Meeting documents
Cabinet
Friday, 12th July, 2002
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Bath & North East Somerset Council |
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MEETING: |
Council Executive |
AGENDA |
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MEETING DATE: |
12 July 2002 |
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TITLE: |
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WARD: |
All |
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AN OPEN PUBLIC ITEM |
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List of attachments to this Report: Appendix 1: Council and Financial Plan Objectives Appendix 2: Key Corporate Risks and Opportunities |
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1 THE ISSUE
1.1 This report updates the Council Executive on progress on the review of the financial plan and on the budget resolution instruction on February 2002.
1 RECOMMENDATION
1.1 The Council Executive is recommended to note the report, specifically the timetable and process for the Review (Appendix 4) and key issues (see para 4).
3 FINANCIAL IMPLICATIONS
3.1 Financial implications are included in the body of the report.
4 THE REPORT
BACKGROUND
4.1 The Council has established a robust framework for integrated medium- term financial and service planning that has been running since the 2000/01 financial year. Within the Council Objectives, the financial plan process agreed key objectives (see Appendix 1) that helped to focus where future shifts in spending should occur. Annual Service Plans should incorporate Budget plans, and these are intended to show the links between the proposals for service levels, standards and developments and budgetary allocation. Our financial planning process is recognised as good practice by the District Auditor (DA).
4.2 The Council has agreed a rolling financial planning process, in which the approved Plan is reviewed annually and rolled forward by one year. The Financial Plan for 2002/03 - 2004/05 was agreed by Council as the basis for officer planning in February 2002.
4.3 In February 2002 the Council also instructed named officers to report to the new Council Executive as part of the financial planning process by July for 2003/04 onwards on the following areas:
A) An outline plan with options for appreciably reducing, over a 5-year period, the Council's current excess Social Services spending compared to its Standard Spending Assessment (with the aim of the Council setting new targets for its Social Services spending within the Financial Planning framework document for 2003/04 - 2006/07).
B) Produce a standard definition that will be consistently applied for the measurement of repair backlogs. The Resources Director is required to report to the Executive on options for enabling the satisfactory maintenance of all the Council's property assets, including options for retention and disposal where appropriate.
C) Produce a plan for addressing the shortfall in capital resources of funding for the medium term following the end of the Council's debt-free status.
FINANCIAL PLAN REVIEW PROCESS
ENSURING THE PLAN REFLECTS COUNCIL POLICY
4.4 The financial plan review is a process that tries to build the effects of external factors and Council policies into the Council's financial plans (see diagram above). It is important that the plan reflects a balance between external pressures that the Council has to meet and local political priorities. It is therefore important that officers are given some direction within Service Planning about local priorities. To date these local priorities have been set out in the financial plan priorities (see Appendix 1), which covered the initial three years of the plan to 2003. This is now a good opportunity to review those priorities and set new ones if appropriate. It is also important that the Council weighs up new opportunities such as the Public Service agreement (see elsewhere on the Executive agenda). This, like other developments, needs to be assessed in terms of what extra resources we will get (or not get), what we will need to meet the targets in terms of extra spending and most importantly ensure that PSA targets and resources meet the Council's objectives and priorities.
4.5 During 2001 the financial plan process was developed to encompass an assessment of key corporate risks and opportunities, i.e. where there is a danger that the Council will have to spend more money than it has already planned. This list was revised earlier this year. These revised risks are summarised in Appendix 2 and relate to both external pressures and internally generated ones.
4.6 In particular the next plan review will need to incorporate process issues such as:
· Improving further the understanding of officers and members of the financial plan and its relationship to the Council's overall planning and management, especially with the new Executive arrangements.
· Ensuring that Performance, Targets and Policy are reflected in Service Plans. This will help to make sure that Service Plans drive the Financial Plan. This will enable deeper integration with other key Council planning processes and initiatives, notably the new Community Strategy and Public Service agreements.
· Adapting the financial plan & budget process to fit with the Council's new political arrangements.
REFLECTING AVAILABLE COUNCIL RESOURCES
4.7 In addition, there are some fundamental financial issues, which will place severe stress on the Council's forward plans unless they are properly managed. These include:
1) Any forecast Budget Deficits not funded and new spending pressures - areas have already been identified where the main spending pressures could arise (Appendix 2). The plan reported to Council in February showed a net revenue shortfall of £1.7m against a Council Tax rise of 4% and excluded the extra cost of higher National Insurance contributions which could, depending on government funding, add up to £750,000 to the Council's spending in 2003/04.
Elsewhere on this agenda the Council's outturn position for 2001/02 is reported. The position shows a slight improvement on available resources to meet these new pressures when compared to previous forecasts.
2) Vulnerability to external factors:
a) The review of local government funding. Last year predicted changes in SSA gave variations of up to £2m on forecast grant levels. This was in a year where government grants were meant to be "predictable and stable". In 2002, the whole formula is being reviewed and there may yet be some large data changes, as well as formula changes. It is therefore not easy to predict variations in grant for next year. Appendix 3 sets out more about this area and some particular variations possible in the financial plan modelling due to variations in SSA (or the equivalent) for 2003/04 and these will, of course, have an impact in future years of the plan.
b) There is also the potential impact from other such factors as the effect of the stock market upon pensions contributions, interest rates, world economic growth and so on.
c) Revenue income streams - as approximately 20% of the Council's total expenditure is financed by income from trading services, the Council is exposed to the risk of income shortfalls. This was illustrated very graphically in 2001/02 with income shortfalls in heritage services and tourism.
3) Corporate Strategic Risk Management: The Council's risk exposure needs to be quantified and contingency plans built into the Plan for:
a) Major Development Projects and Initiatives such as Western Riverside, Paris, Office Accommodation etc.
b) Capital Resources and capital planning - looking beyond the 3-year planning period, there is a need to manage the reduction in capital resources following the end of the Council's debt-free status. (See section below).
The last financial plan review established higher levels of revenue and capital balances in order to protect against the Council's exposure to risk. The level of balances will need to be reviewed annually but it is likely that, over time, further increases will be needed in order to properly manage risk exposure.
PROGRESS ON SPECIFIC WORK ALREADY REQUESTED BY COUNCIL
SOCIAL SERVICES SPENDING
4.8 Social services management team are having a special session in late June to address the Council resolution. They have arranged an awayday, with an element of external challenge, arranged by the Social Services Research and Development Unit (SSRDU). The results of this work will be brought to the Executive for consideration.
MAINTENANCE BACKLOGS
4.9 The former DTLR (now ODPM - Office of the Deputy Prime Minister) and DfES have standard definitions, which have been previously reported to RCC and Education Committees. An explanation of this was been reported to Education Committee and RCC in early 2001 as part of the report on the planned maintenance programme 2001/02. This was further explained in report to Resources Co-ordination Committee (March 2002) on 2002/03 programme. Work is currently being done on a strategy to manage the repairs and maintenance backlogs and this will fed into the financial plan review.
4.10 Options can then be considered by the Council for future maintenance in the context of the capital resources review.
CAPITAL RESOURCES
4.11 As part of the last Budget Resolution, Council instructed the Resources Director to produce a plan for addressing the shortfall in capital resources of funding for the medium term following the end of the Council's debt-free status.
4.12 The purpose of the plan is to provide the means of realising the resources needed to finance the Council's reasonable capital spending plans, recognising that the availability of resources will limit the extent of spending plans, and that therefore those spending plans will require effective prioritisation, management and control.
4.13 The plan will be in the context of the anticipated reduction in capital resources facing the Council at the end of its debt-free status (likely to be March 2003, but could possibly be extended to March 2004 depending on the rate of spending and capital approvals).
4.14 Likely resource needs over the period 2004 - 2006 will cover the exposure to major projects such as:
· Western Riverside
· Combe Down Stone Mines
· Ongoing Council programmes such as Disability Discrimination Act (DDA) and health & safety compliance, and the Customer Service Strategy
· Emerging requirements such as e-government and residential care provision
· Local aspirations such as reducing the scale of the school and highways maintenance backlogs
4.15 There is therefore, even before any further capital schemes are approved, a potentially very large capital requirement which would lead to a need for capital resource generation many times in excess of current targets.
4.16 The outline of the plan has been scoped and data collection on sources of finance commenced. This is an ongoing task, with initial information being used to support consideration of the key factors within the plan, ie cost/affordability, control, risk and time, so as to produce a high-level plan for inclusion in the Financial Planning Framework document in November. After further work, the full plan would be included in the draft Financial Plan in January 2003.
5. SUGGESTED PROCESS FOR REVIEWING THE PLAN
5.1A suggested timetable for the next review is set out in Appendix4, based on the Council resolution from February 2002. Importantly, members should note that this involves moving to a 4-year financial plan to coincide with the period of the next Council term.
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Contact person(s) |
Anne Feakes, 01225 477320, Phil Hall, 01225 477468, Tony Bartlett, 01225 477302 |
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Background papers |
Budget Reports throughout 2001/2002 Draft Financial plan http://www.bathnes.gov.uk/resourcesplanning/FinancialPlan2002/Commentary/Finplancommentary.htm http://www.bathnes.gov.uk/resourcesplanning/FinancialPlan2002/CouncilAgreed/Finplanagreed0203.htm |
Council Objectives
· To encourage and support life long learning
· To promote a thriving economic community and combat poverty
· To build a healthier and safer community
· To promote quality of life and environmental stewardship
· To deliver quality and accessible services
Specific Financial Plan Objectives are:
· To make a significant investment to improve children's educational and social achievement and quality of life.
· To invest in a sustainable future, making Bath & North East Somerset a better place to live, work and visit.
· To make a significant improvement in the quality, appearance and safety of roads, streets and public places.
· To invest in services which enable individuals to live independently and to be involved in their local communities.
· To improve the community's access to public services and the democratic process.
Examples of how this is reflected in investment and targets in the Council can be found in the financial plan commentary section of the budget book on the intranet/internet.
Internet
http://www.bathnes.gov.uk/resourcesplanning/FinancialPlan2002/Commentary/Finplancommentary.htm
Intranet
http://intrasrv/intranet/resourcesplanning/FinancialPlan2002/Commentary/Finplancommentary.htm
Key Corporate Risks and Opportunities (Revised 2002)
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A7 |
Major Development Projects |
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Exposure to risk as a result of major potential financial liabilities (e.g. Combe Down), reliance on external funding (e.g. Combe Down, Spa), reliance on external lead (e.g. Southgate) coupled with potential lack of project management skills and processes. |
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A5 |
Major service cost escalation |
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Escalating service costs (e.g. social services, waste disposal) undermines service prioritisation and prompts higher Council Tax or cuts in priority services |
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A4 |
Non-compliance with statutory duties or statutory processes |
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Failure to achieve compliance leads to litigation and damaged reputation as well as financial impact |
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A2 |
Reliance on IT systems and partnerships |
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Increased reliance on weak or poorly controlled and managed IT systems and partnerships leads to IT failure and failure to deliver services. |
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Viability of Council core |
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A9 |
Externalisation or transfer of Council services to other providers/agencies makes the remaining Council too small to deliver core services. |
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A10 |
Natural disaster or terrorist attack |
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Failure to deal effectively with a natural disaster or terrorist attack leading to financial costs and a damaged reputation. |
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A8 |
Data protection regulations and/or information security |
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Breaches lead to financial penalties and a damaged reputation |
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A3 |
Vulnerability to volatility of income |
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Over-reliance on external funding (e.g. grants) to provide core services. Volatility leads to poor planning, management and ultimately disruption of Services. |
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A1 |
Competing Government Demands |
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Government demands compete or conflict with local initiatives resulting in capacity overload and therefore a failure to deliver (against either local or central expectations), prompting Government intervention. . |
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A6 |
Clear and decisive political leadership |
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Potential lack of political leadership leads to poor or delayed decision-making and poor prioritisation (poor reputation) |
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A11 |
Loss of external income |
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International or national events outside of Council control cause loss of visitors or economic downturn, leading to a reduction in Council income, service failure and damaged reputation |
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A12 |
Bad press |
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Damaged reputation, low staff morale, recruitment problems and the potential loss of financial freedoms |
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A13 |
Bad inspection results |
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Poor "star rating" leads to a damaged reputation, low staff morale, recruitment problems and the potential loss of financial freedoms |
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A14 |
Failure to adequately plan, manage and control budgets |
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Leads to financial crisis, service disruption, poor morale and reputation loss |
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A15 |
Failure to plan for demographic changes and increased demand on services |
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Leads to financial pressures, service failure and staff overload |
Comprehensive Spending Review 2002
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What is it? |
During 2001 and the start of 2002 the DLTR (or equivalent new department ODPM - Office of the Deputy Prime Minister) are reviewing the way they divide and distribute government grant. At the moment, the amount of Government Grant we receive is dependent upon a formula called the SSA. |
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Why is it important? |
Because this review could make £m's of difference to our budget in the medium term. It certainly could quite easily vary the forecast Council Tax increase by up to 2% in 2003/04. There is enough data and research to support many different results from this review, and there are no definite figures yet available. |
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What difference will it make to the review? |
The uncertainty means that we will need to prepare for best and worse case scenarios to achieve a target range of Council Tax increases. |
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What happens if we make big gains or losses |
Any increases or losses are likely to be damped. However a variation of plus or minus a million pounds is still possible (as in 2002/03 settlement). |
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What is the forecast for the plan? |
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Current Forecast |
Best Forecast |
Worst Forecast |
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The last plan reported in February forecast a net revenue shortfall of £1.7m in 2003/04 (gap between forecast spend and a 4% Council tax). |
£0.7m gap |
£2.6m gap (NB £500k = 1% on Council tax) |
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Revenue Support Grant forecast increase |
£3.2m |
£1.3m |
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Some examples of possible variations include: |
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Highways - use of GIS data |
Increase 1.5% |
Decrease by 5% |
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Fire Authority |
Fire is separately funded and taken out of B&NES budget (like the Police is now - this means that increases above inflation would not be reflected in B&NES Council Tax) |
Fire remains as it is now, thus increases in spend will push up the headline rate of B&NES Council tax increase. |
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Area Cost Adjustment |
Not totally incorporated as any large increase - could be up to £1 or 2m, but very unlikely - were some gains in 2002/03 (estimated around £300k). DLTR are minded to change formula but method not yet determined. |
London and South East gain more - is less likely, unless there are significant data changes which work in their favour (as 2002/03 - was higher than £300k gain for us but reduced at the last minute for data that favoured London and South East) |
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Timetable
Suggested timetable for the next financial plan review is as follows:
Financial Planning Process 2003/04 - 2006/07
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Activity |
Executive Date |
O&S Date |
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Executive to receive position statement report on Financial Plan. Report will summarise context, key issues (incl. Reminder of previous Council resolution) and set out workplan. |
July 10th |
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Workshop to be arranged for whole Executive to understand and debate key issues and to give direction regarding objectives and priorities. |
Mid July |
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Briefing for O&S Panel |
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Late August or early September |
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Financial Plan Overview & Progress report to Executive and O&S to put into public domain any guidance coming from the July workshop. |
Sept 4th |
End Sept (to be arranged) |
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Follow-up workshop for whole Executive to consider updated context and key issues, initial results of Directors' Group work on service plans and to develop financial planning framework document |
October |
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Executive to produce Financial Planning Framework This would be a "wordy" document identifying key issues, pressures and priorities, effectively setting parameters for the financial plan. Links to service plans Would go to O&S for comment as a "green paper" and should be subject to public consultation |
November 6th |
End November |
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Grant announcement made (end of November or first week in December) Final workshop for whole Executive to consider updated context and key issues, results of Directors' Group work on service plans/savings exercises and to finalise financial plan proposals |
December |
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Executive to produce Draft Financial Plan This would be the "numbers" document updating the detailed financial plan in line with the initial Framework document but also responding to comments from O&S and the public, and incorporating RSG Settlement To Council for consideration/approval - Council would be asked to agree the "words" and the "numbers" (23rd January) Links to BVPP |
January 8th |
Mid January |
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Executive to produce Draft Revenue & Capital Budgets for 2003/04 Effectively as year 1 of the Financial Plan but with proposals for use of any unallocated sums. To Council for approval on February 20th (other groups may put forward their own budget proposals at this stage) Links to BVPP |
February 5th |
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