ITEM CA6(a) CABINET - 20 JANUARY 2009
SERVICE AND RESOURCE PLANNING 2009/10 – 2013/14
Report by Cabinet Member for Finance
Introduction
1. This report is to be read in conjunction with the report from the Assistant Chief Executive & Chief Finance Officer, and takes account of the latest financial information. It sets out the Cabinet’s proposals for the 2009/10 budget and the Medium Term Financial Plan (MTFP) for 2009/10 to 2013/14. In making these proposals the Cabinet have considered the Directorates’ budget priorities and pressures and the efficiency savings and service reprioritisation to fund their priorities and pressures.
2. This report has also considered the comments on the draft budget proposals from individual Scrutiny Committees held in December 2008 as well as the outcome of the public consultation on the budget, which was undertaken on the 17 November 2008. A report from Alpha Research Ltd. summarising the outcomes has been circulated separately to all members, and a summary is attached at annex 1 (download as .doc file).
3. The 2009/10 budget process was always going to be tight financially, originally with just under £2m of ongoing funding anticipated to be available to invest in services. However, it has been a particularly difficult budget, given the turmoil in the financial markets and the impacts of the national economic downturn and the effects this has had on our ongoing financial position.
4. We have continued with our ongoing efficiency drive, and have expected directorates to find efficiencies within their services in order to fund any new pressures arising. This has been achieved in the majority of cases, and the detailed papers show all these changes.
5. Below I will set out some of the main areas of change and how we have taken these factors into account in developing the budget proposals.
Council Tax Base & Collection Fund
6. Provisional figures from District Councils, to be confirmed by the 31st January indicate an increase of 0.38% in the Council Tax base from 2008/09 however, the MTFP assumed an increase of 1.1%, this means a reduction of Council Tax income of £2.0m based on a 3.875% Council Tax increase. The assumptions for housing growth forecasts in future years have also been amended with the maximum increase in the MTFP now restricted to 0.75%.
7. Any collection fund surplus or shortfall has an effect on funding available for one-off investment, provisional figures from the District Councils are currently estimated at £1.3m. The MTFP assumed income of £1.25m. If any additional sums become available once final figures are reported then we will set out proposals for their use to Council.
Strategic Measures and Inflation
8. The strategic measures budget includes the financing element of capital expenditure but also includes interest earned on money market investments on temporary surpluses and interest added to reserves. This budget has been volatile in 2008/09 following the banking and market turmoil, and the assumptions which were originally in the Medium Term Plan have had to be adjusted for future years, this has led to a significant impact on our future ability to invest in services.
9. A net increase in Strategic Measures budget of £1.7m has been included for 2009/10. This figure reflects a combination of changes in investment and borrowing rates, but additionally, a change in policy which will enable the internal borrowing of up to 25% of cash funds. Of this £0.6m has been treated as ongoing, with £1.1m one-off and with further one off increases in the following years, on the expectations that the low levels of interest that we are currently seeing will not continue into 2010.
10. The compensating element to the economic turmoil is the effect that the lower interest rates is anticipated to have on inflation. The MTFP has included significant growth sums to ensure that services were maintained in line with inflation for pay, non-pay, contracts and income. The current market predictions show that levels of inflation for next year are now expected to be significantly lower than originally expected, and therefore we are proposing that the allocations for inflation are reduced to reflect this.
11. There has been considerable discussion in the media about expected levels of job losses and the impact this will have on pay awards for the coming year. OCC remains committed to the national pay negotiation process, and will be bound by that. However, based on the latest information available, we will include 1.5% for pay inflation, as we do not believe that given the national economic position more than this will available for public sector pay.
12. We will maintain the 3% level for contract inflation, as we are aware that there are a number of areas where the levels of contract increases will take affect from the higher levels inflation in 2008/09. However, we will reduce non-pay general inflation to 1%, reflecting that some price increases will occur. Inflation on income will reflect the combination of the actual fees and charges proposed, along with 1.0% for other income.
13. The levels of inflation for subsequent years have not been amended other than to reflect the reduction in 2009/10. Should prices or pay rise at a higher rate this will need to be addressed through the monitoring process, and it will be considered as part of the risk assessment on the level of balances which the Council holds.
Pension Costs
14. The next triennial review of the Pension Fund employer liabilities is in March 2010, with an effective date of April 2011. Following an assessment of potential liabilities and assets in September an additional figure of £6m was originally included in the MTFP. This has now been reviewed, given the latest views on inflation, and market conditions, and this figure has been reduced to £4m. The market, inflation and liability commitments of the fund all mean that this figure will remain a broad estimate and will need to be reviewed each year until it is determined at the re-valuation.
Balances
15. Year end forecast of balances was originally expected to be £18.0m and the risk assessment of the need for balances which was undertaken before Christmas showed that balances of £11.5m were required to be maintained. A subsequent review of the level of balances now shows that the year end forecast is now £19.0m. The risk assessment exercise has been re-run and the level of balances for 2009/10 and 2010/11 increased to £12.5m. On the current basis, the MTFP has included the use of £5.4m balances, which will be put into a reserve to be used in the appropriate year.
Previously agreed Allocations
16. The service and resource planning proposals for the last three years have agreed significant funding increases which will take effect in 2009/10 and subsequent years. It is worth reflecting on two of these elements, Demography in Social and Community Services, and the funding of Waste in Environment & Economy.
17. In previous years £4.35m has been allocated for the 4 year period from 2009/10 for Adult Social Care, although it was recognised that this was unlikely to be sufficient more information was requested on the need for this funding. As part of the current proposals we have assessed the requirements for 2009/10 and found them to be very close to the original estimates, with only a minor amendment being required. Further funding of £11.398m over the plan period has been added for the subsequent years, recognising the impacts that demography will continue to have.
18. The demography for Learning Disability was included in greater part in previous years, with £7.256m being added, of which £1.828m was for 2009/10. The assessment of this element has lead to further increases now being added of £5m over the plan period, although part of this (£2m) will be rightly funded from the PCT.
19. Recognition was made previously of the impacts of both the Landfill tax and the costs associated with the Landfill Allowance Trading Scheme. In previous years £7.648m was included for future years, of which £2.153m related to 2009/10. Some adjustments have been made to these figures now, given the latest information available, and some of the funds set aside previously have been used to fund other pressures within the Waste area. Sum to Allocate - Ongoing
20. Although changes have been required to the taxbase and the strategic measures budgets detailed above, with the reductions in the provision for inflation there is still £2.5m ongoing sums available to allocate as part of this years planning process. In addition, some pressures will be funded from additional efficiency savings, and these are all set out in the Annex 3a of the Chief Finance Officer’s report to Cabinet.
21. Amongst those pressures are £1.329m of additional energy costs which have arisen from the increases experienced in the current financial year, and which owing to contract commitments will continue next year. It is anticipated though that these increases will be reduced subsequently.
22. Additional funding has also been included for:
Sum to Allocate - One off
23. In addition to the ongoing funding, considerable investment is being planned through the use of one-off funding available to the council. In total £7.6m will be available and this has been allocated to priority investments over the plan period.
24. The largest single allocation of this sum will go to pump priming the future development of the Counties Schools, through the development of the Building Schools for the Future programme. Whilst the project, once commenced will involve capital expenditure to build new schools or improve the infrastructure of existing ones, the set up costs for this project which will inject in excess of £100m into Oxfordshire Schools, will need to be funded from our revenue funds. £3.4m has been allocated to this project.
25. A further £2.8m will be invested into the development of the Council’s ICT infrastructure, to ensure that we keep pace with technology and can deliver the services that customers need, efficiently in ways which are most accessible to them.
26. £0.520m has been allocated to various Environmental and planning projects, which are required to ensure that the County remains one in which our residents are proud.
27. Finally, £0.240m has been allocated for 2010/11 and 2011/12 to further extend the opening of Cogges Manor Farm whilst plans are put in place for the future development of the attraction by a new Trust.
Capital Programme
28. The Capital Programme is managed as three separate programmes i.e. Schools, Transport & Highway Maintenance and Other Services. Additional Capital priorities were agreed by Cabinet to be added to the programme in December 2008. In total these have added £3.860m to the Other Services Capital programme. These priorities were:
In addition, £3.0m has also be identified to provide a new 6th sixth teaching block at Cooper School as part of the Schools programme.
Conclusion
29. These budget proposals have continued the two major themes of Low Taxes and New Investment
Ø Low Taxes – the Conservative administration met its manifesto pledge two years early to reduce Council Tax increases below 4%, and has for the past three years reduced the level of increase each year. Owing to the national economic position, we are not in a position currently to announce a further decrease in that rate of increase, but are freezing the rate of increase at 3.875%. If funding becomes available to enable further reductions then we will seek to reduce the level further, again demonstrating our manifesto commitment to low taxes.
Ø New Investment – investment has been proposed for Children’s’ Services; for more provision in the Adult Social care as well as for Highways and to alleviate the likelihood of future flooding.
Ø New Investment – the pump priming of a major new development for Schools infrastructure is proposed, which will see refurbishment and new buildings in many of our schools.
Ø New Investment – in ICT to ensure that our services can be delivered to all our customers in the most efficient ways
Ø New Investment – further refurbishment of public facilities such as libraries, youth centres, day centres is proposed through the continuing use of prudential borrowing and capital expenditure.
Charles Shouler Cabinet Member for Finance
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