DRAFT
MEDIUM
TERM FINANCIAL STRATEGY STATEMENT
REVENUE
ESTIMATES 2016/17 ONWARDS
INDEX:
1 INTRODUCTION.. 2
2 EXPENDITURE.. 3
2.2.1 Pay & Price Inflation:. 3
2.2.2 Corporate Objectives and Key
Priorities:. 4
3 FUNDING.. 5
3.4.1 Government Grants:. 6
3.4.2 Retained Business Rates. 6
3.4.3 Council Tax.. 7
3.4.4 Fees & Charges. 7
4 BALANCES & EARMARKED RESERVES.. 9
5 EFFICIENCY.. 11
6 CONSULTATION.. 12
7 RISK MANAGEMENT.. 13
TABLES:
Table 1:
Pay & Price Indices. 3
Table
2: Strategic Expenditure Issues & links to other documents.. 4
Table
3: Resource and Income Levels.. 8
Table
4: Strategic Income Issues & links to other documents.. 8
Table
5: Earmarked Reserves.. 9
Table
6:Savings as a Percentage of Net Revenue Expenditure.. 11
1.1 This financial strategy statement is one
of two that aim to support the Council’s corporate objectives as identified in
the strategic plan 2015 – 2020. Where they relate to the day to day revenue
activities of the Council, major issues relating to resources in the medium
term are set out in this statement. For matters relating to the capital
programme see the separate strategy statement on capital.
1.2 This document also provides, at a summary
level, the revenue spending plan of the Council. The success of this plan will
depend upon the resources available to the Council and the approach taken to
ensure that those resources are aligned with corporate objectives and are being
controlled in a way that ensures long-term stability. This is achieved through the
development of a plan over five years.
1.3 Although this document is developed for
the medium term the Council reviews its strategy and therefore this statement
on an annual basis for the following period. This enables the strategy to
remain current and reflect changes in circumstances which impact upon the
revenue resources of the Council. The annual review is completed to coincide
with the annual review of the strategic plan to enable changes to be
appropriately reflected in both documents.
1.4 The current year’s local government
finance settlement includes reductions in resource levels that will put the
Council’s revenue budget under extreme pressure for a further five years. The
Council is committed to maintaining its ambition and aspiration to deliver its
priorities. The Council’s strategy has been developed to focus on opportunities
for the Council to become more efficient and more commercial.
2.1 This financial strategy statement adopts a
high-level review of the corporate objectives, budget pressures and deliverable
efficiencies over the five year period. This approach ensures a focus on
factors that may influence the Council’s stated aim to maintain working
balances and earmarked reserves ensuring that they are used for specific and
special activities and not to balance the budget. The strategic revenue
projection assumes that the level of balances will be maintained, over the five
year period, at or above the working level set annually by Policy &
Resources Committee.
2.2 Detailed proposals for dealing with
financial pressures and service demand are set out in the budget pages of the
full revenue estimate. The major pressures assumed in the strategy are set out
below.
The
strategic revenue projection considers the allocation for pay inflation on an
annual basis. The increase must allow for any pay policy issues such as pay
awards, incremental increases earned through competence appraisal and increases
in employer contributions such as national insurance or pension costs.
Other
Costs are increased by a suitable inflation index balanced with the objectives
of the strategy. Large elements of this cost will be tied to conditions of
contracts which will specify the annual increase necessary, other costs will
increase by the annual increase in an inflation index such as the consumer
price index. In some cases the strategy intentionally uses levels of increase
lower than these indices to enhance general efficiencies.
Table
1 below details the factors used for each year of the current strategy.
|
2016/17
|
2017/18
|
2018/19
|
2019/20
|
2020/21
|
INFLATION INDICES
|
%
|
%
|
%
|
%
|
%
|
|
|
|
|
|
|
Pay Policy Changes
|
1.7
|
1.7
|
1.7
|
1.7
|
1.7
|
National Insurance
|
3.0
|
|
|
|
|
Energy (Average)
|
1.0
|
1.0
|
1.0
|
1.0
|
1.0
|
Business Rates
|
0.5
|
0.5
|
0.5
|
0.5
|
0.5
|
Contractual Commitments
|
3.0
|
3.0
|
3.0
|
3.0
|
3.0
|
Other Cost Increases
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
|
|
|
|
|
|
Growth £,000
|
680
|
481
|
486
|
491
|
496
|
Table 1:
Pay & Price Indices
In
addition to these inflationary pressures the Council will develop and implement
improvements to the corporate objectives identified in the strategic plan and,
where significant, any local objectives identified in service plans. This may
place additional pressure on the revenue budget.
The
financial projection will also provide, where necessary, resources for national
statutory responsibilities where these are to be provided locally.
Table
2 below identifies the links between the financial projection and key
objectives.
|
2016/17
|
2017/18
|
2018/19
|
2019/20
|
2020/21
|
STRATEGIC ISSUES
|
£,000
|
£,000
|
£,000
|
£,000
|
£,000
|
|
|
|
|
|
|
Pension Deficit
|
50
|
83
|
83
|
83
|
|
Economic Development
|
30
|
|
|
|
|
Business Support
|
10
|
10
|
10
|
10
|
10
|
Housing Temporary Accommodation
|
150
|
|
|
|
|
Housing Homeless Prevention
|
74
|
12
|
|
|
|
Shared Planning Support
|
42
|
14
|
|
|
|
Mid-Kent Legal Services
|
87
|
|
|
|
|
Staffing Mid Kent Services
|
40
|
|
|
|
|
Pay Policy review
|
|
260
|
|
|
|
Provision for future pressures
|
|
|
50
|
50
|
50
|
Total Pressures
|
483
|
474
|
143
|
143
|
60
|
Table 2:
Strategic Expenditure Issues & links to other documents.
3.1 Since the general election in 2015 the
Government has completed a spending review and given indications regarding a
number of significant changes to local government finance during the current
parliament.
·
The Government has recently offered local
government a four year funding agreement that provides a guaranteed [absolute or minimum?] level of funding. This
Council has indicated its [acceptance or
rejection?] of this offer [complete according to final decision].
·
The Government has commenced a review of
New Homes Bonus effectively backdating proposals to reduce funding available to
local authorities that have bonus due for previously built property and amending
the focus to improve the incentive of the bonus.
·
In the immediate future the Government
intends to commence a full review of the localisation of business rates. The
Government is proposing that the consultation considers the full localisation
of business rates with localisation of additional responsibilities. The Council
expects the impact of this proposal to be negative for districts council as has
been the case with other recent reforms.
3.2 The strategic revenue projection assumes
that the Council will make all reasonable efforts to maximise resources. This
includes retained business rates, council tax yield and locally derived income:
·
In order to maximise potential income from
business rates growth the Council is a member of the Kent Business Rates Pool
in partnership with 9 other districts in Kent, Kent County Council and Kent and
Medway Fire and Rescue Authority. The pool entered its third year in 2016/17.
Recognising the uncertain nature of business rates growth the strategy only
allows for the growth the Council could reasonably deliver even if the pool did
not exist. All additional growth will be utilised in following years once delivery
is certain.
·
In order to maximise council tax yield the
council works collaboratively with other authorities in Kent and supports
regional initiatives to increase fraud prevention and detection.
·
In order to maximise its locally derived
income the Council has actively developed a commercialisation strategy which
has delivered income from the more effective use of its current asset base. The
strategy has also included the acquisition of additional assets. This strategy
will continue.
3.3 Grants and funding from central government
and other public sector organisations is also reducing and the Council no
longer places long term reliance on this source of income. Where the financial
projection includes the use of fixed term grants or other time limited sources
of income the relevant senior officer is responsible for preparing and acting
on a suitable exit strategy at the end of the fixed term.
3.4 Despite the Council’s efforts to influence
central government policy and develop options to become self-sustained there
remains significant risk in relation to stability of income generation. Details
of the current opportunities and threats for each source of income are set out
below:
The government’s financial settlement for
local government proposes a number of major changes to the distribution of
resources. This effectively directs central funding away from district councils
towards councils with responsibilities for national priority services such as
health and adult social care.
The net result of this redistribution
means that this council will not receive revenue support grant after 2016/17.
In addition, from 2017/18 onwards, an additional and increasing contribution
back to central government from retained business rates will be required. This
is a situation only experienced by 15 other English district councils by
2017/18.
Revenue support grant from central
government for 2016/17 will be 38.4% of the grant received in 2015/16 and will
be zero by 2017/18.
Other grants from government are under
threat from the effects of Government’s strategy on reducing public sector expenditure.
The strategy assumes reductions in known areas such as benefit administration
grants and cash frozen impacts where no information is available.
Since 2013 the Council has retained part
of the business rates it collects. The locally retained element is 40% minus
the assessed tariff required by central government. The final value of the
retained income is currently 5.3% of the minimum collectable.
In addition to this baseline funding level
(£2.983m for 2016/17) the Council is able to retain 20% of the business rates
above the overall baseline business rates collected. Expected levels of income
are a combination of three factors: the baseline funding; the 20% share of
growth; and a further share of growth that would otherwise form a further
payment to central government in the form of a levy. This further share of
avoid levy is a consequence of being a member of the Kent Business Rates Pool.
The additional income from the business
rates pool is not considered in the development of the medium term financial
strategy or any given year’s budget because of the level of risk associated
with this income. The risk includes business failure, the cost of rating
appeals and increases in statutory discounts and reliefs applied. Because the
income is achieved through Kent wide pooling the risks are extended across the
10 district councils in the pool.
In the period of this strategy the
Government will increase the level of tariff on the Council’s baseline income
by a minimum of £1,598,000 reducing the income level to a maximum of 2.7% of
the minimum collectable. This is expected to occur in 2019/20.
The Council has a responsive approach to
the level of council tax and will set this at an appropriate level commensurate
with the needs of the strategic plan. In recent years the Council has set a
small increase of less than £5.00 per annum.
The most significant risk facing the
Council is the changes to the local government finance settlement. The resource
calculations made by central government suggest assumptions that the council
tax charge will increase annually as will chargeable properties in the borough.
The Council must consider the need to set
a balanced budget in austere times as it wishes to continue to provide high
quality services as required by its customers. To respond to this need, while
managing the Government’s funding assumptions, increases pressure upon the
Council to increase the council tax charge on an annual basis throughout the
period of the strategy.
The Council has a policy on the
development of fees and charges that fall within its control. This policy
ensures that the evaluation of market forces and links to either the strategic
plan or service plans are drivers of change in price. This means that any
increases in this funding source will be identified through each committee’s
detailed budget preparation work.
For 2016/17 all fees and charges were
considered by the relevant service committee and the decisions made are in line
with the policy. Although the increase, in each case, was considered and set
appropriately not all fees and charges were increased. The overall position
produced a 1.2% increase in income levels.
3.5 Table 3 and table 4 below show the
expected level of resources for each year of the strategy and any pressures
that are expected to affect the level of income or its collection.
|
2016/17
|
2017/18
|
2018/19
|
2019/20
|
2020/21
|
STRATEGIC ISSUES
|
£,000
|
£,000
|
£,000
|
£,000
|
£,000
|
|
|
|
|
|
|
Revenue Support Grant
|
870
|
0
|
0
|
0
|
0
|
Business Rates Baseline Need
|
2,983
|
3,042
|
3,132
|
3,232
|
3,297
|
Business Tariff Adjustment
|
1,186
|
1,196
|
1,206
|
1,216
|
1,226
|
Business Rates Growth
|
0
|
-223
|
-868
|
-1,589
|
-2,909
|
Council Tax
|
14,238
|
14,492
|
14,928
|
15,378
|
15,841
|
Other Income
|
14,214
|
14,457
|
14,527
|
14,597
|
14,667
|
Total
|
33,491
|
32,964
|
32,925
|
32,834
|
32,122
|
Table 3:
Resource and Income Levels.
|
2016/17
|
2017/18
|
2018/19
|
2019/20
|
2020/21
|
STRATEGIC ISSUES
|
£,000
|
£,000
|
£,000
|
£,000
|
£,000
|
|
|
|
|
|
|
Loss of Housing Benefit Administration Grant
|
100
|
100
|
100
|
|
|
Total
|
100
|
100
|
100
|
|
|
Table 4:
Strategic Income Issues & links to other documents.
4.1 The Council holds a series of balances and
reserves in order to provide financial stability and protection from unforeseen
circumstances. In setting the level of these balances and reserves an
assessment is made of the potential risk and opportunities that could reduce or
enhance those balances.
4.2 Revenue balances at 1st April 2015
totalled £# and it is estimated that the balance will be £# by 31st March 2016.
4.3 The major item’s reducing the balance are
approved budget carry forwards of £# from 2014/15 for prior agreed purposes.
4.4
In addition to general balances the
Council maintains a series of earmarked reserves. The balance and purpose of
each reserve is set out in table 5 below.
|
2016/17
|
2017/18
|
2018/19
|
2019/20
|
2020/21
|
RESERVE
|
£,000
|
£,000
|
£,000
|
£,000
|
£,000
|
Capital Support
|
|
|
|
|
|
Resources set aside from past and future receipts of new homes bonus
to finance the Council’s proposed capital programme.
|
6,337
|
3,213
|
5,487
|
6,015
|
6,213
|
Local Plan
|
353
|
0
|
0
|
0
|
0
|
Resources set aside by the Strategic Planning, Sustainability and
Transportation Committee
|
|
|
|
|
|
Business Rates Reserve
|
336
|
1,204
|
1,204
|
1,204
|
1,204
|
Resources set aside to mitigate losses and / or fluctuations in the
level of business rates growth actually achieved
|
|
|
|
|
|
Trading Accounts
|
179
|
150
|
100
|
0
|
0
|
Balances held on special accounts where the Council is required to
trade at break-even over a specified period. Normally three years
|
|
|
|
|
|
Neighbourhood Planning
|
107
|
107
|
107
|
50
|
0
|
Balances held on account for the support of Neighbourhood Plan work
|
|
|
|
|
|
Table 5:
Earmarked Reserves.
4.5 Excluding these earmarked reserves the
estimated value of general reserves at 31st March 2016 is £4,102. This is
estimated to move to £4,052 by 31st March 2017.
5.1 The Council’s strategic plan identifies
value for money as essential to the delivery of its priorities. This theme runs
through service plans and by this the Council’s approach to efficiency is
integrated into all decision making.
5.2 The Council uses a number of measures to
identify ways to achieve efficiency and to gauge success. These include:
·
Peer review and peer challenge;
·
Benchmarking to measure unit cost and
performance, comparing these over time and across similar councils throughout
the country;
·
Other benchmarking exercises undertaken by
local managers to challenge service delivery in their ow right;
·
The identification of efficiency targets
that match the Council’s need over the period of this medium term financial
strategy.
5.3 Efficiency proposals are carefully
measured for effect upon capacity, acceptable levels of service, quality
standards and the potential of shared service provision. All efficiency
proposals consider the effect of fixed costs and the effect on the base
financial standing of the Council and the opportunity for reinvestment of gains
into priority services or towards achievement of strategic objectives.
5.4 The adoption of efficiency and value for
money as part of this strategy helps to ensure that the strategic revenue
projection will remain within available resources.
5.5 The strategic revenue projection
identifies the need for savings to make a balanced budget, which must be
considered in line with the development of efficiency savings. Table 6 below
details the required savings for each year based on the factors set out in this
strategy statement. The table gives context by reporting savings as a value and
as a percentage of net revenue expenditure.
|
2016/17
|
2017/18
|
2018/19
|
2019/20
|
2020/21
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue expenditure £,000
|
19,619
|
19,073
|
19,609
|
18,580
|
17,798
|
Savings Required £,000
|
2,178
|
1,308
|
173
|
1,593
|
1,268
|
Percentage %
|
11.1
|
6.9
|
0.9
|
8.6
|
7.1
|
Table 6:Savings
as a Percentage of Net Revenue Expenditure
5.6 The Council has developed high level
proposals for developing the required savings and efficiencies over the period
of this strategy.
6.1 The Council has a co-ordinated approach to
consultation on the budget process. To this end a programme has been proposed
that ensures the focus of annual consultations avoids the review of similar
themes and builds a body of opinion.
6.2 The Council consults annually on this
strategy and the proposed budget for the forthcoming year. The intention of the
consultation is to both inform and be informed by local residents, businesses
and stakeholders.
6.3 In recent years the consultation has
considered the level of council tax increase, service areas where reductions
could occur, elasticity of demand for services that require a fee to be paid,
the importance of the discretionary services provided by the Council, customer’s
views on the Council’s value for money and the ability of residents to
influence financial decisions.
6.4 The consultation on the 2016/17 budget was
incorporated into the residents’ survey.
7.1 In outlining the resources available to
the Council and the focus of those resources on the strategic priorities, the
strategy considers the barriers to achieving the resource levels assumed by the
budget.
7.2 A full risk assessment of the strategy is
completed annually and forms part of the operational risk assessment of the
services provided by the Head of Finance & Resources.
7.3 Twelve major risk areas have been
identified and action plans have been developed for each. The twelve areas are
as follows:
1.
The level of
balances & reserves;
2. Inflation allowances;
3. National strategy;
4. Limitations on council tax
increases;
5. Fees & charges;
6. Commercial activities;
7. Capital financing;
8. Horizon Scanning;
9. Impact of Government consultations
10. Delivery of savings & efficiencies;
11. Collection fund – collection rates;
12.
Business rates
pool;