ITEM CA6
CABINET – 18 DECEMBER 2007
SERVICE AND RESOURCE PLANNING 2008/09 – 2012/13
Report by Chief Executive and Assistant Chief Executive & Head of Finance
Introduction
1. This report is the third 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. It follows on from reports to Cabinet on 18 September and 20 November 2007. The report sets out the review of charges, provides an update on the Service and Resource Planning process and includes the latest information on the Council’s financial position.
2. The draft Local Government Finance Settlement is expected in early December. A supplementary report will be issued once the outcomes are known, setting out the financial implications for the Council.
3. The following annexes are attached:
Annex 1a: Review of charges (download as .doc file) Annex 1b: Current and proposed charges (download as .xls file) Annex 2: Investment Proposals Annex 3: Pressures, Priorities, Efficiencies, Savings and Service Reprioritisations (download as .xls file) Annex 4: Capital Priorities (download as .xls file)
Review of Charges
4. As part of the work in completing the business plans, service managers have reviewed their charges. Annex 1a sets out the Councils charging policy and an analysis of the changes in income. The proposed charges are set out in detail in Annex 1b.
Service and Resource Planning process 2008/09
5. Cabinet Members and relevant officers have reviewed the business plans to ensure that resources are allocated to the highest priorities. They have challenged the proposed pressures and funding priorities plus the efficiencies, savings and service reprioritisations. In addition, a number of investment proposals are identified linked to key priorities. The proposals are set out in Annex 2.
6. Attached at Annex 3 is a schedule setting out, for each Directorate, identified budget priorities and pressures in the respective service areas and how these could be funded through efficiencies, savings and service reprioritisations. For some Directorates an imbalance of pressures and savings is currently presented. This does not imply that the balance will be funded. It represents the position based on the current proposals.
7. The impact of the budget priorities and pressures on the service are referred to in the annex by way of a key as set out below. The impact on the service of making the savings is also referred to by way of the same key, where:
8. The risk of not achieving the savings is also set out in the annex categorised into high, medium or low and the types of savings proposed are also set out in the annex. These have been categorised into: cash releasing efficiency, income generation and service reduction. In addition a category of not applicable has been used where the proposed saving is delivered by different funding stream (e.g. use of reserves, carry forwards etc). A cash-releasing efficiency saving means that the budget of the service is reduced but the same amount and quality of service is provided. Income generation is receiving a higher level of income whilst containing expenditure. A service reduction means that a lower level of service will be provided and/or a lower level of quality for the same/less money.
9. The table below sets out a summary for 2008/09, by Directorate, of the proposed budget priorities and pressures and how these could be funded:
10. Based on the current savings proposals summarised in the table above, £8.1m of the £10.0m efficiency and income savings are classed as efficiencies savings for Annual Efficiency Savings (AES) purposes. The Government has increased the target to 3% cash releasing efficiency savings from 2008/09; the target previously was 1.25% cash releasing and 1.25% non-cash releasing. A 3% saving target each year equates to approximately £10m for the Council.
Balances and Reserves
Balances
11. The Financial Monitoring report (CA5 on the agenda) sets out that balances to the end of October are £20.2m. There will be further calls on balances in the remainder of 2007/08 relating to the July floods and there is potential for further calls on balances in the remainder of the year. The table below sets out the anticipated position on balances over the medium term.
* As set out in the MTFP 2007/08 – 2011/12
12. The financial strategy states that the level of balances should be commensurate with risk. A revised risk assessment has been completed, taking into account the 2006/07 outturn, 2007/08 financial projections and issues (such as the floods) and the risks in the 2008/09 budget proposals. The revised risk assessment demonstrates that balances of £11.5m are appropriate for the 2008/09 budget, £1.5m more than the risk assessment undertaken for the 2007/08 budget. The most significant change from 2007/08 relates to the risk of costs incurred for weather related incidents. £1.0m was included in the risk assessment for 2007/08. Given the requests for supplementary estimates for the July floods already stand at £1.033m with further calls expected and that the winter could see further flooding or snow, the amount included in balances for weather related incidents has been increased to £2.0m.
13. From the tables in Annex 3, the total of high-risk savings proposed is £1.5m in 2008/09. This compares to £3.2m high-risk savings identified and included in the 2007/08 budget. The amount of high-risk savings increases over the medium term, though this it to be expected, as savings proposed further into the future are likely to be less certain. Where appropriate, some of the risks are included in the in the required level of balances for 2008/09, although this will need to be reviewed once the position on funding becomes clearer and the amount of savings to be achieved is known.
14. Based on a required level of balances in 2008/09 of £11.5m and assuming this level is also sufficient in future years, £4.5m is available for other one-off purposes. This will increase the one-off sum available for Council priorities (see paragraph 48 below) .The position will be reviewed in the next report once the outcome of the draft Local Government Finance Settlement is known.
Reserves
15. An analysis of the projected position in respect of earmarked reserves for 2008/09 has been undertaken to ensure that they are appropriate to service needs. The position is summarised in the table below.
16. Total reserves at 31 March 2007 were £42.8m, £2.9m higher than at 31 March 2006. Of the £42.8m, £17.3m relates to schools, which can only be spent by them. The estimated year-end position is reviewed monthly and included in the Financial Monitoring Report. The current forecast position at 31 March 2008, based on information to end of October 2007 (see CA5 on agenda) is £38.8m, giving an expected movement in-year of £4.0m. Of this, the most significant change is in the full use of the Shared Services Funding Reserve, £2.8m, which is being used to meet the set up costs of the shared services centre in the current and previous year. This reserve was created from unspent capital, which must be returned in order to fund the capital programme in future years. The set up costs will be repaid from savings arising from the operation of the centre. Other changes relate to a planned decrease in the On Street Parking Reserve (currently estimated at £0.7m), to fund capital works at the Thornhill Park and Ride, plus a reduction in the value of the Landfill Allowance Trading Scheme (LATS) Reserve. The LATS reserve represents the surplus landfill allowances accumulated up until the end of 2006/07 and the estimated surplus for 2007/08. The market value of the unused allowances has recently reduced from £17.98 per tonne to £5.00 per tonne, reducing the value of the reserve by £0.7m. If there is a nationwide surplus of allowances and a limited demand to purchase them, the value of the allowance may drop further by the end of the financial year.
17. The Social & Community Services emergency fund created as part of the 2006/07 budget has not been called upon in 2007/08 and it is not expected to be required going forward. It is proposed that the reserve is deleted and that the £0.860m remaining is added to the one-off funding available for consideration as part of the 2008/09 budget.
18. The pension fund’s actuary has produced the provisional results of the 2007 pension fund valuation. These indicate that, for the pension fund as a whole, an increase in the employers’ contribution rate of an average of 2.2% of pensionable pay is expected from 2008/09. The provisional results for individual employers including the County Council are expected before the end of December. The individual increase for employers may vary from the average but based on a 2.2% increase for the County Council, additional funding of £2.267m would be required from 2008/09. The MTFP already has £2.1m built in from 2008/09 and Annex 3 includes the additional £0.167m provisionally required. The final valuation results are expected early in the New Year, when a decision will also be made in respect of the use of the Pension’s reserve, which currently stands at £2.250m.
19. Further movement during 2008/09 of £2.8m is anticipated resulting in projected earmarked reserves of £36.0m by 31 March 2009. Strategic Measures
20. An initial review of the Strategic Measures budget has been undertaken across the period of the MTFP. As the market is very volatile at present, further scenarios are being examined and an updated forecast will be included in the Service & Resource Planning Report to Cabinet in January. This will take into account the Bank of England’s December decision on the bank base rate and inflation figures for November.
21. The Financial Monitoring Report (CA5 on the agenda) sets out the position on interest earned on the Council’s money market investments. Based on the currently higher bank base rate, it is anticipated that there will be a surplus of £2.5m in 2007/08 compared to the original budget. This could increase if base rate and the Baxter Index[2] remain at their current levels. The Baxter Index is currently significantly lower than the rate assumed in the budget, however as the index is heavily influenced by oil prices the rate could easily increase by the year-end. The initial forecast of interest earned on the Council’s money market investments over the medium term is based on anticipated bank base rates of 5.25% in 2008/09, 5.00% in 2009/10 and 2010/11, 4.75% in 2011/12 and 4.50% in 2012/13. Compared to the existing MTFP, which assumed base rates of 4.75% over the period of the plan, the following net interest on balances is expected:
22. The additional income projected from revisions on the Strategic Measures budget is much higher in 2008/09 than the on-going sum, reflecting the anticipated higher bank base rate remaining in 2008/09. It would be prudent therefore to assume that the on-going savings are approximately £0.7m with additional one-off income of £0.9m in 2008/09. These savings will increase both the on-going and one-off sum available for Council priorities.
23. There are risks associated with the assumptions as market conditions can vary significantly. These risks will be reviewed regularly so that early warnings can be given if there are likely to be significant changes to the budgeted figures.
24. The existing MTFP includes the costs of funding the Council’s full supported borrowing allocations as notified or estimated in December 2006. The Cabinet agreed as part of the 2007/08 budget to fund the full supported borrowing allocations up to 2007/08 and review the position from 2008/09 onwards.
Capital Programme
25. The Council received notification from the Government Office for the South East (GOSE) on 28 November 2007 of the Transport settlement for the period 2008/09 to 2010/11.
26. The Integrated Transport Scheme (ITS) allocations were confirmed as £8.493m in 2008/09, £8.080m in 2009/10 and £7.625m in 2010/11. One third of this allocation will be received in direct grant and the remainder will be received through supported borrowing.
27. The Highways Capital Maintenance allocations are £13.440m in 2008/09, £12.497m in 2009/10 and £13.529m in 2010/11. The total allocation is being provided as supported borrowing.
28. The following table shows how these allocations compare to the assumptions in the MTFP for the costs of the supported borrowing element:
29. Normally increases in supported borrowing are funded through a corresponding increase in Formula Grant. As the Council is a floor authority, it receives the minimum increase set by the Government, which does not reflect the additional cost of borrowing from any increased supported borrowing allocations. As a result, the Cabinet as part of their budget considerations, will need to decide whether or not to take up the full supported borrowing allocations and build in the additional costs of borrowing over the life of the MTFP. The cost of funding the increase in borrowing is £0.060m in 2008/09 rising to £0.537m in 2012/13.
30. As set out in the previous report, the Council is awaiting notification of whether the resources for Primary Review will be through supported borrowing or grant. 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.
31. Annex 4 sets out the capital priorities included in the Corporate Asset Management Plan, a draft of which was considered by Cabinet in November 2007. Currently the identified need totals £21.763m over the next three years, with further uncosted need in the region of £40m. After taking into account Schools and Transport allocations, there is very limited resource in the Capital Programme to address this need. An option for managing the need would be to use Prudential Borrowing to fund the schemes and to meet the cost from the sum available for Council priorities. There would be a choice of how much should be spent and over which period. In considering both the value and the timescale, the deliverability of the schemes would need to be an important factor.
32. A full updated Capital Programme will be presented to Cabinet in January 2008.
Prudential Indicators
33. As part of the Service & Resource Planning process for 2008/09 Council will have to approve a set of Prudential Indicators which show that the Council’s use of prudential borrowing is prudent, affordable and in line with the Council’s Treasury Management Strategy. These indicators will be taken to Council for approval in February 2008. Some of these indicators are around the Treasury Management Strategy and will be included in a report to Cabinet in January 2008.
34. The remaining indicators are dependant upon either the final agreed budget position or the notified supported borrowing allocations and cannot be calculated at this time.
Funding
Government Grant
35. The draft Local Government Finance Settlement is expected in early December. This will provide a provisional formula grant figure for 2008/09, 2009/10 and 2010/11. A supplementary paper will be produced setting out the implications for Oxfordshire, once the announcement has been made.
36. The consultation period on the 2008/09 grant, which will close in early January 2008, gives the Council an opportunity to express any reservations about the settlement. The final Local Government Settlement will then be announced in late January, providing final formula grant figures for 2008/09.
Specific Grants
37. Information on specific grants for 2008/09 is still being announced. Until all grant allocations are known, the overall position for the Council is not clear. An update will be provided for the next Service & Resource Planning Report in January 2008.
38. The total amount of Area Based Grant (ABG) for 2008/09 to 2010/11 will be announced as part of the provisional Local Government Finance Settlement. A comprehensive list of specific grants moving into ABG will be published when the allocations are announced. The Service & Resource Planning Report in November 2007 set out the grants to be included as a minimum in the ABG.
LABGI
39. It is expected that the Council will receive around £1m from the third and final payment of the current Local Authority Business Growth Initiative Scheme. The payment is expected at the end of February 2008, after Council has agreed the budget for 2008/09. As in previous years, an estimate of the amount will not be included in the budget for 2008/09. Proposals for its use (subject to the amount received) will come forward through the Financial Monitoring Reports.
Taxbase
40. Early indications based on information from two District Councils, are that the taxbase for 2008/09 could be lower than estimated in the MTFP. This has implications for the amount of funding available, as the Council Tax would be collected from fewer properties and therefore raise less income.
41. One of the reasons that the increase in taxbase may not be as high as expected is due to the number of exempt dwellings arising from the July floods. The final taxbase for all District Councils will not be confirmed until mid January 2008.
Issues Beyond 2008/09
42. The table below sets out a summary of the year on year pressures and equivalent savings for each Directorate after 2008/09 over the medium term. The most significant of these pressures are discussed in the ensuing paragraphs.
Waste
43. The budget for Waste set out in the current MTFP includes the estimated costs from 2010/11 for the authority to either purchase Local Authority Trading Scheme (LATS) allowances from other authorities or incurring LATS fines. The projections have been revised to take account of changes to recycling targets set by the Oxfordshire Waste Partnership, which have reduced in the medium term, the potential cost of the fines to the Council. It is currently estimated that in addition to the amounts included in the current MTFP for 2011/12, an extra £2.0m will be required rising to £4.0m in 2012/13. These potential costs have reduced from the projections made last year due to the changes in recycling targets referred to above.
Demography
44. Oxfordshire has significant demographic pressures relating to older people over the medium term. Over the next twenty years, the numbers aged over 85 are expected to double. One in four in this age group will require high dependency care from the social and health care system. Due to medical advances, there are more adults each year with learning disabilities and an increased life expectancy of clients with learning disabilities. This creates a demographic pressure as these clients will require support throughout their life. The number of clients with complex needs is also increasing adding further pressure.
45. The table above shows the impact of these demographic pressures in Social & Community Services, which rise cumulatively between 2009/10 and 2012/13 by £11.2m. The investment proposals, which are set out in Annex 2, are aimed at moving towards alternative service provision and to help manage the expected cost pressures in future years. They will also help the Directorate meet its savings target.
Sustainable Communities Strategy
46. During 2008 the Oxfordshire Partnership will approve a new Sustainable Communities Strategy. The strategy will commit partners to an improvement programme, which will have resource implications for the County Council, and other partners. To some extent this has been anticipated in our current medium term planning but there may be further pressures emerging over the next few months and the strategy goes through its public consultation phase and the associated delivery agreement (the Local Area Agreement) is negotiated.
Revised forecast of sum available to allocate
47. The report to Cabinet on 18 September 2007 set out that the on-going sum available to allocate in 2008/09 was £5.9m. The sum available over the medium term has been revised to take account of the changes in the strategic measures budget and the increased savings targets.
48. As set out in the Service & Resource Planning Report in September 2007, to increase the sum available for Council priorities, the Cabinet and CCMT agreed to increase the savings target by £1m in 2009/10 and 2010/11 and agreed a target of £5m in 2011/12 and 2012/13. The additional savings are reflected in the table below:
49. The amount of one-off funding available over the MTFP has also been revised to take account of one-off strategic measures savings, funding available from deleted reserves and the surplus sum in balances. In relation to balances, use of the amount declared surplus could be spread across the medium term or used after 2009/10 when there is currently no one-off funding available. The table below sets out the updated position:
Financial and Legal Implications
50. 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 report provides information on the financial position for the authority which forms a basis for those requirements, leading to the budget requirement and Council Tax being agreed in February 2008.
RECOMMENDATION
51. The Cabinet is RECOMMENDED to:
(a) note the report;
(b) note those charges prescribed by legislation, and to approve those charges where there is local discretion as set out in Annex 1, subject to consideration of any comments from Corporate Governance Scrutiny Committee;
(c) determine, as part of their budget considerations, whether to take up the full supported borrowing allocations from 2008/09 onwards over and above the levels included in the existing MTFP; and
(d) consider the use of prudential borrowing for funding the unmet capital needs as part of their budget considerations.
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
December 2007
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