Meeting documents

Annex: THE DRAFT BUDGET PROPOSAL OF THE COUNCIL EXECUTIVE

Executive Summary

In this document The Executive sets out our draft budget proposal for 2005/06. This fills in the detail of the first year of the financial plan proposal contained within the Corporate Plan, recommends prudent revenue and capital budgets for 2005/06, and recommends a level of Council Tax for that year.

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 2005/06

Section 2 shows the build-up of the recommended capital budget for 2005/06

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

Section 4 provides additional information on aspects of the revenue and capital budget including Education and Social Services.

Section 5 shows the implications of the revenue budget for Council Tax levels for 2005/06

Section 6 summarises our budget recommendations to Council.

Section 1 - The Revenue Budget for 2005/06

The proposed Budget for 2005/06 has been prepared as an integral part of the Council's Corporate and Financial Plan and the proposals should therefore be viewed within the framework set by the Corporate Plan. Appendix 1 contains the main assumptions of the revenue aspects of the approved financial plan and highlights changes that we are suggesting to it.

The purpose of the Budget is to allocate financial resources to Council Services for them 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 and, for 2005/06, detailed budget decisions will be made as part of the finalisation of individual Service and Resource Plans, within the financial resources determined by Council.

The Executive recognised there was a challenging financial situation earlier this year and set in train a series of actions to prepare for this. Overall services have been asked to plan on the basis of existing financial plan targets. They have been asked, within the context of their Service 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 2005/06 that met the following

Increased employer pension contributions are absorbed by services. (This is assumed at an additional 1.8% p.a. for the next 3 years).

Service pressures are absorbed by services, within existing planning targets.

Guidelines for financial and Service and Resource Planning were issued to services and project leaders in October. The process also included scrutiny of the proposals by other Councillors and therefore is set out to be transparent to all Councillors (including a review by Overview and Scrutiny panels where requested by panels), before any decisions are made by the Council. In addition two Member Working groups were set up to look at the proposals and pressures in more depth in Customer Access and Adult Services within Social Services. Each group comprised the Executive Member, the relevant Overview and Scrutiny Chair and a further 5 members nominated by Groups to reflect political balance of the administration. The groups concluded their work by the end of December. Finally a rigorous reassessment of costs was also undertaken for major projects. This was reported for decision to Council in January.

As a result of all this work, we are now recommending a net revenue budget for 2005/06 of£172m. Table 1 and Appendix 2 show the build-up of the recommended 2005/06 revenue budget, compared to the current year:

Table 1

In recommending the overall revenue budget, we are also asking Council to approve the individual service cash limits for 2005/06. These are shown in Appendix 2.

Section 2 - The Capital Budget for 2005/06

The Corporate Plan sets the overall framework for capital spending over the period 2003 - 2007. The outlook on capital projects was reported to Council in January in a full report containing the programme and its risks.

2005/06 is the second 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 (Prudential Indicators are reported elsewhere on this agenda).

Following the Council decision of 20^th January 2005, the Corporate Plan assumes a total programme for 2005/06 of£49.3m, financed as follows:

Table 2

The revenue budget for 2005/06 and Financial Plan for 2006/07 and 2007/08 provide fully for the revenue consequences of the Council-supported expenditure. The level of unsupported borrowing required in 2005/06 to finance the programme is very high, and will have serious revenue consequences for the 2006/07 budget. We recognise the scale of the Council's commitments and our recommendations to full Council in January were aimed to contain and relieve the medium term pressure. In the Corporate Plan Review we have set out our strategy for achieving an affordable and sustainable medium term revenue position.

The draft programme for 2005/06 was reported to Council in January and has now been finalised as in Table 3 below:

Table 3

Section 3- Revenue Balances for 2005/06

Revenue Balances

In 2002, Council agreed that it would, over time, increase the level of its working balances. In setting the 2004/05 revenue budget, these were projected to be£5.3m, an increase of £1m from the previous year.

Appendix 4 shows the current position on working balances. We have complied with Council policy and best practice in our financial plan. It shows a planned build-up of balances in each of the four years of the plan.

For 2005/06 we do not propose to contribute any extra to balances because contributions received in 2004/05 have already increased balances, despite allocations during the year, by a net£0.5m. Also we are aware of the severe pressure placed upon the budget by Social Services overspends in the current year, for which we are proposing a£400k reserve. In addition we have been asked to finance some further additional costs for the Local Plan process(£269k) and some additional costs towards the preparation of single status (£10k). We propose another£279k is earmarked for these two items. Recently new draft guidance has been published on increasing planning fees that will more fully recover the costs incurred. Therefore there may be an opportunity to recover planning costs and offset this cost in 2005/06. Should these proposals become formalised, then it is proposed that the first call on any increased income generated is the replenishment of balances in 2005/06 and that increased income budgets are included in overall Council budgets from 2006/07.

Finally we will have to repay some revenue support grant from 2003/04. This relates to mistakes made in the 2001 Census, for which some Councils lost grant. The Government is now rectifying the census mistakes and this Council is required to make a contribution towards the 2003/04 position of£259k. The Resources Director has reiterated the Council's position in a letter to the ODPM early in January. The Executive Member (Resources) set out the view of the Council when this was originally proposed by the ODPM last August in a Single Member Decision report in which we said:

93The Council is also strongly opposed to the principle of reducing any authorities grants following the ODPM's final notification of entitlement amounts in the Local Government Financial Settlement, unless there is direct compensation for the changes in the 2005/06 settlement.

Any reduction relating to a prior years grant leave the authority with limited option for funding the budget gap created. The gap can only be funded by either:-

Further cuts to already stretched services

Use of limited reserves, or

By increasing council tax in future years.94

Therefore we would be looking to increase balances in line with the plan were it not for this adjustment. We now propose that these are set at 3.4% of the net revenue budget (or 6.1% excluding schools which have their own balances which were last reported at£3.52m for 2003/04). We are proposing that un earmarked revenue balances be set at£5.9m, an increase of £0.6m on the 2004/05 budgeted level.

This includes the allocation of the £80k voted by Council in January to fund extra costs arising from the new Licensing Act. We are proposing this is released to services that incur extra costs if it is demonstrated to the satisfaction of the Executive member (Resources) and the Executive Member (Community Safety and Housing Services) that costs cannot be met within existing budgets, as it was originally expected by the services that they would meet these costs. If there are ongoing costs these will be built into plan revisions for 2006/07 onwards.

The budget also contains the repayment of the second half of the£350k loan made from the Lambridge reserve.

Capital Risk Reserve

As part of its preparatory work on the financial plan review, the Council Executive commissioned a follow-up review of the funding needs and risk position of the Council's major projects. This was to assist it to prepare a realistic budget for 2005/06 and beyond that took into account, the parameters set by the Capital Programme Review, known unfunded and partially funded projects, and the overall financial, risk and capacity position of the Council. This information was given to Council in January because of its significant financial implications.

Each of the nine major projects has been assessed by the s151 Officer against a set of financial risk indicators and recommended a prudent a target capital contingency ofc£20M. Unsupported borrowing of £25M will be required in 2005/06, and no additional funding is currently available to build a capital contingency to this level. Therefore the Council will need to raise additional sources of funding, either from additional borrowing or from property developments and sales.

Recommended borrowing limits for 2005/06 are contained in the report on prudential indicators elsewhere on your agenda.

Overall Balances

The Local Government Act 2003 contains a 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. The report of the Resources Director on this subject is included as Appendix 5 to this report.

Section 4 - Additional Information

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

Social Services and Education spending

The Corporate Plan contains strategies for creating Financial and Organisational Headroom and Capacity. One of these strategies is that financial targets for education and social services will, over time, reflect a tempering of the rate of growth so that the gap between spending and the government's norm (93FSS94 or Formula Spending Share) is narrowed; this will enable local income to be seen to assist local priorities.

Education

The year-on-year increase in Education Formula Spending Share or FSS is£5.45m (see Appendix 6 for the changes in the grant settlement from 2004/05 to 2005/06). This is a 6.9% increase.

We also still recognise that there is need to improve the condition of school buildings. The Council has a strategy that includes a 3-year plan up to 2006/07 to improve the quality of school accommodation while maintaining a high level of revenue funding and tackling the inefficiency of surplus school places. The 3-year plan reflects the Council's long-standing policy of using capital resources to improve the poor state of our school buildings (inherited in the main from the ex Avon County Council) and specifically commented on by OfSTED in 2000. This remains our plan in recognising the importance of this capital investment our plan continues to assume that we do not 93passport94 additional revenue Schools' FSS in full.

In 2004/05 this enabled us to target revenue investment to those Services in most need, in line with our Corporate Plan improvement priorities, and to limit our Council Tax increase to around the national average. In doing so we have:

ensured that all schools receive the DfES minimum funding guarantee per pupil increase

Maintained schools budget funding at significantly higher levels per pupil than our nearest neighbours in North Somerset and South Gloucestershire[£3158 compared with £3016 and £2949 respectively] and maintained our total education spending at more than 6% above the FSS level.

Maintained our position amongst the top 20% of LEAs in terms of Key Stage results and achieved significant improvements in Key Stage 2 results, highlighted by the congratulations of David Miliband MP in his letter of 23^rd August 2004

Not observed any funding difficulties in schools caused by the 93under-passport94; and during 2003/04 total school balances rose by 9%.

For 2005/06 our plan is to invest a further £1.4m in excess of our regular planned maintenance funding in improving our school buildings. On current estimates we anticipate an increase in schools FSS of£5M and we intend to provide to the schools budget £4,329,000, which will represent an annual increase of 5.84%, enabling us to meet in full the DfES per pupil minimum funding guarantee and to target 93headroom94 to areas of highest need, including workforce reform, SEN statementing and early years. Of the difference between the schools FSS increase and our proposed funding increase we estimate that£197,000 will reflect savings in fixed costs from the reduction of surplus primary school places which the Executive has worked hard to achieve this year.

So to meet this need the Executive does not propose to fully revenue passport the Education FSS. The Secretary of State for Education has reserve powers to enforce full revenue passporting but has informed the Council that she does not propose to use them given the circumstances of the Council's proposal.

As a result we are passing an additional £4.7m in total into the Education revenue budget, representing a 5.8% overall increase to the Education service and from that we will meet the minimum pupil guarantee required by the Secretary of State. 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.

Social Services

As with Education, the Corporate Plan proposes a tempering of the rate of growth in Social Services so that, over time, the gap between spending and the government's norm (93FSS94) is narrowed. The increase in FSS for 2005/06 was 10.2%, reflecting the transfer of some specific grants into FSS. As in previous years, spending pressures within Social Services are considerable. Because of this, a Member Working Group was set up to look at the pressures in adult care services.

The Working Group considered the proposed financial plan for Social Services and identified that the main reason for the projected increase beyond financial planning targets relates to purchasing of residential and nursing care, particularly for older people. The Member Working Group expressed concern at the impact of the projected increase on the overall Council Budget, but the group identified the need to set a realistic budget. The short timescale for the review meant that the working group concentrated its work on the fee levels paid for residential and nursing care and it found that that there was not an option to reduce costs in these areas. But during its discussions some other areas of review were identified and it is therefore proposed that the task of the working group continues so that further areas can be identified and reviewed. Its primary focus will therefore be to identify options and make recommendations for areas to reduce and/or limit growth in social services spending from 2006/07.

Therefore the proposed Social Services Portfolio revenue budget for 2005/06 is£41.9m, an increase of £4.37m or 11.3% on 2004/05. The increase incorporates the absorption of specific grant into base funding and adds an additional£1.3m to budgets. The original plan to temper overall growth in FSS by £581,000 has therefore not been achieved.

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.

Our original plan for 2005/06 assumed that c £700,000 would be available, as headroom, to direct towards improvement priorities. In finalising our draft Budget, we intend to allocate headroom as follows;

- £308,000 as recommended by the Member Working Group to progress the Customer Access Programme by implementation of the Corporate Contact Centre.

- £100,000 to improve performance in the Revenues and Benefits Service which we recognise to be poorly-funded in comparison to other authorities.

We have also proposed some other allocations in the plan to meet unexpected pressure from the withdrawal of housing benefit grant (£250k), financing of work on better use of our office accommodation (£137k) and financing the local plan process (£360k, £269k from balances), plus some addition to inflation to reflect the increase in business rates on our properties which result from the Governments' 2005/06 revaluation of all business property.

Section 5 - Council Tax

This section shows the implications of the recommended revenue budget for Council Tax levels for 2005/06.

In the financial plan 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.

This figure has been constructed on the figures we received in late January on the final grant settlement which will be officially announced on 2 February 2005. Our proposal is for an increase in Council Tax of 4.75%.

Table 4 explains the calculation of this figure:

Table 4

The figures also exclude parish, fire 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 approximately 5% which if directly translated to Council Tax would equate to an increase of £6.25 per annum on a Band D property. This is due to be considered on 9 February 2005.

Avon Fire Authority is also considering an increase in their tax of around 4.9% (or £2.28 on a Band D) at their meeting on 11 February 2005.

The headline increase will be affected by their final decisions, and in addition there will be small and marginal local changes arising for parishes within the area, or any decision made concerning special expenses (see below).

However the official announcement made by Nick Raynsford M.P. at the Office of the Deputy Prime Minister on 2 December included the statement that

"With substantial additional funding, real scope for efficiency gains, and the additional flexibilities I have outlined for councils, there is no excuse for authorities to set excessive increases in council tax. The average increase in 2004-05 was 5.9 per cent. Although this was less than half the previous year's increase, and the lowest in almost a decade, there is still considerable scope for authorities to do better. We expect to see substantially lower increases next year, with a national average increase of less than 5 per cent.

The Government used its reserve capping powers for the first time this year to deal with excessive increases. We will continue to use these powers to ensure council taxpayers do not face unacceptable increases. We are prepared to take even tougher action in respect of 2005-06. This applies to all authorities, including police and fire authorities."

Given this Council's history of lower than average Council tax rises it is considered unlikely that the Deputy Prime Minister will seek to use capping powers in respect of Bath and North East Somerset.

Table 5 sets out the composite Council Tax likely to be charged:

Table 5

Special Expenses

Council resolved that this matter was referred to the appropriate Executive Members for consideration as part of the 2005/06 Budget preparation process.

As some background, this is a mechanism where it is possible for the Council to charge some of its services differentially between certain areas of the Council. This already applies to the charging of Parish precepts.

In the ODPM paper on this subject double taxation is explained as:-

"The situation where the costs of certain services are charged twice to local taxpayers, because the parish provides a service but the principal authority still charges taxpayers in the parish for the equivalent services it provides elsewhere." The document also lists the four methods which can be used in resolving double taxation which are special expenses, grant payments, agency agreements or support in goods or in kind."

The main consideration here is if the Council is minded to apply the first (special expenses) to its Council Tax for 2005/06. Section 35 of the Local Government Finance Act 1992 specifies items which are to be treated as special items. There are two broad categories i) a precept relating to part only of the Council's area, and, ii) any special expenses, as defined by section 35. These are:-

expenses incurred by the Council in performing in one part of its area a function performed in another part of its area by a parish council.

Bath & NE Somerset Council resolved not to have special expenses in November 1995.

The Working Party considered three main areas

Cemeteries and Burial Grounds

Children's' Playgrounds, and

Playing Fields and Sports Pitches

It recommended that Bath & North East Somerset Council should consider the expenditure of£105,000 on the two remaining playing fields within Council control as special, and either

a) Charge them solely to the residents of Bath or

b) Reduce the charges to those parishes which maintain their own pitches.

The figures are set out below. At the time of the working group it was assumed that playing fields at Millard's Hill were due to be transferred to Norton Radstock Town Council. Since then site specific problems are delaying the transfer so the Council cost is still included and the total Council cost for playing fields in 2005/06 is now estimated at£138,000.

In Method A, the Council's costs of the function are treated as Special Expenses and charged only to the areas where the Council cost is incurred, including some in Bath at Odd Down & Lansdown and some in Norton Radstock at Millard's Hill and Pow's Hill.

In Method B, the Council's costs of the function are treated as Special Expenses and are charged only to areas where residents are not already charged for the service through their parish precept. Information on which parishes spend money was taken from the questionnaire circulated as part of the Quality Parishes Working Party exercise. It should also be noted that not all parishes returned the questionnaire and this information only records those parishes that did return a survey form (38 out of 50) or, if not, where other information was obtained. For instance, it has been assumed that Norton Radstock Town Council spend money on Playing Fields based on the spending information contained within their precept leaflet for method B.

Method A - costs of Playing fields charged only to the areas where the Council's cost is incurred.

Method B - costs of Playing Fields are charged only to areas where residents are not already charged for the service through their parish precept.

The Working Party made other recommendations regarding the two other areas of consideration that do not affect Council tax setting specifically but which may affect Council budgets in the future.

Section 6 - Summary of Recommendations to Council

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

5. To instruct Executive Members to finalise their revenue and capital budgets for 2005/06 within the cash limits and amounts set by Council, for inclusion on the weekly decision list no later than April 2005 (as part of the approval of Service and Resource Plans)

Appendix 1, Part 1

Changes to Revenue Items built into base draft financial plan for 2005/06 to 2007/08

Appendix 1, Part 1

Appendix 1, Part 1

Revenue SAVINGS changes proposed in the plan

("-" indicates additional saving/income target; "+" indicates reduced saving requirement)

Appendix 1, Part 1

Assumptions of the Financial Plan:

Appendix 4

Use and Reconciliation of General Fund Balances to Date in 2004/05

Appendix 5

Chief Financial Officers' Opinion on Adequacy of Balances and the Robustness of the Budget

The Chief Financial Officer is required to make a statement on the adequacy of balances and the budget. This is a new statutory duty in the 2003 Local Government Act which states the following:

Budget calculations: report on robustness of estimates etc
(1) Where an authority to which section 32 or 43 of the Local Government Finance Act 1992 (billing or major Precepting authority) or section 85 of the Greater London Authority Act 1999 (c. 29) (Greater London Authority) applies is making calculations in accordance with that section, the chief finance officer of the authority must report to it on the following matters-
(a) the robustness of the estimates made for the purposes of the calculations, and

(b) The adequacy of the proposed financial reserves.

(2) An authority to which a report under this section is made shall have regard to the report when making decisions about the calculations in connection with which it is made.

Report of the Resources Director (as Chief Finance Officer for the Authority)

I have examined the budget proposals contained in this report, and believe that whilst the spending and service delivery proposals contained within are more challenging than ever before, they are nevertheless achievable and deliverable given good management practices, and so long as sound financial and performance monitoring is maintained and initiatives to support and enable more efficient working practices are delivered. I am satisfied that the requisite management processes exist within the Council to deliver this budget, and to identify and deal with any problems which may unexpectedly arise throughout the year.

However, the new corporate and financial plan relies to a much greater degree on the delivery of strategies and action plans within individual service and Resource plans (including the HR strategy) and it will therefore be necessary to give much higher priority to the development, management, monitoring and review of these plans in the performance management processes of the Council.

The level of exposure and commitment in our capital programme in the coming years is particularly challenging. Solid monitoring, review and programming of schemes will need to be enhanced, as will individual project management processes in order to properly manage and control the whole programme within financial tolerances.

On the matter of general reserves, the CPA advice has been to increase the absolute minimum of general reserves to 2.5% of the budget, or, to evidence the requisite level by use of internal risk assessment. We have adopted the latter approach. Fortunately revenue balances have increased during 2004/05, and steps will need to be taken to minimise the use of balances in 2005/06. Council should take a rigorous and critical approach to any further requests for uses of balances during the year to maintain this.

On capital reserves my advice and the action required was spelt out in the report to Council in January. The position remains the same and I would require that further capital commitments cannot be entered into without a clear understanding of the impacts and unless this can be contained within our risk and funding limits.

From 2001/2, the Council adopted a risk management approach, which assesses the level of reserves required against a corporate assessment of the risk being carried. The latest assessed risk has risen to around £7M and the Executive are advised to bear this figure in mind when recommending use or replenishment of general reserves over the planning period.

On capital I am advising a £20m minimum contingency at present, although it must be recognised that volatility on the programme is such that this figure could fluctuate dramatically, and the programme needs to be carefully monitored with this risk in mind.

It is recognised in the planning approach that the level of reserves and corporate risk assessment need to be regularly reviewed in the light of changing circumstances and that it may not be possible to match the two at any single point in time. This plan shows a Council commitment to bring the level of reserves up to a level which, with a high level of certainty, should cover all identified risks during the planning period. The corporate revenue risk assessment currently shows an absolute need for revenue reserves at around £7M. The proposals contained do not erode revenue reserves and they have already increased to a £5.9m level with further significant increases scheduled over the life of the plan. This approach is pragmatic, as it covers a high percentage of the assessed risks and shows a clear commitment to prudent contingency planning. It must be noted however, that this sum does still leave the Council exposed at a low level of risk to being inadequate.

Appendix 6

Summary of Settlement figures - Final 2005/06 (January 2005)

1) Formula Spending Share for Service

2) The Assumed level of Council Tax or ANCT (£)

3) Grant changes (£m)

4) Composition of Grant Funding (£m)