PART 1
(OPEN TO THE PUBLIC)
ITEM No. 7
REPORT OF THE DIRECTOR OF CORPORATE SERVICES
TO BUDGET SCRUTINY COMMITTEE ON WEDNESDAY, 3RD DECEMBER, 2003
Subject :
2004/05 PROVISIONAL REVENUE SUPPORT GRANT SETTLEMENT
RECOMMENDATIONS :
Members are requested to note the current information which has been announced in the provisional
RSG settlement and the timetable outlined above to be followed to consult on and determine the
budget proposals for 2004/05.
EXECUTIVE SUMMARY :
The 2004/05 provisional RSG settlement is based upon using the formulae which were revised for
the 2003/04 settlement with updated data to reflect the annual roll forward of the grant calculation.
However, it has produced yet again a poor grant settlement for Salford, which is one of the lowest
settlements in the country and the lowest in Greater Manchester, being at the minimum floor
increase of 3.5%, after three years of low settlements under the old RSG formula.
Consequently, grant is less than expected and with certain associated and other internal spending
pressures, initial projections indicate an initial funding gap of £4.2m over and above a 5% Council
Tax increase. Options to reduce the funding gap by £3.7m to £0.5m have been identified, but further
areas of risk and opportunity need to be considered in more detail.
Work now needs to focus on the parameters for setting the revenue budget and Council Tax levy for
2004/05 and public consultation.
BACKGROUND DOCUMENTS : Letter from ODPM entitled “Local Authority Finance
(England) - Revenue Support Grant for 2004/05 and Related
Matters”, 19th November, 2003
__________________________________________________________________________
CONTACT OFFICER :
Tel No :
793 3230
E-mail : john.spink@salford.gov.uk
________________________________________________________________________________
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John Spink
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ASSESSMENT OF RISK :
A full risk assessment is carried out as part of the detailed budget considerations which now follow
the announcement of the provisional RSG settlement and included within the final report which
recommends
the
level
of
the
revenue
budget
and
Council
Tax
levy.
______________________________________________________________________________
SOURCE OF FUNDING :
This report concerns the primary sources of funding for the Council's revenue expenditure and their
impact upon the level of revenue expenditure which can be afforded.
______________________________________________________________________________
LEGAL ADVICE OBTAINED :
Not applicable.
______________________________________________________________________________
FINANCIAL ADVICE OBTAINED :
This report concerns key aspects of the Council's finances and has been prepared by the Finance
Division of Corporate Services.
______________________________________________________________________________
WARD(S) TO WHICH REPORT RELATES :
None specifically at this stage, but potentially all affected when the revenue budget and Council Tax
levy are determined.
______________________________________________________________________________
KEY COUNCIL POLICIES :
2004/05 Budget Strategy
______________________________________________________________________________
REPORT DETAILS
1.
PURPOSE OF THE REPORT
1.1. This report is intended to inform members of the provisional settlement details of the Revenue
Support Grant (RSG) for 2004/05 and its implication for the revenue budget.
2.
INTRODUCTION
2.1. On 19th November, 2003, the Secretary of State for the Environment presented the details of
the provisional Revenue Support Grant (RSG) settlement for 2004/05 before Parliament and
released details to local authorities and their associations.
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2.2. This report analyses the provisional RSG settlement and its implications for Salford.
2.3. The Government has invited written representations only on the RSG proposals by no later
than 2nd January 2004. Ministers do not appear to want to receive representations in person
this year.
3.
BACKGROUND TO THE 2004/05 RSG SETTLEMENT
3.1. The Government has needed to consider a number of problems which arose with the changes
introduced for the 2003/04 RSG settlement, and developments which have arisen since then.
3.2. Council Tax increases
The level of Council Tax increase for 2003/04 averaged almost 13% and this has led to the
development of opposition to further high increases, most notably from pensioners. One local
authority, Kent CC, has indicated its intention to use powers in the Local Government Act
2003 to limit the increase for pensioners at the expense of other taxpayers, although recent
indications are that this may be subject to challenge from non-pensioners if it proceeds. The
Government has publicised its intention to limit the increase for 2004/05, has threatened to
cap those authorities with excessive increases and given notice to introduce legislation to
require authorities to hold a referendum for proposed increases more than twice the rate of
inflation.
3.3. Schools Funding
The 2003/04 RSG settlement caused much debate about the impact upon schools funding and
the widespread complaint from head teachers that funding increases from Government
passported by local authorities was insufficient to meet spending commitments, with the
consequential loss of teaching jobs. Part of the issue for some authorities was that their total
FSS increase was less than their schools funding increase, requiring cuts in non-schools
services. The Secretary of State for Education has therefore been considering options by
which sufficient funds can be passported through to schools without impacting upon other
services, and has written to local authorities recently to outline the level of guaranteed
minimum funding increase per pupil that he will expect to be passported through to schools'
budgets. The Secretary of State has also reversed his intention to transfer Standards Fund
grant into RSG for 2004/05 and 2005/06.
3.4. Census data
Some local authorities expressed their dissatisfaction with the population data which was used
from the 2001 Census data for the first time in the 2003/04 RSG settlement. The Office for
National Statistics (ONS) have been reconsidering the data during the summer and have
amended the population data for many authorities, including Salford. The Government had
also planned to use other 2001 Census data for the 2004/05 RSG settlement, but the initial
exemplifications indicated wide fluctuations in grant entitlement at individual authority level
and so the Government has reverted to using updated 1991 Census data to maintain stability.
Population data is the only data from the 2001 census currently in use in the RSG formulae.
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4.
THE 2004/05 PROVISIONAL RSG SETTLEMENT
4.1. Details of the 2004/05 national totals by comparison with 2003/04 are set out in Appendix A,
whilst the national FSS (Formula Spending Share) control totals and Salford’s FSS by service
are shown in Appendix B.
4.2. The headline national impact is as follows :ENGLAND
•
•
Total Assumed Spending (TAS)
£73.0bn
up
6.0%
of which :Specific Grants
Formula Spending Share (FSS)
£12.5bn
£ 60.6bn
up
up
11.7%
4.9%
Formula Grant Allocation (FGA)
£54.1bn
up
6.5%
of which :NNDR -Total Business Rate Income
Revenue Support Grant
Specific Grants
£15.0bn
£26.7bn
£12.5bn
down 3.8%
up 10.7%
up 11.7%
•
Assumed National Council Tax (ANCT)
£19.0bn
up

Band D Council Tax at FSS
£1,078
up
4.8%
3.9%
(NB. Variations are shown against adjusted 2003/04 figures on a like-for-like basis,
where relevant)
4.3.
The major features of the provisional RSG settlement have been : The Government is assuming local authorities will increase their spending (TAS) by
6%, but as specific grants towards this spending will rise by 11.7% Formula Spending
Shares (FSS) are set to increase by 4.9%.
 The increase in FSS is skewed in favour of Education and Social Services, with
increases of 6.9% and 8.4% respectively on unadjusted figures, whilst highways and
other services receive broadly an inflation-only increase.
 Formula Grant (Revenue Support Grant plus NNDR) will increase by 5%, thus
resulting in an increase of 4.8% from Council Tax. Because of buoyancy in the national
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taxbase, the level of the reference Band D tax is only expected to rise by 3.9%.
 There will continue to be a system of damping arrangements, whereby education and
social services authorities will receive a floor of 3.5% and a ceiling of a 5.8% increase
in Formula Grant.
 On average, metropolitan districts and London boroughs have similar FSS increases at
4.6% and 4.7% respectively, and shire areas 4.8%, although within the shires, districts
with an average 2.5% increase fair worse than the counties and unitaries, who get
between 4.9% and 6.2%. There is no significant regional variation this year, as increases
range from 4.3% for the North East to 5.3% for the West Midlands. The North West get
a 4.6% increase overall.
 There has been a further substantial increase in specific grants of 11.7%, and they now
make up 17.1% of TAS in 2004/05, compared with 16.4% of the adjusted 2003/04 TSS.
This increase in specific grants is contrary to the Government’s expressed intention to
reduce them. Within the Personal Social Services and Other Services blocks there have
been significant movements in certain grants between specific and general grant,
significant increases in others and certain grants removed to reflect function changes, all
of which make it impossible to assess the detailed impact of all changes at this stage
without further supporting information. Details of the grant changes are contained in
Appendix C.
4.4.
The importance of the announcement is that it provides the first indication of the likely level
of the City Council's FSS for 2004/05 and the likely expenditure limit to keep to Government
spending and tax guidelines.
4.5.
The final SSA may be slightly different due to late data changes, eg on capital financing to
reflect actual instead of estimated credit approvals, but the City Council's likely expenditure
guidelines for 2004/05 can now be calculated.
5.
THE PROPOSALS FOR SALFORD
5.1. The provisional RSG settlement details relevant to Salford are set out in Appendix B. In
summary: FSS has increased from £260.608m (adjusted for function and grant changes
from £260.580m) to £269.597m (+ 3.45%). This once again compares poorly
with the national, metropolitan and Greater Manchester authorities average
increases of 4.7, 4.6 and 4.5% respectively.
 At 3.5%, Salford's Formula Grant Allocation (RSG + NNDR) increase is
at the floor and hence has the equal lowest increase in Greater
Manchester and amongst metropolitan districts. This is particularly
disappointing bearing in mind that for the last 3 years under the old formula
and for this year under the new formula Salford had the lowest increase twice
and the second lowest increase once.
 The reasons for this still need to be analysed at the time of writing this report
due to the lack of detailed information around specific grant and function
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changes. This information is expected over the next few days, although for
once, population data should not be a factor as there has been an upward
adjustment of 1300 to the figures used for 2003/04 and the 2004/05 figure is
some 300 higher than that used for the 2003/04 settlement. However,
population reduction will resume its impact in 2005/06
 Special and specific grants, principally for Social Services and Education,
will once again be made available to Salford in 2004/05. The substantial
adjustment to FSS for a switch between special grant and general grant for a
range of functions within these and other services means that the impact of
these grants upon the budget remains to be fully assessed as some remain to
be announced.
5.2. A comparison with Greater Manchester authorities is set out in Appendix D.
5.3. The provisional RSG settlement now enables detailed budget planning to take place and
consideration to be given to the possible Council Tax levy for Salford for 2004/05.
6.
THE IMPACT ON SALFORD'S REVENUE BUDGET 2004/05
6.1. Members will recall that over recent months the medium-term budget strategy for the City
Council for the next three years has been under review, taking into account the progress made
against the initial three-year strategy set in 2000/01 following the deterioration in the financial
position through the situation with children in care, and the establishment of a new three-year
strategy from 2003/04.
6.2. The following financial objectives were set as part of determining the medium-term budget
strategy : Council Tax rises to be below the national average ;
 Reserves to achieve the target of £8m over the next three years, ie by continuing an
annual contribution of £1m (Note : the requirement for the £1m contribution for
2004/05 was removed following windfall income from a backdated rates refund on
leisure centres and an anticipated Airport dividend) ;
 Decapitalising revenue expenditure currently funded from capital in a phased manner
over the next three years ;
 Continue to passport SSA increases for schools and similarly recognise Government
funding commitments to social services by adopting a similar passporting approach ;
 Provide growth of £1m per annum for other services ;
 Seek to eliminate the use of DLO/DSO surpluses to support the budget ;
 Make appropriate allowance for expected pay and price inflation and other financial
commitments over the next three years.
6.3. As a result, and taking into account the most likely effect of the RSG changes, a budget
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planning level of £285.080m was adopted, and agreed at the Cabinet away day on 10th
October. (NB. This would have necessitated savings of £1.9m to be identified to keep within
the estimate at the time of available resources, which assumed a 5% Council Tax rise)
6.4. The provisional RSG settlement figures and recent budget developments can now be used to
work out the City Council's indicative budget and Council Tax levy for 2004/05, which must
now become the focal point of the budget process.
6.5.
If it continues to be assumed that the Council Tax levy rises by 5% and the following
assumptions are also made : That allowance is made for a continuing Council Tax deficit of £1,098,000 (the same
level as for 2003/04) of which Salford's share would be £1m ;
 A taxbase of 62,024 (a marginal increase of 25 dwellings on 2003/04) to be
recommended to the Council on 17th December is used ,
then an indicative resource for 2004/05 would be as follows :Council Tax for Salford’s services
- Levy at + 5% (2003/04 £1105.35)
- Council Tax income
Less :
Collection Fund deficit
Net Council Tax revenue available for Salford’s services
Add :
NNDR
RSG
Total Resource/Budget
£1160.62
£m
71.986
1.000
70.986
60.393
148.039
---------279.418
======
6.6.
Since the presentation to Cabinet on 10th October and to this committee last month, officers
have been examining a number of measures which can be brought forward to reduce the
spending gap and hopefully avoid the need for any cuts in service.
6.7.
Whilst further work is necessary to clarify the budget position as more detail emerges
from Government departments with regard to specific grants over the next few days,
nevertheless, measures have been identified which would allow the budget for 2004/05 to
be broadly in balance with the resource level of £279.418m.
6.8.
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Such measures include :-
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 Anticipating the continued spending pressures within Social Services beyond the current
budget provision ;
 Adjusting the spending requirement for funding changes made by Government, eg to the
Flood Defence levy and to Benefit Subsidy ;
 Reducing the assumption for pay awards from 3% to 2.5% ;
 Removing the remaining uncommitted growth provision from the spending requirement
;
 Making further savings from the rescheduling of debt ;
 Maximising the use of grants to support the budget ;
 Maximising changes to the funding of rent rebates and capital financing in the HRA.
6.9.
However, the current position does not takes account of a number of uncertainties,
particularly : the precise effect of changes made to specific grants, notably for Social Services and
Benefits, where detailed grant entitlements for Salford remain to be announced by the
respective Government departments ;
 confirmation that the Education settlement provides sufficient funding to meet the
Secretary of State's requirements for passporting funding to schools and the limitations
imposed on central LEA spending, whilst also meeting inflationary pressures ;
 any further issues arising from directorate budget submissions ;
 funding of the capital programme ;
 any consideration to tightening of certain assumptions, eg pay and price inflation ;
 clarification of other issues of risk to the budget, eg insurance renewal tenders, levies
from GM authorities.
6.10. In considering this report, members of Cabinet were of the view that, subject to the
clarification of outstanding issues, the following objectives need to be examined : The desired level of Council Tax increase to be less than 5% ;
 The budget should be capable of addressing the Council's priorities ;
 Improvements in performance should be maintained ;
 There should be no detriment to the HRA from setting the General Fund budget.
6.11. In considering future options, it should be borne in mind that any increase in Council Tax
above inflation will require a matching improvement in performance, and then a minimum 2%
performance improvement on top, to enable the local PSA reward grant to be earned for the cost
effectiveness measure.
7. BUDGET TIMETABLE
7.1.
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The timetable which now needs to be followed to be able to set the revenue budget and
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Council Tax levy for 2004/05 is as follows :Mon, 24th - Wed, 26th Nov
Stage 1 public consultation area meetings
Wed, 26th Nov – Fri, 5th Dec
Individual meetings with Lead Members and Directors
concerning budget issues
Tues, 9th December
Report to Cabinet on Lead Member/Directors meetings,
stage 1 public consultation and outstanding RSG issues
Tuesday, 6th January
Leader, Deputy Leader and Lead Member for Corporate
Services agree proposals for final (stage 2) public consultation
Mon, 12th - Fri, 16th January
Stage 2 public consultation document
Tues, 13th, 20st, 27th January,
Reports to Cabinet Briefing, as required, to determine 3rd,
10th Feb. views on Revenue Budget and Council Tax
Wed, 11th February
Cabinet Meeting – to recommend Revenue Budget and
Council Tax to Council
Wed, 18th February
Council – to determine Revenue Budget and Council Tax
8. PUBLIC CONSULTATION
8.1.
For the public consultation this year, Community Pride have been engaged to support the
Council in developing public participation in the process.
8.2.
There will be a two-stage process again, but the first stage will be undertaken at 3 area-based
public meetings to be held in Eccles, Worsley and Salford on 24th, 25th and 26th November
respectively.
9. RECOMMENDATIONS
9.1.
Members are requested to note the current information which has been announced in the
provisional RSG settlement and the timetable outlined above to be followed to consult on and
determine the budget proposals for 2004/05.
ALAN WESTWOOD
Director of Corporate Services
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