Meeting documents

APPENDIX 1

THE DRAFT BUDGET PROPOSAL OF THE COUNCIL EXECUTIVE

Executive Summary

In this document the Council Executive sets out its draft budget proposal for 2007/08. This fills in the detail of the third year of the financial plan proposal contained within the Corporate Plan, recommends revenue and capital budgets for 2007/08 and recommends a level of Council Tax for that year.

Our budget proposals include:

Structure of the Budget proposal

Section 1 sets out the context and our approach to the revenue budget and the high level build-up of the recommended revenue budget for 2007/08. Annex 1 provides more detail including indicative cash limits for 2008/09 and 2009/10.

Section 2 sets out the context and our approach to the capital budget and the build-up of the recommended capital budget for 2007/08. It also includes indicative capital budgets for 2008/09 - 2011/12. Annex 3 provides more detail.

Section 3 sets out the current position on revenue balances and makes recommendations on earmarking of balances. Annexes 4 and 5 provide more detail.

Section 4 provides additional information on aspects of the revenue and capital budget.

Section 5 sets out the implications of the revenue budget for Council Tax levels for 2007/08.

Section 1 - The Revenue Budget for 2007/08

Introduction

The proposed Budget for 2007/08 has been prepared as an integral part of the Council's Corporate and Financial Plan and the proposals should be viewed within the framework set by the Corporate Plan. A summary of the Corporate Plan Final Review is attached as Appendix 2.

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 a service's overall plans. For 2007/08, detailed budget decisions will be made as part of finalising individual Service and Resource Plans, within the financial resources determined by the Council.

Services have been asked to plan on the basis of existing financial plan targets. They have been asked, within the context of their Service and Resource 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 and Resource Plans. Specifically services were asked to draw up plans for 2007/08 that met the following:

Guidelines for Service and Resource Planning were issued to services in August 2006. The process also included scrutiny of the draft Service and Resource Plans by Overview and Scrutiny panels during the autumn of 2006 and in January 2007 before any decisions are made by the Council. As the Council Executive we are keen to involve more Councillors in the early development of service and budget proposals and so the process was started earlier than in previous years.

2007/08 is also the first year of the Council's Local Area Agreement. The Council Executive at its meeting of January 11th received the second draft of the Local Area Agreement as sent to GOSW. This contained detailed proposals for pooled and aligned budgets as well as for stretch targets which attract pump-priming and performance reward grant funding. The Executive agreed to adopt this draft and resolved that the Chief Executive, in consultation with the Council Leader, be authorised to finalise the agreement document and make arrangements for signature. The Executive also resolved that the financial implications for the Council of the agreement, including pooled and aligned funding, performance reward and pump-priming arrangements be incorporated into the Council's Financial Plan and its budget. This work is now currently being undertaken, in the light of the budget process, and the outcomes of this will be reported to the Council through an additional annex to the final budget report presented on 20 February 2007.

The Context to the Budget Proposals

The draft revenue budget for 2007/08 is proposed within a difficult context putting severe pressure on both revenue and capital budgets. These risks and pressures were set out in the Financial Plan Update report to the Executive in December and formed part of the all member Budget Briefing on 18 December. The context includes:

In addition, our proposals for the budget, the future financial plan and the level of reserves need to reflect the exceptional pressures and risks facing the Council. These include:

The revenue and capital budget proposals recognise that:

The approach to the budget and financial plan reflect these issues by:

The proposed revenue budget for 2007/08 represents:

*Including inflation allocations, adjustments reported to the Council Executive in September 2006 and service plan adjustments arising from service plans being completed at Assistant Director level causing some cross portfolio movements. Should the pay award be less than assumed the cash limits will need to be reduced to reflect this. These movements are shown in detail in Annex 1.

**The Single Status current provision will need to be allocated to individual service cashlimits when the implementation is finalised.

Section 4 sets out the 2008/09 and future years challenge for the council. While the achievement of the 2007/08 budget will be challenging, the underlying requirement for efficiency savings is set to increase in future years.

In recommending the overall revenue budget, we are also asking Council to approve the individual service cash limits for 2007/08. These are shown in Annex 1 to this Appendix and include continuation of financial plan targets for a further 2 years.

Section 2 - The Capital Budget for 2007/08

The Council Executive's proposals for the capital programme and formulated in the context of:

The principles governing our approach to the capital programme have been:

Given the likelihood that pressures on the revenue budget will increase over time, the council will either need to develop a more fundamental and medium term approach to revenue resource planning as well as the short term cost reduction programme already required or else it will continue to find the emerging and ambitious capital agenda is constrained by the ability to generate capital receipts without significant loss of income, or other external sources of capital funding. The paragraphs on Future Years in Section 4 develop this theme. At this stage the receipts targets for 2007/08 onwards remain at the level set in February 2006, but this will be subject to the review referred to in section 4 and the report to the Executive in July 2007.

The new Capital Review arrangements approved by the Executive in July 2006 are now operating. One of the outcomes is greater clarity about the financial implications of the capital programme. However, while the new arrangements are creating sounder foundations going forward, most of the capital programme is schemes or programmes already underway. At the time of writing there is a need for further clarification of some of the items in the draft programme from previous years. In relation to Education and Housing Schemes, there is a need for further clarification of the expected phasing of payments, and associated funding to ensure that the council (non DSG budget) is not exposed to unfunded borrowing costs, or is funding borrowing costs from the revenue budget which it does not need to. The issues in relation to Education capital funding are commented on further in Section 4.

We are therefore recommending that the approval for these items within the programme is conditional pending the Director of Support Services (in consultation with the Executive Member for Resources) being satisfied in the light of the above clarification.

The proposed new additions to the capital programme and funding sources are as follows:

Table 3(a): Proposed Additions to Capital Programme & Funding Sources

Table 3(b): Funding of Proposed New Additions to Capital Programme

Although the capital provision for certain activities is not provided for corporately this does not mean the activity will not continue if the relevant service can sustainably fund the revenue effects of the borrowing. This will need to be rigorously tested and monitored, in view of the difficulty that many services are already having in meeting financial plan revenue targets. The following schemes are therefore placed on a supplementary list pending that review:

On this basis the Council Executive is recommending the Capital Programme as attached at Annex 3 and summarised in the table below.

The proposed programme assumes total capital payments and funding of £53.5m in 2007/08 as shown in Table 5. Table 5 also shows the indicative capital programme and funding at summary level for 2008/09 to 2011/12. Annex 3 shows the total capital programme for 2007/08 and indicative programmes for 2008/09 to 2011/12 in more detail.

Table 5: Summary Capital Programme and Financing 2007/08-2011/12

The revenue budget for 2007/08 and the Financial Plan for 2008/09 and 2009/10 provide fully for the revenue consequences of the Council-supported expenditure. The level of unsupported borrowing required over the period is still very high, and will continue to put serious pressure on the revenue budget in future years. Even after taking into account the further exceptional receipts as set out below the level of unsupported borrowing (cumulative) is forecast to increase from £7.024M at 31 March 2006, to £20.171 by 31 March 2007, and to £37.353M by 31 March 2008.

The revenue budget for 2007/08 assumes the following achievement of capital receipts assumed:

Creation of Exceptional Risk Reserve

The Budget report for 2006/07, and this report, highlight a number of potential financial risks facing the Council which should they materialise could reduce our reserves to an unacceptable level. In order begin to address these potential risks a number of measures have been developed to provide an exceptional risk reserve. The original proposal was contained in the December 2006 Financial Plan Update to the Executive, as part of risk management during 2006/07, and to form part of this budget proposal to Council.

Since then further clarification of the potential measures and further monitoring of the 2006/07 budget result in a revised proposal as set out below:

Table 6: Measures proposed to create exceptional risk reserve as at 31 March 2007

Take every opportunity to maximise reserves.

Reject any further calls on reserves other than for those risks that have been identified or are unforeseen.

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.

Having reviewed the position, the Support Services Director is advising the Council that a capital contingency of around £20m would be prudent over the plan period of which £15m does not need to be cash backed at this stage. The plan currently allows for some £5m to be included in the capital programme over the period 2007/08 to 2009/10. In addition the major projects programme includes contingencies of £2.7m for general schemes and £33.5m for the Combe Down Stone Mines. The latter contingency is within English Partnerships funding for the scheme and as such is not a Council resource.

Section 4 - Financial Plan commentary

In this section we provide additional information on specific aspects of our proposed budget, relating it to the original intentions of the financial plan and setting out some principles and issues for 2007/08 and the development of a new financial plan by the new Council.

The original Corporate Plan contained strategies for creating Financial and Organisational Headroom and Capacity, including financial targets for education and social services that would, over time, reflect a tempering of the rate of growth so that the gap between spending and the government's Formula Spending Share was narrowed to enable local income to fund local priorities.

Education

The introduction of the Dedicated Schools grant (DSG) arrangements in 2006/07 removed significant flexibility from the Council to reflect local priorities in its budget. The expenditure base in 2005/06 used to determine the DSG arrangement was c£3.5m in excess of the equivalent FSS. The effect of the introduction of the DSG arrangements has been to prevent any further tempering of the rate of growth in DSG related expenditure and so significantly limits the scope for the council to enable local income to fund local priorities.

We also recognise that there is still a need to improve the condition of school buildings. The Council Executive has, due to the clawback of grant arising from the introduction of DSG, been unable to fully implement its plan to reinvest gains from tempering the rate of growth of school budgets into investment in school buildings.

While the Schools Forum have agreed that savings from schools' rationalisation should be ear-marked to fund the supported borrowing costs of additional capital investment there is a need to consider the revenue implications of the overall schools' capital programme, taking account of the timing of payments, associated capital receipts, government and any other external sources of funding. The principle needs to be agreed by the Council, taking into account the views of the Schools Forum, that while the Council may act as `banker' for schools, this should be on a cost neutral basis in any individual financial year for the non-DSG element of the council's budget.

Section 2 of this report recognises that further clarification of the Education capital programme as whole is required, and recommends that pending such clarification no further commitments should be made. In light of this clarification and the principle set out above the Council will need to review the phasing of all expenditure and potentially whether it can afford to maintain £600k p.a. of capital funding for planned maintenance. This was agreed in February 2006 for a 3 year period, but it was also agreed that there was a need to reconsider the strategy as the new funding arrangements unfold and to take into account other priorities.

As with Education, the Corporate Plan envisaged a tempering in the rate of growth in Social Services so that, over time, the gap between spending and the government's norm (93FSS94) is narrowed. With the demise of FSS this is difficult to measure. However, it is estimated that the 2006/07 social services net expenditure will be c£2.3M (5.2%) in excess of the relevant FSS.

In terms of financial plan targets the recommended Social Services budget for 2007/08 is £1.487M (£0.991M Adult & £0.496M Children) above original financial plan targets, and is now estimated to be c£3.4M (7.6%) above the 2007/08 FSS (excluding an expected further increase in cost resulting from the finalisation of Single Status). Compared to FSS, the trend is now to further increase the gap between cost and FSS, which is contrary to the original intentions of the financial plan.

Service Improvement Priorities

The Corporate Plan identifies our key improvement priorities. Its financial strategy also makes clear that financial headroom will be allocated towards the improvement priorities.

Regrettably, given the financial situation, this has not been possible in 2007/08. Any redirection of resources to corporate priorities has had to be within financial plan targets plus the £2.027m additional target to meet a 5% Council Tax rise. This has left no headroom available to redirect resources corporately, although service plans have individually re-prioritised their own resources to better fit corporate priorities.

Value for Money

The Council Executive accepted the Council's external auditors' conclusion that it needs to evidence a more strategic view of value for money and that the Council is clear that where higher costs are identified that these are justified by:

To this end the Council Executive considered a high level review of cost and performance in July 2006. This has formed part of the context for service and resource planning and Directors and Heads of Service have supplemented this high level analysis by additional measures of cost and performance as an integral part of their service plans.

In January 2007 the Audit Commission published the results of the Comprehensive Performance Assessment (CPA) in relation to Use of Resources. This `upgraded' the overall score from and 2 to a 3, and in particular the Value for Money Score from a 2 to a 3. A score of 3 represents `good' performance, while 2 is satisfactory and 4 is excellent.

The efficiency and service transformation team will need to make use of much of the comparative analysis work both corporately and within services which has been prepared as part of the VFM self assessment and service planning.

Future Years (2008/09 onwards) - towards a new financial plan

The final year of the current Corporate Plan, on which the financial plan was based, is 2007/08. While the current financial plan has been rolled forward to future years on an indicative basis, the new council will want to determine the overall allocation of resources going forward. Even if the efficiency programme within the 2007/08 budget can be fully delivered, this will nevertheless be within a very challenging environment.

Hence in December 2006 the Executive agreed that in light of the scale of:

there was a need for a more fundamental review of priorities, and of `ways of doing things'. The objective is to develop medium term change proposals which will generate more cashable efficiency savings and enhance / maintain priority services. This will build on and develop the council's existing change programmes, and integrate them more effectively as recommended by the Peer Review. It will be a key element in the council's future Corporate & Financial plans, in the context of the LAA requirements.

The new Council will also be undertaking work on a new Corporate Plan which will set the overall framework for future resource prioritisation. The introduction of the DSG (as referred to above) has made this significantly more challenging as it significantly limits the scope for the council to enable local income to fund local priorities. A key issue that will need to be addressed will be the balance between capital and revenue. Given the likelihood that pressures on the revenue budget will increase over time, the council will need to develop a more fundamental medium term approach to revenue resource planning as well as the short term cost reduction programme already required or else it will continue to find that basic fundamental service delivery is jeopardised, and that the emerging and ambitious capital agenda is constrained by the ability to generate capital receipts without significant loss of income, or other external sources of capital funding.

Table 9: Potential Total Council Tax 2007/08 (Band D)

The precepts required by Parishes, Fire and Police will form part of the Council Tax setting resolution at Council on 20th February, and so the necessary updated information will be set out in the report.