FINANCIAL STRATEGY 2013/14 – 2015/16
1.
INTRODUCTION
1.1
In February 2012 the Council approved the budget for 2012/13 and at the same
time it considered the forward financial projections for the following three years
(2013/14 to 2015/16). The budget for 2012/13 includes savings and additional
income totalling over £1.2 million (consisting of service savings/income of
£897,096 and corporate savings of £375,446). After factoring these in for future
years and making assumptions around inflation, income and grant funding levels,
the forecast budget gap for the following three years was projected to be
£267,000 in 2013/14 increasing to £1.072million in 2014/15 and to £1.232million
by 2015/16.
1.2
This document now seeks to update these financial projections and sets out the
financial strategy for the next three years in line with the current Corporate Plan
2012-15, which covers the same period.
1.3
Reductions in grant funding for local government were announced back in
October 2010 as part of the Comprehensive Spending Review 2010 (CSR 2010).
This covered the period 2011/12 to 2014/15 and essentially set out the
Governments departmental spending plans for the four years until 2014/15. The
current financial year of 2012/13 is the second year of the current spending review
period and the final year for which provisional figures have been published for
individual authorities. The timing of the next spending review has not been
confirmed, although it is expected to be sometime during 2013 and is likely to
cover the final year of the current spending review, i.e. 2014/15.
1.4
From 2013/14 local authorities are facing a significant change to their system of
financing. This is discussed in more detail within section 2, but essentially there is
a fundamental shift from a formula grant system to one financed by locally
retained business rate income plus grant.
2.
BACKGROUND AND CONTEXT
2.1
There are a number of current issues facing the public sector in terms of
financing. Each of the following are discussed in more detail:
•
•
•
•
•
•
•
Economic Outlook
Local Government Finance Bill
Business Rates Retention
New Homes Bonus
Council Tax Support Scheme
Council Tax Reforms
Welfare Reform Bill
2.2
Economic Outlook
2.2.1
Economic output in the UK had weakened for three consecutive quarters with a
contraction of 0.5% in the second quarter of 2012. The third quarter however,
showed the economy coming out of recession and growing by an estimated 1.0%.
This was much stronger than forecast and was affected by the Olympic and
Paralympic Games, and the additional holiday for the Queen’s Diamond Jubilee in
the second quarter. The outlook for growth in the near term does remain weak
though, particularly whilst uncertainty in the Euro zone countries persists.
2.2.2
A gradual strengthening in the growth of households’ incomes, together with the
combined stimulus from the Bank of England’s asset purchase programme
(Quantitative Easing) and the Funding for Lending Scheme (which provides
Financial Strategy 2013/14 to 2015/16 October 2012 Page 1 of 26 incentives to banks and building societies to lend more to UK households and
businesses),should prompt a gradual pickup in economic activity.
2.2.3
Despite the poor growth resulting in much weaker public finances than had been
forecast, the Government is expected to stick to its deficit-cutting strategy.
2.2.4
The financial markets are anticipating a further 0.25% cut in official interest rates
by the end of this year. It could be 2016 before interest rates begin to rise again.
2.2.5
Consumer Price Inflation decreased to 2.2% year-on-year to September 2012,
from 2.5% a month earlier.
2.3
Local Government Finance Bill
2.3.1
The Local Government Finance Bill (the bill) was introduced by the Secretary of
State in December 2011. The Bill included a number of proposals designed to
encourage local economic growth, reduce the financial deficit and drive the
decentralisation of control over local government finance.
2.3.2
This bill represents a major change to the way that local government will be
financed from 2013/14 onwards. In particular the Bill includes the following
changes:
•
Business Rate Retention (para 2.4) - Enabling local authorities to retain a
proportion of the business rates generated in their area, providing them
with strong financial incentive for them to promote local economic growth;
•
Localised Council Tax Support Scheme (para 2.6) - Providing a framework
for the localisation of council tax support to replace the current council tax
benefit system, which alongside other council tax measures, will give
councils increased financial autonomy and a greater stake in the economic
future of their local area, while providing continuation of council tax support
for the most vulnerable in society, including pensioners. The savings
nationally from the localisation of council tax support is expected to be
£500m;
•
Council Tax Reforms (para 2.7) –Provide further flexibility on the council
tax local authorities can charge on empty properties, and other small
changes aimed at modernising the system.
2.3.3
Each of these are discussed in the following sections of the document.
2.4
Business Rates Retention
2.4.1
In December 2011 the Government published its proposals for the introduction of
a business rates retention scheme (BRRS). Their response to this was
subsequently published in May 2012 and a technical consultation was then
launched in July which closed in September 2012. The timing of the final scheme
announcement has not yet been confirmed.
2.4.2
The overriding principal of the BRRS is to incentivise growth at a local level and
implement a funding regime that replaces the current complex and centralised
formula grant system with a simple and transparent system that is related to
growth at a local level. The incentive to local authorities is that a share of any
growth in business rate income is retained locally.
2.4.3
From April 2013, a portion of local authorities’ income will change with business
rates growth, rather than being determined by complex formulae. Moving from the
current complicated arrangements inevitably means there is a degree of
complexity to the transitional arrangements which will apply on introduction of the
new scheme. Once the new scheme is established, authorities will know what
proportion of business rates they can keep, how much they are to pay as a “tariff”
Financial Strategy 2013/14 to 2015/16 October 2012 Page 2 of 26 or receive as a “top-up”, the rate at which their growth will be levied and the floor
below which the safety net will prevent their income from falling. These
parameters will be fixed until 2020.
2.4.4
Due to the significant changes, the transition from the current system to the new
system from 2013/14 will involve a degree of complexity, yet in the longer term the
new system is expected to have less complexity.
2.4.5
Under the current formula grant system the Council receives (government)
funding from a Revenue Support Grant (RSG) and an allocation of redistributed
business rate (i.e. total business rates collected are paid over to government
centrally and then reallocated to individual authorities). Under the new system
funding to the Council will comprise of a local retained business rate income and a
RSG.
2.4.6
The main elements of the new scheme are:
a) The starting point for the new scheme from 2013/14 (baseline funding) will
be based on how much authorities would receive under the existing
scheme, subject to updating and changing many of the details of the
existing formula and the initial amount available to be shared between
authorities being reduced in line with current Government plans, i.e. those
outlined in the 2010 spending review.
b) The proposals for the new scheme focus on the distribution of business
rates revenues, rather than changes to the system of business rates
taxation. Businesses (ie non domestic rate payers) will see no change to
the way their rates are paid or set and increases in the rates will remain
under the control of central government. The revaluation process will be
unchanged.
c) Business rates collected will be split 50/50 between central and local
shares.
d) Central share will be used to fund the RSG element for the new scheme.
e) Local shares will be split 80/20 between the district and the county
councils (for two tier authorities).
f)
Local shares will be subject to tariffs and top-ups to reflect the local
spending needs. Authorities with a high business rates base compared to
their funding level would pay a tariff (Districts), and those with a higher
spending need compared to retained business rates will receive a top-up
payment (Counties).
g) A reset period is proposed after seven years (2020), at which time new
baseline funding, base rate baselines (and therefore tariffs and top ups)
are set.
h) The Business rates baseline (i.e. income generated) will be calculated
from the national aggregated level forecast for 2013/14 and then
apportioned to each authority.
i)
The difference between funding and baseline determines a tariff or top up
position.
2.4.7
Appendix A provides an overview of the system graphically.
2.4.8
The main elements of the scheme in relation to business rate growth are:
a) Local Authorities will be able to retain a proportion of business rate growth
or conversely if there is decline Local Authorities will see a reduction in
their income.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 3 of 26 b) Authority’s that experience disproportionate growth will be required to pay
a levy and this will be used to provide a safety net for authorities
experiencing little or negative growth. The calculation of levy and safety
net payments (as outlined within the consultation document) indicates that
the safety net will fall within the 7.5%-10% range and funded by a 1:1 levy
as already announced. Essentially a Local Authority could have a
reduction in income of up to 10% before safety net funding would be
applied.
c) The levy will limit disproportionate benefit from growth in an authority’s
business rates base. For every 1% increase in business rates baseline, an
authority will only see a 1% increase in its funding level.
d) The following provides an illustrative example of how the levy payment
might work for NNDC:
Table 1
£000
Business Rates Baseline
A
22,000
1% Growth
B = 1% of A
220
Local Share (50%)
C = 50% of B
110
District Share (80% of the 50%)
D = 80% of C
88
Levy payment *
E = 67% of D
59
Additional Income Retained by District
D minus E
29
*Levy calculation based on available modeling suggests in range of 64% to 67%
for NNDC
e) Local Authorities will receive a RSG and the baseline funding level and
RSG (less tariff) will determine the startup funding allocation for the
Council. The RSG will be the share of additional money that is returned to
authorities to make the retained amount of business rates up to the
national total set out by the Treasury and will be in proportion to the
individual funding targets. The distribution of RSG is to enable some
stability within the overall funding system.
2.5
New Homes Bonus
2.5.1 Within the Comprehensive Spending Review the government announced plans for
funding to be made available for the New Homes Bonus Scheme. The New
Homes Bonus was a new scheme designed to incentivise and reward councils
and communities who wished to build new homes in their area.
2.5.2 The key features of the scheme were as follows:
a) The bonus would be paid as a grant, which in summary will from 2011/12
match fund the additional council tax for each new home and property
brought back into use, for each of the 6 years after that home is built with
an additional amount (£350) for affordable homes. The growth in the
number of properties each year is calculated as new dwellings less any
demolitions plus or minus the net change in empty dwellings.
b) The match funding is split between upper and lower tier authorities on a
20/80 ration.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 4 of 26 c) The value of the bonus should increase for at least six years. The payment
for 2011/12 was based upon the growth in new homes in the year to
October 2010. The 2012/13 bonus reflects growth in the two years to
October 2011. In the third year, the bonus will be based on the growth in
the first, second and third years of the scheme and.
d) Local authorities are able to spend the funding in line with local community
wishes. This may have related specifically to the new development or
more widely to the local community. For example, they may have wished
to support frontline services like bin collections, or improve local facilities
like playgrounds and parks.
e) The government set aside nearly £1 billion over the Comprehensive
Spending Review period for the scheme, including nearly £200 million in
2011/12 (year 1) and £250 million for each of the following three years.
Funding beyond those levels would come from reductions in formula grant.
National funding allocated for years 1 and 2 of the scheme are as follows:
f)
Year 1 Allocations - £199 million
g) Year 2 Allocations - £431 million including, the second year one
installment of £199 million and the first year two installment of £233 million.
h) The bonus is paid through section 31 of the Local Government Act 2003
as an un-ringfenced grant. The New Homes bonus has now been
operational for two years, the allocation for 2012/13 of £611,678 is made
up of the following:
2.5.3
Allocation
2011/12 Allocation £
2012/13 Allocation £
Year 1
349,762
349,762
Year 2
N/a
261,916
Total
349,762
611,678
The base budget for the current financial year assumed the total would be
transferred to an earmarked reserve pending further decision about it’s use.
2.5.4 The technical consultation on the Business Rates Retention Scheme included
implications to the NHB and future funding. Essentially the key points from the
consultation documents was that £2billion would be taken out of each year’s
spending control total (upto 2020 reset year) to fund the NHB. The Government’s
aim is that NHB payments will be announced with the provisional Local
Government Finance Settlement.
2.5.5 A policy on the use of the NHB which supports the government’s intention will be
developed.
2.6
Local Council Tax Support Scheme (LCTSS)
2.6.1
Within the CSR 2010 the Government announced its intention to localise support
for Council Tax from 2013/14 with an expectation that expenditure on the scheme
would reduce by 10%. A detailed report was presented to Cabinet on 16 July
2012 outlining the changes to the scheme along with the detailed financial
implications.
2.6.2
On 16 October 2012 the Department for Communities and Local Government
(DCLG) announced transition grant funding of £100million being made available
to encourage best practice in designing local schemes. Further details on the
Financial Strategy 2013/14 to 2015/16 October 2012 Page 5 of 26 implications to Local Schemes of the funding is still to be announced and
quantified although it is expected that applications for the funding will need to be
made after 31 January 2013. The implications of the additional funding are being
considered by the Council Tax Support Working Group. For information and
background the following paragraphs provide an overview of the original scheme.
2.6.3
In summary, the new scheme is moving from a national system of council tax
benefit which is currently budgeted to be funded 100% from Central Government
via the Department for Work and Pensions (DWP), to a local support scheme for
which the major preceptors and billing authorities will receive grant funding but at
a level1 that is less than the current costs of the scheme in order to deliver the
savings required by the Government.
2.6.4
The total cost of Council Tax Benefit in 2011/12 for NNDC was £8.2million
(unaudited), the budgeted figure for 2012/13 is £8.1 Million. Based on the
indicative grant funding that has been announced savings of £1.17m are required
against the current scheme in order for a fully funded scheme to be implemented,
i.e. with no impact on the Council’s budget from 2013/14. A draft scheme has
been developed which is currently being consulted upon. The consultation period
runs until 14 October 2012. The final scheme must be approved by January 2013
for implementation from April 2013.
2.6.5
Whilst it is a localised scheme the Government has set rules to protect pensioners
on low incomes and also outlined some key principles of the scheme:
2.6.6
•
Being means tested with most income taken into account and most
outgoings not taken into account
•
Provide support for those who work so that they are better off than if they
had relied on public funds
•
Protect those of pension age and protect if agreed, other residents who
are considered could not be expected to work
•
Be seen to be a fair and reasonable use of public funds
•
Feature rules that are similar to those for other state benefits, to make the
scheme easier to understand
•
Be operationally efficient and within budget.
There is a risk that expenditure under the scheme being designed and
implemented is greater than the amount of central Government funding for the
scheme. This would mean that the costs of the scheme will fall to the major
preceptor and billing authority in proportion to their respective shares of the
council tax. Table 2 illustrates the position based on the indicative grants.
Table 2
Average Band
2012/13 £
D %
Saving
Required
£000
Norfolk County Council
1,145.07
75.43
887
Norfolk Police Authority
196.92
12.97
152
North Norfolk District Council
138.87
9.15
108
1
Based on indicative funding announcements. Financial Strategy 2013/14 to 2015/16 October 2012 Page 6 of 26 2.6.7
Local Precepting Authorities
37.20
2.45
28
Total
1,518.06
100
1,175
Reductions will be applied to council tax bills for CTSS in the form of a discount.
This will mean the tax base for the authority will reduce. There is also expected to
be a reduction in the collection rate as Council Tax will be payable by tax payers
who previously would have received full benefit and no charge would be payable.
These two factors will feed through to the Collection Fund accounting
arrangements and will impact on the major preceptors and billing authority. The
following illustrates the implications; figures included illustrate the current position
for 2012/13:
Council Tax Requirement
(£5.745 million)
Band
D
=
Council Tax
(£138.87)
(Will be reduced as billing and major precepting authorities receive
new funding, reducing the amount they need to raise through
Council tax)
Collection Rate
(98.5%)
X
(Proportion of council tax
which the billing authority
thinks it will collect
Number
of
Equivalents
Band
D
(41,996.2)
(Will be reduced because
more dwellings will be eligible
for reductions under the new
scheme)
2.6.8
The impact on the Local Preceptors (Parishes) has recently been negated in
terms of the tax base, the current consultation regarding this is recommending
that two tax bases be maintained so that the Parishes will see no impact from the
new scheme. The overall impact from the reduction in tax base is currently
forecast to be offset by the grant for the scheme assuming that a fully financed
scheme is implemented from April 2013.
2.6.9
Whilst the consultation has negated the impact to the parishes, it does create a
risk to the major billing authority in terms of funding any scheme shortfall (relating
to the parish element).
2.7
Council Tax Reforms
2.7.1
Councils currently have the discretion to reduce the amount of council tax payable
for certain classes of dwelling for example second homes. For other classes of
dwellings, in the past legislation has been prescriptive in terms of the lowest level
of discount that the billing authority (i.e. NNDC) can make. Legislation for the new
discretions is still to be passed and therefore this section provides an overview
only of the proposed changes and the estimated financial implications to the
Council.
2.7.2
The Government consulted on Technical Reforms to Council Tax in 2011 and
published their response in May 2012. The changes include giving authorities new
flexibilities on the level of discounts on second homes and empty dwellings.
2.7.3
There are essentially two drivers for the changes:
Financial Strategy 2013/14 to 2015/16 October 2012 Page 7 of 26 (a)
Local authorities will be given more local control to help them keep council
tax down;
(b)
Providing authorities with stronger levers to encourage the effective use of
housing stock, i.e. managing second home ownership and encouraging
owners to bring empty dwellings back into use promptly.
2.7.4
Essentially while there are increased discretions that are being made available to
Local Authorities in determining council tax discounts, they should not be seen as
an additional income generation opportunity alone. The level of additional funding
that could be made available to the authority from its share of the funds collected
(9.1% of the total council tax bill), by changing levels of discounts needs to be
considered alongside the additional resources in terms of administration,
collection and system software updates that will be required to implement the
changes. The following outlines the changes proposed and Appendix B provides a
summary of each and the potential additional income available from the districts
share of the council tax bill that could be generated from a number of the options.
It should be emphasised that the estimates do not take account of non-collection.
2.7.5
Second Homes - The Government’s intention is that billing authorities are
allowed to levy up to full council tax on second homes. There will be no duty
imposed on a taxpayer to declare that a dwelling is a second home, therefore if
the discount is removed completely there will be no incentive for taxpayers to let
billing authorities know the status of a dwelling. If a discount is offered the
Council will be able to seek information supporting a claim for discount, and
require the taxpayer to notify the Council if they later cease to qualify for the any
discount that has been given. The discretionary element of the second homes
council tax is currently 40% on top of the 50% charge. The Council has an annual
agreement with the County Council whereby 50% of the discretionary element (ie
50% of the 40% charge) is returned to the District and is used to fund the Big
Society Fund.
2.7.6
Uninhabitable Dwellings - The Government’s intention is to abolish the Class A
Exemption. This enables a taxpayer to claim a 100% reduction for an unoccupied
property undergoing or needing major structural repair work. The property can be
exempt for up to 12 months. Billing authorities will be allowed to give a discount
which they can set at any amount up to 100%, for up to 12 months for such
dwellings.
2.7.7
Vacant Dwellings - The Government’s intention is to abolish the Class C
Exemption. An unoccupied and unfurnished property (including newly built
properties), can currently be exempt for up to six months. Billing authorities will be
allowed to give a discount for any amount up to 100% up to 6 months for such
dwellings.
2.7.8
Empty Homes Premium - The Government’s intention is to allow billing
authorities to levy a premium of up to 50% which can be added to the council tax
charge for a dwelling that has been empty and unfurnished for two years. There is
a current consultation on the Empty Homes Premium outlining proposals on
dwellings which will not be liable for the premium. Essentially the consultation is
recommending that where a dwelling is genuinely on the market for sale or letting
then a premium should not be applied.
2.7.9
Long-term Empty Properties - The Government is not proposing any changes to
existing legislation that currently allows billing authorities to grant a discount of
between 0% and 50% on properties which have been vacant for more than 6
months (i.e. following the current class C exempt period). The Council allows no
discount on properties more than 6 months.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 8 of 26 2.7.10 Other issues that need to be considered are the implications of implementing the
changes in terms of software costs, administration and collection costs. Also there
could be movements between classifications of properties for the home owner to
benefit from the lowest Council tax charge which will reduce the level of additional
income.
2.7.8
Discussions have been held on a county wide level in terms of setting a consistent
discounts policy and options around returning a share of any additional revenues
to the billing authorities. These are yet to be finalised and could be used to inform
the local discounts policy.
2.8
Welfare Reform Bill
2.8.1
In February 2011 the Welfare Reform Bill was published which contained
provisions for the replacement of Council Tax Benefit with a new localised scheme
as outlined within the spending review. Consultation on the proposals for the
localisation of council tax support from 2013/14 was launched on 2 August 2011.
The Government published their response to the outcome of the consultation in
December 2011 alongside the Local Government Finance Bill which contained the
legislative provisions for the establishment of the localised council tax support
schemes.
2.8.2
On 8 March 2012 the Welfare Reform Act received Royal Assent. The Act
legislates a significant change to the welfare system by implementing a number of
reforms to the benefits and tax credits systems with the aim of making the system
fairer and simpler by:
2.8.3
•
creating the right incentives to get more people into work
•
protecting the most vulnerable
•
delivering fairness to those claiming benefit and to the taxpayer.
The main elements of the Act are:
•
the introduction of Universal Credit to provide a new single payment that
supports people of working age who are looking for work or on a low
income and will help claimants and their families to become more
independent,
•
simplifying the current the benefits system by bringing together a range of
working-age benefits (including Job Seeker’s Allowance, Income Support,
Child Tax Credits, and Working Tax Credits and Housing Benefit) into a
single streamlined payment that will improve work incentives
•
a stronger approach to reducing fraud and error with tougher penalties for
the most serious offences
•
a new claimant commitment showing clearly what is expected of claimants
while giving protection to those with the greatest needs
•
reforms to Disability Living Allowance, through the introduction of the
Personal Independence Payment to meet the needs of disabled people
today
•
creating a fairer approach to Housing Benefit to bring stability to the
market and improve incentives to work
•
driving out abuse of the Social Fund system by giving greater power to
local authorities
•
reforming Employment and Support Allowance to make the benefit fairer
and to ensure that help goes to those with the greatest need
Financial Strategy 2013/14 to 2015/16 October 2012 Page 9 of 26 •
changes to support a new system of child support which puts the interest
of the child first.
2.8.4
The main impact to NNDC is that housing benefit will no longer be administered
by Local Authorities. There will be a long transition to the new system which is
anticipated to be operational from 2017 although the intention is that new cases
will be paid under the new system from October 2013.
3.
FINANCIAL FORECAST UPDATE
3.1
The 2012/13 budget report as presented to Members in February 2012 identified
a budget gap for 2013/14 of £266,508, increasing to £1,072,432 in 2014/15 and to
£1,232,022 in 2015/16. This was based on a number of assumptions about future
levels of external grant, spending plans, delivery of savings and additional income
and a zero increase in council tax for the same period.
3.2
As already mentioned within the report, from 2013/14 there are significant
changes to the financing of Local Authorities, moving from a system of
government support allocated via redistributed business rates and Revenue
Support Grant (RSG) to a system of localised business rates and RSG, with the
new RSG largely being funded through the central share of business rates.
3.3
The principles of the new system include providing incentives for growth at a local
level and a funding system that is simple and transparent. Year one (2013/14) of
the new system will however involve the transition to the new scheme and will
involve a degree of complexity.
3.4
The technical consultation on the Business Rates Retention scheme has now
closed and following the decisions on the consultation the Provisional Local
Government Finance Settlement (LGFS) for 2013/14 will be consulted on in the
autumn2, although the exact timing has not been confirmed. The provisional LGFS
will depend upon the content of the Chancellor’s Autumn Statement (date
confirmed as 5 December 2012), and therefore the Council could expect to
receive provisional grant figures not long before Christmas.
3.5
Taking into account the significant changes to the funding regime and the later
notification of grant funding does make the budget setting process for 2013/14
onwards even more challenging. However the financial projections have been
updated to reflect known spending pressures and also revised the income
forecasts.
3.6
Resource Projections – the original forecast budget gap had assumed grant
reductions over the spending review period from 2011/12 to 2014/15 of 24.3%,
reducing by 5.2% in 2013/14 and to a further 7.7% in 2014/15 (Table 3 below).
The original assumptions from the initial CSR2010 announcements were that
grant reductions would be front loaded, i.e. in the first two years of the spending
review period, i.e. 2011/12 and 2012/13. From 2010/11 to 2012/13 the Council
has experienced grant reductions of £2 million, equating to nearly 25%3.
2
3
As outlined in the Consultation document 2010/11 £8.227 million to 2012/13 £6.225million Financial Strategy 2013/14 to 2015/16 October 2012 Page 10 of 26 Table 3 - Current 2010/11
Actual
Funding
£’000
Forecast
Total Government
Funding £000
2011/12
Actual
£’000
8,227
Reduction £000
Reduction %
2012/13
Actual
£’000
2013/14
Forecast
£’000
2014/15
Forecast
£’000
2015/16
Forecast
£’000
7,202
6,225
5,903
5,451
5,451
1,025
977
322
452
0
12.5
13.6
5.2
7.7
0.0
3.7
More recent discussions at a national level have suggested that the reductions in
2013/14 and 2014/15 could be similar to those already experienced in the first two
years.
3.8
Modelling of the impact of the new funding regime has been carried out using
forecasting tools produced by SPARSE and the LGA. Initial results suggest that
the overall funding reductions for NNDC for 2013/14 compared to the current
funding for 2012/13 could be in the region of 6% to 8%. This is based on a
number of local and national assumptions built into the model and excludes
funding from the New Homes Bonus. Although there is a caveat in that this is not
the final allocation method as the criteria has not yet been finalised. It would
however be prudent to update the funding forecast to reflect reductions above
those previously forecast and also carry out sensitivities analysis around these
reductions.
Table 4 – Grant Forecast (Updated)
Total Government Funding £000
Reduction £000
Reduction %
Additional to be factored into
projection
3.9
2012/13
Actual
£’000
6,225
977
13.6
2013/14
Forecast
£’000
5,665
560
9.0
2014/15
Forecast
£’000
5,155
510
9.0
2015/16
Forecast
£’000
4,743
412
8.0
N/A
238
296
708
Sensitivity Analysis – the following illustrates the impact of a further 3% reduction
in grant funding above the assumption in Table 4 above.
2012/13
Actual
£’000
6,225
977
13.6
2013/14
Forecast
£’000
5,478
747
12.0
2014/15
Forecast
£’000
4,821
657
12.0
2015/16
Forecast
£’000
4,291
530
11.0
Additional to be factored into
N/A
projection (compared to original)
425
630
1,160
Additional compared to Table 4
187
334
452
Table 5 - Sensitivity Analysis
Total Government Funding £000
Reduction £000
Reduction %
Financial Strategy 2013/14 to 2015/16 N/A
October 2012 Page 11 of 26 3.10
Current Savings Programme – As previously mentioned the current budget
anticipated ongoing savings and additional income totalling £1.2 million will be
delivered increasing to £1.5 million from 2013/14. As previously reported in the
budget monitoring report to Members in September there are a number of service
and corporate work streams that are not being delivered as previously anticipated
when the 2012/13 budget was set. The service savings and income have been
assumed to be back on target from 2013/14 onwards as the impact in the current
financial year is largely due to a delay in the implementation of the saving. The
revised position is shown in Table 6 along with the additional costs which need to
be factored into the future projections, mainly in relation to the impact of the
corporate work stream financial implications.
Table 6 - Updated Savings and
Income
Service Savings & Additional Income
Corporate Workstreams:
Management Restructure
Pay and Grading
Car Allowances
Total
Original Total
Movement compared to Original*
2012/13
£
2013/14
£
2014/15
£
2015/16
£
862,147
923,277
920,501
920,501
250,000
77,000
0
1,189,147
1,272,542
83,395
250,000
62,000
245,000
1,480,277
1,517,723
37,446
250,000
62,000
245,000
1,477,501
1,510,947
33,446
250,000
62,000
245,000
1,477,501
1,510,947
33,446
* Additional cost to factor into projections
3.11
The latest forecast of corporate savings in relation to the management restructure
now reflects the recruitment to all Heads of Service. Final service structure below
the Heads of Service are still to be finalised, however additional savings of
approximately £100,000 (above the original savings target of £150,000) are now
anticipated.
3.12
The implications from the pay and grading review assumed a saving from the
implementation date of 1 April 2012 of an earlier version of the pay model.
Following the approval of an amended version of the pay scales model, a later
implementation date of October 2012 and also the results of appeals the original
level of savings will not be achieved. An earmarked reserve has been maintained
to fund one-off costs associated with the review including the payment of arrears
entitlement. The balance in the reserve at 1 April 2012 was £494,488 and it has
been assumed that this will cover the one-off costs.
3.13
Investment Income – The current projections already take account of a fall in
investment income over the next three years reflecting a reduction in the average
balance available for investment along with a reduction in the average rate of
interest.
3.14
Other Service Pressures and Savings – there are a number of service pressures
and savings identified as part of the budget monitoring process that will have an
impact on the current budget and future projections, the more significant items
that are expected to have an ongoing impact include:
•
External Audit Fees – saving of £50,000 per annum from 2012/13 as a
result to the changes from external auditing arrangements nationally
following the demise of the audit commission.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 12 of 26 •
•
•
•
•
3.15
Administrative Buildings – business rates reduction following from a
revaluation of the Cromer and Fakenham offices is anticipated to deliver
ongoing savings of £25,000 per annum from 2014/15.
Sports halls and Leisure Complexes – the impact of a reduction in income
from sports halls and contract inflation in respect of the leisure complexes
is estimated to be £27,000 per annum.
IT – Savings from system changes in the year are anticipated to deliver an
ongoing saving from licences of £20,000 per annum
Non Distributed Costs – ongoing impact of inflationary increases to
pension payments in respect of past employees, previously this cost has
been covered by natural turnover in the pension scheme, annual cost of
approximately £10,000.
Pensions – Auto enrolment for the Local Government Pension scheme
comes into operation from 2014. There will potentially be a cost implication
associated with this if individuals that were previously not part of the
pension scheme decided to join. Based on initial estimates the cost
implication could be as much as £100k per annum, although not all may
elect to remain in the scheme. It would still be prudent to factor in an
estimate of the implications of this and at this time and therefore within the
current projections £60,000 has now been included.
There are also other service developments which will potentially have a financial
impact and although have not been reported as part of the budget monitoring
process need to be considered within the future finance projections. These
include:
•
Investment in pooled property funds – a report was presented to Cabinet in
October outlining the implications of investing in pooled property funds.
The return on these types of investments is expected to deliver a higher
return than the current average of less than 1%. Although there is an
increased volatility of these returns it would however be prudent to factor
additional investment income into the future projections of £150,000. In
order to smooth the impact of the volatility of these returns on the revenue
account year on year the use of reserves would provide a mechanism to
cushion the impact.
3.16
Annex Building – Office moves are planned for the lower ground floor that will
include relocating of services from the annex building. The removal of the annex
will deliver annual revenue savings of approximately £20,000 from premises
related expenditure including business rates, energy and cleansing costs.
3.17
Council Tax - An announcement has recently been made on funding a council tax
freeze for 2013/14. National funding of £450 million has been announced and
Councils who freeze their council tax next year will be eligible for a share of the
funding over two years. Funding for the current year’s tax freeze grant totalled
£850 million and equated to £143,613 for NNDC. The DCLG are due to announce
further details of the scheme along with indicative break downs of the grant. As a
guide for NNDC this would equate to £50,000 grant payable in 2013/14 and
2014/15. In addition announcements on the level of council tax increases that
would trigger a referendum have been made, these thresholds have been
reduced from 3.5% to 2%. The forward projection currently assumes a tax freeze
for the duration of the forecast, as a guide a 1% increase in the current band D
equivalent will generate additional resources of £50,000 per annum (this does
assume a lower Council Tax base due to the implications of the LCTS on the as
outlined at 2.6.7).
Financial Strategy 2013/14 to 2015/16 October 2012 Page 13 of 26 3.18
Planning Fees - In recent years the economic recession and downturn in the
construction industry have greatly affected the level of income generated from
planning application fees. In 2011/12 the Council generated planning fee income
of £429,455, the lowest level of income since 2002/03. The budget (for 2011/12)
estimated £525,000 leaving a shortfall of £95,545 at the year end. Part of this
shortfall was due to the inclusion of £50,000 which related to the anticipated
introduction of a locally set fee structure although this never took place. Instead in
July 2012 a ministerial statement was released which included notice that
planning application fees will be increased by 15%. These changes were laid
before parliament in July and are due for debate in both the House of Commons
and the House of Lords in October. The exact date for the introduction of these
increases is still unknown but it is expected to be late October/early November.
3.19
The Government has also subsequently announced a relaxation to planning
regulations on a temporary basis (3 years) with the aim of stimulating the
construction industry. The effect of this has not been fully quantified but the
planning department do not consider that the negative effect to the Council’s
budget will be material.
3.20
The base budget for fee income is currently £525,000 which as previously
mentioned already includes £50,000 for fee increases, the proposed increase
does provide a potential to increase the base budget, although this would need to
allow for the additional staffing costs as agreed by Cabinet in September 2012.
Pending the outcome of the peer review on the service no additional
costs/savings have been factored into the budget forecast at this time.
3.21
Table 7 below provides a summary of the revised position taking account of the
factors previously identified. These are subject to a number of caveats in relation
to the grant forecast.
Table 7 - Updated Financial Forecast
Forecast Gap (Jan/Feb 2012)
Revised Savings Plans (Table 6)
Interest (3.13)
Service Pressures/Savings (3.14)
Other Service Savings/Additional Income (3.15)
Revised Gap (before grant revisions)
Grant Projections (Revision) (Table 4)
Forecast Budget Gap
Council Tax Freeze Grant (Estimate)
Forecast Budget Gap (after Freeze Grant)
3.22
2013/14
£000
267
37
0
(55)
(170)
79
238
317
(50)
267
2014/15
£000
1,072
33
0
5
(170)
940
296
1,236
(50)
1,186
2015/16
£000
1,232
33
0
5
(170)
1,100
708
1,808
0
1,808
The financial forecast as outlined in table 7 is dependent on a number of key
assumptions which are not directly within the control of the Council. The most
significant are:
•
Employee inflation – currently no decision has been made on future pay
awards. The Council is part of a national pay agreement for which there
has been a pay freeze since April 2009. As a guide a 1% increase equates
to approximately £90,000 per annum.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 14 of 26 •
External Funding – the uncertainty and sensitivity around the government
grant has been outlined as a guide, compared to the current year a 1%
reduction equates to approximately £60,000.
•
Inflation including contract inflation – inflation has been provided for within
the projections for current service contract, fluctuations in the rate of 0.5%
would equate to approximately £30,000 per annum.
•
Economic climate including bank base rate and investment interest rates.
•
Demand for services for which a fee or charge is made – car parking and
planning fees are the council’s largest demand led income generating
services are influenced by a number of external factors, including the
weather and economy.
•
Council Tax – the current council tax base is 41,366, as previously
mentioned this will change as a result of the LCTSS from 2013/14.
Currently the overall impact has been assumed to be negated by the grant
funding for the new scheme. In addition within the collection fund (council
tax account) any surplus or deficit is shared amount the major preceptors
and billing authority, when setting the council tax the anticipated
surplus/deficit is taken into account. No growth in the tax base has been
assumed as this is likely to be offset by a reduced surplus/deficit position
on the collection fund due to uncertainties around council tax collection
and the introduction of the new LCTSS.
4.
CAPITAL
4.1
The capital programme is updated on a regular basis as part of the budget
monitoring reports to Cabinet. A copy of the current capital programme is included
within the period 6 Budget Monitoring report included within the November
Cabinet Agenda.
4.2
The following table provides a summary of the current approved capital
programme for 2012/13 plus the current forecasts for 2013/14 and 2014/15 along
with a breakdown of relevant financing. NNDC funding includes capital receipts,
contributions from revenue and reserves, external funding refers to grants and
external contributions.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 15 of 26 Table 8 - Current Approved Capital Programme
2012/13
Updated
Budget
£
Jobs and the Local Economy
Housing and Infrastructure
Coast, Countryside and Built Heritage
Localism
Delivering the Vision
Total Capital Expenditure
Financing:
Non NNDC
NNDC
Total Capital Financing
4.3
2013/14
Forecast
2014/15
Forecast
£
£
785,857
5,403,565
1,655,000
-
7,408,313
561,837
1,026,325
15,185,897
5,100,000
6,755,000
443,000
443,000
6,431,888
8,754,009
15,185,897
5,443,000
1,312,000
6,755,000
443,000
443,000
The table above reflects the recent restructuring of the capital programme to align
with the new corporate priorities as contained within the Corporate Plan 20122015.
Capital Resources
4.4
The current capital programme is funded from the following sources of finance:
•
•
•
•
•
Capital Receipts – generated from asset disposals and preserved tight to
buy (both new and existing within the capital receipts reserve)
Grants and contributions received from external sources including third
parties and government
Revenue – making a revenue contribution to capital
VAT Shelter Receipts
Earmarked reserves for example the capital projects reserves.
4.5
The VAT shelter and Preserved Right to Buy (PRTB) receipts are two sources of
funding that relate to the transfer of the housing stock to Victory Housing that took
place in 2006. The VAT shelter arrangement is a procedure agreed by HM
Revenues and Customs and the DCLG to ensure no overall impact on taxation
post transfer. If the Council retained the stock and carried out the maintenance
works on the properties the VAT would have been recovered. The Housing Trust
are unable to recover VAT, but the VAT shelter arrangement allows VAT to be
recovered on qualifying works (which totalled approximately £50million) and the
VAT on the element that is recovered is shared between NNDC and the Trust.
The amount received by the Council under this sharing arrangement is limited to a
value, and based on the current forecast is expected to end in 2014/15. This is
when the total value of qualifying works as agreed as part of the stock transfer in
2006 will have been completed.
4.6
Under the PRTB arrangement the Council receives a share of the capital receipt
generated from a right to buy sale.
4.7
Following the housing transfer the receipts generated from the VAT shelter and
PRTB’s have been used for the financing of the capital programme. Since
2008/09 the VAT receipts has been payable as a revenue receipt and has been
transferred to the Capital Projects Reserve. Payment as a revenue receipt
provides greater flexibility in terms of funding spend, revenue receipts can be
Financial Strategy 2013/14 to 2015/16 October 2012 Page 16 of 26 used to fund capital, however capital receipts cannot be used to fund revenue
expenditure.
4.8
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. The need to undertake prudential borrowing is
demonstrated through its 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.
4.9
The housing capital programme has been historically financed from government
grant (mainly in relation to the disabled facility grants scheme), capital receipts
(both retained from previous asset disposals and receipts generated from the
PRTB’s) and VAT shelter receipts. Both of these sources of funding are
diminishing in terms of the level of receipts generated annually and by 2014/15
the VAT shelter receipts will come to an end.
4.10
After taking into account the planned spend within the current capital programme
for the period 2012/13 to 2014/15 and the anticipated resources, i.e. new capital
resources4 for the same period there is currently an unallocated balance of just
under £3 million. Although this does include £1.3 million within the capital projects
reserve which is a revenue or capital resource. This is illustrated in the following
table.
Table 9 - Capital Resources
Capital
Receipts
£
Balance at 31/3/12
Total
£
9,062,451
1,819,469
10,881,920
New Receipts 2012/13
Capital Financing 2012/13
406,000
(7,806,568)
429,180
(932,441)
835,180
(8,739,009)
New Receipts 2013/14
Capital Financing 2013/14
390,000
(912,000)
413,340
(400,000)
803,340
(1,312,000)
New Receipts 2014/15
Capital Financing 2014/15
390,000
0
256,709
(256,709)
646,709
(256,709)
1,529,883
1,329,548
2,859,431
Estimated Balance at 31/3/15
4.11
Capital
Projects
Reserve
£
The housing strategy (2012/15) has been presented to Members, the following is
an extract from the strategy in relation to its Local Investment Strategy.
Action
Outcome
We will seek to maximise reinvestment in Use of investment income and capital receipts
the delivery of affordable housing in the by Registered Providers to deliver affordable
District by Registered Providers using housing
investment income and capital receipts e.g.
4
New Capital Resources – Asset disposals, preserved right to buy and VAT shelter receipts. Financial Strategy 2013/14 to 2015/16 October 2012 Page 17 of 26 Action
Outcome
from the use of Affordable Rent tenancies,
disposals, Right to Buy receipts
We will explore opportunities to invest in Consideration
of
legal
and
financial
the delivery of affordable housing in the implications and risks of investing in the
District e.g. through the provision of loan provision of affordable housing.
finance to Registered Providers
4.12
Currently delivery of affordable housing through the capital programme is by
providing grants to housing associations. This is treated as one-off capital
expenditure in that once the grant has been paid, it’s gone, i.e. there is no
recycling of funding back to the authority. At a time when new capital resources
are diminishing alternative options to deliver affordable housing need to be
considered, including the provision of loans as an alternative to the payment of
grant.
4.13
Under the current Regulations5, the loan would be capital expenditure, assuming
the loan was for a purpose which, if the Council had incurred the expenditure
directly, it would have been treated it as capital expenditure.
4.14
The loan would need to be financed using capital receipts (or other capital
financing resources). If sufficient receipts are not available, the expenditure on
the loan would cause the Council’s Capital Financing Requirement to increase,
and it would be necessary to make an MRP (Minimum Revenue Provision) charge
to the Revenue Account for the repayment of the loan. Repayment of the loan
would generate a capital receipt.
4.15
Loans to Registered Providers are not covered by the Councils current Treasury
Strategy and this would need to be amended. The loans would not, for example,
meet the minimum credit rating requirement for an approved counterparty, which
is one of the factors used to judge the security of funds invested. Interest earned
on the loans would be a revenue income receipt.
4.16
The opportunities for the provision of loans in this way are being considered by
Finance Officers along with the Council’s Treasury advisors. In principle it is
moving from a system of providing grants from a fixed sum of available capital
resource to a system where resources can be reused through a loan mechanism.
4.17
Alternative methods of delivering affordable housing and increasing the return on
capital resources needs to be explored, moving from a system where capital
receipts (or capital resources) are being used once to fund grants, to a system
where capital resources can be recycled through the provision of loans where by
future capital receipts would be generated for the authority. It is recognised that
there is a risk of default and the loan may not be repaid, but this must be weighed
against the payment of a non-repayable grant.
5.
RESERVES
5.1
As part of the budget and council tax setting process each year the Chief
Financial Officer must report on the adequacy of the reserves that the Authority
5
Regulation 25 (1) (d) of the Local Authorities (Capital Finance and Accounting) (England) Regulations 2003 (SI 2003 No. 3146) Financial Strategy 2013/14 to 2015/16 October 2012 Page 18 of 26 holds. This is informed by the Policy Framework for Reserves which is presented
alongside the budget (annually)6.
5.2
5.3
5.4
The Council holds a number of ‘useable’ reserves both for revenue and capital
purposes and generally fall within one of the following three categories, each as
discussed in the following sections:
•
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 cash
flows and avoid temporary borrowing
•
a contingency to help cushion the impact of unexpected events or
emergencies
Alongside setting the budget each year, the adequacy of reserves needs to
consider the optimum level of general reserve that an authority should hold. The
optimum level of the general reserve will take into account a risk assessment of
the budget and the context within which it has been prepared taking into account
a number of factors including:
•
•
•
•
•
•
the level of savings that have been factored into the budget and the risk
they will not be delivered as anticipated;
sensitivity to pay and price inflation;
sensitivity to fluctuations in interest rate;
potential legal claims where earmarked funds have not been allocated if
applicable;
level of earmarked reserves held;
a level of reserve that is within a 5% to 10% of net expenditure
5.5
The current level for NNDC is a minimum of £950,000 in the general reserve. The
level of the general reserve from 2013/14 will be reviewed as part of the budget
process over the coming months. Bearing in mind the uncertainty of the new
funding regime that has been discussed earlier in this report, there could be an
argument for at least maintaining the general reserve at its current recommended
level or in fact increasing the recommended minimum balance at least in the short
term to mitigate the impact in year one of the new funding regime.
5.6
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 major
reorganisations. 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 separate budget exists.
5.7
For each earmarked reserve a number of principles should be established:
•
the reasons for or the purpose of the reserve
•
how and when the reserve can be used – short to long term
• procedures for the reserve’s management and control.
6
Full Council 22 February 2012, Budget and Council Tax Report 2012/13 Financial Strategy 2013/14 to 2015/16 October 2012 Page 19 of 26 5.8
The establishment and use of earmarked reserves is reviewed at the time of
budget setting, throughout the year as part of the regular 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.
5.9
The Capital Receipts Reserve 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 capital
programme. The balance of capital receipts at 31 March 2012 was £9.063 million.
5.10
Details of the current capital programme that are being financed from capital
receipts were included in section 4 of the report which highlights the reducing
available balance within this reserve over the next three years.
5.11
An updated reserves statement (general and earmarked) is included at Appendix
C. This reflects the latest position for planned use of the earmarked 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 event, these are outlined below:
5.12
•
New Homes Bonus - The New Homes Bonus was a new scheme
announced as part of the Comprehensive Spending Review and is
designed to incentivise and reward councils and communities who wish to
build new homes in their area. The reserve includes the allocation for the
2012/13 year. As mentioned earlier a policy will be developed for use of
the New Homes Bonus.
•
Benefits - The Benefits reserve was established to mitigate any claw back
by the DWP following audited subsidy determinations. The subsidy claim
for 2011/12 is still to be audited. The level of this reserve has been
maintained as the authority has introduced a new Revenues and Benefits
computer system as part of its partnership with Kings Lynn and West
Norfolk Borough Council. The reserve will be used to offset any loss of
subsidy due to problems and delays in processing during the
implementation stage.
•
LSVT - This reserve was established following the Large Scale Voluntary
Transfer of the Councils Housing Stock to Victory Housing in 2006 when
the council provided the trust with a number of warranties, guarantees and
indemnities.
•
Big Society Fund - This reserve has been established as part of the
councils approach to Localism and is being funded from 50% of County’s
share of the discretionary element (40%) of second homes council tax
charge which is returned to the district to be allocated to communities that
identify where they will make a difference to the social wellbeing of the
area via the Big Society Fund. Future contributions to and from this
reserve are dependent upon the sharing arrangement with the County
Council and will be determined annually as part of setting the budget.
Whilst the balance is included within the Council’s accounts, it is held for
the purpose of the Big Society Fund and Localism.
In the short to medium term there is a need to critically review the minimum
balance held in the General Reserve to reflect the uncertainty around a number of
current and impending issues, namely:
Financial Strategy 2013/14 to 2015/16 October 2012 Page 20 of 26 •
Uncertainty of the new funding regime both for the first year (2013/14) and
the ongoing impact in that there will almost certainly be variances between
the budgeted level of external support (government grant and retained
business rates) and the actual year end position;
•
The new system of localised council tax support.
•
Investment in pooled property funds and establishing a reserve or an
element of the general reserve to even out the fluctuations in interest
received year on year, and volatility in the value of the investment.
5.13
All reserves (general and earmarked) will be reviewed over the coming months as
part of setting the detailed budgets for 2013/14 with a view that where
commitments have not been identified funds or reserve balances are no longer
required these are re-allocated to specific reserves to address the requirements
identified at 5.12.
6
FINANCIAL STRATEGY
6.1
Consolidating the detailed financial pressures discussed above the financial
strategy sets out how the Council wishes to manage its finances over the medium
term to ensure it supports the achievement of the Council’s Corporate Plan
objectives.
6.2
The base position for the strategy is the current 2012/13 base budget set last
February against the backdrop of the national economic position and the
pressures being experienced in the delivery of local services.
6.3
Whilst the funding situation for the forward year (2013/14) from Central
Government will not be confirmed until December 2012, the Council must ensure
that both short term measures and medium/long term measures are in place to
secure the overall financial viability of the Council.
6.4
The strategy sets in place a set of initiatives that will allow secure business
planning by recognising the external financial landscape both in terms of Central
Government financial support and the continuing pressures on service delivery.
6.5
In the short term Cabinet has instructed managers to review their base budgets
and to identify any savings or additional income streams that could be included in
the 2013/14 base budget to include:
• No impact or an acceptable level of impact on service delivery.
• Income that can be derived without a significant change in policy.
• Savings that have previously been considered where there is some impact
on service provision.
• A review of the levels of working and earmarked reserves.
6.6
This work will secure a balanced position for the 2013/14 budget and the Cabinet
will then focus its attention on delivering the work streams that support the
corporate plan and for which work is already underway and being monitored
through working parties or working boards.
6.7
There are two distinct aspects to this work which support the strategic direction of
the Council:
• Creating new revenue streams by increasing the Council’s tax base for
housing and business rates
Financial Strategy 2013/14 to 2015/16 October 2012 Page 21 of 26 •
Efficiency savings
Creating new revenue streams by increasing the Council’s tax base for housing
and business rates
6.8
The shift in Central Government support for local authorities has moved to
incentivise them in developing stronger income streams from their property bases.
Growth in both domestic and non domestic properties will lead to increased levels
of funding which directly rewards the Council.
6.9
A growth in both of these areas will support the corporate priorities and position
the authority to take advantage of the new funding regime being introduced from
April 2013 as well as maximise existing funding streams.
6.10
No assumptions have been made in the financial forecast for the following
revenue streams.
The New Homes Bonus (NHB)
6.11
This payment is based on a formula related to the number of new homes
completed or empty properties brought back into use in a twelve month period
ending in October each year. As well as the additional council tax such dwellings
generate the Council will also receive a sum of money equivalent to six years
council tax at the average national rate for a Band D property.
6.12
Planning permissions granted and turned into completed developments support
the corporate priority for housing and infrastructure in respect of “increasing the
number of new homes built within the District and reducing the number of empty
properties”.
6.13
As an example fifty new houses would generate an additional £57,800 per annum
for six years (totalling £346,800) in new homes bonus and £6,940 per annum in
council tax income (based on the current band D equivalent of £138.87).
6.14
In 2012/13 the Council will receive an estimated £261k for the year which together
with £350k for 2011/12 is a total of £611k.
6.15
It is important to recognise that the New Homes Bonus going forward is not “new
money” from the Central Government but rather a top slice of the total financial
support available to local government. As such it reflects the move to directly
reward planning authorities and stimulate the domestic property market.
Business rates
6.16
The detailed report, above, examines the changes in this area. Embracing these
changes will generate an increased in the total rateable value of the District from
which the Council will derive an increased share of the associated income to
support its expenditure plans.
6.17
The Council has as its first corporate priority a commitment to increase the
number of new businesses and support the growth and expansion of existing
businesses. By delivering on this commitment it is anticipated that this will result in
an increase in the rateable value of the District.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 22 of 26 6.18
In the past three years there has been a slow but significant increase in the
overall rateable value across the District. By making a positive commitment
through the current Corporate Plan to assist business to grow it is anticipated that
such an increase will continue over the medium term. Such growth will provide the
Council with additional revenue resources the extent of which will become clearer
as the new arrangements announced in the Business Rates Retention Scheme
develop.
Community Infrastructure Levy (CIL)
6.19
The Community Infrastructure Levy allows local authorities to raise funds from
developers who are undertaking new building projects in their area. The funds so
raised can be used to pay for a wide range of infrastructure that will be needed as
a result of the development.
6.20
The CIL guidance includes a wide definition of infrastructure which can include
transport schemes, flood defences, schools, hospitals and other health and social
care facilities, parks, green spaces and leisure centres.
Income from Planning Fees
6.21
Recent budgets for planning fee income have been set against the proposal that
the Government intended to decentralise responsibility for planning application
fees to local authorities. However, in July 2012 a separate announcement by the
Minister for Decentralisation and Cities indicated that planning fees would
increase by 15%.
6.22
Regulations have been laid before Parliament and are due to be debated in
October 2012. No date for the increase to come into effect has been announced.
6.23
It remains a possibility that there may be future flexibility in setting planning fees
locally, in order that this service is not subsidised by the general tax payer.
Efficiency savings
6.24
Whilst it is important to focus on an agenda that will generate income from growth
in our economy there is, none the less, a continuing need for the Council to
reduce overheads and provide services more efficiently.
6.25
There are seven work streams being developed by Officers to meet the objectives
set by the Cabinet and the Council. These initiatives are part of the Corporate
Plan in “Delivering the Vision” by looking for “year on year improvements in
efficiency”. They are as follows:
Management Restructuring
6.26
The new Corporate Leadership Team and Heads of Service structure is now
complete with savings of £250k to be factored in the budget from April 2013.
These have been included within the updated financial forecast.
Shared Services
6.27
The Revenues and Benefits project has already delivered on-going savings
through the procurement of a new IT system. However, due to operational issues
Financial Strategy 2013/14 to 2015/16 October 2012 Page 23 of 26 regarding the hosting of the software there will be delays in moving towards a
shared management structure which had originally been anticipated for 2013.
6.28
No savings have been included within the financial forecast from this piece of
work due to the business case being reviewed. However, it is anticipated at least
£100k would be achieved from 2014/15 compared to current service expenditure.
6.29
In addition the Council continues to review its building control function and will
consider further options for partnership structures within Norfolk.
6.30
At the same time an innovative approach to selling services is being developed by
the legal team through establishing a cost sharing group which would allow
services to be competitively tendered to local organisations.
6.31
More detailed papers will follow as the budget for 2013/14 and 2014/15 are
prepared.
Peer Review Planning Service
6.32
A peer review is designed to help a service assess its current achievements and
its capacity to change and continue to improve. To this end an initial meeting has
been held with representatives from the Local Government Association and
members of the Cabinet to inform the terms of reference for the review of the
planning service. This will include reviewing the allocation of resources, service
performance and the use of technology.
Procurement
6.33
.
6.34
Following on from a Cabinet paper in February 2012 the Council is a partner in a
County-wide tendering process to handle dry recyclable waste collected by the
Council. The tendering process is due to be completed this financial year and it is
anticipated that an improved income stream will be available from 2014/15.The
current contract expires in March 2014
Officers have also started to scope a new sports and leisure contract which would
be operable from 2014. The work could embrace all sports facilities including
those which are currently outside the current contract. The overall budget here is
in excess of £816k and it is anticipated that savings in this service area will result
from this work.
Customer Services/Web Strategy
6.35
As the new management structures begin to become established Officers are
reviewing the approach to customer services. The Website is by far the most cost
effective way of transacting business and in developing an access strategy it will
become the focus of many of the customer transactions in the future.
6.36
This will require maximising the functionality of the website to provide a greater
level of integration across all service areas. Following this investment the next
stage is to migrate customers away from the more expensive traditional channels
over to the web by enabling and promoting self-service on the website. If
customers are empowered to manage their own enquiries, and are able to access
services online, the need of human intervention for processing and service
delivery is reduced and this is where considerable savings can be made.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 24 of 26 Administrative Buildings
6.37
The overall cost of the Council’s current administration centres is £598k per
annum (including capital charges and other recharges). As noted in the main body
of the financial forecast there is on-going work to remove the annex to the main
offices in Cromer with commensurate savings to the Council.
6.38
At the same time the review will also examine the potential use of the existing
facilities with a view to economising on space and potentially creating a rentable
floor space that can generate income and reduce further the administrative
overhead that the building imposes.
Risks
6.39
The financial strategy is based on a number of assumptions contained in the main
body of the report which include:
Inflation rates
• Interest rates
• The level of Government financial support
• The level of financial pressures facing the Council
6.40
However, although the Council faces risks from the assumptions and uncertainties
outlined above, these have been mitigated by:
• Adopting a prudent approach to financial forecasting which involves
obtaining information from external professional sources
• Continuous monitoring and review of the key factors which involves regular
reports to Members on major issues.
• Risk issues on both expenditure and income levels which have been
highlighted in regular budget monitoring reports to Cabinet
Conclusion
6.41
The overall planning framework ensures that the Council’s Financial Strategy is a
corporate document. Fundamental to the effectiveness of the planning framework
is the need to ensure that the Financial Strategy adopts a corporate approach to
revenue and capital spending that is consistent with the Council’s corporate
objectives and the Council’s key planning documents.
6.42
In preparation for the anticipated reductions in Central Government support from
2014/15 onwards the Cabinet will review all service provision across the Council
and include public consultation to inform future decision making.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 25 of 26 Appendices
A
Business Rates Retention Scheme – Illustration
B
Savings – Current Programme
C
Reserves Statement
Recommendations
It is recommended that Members note:
1) the current financial forecast for the period 2013/14 to 2015/16;
2) the current capital programme and capital funding forecasts;
3) the revised reserves statement as included at Appendix C to the report.
Financial Strategy 2013/14 to 2015/16 October 2012 Page 26 of 26