FINANCIAL STRATEGY 2016/17 TO 2019/20
1.
INTRODUCTION
1.1
The Medium Term Financial Strategy (MTFS) is refreshed annually ahead of the
detailed preparation of the budget for the following financial year. The reason for
updating the MTFS annually is to ensure a longer term/strategic view can be taken
when making decisions that will have a financial impact in the current and future years.
1.2
The MTFS informs the attainment of the Council’s priorities by setting out the
framework within which resources are available to the Council over the medium term
and the financial challenges facing the Council in terms of future funding gaps.
1.3
The MTFS of an authority is a strategic document that supports the delivery of the
Corporate Plan. The Council’s Corporate Plan has been updated following the
elections in May 2015 to provide the new strategic direction for the authority during the
next four years and is being reported to Cabinet in September 2015.
1.4
The MTFS provides a high level assessment of the resources available and outlines
the financial projections for the following four financial years (beyond the current year).
The financial projections take into account a number of local and national factors which
inform the assumptions upon which the projections are based. These will include
known spending pressures and commitments along with forecast of future funding
reductions.
1.5
The MTFS covering the period 2015/16 to 2017/18 was presented for approval in
September 2014 ahead of the detailed consideration of the budget for 2015/16. In
February 2015, the Council approved the budget for 2015/16 and at the same time
considered the financial projections for the three year period 2016/17 to 2018/19. At
this time forecast funding gaps of upto £1.6 million were identified prior to achievement
of savings or increases in income which were yet to be identified.
1.6
The strategy explores the expenditure plans of the Council and sets these against the
impact of reduced central government funding. It also considers the capacity for
levying council tax, the likely levels of grants and the part played by fees and charges
in the overall revenue budget of the Council going forward.
1.7
In addition the MTFS explores the demands on the capital programme both in terms of
ambition and resources and on the level of reserves held by the Council.
1.8
Finally the strategy addresses both the sustainability of the Councils financial position
and examines the risks inherent in the proposals.
1.9
The MTFS includes the following:

Background and Context – this provides an overview of the wider financial
issues and assumptions that have been made in the strategy and forward
financial projections;

Resources – this provides an overview of the resources available to the Council
from grants and income;

Financial Forecast – this provides an update to the financial projections made in
February 2015 taking into account known changes to expenditure and income
forecasts and revised forecasts as applicable;

Reserves – this section provides an overview of the Council’s reserves both
general and earmarked;

Capital – an overview of the current capital programme and resources is
included within this section of the MTFS;
Financial Strategy 2016/17 to 2019/20
August 2015
Page 1 of 27

Financial Strategy – this section of the document outlines some of the work that
is currently in progress or is due to commence in the short to medium term to
reduce the forecast deficit;

Risk and Sensitivity – this section outlines the more significant financial risks
facing the Council along with scenarios of the impact of changes to some of the
assumptions.
Financial Strategy 2016/17 to 2019/20
August 2015
Page 2 of 27
2.
BACKGROUND AND CONTEXT
2.1
The 2015/16 budget was set and approved in February 2015. At the same time the
forward financial projections for the following three years were reported. These were
based on current service delivery spending and income plans at the time taking into
account inflationary increases (where applicable) along with agreed savings plans and
additional income where applicable. They also included projections of government
funding based on the current finance settlement as announced in February 2015.
2.2
This document now provides the latest financial forecast for the period 2016/17 to
2019/20 which has been informed by both local and national factors that have or are
due to have an impact on the overall financial position for the Council moving forward.
2.3
The financial projections have been updated to reflect the latest indications of
government funding reductions and to take account of revised spending pressures and
commitments along with updated forecasts of property growth to inform the council tax
income and New Homes Bonus allocations along with local income sources.
2.4
There continues to be a number of important issues facing the public sector along with
the associated financial impact. This section of the report seeks to outline a number of
these issues, in particular the following:
2.5

Economic Outlook (2.5)

Funding (2.6)

Business Rates Retention (2.7.2)

New Homes Bonus (2.8)

Local Council Tax Support (2.9)
National Economic Outlook
2.5.1
The UK Economy had suffered the deepest recession and the slowest recovery in
almost 100 years. Now though it is expanding at the fastest rate of all the world’s
leading economies. The year on year growth in the first quarter of 2015 was 2.4%,
although the rate of growth has slowed over recent quarters.
2.5.2
The outcome of the General Election is widely considered to be positive for the UK
growth prospects. The undertaking by the Prime Minister to hold an “in-out”
referendum on membership of the European Union before 2017 however is likely
to dampen business investment in the short to medium term.
2.5.3
If the new government is to deliver its aim of achieving a budget surplus, there will
have to be tax rises or a sharp reduction in government spending.
2.5.4
In its recent annual report, The Office for Budget Responsibility said that without
spending cuts or tax rises, the national debt would only increase, and a permanent
£20bn cut in annual public spending will be needed by 2020. This would help bring
the national debt down to 40% of Gross Domestic Product (GDP) by 2064. If
achieved, this means it would have taken more than half a century to bring the
national debt back to the same level it was before the 2008 financial crisis. Last
year, public sector net debt was £1.8tn, or 80% of economic output, compared with
£600bn, or around 42% of GDP, in 2008.
2.5.5
Household consumption is key to economic growth in the coming year, and
consumption will be supported by the rise in employment, a recovery in real wage
growth, low interest rates and an increase in disposable incomes.
2.5.6
Inflation, as measured by the Consumer Prices Index (CPI) was 0.0% in June
2015, which is well below the Bank of England’s Monetary Policy (MPC)
Committee’s target of 2%. In the August Inflation Report, the Bank projected that
CPI will rise around the end of 2015 and is likely to return to the 2% target within
Financial Strategy 2016/17 to 2019/20
August 2015
Page 3 of 27
two years. This implies that the Bank Rate could rise slightly sooner than
previously priced within markets, and slightly before the second quarter of 2016.
The rise in the Bank Rate is anticipated to be small and gradual from then on, and
an appropriate rate for a post-crises UK economy is likely to be between 2% and
3%. The weak global environment and resulting low inflation expectations are
likely to dampen long term rates.
2.5.7
2.6
Over the last couple of years, the UK had enjoyed one of the strongest
employment performances in its history, with unemployment falling by more than 2
percentage points since the middle of 2013. There has been a small rise in the last
couple of months however and it currently stands at 1.85 million. The Bank of
England governor Mark Carney says this might actually be a good thing. This is
because the rise suggests a rise in productivity as business do not need to keep
hiring more people and are using up spare capacity. This is good news for the
sustainability of the recovery. It means that the marked pick-up in wage growth
over recent months is more sustainable, and this is a good sign for the
sustainability of the economic recovery.
Funding
Spending Review
2.6.1
Following the May 2015 elections the Chancellor announced the Summer Budget
on 8 July. The Summer budget did not include any in-year reductions to Local
Government funding. The Spending Review is due to be announced late
November 2015 and will provide a greater steer around future public service
funding along with indications of the size of the reductions over the medium term. It
is likely that Councils will continue to face challenging funding reductions at the
same time as increasing spending pressures over the next few years. Some of the
key points around the 2015 Spending review are:

The Spending review will cover the period 2016/17 to 2019/20;

Promotion of innovation and greater collaboration in public services will be
key;

Unprotected departments have been asked to model reductions of 25-40%
real reductions by 2019/20;

Local Government is the largest un-protected budget;

Defence spending is protected.
Revenue Finance
2.6.2
The Government uses a measure called “Revenue Spending Power” for local
authority finance. The main elements of spending power include:



2.6.3
Council Tax Income
New Homes Bonus
Government Grants.
Table 1 provides a summary of the main elements of Revenue Spending Power as
included in the 2015/16 finance settlement. The settlement announcement included
figures for 2015/16 only. The projections for future financial years are informed by
these announcements along with any updates.
Financial Strategy 2016/17 to 2019/20
August 2015
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Table 1 - Revenue Spending Power
2014/15
Adjusted
£000
Spending Power Components
2015/16
Settlement
£000
Council Tax Requirement (excluding parish)
4,928
4,943
Settlement Funding Assessment
6,273
5,331
30
43
Community Right to Challenge
8
0
Community Right to Bid
8
0
Indicative Council Tax Freeze Grant 2015/16
0
58
1,267
1,674
10
10
583
522
76
21
13,183
12,601
Adjustment to reflect Sect'n 31 grants for B Rates Cap
New Homes Bonus
New Homes Bonus: returned funding
Local Council Tax Support & Hsg Benefit Administration Subsidy
Council Tax Support New Burdens Funding
Total Estimated 'Revenue Spending Power'
Change in estimated 'revenue spending power' 2015/16
(582)
-4.4%
2.6.4
The main element of government funding is the “Settlement Funding Assessment”
(SFA) and includes revenue support grants (RSG) and the baseline funding level
(retained business rates). The baseline funding element is increased by RPI each
year and the RSG is reduced year on year in line with the governments programme
of funding reductions. Table 2 provides a breakdown of the SFA since 2013/14
when this measure of government funding was introduced.
Table 2 - Settlement Funding
Assessment (SFA)
Revenue Support Grant £000
2013/14
2014/15
2015/16
£000
£000
£000
4,235
RSG Annual Movement £000
RSG Annual Movement %
Baseline Funding Level £000
2,818
Baseline Funding Annual Movement £000
Baseline Funding Annual %
Total Settlement Funding
Assessment
7,053
Total SFA Movement £000
Total SFA Movement %
2.7
2.7.1
3,331
2,404
(904)
(927)
-21.4%
-27.8%
2,872
2,927
54
55
1.9%
1.9%
6,203
(850)
-12%
5,331
(872)
-14%
Revenue Support Grant (RSG)
The revenue support grant (RSG) element of the funding is anticipated to continue
to reduce year on year with an expectation that Local Authorities funding will be
predominately from the retained business rates. Based on current funding
forecasts, it would not be unrealistic to assume that there would be no funding
received from RSG by 2019/20. Table 3 below shows the actual RSG for 2015/16
Financial Strategy 2016/17 to 2019/20
August 2015
Page 5 of 27
along with the current future forecasts to 2019/20. The forecast assumes further
reductions of 35% in RSG to just over £400k by 2019/20.
Table 3 - Revenue Support Grant (RSG)
2015/16
2016/17
2017/18
2018/19
Actual
Forecast
Forecast
Forecast
Forecast
£000
£000
£000
£000
£000
RSG
Movement £000
Movement %
2,404
(927)
-28%
1,563
(841)
-35%
1,016
(547)
-35%
2019/20
660
(354)
-35%
Business Rates Retention
2.7.2
2.7.3
The following outlines the main elements of the current business rates retention
scheme:

Business rates collected are split 50/50 between central and local shares.
The local share is then split 80/20 districts and County, so essentially
NNDC receive 40% of the business rates collected;

The system includes a mechanism of tariffs and top ups to reflect local
spending needs, essentially districts pay a tariff and counties receive a topup;

The business rates baseline is increased annually by RPI (in line with the
actual business rates payable) and the tariffs and top-ups are increased by
the same measure, RPI. The baseline allocation forms part of annual
budget finance settlement announcements;

The baseline, tariffs and top-ups are expected to grow in line with RPI each
year, other revisions will be when the business rate system is reset (in
2020 as stipulated in the current government policy) or at the time of a
revaluation (due to come into effect in 2017)1;

Local Authorities can keep up to 50% of the growth in business rate
income. They will however be required to pay a levy (to central government
outside any business rates pool) to ensure there is not disproportionate
growth within the overall system;

The Levy is used to fund the ‘safety net’ element of the system which
provides protection to those authorities that see their year-on-year income
fall by more than 7.5%, i.e. they are protected beyond the 7.5% reduction;

Business rates pooling provides a mechanism for a business rate pool to
be established which allows for the levy payment that would have been
paid to the government on growth, to be retained locally and used as
agreed by the authorities within the pool. NNDC has been part of the
Norfolk pool from 2014/15.
The previous two Autumn statements ( December 2013 and 2014) have included a
package of business rate relief measures to support businesses, including the
following:

A 2% cap on the inflation increase for 2014/15 and 2015/16 instead of the
annual RPI increase;
1
It is expected that as part of the re-valuation top-ups and tariffs will be recalculated in order that Local
Authorities do not lose or gain specifically due to revaluation.
Financial Strategy 2016/17 to 2019/20
August 2015
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429
(230)
-35%

Extension of the small business rate relief, doubled from 50% to 100% for
properties with a rateable value of £6,000 or less;

A discount of £1,500 for all retail, pubs and restaurants with a rateable
value below £50,000 for two years up to state aid limits, from 1 April 2014;

Relaxation of the small business rate relief for a second property allowing
continuation of the relief for 12 months.
2.7.4
Local Authorities are being reimbursed for these measures via a section 31 grant,
although the grants are taken into account when determining the level of levy
payable each year on business rate growth each year. The future forecasts
assume that these measures continue and that Local Authorities are recompensed
accordingly as thhe current system.
2.7.5
Business rate information on reliefs and income received or expected is collected
on the National Non Domestic Rate (NNDR) returns submitted in January
(projection) and May (actual). The returns are reviewed as part of the annual audit
process.
2.7.6
The business rates baseline funding and tariff is included in the annual finance
settlement announcement and these increase by inflation each year. Table 4 below
provides a summary of the local share, tariff and baseline funding level for 2015/16
and projections to 2019/20.
Table 4 - Baseline Funding Level (Retained Business Rates)
2015/16
2016/17
2017/18
2018/19
2019/20
Finance
Settlement
Forecast
Forecast
Forecast
Forecast
£000
£000
£000
£000
£000
Business Rates
Retained (NNDC)
Less: Tariff
Baseline
Funding
Movement £000
Movement %
9,676
9,947
10,226
10,512
10,806
(6,749)
(6,938)
(7,132)
(7,332)
(7,537)
2,927
3,009
3,095
3,179
3,268
55
81
85
85
89
1.91%
2.8%
2.8%
2.8%
2.9%
2.7.7
As outlined at 2.6.3 the government funding measure of “Settlement Funding
Assessment” consist of RSG and baseline funding level (retained business rates).
Using the updated forecasts within tables 3 and 4, the SFA is forecast to reduce by
40% to just over £3.5million by 2019/20 compared to 2014/15.
2.7.8
The annual National Non-Domestic Rates Return (NNDR1 form) provides an
estimate of what the Council will collect in business rate income for the following
financial year. The variation between the estimate and the actual is then accounted
for through the surplus/deficit on the (business rates) collection fund in the
following year, in a similar way to the operation of the Council tax collection fund
account. The actual position will be influenced by fluctuations in business rate
income actually received in the year, for example as a result of appeals and
reductions in property rateable value, new business rate growth and changes in the
level of eligible reliefs. A forecast of the deficit on the 2014/15 business rates
collection fund was taken into account within the 2015/16 NNDR1 return and
determining the respective values of the shares of the business rates income for
the year and will also determine the payment of the levy due from the authority in
Financial Strategy 2016/17 to 2019/20
August 2015
Page 7 of 27
relation to increases in business rate income compared to the baseline. The actual
position at 31 March 2015 will inform the 2016/17 shares.
2.7.9
The following table provides the outturn figures for the Business rates retention
scheme for the first two years of operation
Table 5 - NNDC Business rates Retention
2014/15
2015/16
2013/14
Settlem
Varianc Settlem
Varianc Settlem
Varianc
Actual
Actual
Budget
ent
e
ent
e
ent
e
£000
£000
£000
£000
£000
£000
£000
£000
£000
Baseline/Retained (9,313) (9,329)
(15) (9,495) (9,778)
(283) (9,757) (9,220)
537
Tariff
6,496
6,496
0
6,622
6,622
0
6,805
6,749
(56)
Levy
0
435
435
0
332
332
0
578
578
S31 Grants
0
(792)
(792)
0 (1,249) (1,249)
0 (1,228) (1,228)
Net BR Retained
(2,818) (3,190)
(373) (2,872) (4,073) (1,200) (2,952) (3,121)
(169)
2.7.10
A Norfolk business rate pool was established in 2014/15 combining five districts
(including NNDC) and the County Council. Allocations of funding from the pool for
2014/15 have been determined by the authorities participating in the pool which
includes the allocation of funds totalling £1.1 million for schemes within the district.
2.7.11
The Government announced as part of the Autumn settlement there would be a
review of business rates which would inform the 2016 Budget. It is expected to be
fiscally neutral, however the impact on businesses and Local Authorities in terms of
the funding impact through the business rates retention scheme will not be known
until later in the year. The profile of the businesses in North Norfolk is
predominately small business and therefore any shift from small to larger
businesses could potentially have an impact.
2.8
New Homes Bonus
2.8.1
The New Homes Bonus (NHB) was introduced in 2011/12 to incentivise and
reward councils and communities for building new homes in their areas. Under the
current methodology the grant is payable for six years (paid under section 31 of the
Local Government Act 2003) and is calculated by multiplying the national average
council tax by the net additional homes growth plus an additional supplement of
£350 per affordable dwelling. The payment of NHB is split between local authority
tiers; 80% to the lower tier and 20% to the upper tier. The net additional growth
includes growth in housing unit numbers (after demolitions) and reduction in long
term empty properties. In the main, the bonus is funded from the same control total
as the revenue support grant and is paid as a non “ring fenced” grant to individual
councils.
2.8.2
Annual allocations of NHB Grant are made as part of the finance settlement
announcements and are based on the Council Tax Base returns that are submitted
annually to the Government (covering the twelve-month period October to
September). Once a new home is recorded on the Council Tax Base return as
being eligible for Council Tax (including those eligible for discounts), it counts
towards NHB. The calculation of the bonus does not take into account planning
permissions or any other elements of the planning processes. Statistics on the
gross affordable housing supply are used to calculate the affordable homes
enhancement.
2.8.3
Currently 75% of the annual NHB is included in the Council’s base budget funding
to support local service provision and in part the loss of core funding by the scaling
back of the revenue support grant. Not using all of the funding in the base budget
Financial Strategy 2016/17 to 2019/20
August 2015
Page 8 of 27
provides some mitigation should there be changes to the current methodology for
allocation including the split within two-tier authorities.
2.8.4
The funding received via the NHB is illustrated in table 6 below.
Table 6 - New Homes Bonus Allocations to date
2011/12
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6*
Year 7*
Year 8*
Year 9*
£000
£000
£000
£000
£000
£000
£000
£000
£000
350
2012/13
350
350
350
350
350
262
262
262
262
262
2013/14
118
2014/15
350
612
730
2,100
262
1,572
94
94
94
94
94
562
562
562
562
562
3,382
417
407
407
407
407
2,047
1,278
1,684
1,674
1,324
1,063
588
969
* 2016/17 onwards allocations to be confirmed
2.8.5
The forecast for new property growth is based on the housing trajectory
information, however, this information includes elements that are not taken into
account in the Council Tax Base return and therefore sensitivity has been applied
to the trajectory for the financial forecasts. The forecast in housing growth is also
informed by recent figures from the Council Tax Base Return that show an
increase in properties (eligible for council tax purposes) in the year and a reduction
in empty properties. The projections from 2016/17 onwards assume a net growth of
280 band D properties, made up of 250 new property growth and 30 reduction in
long term empties.
2.8.6
Table 7 below provides a summary of the current forecasts of NHB for NNDC.
Table 7 - NNDC NHB Forecast
NNDC Forecast
Allocation
Used in base
Budget
NHB Earmarked
£000
£000
£000
2015/16
1,684
1,263
421
2016/17
2,008
1,506
502
2017/18
1,992
1,494
498
2018/19
2,065
1,549
516
2019/20
2,305
1,729
576
NHB Allocation Year
Note – this assumes calculation of the NHB stays the same as in previous years.
2.8.7
2.9
2.9.1
Nationally up to and including the 2015/16 Local Government Finance Settlement,
funding in the region of £3.4 billion has been allocated through the New Homes
Bonus scheme. To date, NNDC has received just over £4.6 million and therefore
this still represents a significant funding resource.
Local Council Tax Support (LCTS)
The LCTS scheme was implemented in April 2013 as a replacement to Council
Tax Benefit as part of a national funding reduction programme and to encourage
people to work. Previously the scheme was 100% funded through subsidy paid to
the Council from the Department for Work and Pensions (DWP). From April 2013
Financial Strategy 2016/17 to 2019/20
£000
572
2015/16
Total
Total
August 2015
Page 9 of 27
9,688
each billing authority was given the discretion to set their own scheme, although at
the outset the government did stipulate that the scheme would not change the
support for low income pensioners, i.e. they would receive the same level of
support as they did under the system of Council Tax Benefit.
2.9.2
Funding for LCTS is no longer received as a separate subsidy grant but is now
within the overall Local Government Funding system as non ring-fenced funding
within revenue support grant and baseline funding level.
2.9.3
The local scheme (for North Norfolk) has remained the same since the introduction
of LCTS in 2013/14. The local scheme means that those that were previously
entitled to 100% council tax benefit would be required to pay 8.5%.
2.9.4
The Council Tax Support Working Group met in June to consider the options for
the LCTS for 2016/17. The group recommended that the scheme remain for the
same for 2016/17 and, therefore, this forms a recommendation in the covering
report.
2.9.5
The funding for LCTS includes an element in relation to parishes. In year one of
the new scheme all parish and town councils were offered a grant as part of setting
their precept for the coming year to cover the cost of the new scheme that fell to
them2. In subsequent years parish and town councils (that accepted the grant in
2013/14) were offered a grant albeit at a reduced value in line with the Council’s
funding reductions. The current financial projections assume further reductions in
grants offered to the parish and town councils for the duration of the strategy, in
line with the forecast funding reductions. This report is recommending that this
same method is adopted for 2016/17, offering the (reduced) grant to those that
accepted the grant in 2015/16 which they could take into account in calculating
their Council Tax Requirement.
2
The impact that LCTS has on Council Tax is a reduced Council Tax Base, i.e. similar to the impact of Council Tax
Discounts, that is fewer band D equivalent properties. For the major preceptors (Districts, County and Police)
this reduces the call on the collection fund (i.e. income from Council Tax), for parishes there are fewer band d
equivalents to share the parish precept.
Financial Strategy 2016/17 to 2019/20
August 2015
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3.
RESOURCES
3.1
The Council’s net current revenue budget for 2015/16 (excluding Parish and Town
Council Precepts) is £12.1 million and is summarised in table 8 below. Internal
resources are from Council Tax and other income, these two areas are discussed in
further detail below.
Table 8 - NNDC Budget - Funding Sources
2015/16 Budget
£000
Funding Source
Council Tax – District
5,307
Retained Business Rates
3,121
Revenue Support Grant
2,404
Council Tax Freeze (2014/15)
58
New Homes Bonus (net of earmarking)
Total
3.2
1,263
12,153
Council Tax
3.2.1
Since 2011/12 the Council has accepted the council tax freeze grant, thereby
maintaing the Band D District Council tax charge of £138.87. Council tax freeze
funding for 2015/16 is £57,912.
3.2.2
As part of the annual Local Government Finance Settlement, the government make
announcements on referendums relating to Council Tax increases (Principles).
These require that over a threshold an authority would be required to hold a
referendum in order to increase Council Tax. For 2015/16 the amount of council
tax increase deemed to be excessive was 1.99% or more. As a guide a 2%
increase in NNDC’s council tax would generate income of just over £100,000.
3.2.3
The Council tax base is an assessment of the number of dwellings expressed in
Band D equivalents; it allows for non-collection, discounts and new property growth
and for 2015/16 the approved Council tax base is 37,274. This influences the level
of council tax income. Table 10 below shows the current forecast of Council Tax
income for the period 2016/17 to 2019/20. This currently assumes a freeze in
council tax for the period but allows for an increase in the council tax base from
property growth in line with the forecast used for the New Homes Bonus
assumptions. Changes to Council Tax discounts for example second homes and
Council tax Support will influence the Council Tax Base and therefore the level of
income generated through Council Tax, no changes to discounts have been
assumed in the current forecast. The table separate council tax income and the
income from the collection fund.
Financial Strategy 2016/17 to 2019/20
August 2015
Page 11 of 27
Table 9 - Council Tax Income
Council Tax Income
2014/15
Actual
2015/16
Actual
2016/17
Forecast
2017/18
Forecast
2018/19
Forecast
2019/20
Forecast
£000
£000
£000
£000
£000
£000
5,106
5,176
5,215
5,254
5,293
5,332
n/a
70
39
39
39
39
99
131
94
57
19
19
5,205
5,307
5,309
5,311
5,312
5,351
Increase/(Decrease) in
Yield
Collection Fund Yield
Total Income
Note the Coucnil Tax Income equates to the tax base multiplied by the Band D equivalent and
the Collection Fund Yield reflects the forecast of the surplus available for distribution.
3.2.4
3.3
Currently the County Council return half of the discretionary element of their share
of council tax income from second homes to the districts for community projects.
This is currently earmarked for community related expenditure, ie the Big Society
Grant scheme. The current charge for second homes is 95%; this is made up of a
mandatory 50% charge and a 45% discretionary element. The 2015/16 budget
includes £454,000 from the County. This arrangements is currentlly assumed for
threey years until 2017/18 when the arangement will be reviewed.
Fees, Charges and Other Income
3.3.1
The Council has a number of limited sources of income available, for example fees
and charges for services and income from investments.
3.3.2
Some of the charges for services are set by government, for example some licence
fees, others are set locally to break even over a three year period and others set to
fund the provision of wider Council services.
3.3.3
A number of the more significant income budgets are subject to factors which the
Council has limited control over, for example some demand led services including
car parking, planning and building control fees and waste and recycling credits
which are influenced by both the level of recycling achieved as a district and the
market for recycled materials. These areas are highlighted within the annual
budget setting report and the risk of not achieving the budgeted figures is reflected
in the assessment of the level of general reserve.
3.3.4
Investment income continues to be an important source of income to the Council.
This is generated from investment of the Council’s reserves and surplus funds. The
2015/16 budget is based on an available investment balance of £19.4 million and is
currently forecast to deliver £426,390 for 2015/16. This is forecast to be maintained
over the length of the strategy based on the current treasury management strategy.
Significant changes to the strategy moving forward for example that would see a
reduction in the available balance for investment would need to be considered as
part of any business cases.
Financial Strategy 2016/17 to 2019/20
August 2015
Page 12 of 27
4.
FINANCIAL FORECAST UPDATE
4.1
The 2015/16 budget was approved in February 2015, at the same time that the forward
financial projections for the following three years to 2018/19 were also reported. The
projections were based on the then current expenditure and income plans and were
forecasting future funding gaps of £265k in 2016/17, increasing to £1 million in 2017/18
and £1.2 million in 2018/19, this was after allowing for projected savings from the
business transformation which had yet to be identified to specific projects. The updated
forecasts have been informed by revised income forecasts for a number of the more
significant income areas, RSG and business rates retention and where further savings
have been identified.
4.2
The Council continues to align its spending plans with the available resources at its
disposal. Significant savings and additional income have been realised over a number
of years and the continuation of these savings and income have been assumed within
the MTFS.
4.3
There continues to be a number of national changes for which timescales have
changed. The most significant is in relation to the impact of the Welfare Reform Act
2012 and the move to universal credits, with the administration of Housing Benefits no
longer being undertaken by Local Authorities but transferring to the Department for
Work and Pensions. The precise consequence in terms of staffing and financial impact
through potentially redundant computer systems is not yet known, nor are the
timescales for the further roll out. Therefore, this strategy assumes that the status quo
position will exist until there are firm proposals on which to base the detailed
calculations of the likely impact on the Council.
4.4
The detailed budget for 2016/17 will be produced later in the year and revised forecast
updated to reflect the outcomes of the Spending Review due to be announced later in
the year.
4.5
The financial forecasts have been updated for known service variances that have been
highlighted to date or where revised forecasts based on the 2014/15 outturn position
are necessary. The following commentary provides further information as applicable:
4.5.1
Car Parking Income – The 2015/16 income budget reflected the removal of the
evening charges in 2015. The latest budget monitoring position has highlighted that
the current level of income from pay and display is currently exceeding the profiled
budget. No revisions have been made to the budget and forecasts at this time due
to the demand led and seasonal nature of the budget, although further work will be
carried out to inform the 2016/17 budget.
4.5.2
Land Charges – The original forecast assumed a reduction in income from the land
charges service part way through 2015/16 due to the transfer of the function to the
land registry. The timescales for this have now slipped to 2017 and therefore the
projections have been updated to reflect the revised profile. This has impacted on
the current year and 2016/17 only.
4.5.3
Income – The forecasts assume additional income of £60,000 per annum from
2016/17 for the co-location of the DWP within Cromer and Fakenham offices which
is due to commence later in 2015/16.
4.5.4
Employee Budgets – A number of posts within the establishment have been or
have become vacant in the year. Where applicable, some have been replaced or
opportunities taken to replace in a different way. There are still a number of vacant
posts and these will be reviewed alongside the areas of focus within the financial
strategy as detailed at section 7. The forecasts assume an annual pay award of
1% for the period of the strategy. Following the announcement by the Chancellor of
the introduction of a National Living Wage by 2020/21 the forecasts have been
updated to reflect the impact to direct employee budgets over the period covered
Financial Strategy 2016/17 to 2019/20
August 2015
Page 13 of 27
by the financial strategy. The impact on contractors has not yet been quantified
and has therefore not been included at this time.
4.5.5
Business Rates – The forecasts have been informed by the outturn position on the
2014/15 NNDR and updated in respect of appeals, growth and the collection fund
deficit. Although the forecast currently mitigate significant fluctuations in the
Business rates income from use of the reserve.
4.5.6
Council Tax/New Homes Bonus – The forecasts take account of a revised
projection of tax base growth which have an impact on the council tax income
forecasts along with the forecast of NHB.
4.6
Table 10 provides a summary of the revised position taking into account all the factors
identified above, these are based on the current service delivery.
Table 10 - Updated Financial Forecast
Forecast Gap February 2015 (Excl BT
Savings)
2017/18
2018/19
2019/20
£000
£000
£000
£000
409
1,314
1,620
1,971
(154)
(121)
(113)
(105)
Revised Funding Forecasts Adjustments
(91)
(108)
(151)
(183)
Revised Forecast Budget Gap
164
1,085
1,356
1,683
Service Pressures/(Savings)
4.7
2016/17
The revised financial projections are now forecasting a budget gap of just over £1.6
million by 2019/20. Whilst there is anticipated to be a small deficit for 2016/17, this can
be funded from the one-off use of reserves, although, as further detailed work on the
budget for 2016/17 is completed over the coming months it is anticipated that this work
will identify further savings/additional income in the interim.
Financial Strategy 2016/17 to 2019/20
August 2015
Page 14 of 27
5.
RESERVES
5.1
As part of the annual budget and council tax setting process the Chief Financial Officer
must report on the adequacy of the reserves that the Authority holds. This is informed
by the Policy Framework for Reserves which is reviewed and updated alongside
approving the budget each year3.
5.2
The Council holds a number of ‘useable’ reserves both for revenue and capital
purposes which fall within one of the following categories, each are discussed in the
following sections:
5.3
5.4

General Reserve

Earmarked Reserves

Capital Receipts Reserve
The General Reserve is held for two main purposes:

to provide a working balance to help cushion the impact of uneven cashflows
and avoid temporary borrowing

a contingency to help cushion the impact of unexpected events or emergencies
As part of setting the budget each year the adequacy of all reserves is assessed along
with the optimum level of general reserve that an authority should hold. The optimum
level of the general reserve takes into account a risk assessment of the budget and the
context within which it has been prepared including the following factors:









sensitivity to pay and price inflation;
sensitivity to fluctuations in interest rates;
the level of savings that have been factored into the budget and the risk they will
not be delivered as anticipated, both level and timing;
potential legal claims where earmarked funds have not been allocated;
emergencies and other unknowns;
impact of demand led pressures which impact on both income and expenditure;
future funding fluctuations;
level of earmarked reserves held;
a level of reserve that is within 5% to 10% of net expenditure.
5.5
A financial assessment will be made of all the factors to arrive at a recommended level
for the general reserve. The current recommended balance is £1.75million.
5.6
The general reserve balance at 1 April 2015 was £2.29 million, after allowing for
planned movements, the balance by 31 March 2016 is forecast to be £2.082 million.
5.7
Earmarked Reserves provide a means of building up funds to meet known or
predicted liabilities and are typically used to set aside sums for major schemes, such
as capital developments or asset purchases, or to fund restructurings. Whilst
earmarked in nature until the amounts are budgeted to be taken from the reserves,
commitments have not yet been made from these reserves. Earmarked reserves can
also be held for service projects and business units which have been established from
surpluses to cover potential losses in future years, or to finance capital expenditure.
Earmarked reserves also provide a mechanism to carry forward underspends at the
year-end for use in the following financial year where no budget exists.
5.8
For each earmarked reserve a number of principles should be established:
3

the reasons for or the purpose of the reserve

how and when the reserve can be used – short to long term
Full Council Agenda February 2015, Agenda Item No. # Appendix #
Financial Strategy 2016/17 to 2019/20
August 2015
Page 15 of 27

procedures for the reserve’s management and control.
5.9
The establishment and use of earmarked reserves is reviewed at the time of budget
setting, throughout the year as part of the budget monitoring processes and also as
part of the year-end reporting. Review of earmarked reserves throughout the year
takes into account the continuing relevance and adequacy of the reserve and also the
level of the general reserve.
5.10
An updated reserves statement is included at Appendix A. This reflects the latest
position for the use of all reserves in the current and future financial years where
known. There is still some uncertainty around the exact timing of the use of a number
of the reserves, for which some are held as a contingency to mitigate a potential
liability although the timing and likelihood of this is depended upon future events.
5.11
The following provides a commentary on some of the more significant reserves that the
Council currently holds and maintains:

Capital Projects Reserve – The majority of this reserve represents VAT shelter receipts
that are received as revenue receipts but earmarked to fund capital schemes.

Benefits - The Benefits reserve is held to mitigate any claw back by the Department for
Work and Pension following audited subsidy claim forms. The amount of subsidy paid
out annually by the Council is in the region of £30 million and therefore even a small
error rate on a claim could have significant financial implications. The audit of the
2014/15 subsidy is yet to be finalised and should there be any recovery of subsidy
payable the reserve will mitigate the impact. The reserve also holds any previous years
underspends in respect of the service where it was approved to carry them forward.

Big Society Fund - This reserve was established as part of the councils approach to
Localism and holds the balance from the County Council’s share of second homes
council tax that is returned to the districts. This is currently being used to fund the Big
Society grants and enabling fund. Contributions to and from this reserve are
dependent upon the sharing arrangement with the County Council and are determined
annually as part of setting the budget.

New Homes Bonus - The New Homes Bonus (NHB) was introduced in 2011/12 as an
incentive and reward mechanism to promote housing growth. From 2014/15 an
element4 of the NHB has been included in the base budget with the balance being
transferred to the earmarked reserve to be used for one-off costs that promote or
facilitate future growth.

Restructuring/Invest to Save – This reserve is held to fund one-off/upfront costs for
projects that will deliver on-going savings. Examples include, officer restructurings
where one-off redundancy or pension strain costs might be payable but the business
case delivers an on-going revenue saving within two to five years, or for investment in
IT hardware, software or equipment or one-off costs which will deliver savings through
more efficient ways of working for example the programme of digital transformation
projects.

Broadband – This reserve represents the £1million that has been approved to be
reallocated from the Big Society Fund and NHB reserves for a contribution towards
matched funding for the Norfolk’s Better Broadband for Norfolk project. The release of
these funds will be subject to a recommendation to Council as per the original report
that was made to Members in July 2014.
5.12
All reserves general and earmarked will be reviewed over the coming months as part
of setting the detailed budgets for 2015/16, with a view that where commitments have
not been identified and funds or reserve balances are no longer required these are reallocated to specific reserves to address the other requirements as applicable
4
80% in 2014/15, 75% from 2015/16 onwards.
Financial Strategy 2016/17 to 2019/20
August 2015
Page 16 of 27
5.13
The Council also holds a Capital Receipts Reserve, this includes the balance of
receipts generated from asset disposals. Capital receipts are generated when an asset
is disposed of and can only be used to fund expenditure of a capital nature, i.e. not for
on-going revenue expenditure. The balance of capital receipts is used to fund the
current approved capital programme. The balance of capital receipts at 31 March 2015
was just over £6 million.
5.14
Details of the current capital programme that are being financed from capital receipts is
included in section 6 and which highlights the reducing available balance within this
reserve over the next three years.
5.15
The MTFS does not currently rely on the use of reserves over the medium term. The
use of reserves provides only a short-term measure to reduce the funding gap and
whilst it can be used to mitigate the impact in the short-term, to allow time for the
implementation of financial strategy options or in response to in-year changes does not
provide a sustainable solution in the medium to long term.
Financial Strategy 2016/17 to 2019/20
August 2015
Page 17 of 27
6.
CAPITAL
6.1
The Capital programme is updated regularly throughout the year as part of the budget
monitoring reports. A copy of the current capital programme is included as an
appendix to the 2015/16 period 4 budget monitoring report within the September
Cabinet Agenda and therefore has not been reproduced within this document.
6.2
The following tables provide a summary of the current approved capital programme for
2015/16 plus the current forecasts for 2016/17 and 2017/18, along with a breakdown
on relevant financing.
Table 11 Current Approved Capital Programme
2015/16
Updated
Budget
£'000
2016/17
Forecast
£'000
2017/18
Forecast
£'000
Jobs and the Local Economy
Housing and Infrastructure
Coast, Countryside and Built
Heritage
Localism
Delivering the Vision
Total Capital Expenditure
Financing:
Non NNDC
NNDC
315
4,695
0
499
0
1,054
9,568
656
1,025
16,259
2,151
30
10
2,690
0
0
15
1,137
9,214
7,045
2,310
380
0
1,137
Total Capital Financing
16,259
2,690
1,137
Table 12 Capital Programme
Financing
2015/16
Updated
Budget
£'000
Environment Agency Grant
DEFRA Grant
Disabled Facilities Grant
MMO and Euro Fisheries Grant
Other Grants and Contributions
Capital Projects Reserve *
Other Reserves *
Capital Receipts *
Internal Borrowing *
Total Financing (*NNDC
Resources)
6.3
2016/17
Forecast
£'000
2017/18
Forecast
£'000
7,542
509
595
250
318
1,039
75
5,007
924
1,844
0
466
0
0
0
0
380
0
0
0
0
0
0
0
0
1,137
0
16,259
2,690
1,137
The current capital programme is funded from the following sources of finance:
Financial Strategy 2016/17 to 2019/20
August 2015
Page 18 of 27





Capital Receipts – generated from asset disposals and preserved right to buys (both
new and existing within the capital receipts reserve)
Grants and contribution received from external sources including third parties and
government
Revenue – by means of making a revenue contribution to capital
VAT Shelter Receipts (received as a revenue receipt and transferred to the capital
projects reserve) – this arrangement is to be reviewed in 2015/16 when the value of
works as detailed within the original stock transfer agreement has been reached
Earmarked reserves, for example the capital projects reserve, or invest to save
reserve.
6.4
Another source of funding for capital expenditure is prudential borrowing. Prudential
borrowing to fund capital expenditure can only be undertaken when an authority can
demonstrate a need to borrow. The need to undertake prudential borrowing is
demonstrated through the Capital Financing Requirement which is driven by the
balance sheet of the authority and takes into account reserves (including general and
earmarked). Financing costs of the borrowing would be a charge to the revenue
account and therefore any decision to undertake external borrowing would need to
take account of the debt costs including interest and the Minimum Revenue Provision
(MRP). As internal capital resources are utilized the Council will need to consider
looking at alternative capital financing options including borrowing. These will need to
be considered as part of the overall business case as proposals for capital expenditure
are considered for approval.
6.5
After taking into account the planned spend within the current capital programme for
the period 2015/16 to 2017/18 and the anticipated resources, i.e. new capital
resources for the same period, there is currently an unallocated balance of just over
£2.4 million, inclusive of £1.802million within the capital projects reserve which can be
used as a capital or revenue resource. This is illustrated within the following table.
Table 13 Capital Resources
Capital
Receipts
£'000
Balance at 31/3/15
Estimated (New) Receipts 2015/16
Capital Financing 2015/16
New Receipts 2016/17
Capital Financing 2016/17
New Receipts 2017/18
Capital Financing 2017/18
Total
£'000
6,094
615
(5,007)
410
(380)
410
(1,137)
2,676
165
(1,039)
0
0
0
0
8,770
780
(6,046)
0
(380)
0
(1,137)
1,005
1,802
1,987
Estimated Balance at 31/3/18
Financial Strategy 2016/17 to 2019/20
Capital
Projects
Reserve
£'000
August 2015
Page 19 of 27
7.
FINANCIAL STRATEGY AND KEY THEMES
7.1
The preceding sections have set out the revised financial forecast for the period
2016/17 to 2019/20. A balanced position is currently forecast for the short term, i.e. for
2016/17, however there are still funding shortfalls projected for the medium to longer
term. Some of this can be mitigated by the one-off use of prior year surpluses,
however a medium term strategy to deliver a sustainable financial position moving
forward is required.
7.2
The Council’s strategy therefore is to maximise income through growth in homes and
businesses, taking advantage of new funding streams including those that offer
financial incentives which at the same time deliver further efficiencies, by transforming
the way in which we currently schedule our business and provide services, taking
advantage of technological changes.
7.3
The following outlines in more detail the key themes of the financial strategy to work
towards reducing the forecast budget gap along with indicative financial targets for
each of the priorities as applicable:
7.3.1
Growth - New Homes and Business Rates – Under the current allocation method
of New Homes Bonus (NHB) there is a direct financial benefit to the Council from
growth in homes through the NHB funding and through increasing the Council Tax
Base and additional income generated from Council Tax. Whilst new housing
growth will have an impact on the demand for local services, there will still be a net
gain in terms of overall income delivery. For similar reasons growing the business
rates base will have a direct impact on the level of business rates income retained
locally. Equally, maintaining existing business rates remains a priority in that
decline in business rates will reduce the amount of income retained locally.
Pending further review of the NHB and business rates, no target has been
allocated against this priority at this time, this will be reviewed following the
spending review announcement later in the year.
7.3.2
Digital Transformation – Building upon the Business transformation project that
commenced in 2014 savings have started to be identified from changes to service
delivery from the implementation of new technology. The overall programme will be
delivered over a number of years and the timing of the savings will then be
realised. A savings target of £375,000 was included in the original business case
for the project, whilst some efficiencies have started to be delivered the full saving
are not anticipated until 2018/19.
7.3.3
Property Investment and Asset Commercialisation – Opportunities for investment
in properties whether direct or indirect can be considered to achieve either an
income stream or improved returns on investment. Any direct investment would be
subject to a robust business case and the full implications in terms of borrowing
costs if required would need to be taken into account. Indirect property investments
can also be considered, for example as part of the Treasury Management Strategy,
i.e. similar to the current £5 million pooled property investment. Again, detailed
consideration of this will need to take account of whether the investment is a
revenue/treasury management transaction or a capital investment. The Council
currently holds assets with a balance sheet value of around £48 million. The assets
are held for different purposes, for example service delivery, investment properties
and community assets. Again opportunities for the most efficient utilisation of the
Council’s assets and maximising the return that the Council receives from the
assets needs to be taken into account.
7.3.4
Shared Services/Selling Services – Creating efficiencies through shared services
continues to be a priority for central government. Identifying such opportunities
must therefore continue at a local level, ensuring that realistic and deliverable
benefits can be achieved.
Financial Strategy 2016/17 to 2019/20
August 2015
Page 20 of 27
7.3.5
Collaboration and Localism – Identifying opportunities to work alongside other
public sector partners and organisations to deliver services.
7.3.6
Maximising Income and Reducing Costs – Maximising service and other income
through collection and also critically reviewing the cost bases.
7.3.7
Other Efficiencies and Savings - Through the regular budget monitoring process
and annual budget process service efficiencies and savings will be considered
where there is little or no impact on service delivery. However with the robust
challenge and consideration of savings proposals that has already taken place
each year, this does reduce the scope within existing budgets to identify further
savings and additional income opportunities.
7.3.8
The following table provides a summary of the indicative financial targets for the
above themes where agreed plans and projects have either commenced or are
planned. As the projects for the above are progressed the associated
savings/additional income will be quantified and factored into the budget and future
financial projections.
Table 14 - Financial Targets - Themes
2016/17
£000
2017/18
£000
2018/19
£000
2019/20
£000
Financial Strategy Theme:
Growth - Homes and Business Rates
0
0
0
0
145
270
375
375
Property Investment and Asset
Commercialisation
70
120
140
140
Shared Services/Selling Services
20
20
20
20
Collaboration and Localism
20
20
20
20
Maximising Income and Reducing Costs
120
150
150
150
Total
375
580
705
705
Digital Transformation
7.4
Use of Reserves – Invest to Save
7.4.1
Use of reserves to balance a budget provides only a short term solution as the
funds can only be used once. They can however be used to smooth the impact of
funding gaps over the short to medium term and to allow for planning and
implementing projects and work streams that will deliver a longer term financial
benefit through reduced costs or additional income.
7.4.2
Similarly, reserves can be used to fund one-off costs for projects that will deliver a
longer-term benefit. For example the use of the restructuring and invest to save
reserve to fund one-off officer restructure costs, where a restructuring will deliver a
longer term saving for a service and the use of this reserve for some of the
implementation and project costs for the business transformation programme that
will deliver future savings.
7.4.3
The use of the reserves in this way will be considered as part of the full business
case for individual project proposals, taking into account the payback period of the
project along with indirect financial implications, for example, reduced balance
available for investment and the associated loss of investment income.
7.5
Updated Financial Forecast
Financial Strategy 2016/17 to 2019/20
August 2015
Page 21 of 27
7.5.1
The following table summarises the updated financial position allowing for the
indicative financial targets identified at table 14 and referred to in section 7.3.
Table 15 - Updated Budget Gap
2016/17
£000
Table 10 - Gap
2017/18
£000
2018/19
£000
2019/20
£000
164
1,085
1,356
1,683
Financial Targets (Table 14)
(375)
(580)
(705)
(705)
Revised Budget Gap/(Surplus)
(211)
505
651
978
7.5.2
Based on the latest financial projections and assuming delivery of the financial
targets against each of the themes, there is an anticipated to be a surplus in
2016/17 with a budget gap of just over half a million in 2017/18, increasing to just
under £1 million by 2019/20. This is before any use of reserves in the short term to
allow for the implementation of other work streams as identified above. This
assumes delivery of the financial savings and additional income at the levels
included in the indicative targets and the continued achievement of current income
and growth forecasts along with the government funding forecasts. Once further
detail on the spending review and financial settlement for 2016/17 are announced
the forecast will be updated as applicable.
7.5.3
The Council remains in a strong financial position should there be delay in the
timing of the delivery of the savings and also the levels assumed. As referred to
earlier once the projects start to progress the savings will be quantified and
included in the annual budgets.
Financial Strategy 2016/17 to 2019/20
August 2015
Page 22 of 27
8
SENSITIVITY ANALYSIS AND RISKS
8.1 The Council works within the constraints of central government funding allocations and
its control over council tax increases through the capping and referendum principles. The
continuing downward pressure on external resources will, over time, constrain the level of
service delivery that the Council is able to provide.
8.2 The legal requirement to set an annual budget that balances, ensures care is taken in
preparing figures and proposing changes to service levels which may require upfront
investment.
8.3 The forecast projections as detailed earlier in the document are dependent upon a
number of key assumptions which are not directly within the control of the Council, the
most significant of these are detailed below along with the sensitivities to the financial
projections, a summary table is also shown below.
8.4 Employee Inflation – As mentioned above the forecasts assume an annual pay award
of 1%, the Council is part of a national pay agreement and as a guide for NNDC, 1%
equates to approximately £90,000 annually. Therefore should the annual pay award
agreement be different to the 1% assumed say for example by 0.5%, this would equate
to an additional cost of £45,000 per annum.
8.5 Business Rates Growth – Within the Local Government Finance Settlement the
Business Rates Baseline funding is assumed to increase annually in line with inflation.
Actual increases (or reductions) will result in an additional or reduced level of income
retained locally. Some allowance for growth after allowing for appeals has been factored
into the projections, as a guide a 1% movement each year would result in approximately
£50,000 additional per annum being retained locally above the level included in the
forecasts.
8.6 New Homes Growth/Increase in Tax Base – Fluctuations of the growth in New Homes
and the properties becoming eligible for Council Tax have a direct impact on the Council
Tax Income and New Homes Bonus forecasts. An increase in 50 properties (band D
equivalent) would generate an additional £7,000 per annum in Council Tax income and
£52,000 from New Homes Bonus based on the current method of calculation and
allocation, the impact to the revenue account would be £39,000 based on the current
treatment of allocating 25% to the earmarked reserve.
8.7 Revenue Support Grant – The current forecast assume a reduction in RSG per annum
of 35%. As a guide a further reduction of 10% each year would add to the funding gap
each year £237,000 to the funding gap in 2016/17.
Table 16 - Sensitivity Analysis - Cumulative Effect
2016/17
Sensitivity
£000
Employee Inflation - Additional 0.5%
45
annually
Business Rates Growth- Movement of 1%
50
growth projection +/Housing Growth - NHB impact 50
39
properties (Annually) +/Housing Growth 50 properties (Band D
7
equivalent)- Council Tax Income Impact +/Revenue Support Grant - Additional 5%
120
Reduction
Financial Strategy 2016/17 to 2019/20
August 2015
2017/18
£000
2018/19
£000
2019/20
£000
90
135
180
100
150
200
78
117
156
14
21
28
150
140
118
Page 23 of 27
8.8 The extent to which the above factors will have an impact on the overall projections and
forecast funding gap will vary. Some will have an ongoing impact, for example an
increase to the tax base in 2016/17 will have an ongoing benefit in terms of additional
Council tax generated year on year, converse to this an increase in the employee
inflation in one year will increase the base budget moving forward cumulatively.
8.9 Fluctuations in the demand for services, say for example a fall in car parking income due
to inclement weather over a holiday period would be relatively short term, assuming no
changes to other factors, for example the closure of a pay and display car park. For the
short-term fluctuations these are mitigated through allowing elements within the general
reserve. Full details on the level of reserves were included within the outturn report for
2014/15 that was presented to Members in June.
8.10 The Council continues to face a number of risks in terms of future funding and delivery of
services. A number of these risks have been referred to within the main body of the
Financial Strategy. The detail of the 2016/17 budget will be completed over the coming
months in preparation of the Budget and Council Tax setting report which will be
presented for approval in February 2016. The work on the detailed budgets will be based
on the latest local and national information and will be informed by the provisional and
later final budget settlement announcements.
8.11 The main risks that the authority continue to face are outlined below:
8.11.1 Future Funding and Business Rates – Local Authority funding from central
government continues to be under pressure with a greater shift from the RSG to
retained business rates. The emphasis on retaining funds from business rates locally
provides further risks to Local Authorities in that there are a number of inherent risks
which will continue to be borne locally including, the status of properties changing for
example schools changing to academies and also business premises becoming
empty. In addition, the impact of business rates appeals will also have an effect on the
level of retained business rates and whilst the scheme does provide incentive for
promoting and delivering growth in local economies, the impact of appeals and
business decline can have a negative impact.
8.11.2 The impact of appeals will have an impact in year from reimbursement of refunds and
also the future income received. Recently there has been a tribunal decision which
means that purpose built medical centres and GP surgeries have a lower basis of
valuation for business rates. Some of these will date back to 2005 for which refunds
could be payable. The full impact will be dependent upon the outcome of the appeal by
the Valuation Office Agency (VOA). The financial impact to the Council will be
mitigated through the use of the provision and also the earmarked reserve.
8.11.3 Further measures for example extension of reliefs announced within the Autumn
Statement, continue to present a risk to Local Authorities, albeit some of this risk is
mitigated by the section 31 grant. Growth and/or decline in businesses will continue to
have a direct impact on the funding at a local level. Some of this risk is mitigated by the
earmarked reserve which is maintained to reduce the impact of appeals and to smooth
the fluctuations in income being retained year-on-year. In addition the review of the
Business Rates system will be used to inform the budget for 2016, the impact of this
will need to be considered once further detail is announced.
8.11.4 Savings – The Council is continuing to deliver a programme of savings and additional
income. Delivery of the savings at the levels budgeted is vital to delivery of the overall
budget and achieving a sustainable future financial position. The delivery of these
savings is closely monitored by CLT and Cabinet as part of the ongoing budget
monitoring process.
8.11.5 Income - Income from a number of demand led services remains a financial risk that
cannot be fully influenced by the Council. Whilst annual estimates are pulled together
under a robust methodology taking into account current performance, previous actuals
Financial Strategy 2016/17 to 2019/20
August 2015
Page 24 of 27
and knowledge of the service delivery, income levels need to be closely monitored, for
example for planning and car park income. Fluctuations in income can be mitigated by
the use of reserves and this is a factor that is taken into account as part of the budget
setting process when determining the recommended level of general reserve.
8.11.6 Investment Returns - Over the past few years investment income has been
significantly reduced in the light of the prolonged duration of low interest rates. The
current investment strategy is looking for a return of 2.2% for 2015/16. In accordance
with the Treasury Strategy 2015/16 as reported to Cabinet in February 2015, the
Council will seek to invest more of its portfolio in secured investments such as the
£4.5m in covered bonds purchased in October 2014.
8.11.7 New Homes Bonus – The current budget and projections include 75% of the NHB
allocation with 25% being allocated to an earmarked reserve. There are risks
associated with this funding source at a local and national level. Risks at a local level
are the continued delivery of housing growth and also reductions in the number of long
term empty properties. The growth in new homes can be informed by the housing
trajectory figures, however the fluctuations in the number of long term empty properties
can negatively (should the number increase) impact on the allocation of NHB. This
area therefore that continues to be monitored closely with proactive work with
homeowners and landlords to bring the properties back into use. The national risk
around the future of the NHB is more significant should there be a change in the
allocation method, removal of the scheme or change to the 80/20 District/County
current split.
8.11.8 Second Homes – The return of an element of the second homes council tax from the
County to the districts is subject to annual approval by the County. This is returned to
the districts for community related expenditure and has been used to fund the
Council’s Big Society Fund (BSF) Grant scheme and related expenditure. The use of
these funds will be part of the annual budget setting process and will be informed by
any proposal by the County for changes to the distribution to districts. As part of the
2015/16 budget the County reduced the funding returned to the district by 50%, this is
due to be reviewed further in 2017/18 by the County Council.
8.11.9 Service Delivery Changes – The Financial Strategy reflects known service delivery
changes including the centralisation of the Land Charges service from 2017 to the
Land Registry. Further service delivery changes for example the roll out of universal
credits is currently underway and should there be further changes the implications will
need to be taken account of in future budget updates.
8.11.10
Local Plan Review - Local Planning Authorities are required to prepare and
maintain up to date Development Plans. These comply with national guidance and
provide for all objectively assessed needs and demands for development consistent
with the principles of sustainable development. The North Norfolk Core Strategy was
adopted in 2008 and covers the period to 2021. The Site Allocations Development
Plan was adopted in 2011 and allocates land for around 3,500 dwellings. Whilst the
Council is well placed to deliver the planned growth over the short term some
consideration needs to be given to the possible timetable for a Plan review.
Preparation for a plan review is resource intensive from both officer time and external
support. Funding for a plan review has been earmarked from the unallocated NHB
reserve and work will commence over 2015/16 to 2017/18.
8.11.11
Comprehensive Spending Review 2015 – The Spending Review 2015
announcements will be made on 25 November and will inform the budget from 2016/17
onwards.
Financial Strategy 2016/17 to 2019/20
August 2015
Page 25 of 27
Glossary of Acronyms – Financial Strategy
DWP
Department for Work and Pensions
LCTS
Local Council Tax Support
LTE
Long Term Empty
MRP
Minimum Revenue Provision
NHB
New Homes Bonus
RSG
Revenue Support Grant
SFA
Settlement Funding Assessment
SFIS
Single Fraud Investigation Service
Financial Strategy 2016/17 to 2019/20
August 2015
Page 26 of 27
Financial Strategy 2016/17 to 2019/20
August 2015
Page 27 of 27
Reserves Statement 2015/16 Onwards
Reserve
General Fund General Reserve
Purpose and Use of Reserve
A working balance and contingency, current recommended
balance is £1.75 million.
Balance at
01/04/15
2015/16
Updated
Movement
Balance
01/04/16
2016/17
Budgeted
Movement
Balance
01/04/17
Budgeted
Movement
2017/18
Balance
01/04/18
Budgeted
Movement
2018/19
Balance
01/04/19
Budgeted
Movement
2019/20
Balance
01/04/20
£
£
£
£
£
£
£
£
£
£
£
2,289,024
(206,959)
2,082,065
0
2,082,065
0
2,082,065
0
2,082,065
0
2,082,065
Earmarked Reserves:
Capital Projects
To provide funding for capital developments and purchase of
major assets. This includes the VAT Shelter Receipt.
2,676,360
(873,744)
1,802,616
0
1,802,616
0
1,802,616
0
1,802,616
0
1,802,616
Asset Management
To support improvements to our existing assets as identified
through the Asset Management Plan.
59,899
(26,751)
33,148
0
33,148
0
33,148
0
33,148
0
33,148
Benefits
To mitigate any claw back by the Department of Works and
Pensions following final subsidy determination. Timing of the
use will depend on audited subsidy claims.
721,792
(50,000)
671,792
0
671,792
0
671,792
0
671,792
0
671,792
Big Society Fund
(BSF)
To support projects that communities identify where they will
make a difference to the economic and social wellbeing of the
area. Funded by a proportion of NCC element of second
homes council tax.
786,588
(338,357)
448,231
0
448,231
0
448,231
0
448,231
0
448,231
Broadband
Earmarks £1million for superfast broad band in North Norfolk.
(600k was transferred from the BSF reserve and £400k from
NHB reserve)
1,000,000
0
1,000,000
0
1,000,000
0
1,000,000
0
1,000,000
0
1,000,000
Building Control
Building Control surplus
120,235
0
120,235
0
120,235
0
120,235
0
120,235
0
120,235
Business Rates
To be used for the support of local businesses and to mitigate
impact of final claims and appeals in relation to business rates
retention scheme.
1,579,136
(535,855)
1,043,281
(250,000)
793,281
0
793,281
0
793,281
0
793,281
Coast Protection
To support the ongoing coast protection maintenance
programme ands carry forward funding between financial
years.
237,295
(237,295)
0
0
0
0
0
0
0
0
0
Common Training
To deliver the corporate training programme. Training and
development programmes are sometimes not completed in the
year but are committed and therefore funding is carried forward
in an earmarked reserve.
27,450
0
27,450
0
27,450
0
27,450
0
27,450
0
27,450
Economic
Development and
Regeneration
Earmarked from previous underspends within Economic
Development and Regeneration Budgets along with funding
earmarked for Learning for Everyone.
117,783
(66,698)
51,085
0
51,085
0
51,085
0
51,085
0
51,085
Election Reserve
Established to meet costs associated with district council
elections, to smooth the impact between financial years.
90,000
(90,000)
0
30,000
30,000
30,000
60,000
30,000
90,000
30,000
120,000
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Reserves Statement 2015/16 Onwards
Reserve
Purpose and Use of Reserve
Enforcement Works
Established to meet costs associated with district council
enforcement works including buildings at risk .
Environmental
Health
Balance at
01/04/15
2015/16
Updated
Movement
Balance
01/04/16
2016/17
Budgeted
Movement
Balance
01/04/17
Budgeted
Movement
2017/18
Balance
01/04/18
Budgeted
Movement
2018/19
Balance
01/04/19
Budgeted
Movement
2019/20
Balance
01/04/20
£
£
£
£
£
£
£
£
£
£
£
146,857
(36,516)
110,341
0
110,341
0
110,341
0
110,341
0
110,341
Earmarking of previous underspends and additional income to
meet Environmental Health initiatives.
41,287
(19,720)
21,567
0
21,567
0
21,567
0
21,567
0
21,567
Grants
Revenue Grants received and due to timing issues not used in
the year.
327,741
(219,405)
108,336
(6,500)
101,836
0
101,836
0
101,836
0
101,836
Housing
Previously earmarked for stock condition survey and housing
needs assessment.
101,920
(16,920)
85,000
0
85,000
0
85,000
0
85,000
0
85,000
Treasury (Property)
Reserve
Property Investment (Treasury), to smooth the impact on the
revenue account of interest fluctuations.
66,068
0
66,068
0
66,068
0
66,068
0
66,068
0
66,068
Land Charges
To mitigate the impact of potential income reductions.
89,155
0
89,155
0
89,155
0
89,155
0
89,155
0
89,155
Legal
One off funding for Compulsory Purchase Order (CPO) work
and East Law Surplus.
73,595
(30,000)
43,595
0
43,595
0
43,595
0
43,595
0
43,595
Local Strategic
Partnership
Earmarked underspends on the LSP for outstanding
commitments and liabilities.
51,728
0
51,728
0
51,728
0
51,728
0
51,728
0
51,728
LSVT Reserve
To meet the cost of successful warranty claims not covered by
bonds and insurance following the housing stock transfer.
435,000
0
435,000
0
435,000
0
435,000
0
435,000
0
435,000
New Homes Bonus
(NHB)
Established for supporting communities with future growth and
development and Plan review, the future allocations to the
reserve are dependant upon receipt of the NHB.
1,116,194
314,432
1,430,626
345,113
1,775,739
286,613
2,062,352
446,384
2,508,736
0
2,508,736
Organisational
Development
To provide funding for organisation development to create
capacity within the organisation and address anomalies within
the pay structure.
116,391
(76,963)
39,428
0
39,428
0
39,428
0
39,428
0
39,428
Pathfinder
To help Coastal Communities adapt to coastal changes.
206,378
(52,237)
154,141
(18,126)
136,015
(44,108)
91,907
(44,108)
47,799
(44,108)
3,691
Planning
Additional Planning income earmarked for Planning initiatives
including Plan Review.
375,183
(112,590)
262,593
(84,263)
178,330
0
178,330
0
178,330
0
178,330
Restructuring &
Invest to Save
Proposals
To fund one-off redundancy and pension strain costs and
invest to save initiatives. Transfers from this reserve will be
allocated against business cases as they are approved.
Timing of the use of this reserve will depend on when business
cases are approved.
1,246,890
(55,367)
1,191,523
0
1,191,523
0
1,191,523
0
1,191,523
0
1,191,523
26,316
0
26,316
0
26,316
0
26,316
0
26,316
0
26,316
16,224 11,411,544
272,505
11,684,049
432,276
12,116,325
(14,108)
12,102,217
Sports Hall
To support renewals for sports hall equipment. Amount
Equipment & Sports transferred in the year represents over or under achievement
of income target.
Facilities
Total Reserves
14,126,265 (2,730,945) 11,395,320
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