Meeting documents

1.1 This report contains the financial outlook for the coming years and updates the Executive on the background, the key issues, the latest settlement and the process leading the setting of the 2005/06 budget and Council Tax.

2.1 The background and key issues and pressures they will need to take into consideration when recommending a financial plan and budget to Council in February 2005

2.2 The timetable and process set out in Appendix 1.

3.1 Contained within the report.

4.1 The Chancellor announced the results of the Government's Spending Review in July 2004. The results of this were circulated to the Executive and the senior officers in the council at that time. In summary the results indicated a tighter financial picture than had been anticipated. In particular the Highways and Environmental, Protective and Cultural Services Block were particularly low increases. The results of the spending review also implied that the Government had made an above inflation assumption of around a 6% increase in Council tax when calculating how much it would increase the finance to Local Government.

4.2 There are also assumptions being made by the Government, as set out in the "Gershon Review", that we deliver a 2.5% efficiency saving every year, with 40% of our targets being expected from schools and 35% from procurement savings. The remaining saving is expected from such initiatives as back office functions, regulation changes and "less administration".

4.3 The provisional figures for 2005/06 Formula Spending Share (FSS) and hence our likely support from Government Grant for 2005/06 is due to be announced in the week commencing 29^th November 2004. If any information has been published in time for this meeting, a verbal update will be provided to the Executive.

4.4 The Council agreed a Corporate Plan last February. Contained within this document was the Council's financial plan. When setting the budget for the current year the financial situation did not present any insurmountable problems. This was mainly due to the "containment" of pressures and services keeping to cash limits within the budget planning for 2004/05 and the agreement that growth would be tempered within Education and Social Services. In planning for 2005/06 services are looking to continue to meet the targets set within that plan.

4.5 However at that time the financial plan did identify future pressures, such as the pensions increase. It also identified and recognised that there was a risk in revenue and capital and sought to build reserves to meet them. It also created £700k revenue headroom in the financial plan for 2005/06 rising to £1.6m by 2006/07, to be allocated for investment in improvement priorities and/or reducing the level of council tax rise.

4.6 The existing plan has now been updated for technical changes such as the transfer of the Magistrates Court Committee to direct Home Office funding in 2005/06 and the changes indicated in the July spending review. The updates made are broadly neutral in their effects.

4.7 Elsewhere on the agenda is an update on the Council's revenue and capital spending in 2004/05. At present the outlook is for a £0.9m overspend in revenue. Current available general fund balances are anticipated to be £5.6m. This is after deduction of the £350k the Council voted to spend on Southgate and Planning costs during this year. Our previous target was £7m and the plan contains a contribution of £700k to balances in 2005/06.

4.8 In capital a review of risk on projects was carried out in June and an increased capital risk contingency of £10.5m was approved by Council in July, around half of which has been allocated since then. As further schemes come on stream, this is likely to be inadequate in the longer term.

4.9 For 2005/06 onwards there are several issues that are putting the plan under threat and will easily exceed the headroom sum and put pressure on Council Tax increases or would force further savings on top of those already planned.

4.10 Some of these were anticipated (although their extent was not known), whilst others have emerged over the last year in more detail such as the greater impact of major projects, long term office accommodation, the costs of single status, customer access and last but definitely not least were the effects of the Chancellors spending review. Finally, the chance of the Chancellor using capping powers for overspending authorities is higher this year than previously.

4.11 The issues that are putting pressure on the Council's financial situation are

4.12 The Executive has already considered the financial situation and the challenges this will bring to the Council when it sets the 2005/06 budget and revises its Corporate Plan early next year.

4.13 The financial plan was set as part of the Council's Corporate Plan and therefore is an integral part of the Council's planning process. It was therefore important that actions to address this situation were carried out within the corporate planning framework set out by the Council. Therefore this is the mechanism the Executive has used.

4.14 Overall services have been asked to plan on the basis of existing financial plan targets. They have been asked, within the context of their service plans, to set out what this means for their services this autumn. The Corporate plan identified the context and various ways services could look at meeting these additional costs. As an example, the need to redirect resources may mean that previous levels of service in some areas cannot be maintained. The implications of any changes should be properly spelt out in Service Plans.

4.15 Guidelines were issued to services and project leaders on this in October and a rigorous review is now being undertaken to determine the choices that will needed to be recommended to Council by the Executive in February. The process which has been set out (see timetable in Appendix 1) also includes scrutiny of the proposals by other Councillors and therefore is set out to be transparent to all Councillors (via information to Overview and Scrutiny panels), before any decisions are made by the Council.

4.16 In addition two Member Working groups have already been set up to look at the proposals and pressures in more depth in two particular areas. Each group comprises the Executive Member, the relevant Overview and Scrutiny Chair and a further 5 members nominated by Groups to reflect political balance of the administration. The areas being considered are Customer Access and Adult Services within Social Services and the groups are due to conclude their work by the end of December.

4.17 A rigorous reassessment of costs is also underway for major projects. The proposed updated financial plan will include more comprehensive information about the major projects, including a full risk analysis assessing the full risk exposure in £m of the project at a low, medium and high risk level. Project leaders have also been asked to identify the impact on supporting services e.g. planning, property, highways, finance, personnel, IT, communications and legal.

4.18 When this updated information has been gathered, the intention is that this will be considered by the Project Programme Board in December. The Project Programme Board will advise the Council Executive on the changes it needs to recommend for the financial plan and any levels of risk contingency required.

4.19 Existing plan changes are contained within Appendix 2. This only reflects the technical changes already anticipated and does not reflect the issues of passporting or pressures that are not met within existing service targets.

4.20 This report has highlighted the significant financial pressures and uncertainties facing the Council in reviewing its existing Financial Plan for 2005/06 onwards. Many of the pressures arise from factors beyond the Council's direct control. The very low level of government funding for social services, the imposition of "Gershon" efficiency targets and the possible intervention of the Secretary of State for Education in the Council's decisions about funding for schools are of particular concern to this Council in its financial planning. With the delay in the announcement of the government grant settlement, it is not yet possible to give an indication of Council Tax levels for next year, but it is clear that there are very serious financial pressures which, if not supported by government grant, would require either a sharp increase in the Council's income from Council Tax, or a reduction in some service standards. The Leader of the Council has written to local Members of Parliament to make them aware of the issues facing our authority in setting our 2005/06 budget and has encouraged them to write to the Deputy Prime Minister supporting the case for additional funding for our Council and for Local Government generally.

6.1 This report sets out the current known background and context for the review of the financial plan.

7.1 This report contains information about the Council's financial outlook. The options to meet the targets are being considered as part of the service planning and consultation process already in train. The results of this will be included in the recommendations made by this Executive to Council in February. Options considered at that time will be concerned with the level of changes to the level of Council tax and the level of services provided by the Council.

8.1 The current financial position and plan has been conveyed to the Executive and Directors, all Heads of Service, the Schools Budget Forum, Overview and Scrutiny Panel members (an open invitation to all by the Chair of the Resources Overview and Scrutiny Panel). Service changes proposed will be subject to consultation with partners, unions, staff and clients as proposals are formulated and considered by services. In addition consultation is being undertaken on the Corporate Plan review (of which the financial plan is one part) in November with the trade Unions, the Local Strategic Partnership and the Local Chambers of Commerce have also been updated on our situation.