Meeting documents

1.1 This report updates the financial outlook for the coming years in the light of the provisional financial settlement.

1.2 The report seeks to update the Executive on the key issues in order that consideration of the issues raised can inform policy deliberations and consideration of the Corporate Plan and the Council's Financial Plan over the next month. Work on the Financial Plan and the Government's financial settlement are ongoing and further reports will be presented to the Council Executive and Council in February as part of the process leading to the setting of the 2006/07 budget and Council Tax.

1.3 One of the key issues arising from the Government's financial settlement is the clear expectation on the part of the Office of the Deputy Prime Minister (ODPM) that average Council Tax rises should be below 5% in each of the next two years.

1.4 The implications of the current Financial Plan targets and moving to a 5% Council Tax increase (compared to a 6% increase in the current Financial Plan) will be reported in broad terms in an update to this report (as Appendix 1).

1.5 The outcome of the Capital Review will also be incorporated in the reports to the February Executive and Council.

1.6 This update focuses on 2006/07. However, the further work required also includes revising the 3 year financial plan and providing an indicative Council Tax for 2007-08.

2.1 Note the key issues and pressures (contained in Appendix 1 - To Follow) it needs to consider when recommending a Financial Plan and budget to Council in February 2006 in the context of the Council's Corporate Plan and the further work is required to facilitate decision making.

2.2 Note that Resources Overview and Scrutiny Panel will wish to consider the progress on the Corporate Plan and Financial Plan at its meeting of 26 January.

2.3 To approve the response to the consultation by the Office of the Deputy Prime Minister (ODPM) on the provisional financial settlement as contained in Appendix 2.

2.4 To endorse at this stage the revised approach to the WorkSMART initiative as set out in Appendix 3.

4 THE REPORT

4.1 The Council's Corporate Plan and Improvement Priorities are reflected in the Financial Plan. The Financial Plan integrates service, corporate and financial plans in order to explicitly link service and financial planning decisions, demonstrating clearly that resources are allocated in accordance with the Council's Corporate Plan. In considering its budget and Council Tax proposals for 2006/07 and Financial Plan for 2007/08 and 2008/09, the Executive and the Council will need to strike a balance between the interests of service users, the community in general and those of the Council Tax payer.

4.2 This report provides an update on the Council's financial situation for 2006/07 including the impact of the 2006/07 grant settlement (Appendix 1 - To Follow).

4.3 The key issues are:

A8 The provisional grant settlement includes a £1.2m (3.9%) increase in non-schools formula grant from a notional £30.8m to £32m. This is broadly in line with expectations under the old formula and Financial Plan targets at a 6% Council Tax increase. However, the new formula to calculate Council's non-schools grant should have meant the Council receiving an extra £4.6m but £3.4m has been deducted to fund Councils who have lost under the new formula. This is equivalent to 5.4% in Council Tax terms or approximately £53 p.a. on a Band D property.

A8 The schools' budget is now funded separately by the ring-fenced Dedicated Schools Grant (DSG) which has increased by £4.6m (5.8%) to £84.6m.

A8 The settlement is for 2 years with non schools grant increasing by £1.8m (6.6%) in 2007/08 to £31.8m and DSG increasing by £4.7m (5.6%) in 2007-08.

A8 The Government expects Council Tax increases of less than 5% in each of the next 2 years, warning Councils of its willingness to use its capping powers.

A8 The draft response to the ODPM's consultation is attached at Appendix 2.

A8 The implications of the settlement on the current Financial Plan includes not being able to continue the Council's policy of tempering growth in Education as the DSG is ring-fenced. If the Council could have agreed a further year of "tempering growth" this would have had a financial impact of approximately £700k.

A8 The Executive and the Council is advised to adjust its Financial Plan for 2006-07 and 2007-08 to limit Council Tax increases to at or below 5% if it wishes to avoid the risk of capping.

A8 In meeting the current Financial Plan targets there may be significant service implications and difficult choices. These will need to be considered alongside the Council's Corporate Plan priorities.

A8 The Financial Plan currently has a shortfall of approximately £1.1m to meet a Council Tax rise slightly below 5%. This has arisen largely from a change to a 5% Council Tax rise (£600k), increased utility costs and inflation (£300k) and some provision for WorkSMART on a Save to Invest basis (£200k). Directors, HoS working with the Executive will be identifying savings options to meet this shortfall in order to meet a Council Tax increase below 5%.

A8 There have been discussions with the Schools Forum about sharing any gain to the Council from the switch to the Dedicated Schools Grant which may arise from the Council spending above FSS. It is uncertain at this stage whether the Council has gained from this change (and others) in the underlying formula. What is certain, however, is that the clawback of the grant gain (from £4.6m to £1.2m) makes it unlikely that the Council can proceed with the proposal. The total grant increase is £1.2m. The original proposal to share any gain involved a total of £1.2m (£400k to schools; £400k for capital unsupported borrowing and £400k to the taxpayer). The Council Executive and the Council will also need to consider both the revenue and capital contributions to schools in the round at their February meetings. The Executive Members for Learning and Resources will be meeting with the Schools Forum on 23 January 2006 to discuss the issue.

A8 The full implementation of WorkSMART, with an initial short/medium term cost of £1.2m for the first 2-3 years before savings begin to accrue, cannot be accommodated without further service reductions. It is proposed to move the project from an Invest to Save basis to a Save to Invest basis. This is outlined in Appendix 3. The principle is for the current team to identify savings to fund the short/medium term revenue costs from 2007-08, develop a detailed and robust implementation plan, and (subject to savings being found in 2006-07) piloting the initiative to verify and evaluate savings and gains in productivity.

A8 Notwithstanding the £1.1m shortfall the plan relies on an additional £15m of capital receipts in 2005-06 in order to reduce unsupported borrowing. These receipts are still uncertain. The February meeting of the Council Executive will receive an update on the position, including a fallback position.

A8 The capitalisation of Spa Claims Management Costs in 2005-06 has been rejected for the second time by the ODPM. A meeting has been requested with the ODPM. The fallback position for the Council is to fund this from reserves in 2005-06 and to make provision within the revenue budget to repay the sum over 5 years.

A8 There is no provision for the impact of single status in 2007-08. In effect this means that increased costs will need to be met by either corresponding mitigation, increased charging (where this does not affect the Council's non schools budget) or corresponding service reductions.

5.1 A risk assessment related to the key issues and recommendations will be undertaken, in compliance with the Council's decision making risk management guidance. This will be in the form of a Robustness and Risk Reviews by the relevant Director.

5.2 The Resources Director will, on the basis of these Reviews and other arrangements, report to the Council on the Robustness of Estimates and Adequacy of Reserves as required under Section 25 of the Local Government Act 2003.

5.3 Service Plans and all major Projects are also subject to separate Risk Registers.

6.1 This report presents sets out the current known context for the review of the financial plan, progress to date and the process and timetable going forward to February 2006.

7.1 This report contains information about the Council's financial outlook in the context of the corporate planning process. The options to meet the targets are being considered as part of the service planning and consultation process within those plans. The results of this consultation will be included in the recommendations made by this Executive to Council in February. Options considered at that time will be concerned with the level of changes to the level of Council tax and the level of services provided by the Council.

8.1 The Service changes proposed will be subject to consultation with partners, unions, staff and clients as proposals are formulated and considered by services. In addition consultation is being undertaken on the Corporate Plan review (of which the financial plan is one part) in January with the Trade Unions, the Local Strategic Partnership and the Local Chambers of Commerce.