Agenda item - Budget Targets 2017/18

This report updates the financial forecast and recommends financial targets for preparing the draft budget for 2017/18 and financial planning for 2018/19 & 2019/20.

The Committee:

(1) Accepted the Four Year Settlement for Central Government in conjunction with the following actions:

a) That the approved cost reduction plan is renamed the Efficiency Plan and the MTFS is retitled the MTFS and Efficiency Plan

b) That the Chief Executive, in consultation with the Chairman and Vice Chairman of the Strategy and Resources Committee be authorised to make such further changes as they consider appropriate to the MTFS and Efficiency Plan, for example, to enable the Council to respond to any emerging guidance or good practice and meet the 14 October deadline;

c) That Members and Leadership Team develop the Efficiency Plan during October to January as part of the 2017/18 budget setting process.

(2) The following overall revenue budget target for 2017/18:

a) The preparation of estimates including options to reduce organisational costs by £556,000 to minimise the use of working balances and maintain a minimum working balance of £2.5m in accordance with the medium term financial strategy;

b) The generation of at least £200,000 additional revenue from an increase in discretionary fees and charges, based on minimum overall increase in yield of 3% in 2017/18;

c) That a provision for 2017/18 pay award is made of £180,000 which represents a 1% pay increase and 0.6% progression;

(3) That further efficiencies be identified to address the budget shortfalls of £220,000 in 2017/18, £374,000 in 2018/19 and £688,000 in 2019/20;

(4) That Capital Member Group seek to limit schemes included within the capital expenditure programme that enable retention of agreed minimum level of capital reserves

The Committee received and considered a report which updated the financial forecast and recommended financial targets for preparing the draft budget for 2017/18 and financial planning for 2018/19 and 2019/20.

As discussed at the Financial Policy Panel on 13 September 2016, a widely expected phased cut of Revenue Support Grant (RSG) funding was not now proposed by the Government. This left the Council with no Revenue Support Grant from 2017/18 onwards and an overall 66% reduction in funding between 2015/16 and 2019/20, posing an even greater challenge to the Council in delivering year-on-year savings to achieve a balanced budget.

The Government had made an offer of a fixed, four year settlement covering the years 2016/17 – 2019/20 early in 2016. A local authority was not obliged to accept the offer. However, the report highlighted that the risk in not accepting the offer was that any subsequent year’s annual settlement might be less favourable than that outlined in the fixed offer – a risk which applied equally to authorities in receipt of Revenue Support Grant and those like Epsom and Ewell which were not scheduled to receive RSG in future years.

The report also highlighted that an advantage of accepting the four year settlement would be the removal of uncertainty in levels of funding from central Government. This had traditionally placed a strain on resources in this authority around December and January to make revisions to the budget in time for the January committee cycle. The certainty in funding would allow for a more predictable budget setting and the ability to get known positions earlier in the process.

To accept the settlement local authorities had to produce an Efficiency Plan to demonstrate a four year budget with transparency on the benefits for the Council and the community. Significant work had gone into the recent Medium Term Financial Strategy (MTFS) and it was proposed that, should the Panel recommend acceptance of the four year settlement, the current cost reduction plan would be renamed the Efficiency Plan and that the MTFS should be renamed the MTFS and Efficiency Plan. The report highlighted that this plan would need regular review in light of changes over the next four years.

The budget strategy involved continuing to deliver efficiency savings and generate extra service income whilst reviewing service levels so that service costs could be reduced as needed to achieve a balanced budget year on year. The strategy also required the prudent use of government grants such as the New Homes Bonus to limit reliance on specific grants for funding council services. Whilst assurances had been received that New Homes Bonus would continue for the next four years, it was widely anticipated that this source of funding would be reduced.

Savings of £556,000 had been identified which left the forecast budget shortfall for 2017/18 at £220K. Over the next four financial years (including 2016/17) the total deficit was £1.28m. The latest four year revenue budget forecast was appended as Annexe 2 to the report.

It was noted that the majority of authorities with business rate tariff adjustment appeared to be accepting the settlement. The Chairman highlighted the implications for this Council were an unfavourable business rate tariff adjustment in 2019/20 (- £624,000). This was effectively negative Revenue Support Grant and equated to residents paying a 12% increase in Council Tax for no local benefit. However, on balance the Financial Policy Panel had considered that it was prudent to accept the settlement and that, in conjunction with those other authorities affected, had recommended that strong representations should be made to the appropriate individuals and bodies regarding the unreasonable impact of the funding cuts on those authorities which had had RSG withdrawn.

Accordingly, the Committee: