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The Council Executive is asked to:

5 BUDGET PROCESS

5.1 It is important to be clear on the process to be followed in setting the 2004/05 Budget. The Solicitor to the Council has given the following guidance:

5.2 The Council Executive has the responsibility to prepare and propose a draft Budget to Council for its approval.

5.3 The Council Executive can receive from any political group that so wishes, an alternative budget proposal to that published in the Council Executive agenda papers and will satisfy itself that any such proposals have been discussed with the Council's statutory officers and that an impact statement from Officers about such proposals is available

. Any alternative proposal will be formulated so it is prefaced by a standard form of words.

5.4 Therefore all proposals notified to the Council Executive meeting will be cleared with the Section 151 Officer and the Monitoring Officer beforehand. Those Officers will offer advice to Members on the "significance" of any proposals. (See paragraphs 5.7 and 5.8 for the relevance of whether a proposal is, or is not ,"significant").

5.5 The Council Executive will formulate a budget proposal and Council Tax recommendation to the Council meeting on 17^th February, 2004 which may include agreed core proposals and options for allocating parts of the budget.

5.6 The Council has available to it at the budget setting meeting two options. It can object to specific parts of the proposals and if it does so must require the Executive to reconsider its proposals. The Council is required to give the Executive the reason(s) why it considers those proposal(s) should be changed and it is then for the Executive to consider those proposed changes and the reasons put forward. Alternatively it is, of course, open to the Council to accept the budget in its proposed form at the meeting, in which case no further action is necessary.

5.7 Council may then determine the budget on the basis of the Council Executive's recommendation plus any insignificant changes adopted as amendments from any proposals notified at the Council Executive meeting.

5.8 However if a significant proposal is accepted on a vote at Council, from those notified at the Council Executive meeting, this stands as a formal objection within the terms of the Regulations and will be referred to the Leader for him to secure consideration by the Council Executive and report back to the Council meeting on 26^th February, 2004

5.9 When the Executive has considered the objections, it is required to put its proposals (which may or may not be revised) back to the Council Meeting. If the Executive does not agree with Council's views on a proposed change, it is required to state why and the Council can then take those reasons into account, along with its original thoughts as to why the change was desirable.

5.10 In setting the budget the Council is required to approve a full budget resolution including the Police, Fire and Parish precepts and the proposed Council revenue and capital budgets for 2004/05. That budget will include within it the overall proposed Council cash limits for 2004/05 including the provision for inflation, the proposed use of balances in the 2004/05 budget and the resulting budget requirement and Council Tax for Bath and North East Somerset. At the same meeting the Council will also approve the borrowing limits for 2004/05 and prudential indicators. These will be contained in a separate report on the agenda.

5.11 Legally, members must set a balanced budget for the forthcoming year and determine the Council Tax. If a budget is not set by the date of the reserve budget-setting meeting (26^th February), this will lead to a delay in billing and a loss in Council Tax cash flow. It is highly likely that this will also translate into a higher level of un-collectable debt and debt collection costs and in addition this will significantly impact on Council tax performance indicators. There is also a risk that if any our major preceptors were capped, there would need to be a rebilling exercise. Although the costs of rebilling could be recovered, the cash flow impacts of this could not and would have to be met by this Council.

5.12

The final council tax set will encompass all parish, the police and fire precepts (that is the money we collect on behalf of the parishes, fire and police and pay to them).

6 RATIONALE

6.1 The rationale for the recommendations is contained in the supporting paper to this report.

7 OTHER OPTIONS CONSIDERED

7.1 The supporting paper and appendices also contain the other options that can be considered in making any recommendations.

8. CONSULTATION

8.1 Meetings have been held with trades unions at each stage of the corporate planning process and within the development of service plans which have fed into this budget.

8.2The proposals have been issued to representatives of the business community for consultation.

8.3 This report has been sent to trade unions on 26 January 2004. The Council Executive is meeting with trade Union representatives on 28 January to discuss the budget proposal and Corporate Plan.

THE DRAFT BUDGET PROPOSAL OF THE COUNCIL EXECUTIVE

Executive Summary

In this document The Executive will set out our draft budget proposal for 2004/05. 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 2004/05, 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 2004/05

Section 2 shows the build-up of the recommended capital budget for 2004/05

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 Education and Social Services.

Section 5 shows the implications of the revenue budget for Council Tax levels for 2004/05

Section 6 summarises our budget recommendations to Council.

Section 1 - The Revenue Budget for 2004/05

The proposed Budget for 2004/05 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 (see elsewhere on the agenda).

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 2004/05, detailed budget decisions will be made as part of the finalisation of individual Service Plans, within the financial resources determined by Council.

We are now recommending a net revenue budget for 2004/05 of £160,721,000. Table 1 and Appendix 2 show the build-up of the recommended 2004/05 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 2004/05. These are shown in Appendix 2. This appendix also includes two virements of services, one between portfolios and another within a portfolio to create a new budget heading within Social Services.

Section 2 - The Capital Budget for 2004/05

The Corporate Plan sets the overall framework for capital spending over the period 2003 - 2007.

2004/05 is the first 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).

The Corporate Plan assumes a total programme for 2004/05 of £33.5M, financed as follows:

Table 2

The revenue budget for 2004/05 and Financial Plan for 2005/06 and 2006/07 provide fully for the revenue consequences of the Council-supported expenditure and the Programme can therefore be demonstrated to be affordable within the Council's medium-term plans.

The proposed programme for 2004/05 is shown in Appendix 3, and is summarised below in table 3:

Table 3

Key points to note are:

B7 A historically high level of capital spending on schools, reflecting specific government allocations (notably to the Radstock schools reorganisation and the Bath Special School project) together with Council funding (A3700,000 plus bridging finance for Bath Special schools project and the Planned Maintenance programme);

B7 Progress on key projects including Western Riverside, Disability access works and Elderly Persons' Homes reprovision

B7 Allocation of the A35M unsupported borrowing to implement the Corporate Plan financial strategy. This includes allocations in respect of improvement priorities to schools (A3700,000 see above), housing (A3300,000), highways (A31.2m) and customer access (A3100,000) totalling A32.3m. There is an additional A3700,000 to progress the Council's major projects, A31m to pump prime projects that lead to headroom creation and productivity improvements, A3500,000 for projects that help sustain the Council's key income streams and with a further A3500,000 held in contingency at this stage. (N.B. a further A3735,000 of unsupported borrowing has been assumed as 93bridging finance94 pending capital receipts).

It is important that, in order to meet the requirements of the Prudential Code, the Council has a robust process for approval of spending plans with full justification of need and quantification of outputs and outcomes. To achieve this, it is proposed that the release of specific allocations within the A35M is subject to approval by the relevant Executive Member following confirmation by the officer Capital Strategy & Asset Management Group, in the form of 93business case94 justifications taking into account the revenue consequences of proposed investment.

Section 3- Revenue Balances and Borrowing Limits for 2004/05

In 2002, Council agreed that it would, over time, increase the level of its working balances. In setting the 2003/04 revenue budget, these were projected to be A34.4m, an increase of A3400,000 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 2004/05 we now propose to contribute an extra A31.15m to balances, bringing the level to approximately 3.3% of the net revenue budget (or 5.8% excluding schools which have their own balances which were last reported at A33.2m for 2002/03).

The budget also contains the repayment of half of the A3350k loan made from the Lambridge reserve. The rest is to be repaid in 2005/06.

We are not proposing to earmark any further specific sums within balances at present.

The Local Government Act 2003 contains 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. 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 discusses 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) 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 A34.6m (see Appendix 6 for the changes in the grant settlement from 2003/04 to 2004/05).

We also recognise that there is need to improve the condition of school buildings.

So to meet this need the Executive does not propose to fully revenue passport the Education FSS. We do however propose to provide additional investment in school buildings by A3700,000 in 2004/05. The Secretary of State for Education has reserve powers to enforce full revenue passporting but has informed the Council that he does not propose to use them given the circumstances of the Council's proposal.

As a result we are passing an additional A33.8m onto the Education revenue budget, representing a 5% 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 proposed Social Services revenue budget for 2004/05 is A337.519m, an increase of A32.664m or 7.5% on 2003/04. The increase incorporates the absorption of the Quality Protects specific grant into base funding (A31.1M) but tempers the overall growth in FSS by A3581,000.

As in previous years, spending pressures within Social Services are considerable. For 2004/05 these include agreed fee increases in independent residential care (an extra A3940,000) and increased numbers of clients with learning difficulties (an extra A3600,000). These have however been mitigated by a number of measures flowing from the strategies approved by the Council Executive in January 2003 93Reshaping Social Services94 in response to full Council's budget resolution of 2002 calling for a plan to reduce the Council's excess Social Services spending compared to FSS. Details will be provided within the Service Plans for Social Services.

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.

Headroom has to be earned before it can be spent. We recognise that in 2004/05 little revenue headroom can be achieved but more is available through capital. So, for 2004/05 we have provided an unallocated sum of A3250,000 revenue (see section 6) and have provided an allocation of A32.3m capital towards improvement priorities (see section 2).

We intend to bring forward proposals for allocation of the A3250,000 unallocated sum at the Council's Executive meeting. In doing so we will give attention to our improvement priorities and other key budget considerations.

In addition we are earmarking a further A3375,000 as a risk reserve, to be held until we are assured that, through the Corporate Plan process, the Council is managing its overall risks effectively. Once that assurance is gained, the reserve can be released to create additional financial headroom for future allocation to improvement priorities and other key spending requirements. This earmarking is in addition to the increased contribution to balances referred to in section 3 and appendix 4.

Section 5 - Council Tax

This section shows the implications of the recommended revenue budget for Council Tax levels for 2004/05.

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 provisional grant settlement announced in December 2003. At the time of writing this report, we do not know the final government grant settlement. This is due to be announced in late January. If the final government grant is the same as previously indicated, then our aim will be 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 Band D Council Tax of approximately 12% or A313.40 per annum. This is due to be considered on 11 February 2004.

This would add around 0.6% to any headline increase in Council Tax for the whole area.

Avon Fire Authority is also considering a minimum increase in their tax of around 15% at their meeting on 13 February 2004. A reply has been made on behalf of the Council to their budget proposals by the Chief Executive.

This minimum increase would add around 0.5% to any headline increase in total Council Tax charged in this area.

So altogether the 93headline rate94 of increase in council tax could be increased by 1.1% or more by increases in the Fire and Police Precepts (see table 5 below). In addition there will be small local changes arising for parishes within the area.

However the official announcement made by the Office of the Deputy Prime Minister on 11 December included the statement that

93Authorities must aim to deliver Council Tax increases in low single figures. Unreasonably large increases in Council Tax will neither be justified nor acceptable. So the Government is prepared to use targeted capping powers next year if that proves necessary.94

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. It is however a possible consideration for our major preceptors.

Table 5

Section 6 - Summary of Recommendations to Council

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

To instruct Executive Members to finalise their revenue and capital budgets for 2004/05 within the cash limits and amounts set by Council, for inclusion on the weekly decision list no later than April 2004 (as part of the approval of Service Plans)

Appendix 4

Use and Reconciliation of General Fund Balances to Date in 2003/04

* A further A3175,000 is being repaid back to the Lambridge fund (which was used to fund the new parking arrangements in 2003/04). A further A3175,000 will be repaid in 2005/06.

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 difficult, they are nevertheless achievable and deliverable given good management practices, and so long as sound financial and performance monitoring is maintained. 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.

Development of these processes will play a critical part in the successful delivery of the corporate and financial plan, and more particularly, the detailed budget.

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.

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 A37M and the Executive are advised to bear this figure in mind when recommending use or replenishment of general reserves over the planning period.

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 risk assessment currently shows an absolute need for revenue reserves at around A37M. The proposals contained (A31.15M addition) are welcomed as they increase revenue reserves to over A35M with further significant increases planned 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.

At this stage there is no completed process to estimate more "scientifically" the level of reserves needed as a cushion for capital scheme contingency. The Council has previously adopted a A32M capital reserve on an ongoing basis, and this reserve has in the main been proven essential. Bearing in mind the extension of the proposed capital programme, the nature of the major projects within that, and the introduction of the prudential guidelines, it would therefore seem appropriate to recognise a substantially higher level of capital reserve in the plan. An objective to increase reserves to around A35M by value would not appear unreasonable (noting that capital reserves may be in cash or in reasonably high liquidity assets such as parts of the Council's commercial estate), and Members are asked to bear this in mind in allocating the resources in the capital programme.