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Waverley Borough Council Committee System - Committee Document

Meeting of the Executive held on 07/02/2006
Financial Strategy 2006/07 - 2008/09 : Draft General Fund Revenue Estimates 2006/07



Summary & Purpose
This report advises the Executive of the latest position regarding the General Fund Revenue Estimates. The report contains observations from the Overview and Scrutiny Committees. The Executive is requested to make recommendations to Council regarding Waverley’s Budget and its element of the Council Tax for 2006/2007.

APPENDIX B.1
Waverley Borough Council

Executive – 7th febrUARY 2006

_________________________________________________________________________
Title:
FINANCIAL STRATEGY 2006/07 – 2008/09
DRAFT GENERAL FUND REVENUE ESTIMATES 2006/07

[Wards Affected: All]
_________________________________________________________________________

Summary and purpose:

This report advises the Executive of the latest position regarding the General Fund Revenue Estimates. The report contains observations from the Overview and Scrutiny Committees. The Executive is requested to make recommendations to Council regarding Waverley’s Budget and its element of the Council Tax for 2006/2007.

_________________________________________________________________________

Environmental implications:

There are no direct environmental implications as a result of the recommendation of this report. However, the estimates do include services that do have very significant positive environmental benefits.

Social / community implications:

There are no direct social/community implications as a result of the recommendation of this report. However, the estimates do include services that do have very significant positive social/community benefits.

E-Government implications:

The Estimates contain budgets to enable the delivery of Waverley’s E-Government Strategy.

Resource and legal implications:

There are no direct legal implications as a result of the recommendation of this report. Resource implications are contained throughout the report.

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Introduction

1. The draft 2006/2007 General Fund Revenue Estimates were presented to the Executive on 6th December 2005. Members are requested to refer to the detailed Estimates contained at Annexe 1 to the Budget Item for that meeting and to bring these papers to the meeting.

2. The Executive gave further consideration to the Budget on 10th January when they requested the Overview and Scrutiny Committees to examine the variation items closely and also to suggest other reductions in order to restrict the increase in Waverley’s element of council tax.

Annexe 1 – Budget Summary
Annexe 2 – Variation List
Annexe 3 – Notes to Variation List (including Electoral Reform Bill Advice)
Annexe 4 – Reduction List
Annexe 5 – Notes to Reduction List
Annexe 6 – Special Refuse Collection Charges
Annexe 7 – Schedule of Balances
Annexe 8 – Revenue Reserve Fund
Annexe 9 – Collection Fund
Annexe 10 – Council Tax Options
Annexe 11 – Special Expense The Revenue Support Grant Settlement

3. The final Revenue Support Grant Settlement has now been announced and for Waverley the position is unchanged. Members are reminded that the key details of the Revenue Support Grant Settlement are:

The Settlement is for two years
Waverley receives an additional 3% in Government Grant for 2006/07 and 2.7% for 2007/08
Council Tax capping remains – The Government expects increases to be below 5% for 2006/07 and 2007/08
A new system of allocating grant based on Relative Needs Formula has been introduced
Waverley is now 520,000 below the floor following this change.

4. The total cash increase for Waverley is 580,000. This includes an amount to cover the cost of the introduction of free travel under the Concessionary Fare Scheme from 1st April 2006. 5. The Government has recently informed Waverley that within the detailed Settlement figures there is an allowance of 39,000 to facilitate implementation of new requirements to be imposed on local authorities under the Electoral Reform Bill. (see Annexe 3) Accordingly, this amount has now been added to the Estimates as part of the Variation List.

Planning Delivery Grant

6. For 2005/06 Waverley’s share of Planning Delivery Grant is 480,000, of which 25% has to be spent on capital items, with the remaining 360,000 covering revenue expenditure. Council has approved expenditure during 2005/06, which is covered by the grant of 360,000. This level of expenditure was included in the base budget for 2006/07 and likewise the existing level of grant was originally assumed.

7. However, as reported to Committees in January, the main tranche of Waverley’s Planning Delivery Grant for 2006/07 has been announced and Waverley’s share has reduced by 120,000 for revenue and by 40,000 for capital despite improved Planning Service performance. The reduced figure was included in the updated Budget Summary, which increased the Budget shortfall by 120,000. Possible administration savings within the Planning Department are referred to elsewhere in this report. A detailed examination of Waverley’s Planning costs relative to other authorities is currently being carried out.

Housing Benefit Subsidy

8. As reported to Committees in January, in 2004/05 the Government made changes to the Housing Benefit Subsidy system and began to reimburse Local Authorities effectively for 100% of their expenditure as a specific grant, rather than in part through the Revenue Support Grant. 9. However, subsidy claims are made on the basis of the gross expenditure in the benefits system, which can differ substantially from the amount passed to the financial accounts as this excludes overpayments. 10. It is therefore possible for subsidy recovered to amount to more than 100% of the cost shown in the financial accounts. This has proved to be the case in 2004/05, the first year of the new system, for which the Audit Commission has now signed-off Waverley’s subsidy claim. 11. The volume of Housing Benefits paid by Waverley is extremely large (in excess of 20 million) and so even a very low change in the effective subsidy rate can result in a substantial net amount. 12. For technical reasons in the first year of the new system there was a greater impact and in 2004/05 prior-year adjustments are some 300,000. Whilst it is reasonable at this stage to anticipate an ongoing revenue effect of some 200,000 pa, a degree of caution is necessary as the subsidy system is subject to frequent change. Therefore, instead of taking the benefit of this extra resource into the revenue account which would create a dependency, it will be more prudent for this amount to support the capital programme where fluctuations in spending are more pronounced year-on-year and currently demands exceed resources for the next three years. Defra Waste Performance and Efficiency Grant 13. Last year, the Government announced a three-year Waste Performance and Efficiency Grant and allocated Waverley 41,000 in 2005/06. This grant is designed to support new and more efficient ways to deliver waste reduction and increase recycling and diversion from landfill. This amount was assumed in the draft 2006/07 Estimates. However, the Government have just announced increased funding for Waverley for the next two years. The grant for 2006/07 is 106,000, increasing to 111,000 in 2007/08. It is a new requirement that 50% of the grant be used for capital purposes and therefore the Estimates have been adjusted to allow for a Revenue Grant of 53,000, with the capital element of 53,000 being used to finance the purchase of recycling containers and this in turn reducing the revenue contribution to capital for this purpose. The proposed 20,000 expenditure on waste minimisation, previously shown as a variation, will now be met from the increased sum of 53,000 available.

Fees and Charges 14. Generally, increases in charges in line with delegated authority have been allowed for within the draft Estimates.

15. Revised Car Park charges to take effect from 1st February 2006 were agreed by Council on 13th December. Additional income generated for 2006/07 is estimated at 90,000 and is taken into account in the budget figures. 16. The Chief Officer Group consider that this year there is very limited scope to reduce the Budget shortfall by increasing fees and charges further in any areas.

Special Refuse Collections

17. The new contract prices include substantially reduced rates for special refuse collections of bulky household items. This provides the opportunity for the Council to achieve overall full recovery of its costs for this service, while also reducing the charges to the public. These proposals do represent an amendment to existing policy and the reduced charges are presented to the Executive to recommend to Council for approval. The proposed charges are shown at Annexe 6.

Superannuation

18. Officers have been advised that proposed changes to the superannuation scheme, which remove the 85-year rule and changes which allow for commutation of pension income for extra lump sum should secure savings that will offset potential additional costs arising from the deferral of the 85 year rule’s withdrawal. The next formal revaluation will be in April 2007 to take effect in the 2008/09 Budget.

19. Surrey County Council has now advised Waverley of the precise figure to be paid in 2006/07 in respect of superannuation backfunding. The General Fund share of the increased amount is 31,500. Budget Strategy

20. Following the Executive of the 6th December, the Chief Officer Group commenced the process of examining the draft Budget for further possible reductions. Proposals were put forward to the Executive on 10th January, which included the suggestion of levying a council tax increase of 4.9%.

21. However, the Executive expressed a desire to restrict the council tax increase as close to 3% as possible; and therefore requested the Overview and Scrutiny Committees and Chief Officer Group to suggest further reductions to enable this to be achieved.

22. The Budget reductions have now been taken into account at the Budget Summary at Annexe 1, or as part of the tax-setting process (in particular the Collection Fund Surplus). The list of reductions is shown at Annexe 4. An appraisal of the impact of these reductions is at Annexe 5.

Budget Changes

23. Since the meeting of the Executive on 10th January there have been a number of changes that are appropriate in the light of recent information. Members are reminded that the draft Budget was originally compiled in September.

Electoral Reform Bill – funding requirement 39,000
Defra Waste Performance Grant- increased by 65,000
Various other grant figures adjusted as advised.
Superannuation Backfunding – increase of 31,500
Waverley Training Services – additional income of 30,000
Miscellaneous Properties – Income increased by 7,000
Collection Fund Surplus – Increased by 23,000 24. The following table summarises the movement in the budget position since the report to the meeting of the Executive on 10th January. The starting position assumes the full Revenue Contribution to Capital of 250,000 is made, leaving a shortfall of 44,000 as stated in paragraph 23 of the report to the Executive on 10th January. At the meeting, the Executive expressed a desire to limit the Council Tax increase to 3%. This would have the effect of increasing the target for reductions or additional use of balances by 140,000 to 184,000.

,000
Shortfall for Council Tax Increase of 4.9% (as reported in January)
44
Amount required to reduce Council Tax Increase to 3%
140
184
Less Budget Changes referred to above (paragraph 23)
-56
Less Reduced IT Running Costs (annexe 4 line 13)
-17
Less Reduced Contaminated Land Advice requirement (annexe 4 line 14)
-10
101
Less Improvement to Tax Base (Annexe 10 line 6)
-19
Additional amount to be met from Balances
to achieve a 3% increase in Council Tax
82

Use Of Balances

25. Waverley’s resource base continues to be below many of our neighbouring authorities. This has contributed to a situation where Council expenditure exceeds income by 580,000. As set out in the Financial Strategy, whilst this position is possible in 2006/07, in future years the Council must reduce this imbalance by:

Reducing expenditure
Increasing income
Increasing council tax, or
A combination of the above

26. Whilst the Council has been successful in reducing expenditure with increased efficiencies and raising some additional income, the potential to raise council tax to offset the use of balances has been restricted by costs exceeding government grant, new government requirements and council tax capping for the previous two years. Increasing council tax to 4.9% would help to maintain the flexibility to reduce the use of balances in future years. Proposed Service Variations

27. The list of variations is attached at Annexe 2. The list has been updated to show the latest requirement, reflecting updated information and budget reductions. Annexe 3 gives an explanation from the Budget Officers for the request of variation item. Budget Summary 28. The latest Budget position is shown on the Budget Summary at Annexe 1.
Analysis of Budget

29. The following table provides an analysis of the movements in the Budget, leading to a council tax increase of 4.1%:

,000
Net Expenditure 2005/2006
12,500
Shortfall funded from Balances 2005/2006
650
Net Inflation items
528
Proposed Variations
507
Free Bus Travel for over 60s
390
Loss of Planning Delivery Grant
120
Less Budget Variances and Reductions
-680
Less Housing Benefit Grant adjustments
-200
New Net Expenditure 2006/07
13,815
Funded By:
Balances
580
Revenue Contribution to Capital
-250
Revenue Support Grant (including increase to cover Free Bus Travel)
5,728
Collection Fund Surplus
83
Council Tax (assuming 4.1% increase)
7,674
13,815
Observations from Overview and Scrutiny Committees and Licensing Committee

30. The Committee concentrated initially on the List of Variations and made the following comments, that:-

i. the 1,250 for Members' meeting expenses/hospitality should not be put forward as members should set an example and contain expenditure in this area within the current allotted budget;

ii. the 2,000 contribution to the LGA Special Interest Group should be put forward as a saving, as suggested also by the Chief Officer Group;

iii. the legal resource for the licensing function was essential given the ever-increasing responsibilities of the service in terms of the Licensing Act 2003 and the forthcoming Gambling Act 2005;

iv. with the continuation of the Civil Contingencies Bill, there was no scope for the 46,000 proposed to be reduced;

v. for IT staff resource and running costs, it was recognised that there would be implications for the provision of the IT service and for many of Waverley's key front-line services if these variations were deleted or reduced;

vi. with regard to the Joint Working Surrey e-partnership, it was reported that a reduction in Waverley's contribution, as suggested by COG, was appropriate since other Surrey boroughs and districts were buying into the scheme at different levels. The Committee agreed that the recommended 21,000 should be a maximum contribution from Waverley and that this could be reduced should Surrey decide that it would be inappropriate to maintain the scheme into the future as part of its own budget setting process.

31. The Committee made the following further comments regarding the reductions suggested by COG that:-

i. with regard to Corporate Christmas Cards, this reduction was considered agreeable and the Leader of the Council and Chief Executive were encouraged to send combined cards in future;

ii. given the departure of the Partnership Funding Officer, it was appropriate for the post to be offered as a saving.

32. The Committee supported the objective of setting a reasonable target of a 3% or 3.2% increase to council tax but at the same time felt that the budget for the sponsored organisation scheme should be increased by inflation. It was considered that an inflationary increase would be important to many organisations in the Borough, which made a beneficial contribution to the community and make very little impact on the council tax.

Community Overview and Scrutiny Committee

33. The Committee gave consideration to the draft General Fund Estimates for the services within its remit, including the proposed budget reductions and agreed that that there should not be the proposed budget reduction of 8,000 for Domestic Violence.

Environment & Leisure Overview and Scrutiny Committee

34. The Committee gave consideration to the draft General Fund Estimates for the services within its remit, including the proposed budget reductions. 35. Members queried some of the reductions, including the loss of Planning Delivery Grant (PDG) and officers confirmed it was not one sum, but made out of two allocations regarding development control and environmental planning and policy. Members heard that the Government’s overall grant had reduced but that there was a possibility that the grant for Waverley’s planning and e-planning work would be increased. 36. The Committee discussed the list of variations sought within its remit. Members queried the service for collecting and placing stray dogs, and officers explained that due to a change in law, it would be Waverley’s duty to provide this service 24 hours a day in future. Members also queried the need for grounds maintenance staff, particularly at weekends. Officers said that the Borough had responsibility for over 400 parks and open spaces, and that the weekends were the busiest times, with recent consultations suggesting the public wanted increased supervision.

37. Members queried the bid for 20,000 for the waste minimisation WRAP project and officers agreed that this was no longer needed in light of the increased performance and efficiency grant received from Defra.

38. The Committee concluded its discussions by registering its concern about the lack of detailed information on which to base decisions. 39. Although the Committee was concerned about the lack of detailed information, it agreed to send back the above comments to the Executive, highlighting the 20,000 suggested saving on waste minimisation

Licensing and Regulatory Committee

40. The Licensing and Regulatory has given consideration to its draft Revenue Estimates and recommend that a footnote to be added to identify possible requirements in connection with the Gambling Act 2005.

41. The Committee has also approved the schedule of Fees and Charges subject to amendment of lines 8,9 and 10 (covering Pet shops and Acupuncture) to identify an increase in the licence fee by 5.

Local Government Act 2003 – Financial Administration

42. The Local Government Act 2003 formally introduced a number of specific sections covering:

Budget calculations: report on robustness of estimates;
Adequacy of reserves, and
Budget monitoring.

The Robustness of the Estimates

43. Full account has been taken of potential costs and adequate provision has been made. A prudent assessment of income has been undertaken and only income that has a high level of certainty of being received, is included within the Council’s budgets.

44. The Council’s Financial Strategy, together with information presented at the Annual Finance Seminar and subsequent reports demonstrates the financial challenges to Waverley Borough Council in the future.

45. The key strategy issues for the General Fund from the Financial Strategy 2005/06 –2008/09, which remain valid, include:

Government Formula Grant likely to be at ‘floor’ in future settlement and only increased by 2.7% for 2007/08.
Priorities v non-priorities
Further budget pressures and Government Legislation
How the Revenue Reserve Fund will cope with a reduced balance
Spending on public services in an affluent area.
Use of ‘windfall’ interest from capital receipts ends after 2006/07

46. Whilst radical changes in service are not planned this year, the Council has in addition to the detailed scrutiny by officers of the budget:

Critically examined Budget Variations;and
Explored measures to limit the increase in council tax.

47. In view of the level of awareness amongst Members and the action taken to produce the Council’s Budget in 2006/07, the Director of Finance is satisfied with the robustness of the estimates presented.

Adequacy of Reserves

48. The Council maintains a number of reserves, which are detailed in the Financial Strategy. The Council aims to maintain a prudent level of balances to support revenue spending and finance unforeseen events. The two major reserves for General Fund purposes are the General Fund balance and the Revenue Reserve Fund.

49. It is the Director of Finance’s view that both the General Fund and Revenue Reserve Fund should be at least 1 million. The Financial Strategy explains the purpose of each fund. The General Fund is the balance, which supports fluctuations in the Council’s normal business eg. changes in inflation and interest rates, higher than anticipated expenditure or loss of income and spending on unforeseen events. The Revenue Reserves Fund is used to finance capital expenditure and one-off costs. With the uncertainties following the stock transfer ballot and the impending organisational restructuring, it is essential that adequate balances are available to meet these and unforeseen costs. The stock transfer ballot process resulted in some costs which will be appropriately charged to the Revenue Reserve rather than the Housing Revenue Account. These costs have not yet been reflected in the Reserve, but will be reflected in the Council’s final accounts at the year-end. They are not considered significant.

50. The General Fund Working Balance, together with other balances, is shown at Annexe 7. The detailed projected movement in the Revenue Reserve Fund for the next three years is shown at Annexe 8. It is the Director of Finance’s view that maintaining a minimum level of 1 million on each fund satisfies the adequacy requirements of the Local Government Act 2003.

Budget Monitoring

51. It is the Director of Finance’s view that the arrangements for budget monitoring, referred to above, satisfy the requirements of the Act.

Budget Monitoring in 2005/06

52. The Budget monitoring position at 30th November 2005 shows that the planned underspend, arising largely from contract retendering, is likely to be achieved. The monitoring reports show other areas of the Council’s budgets to be broadly neutral overall.

Waverley Community Transport (Hoppa)

53. The Council in October agreed to make a one-off grant to Hoppa in 2006/07 subject to receiving a satisfactory Business Plan. Officers have now received the Business Plan. Members are advised that the following main issues arise from it. No provision is made for the main vehicles replacement – Support is to be sought through Surrey County Council’s Local transport Plan bid to Central Government which it is expected would provide capital grants
Hoppa’s aim is to reduce the amount of subsidy required from Waverley in what is an ambitious Business Plan which looks to make greater use of contracts won in competition.
Fare increases of 17% are assumed for April 2006 with little customer resistance assumed.
Hoppa assumes that there will be no significant impact from the introduction of Free Concessionary Bus Travel on public transport in April 2006.

54. The Business Plan submitted is consistent with the previous financial position whereby instead of the Countryside Agency paying Hoppa a grant of 125,000, Waverley Borough Council will now do the same for 2006/07. If Hoppa continues to gain extra members, control its costs and gain new contracts, then the organisation’s chances of reducing the amount of public subsidy required in future seem possible. However, the main uncertainty facing Hoppa and similar Community Transport organisations is the dependency on Surrey County Council to fund major bus replacements, which could adversely impact on the overall Business Plan if not forthcoming.

55. Given the size of the Council’s investment in Hoppa, officers will be monitoring financial and operational performance throughout 2006/07.

Council Tax Capping

56. The Government capped 9 authorities in 2005/06 and have stated that they intend to use capping powers in 2006/07 and 2007/08, if increases are above their criteria. Last Year’s criteria will not necessarily be repeated. So far the minister has stated that increases below 5% for both years are expected.

Council Tax Levels

57. A table showing the effect of the provisional 2006/07 Revenue Support Grant Settlement for Waverley and options for the average Council Tax at Band D is attached at Annexe 10.

The options illustrated are:

58. Option A Council Tax Increase of 4.9%

59. Option B Council Tax Increase of 4.1% 60. Option C Council Tax Increase of 3%
Chief Officer Group Advice

61. Whilst it is possible to have a lower Council Tax increase in 2006/07, the recommended view from Chief Officers is that a 4.9% increase represents the appropriate balance between avoiding Capping and delivering the required level of service to the public and the use of balances.

62. Members are reminded that in 2007/08 the 330,000 support from the Revenue Reserve Fund by means of abatement of the capital repayments will cease. In isolation, this is equivalent to an additional council tax requirement of 4.4%. However, the capping regime will remain. The Council should benefit from the full effect of the contract savings in 2007/08, but inevitably further growth pressures will arise in addition to the normal inflationary requirements.

63. The full level of Council Tax in 2006/07 will depend overwhelmingly on Surrey County Council and Surrey Police Authority precepts. In 2005/06, the council tax was allocated as follows: Assessment of Key Risks

64. The main key risks affecting Waverley’s budget in the next few years which have previously been raised at the Financial Seminar and in The Financial Strategy are:-

The end of the Revenue Reserve Fund abatement in 2006/07 - 330,000.
The end of Planning Delivery Grant in 2007/08?
Any unforeseen consequences arising from the introduction of Alternate Weekly Collection.
Any effects on the General Fund arising out of the stock transfer ballot result.
Unforeseen calls on Balances.
Superannuation changes resulting from the review of the Surrey County Council Pension Fund at 31st March 2007, to be applied from 2008/09.
Continuing levels of fee income
The success of Hoppa in finding alternative funding sources

Special Expense

65. Annexe 11 shows the likely effect, in 2006/07, of the decision taken by Council on 12th October 1999 to levy a special expense from 1st April 2000 in respect of cemeteries costs. The figures to be reported to Council will accord with the Executive’s selected recommendation.

66. As Farnham Town Council have agreed to assume responsibility for the cemetery function in Farnham from 1st April 2002, the special expense applies to Council Taxpayers in Haslemere area from that date.

Collection Fund

67. The Collection Fund Revenue Account brings together all of the precepts from the relevant local authorities, including Waverley’s demand net of Revenue Support Grant and redistributed National Non-Domestic Rates (NNDR), together with the contribution to the NNDR pool (net of irrecoverables) in respect of business rates collected by the Council as agent of the Government. The income to the Collection Fund revenue account relates to that amount of Council Tax that is required, together with income from business rates, to balance the account. Any surplus or deficit on the Collection Fund at the end of each year is required to be shared between Surrey County Council, the Surrey Police Authority and Waverley in proportion to their precepts for that year. The estimated Collection Fund for 2005/06 is attached at Annexe 9.

68. As shown at Annexe 9, present indications are that there is likely to be a surplus of some 600,000 as at 31st March 2006, which has to be shared with the major precepting authorities. Waverley’s share of this will be approximately 83,000. This amount is taken into account in the Council Tax calculation at Annexe 10.

Central Allocations

69. The annual pay award, effective from 1st January 2006, has not yet been agreed. The precise effect on the General Fund will also be dependent upon the final Practice Account and Central Support allocations, which will also take account of a number of the minor changes and cost reductions.

Conclusion

70. Whilst it is possible to have a lower Council Tax increase in 2006/07, the recommended view from Chief Officers is that a 4.9% increase represents the appropriate balance between avoiding Capping and delivering the required level of service to the public and the use of balances.

71. The position regarding use of Balances will depend on the level of council tax increase recommended by the Executive. If a Council Tax increase of 4.1% is agreed, this will equate to the use of the full reduction list at Annexe 4. A lower Council Tax increase will require further reductions or use of Balances of approximately 7,500 for each 0.1% below 4.1%. A Council Tax increase of 4.9% would allow for a reduction of 60,000 in the use of Balances. The draft Budget summary to be presented to Council will be based on the recommendations made by the Executive.

Recommendation

The Executive is requested to:

1. recommend a 4.9% increase for Waverley’s element of Council Tax for 2006/07 to Council;

2. recommend the schedules of fees and charges at Annexe 6 to Council for approval;

3. endorse the reductions included in the General Fund Summary;

4. approve the resultant General Fund Budget for 2006/07.

5. agree that the Financial Strategy be updated to take account of the decisions taken.

6. note the receipt of the Hoppa Business Plan and the issues raised in this report, and note the monitoring arrangements to be followed in 2006/07.

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Background Papers (DoF)

Provisional Local Government Finance Settlement 2006/07; Financial Strategy 2006/07 – 2008/09; Finance Seminar slides; draft Service Plans 2006/07; Community Strategy; Revenue Budget 2005/06.

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CONTACT OFFICER:

Name: Brian Long Telephone: 01483 523253
E-mail: blong@waverley.gov.uk

Name: Paul Wenham Telephone: 01483 523238
E-mail: pwenham@waverley.gov.uk

Comms/exec/2005-06/287