THE DRAFT BUDGET PROPOSAL OF THE COUNCIL EXECUTIVE

Executive Summary

In January we, as the Council Executive, issued our draft financial plan proposal for consideration by the Council.

In this document we now set out our draft budget proposal for 2003/04. This fills in the detail of the first year of the financial plan proposal, recommends revenue and capital budgets for 2003/04, and recommends a level of Council Tax for that year.

Our financial plan proposal set out the issues and constraints we have had to consider in drawing up, for the first time, a 4-year forward plan for the Council's spending.

In the financial plan we put forward, following consultation, four themes, to add to those of the original plan:

· 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 and 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 were disappointed that Council did not approve our financial plan proposal. However, that proposal still represents our thinking and we have now built on it and prepared a draft budget which is:

· Responsive to local needs - it begins to redirect spending to our four key themes

· Sustainable - it does not rely unduly on balances or other one-off sources to funding to prop up planned spending; it maintains major services and sustains our organisational capability

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Fair to Taxpayers - the proposed Council Tax increase of between 5.6% and 6.25% is lower than the government guideline and we expect it to be one of the lowest increases - possibly the lowest - in this area.

Structure of the Budget proposal

This document is presented in the following structure:

Section 1 shows the build-up of the recommended revenue budget for 2003/04

Section 2 shows the build-up of the recommended capital budget for 2003/04

Section 3 shows the current position on revenue balances and makes recommendations on earmarking of balances and borrowing limits

Section 4 provides additional information on aspects of the revenue and capital budget, including the proposed Public Service Agreement, Education and Social Services.

Section 5 shows the implications of the revenue budget for Council Tax levels for 2003/04

Section 6 offers choices for consideration by Council on revenue and capital spending

Section 7 summarises our budget recommendations to Council.

Section 1 - The Revenue Budget for 2003/04

The financial plan showed (Table 1 to Appendix 5 to that document) projected net revenue spending for 2003/04 of £160,140,000. However it also showed a net revenue shortfall of £5,080,000 to be made up from a combination of cost reductions, increased charges and Council Tax rises.

We have examined options to reduce the impact on Council Tax payers. As a result, we are now recommending a reduction compared with the financial plan projection of £1,393,000.

Table 1 shows how we have achieved this reduction:

Table 1

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We are now recommending a net revenue budget for 2003/04 of £158,792,000. Table 2 and Appendix 5 show the build-up of the recommended 2003/04 revenue budget, compared to the current year:

Table 2

In recommending the overall revenue budget, we are also asking Council to approve the individual service cash limits for 2003/04. These are shown in Appendix 5, with Appendix 6 showing supporting detail on corporate budgets.

Section 2 - The Capital Budget for 2003/04

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The financial plan proposal showed (Table 1 to Appendix 5 to that document) projected net capital spending for 2003/04 of £26,656,000, to which is added a planned revenue contribution to capital of £500,000, making an overall total of £27,156,000.

In accordance with normal practice, we now propose to adjust the financial plan so that it includes all known government allocations. These were forecast at £13,824,000 but are now forecast at £18,092,000.

The plan also contained a contingency for further capital spending pressures of £1,422,000. We are now proposing to allocate that contingency, and to adjust the financial plan for more up-to-date projections of spending between years.

Table 3 shows how we have made these changes:

Table 3

Within this recommended overall capital budget, we are recommending the following specific allocations, to be funded from the contingency (which, as Appendix 7 shows, is now £1,965,000). These are shown in Table 4:

Table 4

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Appendix 7 provides further information.

Section 3- Revenue Balances and Borrowing Limits for 2003/04

In 2002, Council agreed that it would, over time, increase the level of its working balances. In setting the 2002/03 revenue budget, these were projected to be at 2.5% of net revenue budget, an increase of 0.5% from the previous year.

Appendix 8 shows the current position on working balances. We have complied with previous Council policy and our financial plan shows a planned build-up of balances in each of the four years. For 2003/04 we now propose to contribute an extra £450,000 to balances, bringing the level to approximately 2.75% of the net revenue budget.

We are also proposing to earmark specific sums within balances, to help establish the planned tourism company (£100,000) and to meet the ongoing costs of legal challenges arising from the transfer of our housing stock (£100,000). These sums have been incorporated within Appendix 8.

The new Local Government Bill is currently going through Parliament. Within it there will be a new duty on the statutory finance 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. Although it is not currently a legal requirement, the Executive has asked for the comments of Resources Director on this subject and these are included as Appendix 9 to this report.

It is also a statutory requirement at the time of setting the budget that the Council approves an overall borrowing limit for the 2003/04 financial year, a short-term borrowing limit within the overall borrowing limit and a limit on the proportion of variable rate loans. All these items will be incorporated within the budget resolution. It is suggested that an Overall Borrowing limit is set of £30m, a Short term Borrowing limit of £25 m and that the Proportion of Variable Rate loans is limited to 50%. In setting the limits we have taken into account a number of factors affecting the Council's cashflow, including the expected level of balances at the end of March 2003, the capital programme and anticipated capital receipts. It is envisaged the Council will require temporary borrowing during the last quarter of 2003/4 and this will make up the largest component of our loan requirements.

Section 4 - Additional Information

In this section we provide additional information on specific aspects of our proposed budget.

Public Service Agreement

We are currently negotiating with central government for a Public Service Agreement, which will provide financial incentives to us to achieve certain service and performance improvements. Appendix 10 shows the current position on negotiations - the final set of schemes will be reported to full Council for its approval in due course.

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In our budget we have included funding for the first year revenue costs associated with these schemes, which are met in full by government grant. We have also included £1.8M of capital spending to fund the schemes through what are known as Unsupported Credit Approvals. We have phased this funding over the three years of the Public Service Agreement.

Education

The year-on-year increase in Education SSA is £8.9M. In line with previous years we are passing this sum onto the Education budget, representing a 13% increase. The increase however masks major changes to the national financing of education. Pressures of £9.824M have been identified, requiring savings of £925,000 in order for the revenue budget to be set within that sum.

Pressures include:

Once Council has agreed the overall cash limit for Education, the Executive member will determine following his consultation with the Education Budget Forum, the final allocations of that cash limit.

In our financial plan we noted with concern that there was no Council capital provision to provide investment in schools. This was not our decision but a consequence of the original Council 3-year plan. We feel that a longer-term solution is needed to tackle the backlog in schools' investment but in the short-term we recognise that some additional funding is required, and have therefore allocated £600,000 to supplement the high level of investment available to schools in 2003/04 (shown in Appendix 7)

Social Services

In our financial plan proposal we assumed that social services spending would grow in line with the SSA growth - but we indicated a wish to see that as a cap, requiring social services to manage its significant pressures within that level.

The Director of Social & Housing Services produced a separate report "Re-Shaping Social Services" setting out a plan for achieving the limitation of spending within this cap, which was approved at our January Executive meeting.

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The year-on-year spending growth in social services in the financial plan was 10.7%. However this apparently high level masked very significant spending pressures arising from demographic changes, the absorption of former specific grants and national cost pressures. Absorbing all these pressures within the "cap" of SSA growth would have required compensating savings of £1.8M. Savings of this scale, if implemented within a short timescale, would have had severe consequences for service users, including the elderly. We have therefore sought to cushion the impact on social services and have recommended a budget, which is £220,000 in excess of the amount indicated by the financial plan.

We have also included funding within our capital budget to progress the scheme to replace our existing residential care homes with 3 new ones together with supported care facilities.

Transportation

Increased investment in transport is one of our key themes. We have prepared a draft business plan to set out the actions required to deliver improvements to the transportation systems within Bath & North East Somerset. While recognising that such improvements need to be planned carefully within a long-term strategy, we have, in the revenue budget, invested an additional £494,000 to commence those improvements.

In addition the capital budget provides for a total of £7.6M through the Local Transport Plan and Council resources, which is a record level of investment.

Section 5 - Council Tax

This section shows the implications of the recommended revenue budget for Council Tax levels for 2003/04.

In the financial plan document we said that, while wishing to develop services in priority areas, we recognised that our plans must be affordable to local people. We knew that this would be very challenging given that the government's grant system consistently requires an increase in Council Tax of over 5% each year - and for 2003/04 even higher, at 7%. We had to accept that the increase would be, because of the government's financing assumptions, higher than the rate of inflation.

In preparing the revenue budget we have sought to minimise the impact on Council Tax payers. As a result, our recommended increase is to be no more than 6.25% - 0.75% lower than the government guideline. This figure includes a contingency of 0.25% because, at the time of writing, we do not know the final government grant settlement, which is due to be announced on February 3^rd. If the final government grant is the same as previously indicated, then our aim will be for an increase in Council Tax of only 6%.

Table 5 explains the calculation of this figure:

The figures also exclude parish and police precepts. This Council collects Council Tax on their behalf and the final bills issued will include whatever Council tax they have requested this Council to collect. These will form part of the Council's overall budget-setting resolution. We understand that the Avon and Somerset Police Authority is considering rises in its precept of a budget of £215.4M or more. The implications of this would be a precept increase, based on a Band D Council Taxpayer, of approximately £25.45 per annum (30.5%) or £26.41 per annum (31.7%) or £29.28 per annum - taking the current precept figure from £83.40 per annum to about £112.68, an increase of 35%.

Section 6 - Options for Council

Both the Revenue and Capital Budgets contain unallocated sums of £250,000 - making a total of £500,000. While this provides a useful buffer against unforeseen events between the time of writing this proposal and final budget setting, it also offers choices to Council.

On the revenue unallocated sum, Council could allocate the £250,000 to:

· Reinstate proposed savings (from the lists in Appendices 1 - 4)

· Fund new additional spending within our four themes and for other community concerns

Or Council could agree NOT to allocate all or part of the £250,000 and thereby achieve a lower level of Council Tax rise (not spending the full £250,000 would result in a Council Tax rise of 5.6%).

Similarly, on the capital unallocated sum, Council can fund additional spending within our four themes and for other community concerns.

Section 7 - Summary of Recommendations to Council

Our recommendations to Council will be (these will be set out in a covering report to Council):

1. To approve the recommended 2003/04 revenue budget at Appendix 5

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To approve the recommended 2003/04 capital budget at Appendix 7

3. To approve the working balances statement at Appendix 8, including the earmarking of sums for the set-up of the planned tourism company and to meet the ongoing costs of legal challenges

4. To note the comments of the Resources Director at Appendix 9

5. To approve the overall borrowing limit for 2003/04 of £30M, a short-term borrowing limit of £25M and that the proportion of variable rate loans is limited to 50%

6. To delegate approval of the allocation of the Education cash limit to the Executive Member for Education

7. To approve a Council Tax increase for B&NES of no more than 6.25% and adopt the formal Council Tax setting resolution (this will be included in the papers for full Council)

8. To determine the allocation of the unallocated £250,000 revenue sum, as proposed

9. To determine the allocation of the unallocated £250,000 capital sum, as proposed

10. To authorise officers to use the draft financial plan (as reported to the Council in January, as amended by this draft budget proposal) as the basis of planning for future years, pending the preparation of a new financial plan proposal by the incoming Council Executive after May 2003.

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