Agenda item

The Director of Corporate Services / Treasurer presented the draft revenue budget for 2018/19-2022/23 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 2017/18 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:-

 

	2018/19	2019/20	2020/21	2021/22	2022/23
	£m	£m	£m	£m	£m
Preceding Years Draft Net Budget Requirement	53.9	54.5	55.9	57.7	59.8
Add back Previous Years Vacancy Factors	1.2	1.7	0.4	0.6	0.6
Inflation	0.8	0.8	1.3	1.9	2.0
Other Pay Pressures	(0.4)	0.3	0.8	0.3	-
Committed Variations	0.1	0.1	-	-	-
Growth	1.3	(1.0)	0.1	-	-
Efficiency Savings	(0.8)	(0.3)	(0.1)	-	-
Vacancy Factors	(1.7)	(0.4)	(0.6)	(0.6)	(0.5)
Net Budget Requirement	54.5	55.9	57.7	59.8	61.9

 

In relation to inflationary pressures the Director of Corporate Services advised that a 1% allowance had been built in for all pay-awards for 2017/18-2019/20. However since the publication of the report there had been an offer of a 2% pay award for green book staff.

 

In addition, it was noted for grey book staff that the NJC had offered a 2% award in 2017/18 and identified a further potential award of 3% in 2018/19 subject to further funding being made available. This had subsequently been withdrawn on the back of the current pay discussions, but did give a strong indication that the 1% increase included in the budget may not be sufficient; which presented an ongoing uncertainty for grey book pay awards. 

 

It was noted that the 2020/21 budget allowed for a 2.5% pay award in 2021/22 and 3.6% in 2022/23 and non-pay inflation averaged 2.5% each year.

 

Each 1% pay award in excess of the above assumptions equated to an additional cost of £340k per year for grey book personnel, and if this was mirrored for green book personnel an additional £70k. Therefore assuming a 2% pay award for grey book in 2017/18, and a 2% pay award for all staff in 2018/19 this would increase the 2018/19 budget by £0.6m. A further 2% pay award for all staff in 2019/20 would add in a further £0.4m to this figure (i.e. a total additional budget of £1.0m in 2019/20 and each subsequent year).

 

Grant Funding

 

As a major precepting authority the Authority received funding in the form of:-

 

2017/18
Settlement Funding Assessment (Grant)
Revenue Support Grant, direct from the Government	£10.7m
Individual Authority Business Rates Baseline	£4.1m
Business Rates Top-Up, from the Government	£10.5m
Business Rates collection fund deficit	(£0.2m)
Section 31 Grant - Business Rates Capping	£0.5m
	£25.6m
Council Tax
Council Tax	£27.8m
Council Tax collection fund surplus	£0.5m
	£28.3m
Total Funding	£53.9m

 

It was noted that the Local Government finance settlement was awaited and that future funding was based on the four year settlement figures previously identified, with an assumption that funding was frozen thereafter.

 

The Government remained committed to Local Authorities retaining 100% of business rates by 2020/21, but details were not 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.

 

Funding projections would be updated once the Local Government Finance Settlement provided further details which were anticipated in late December, and as Billing Authorities provided more detail regarding business rates.

 

Council Tax

 

In setting the council tax, the Authority aimed to balance the public’s requirement for our 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 this our council tax increases have been limited by either capping or the current referendum thresholds set by the Government. As such our council tax increases and hence budget increases have been constrained by these and our desire to deliver value for money services, culminating in a council tax freeze between 2011/12-2014/15, a 1.90% increase in 2015/16, 1.0% in 2016/17 and a freeze last year. Our council tax of £65.50 was still below the national average of £72.80 (being the 8th lowest out of 29 Authorities), and our increase of just 2.90% over the last 6 years (2011/12-2017/18) compared with an average increase of 10.50% over the same period and was the joint lowest of any Fire Authority.

 

The latest consultation document on the 2018/19 Local Government Finance Settlement maintained the council tax referendum principle of any increase being lower than 2%, otherwise a referendum would be triggered. 

 

It was worth noting that as part of the consultation the Fire sector as a whole made representations on the council tax referendum principles, proposing that the same flexibility be provided to the Fire Sector as to District Councils and Police and Crime Commissioners in the lower quartile, namely an ability to raise council tax by a maximum of £5. The Home Office had confirmed that Lancashire was in the lower quartile for council tax. Dependent upon the outcome of the current consultation process and the final pay awards agreed this flexibility may be required in future years.

 

Council Tax-Base

 

It was assumed that the council tax base continued to grow at the rate of 1.75% per year in line with historic trends.

 

In terms of the council tax collection fund, draft figures were still awaited from billing authorities, and hence an allowance for a £500k surplus each year had been included, which again was broadly in line with recent years.

 

Both the tax base and collection fund deficit would be updated once figures were received from billing authorities.

 

Draft Council Tax Requirements

 

Members noted the draft council tax requirements as presented: -

 

	2018/19	2019/20	2020/21	2021/22	2022/23
	£m	£m	£m	£m	£m
Draft Budget Requirement	54.5	55.9	57.7	59.8	61.9
Less Total Grant	(24.6)	(24.3)	(24.3)	(24.3)	(24.3)
Council Tax Collection Surplus	(0.5)	(0.5)	(0.5)	(0.5)	(0.5)
Equals Precept	29.4	31.1	32.9	35.0	37.1
Estimated Number of Band D equivalent properties	432,464	440,032	447,733	455,568	463,540
Equates to Council Tax Band D Property	£67.93	£70.64	£73.47	£76.86	£79.97
Increase in Council Tax	3.7%	4.0%	4.0%	4.6%	4.0%

(For information, a 1% change to the council tax equated to £0.285m.)

 

It was noted that the increases were all above the referendum limit. In order to set a budget within the existing draft referendum principles i.e. limit council tax increases to 2%, the budget requirement would need to reduce each year by:-

 

	2018/19	2019/20	2020/21	2021/22	2022/23
A 2% increase in council tax each year	(£0.5m)	(£1.1m)	(£1.8m)	(£2.7m)	(£3.6m)

 

Freezing council tax in 2018/19 would increase the gap by £0.5m each year.

 

As highlighted earlier if pay awards were higher than the 1% allowed for in the budget then the funding gaps would increase. Assuming a 2% pay award for grey book in 2017/18, and a 2% pay award for all staff in 2018/19 would increase the 2018/19 budget gap by £0.6m. A further 2% pay award for all staff in 2019/20 would add in a further £0.4m to this figure i.e. a total additional budget gap of £1.0m in 2019/20 and each subsequent year. However until such time as a more definitive position emerged this had not been allowed for in the budget.

 

Reserves

 

An accurate review of future reserve requirements would be undertaken, and reported to the Authority’s budget setting meeting in February.  However, in order to give an overview of this area, a minimum uncommitted reserve requirement of £2.8m was identified last year. At 31 March 2018 it was anticipated that the Authority would hold £8.4m at the end of the current year, providing scope to utilise approx. £5.6m of reserves. As such they could be used to meet the funding gap across the remainder of the four year settlement period, as well as offset some of the gap in future years.

 

The position would change significantly if pay awards were higher than anticipated or if funding changed.

 

For comparative purposes the usable reserves set out in the report at 31 March 2018 were forecast at £28.6m, 52.5% of our turnover, which compared with a sector average of 47%. However within usable reserves were £4.0m of PFI reserve and without this the overall reserve percentage would reduce to 45% which was in line with the sector average. Not only that, the draft capital programme showed a significant proportion of reserves being used in the next 2 years, reducing this figure down to approx. 30% by March 2020.

 

Summary Council Tax options 2018/19

 

Based on the scenarios outlined, and specifically allowing for a 1% pay award, the council tax options for 2018/19 were as follows:-

 

 

It was noted that a 2% increase equated to an additional £1.30 council tax for a band D property per annum, £0.03 per week.

 

The draft budget showed the Authority being able to set a balanced budget in 2018/19, based on the draft 4 year settlement. It was noted that this was based on a 1% pay award being agreed for both 2017/18 and 2018/19, any pay award in excess of this would build in additional costs which may, or may not, be met with additional funding.

 

A final revenue budget would be presented to the Authority in February 2018, 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 19th February 2018, in light of the consultation process.