Agenda item

The Director of Corporate Services/Treasurer presented the draft revenue budget for 2017/18 -2021/22 and the resultant council tax implications. 

 

In line with the Authority’s objective to deliver affordable, value for money services the Authority’s Budget Strategy remained one of:-

 

·        Maintaining future council tax increases at reasonable levels, reducing if possible;

·        Continuing to deliver efficiencies in line with targets;

·        Continuing to invest in improvements in service delivery;

·        Continuing to invest in improving facilities;

·        Setting a robust budget;

·        Maintaining an adequate level of reserves.

 

Draft Budget

 

In order to determine the future budget requirement, the Authority had used the approved 2016/17 budget as a starting point, and had uplifted this for inflation and other known changes and pressures, to arrive at a draft budgetary requirement, prior to utilising any reserves, as set out below:-

 

	2017/18	2018/19	2019/20	2020/21	2021/22
	£m	£m	£m	£m	£m
Preceding Years Draft Budget Requirement	55.6	53.9	54.5	55.8	57.5
Inflation	0.8	0.8	0.7	1.7	2.0
Other Pay Pressures	(0.7)	0.1	0.8	-	-
Committed Variations	(0.87)	(0.1)	0.1	-	-
Growth	0.4	(0.1)	(0.2)	-	-
Efficiency Savings	(1.4)	(0.1)	(0.1)	-	-
Budget Requirement	53.9	54.5	55.8	57.5	59.5

 

Further details were provided in the report, the most significant of which were:-

 

Inflation

·        A 1% allowance had been built in for all pay-awards for the next 3 years, based on government proposals with 3.8% for 2020/21 and 2021/22;

·        Non-pay inflation average of 2.5% per annum.

 

Other Pay Pressures

·        Future Service contributions in respect of the Local Government Pension Scheme had increased by 1.9%;

·        The discount rate used in unfunded public sector pension schemes would change and this added a further £2b of costs to the schemes, as a whole.  This would be reflected in the next tri-annual evaluation that set the contribution rate payable from 1 April 2019.  No details of the impact on any unfunded scheme were currently available however an allowance for a 3% increase had been built into the budget in 2019/20;

·        The Government would introduce an apprenticeship levy in April 2017 which was set at a rate of 0.5% of an employer’s pay bill;

·        The budget in respect of wholetime personnel had been updated to allow for: retirements, leavers, continuing recruitment in future years (to include an allowance for over establishment by up to 25 personnel), personnel to be paid development rates of pay and the different firefighter pension scheme contribution rates;

·        A vacancy factor of 2.5% had been built in to reflect turnover within support staff;

·        The vacancy factor in respect of RDS staff had been increased to 15% in line with current levels.

 

Committed Variations

·        In order to balance the draft capital programme the Revenue Contribution to Capital Outlay was  increased in 2016/17, hence the reduction bought this back in line with future requirements, as reflected in the draft capital programme;

·        Reduction in interest receivable reflected the historically low rate of interest and based on anticipated cash balances.

 

Growth

·        The budget for recruits in training had been adjusted to take account of the anticipated timing and number of recruits in each year, assuming all recruits undertook a 13 week course. The budget for the Training and Operational Review Department had also been increased to provide sufficient trainers to meet the on-going requirement.

·        The Service was currently reviewing its use of apprenticeships, and would report to the Resources Committee in due course. As such a provision had been set aside to meet any costs.

 

Efficiency Savings

The Authority had a good track record of delivering efficiency savings. Between April 2011 and March 2017 £16.5m of savings had been delivered. Further savings of £1.6m had been identified as detailed below, bringing the overall level to £18m:-

 

·        Full year effect of removal of whole-time appliance at Lancaster and creation of RDS unit;

·        Savings identified from reviewing non-pay budgets, the main ones being:

o   Fleet

o   Property

o   Utilities

o   Area

o   Smoke Detectors

·        As referred to on a separate report on this agenda the Service had more than paid off its LGPS deficit and as such the budget had been adjusted to remove the deficit recovery payments included in previous years budgets.  At the present time it had been assumed that the surplus was left in-situ and had therefore not built any allowance into the budget for this.

 

Net Budget Requirement

 

The overall net budget requirement for each year was set out in the report as follows:-

 

	2017/18	2018/19	2019/20	2020/21	2021/22
	£m	£m	£m	£m	£m
Draft Budget Requirement	53.9	54.5	55.8	57.5	59.5
Budget (Decrease)/Increase	(3.0%)	1.0%	2.5%	3.0%	3.4%

 

Grant Funding

 

Future funding was based on the four year settlement figures previously identified (the Director of Corporate Services confirmed that the 4 year funding settlement had been confirmed and the draft Local Government Finance Settlement been published, and was in line with figures contained in the report.)  It was assumed that funding was frozen in 2020/21 and beyond, although in the recent Autumn Statement the Government reaffirmed that Departmental resource (revenue) spending would continue to grow with inflation in 2020/21, as set out in Budget 2016, and that Departmental spending would also grow with inflation in 2021/22, but obviously there would be significant variation between departments due to how the overall funding was distributed.

 

		Reduction
2015/16	£29.6m
2016/17	£27.8m	£1.8m	6.4%
2017/18	£25.4m	£2.4m	8.3%
2018/19	£24.5m	£0.9m	3.8%
2019/20	£24.1m	£0.4m	1.6%
2020/21	£24.1m	-	-
2021/22	£24.1m	-	-
		£5.5m	18.7%

 

(Figures presented included an assumption that both Section 31 Grant - Business Rates Capping and Business Rates collection fund deficit remained at their current levels.)

 

The Spending Review also confirmed that by 2020/21 Local Authorities would retain 100% of business rates, but no details were available as to how this would work and what the impact on the fire sector would be, and hence for the purpose of financial planning it had been assumed that this would be cost neutral.

 

Council Tax

 

In setting the council tax, the Authority aimed to balance the public’s requirement for its services with the cost of providing this.  As such the underlying principle of any increase in council tax was that this must be seen as reasonable within the context of service provision.

 

The Authority became a precepting authority on 1 April 2004.  Since then the council tax increases had been limited either by either capping or the current referendum threshold (of 2%) set by the Government.  As such the council tax increases and hence budget increases had been constrained by these and the desire to deliver value for money services, culminating in a council tax freeze between 2011/12 to 2014/15 and a 1.9% and 1.0% increase in the last 2 years.  The council tax of £65.50 was still below the national average of £71.50 and the Authority’s increase of just 2.9% over the last 6 ears compared with an average national increase of 8.6% over the same period and was the 5^th lowest of any Fire Authority.

 

Council Tax-Base

 

It was noted that both the council tax base and collection fund deficit were estimates which would be updated once figures were received from billing authorities.

 

Draft Council Tax Requirements

 

The Director of Corporate Services advised that the Authority had received a council tax freeze grant in previous years but this had stopped last year and had not been reinstated this year.

 

Members noted the draft council tax requirements as presented: -

 

	2017/18	2018/19	2019/20	2020/21	2021/22
	£m	£m	£m	£m	£m
Draft Budget Requirement	53.9	54.5	55.8	57.5	59.5
Less Total Grant	(25.4)	(24.5)	(24.1)	(24.1)	(24.1)
Council Tax Collection Surplus	(0.3)	(0.3)	(0.3)	(0.3)	(0.3)
Equals Precept	28.2	29.7	31.4	33.1	35.1
Estimated Number of Band D equivalent properties	422,063	426,283	430,546	434,852	439,200
Equates to Council Tax Band D Property	£66.82	£69.68	£73.05	£76.22	£79.87
Increase in Council Tax	2.0%	4.3%	4.8%	4.3%	4.8%

(For information, a 1% change to the council tax equates to £0.250m.)

The increase in 2017/18 was in line with the referendum limit but increases in future years were more significant and would potentially exceed the referendum limit.

 

As in previous years 3 scenarios had been modelled based on: -

 

·      A 2% increase in council tax each year;

·      A council tax increase of 1% in  2017/18 with a 2% increase thereafter;

·      A council tax freeze in 2017/18 with a 2% increase thereafter.

 

The following table set out the funding gap based on these scenarios:-

 

	2017/18	2018/19	2019/20	2020/21	2021/22
A 2% increase in council tax each year	-	(£0.6m)	(£1.5m)	(£2.3m)	(£3.3m)
A council tax increase of 1% in  2016/17 with a 2% increase thereafter	(£0.3m)	(£0.9m)	(£1.8m)	(£2.6m)	(£3.6m)
A council tax freeze in 2016/17 with a 2% increase thereafter	(£0.6m)	(£1.2m)	(£2.1m)	(£2.9m)	(£3.9m)

 

Reserves

 

A reasonable level of reserves was needed to provide an overall safety net against unforeseen circumstances, such as levels of inflation/pay awards in excess of budget provision, unanticipated expenditure on major incidents, and other “demand led” pressures, such as increased pension costs, additional costs associated with national projects, etc. which could not be contained within the base budget. In addition, they also enabled the Authority to provide for expenditure, which was not planned at the time the budget was approved, but which the Authority now wished to implement.

 

As such a review of the strategic, operational and financial risk facing the Authority was undertaken each year to identify an appropriate level of reserves to hold, this incorporated issues such as higher than anticipated pay awards, increased number of ill health retirements, etc.  Until such time as the draft settlement had been announced it was impossible to carry out this review, as such this would be undertaken and reported on at the Authority meeting in February 2017.

 

However, in order to give an overview of this area, last year a minimum uncommitted reserve requirement of £3.0m was identified.  Based on the budget forecast for 2016/17, and assuming any in-year underspend transferred to capital reserves, it was anticipated the Authority would be holding £10.2m of general reserves at 31 March 2017.  The draft capital programme allowed for a further transfer of £2.5m from general reserves to the capital programme in 2017/18, leaving a forecast balance of £7.7m, providing scope to utilise approximately £4.7m of reserves.  As such they could be used to meet the funding gap across the remainder of the 4 year settlement period, up to 31/3/2020.

 

The anticipated reserve position, based on the draft revenue and capital budget as presented, and assuming that a 2% increase in council tax was agreed each year and that any funding gap was met by a drawdown of general reserves showed that the general reserves remained above the minimum target level until April 2021.  Whilst the forecast indicated that there would not be sufficient reserves to bridge the potential funding gap in that year, it was noted that this was based on a number of assumptions that would change over time and that these forecast budgets would be subject to several revisions before that time.

 

Summary Council Tax Options 2017/18

 

Based on the scenarios outlined the council tax options for 2017/18 were: -

 

 

The increases equated to:-

 

·      1% was £0.65 per annum, £0.01 per week

·      2% was £1.30 per annum, £0.03 per week.

 

Based on this it was apparent that the requirement to achieve savings was manageable over the remainder of the settlement period, but increasingly challenging in subsequent years (this being reflective of anticipated pay awards post the settlement period).  The Treasurer reiterated that the figures did not allow for any drawdown of the Local Government Pension Scheme surplus.

 

Reserves were in a healthy position and could be utilised to bridge any shortfall and timing issues over the remainder of the settlement period, although this would not be the case throughout the five year period based on current forecasts.

 

In response to a question raised by County Councillor Britcliffe on whether budget predictions were reviewed for their accuracy by way of their comparison with the actual figures subsequently recorded, the Director of Corporate Services advised that the budget projections were based on a number of assumptions, some of which would inevitably change, for example last year’s budget projected expected a cut of between 26 – 40% which transpired to be 18%; a significant change that could not be predicted.  It was therefore important to maintain a medium term financial strategy.

 

County Councillor O’Toole suggested that the level of the Authority’s investments and whether these could be released to offset any future council tax increases be discussed as part of the budget setting process at the next meeting.

 

A final revenue budget would be presented to the Authority in February 2017, for formal approval.

 

RESOLVED:-

 

(i)         That the draft Revenue Budget be noted as presented;

 

(ii)        That the Authority authorise consultation with representatives of non-domestic   ratepayers and Trade Unions on the budget proposals;

 

(iii)       That the Authority gives further consideration to the revenue budget at their next meeting on the 20th February 2017, in light of the consultation process.