To consider the attached report.
Contact Officer: Nuala Donnelly (01296) 585164
The Committee received a report promulgating the high level issues facing the Council in developing budget proposals for 2019/20 and in terms of updating the Medium Term Financial Plan (MTFP). The report had been submitted to Cabinet on 20 November 2018 and further details were included in the minutes of that meeting. Cabinet had approved the approach outlined in the report, as well as the MTFP, to be used for developing the budget for 2019/20. Cabinet had also approved, for the purposes of budget planning, to the repurposing of the Business Rates Equalisation Reserve and the Interest Equalisation Reserve (that would have a combined value of £5m as at the end of 2018/19), in order to provide the Council with initial financial capacity to respond to the costs of reorganisation.
The largest and most significant factor impacting on the budget setting process was the recent announcement of the Secretary of State that there should be a single unitary district council for the whole of Buckinghamshire (excluding Milton Keynes) with effect from 1 April 2020. It was however too early to determine the exact implications from a budgetary point of view, although it would be prudent to make provision for transition costs. The report also set out a timetable for agreeing the budget.
The report had been split into specific sections dealing with:-
· The background to the development of the current MTFP and the key assumptions used in its formulation. Reference was also made to the recent budget announcement of the Chancellor of the Exchequer, with particular reference to local authority spending requirements. The report covered the risks arising from Brexit, the roll out of Universal Credit and increases in the national living wage. Reference was made to the implications of changes in the application of business rates and the significant year on year reductions in Central Government Grant.
· The timetable for development of the budget. The Government had announced the provisional finance settlement on 13 December, 2018, which had been in line with the estimates used for budget planning.
· The report contained a commentary on the position around Government funding and its impact on the wider landscape. Local authority funding in England had undergone considerable upheaval in recent years. For AVDC, reductions to Grant funding had been the most significant factor underlying historic financial planning assumptions and the Council’s current strategy of balancing the budget had been predicated on this continuing. In this respect, the Council’s strategy around commercialism and efficiency had been proved to be correct within the context of dealing with the financial challenges being faced by the Authority. The Government had announced a consultation exercise in relation to the future funding of local government (A Fair Funding Review). This would affect how funding was allocated between local authorities from 2020 onwards. Alongside this a new phase for the business rates retention programme would be introduced. The Buckinghamshire Councils had been chosen as a pilot area for this in 2019/20 which was likely to benefit AVDC by approximately £1.6m.
· In 2016/17 the Government had introduced the concept of Negative Revenue Support Grant. This had caused concern among councils and the Secretary of State had announced that he would review this aspect of the grant system during the forthcoming financial year. However, he had warned that any solution would need to be found from within the existing local government funding system. The report contained a full explanation of Negative Revenue Support Grant and its implications for AVDC. The recent financial settlement announcement had included that AVDC would receive some additional Revenue Support Grant so that the Council was not in a negative RSG position for 2019/20.
· The report dealt with the risks and gains associated with business rates pooling. The Council had in the past benefited from such an arrangement and a view would be taken on any anticipated gain as the budget proposals were developed.
· It was likely that the planned date for the UK to leave the EU would feature as a budget planning issue moving forward. An Officer working group had been established to review the issues that might potentially be faced by the Council.
· With regard to Council tax, the Government had signalled its intention to hold the broad referendum principles of the last two years. Specifically for district councils, this meant a maximum increase of 3% or £5 whichever was the greater. AVDC had chosen to raise council tax by £5 for the current financial year. The MTFP assumed a further increase of £5, representing 3.34% for 2019/20. The assumptions around the proposed increase in council tax would be tested as part of the budget development process. The Government intended to provide an update on its proposals for council tax referendum principles, including adult social care, alongside the provisional local government finance settlement later in the year.
· The report set out briefly the background to the introduction of New Homes Bonus (NHB) and the current position. 2019/2020 represented the final year of funding agreed through the Spending review of 2015. In view of this, the Government intended to explore how to most effectively incentivise housing growth in the future. The Government intended to consult widely on any changes prior to their implementation. Cabinet had been keen to maintain, if possible, the use of a percentage of these funds for grant aiding parish projects linked to housing growth. The recent financial settlement announcement had left the NHB thresholds unchanged for 2019/20, which would mean that AVDC would receive £5.9m for the year.
· The MTFP agreed in February 2018 had made certain assumptions around pay and inflation based upon trends in the economy. In practice, the looming Brexit deadline was having unpredictable effects on the economy as markets reacted to the uncertainty. Two years ago, the Staff Side and Unions had agreed a two year deal, with 1% being payable in 2017/18 and 2% payable in 2018/19. The pay award for 2019/20 had been negotiated with the unions and Staff representatives and staff would be balloted soon in regard to this.
· Earmarked reserves represented a prudent saving of sums against future financial events, which if not prepared for, would be difficult to deal with at the point at which they occurred. The Council held reserves for a number of purposes, one of which was the smoothing out of income receipt. Two such reserves were held to manage any volatility. It had been agreed that these funds should be used to offset the transition costs of local government reorganisation. The two reserves in question were the Equalisation Reserve and the Business Rates Equalisation Reserve, with a combined value of £5m (as at the end of 2018/19). A review of reserves would take place as part of the budget setting process.
· The report anticipated an actual Council tax base increase of 1.3% in 2019/20 having regard to the level of housing growth that had taken place, compared to the figure of 1% assumed in the MTFP.
· As previously mentioned, the Secretary of State had confirmed his decision to create a single unitary district council for Buckinghamshire (excluding Milton Keynes) which would come into existence on 1 April 2020. This clearly removed the need for medium term planning for AVDC as a single entity, but the Council was obligated to hand over its affairs to the new Council in the best possible state. Allowances had been made for the costs associated with transition. The exact financial implications could not yet be fully quantified but Members would be kept advised of developments.
· CIPFA was consulting on the proposed publication of an index of resilience of English councils. This would provide an assessment of the relative financial health of each English council. The report outlined how councils would be measured. Given the Council’s single minded and strong focus on dealing with the financial issues facing local government over the last seven years, it was expected that AVDC would perform well under any measure adopted.
· Commercialism and efficiency had been at the heart of the Council’s strategy for dealing with the financial challenges faced by the sector over the past few years. This had proved immensely successful. Some governance issues had been identified but the Council was using the experience to develop better risk profiles and to develop measures to improve governance. The Council’s approach to balancing its budget had avoided the need for Members to have to consider arbitrary and often unpalatable cuts in its budget and hence the services provided to its residents. It was believed that AVDC’s sector leading experience and the attitude, innovation and enthusiasm of staff would be invaluable to the new organisation in helping it to deliver modern, responsive services which were fit for the future.
· The report suggested, and Cabinet had accepted, that as part of the budget setting process the Council should adopt a corporate strategy for 2019/2020 that was focused on:-
Ensuring that it was financially fit, including ensuring that the commercial approaches of the past continued and that the organisation should continue to diversify and grow its income streams.
Leading and shaping of place, ensuring the adoption of VALP, and continuing to cherish the towns and villages whilst managing growth and ensuring sustainable regeneration.
Focusing on customers and innovation in customer service delivery and digitisation.
Ensuring the Council’s partners and communities assisted with the delivery of the Council’s goals and including them in the decision making processes.
A Statement of Corporate Priorities had been developed and would be used to inform the budget setting process.
· AVDC would continue to progress its digital agenda, promoting innovation in the way services and IT solutions were delivered to customers. Connected Knowledge was designed specifically to be the catalyst for technological innovation and change, thereby propelling the organisation into the future. A separate agenda item at the meeting would consider the achievements of Connected Knowledge over the previous phases 1 and 2 and funding for the next phase of Connected Knowledge.
· The report outlined the manner in which it was proposed to deal with Capital planning which would be a parallel process to that of revenue planning. The review of capital schemes would need to consider the implications of reorganisation and those with a timeframe extending beyond one year would need to be reconsidered within the context of the priorities identified by the new organisation. The requirements of the CIPFA Prudential Code for Capital Finance in Local Authorities would be reflected in budget setting for capital in 2019/2020.
· The Council’s strategy for balancing the budget was an on-going process and not merely an annual exercise purely undertaken at this time of the year. This was driven by a desire to balance the budget through internal reorganisation, efficiency and income generating strategies already set in motion and without the need for a crude or simplistic cuts exercise. Work would continue on refining the budget, making assumptions about a range of outcomes. The focus would now be primarily on 2019/2020, but consideration would still be given to 2020 and beyond because of the obligation to hand over AVDC’s affairs to its successor in a fit state. The Council had working balances broadly in line with its stated minimum. These allowed the Council to push forward and invest in new savings initiatives with the confidence of a cushion behind it. Balances (either adding to or use of) were therefore likely to form part of the strategy for concluding the balancing of the budget for 2019/2020.
The Committee sought further information and were informed:-
(i) with an explanation on why the costs of providing services to additional residents (housing growth) was less than the money received by way of Council tax income from the additional residents.
(ii) that the other District Councils were currently combining for an OJEU notice on waste collection services in their areas. A contract was being proposed on a 10 + 10 year basis, valued at £230m. It was too early at the moment to comment upon how waste collection services across the new Council would be harmonised in the future
(iii) that while the future of NHB was uncertain (although the 15/12 announcement on the Financial Settlement had not changed payment thresholds for next year), it would be a decision for the new Council on whether it wished to ring-fence a proportion of NHB for Parish initiatives. AVDC was the only one of the Bucks Councils that currently did this.
(iv) that the Council undertook periodic reviews on people’s eligibility to claim the Single Persons Council Tax discount.
(1) That the approach outlined in the report and to be used for developing the budget for 2019/2020 and the MTFP be noted.
(2) That the Committee was supportive of the repurposing of the Business Rates Equalisation Reserve and the Interest Equalisation Reserve in order to provide the Council with initial financial capacity to respond to the costs of reorganisation.
(3) That the Committee was supportive of AVDC developing a set of priorities underpinning the 2019/20 budget setting process, that could act as a sort of corporate strategy and assist to enshrine AVDC values/principles into the new Council.
(4) That Cabinet be asked to take into consideration the comments at (i)–(iii) above in finalising the budget proposals for 2019/20.