Financial Plan Review

Consultation Paper

Introduction

Bath & North East Somerset Council Executive is now planning its activities and services for the future, and the funding of these services for the next four years. This process will lead to the adoption in February 2003 of a new Financial Plan and the setting of council tax levels for the year 2003/2004.

The Council first produced a 3-year financial plan in February 2000. In each year since we have updated that Plan and rolled it forward one year. We believe that planning in this way has been very helpful to the Council, enabling us to focus on key priorities and to provide the necessary resources to deliver those priorities.

Highlights of the first three years of the plan have been:

· £3M investment in improving the quality of school buildings

· extra investment in highways and transport schemes

· programmes to improve access to Council buildings and services

· investment to generate and protect future income streams to the Council

This is the first financial plan review following the Council's adoption of executive and scrutiny structures in May of this year. Under this new system the financial plan process is led by the Council Executive. We are, as an Executive, keen to use this opportunity to shape the Council's financial plan and to ensure it supports the overall development and improvement of Council services for local people.

The decision-making process will evolve through public consultation followed by detailed proposals and this document will provide the basis for discussion with interested parties at an early stage.

In summary, this Consultation Document is intended:

· To raise the awareness of and improve the understanding of the Council's financial position and the national funding context;

· To seek your views about where we should direct services and funding, both for the short and long-term;

· To keep you informed of the timing and processes for the setting of next year's budget.

At this stage no decisions are being made on spending nor on levels of Council Tax. As this document will show, there is a lot of information yet to be received before any decisions can be made. But we feel that it is important to start our planning early and to involve you so that we have the opportunity to take your views on board. The final section on "next steps" sets out the decision-making timetable.

Where we want to be

The Council has five broad objectives:

· To encourage and support life long learning

· To promote a thriving economic community and combat poverty

· To build a healthier and safer community

· To promote quality of life and environmental stewardship

· To deliver quality and accessible services

To underpin the above objectives and to guide investment, the original financial plan in 2000 set out a number of priorities and themes, which are listed in the Appendix.

These priorities and themes have proved successful in guiding our investment over the past three years. Examples have already been shown in the introductory section above. But, with the expiry of the initial three-year financial plan, this is a good opportunity to stand back and to assess what should be aims for the coming four-year period.

At this stage we should not rule out any of the existing priorities. All are still relevant and much remains to be done to improve the Council's services. We recognise too the Government's priorities, often reflected in statutory obligations on local authorities. But we also wish to respond to the specific needs and demands of people in Bath and North East Somerset. We believe that local government must be able to identify local needs and decide how to address them. Villages, towns, cities and communities differ in their needs, and expressed demands will inevitably compete. The Council ultimately must arrive at a programme which reflects a reasonable compromise between competing needs.

The Council Executive has collated evidence gathered from the Citizens' Panel, the Council's Action Line, Best Value Reviews and inspections, and Councillors' post-bags:

Our perception is that you are urging us to give more attention to:

· Creating Safer communities: focussing on measures which are within the remit of the Council, and may be in partnership with other agencies, to deliver demonstrably safer neighbourhoods;

· Making the area Cleaner and Greener: developing innovative ways of improving the environment and eliminating the occasional rubbish "hotspots", while being guided by the zero waste policy;

· Improved lives for the elderly: requiring genuine, "joined up" thinking between the health, caring, safety, mobility, leisure and independent-living issues which are of particular concern to senior citizens;

· Tackling traffic congestion: making greater progress in implementing the Local Transport Plan to reduce traffic and congestion, including measures to improve public transport.

An overarching theme for priorities is sustainability. Sustainability, in this context, means that by virtue of our actions, citizens and communities will obtain enhanced social, economic, cultural and environmental conditions, which will last without undue costs (in these same broad areas) to future generations.

We would wish to take action to help sustain communities, so often threatened by the loss of amenities such as post offices, schools, bus services, clean open spaces and even pubs. In particular, we would wish to improve communities' access to the decision-making process which affects them, through devolved decision-making.

Financial planning is not just about setting priorities. Good financial management is important to us, and we believe that the Council can be proud of its track record on managing its budget, despite enormous pressures from global and national events.

Where We Are

A financial plan review has to take into account a range of factors and influences, as the following diagram shows:

The Review also has to start from where we are now.

Where the Money Goes

This pie chart shows the Council's gross expenditure, excluding spend which is directly funded by specific grant, such as student awards and housing benefit. In 2002/03 this is £178 million.

The chart shows that 60% of our day-to-day spending goes on Education and Social Services. These are key services which are heavily influenced by legislation and by government direction. Apart from services such as Fire, over which we have no direct control, these services have seen the largest budget increases since 1996.

Costs within all Councils have increased at a faster rate than inflation. This is typical of local government generally and reflects a number of factors:

· Increasing standards of service brought about by rising public expectations and government requirements

· New statutory duties

· Demographic pressures, such as the rising number of elderly people needing care and support

· The services are labour-intensive and pay awards have tended to be higher than inflation, although in line with earnings growth nationally

And we have to ensure that we meet our existing statutory duties - and that predetermines a large part of our spending.

But the Council is also committed to delivering efficiency improvements. A 2% efficiency cost reduction is required from all services annually, amounting to £1.3M in 2002/03. Such efficiency gains include savings from greater use of technology, better purchasing deals and increasing income.

The Council spends more on education and social services than the government recommends through its grant formula (see below). We have lobbied the government to increase this sum, but our funding level remains among the lowest per head anywhere in the country. This results in higher Council Tax, and limits how much we can spend on other services. In summary the Council has limited flexibility over its spending decisions.

Where the Money comes from

This pie chart shows how the above £178 million is paid for. It shows that Council Tax is not the main ingredient of our income. In the current year 49% comes from government - 29% from redistributed business rates and 20% from the Revenue Support Grant. Only 30% comes from Council Tax which is therefore a relatively small part of our total income.

Government Revenue Support Grant - Although Bath & North East Somerset Council, like other Councils, sets the Council Tax, the government determines how much needs to be raised locally. This is set by a large and complicated formula to calculate a figure called a Standard Spending Assessment (SSA). The Government then distributes the "revenue support grant" (RSG) to all councils based on the SSA and deducts it from the amount it expects us to raise from Council Tax and the amount it gives us for business rates.

For many years now the amount of government grant has not kept pace with the amount the government expects us to spend locally. The impact of this is to shift the burden from national taxation to Council Tax. For next year we believe the government's guideline for Council Tax rises to be around 5-6%. It should also be recognised that this is to achieve the "status quo" and indeed nationally average Council Taxes have increased by more than this amount in recent years as Councils respond to pressures not recognised in the government settlement.

Business Rates - The government sets a rate in the pound to charge businesses and it also determines how much this increases year-on-year. So while we collect this money we simply pay it over to government who redistribute the income around the country on the basis of population. We therefore neither have any control over the level of business rates in this area, nor do we receive back the amount we charge.

Council Tax - this is the income source over which the Council has direct control. Its level depends on house valuations and the level of Council Tax that is normally quoted is that relating to a "Band D" property - one having a value in 1991 which was between £68,000 and £88,000. Values are due to be updated nationally in the next few years. This year the Bath & North East Somerset Council Council Tax for a Band D property is £887.70.

Because Council Tax makes up less than a third of our income, small increases in our spending have a disproportionate effect on Council Tax levels. A 1% increase in our total spending is £1.8 million. But, with other income being fixed, all this extra spending has to come from Council Tax. To raise enough income to cover that increase would require a rise in Council Tax of 3.5%.

Other Income - The Council raises around £37m annually from income sources, and is in a unique position, as most other Unitary Councils do not have the same capacity for such income. While this is a significant advantage to us, it is also a significant risk, as the foot and mouth and September 2001 events last year proved. The Council must invest in these areas, so that the income streams are sustained for the benefit of future generations.

In summary, the Council has limited control over its income.

Another way of relating spending to Council Tax is to show how much a household in a Band D property pays towards specific services:

Cost of Services for a two person Band D Household in Bath & North East Somerset Council (after taking into account income generated by the Council from rents, fees and charges):

Capital Expenditure

Capital spending is spending on assets which last longer than one year. The Capital Programme for 2002/03 is £20.7 million and the split of this is shown below:-

The Council raised a large capital receipt from the sale of its housing stock in 1999 and became "debt-free" in 2000. This is a technical term relating to complex legal regulations but it has meant that the Council has been able to spend more on capital investment than it would otherwise have done. The Bath Spa Project is one major project that it has supported.

We are now approaching the end of our "debt-free" period and expect to begin to borrow to finance capital spending in 2004. At that time we also expect the government to introduce a new set of rules for capital investment that will give all councils more freedom to plan and finance their investment. However at the same time other changes may reduce the amount of resources we can plan with.

In the longer-term the Council has committed to a number of major projects and through our financial plan we will need to secure, by working with others, the capital resources to deliver them:

· Regeneration of under-developed land in the Western Riverside area of Bath and in Norton Radstock

· The stabilisation of the old stone mines under the Combe Down area of Bath

· The construction of a new park and ride facility to the east of Bath

· The rationalisation of our office accommodation to improve value for money

Despite the recent relatively high level of capital spending, the Council is aware of significant outstanding spending needs. These include bringing the Council's roads and buildings up to a reasonable standard of repair. The total cost of fully removing the repairs backlogs on these assets is estimated to be many millions of pounds, which clearly would require concerted effort over a number of years.

The Short-Term Position

Every year sees a lot of change in local government. But this year there is even more uncertainty than usual. Particular issues affecting us are:

· The government is reviewing its SSA and Revenue Support Grant formulae. Options being considered nationally produce a wide range of potential outcomes for this Council - as much as a £9M gain or loss in SSA which would feed through over time into a gain or loss of grant. To put this into perspective, this could mean a rise or reduction in local Council Tax bills of £160, or 18%. In the short-term any changes will be phased in over a number of years but the year-on-year effect could still be significant.

· There is a draft parliamentary bill to change the way that councils raise the money needed for capital investment - while this should give us more freedom to tackle outstanding needs, the detail of the new arrangements is as yet unknown

· A number of changes to smaller grants and to duties placed on councils are being considered by government. This is particularly true in social services where £m's are involved as duties transfer between us, government and the National Health Service. In these circumstances forward planning is very difficult and the sums transferred to us for new duties are sometimes inadequate compared to what we need to spend.

Because of the uncertainty we face, we cannot yet say what the level of Council Tax will be for next year. At present, our "base" financial plan model is showing a shortfall in income which would require a 6.2% rise in Council Tax or spending reductions or increased other income of £600,000 against the government guideline of a 5% rise.

And that is before we add in spending pressures. Indeed we are aware of significant potential spending pressures for next year and beyond, including:

· Cost pressures, including pay, staff pensions and residential care fees - in excess of £5 million

· Costs arising from government legislation and regulations - around £2.5 million

· Lost income from government grants - around £2.5 million

· Demographic pressures and internal cost pressures - around £2 million

But speculation is premature until we have received the government grant settlement and more information on spending pressures. There is a risk that, if the settlement is poor and pressures high, then we would have to look at a higher level of Council Tax rise or larger spending reductions. We are not alone in this, and we know that our neighbouring councils are facing a similar position.

Getting to Where We Want to be

The previous section has highlighted the Council's limited financial flexibility and the extreme uncertainty affecting our planning. Although we do not yet know what the financial position will be for next year and the following years, we can say how we would wish to steer the Council's priorities.

It is also easy to focus on the short-term. Importantly, the Council needs to take a medium term view so that we can plan ahead and make changes to provide the services that you want us to provide and the government requires us to provide. We know that staying the same is not an option.

The Council is budgeting within limited resources; therefore:

· if we decide to spend on one service, we automatically have to reduce spending on another service

· the Council can achieve excellence in any service or outcome, especially when working in partnership with others, but we cannot do this in all services and outcomes

· if we want to shift where we spend our money or use our other resources, it is best done within a longer time planning frame. This allows proper planning e.g. redeployment, retraining, and changes in building uses, investment in IT. One-year budget and planning timeframes give the least desirable outcomes, so we want to continue to look longer term.

Now the Council is about to consider these strategic decisions and we will have to focus on some key choices.

We have explained that the financial position next year may well be challenging. We do not wish to raise expectations about new spending because it may take time to secure the necessary resources. Indeed we are committed wherever possible to improving services without increases in Council Tax. To achieve this we will pursue existing initiatives and opportunities, including:

· The "Paris" Project, which aims to provide the Council with a strategic commercial partner to provide investment and skills to improve services using new technology

· The leisure improvement project, in which we are considering options for increasing investment in our sports centres

· A Public Service Agreement, in which we agree targets for improvement in key local services and for which funding is provided by central government

· Pursuing wherever possible grants from outside bodies, whether they be government, lottery or commercial, where such grants assist us in meeting our objectives;

· And we will seek to produce a sustainable financial plan, one in which our resources against unforeseen risks are built up over time from their current relatively low level.

We have also been asked by full Council to address certain issues within this Plan Review. For example, Council asked that we have an outline plan for reducing, over time, the Council's excess social services spending compared to its Standard Spending Assessment. This would help to reduce the burden on Council Taxpayers and release funds for other services. We are seeking options for such a plan, but are conscious that these represent key services to people, many of whom are vulnerable. We will therefore consider very carefully any proposal to curb spending and would wish to shift spending only over a reasonable period of time. Similarly, we would wish to ensure that taxpayers are not unduly burdened by the fact that we spend above our SSA on education, but will weigh carefully the needs of schools and children in considering proposals.

Your Comments

The preceding sections have outlined how the Council's spending is distributed between its main activities, and how it raises the money. We have shown how our spending decisions are constrained, and how our income is subject to uncertainty. Within this framework, we have set out the directions in which we believe local needs demand more attention, and where we propose to allocate more resources in the medium term if possible.

Your views are invited on the following questions.

To feedback your comments please use the following link for an on-line feedback form:-

On-line feedback form

1. Do you agree that the Council should seek to increase its efforts on

2. What would you like to see the Council achieve under each of these themes?

3. The Council has looked for a balance between its activities which take effect quickly and its longer term investments for the future. Planning for the future reduces the resources available in the short term, and can pay dividends later. Long term investments are frequently the only way in which major change can be achieved. Examples might be an extensive programme of highway improvements, the provision of affordable housing for key workers (teachers and nurses etc), or improvement of school buildings.

Would you wish to see this balance retained?

Comments?

4. We would also welcome your general views on this document and our future financial planning.

Next Steps

This is a long process. The Council Tax for next year will not be set until late February 2003. But there are a number of key stages to work through.

· The first is this consultation document. It is designed to elicit views on priorities and to set a framework for the development of the financial plan

· By the end of November we will have received the government grant settlement, more information on spending pressures, and your views - the results of this consultation

· We will then produce a draft Financial Plan in January pulling together all that we have learnt through this process. This will propose a new financial plan for the coming four years

· Finally, we will set the detailed budgets for 2003/04 along with the Council Tax in late February, with bills being issued in March. We will also publish our next Best Value Performance plan which brings together our key plans and targets within one document.

This year's Review is led for the first time by the Council Executive. But the final decision will be made by the full Council of all 65 elected councillors. To help us make the right decisions, we need your views.

To be accompanied by:

· Response form for consultation

Appendix

Financial Plan 2000 - 2003 Priorities and Themes

· To make a significant investment in the quality of school buildings and other service delivery sites, while making better use of these buildings.

· To make a significant improvement in the quality, appearance and safety of roads, streets and public places.

· To invest in services which enable individuals to live independently and to be involved in their local communities.

· To invest in a sustainable future, making Bath & North East Somerset a better place to live, work and visit.

· To improve the community's access to public services and the democratic process.

· To work in partnership with others to achieve best value and to provide better and more cost-effective services.