Meeting documents

THE DRAFT BUDGET PLANNING PROPOSAL OF THE CABINET

Executive Summary

Background

The proposed net revenue budget for Bath & North East Somerset next year, 2009/10, is £123.221m, together with a Council Tax band D of £1,175.36 which is an increase of 3.75%.

The proposed increase in Council Tax is within the government guideline that next year's increases should be "substantially below 5%" and an objective of reducing Council Tax increases over time wherever possible. The proposed increase is in line with the rises in costs being faced by the Council. It is designed to maintain services and invest in the Council's priorities whilst achieving real efficiencies.

The proposed capital programme totals £285m over the 5 years 2009/10- 2013/14. This includes the Local Transport Plan (including highways maintenance) of £26.614m, and expenditure on schools and other children's services of £59.407m. The Council's largest capital schemes are largely funded by government grants and include completion of the existing round of school improvements, Bath Package enabling more park and ride and rapid transit worth £65.4m, and other schemes including sometimes through partnership with other authorities. In addition the Council has made a new bid to invest in secondary schools (Building Schools for the Future) of c£80 million, and is exploring options to rationalise its Office accommodation which, while self financing in the medium term, could have capital costs of £29m.

The costs of funding the capital programme are met by the revenue budget and services therefore have to pay for the costs of their capital schemes except where they are funded externally such as through government grant.

The Council's revenue expenditure is funded from a mixture of Council Tax (£75.038m), external support in the form of revenue grant and redistribution of national business rates, specific grants including direct school grant of £95.461m and rents, fees and charges.

The Council's general revenue grant entitlement is calculated by government using the formula spending share methodology, which is a way of linking the redistribution between individual local authorities to an approximation of need. The amount actually received has been damped to reduce its volatility but in our case that results in an increasing loss of grant worth £2.327m in 2009/10.

Schools expenditure is mainly funded by the dedicated schools grant worth £95.461m, but some costs of supporting schools and maintaining their assets remain with the local authority.

Key Pressures

The service related key pressures are set out in the medium term plans attached as Appendix 1 to the main report.

In addition the Council has to achieve cashable efficiency savings of 3% per annum. This is a government target which is taken into account when the government sets annual levels of general revenue grant. In recent years this Council has exceeded that target and in 2009/10 it is anticipating further efficiency savings of £2.1m.

As with most public sector employers, the Council's pensions' costs are rising. This is partly due to demographics but also lower returns and market losses on investments. The pension fund was estimated to be 70% funded at 31 March 2008 compared with 83% at 31 March 2007, the last valuation date. Since March 2008, the deficit will have increased substantially. The next 3 year actuarial valuation in 2010 will set new higher pensions contributions and large increases can be expected from 2011/12. The Council can decide to budget prudently in advance of this requirement.

Inflation is a routine pressure and is increasingly having to be absorbed by services. In the current year super inflation on fuel costs has been a concern affecting transport, heating, lighting and other running costs. An allowance has been made for a 2% pay award and a 2% increase in other costs. This allowance is being ring fenced to enable flexibility should the actual annual rate of inflation for the year be lower than these amounts.

The recession is a further pressure for the Council in that:

• its cash deposits of £40-£50m receive lower returns; we are assuming only a 1% pa return on these investments as deposits mature, but we will aim to exceed this
  
• income from fees and charges of c£25m will be under pressure. Many councils are experiencing dramatic reductions in some of these income streams not least planning applications, but in this area the reductions are so far modest
  
• rents from property including the Commercial Estate totalling £15m will also be under some pressure
  
• income from the Council's Heritage operations totalling £10m may also be similarly affected, but again so far this income is holding up partly as a result of the reduction in the value of the pound making this a more attractive place to visit from abroad
  
• demand for housing benefits is rising, about 5% over the last 6 months, and although most of these costs are met by specific government grant the amount to be funded by the Council may increase
  
• costs associated with the Council's statutory responsibility for homelessness may also rise, but so far this has not been the case.

Changes in this year's budget

The Council's reserves have been brought up to their target risk-assessed level of£10.685 million. The policy is now to maintain the reserves at risk-assessed levels. In previous years£1.76m pa was having to be contributed to top up reserves.

An allowance of £685k within the Exceptional Risk Reserve has been made to help the Council meet the impact of the recession on its own services. It is intended that this could also be used to fund a limited number of initiatives that will have a positive impact on the local economy and local communities, to help them through the recession. The Council will work closely with its partners to do this. Representatives of local businesses and local residents will be consulted.

The Council also has an exceptional risk reserve for legal risks notably the claims against the Council in respect of the completed Spa project, and the costs of the Council asserting its position and counterclaims in Court. The Council believes it will recover these costs but it is required to be prudent and this budget includes allowance for a further contribution to this reserve of£4.134m to ensure it is at an acceptable level in relation to these risks, together with risks in relation to Single Status, and to allow for a specific Recession reserve of£685k.

Various changes have been made to allow for the specific pressures in the medium term plans. The detail is shown in the service action plans that are a background document to this report and they show in detail how the Council will:

• deliver its priorities as set out in the Corporate Plan (also on this agenda as a separate report)
  
• improve services and respond to pressures, as well as
  
• achieve efficiencies and enable the Council to balance its budget,

These have all been examined by the various overview and scrutiny committees and their comments are attached to this report.

The 3% efficiency requirement will partially affect staffing levels. At this stage there is no general presumption that redundancies will be required but there will be a need to reduce staffing in some services as vacancies arise.

Fees and charges are assumed to increase in line with costs. A guideline increase of about 3.4% has been set, but actual increases should be related to the costs of individual services. Separate consideration will be given to Parking charges with a view to minimising increases next year (whilst the economy is under pressure) but ensuring that in the medium term increases are in line with the Local Transport Plan which assumes above inflation increases, partly as a means of encouraging park and ride and reducing congestion.

The Council is starting a new phase in its change programme to help deliver better services to customers within the reduced resources available. This will be underpinned by a 3 year programme of `lean' reviews centred on the needs of customers.

A series of proposed one off items in the budget is summarised as Annex 2 to Appendix 2. This includes allowance for the change programme (lean reviews to achieve transformational change) as well as some of the costs of school rationalisation and the Council's commitment to reducing its carbon footprint. The last of these is associated with many invest to save projects that will reduce energy consumption and it is intended to aim to reduce the Council's carbon footprint by 30% over 5 years which is significantly greater than previous indicators.

A scheme has also been put together to enable other invest to save projects to come forward. These will self fund and need to pay back their costs over 3 years.

Future Years

The medium term plans consider the next 3 years and beyond. They show the pressures that will need to be faced as well as the opportunities.

The opportunities include:

• realising the Council's change programme (in particular the programme of lean reviews) to improve services to customers within existing resources
  
• achieving efficiency improvements of at least 3% each year through the change programme and other means
  
• rationalising its office accommodation but at the same time improving customer access to services
  
• working more closely with partners such as the police and the PCT (NHS Health services) to align our resources
  
• invest to save initiatives such as in energy efficiency that also help achieve Council priorities
  
• improvements in procurement practices to drive forward economies

The pressures include:

• the aspirations in the Corporate Plan and the improvements sought following the last very positive audit inspection earlier this year which rated the Council as 3* (out of a possible 4) and improving well
  
• increasing customer expectations as well as demands on services as a result of an aging population
  
• any ongoing pressures from the recession depending on its severity and duration, although this area is expected according to national research, to be one of the least affected in the country (despite that the impact across the district may vary)
  
• government grant settlements after the comprehensive spending review at national level due in 2010

o this will consider the availability of public finance to support local government and other public services

o it is expected that future grant settlements will be poor starting in 2011/12 because of the need to restore fiscal balance in the context of the unprecedented government borrowing taking place in the economy.

• Local government pension cost increases - in our case this is at a rate of about 1.4% each year, but unlike many public services these costs are required to be funded and are not met directly by national taxation.

Structure of the Budget proposal

Section 1 sets out the context and our approach to the revenue and capital budget and the high level build-up of the recommended revenue budget for 2009/10. Annex 1 provides more detail on 2009/10.

Section 2 sets out the position for future years 2010/11 and 2011/12 taking account of proposals developed in the medium term service and resource plans, in light of known pressures and assumptions about levels of funding.

Section 3 sets out the capital budget and the build-up of the recommended capital budget for 2009/10. It also includes indicative capital budgets for 2009/10 - 2013/14. Annex 6 provides more detail.

Section 4 sets out the current position on revenue balances and makes recommendations on earmarking of balances. Annexes 3 and 4 provide more detail.

Section 5 sets out the implications of the revenue budget for Council Tax levels for 2009/10.

Section 1 - The Revenue Budget for 2009/10

A) Introduction & Process

The proposed Budget for 2009/10 has been prepared as an integral part of the Council's medium term service and resource plans and the proposals should be viewed within the framework set by the Corporate Plan.

The purpose of the Budget is to allocate financial resources to Council services to deliver services to the community to required standards and performance targets. The detail of what is spent must therefore be seen within the context of a service's overall plans.

In February 2008 the Council agreed a Corporate Plan, a Medium Term Financial Strategy and a Capital Strategy in the context of the 3 year financial settlement from central government under the Comprehensive Spending Review (CSR07), as well as the Budget for 2008/09. An updated Corporate Plan is contained on this agenda.

Since then Strategic Directors, in consultation with their Cabinet Members, have developed 5 Medium Term Service and Resource Plans covering the years 2009/10 - 2011/12 but drawn up in the context of a longer (10 year) time horizon. The draft Medium Term Service and Resource Plans were reviewed by the relevant Overview and Scrutiny Panels through the Autumn, and the O&S panels were also given an update on the Council's overall financial position. These documents are attached in Appendix 1 together with a summary of the corporate financial assumptions.

As 2009/10 is the 2^nd year of the 3 year (CSR07) financial settlement and despite the changing economic and financial context the grant settlement for 2009/10 was as expected. The Cabinet have now had the opportunity to further consider proposals from Officers which develop the medium term planning and take account of initial comments from Overview & Scrutiny. In that context we have developed revised and more detailed proposals for 2009/10 for consideration by Overview and Scrutiny during January, in the form of Service Action Plans. The Cabinet will also consider feedback from consultation with the Trade Unions, the local business community and other partners / stakeholders.

B) The Context to the Budget Proposals

The draft revenue budget for 2009/10 is proposed in unprecedented financial and economic circumstances, which arise from the both the `credit crunch' and rapidly rising commodity and energy prices, but which going forward will take the form of what is emerging as a relatively sudden and prospectively deep recession. This context impacts on what was already a steadily tightening grant settlement, as central government had already begun the process of reigning in the growth in public expenditure.

It should be recognised that the medium term context is actually significantly more challenging than that which faces the Council in 2009/10. This is partly because for 2009/10 the Council has achieved its risk-assessed reserves targets and so no longer requires the£1.76m pa reserves contribution within the base budget. Furthermore while at the time the CSR07 3 year settlement was seen as challenging, and indeed relative to previous years it was, it actually provided a window of certainty of government funding through to 2010/11.

From 2011/12 the context will be significantly more challenging than 2009/10 as the effect of the severe deterioration in public finances arising from the recession, and the expected large increase in the pension fund deficit begin to impact on the Council's and indeed all local authorities' financial position. This requires a `step change' in the Council's approach to medium term service and resource planning, and in particular a focus during the next 2 years on measures to mitigate the position going forward.

Appendix 1 sets out in more detail the corporate financial context and assumptions, while Section 2 below sets out further information on the medium term implications of this budget proposal.

The short term 2009/10 context includes:

• Uncertainty about inflation and pay rises, in that the 2008/09 pay rise has not yet been determined while the last year has seen inflation rises above the normal measure of price increases, particularly energy, and residential and nursing placement fees and the ongoing effects of single status implementation, but the next year could see lower inflation rates, and perhaps even `deflation';
  
• Uncertainty about interest rates and security of cash deposits. At the time of writing base rates have fallen to the unprecedented low level of 1.5%, and could fall further. It is not clear when the recession will end and rates can be expected to increase again. The actual rate that the Council will achieve on its cash deposits is also much more variable (the spread compared to base rates) depending on where cash is placed, as concerns about credit quality have increased;
  
• Uncertainty about the ability of the Council to generate capital receipts at acceptable values;
  
• Uncertainty about the impact of the recession on critical income streams such as council tax collection, parking receipts, commercial estate rents and heritage charges;
  
• Uncertainty of the extent of the impact of the turmoil in financial markets on the pension fund deficit, but recognition of the need to begin to address this issue in 2009/10 rather than waiting until required to in 2011/12;
  
• Increasing demand for services and improving standards;
  
• New responsibilities which are not always fully funded at a local level, for example, free bus travel for the over 60s, and loss of government grants;
  
• Significant unfunded pressures arising from national policies, for example continued increases in landfill tax rates;
  
• A current capital programme that relies on substantial unsupported borrowing;
  
• A grant settlement that has clawed back £2.3m of grant increase in 2009/10;
  
• The Government's expectation that Council Tax rises will be on average 'substantially less' than 5%;
  
• That the Council will need to continue to maintain a sustainable balance between capital and revenue, in this more difficult financial context, and that in the context of its ambitious `place-shaping' agenda, there is a need to generate significant additional capital resources, but recognising that economic conditions are likely to make this source of funding more difficult in the near term.

In addition, our proposals for the budget need to reflect the exceptional pressures and risks facing the Council (see section 4A for further information).

These include:

• The continuing uncertainty over the outcome of the Bath Spa claims management process and hence on the likely financial effects;
  
• The continued potential for further one-off costs arising from the introduction of single status in 2007/08;

C) Approach

The revenue and capital budget proposals recognise that:

• The Council cannot afford all it would wish to do both in terms of its services and the development of the area, and that the national financial context is more challenging and will become even more challenging than in recent years;
  
• The Council needs to continue to address and to recognise the major risks within the revenue and capital budgets;
  
• The Council needs to strike a difficult balance between the interests of service users, visitors, those who work in the area, residents and the Council Tax payer.

The Budget and Medium Term Service and Resource Plans reflect the Council objectives, issues and constraints by:

• Redirecting priorities between and within services, in the more difficult national context, in line with the Corporate Plan and Medium Term Service & Resource Plans (see the Corporate Plan elsewhere on the agenda and Tables 1, 3 & 4 below).
  
• Introducing an element of the revenue budget which allocates funding for `one-off' i.e. non-recurrent items which recognises the Council's need to respond flexibly in certain areas but also the uncertainty of income streams and the need not to over-commit the budget on an ongoing basis.
  
• Adjusting the current capital programme and adding only schemes that are in line with Council objectives and are funded either from external sources, from rationalisation of existing assets or where the costs of unsupported borrowing can be met from within medium term service and resource plans.
  
• Continuing to maintain an Exceptional Risk Reserve to enable the council to manage the major risks associated with the implementation of single status, Bath Spa Claims and the recession.
  
• Maintaining risk-assessed reserves in line with the reserves strategy.

D) Resource Allocation and Use of Corporate Headroom

The initial resource allocation parameters were as set out in Appendix 1.

A number of unfunded pressures were indicated in the first draft of the medium term plan at service block level and formed part of the O&S review.

A distinction between one off and ongoing pressures was made and an assessment of whether they:

• are unavoidable or as a direct result of a corporate priority
  
• are unavoidable as a direct result or external change such as new legislation
  
• are only capable of being funded from corporate funds - headroom
  
• require funding and cannot be met by cost neutral or externally funded approaches, and
  
• will result in unacceptable consequences if not funded.

Generally such items should also involve a `step change' in service provision such as in the case of waste and recycling, as landfill tax and LATs penalties impact on the service. It has also been necessary to ensure the approach is prudent given the pressures not just on the current year, but also on future years' budgets.

Table 1: Proposed Resource Allocation 2009/10

Note: Some subtotals in this table are affected by roundings

The above table shows the allocation of `headroom which has been generated from:

• initial resource allocation to services - £951k
  
• no longer requiring the planned reserves contribution £1,760k
  
• review of the capital programme and treasury management - £878k
  
• inflation review - £821k

Given the outlook for future years the intention is that much of the remaining headroom of£1.503m will be allocated in relation to one-off items as set out in section E below. The assumptions for future years set out in tables 3 and 4 below assume that no more that£300k of the above headroom is allocated on an on-going basis.

The corporate financial assumptions which underpin the budget and upon which this is based are detailed in Appendix 1.

E) `One-off' and `Invest to Save' and `Invest to Avoid' proposals

Under the Council's Invest to Save Scheme, the Cabinet Member for Resources can authorise funding for robust and credible invest to save proposals from reserves (i.e. in the short term creating a `negative ear-marked reserve' which is then repaid over time from the related savings together with an interest charge).

Given the new reserves context (i.e. the Council no longer having to set aside funding to build up reserves) and in the wider context of this budget proposal, it is proposed that the following parameters for use of reserves in respect of Invest to Save proposals are adopted.

The proposed parameters are:

• the risk-assessed general reserves are at least at their target level,
  
• that the Exceptional Risk Reserve remains fully funded,
  
• that reserves are being set aside for prospective additional Pensions liabilities
  
• that general reserves net of the invest to save allocations are not less than the recommended minimum of £6m (as set out in Annex 5)

In addition the Council can also consider robust and credible `invest to avoid' proposals, (where investment can avoid future costs, but which cannot be reasonably assumed to generate savings to refund the investment). It is proposed that the above conditions also apply, but in addition there will need to be a provision to replenish the reserves over a 3 year period, should reserves dip below the target level as a result of these proposals.

Proposals for reorganisations, lean reviews, investment in IT, investment in carbon reduction and accommodation changes (e.g. new offices) can be considered under the invest to save and or invest to avoid approaches.

Any other proposals for `one-off' expenditure would need to be prioritised alongside invest to avoid / save items, to the extent that there was sufficient funding identified, consistent with the above approach to reserves.

Annex 2 includes proposals for one-off expenditure some which are indicative at this stage and it is proposed by subject to further scrutiny and final agreement by the Cabinet Member for Resources in consultation with the S151 officer and Chief Executive.

The following criteria have been adopted as the basis for prioritisation.

• Fit with the Corporate Plan
  
• Fit with the Council's change programme priorities
  
• Ability to generate savings
  
• Ability to help avoid future expenditure
  
• Risk to the Council if not funded
  
• Lack of availability of existing budgets

The one potentially significant item which has not been prioritised for funding at this stage because it is not clear that it will be required is the potential revenue costs that might be associated with a successful BSF (Building Schools for the Future) Bid. The Council's submission has argued that the procurement route apparently favoured by the DCSF - a Local Education Partnership (LEP) would add unjustified time and cost to our proposal and therefore should not be adopted. If the bid was successful and the LEP was required then the setting up costs could be of the order of£2m-4m over the next 2 - 3 financial years.

F) Area Based Grant & Local Public Service Agreement (LPSA) reward grant

2009/10 is the third year of the Council's Local Area Agreement, and the second year of the new Area Based Grant (ABG), which has been introduced to facilitate area based working. There is also potential for the Council to receive a share of any LPSA reward grant from 2010/11. Further Information about the implications of these arrangements is contained in Annex 3.

G) Efficiency & Service Transformation

Recognising that the Council is considered by the Audit Commission to be providing `good' value for money, and the £2.1m of further efficiency savings planned in this budget (£15m already achieved in period 2004/05 to 2008/09), we are progressing the integration of the change programmes and developing a corporate approach to service transformation through adoption of the principles of customer excellence and `lean' reviews. Further information on the Transformation Programme is contained in Section 2 below.

H) Fees and Charges

The Council is reliant on a range of income streams from fees and charges as well as income from Council Tax and government grants.

Many of the Council's fees and charges are either set by statute or are subject to defined calculations under statutory guidance. Where the Council has discretion, the decisions are delegated to Officers and increases in fees and charges have generally been in line with the increase in the costs of the relevant service. Where there has been a significant variation from this approach the decision has been taken as a Cabinet decision following the setting of the Budget.

Officers have been advised, as a guideline, that the increase in the costs of staffing for 2009/10 is c3.4% taking account of both the expected pay award and phasing of the expected increase in pensions contributions. Individual services are expected to review their cost base in the context of this guideline, taking into account the other elements of their cost base.

The 2009/10 Budget proposal and related Service Action Plans do not include any proposed changes in fees and charges greater than the guideline would imply (i.e beyond the change in costs of individual services).

In relation to the Parking Service, the Customer Services Medium Term Service and Resource Plan assumes that, as part of a medium term strategy and consistent with the Local Transport Plan, income from parking charges will increase by more than the general rate of inflation. For 2009/10, taking account of the current economic environment, and subject to further consultation it is expected that while there might need to be some rationalisation of the existing charging structure and efficiencies in collection there will be no `across the board' % increase.

Annex 7 sets out the full set of fees and charges in relation to Adult Social Services.

G) Summary of the Revenue Budget Proposal

The proposed revenue budget for 2009/10 represents:

• A £8.5m or 4.0% increase in the total revenue budget including Dedicated Schools Grant.
  
• A £5.6m or 4.8% increase in the non-schools budget.
  
• A £2.9m or 3.1% increase in the schools budget in line with the increase in Dedicated Schools Grant (Government Grant).
  
• A 3.75% Council Tax increases of £42.48 p.a. for a Band D property (or 82 pence per week) which excludes Police, Fire and Parish precepts.

Section 2 sets out the 20010/11 and future years challenge for the council. While the achievement of the 2009/10 budget will be challenging, the underlying requirements are set to increase significantly in future years.

We are recommending a net revenue budget for 2009/10 of £123.221m. Table 2 below, and Annex 1 to this Appendix, show the build-up of the recommended 2009/10 revenue budget, compared to the current year.

Table 2: High Level Build-up of the 2009/10 Budget (detail in Annex 1)

Note: In addition to the Council's net revenue budget the provisional increase in Dedicated School Grant is£2.850m (3.08%) to £95.461m.

In recommending the overall revenue budget, we are also asking Council to approve the individual service cash limits for 2009/10. These are shown in Annex 1 to this Appendix.

Section 2 - Future Years (2010/11 onwards)

The medium term service and resource plans (Appendix 1) were constructed to cover the 3 years 2009/10 - 2011/12 with proposals that meet corporate and service objectives and budgets which are being capable of being balanced over each of the next 3 years, but with regard also been given to the following 7 years.

The corporate financial assumptions and initial resource allocation as set out in Appendix 1 covered each of the next three financial years. Appendix 1 explains that while we cannot be certain at this stage about the public finance environment under the next CSR from 2011/12, and/or the implications of our pension fund commitments, it is clear that it will be much more challenging that the current 3 year CSR period and the period of high levels of growth in public expenditure since 1999/2000. The Council has the opportunity over the next 2 years to position itself for this more difficult period.

The 2009/10 budget proposal based on the resource allocation as set out in table 1 above also gives indicative allocations for the years 2010/11 and 2011/12 and this is set out in table 3 & 4 below.

Table 3: Resource Allocation for 2010/11

Note: Some subtotals in this table are affected by roundings

Table 4: Resource Allocation for 2011/12

Note: Some subtotals in this table are affected by roundings

The detailed analysis of this by individual cash limit for each of the 3 years 2009/10-2011/12 is contained in Annex 1.

While it was originally envisaged that the medium service and resource plans would include proposals which achieved financial balance over the full 3 year period, this has not been fully achieved in relation to 2010/11 and 2011/12, principally as a result of the inclusion towards the end of the process of estimated additional costs in relation to likely increases in pensions contributions, and from 2011/12 a potential increase in Employers' National Insurance contributions.

Table 5 below sets out the financial `gaps' in future years which are shown as `savings to be identified':

Table 5: Savings to be identified in future years

Clearly while the medium term planning process was intended to identify all potential pressures for growth, it is possible that further additional savings will be required when these assumptions are reviewed nearer the time. It is therefore important that officers resume work on the Medium Term Service and Resource Plans to identify further proposals early on particularly as lead-in times might be significant.

We are asking the Strategic Directors Group to report back in July 2009 on proposals which will assist in meeting forecast future year financial pressures.

This will run in parallel with the Service Transformation Programme and work on developing options for new office accommodation as requested by Cabinet in January, and included in the Capital Programme proposal. Details of the Service Transformation programme are set out below.

Service Transformation

A service transformation programme is being initiated in the current financial year. It builds on the existing change programme and aims to:

• Review services across the Council over 3 years from a perspective of customer excellence and will use a methodology known as `lean fundamentals'.

o the principal aim is improvement in customer service and increased focus on priorities

o typically 25% efficiency improvements are available but the actual figures will depend on the starting point for the service

o of that sum, cashable savings of 10% are being sought to achieve the 3 year efficiency target (3% in each of 3 years) applying to all services, and services have every incentive to exceed these targets.

• Provide services with an improvement tool and support that also enables:

o more effective links with Council Connect and the transfer of aspects of services to Council Connect to improve responsiveness to customers

o more effective partnership working

o more flexible working to support the release of office space, which in term generates savings, supports the new offices project and the reduction in the Council's carbon footprint.

The CPR Overview & Scrutiny Panel is participating in the reviews to help ensure that there is good customer focus.

Medium term plans at block level should consider the scope for and timing of service transformation work and thereby contribute to the extension of the emerging corporate timetable for this programme.

In addition separate work will be taking place to improve the co-ordination of procurement activity, which in turn should generate savings and possibly service improvements by ensuring contracts link effectively with customer satisfaction and corporate priorities.

The Information Management & Technology strategy is being updated to reflect the business needs already known that link to the process of transformation. It is not intended that the transformation will be IT led. New business requirements for IT will emerge from the service excellence reviews over time.

The `one-offs' section of the budget proposal includes proposed additional funding to support the Transformation Programme.

Section 3 - The Capital Budget for 2009/10

A) Introduction

The Cabinet's proposals for the Council's capital programme are formulated in the context of:

• An already ambitious capital programme over a relatively short period of time.
  
• The inclusion of indications of significant government funding streams in relation to transport and schools which, while supporting the Council's strategic priorities, add further to the Council's delivery risk and require match funding and/or pre funding in some cases.
  
• A trend towards government funding for large projects being awarded on a partnership basis (e.g. West of England) which further increases the complexity and hence potential risk of delivery arrangements.
  
• Developing work on the visions for Bath, Norton Radstock and Keynsham
  
• The planned development of the western part of Bath Western Riverside
  
• The Council's Prudential Indicators, and pressures on the revenue budget

The principles governing our approach to the capital programme remain as set out in the Capital Strategy approved by Council in February 2008 and reflected in the medium term service and resource plans (Appendix 1).

This budget proposal:

• Limits new commitments to items which are in line with Council objectives and are funded either from external sources, from rationalisation of existing assets, or where the costs of unsupported borrowing can be met from within medium term service and resource plans.
  
• Recognises that careful consideration has been made by officers and members regarding future commitments and direction of this programme.

Given the likelihood that pressures on the revenue budget will increase over time, the Council continues to develop a more fundamental and medium term approach to revenue resource planning through the medium term service and resource plans which take into account any revenue costs of capital. The Council is also developing other capital funding sources, such as its ability to generate capital receipts (without significant loss of income), grants and further Section 106 monies.

The capital receipts targets for 2009/10 onwards are shaped by the Property Review, and the strategy of ear-marking non-scheme specific receipts for investment in the public realm, but the assumption of£2m in 2009/10 is modest and takes account of market conditions. The need to ensure that receipts are actually confirmed before expenditure can be authorised remains, and this process will take account of receipts generated since 1 April 2008. The level of receipts will be kept under review and the Council retains the flexibility to bring forward expenditure to the extent that receipts are higher than planned and plans for such expenditure have been developed.

In addition to, and as an amendment to the strategy of `ear-marking' non scheme specific receipts in relation to public realm, it is necessary to consider the need to `earmark' any receipts from the school estate to match fund the potential BSF funding that the Council has expressed an interest in accessing.

The Capital Review arrangements approved by the Executive in July 2006 continue to operate. One of the outcomes is greater clarity about the financial implications of the capital programme. All new capital schemes proposed for 2009/10 were subject to this review process. The Capital forecasts now are more accurately phased and subject to greater cash flow planning than previously. Evidence of this is the£16m slippage already forecast from 2008/09 to 2009/10 that has been built into these estimates. Slippage of£32m has also been built in for 2009/10 to 2010/11, in relation to known items, principally the Bath Package. The detail of the expected 2008/09 out-turn assumptions and hence forecast slippage is as set out in the Financial Monitoring Report to January's Cabinet, with minor subsequent adjustments in relation to the St Johns Development project and Social Housing Grants.

As an outcome from the greater scrutiny given to the capital programme, a number of items in 2009/10 and future years are shown in `italics'. The process grades schemes on a Red/Amber/Green basis, with `Reds' not being included, and the `Ambers' shown in `italics'. Where an item is in italics it requires further officer and/or member scrutiny and decision making before it is included. The numbers are therefore shown here on an indicative basis, and as an aid to planning, and the resolutions recognise the distinction between what is being authorised at this stage, and where future decisions are required.

Broadly, there are two cases. Firstly where there is a funding stream / programme confirmed and identified, but where further detailed work is required on how it should be spent and hence a further (e.g. single member decision required). This applies for example, to schemes that will be financed as part of the `Primary Capital Programme', Civitas, or the Local Transport Plan programme. Secondly there are potential new projects where the proposal needs further work and this needs to be signed off through the Capital Review process, and this includes confirming the sources of funding, and may also potentially require future member decision.

The proposed and potential changes to the capital programme and funding sources are set out in detail in Annex 6ii and Annex 6iii and are summarised in the table below:

B) Recommended Programme for 2009/10

On this basis the Cabinet is recommending the Capital Programme as attached at Annex 6i and summarised in the table below.

The proposed programme assumes total capital payments and funding of£92.094m in 2009/10 as shown in Table 7. Table 7 also shows the indicative capital programme and funding at summary level for 2010/11 to 2013/14. Annex 6i shows the total capital programme for 2009/10 to 2013/14 in more detail.

Table 7: Summary Capital Programme and Financing 2009/10-2012/13.

C) Funding

The revenue budget for 2009/10 and the Medium Term Service and Resource Plans for 2010/11 and 2011/12 provide fully for the revenue consequences of the Council-supported expenditure. The level of unsupported borrowing required over the period is still relatively high, and will continue to put significant pressure on the revenue budget in future years. The level of unsupported borrowing (cumulative) is forecast to increase by£12m in 2009/10 and £14m in 10/11, although £8m of this relates to the corporate capital contingency, which may not need to be spent. This is in line with existing plans and will still keep financing charges below funding via Formula Spending Share.

The revenue budget for 2009/10 assumes the following achievement of capital receipts:

• £1m of Housing (RTB) Receipts, no service specific receipts (excluding any not achieved and slipped from 2008/09 to 2009/10), and £2m of general receipts as part of the c£100m potential funding / receipts from the property review. It is currently forecast that the £2m of general receipts will actually be achieved by 31 March 2009. Given the uncertainty over the generation of capital receipts in the very short term this approach is relatively prudent.
  
• 2009/10 is the sixth year of the new Prudential Code for Capital, introduced as part of the Local Government Act 2003. The Code gives considerable freedom to Councils to set their own capital spending programmes subject to the responsibility to demonstrate that plans are affordable over the planning period. This is achieved through the Medium Term Service & Resource Plans. Prudential Indicators are reported separately to the Cabinet for approval and recommendation to Council in the report on the Council's Treasury Management strategy.

Section 4 - Revenue & Capital Reserves and Contingencies

A) Exceptional Risk Reserve

In February 2007 the Council created an Exceptional Risk Reserve of£4.588M as at 31 March 2007, to which was added £1.4m within the 2007/08 revenue budget.

Full detail of the purposes and parameters for the use of the Exceptional Risk Reserve (ERR) were set out in Annex 3 of the February 2007 Council Budget Report.

In February 2008, in light of the risk review, the Council narrowed the scope of the ERR to cover Bath Spa Claims Management Costs and Single Status only, with revised parameters as set out in Appendix 2 Section 3 of the February 2008 Budget Report. It is proposed that that approach be continued, with the addition of a further purpose.

In light of the exceptional economic circumstances, it is proposed that provision be made in the Exceptional Risk Reserve to allow for potential funding to offset what would otherwise be a short term adverse impact on the Council's financial position (whether that be short term losses of income and or increases in expenditure) arising from the recession and/or to allow the Council to fund measures that might impact positively on the local economy under its `well-being' powers. This provision would be in addition to the risk assessed general reserves, where a number of the risks are specifically recession related.

A review of commitments to date and potential further calls on the ERR indicate in relation to Single Status and Bath Spa Claims Management indicate that it is necessary to provide for a further£3.449m in relation to these items. With regard to Single Status this is in line with the assumptions made in February 2008 and continues to provide for the possibility of significant financial assistance to Schools from the ERR in the event of significant and unexpected back pay costs.

In relation to Bath Spa Claims Management this will enable the Council to continue to fund costs of the defending itself against claims for additional costs in relation to the Bath Spa project and for enabling the council to pursue its claims in relation to design and/or workmanship. Strategy and costs continue to be kept under review by the Spa Claims Board, with briefing and decision making being in accordance with the delegations agreed by Council in February 2008.

The status of these risks has been reviewed in the context of the overall review of the Robustness of the Budget and it is considered that a further£4.134m should be transferred to the ERR from general reserves, which taking account of the above also allows for a provision of£685k in respect of recession related issues.

The potential for the Council to need to find significant funding for a LEP has also been referred to in Section 2 E above. It is proposed that no specific provision is made in the Exceptional Risk Reserve in relation to this purpose at this stage, but that the purpose be recognised, such that funding from this source could be utilised should that be necessary and if at the time the assessments of the other purposes indicated the capacity so to do.

It is proposed that the authorisation mechanism for drawdown from the Exceptional Risk Reserve remain as agreed in February 2007.

B) Unearmarked (and risk assessed) Revenue Reserves -

The Local Government Act 2003 contains a duty on the statutory finance officer (s151 Officer) to report to the Council, at the time the budget is considered and the Council Tax set, on the robustness of the budget estimates and the adequacy of financial reserves. The report of the s151 Officer on this subject is included as Annex 5 to this report and is recommended to the Council. We have drawn upon the report in putting our budget proposals to the Council. The conditions of the report by the Strategic Director of Resources & Support Services Director are an integral part of our recommendations. This sets an unearmarked reserves target of£10.685 million based on this thorough risk assessment and in the context of the provisions made through the ERR.

Table 8 below (and Annex 4) includes no provision in respect of any under/overspend in 2008/09 after taking into account the most recent financial monitoring information for the year to December 2008. This figure depends on what the actual out-turn is, on future decisions by the Cabinet about any overspends (which may be required to be carried forward at individual service level) and about whether the Cabinet approves any carry forward of underspends in relation to services which have not overspent. The figure is therefore only an estimate at this stage and is without prejudice to future Cabinet decisions.

Use of the Reserve will be authorised by the Council's Section 151 officer in consultation with the Chief Executive and Cabinet Member for Resources, and will only be authorised if General Reserves are adequate.

C) Adequacy of reserves

We recommend the s151 officer's report on the adequacy of reserves which provides a reserves strategy to maintain non-earmarked General Fund reserves at £10.685m based on a thorough risk assessment. The projected reserve levels are set out in Table 8 below.

Table 8: Projected Non-Earmarked Revenue Reserves

In addition, it should be noted that the Cabinet earmarked£500k of the 2007/08 underspend as a general risk reserve to provide additional in-year flexibility should that be required.

In previous years the Council has received allocations of Local Authority Business Growth Incentive grant at the end of the financial year, which have therefore been added to reserves. No assumptions have been made about future receipts under the LABGI scheme in 2009/10 or future years as the national total is now very small and the distribution formulae are not determined but are likely to be related to absolute increases in the Non-Domestic Rates tax base which is particularly difficult to forecast in current economic conditions.

Similarly, no assumptions have been made at this stage about any future VAT refunds.

This recommendation is made on condition that the Council and the Cabinet:

• Reject any further calls on reserves other than for those risks that have been identified or are unforeseen.
  
• Ensure that where there is a draw down on reserves this is paid back within 3 years recognising that this will put further pressure on the revenue budget.
  
• Ensure that reserves are not allowed to fall below the £6m minimum level.

A reconciliation of reserves is contained in Annex 4.

D) Capital Risk Contingency

There are 4 levels of risk provision in relation to the capital programme. Firstly the following major projects within the capital programme (Writhlington School and Bath Package - Bid Costs), which have total remaining planned expenditure of£24.4m, include within that total, uncommitted scheme specific risk contingencies which total£2.232m or 8.3% and 14.3%, respectively. In addition the Combe Down Stone Mines project includes a remaining unallocated contingency ofc£1.46m which is 4.0% of the remaining planned expenditure. This is in addition to the allocated contingency of£5.56m, which is £15.3% of the remaining planned expenditure. The latter contingencies are within English Partnerships funding for the scheme and as such are not a Council resource.

Secondly, the capital programme includes a funded corporate risk contingency of£8.235m over the 5 year period 2009/10-2013/14 of which £6.735m is assumed in 2009/10. Thirdly the corporate risk assessment on which the general reserves target is based includes£0.7m provision for additional borrowing costs in 2009/10, which gives further short-term flexibility. Finally, while the generation of capital receipts cannot be relied on in the current economic environment, the capital programme does not assume funding from capital receipts, so any receipts generated in 2009/10 also provide additional short term flexibility, pending their being required to fund any planned expenditure on items such as BSF and/or public realm.

Section 4 - Council Tax

This section shows the implications of the recommended revenue budget for Council Tax levels for 2009/10.

In the Financial Strategy we recognise that our plans must be affordable to local people. In preparing the revenue budget we have sought to minimise the impact on Council Tax payers.

Our proposal is for an increase in Council Tax of 3.75%. This should be seen in the context of below average Council Tax rises in the past, an overall Council Tax that is slightly below the unitary average, and the Government's clear warnings about capping. Table 9 explains the calculation of this figure:

Table 9: Council Tax 2009/10 for Bath & North East Somerset Council Services

The figures above exclude parish, fire and police precepts.

This Council collects Council Tax on the behalf of the parishes, Fire and Police Authorities and the final bills issued will include the Council Tax they have requested this Council to collect. These will form part of the Council's overall budget-setting resolution.

At the time of writing only an indication was available from Avon and Somerset Police Authority about its proposed rises in its precept and Council Tax. The proposals will be discussed at its Finance Committee meeting on 27^th January 2009 with a final decision made by the Police Authority on 11th February 2009.

At its meeting on 19^th December 2008 Avon Fire Authority approved, for consultation purposes, a budget of£45.993m which would require a 4.75% increase in Council Tax. The Fire Authority will meet again on 13^th February 2009 to finalise its budget and set its Council Tax and precepts for 2009/10.

The headline increase will be affected by the final decisions of the parishes, Fire and Police Authorities, and any decision made concerning special expenses (see below).

Given this Council's history of lower than average Council tax rises it is considered very unlikely that the Government will seek to use capping powers in respect of Bath and North East Somerset Council if the Council approves a Council Tax rise of 3.75% in 2009/10.

Table 10 sets out the composite Council Tax likely to be charged:

Table 10: Potential Total Council Tax 2009/10 (Band D)

The precepts required by Parishes, Fire and Police will form part of the Council Tax setting resolution at Council on 17th February, and so the necessary updated information will be set out in the report.

Special Expenses

As part of the 2008/09 Budget preparation process the Council approved that no special expenses be declared (with the exception of Parish and Town Council precepts). It is proposed that this policy continues.