficult to achieve in each succeeding year, it is necessary to achieve savings to create headroom in the budget to allocate to the Council’s priorities as well as meeting the requirements of the Gershon report and the annual efficiency statement to the Government.

Expenditure Proposals

11. Expenditure proposals are detailed in the Annexes to the report by the Director for Resources total £11.6m, leaving £0.5m available to allocate.
12. The proposals which I am recommending to the Cabinet include adding back the following savings totalling £316k: Cogges Museum £93k to remain open to schools and public; Trading Standards £73k to avoid reduction in the service; and Youth Service £150k so that the service can be staffed to its establishment figure. The efficiency savings from the Fire Service which were stated to be identified at a later stage are not required.
13. Non-discretionary pressures (Annex 2b £7.0m) are proposed to be funded and include £1.5m for the effect of the pensions changes revoked by the Government. Consultation with the unions to re-introduce the changes is taking place at the present time but will not be concluded when the Council sets its budget in February. Assuming the necessary legislation is re-enacted, this allocation could be used for other purposes.
14. It is proposed to fund the difference (Annex 2c £2.0m) between the policy choice pressures and re-prioritisations, 50% of which relate to corporate and cross directorate pressures.

One-Off Projects

15. One-off projects (Annex 2a £2.6m.) are proposed to be funded. In addition to these pressures, further pressures relating to ICT £3.1m have been identified and could be funded from available PSA reward grant and LABGI income when the funding becomes available. It is however proposed that the PSA reward grant should be divided 80% to the Directorates and 20% to the corporate centre as originally proposed.

Conclusion

16. These proposals meet the Manifesto commitments of reducing the rate of increase in Council Tax, maintaining sufficient balances and allocating sums available to meet the Council’s priorities. I will be recommending that the Cabinet accepts these proposals subject to taking into account the views of the Corporate Governance Scrutiny Committee and will ask the Cabinet to recommend these proposals to the Council.

CHARLES SHOULER
Cabinet Member for Finance

Background Papers: Nil

January 2006

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