Agenda item

At its last meeting in December 2016 the Authority gave initial consideration to the draft revenue budget, authorised consultation with representatives of non-domestic ratepayers and Trade Unions on the draft budget proposals and agreed to give further consideration to the budget at their next meeting on the 20th February 2017.

 

Budget Requirement

A draft budget of £53.9m was presented to the December 2016 meeting.  Further work had been ongoing to refine budget requirements resulting in an updated gross revenue budget requirement for 2017/18 of £54.3m.  This represented an increase due to refining staffing forecasts and that delays with the Emergency Services Mobile Communication Programme project pushed back associated savings to September 2018. 

 

The updated budget requirement of £54.3m still represented a reduction of 2.3% and allowed for the identification of £1.5m of efficiency savings.

 

Government Funding Settlement

The Government had confirmed that the multi-year settlement offers had been agreed with all single purpose fire and rescue authorities. Hence, barring exceptional circumstances, and subject to the normal statutory consultation process for the local government finance settlement, the Government expected these amounts to be presented to Parliament each year.

 

The Director of Corporate Services advised that the final Local Government Finance Settlement had not yet been received as it would not be debated in Parliament until 20 February at the earliest; hence it had been assumed that the final settlement would be consistent with the draft figures reported in December, i.e. £25.3m. 

 

In recent years the final settlement had been published later and later in February each year with this the first meeting that the Authority had not had this information.  The Director of Corporate Services did not anticipate that when published the figures would be different from the draft, given there had been only marginal changes in the past.  If the figures were marginally different however, this would be met from the drawdown of reserves or an additional savings target. 

 

As highlighted in the draft budget report, the Autumn Statement reaffirmed that Departmental spending would grow with inflation in 2021/22. However there would be significant variation between departments due to how the overall funding was distributed, and the level of protection afforded to some Departments, hence id had been assumed that funding would be frozen in 2021/22 and beyond.

 

Included within the Settlement Funding Assessment was an estimated amount in respect of locally retained Business Rates. Billing Authorities had now provided details of this, which showed a marginal reduction of £46k compared with the Government’s forecast.  Overall the settlement at £25.3m is in line with the draft budget.

 

Business Rate Adjustments

Business Rates were adjusted to reflect Section 31 grant received to offset lost local revenue arising from the Government’s decision to cap the business rates multiplier in previous years. The Government had not formally announced that this would not continue in 2017/18, nor had any indication been given that it would cease, and hence for the purpose of planning it had been assumed that this would be paid, in line with previous years, and a sum of £149k had therefore been included in respect of this.  The Government also provided further Section 31 grant to offset lost local revenue arising from various other decisions which had limited business rates, such as the doubling of small business rate relief, extensions to timeframes for some exemptions etc. This figure had been confirmed by billing authorities at £338k.  In addition, any surplus or deficit on the business rates collection fund was distributed to relevant bodies, and the Authority’s share of this stood at a deficit of £177k.

 

Council Tax 2017/18

Billing authorities had now provided final council tax base figures and the council tax collection fund figures. The tax base had increased by 1.7%, compared with the draft budget which was based on a 1% increase. The collection fund surplus stood at £0.5m compared with the draft budget figure of £0.3m.  Future planning assumptions had been updated to reflect this.

 

As previously advised the Government had not provided any additional grant to support those authorities who froze council tax in 2017/18. However it had maintained the council tax referendum limit at 2% for Fire Authorities. Based on the assumptions outlined the budget requirement resulted in a council tax of £66.46, an increase of 1.5% or £0.96, less than 2p per week.

 

As in previous years further council tax scenarios had been modelled, for a 1% increase and a freeze.  If the Authority increased council tax by 1% it would require a budget reduction of £0.1m. A freeze would require a budget reduction of £0.4m. In order to achieve these reductions the Authority could either identify further savings in-year, utilise the Local Government Pension Scheme surplus, as referred to at the December Authority meeting, or utilise reserves.

 

It was noted that the draft budget resulted in a 1.5% increase in council tax, which equated to £0.96 per annum and generated approximately £0.4m of additional precept, where as a 1% increase equated to £0.66 per annum, £0.01 per week, and generated approximately £0.3m of additional precept.

 

As reported in the draft budget our 2016/17 council tax of £65.50 was still below the national average of £71.50, and was the eighth lowest of any Fire Authority, and our council tax increases of 2.9% over the last 5 years had been significantly lower than the sector average of 8.6%.

 

Further Savings Opportunities

As reported previously the Authority has been extremely successful at delivering efficiency savings, delivering £18m since April 2011. However it was clear that the scope to deliver further savings was extremely limited, with the majority of departments struggling to balance demands against capacity.

 

The only significant savings opportunity on the horizon appeared to be the Emergency Cover Review (ECR) scheduled for next year, but again previous ECRs had delivered significant savings and the scope to identify further reductions was extremely limited.

 

As such it may be possible to deliver in year savings in 2017/18 by delaying expenditure and targeting an in-year underspend in order to deliver a balanced budget, but the scope to utilise this to balance future budgets appeared limited.

 

Local Government Pensions Scheme (LGPS) Surplus

As reported at the last Authority meeting the Authority’s LGPS fund currently had a surplus of £4.3m, due to improved investment returns, changing assumptions and additional payments made to offset previous deficits.

 

The report identified the following options:-

 

• leave the surplus in situ, to offset any future changes;
• drawdown all of the surplus over the 16 year recovery period, £0.3m per annum (this would still leave approx. £3.3m as a surplus at the next valuation, all other things being equal);
• drawdown all of the surplus to offset all of the future service pension contributions, £0.6m per annum, broadly speaking the surplus would be fully utilised in 7 years (this would still leave approx. £2.3m as a surplus at the next valuation, all other things being equal, but we would need scheme approval to do so);
• drawdown part of the surplus over the 16 year recovery period, one option being to draw down a sum equal to the increase in future service contribution, i.e. £0.1m (this would still leave approx. £4.0m as a surplus at the next valuation, all other things being equal).

 

Any decision to utilise the surplus must be taken recognising the need to maintain a sustainable LGPS funding position and recognising the volatility of the funding valuations (as previously highlighted the funding deficit on the LGPS had historically grown each year due primarily to mortality rates). It should also be recognised that drawing down any of this to offset recurring revenue expenditure would create further financial pressures in future years once the surplus was utilised.

 

Reserves and Balances

As set out in the Reserves and Balances Policy reported elsewhere on this agenda, the Treasurer had identified the following target levels for general reserves:-

 

·        minimum target reserves level reducing to £2.8m, 5.0% of the 2017/18 net revenue budget, a reduction on previous years due to indicative four year settlements but still maintained at a reasonable level to reflect on-going economic uncertainty and the underlying risks within the budget;

• the maximum reserve limit be maintained at £10.0m.

 

The overall level of the general fund balance, i.e. uncommitted reserves, anticipated at the 31 March 2017 was £10.2m. The draft capital programme allowed for a further transfer of £2.6m from general reserve to the capital programme in 2017/18, leaving a forecast balance of £7.6m, providing scope to utilise approx. £4.8m of reserves.

 

As such reserves could be used to deliver a balanced budget in 2017/18. Therefore having reviewed the level of general reserves required and the anticipated utilisation of these, the Treasurer considered these are at an appropriate level to meet future expenditure requirements in 2017/18. The level of these would be reviewed again as part of the year end outturn process and reported on to the Resources Committee.

 

Council Tax 2018/19 and beyond

As highlighted earlier, funding up to and including 2019/20 formed part of the multi-year settlement and hence all other things being equal was set for three years. Funding beyond this period was unknown, but was assumed to be frozen at £24.0m.

 

Based on this, the draft budget as presented delivered council tax increases in excess of 3% in future years, above the existing referendum limit.

 

As previously advised, holding a referendum was extremely expensive, costing in excess of £1m, and was unlikely to deliver an increase in excess of the 2% threshold. As such we would need to either deliver additional savings or utilise reserves in order to balance the budget in future years, the extent of which was dependent upon current and future council tax decisions.

 

As such the following council tax scenarios had been modelled:-

 

• A council tax increase of 1.5% in  2017/18, with a 2% increase thereafter
• A council tax increase of 1.0% in  2017/18, with a 2% increase thereafter
• A council tax freeze in 2017/18, with a 2% increase thereafter
• A 1% increase in council tax each year, including 2017/18
• A council tax freeze each year, including 2017/18

 

The following table set out the funding shortfall anticipated each year:-

 

	2018/19	2019/20	2020/21	2021/22
A council tax increase of 1.5% in  2017/18 with a 2% increase thereafter	(£0.3m)	(£0.8m)	(£1.4m)	(£2.3m)
A council tax increase of 1.0% in  2017/18 with a 2% increase thereafter	(£0.5m)	(£0.9m)	(£1.5m)	(£2.4m)
A council tax freeze in 2017/18 with a 2% increase thereafter	(£0.8m)	(£1.2m)	(£1.8m)	(£2.7m)
A 1% increase in council tax each year	(£0.8m)	(£1.5m)	(£2.4m)	(£3.6m)
A council tax freeze each year	(£1.3m)	(£2.4m)	(£3.6m)	(£5.2m)

 

It was stressed that there were a whole host of assumptions underpinning these projections, particularly around vacancy profiles, pension costs, future inflation, pay awards and funding beyond March 2020.

 

Assuming general reserves were used to balance the overall position each year this would deliver a sustainable position throughout the period based on a 2% increase in council tax  each year, whereas reserves would run out in 2020/21 if council tax was frozen each year.

 

Reserves would only be a short term solution, as eventually they would be fully utilised and the Authority left with a recurring funding gap. As such at some point the Authority would be required to make recurring savings to offset this gap, and scope to do so was limited.

 

Summary Council Tax options 2017/18

In considering its council tax requirements for 2017/18 the Authority aimed to balance the public’s requirement for and expectations of our services with the cost of providing this.  As such the revenue budget focused on the need to:-

 

• deliver services as outlined in the Risk Management Plan and other plans;
• maintain future council tax increases at reasonable levels;
• continue to deliver efficiencies in line with targets;
• continue to invest in improvements in service delivery and facilities;
• set a robust budget that takes account of known and anticipated pressures;
• maintain an adequate level of reserves.

 

The draft budget as set out in this report achieved these objectives and based on the scenarios outlined the three council tax options for 2017/18 were:-

 

• Increase council tax by 1.47%, which resulted in a council tax of £66.46 for a band D property. From a financial perspective this was the most sustainable option as it maximised the level of precept in each year, and did not require any further savings to be delivered in 2017/18. However, it had the biggest impact on the local council tax payer, albeit this still equated to an increase of just £0.96 per annum;
• Increase council tax by 1.00%, which resulted in a council tax of £66.16 for a band D property. Under this option the budget needed to be reduced by £129k, which could be met by including an additional savings target into the budget to offset this. From a financial perspective this was less sustainable as under this option the Authority generates £0.1m less precept each year, and it needed to find additional savings. However it did offset some of the increase in council tax, limiting this to just £0.66 per annum, thereby reducing the impact on the local council tax payer;
• Freeze council tax at £65.50 for a band D property. Under this option the budget needed to be reduced by £409k, which could be met from an additional savings target of £96k plus the drawdown £313k of the LGPS pension surplus, spread over the agreed recovery period of 16 years. This option removed any impact on the local council tax payer, however it was the least sustainable from a financial perspective as under this option the Authority foregoes any increase in precept, and still needed to identify budget reductions. Furthermore utilising the LGPS surplus to offset recurring revenue expenditure would create further financial pressures in future years once the surplus was utilised, or if the LGPS funding position changed significantly at a future valuation.

 

The Treasurer believed all three options delivered a robust balanced budget whilst maintaining an adequate level of reserves in the medium term.

 

Detailed resolutions relating to each of the options were considered by Members together with analyses of budget by service area and type of expenditure together with the budget consultation response received.

 

The option which assumed a council tax freeze and resulted in maintaining council tax at £65.50 for a Band D property was MOVED by County Councillor F De Molfetta and SECONDED by County Councillor M Parkinson.  This was unanimously approved.

 

To meet the reduced budget requirement of £409k associated with this the Authority also unanimously approved the drawdown of £313k from the LGPS pension surplus with the remaining £96k being met from an additional savings target.

 

RESOLVED: - That the Authority: -

 

1. note the Treasurer’s advice on the robustness of the budget
2. note the Treasurer’s advice on the appropriate level of reserves/balances
3. agree the budget requirement of £53.933m for 2017/18
4. note the assumed section 31 grant of £0.487m due in respect of business rate adjustments
5. note the assumed level of Revenue Support Grant £10.659m
6. note the assumed level of Business Rates Retention Top Up Funding £10.477m
7. note the assumed level of Local Business Rates Retention Funding £4.121m
8. note that any changes identified in the final local government settlement will be met by reducing the budget requirement, by either identifying additional savings or by drawing down reserves
9. note the business rate tax collection fund deficit of £0.177m
10. note the council tax collection fund surplus of £0.526m
11. agree the council tax requirement, calculated in accordance with Section 42A(4) of the Localism Act of £27.839m
12. note the council tax base of 425,026 determined for the purposes of Section 42B of the Local Government Finance Act 1992
13. agree a council tax band D equivalent of £65.50, a freeze, calculated by the Authority under Section 42B of the Local Government Finance Act 1992 agree, on the basis of the fixed ratios between valuation bands set by the Government, council tax for each band as follows

 

Band A	£43.67
Band B	£50.94
Band C	£58.22
Band D	£65.50
Band E	£80.06
Band F	£94.61
Band G	£109.17
Band H	£131.00

 

14. agree, based on each district and unitary councils share of the total band D equivalent tax base of 425,026, the share of the total LCFA precept of £27.839m levied on each council as follows:

 

Blackburn With Darwen Borough Council	£2,221,199
Blackpool Borough Council	£2,335,861
Burnley Borough Council	£1,478,925
Chorley Borough Council	£2,353,653
Fylde Borough Council	£1,918,102
Hyndburn Borough Council	£1,322,904
Lancaster City Council	£2,639,650
Pendle Borough Council	£1,529,314
Preston City Council	£2,349,420
Ribble Valley Borough Council	£1,472,506
Rossendale Borough Council	£1,309,869
South Ribble Borough Council	£2,311,338
West Lancashire District Council	£2,252,558
Wyre Borough Council	£2,343,902
TOTAL	£27,839,201

 

15.    Approve the drawdown of £313k from the LGPS pension surplus.