ITEM CA9
CABINET – 20 NOVEMBER 2007
SERVICE AND RESOURCE PLANNING 2008/09 – 2012/13
Report by Chief Executive and Assistant Chief Executive & Chief Finance Officer
Introduction
1. This report is the second in a series on the Service and Resource Planning process for 2008/09 to 2012/13, providing councillors with information on budget issues for 2008/09 and the medium term. The report sets out the main issues from the 2007 Comprehensive Spending Review and, where it can be ascertained, the impact on Oxfordshire.
2. The Chancellor announced the 2007 Pre-Budget Report and Comprehensive Spending Review (PBR/CSR) on 9 October 2007. He proposed that public spending would rise from £589 billion in 2007/08 to £678 billion 2010/11. This is an increase of over 15% over three years, or 4.8% per year on average. With inflation assumed to be 2.7% per year, the increase is equivalent to an extra 2.1% per year in real terms.
3. Above average increases in spending are planned for the NHS (4% per year in real terms) and Education (2.8% per year in real terms). The increase planned for local government is less than the overall figure, representing a real terms average increase of 0.9% per year.
4. The following annexes are attached:
Annex 1: Specific Grants Schedule (download as .pdf file) Annex 2: Schools Capital Allocations (download as .pdf file)
Formula Grant
5. Formula Grant increases for England are expected to be 3.8% in 2008/09, 2.8% in 2009/10 and 2.6% in 2010/11. Assuming inflation of 2.7%, the real terms increase in Formula Grant is therefore 1.1%, 0.1% and –0.1% compared with the average increase of 0.9% a year and effectively there is no real terms increase in 2009/10 and 2010/11.
6. We note that around £950m of extra non-domestic rates, which are included in Formula Grant, is likely to be raised by increasing the rates paid on empty properties. This could have funded a 4.2% real increase in Formula Grant in 2008/09. Thus local government does not seem to have benefited from this increase in taxation.
7. Oxfordshire County Council’s Formula Grant is currently ‘subsidised’ by Damping Grant. This means that in subsequent years we can only expect to receive the minimum grant increases guaranteed by Ministers. For planning purposes, we have assumed that Formula Grant would increase by 1% per year in cash terms.
8. In previous years, the minimum increases have broadly been set at one percentage point below the national average increases. Thus we might benefit from minimum increases of as much as 2.8%, 1.8% and 1.6%. There is room within these increases to allow for a minimum 1% increase each year, so our planning assumptions are still valid.
9. Further consideration of our possible Formula Grant figures is included later in the report.
3% Efficiency Savings
10. The existing Annual Efficiency Savings (AES) target was to find 2.5% of savings each year, for 2005/06, 2006/07 and 2007/08. At least half of the savings or 1.25% had to be ‘cash releasing’ [1].
11. The Government has now increased the target to 3% of cash releasing efficiency savings in each of the next three years which is anticipated to generate savings of £4.9 billion in Local Government.
12. The 3% saving each year equates to approximately £10m for Oxfordshire compared with the £4m required at 1.25%. It will be difficult to meet the 3% target.
13. Under the new arrangements, local authorities will not be setting individual savings targets although each authority will have to report its savings twice each year via a new national indicator. Where the indicator ‘shows that little progress is being reported, that would be a trigger for further investigation by the local Government Office to understand the reasons’. Under-performance could contribute to a Government decision to intervene locally.
Specific Grants
14. Four specific grants are being transferred into Formula Grant in 2008/09 the grants are set out in the table below.
15. The figures for the first three grants reflect the amount received in 2007/08. The Waste Performance and Efficiency grant was to have ended in 2007/08 but a further £43m is being added nationally in 2008/09, it is estimated that the Council’s share will be about £0.312m.
16. The grants for Children’s Services and Waste Performance and Efficiency were part of the Local Area Agreement pool, which can be used for any appropriate local purpose as agreed by the Oxfordshire Partnership. Provisionally, at least 39 other Specific Grants are being transferred into the Local Area Agreement pool, which is to be known as the Area Based Grant (ABG) in future. Approximately £20m of grants currently paid to the County Council will be included in the ABG. This figure does not include amounts paid to districts and maybe other bodies that will be included in the ABG pool as well.
17. The principle behind ABG is to allow partnerships greater flexibility to allocate resources to priority areas of work as identified in the Sustainable Community Strategy/ Local Area Agreement. Oxfordshire’s Public Service Board has agreed to adopt this principle in the longer term with a transition year in 2008/09 when the proposal is to ‘passport’ funds in most cases but encourage partnerships to start pooling funds where possible.
18. Details of what amounts have been transferred into this pool and which grant they derive from have not always been easy to establish. As a result, it can be difficult to explain to partners such as districts councils where their grant funding has gone. Thus with 17 grants already in ABG, at least 39 grants moving into ABG and 2 grants moving out of ABG, it may be difficult to understand what has happened.
19. Two further grants may be transferred into ABG in future years: Supporting People from 2009/10 (Oxfordshire currently receives £19.850m for this grant) and Contact Point - formerly Sharing IS Index - from 2010/11 (although Oxfordshire does not currently receive an allocation for this grant).
20. Annex 1 sets provides a schedule of specific grants received in 2007/08 and categorises them into those remaining as specific grants, those transferring into the ABG and those transferring into RSG. Supplementary Business Rate
21. Currently business properties pay rates of around 44p in the pound and rates are increased each year in line with inflation. Business rates are now the main source of funding for Formula Grant.
22. From April 2010, local authorities will be able to levy a 2p in the pound Supplementary Business Rate, to ‘strengthen their economic role and improve their relationship with and accountability to business’. This can be used for investment and economic development projects.
23. Details of the scheme include:
· Property with a rateable value of £50,000 or less will not pay – thus excluding around 31% of the rateable base and 91% of the businesses · In Oxfordshire, a 2p rate would raise around £8.5m. Around 1,700 business properties would be affected · Where the supplement is used to support additional borrowing, the authority might have to accept a binding ceiling on their total borrowing. If borrowing for the supplementary schemes was more than planned, then borrowing for other capital projects would have to be reduced.
24. Implementing a supplementary scheme is subject to various requirements:
Consultation and Impact· The County Council would be responsible for setting up this scheme, not the districts. The County must consult the district councils on any proposed scheme however. · Authorities will have to assess the impacts and benefits and consult about any plans to impose a supplementary business rate
What Projects?· Projects must be those which otherwise would not have taken place and promote economic development · There will be a national projects panel to advise on the projects
Possible Ballot· If the projects proposed have more than a third of their cost funded by business rates, a ballot of the businesses involved is needed.
Local Authority Business Growth Incentive (LABGI)
25. The existing LABGI scheme has produced payments of £0.408m in 2006 and £1.294m in 2007 and should produce a final payment early in 2008. At the national level it was designed to produce up to £1 billion of payments over three years. Payments were made when increases in rateable value in a district exceeded a target rate of growth. The target rate depended on growth rates achieved in the past in each district.
26. The new scheme will distribute £50m in its first year 2009/10, then build up to £100m a year from 2010/11. Thus the new scheme is smaller in scale than the existing LABGI scheme. Based on the proportion of the total Oxfordshire has received under the current scheme, we estimate that our share could be £0.180m in 2009/10 rising to £0.360m in 2010/11.
27. A consultation has been launched about the way the new scheme will operate. Most of these proposed options would give more or less fixed amounts to local authorities. This would suggest a business rate redistribution scheme rather than an incentive scheme.
28. Other features of the new LABGI scheme might be that:
· Payments might be delayed for three years to fit in with the three year planning of Formula Grant · Payments may be limited by some sort of ceiling · The split of LABGI between counties and districts may be revised · LABGI may be paid into the ABG (see earlier section on Specific grants)
Other Announcements
29. Council Tax capping will continue. The Government expects Council Tax increases to be substantially under 5% in each of the next three years.
30. The new National Performance Framework comprises 198 national Performance Indicators, replacing the 1,200 existing indicators including the Best Value Performance Indicators. A maximum of 35 targets representing national priorities will be negotiated through the second Local Area Agreement. There will also be 17 statutory targets for Children and Young People. Much emphasis is being placed on the success of joint working and partnership arrangements.
31. Following reports by Derek Wanless for the Kings Fund and the Joseph Rowntree Foundation, the support and care system for older people will be reviewed. Consultation and extensive public debate will lead to a Green paper to identify the scale of the challenge, key issues and options for reform next year. This seems likely to focus on how we use existing resources.
32. Local authorities are to have a key role in delivering around £24 billion of the Government’s target of £30 billion of fixed asset disposals by 2010/11. Greater weight will be placed on asset management in the local government performance framework.
33. There are proposals to make developer contributions through the planning system fairer and more certain by introducing a new statutory 'planning charge'. Local authorities would set standard charges for infrastructure need, enabling them to capture planning gain more systematically. Charges would be based on the total costs if infrastructure in an area. Communities and Local Government will publish further details of the planning charge shortly.
Predicting Formula Grant
34. Our current estimate of our Formula Grant payment in 2008/09 is £93.184m. This is 1% more than the Council received in 2007/08 (£92.261m). However it is now known that various specific grants will be transferred into formula grant. To allow for these, figures for each of these grants should be added to the amount of grant the Council was paid in 2007/08 to give an ‘adjusted’ grant. The minimum percentage increase decided by the Minister will be added to the ‘adjusted’ grant. Thus if we assume that the minimum increase is still 1%, the Formula Grant for Oxfordshire in 2008/09 could be calculated as follows:
35. In previous years, problems have arisen when the Government has not clearly stated what cash adjustments have been made to give the ‘adjusted’ grant figure.
36. There is a risk that either the amount that is added to the Formula Grant for Specific Grants in 2008/09 is less than the 2007/08 figures or that the minimum increase in grant is lower than 1%. Conversely, the minimum increase could be more than 1%. With a 3.8% overall increase nationally, a minimum increase of 2.8% increase is possible in 2008/09. Based on the adjusted 2007/08 formula grant, every 1% change represents £1.008m.
Schools
37. The Dedicated Schools Grant (DSG) will continue to be distributed over the CSR period using the Spend Plus methodology, rather than through a single formula. The Spend Plus model is a basic per pupil increase plus an allowance on top to deliver the Government’s priorities. There will be a formula review to look at DSG distribution from 2001/12. The basic per pupil increase will be announced in the autumn along with funding for the Ministerial priorities.
38. Ministers put out to consultation earlier this year a proposal for a 5% levy on excess cash balances held by schools, which total £1.7billion nationally. The proposal was for the local authority to take 5% of the surpluses and share out that sum on a methodology agreed by the Schools Forum. This proposal has now been withdrawn.
Capital
39. Capital allocations for schools over the CSR period were announced on 10 October 2007 with the proportion of capital grant and supported borrowing announced on 26 October.
40. In response to representations from local government, the settlement provides a new balance between capital grant and supported borrowing, with the amount of supported borrowing reducing by almost half by 2010/11.
41. Allocations announced for Oxfordshire are set out in the table below.
42. The split between grant and supported borrowing is still to be announced for the funding allocation for the Primary Review. If the total amount was to be funded as grant, our total supported borrowing figure would be significantly less than the figure currently included in the MTFP. The difference would be £2.271m in 2008/09, £1.651m in 2009/10 and £6.726m in 2010/11. However, if funding is received through supported borrowing our 2009/10 and 2010/11 borrowing figures would be higher than those included in the MTFP by £3.516m and £0.819m respectively. The announcement is expected in December. Annex 2 sets out the detail of the allocations for schools.
43. An announcement on the Transport capital allocations and other services is expected as part of the provisional local government finance settlement
Financial and Legal Implications
44. This report is mostly concerned with finance and the implications are set out in the main body of the report. The Council is required under the Local Government Finance Act 1992 to set a budget requirement for the authority and an amount of Council Tax. This first report forms an initial basis for those requirements that will lead to the budget requirement and Council Tax being agreed in February 2008.
RECOMMENDATION
45. The Cabinet is RECOMMENDED to:
(a) note the report;
(b) consider as part of the Service and Resource planning process for 2008/09 exploring the possibility of a scheme for Supplementary Business Rates in Oxfordshire; and
(c) consider as part of the Service and Resource Planning process for 2008/09 the implications of the unannounced schools capital allocations for 2008/09 to 2010/11 being received through supported borrowing.
JOANNA SIMONS Chief Executive
SUE SCANE Assistant Chief Executive & Chief Finance Officer
Background papers: Nil Contact Officers: Lorna Baxter, Strategic Financial Planning Manager Tel: 01865 816087 Paul Edwards, Corporate Performance Manager Tel: 01865 815307
November 2007
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