Part 1
ITEM NO.
__________________________________________________________________
REPORT OF THE CITY TREASURER
__________________________________________________________________
TO BUDGET AND EFFICIENCY GROUP
ON WEDNESDAY, 4TH MAY, 2011
__________________________________________________________________
TITLE: APPLICATION FOR CAPITALISATION DIRECTION 2011/12
__________________________________________________________________
RECOMMENDATION:
That members approve the application for a capitalisation
direction from the Secretary of State of £8m for 2011/12.
__________________________________________________________________
EXECUTIVE SUMMARY:
This report sets out the detailed assumptions used in
determining the amount of a capitalisation direction to be
applied for in respect of statutory redundancy costs to be
incurred in 2011/12.
__________________________________________________________________
BACKGROUND DOCUMENTS: Budget Report to Council 2nd March, 2011
(Available for public inspection) CLG guidance re Capitalisation Directions 2011/12
__________________________________________________________________
KEY DECISION:
No. A decision on this matter does not constitute authority to incur
expenditure but to seek a direction from the Secretary of State to
capitalise expenditure which might otherwise be met from revenue.
__________________________________________________________________
DETAILS:
See below
__________________________________________________________________
KEY COUNCIL POLICIES: Budget Strategy
__________________________________________________________________
EQUALITY IMPACT ASSESSMENT AND IMPLICATIONS: Not applicable
__________________________________________________________________
ASSESSMENT OF RISK:
High if capitalisation not approved.
A successful capitalisation direction will help to mitigate the financial risk to the Council by
spreading the revenue impact over more than one financial year. An unsuccessful
application, or a much scaled-down direction, will require funding to be met from
unearmarked reserves, which are close to the minimum level based on the risk
assessment undertaken for the 2011/12 revenue budget.
__________________________________________________________________
D:\99195018.doc
SOURCE OF FUNDING:
A capitalisation direction will permit redundancy costs being
charged to capital and funded from either prudential borrowing
or capital receipts.
__________________________________________________________________
LEGAL IMPLICATIONS : Not applicable
__________________________________________________________________
FINANCIAL IMPLICATIONS : Supplied by John Spink, City Treasurer
__________________________________________________________________
OTHER DIRECTORATES CONSULTED: Not required in this instance
__________________________________________________________________
CONTACT OFFICER: John Spink
TEL. NO. 793 3230
__________________________________________________________________
WARD(S) TO WHICH REPORT RELATE(S): None specifically
__________________________________________________________________
D:\99195018.doc
REPORT DETAILS
Headline Savings and Job Losses
The revenue budget report to Council on 2 nd March 2011 identified a requirement to make
savings in expenditure of £39.915m and would require the loss of 592 jobs in 2011/12
through a combination of voluntary early retirement (VER), voluntary severance (VS) and
natural wastage.
The savings programme for 2011/12 would generate further savings of £6.743m and
£8.021m in 2012/13 and 2013/14 with further year-on-year job losses of 86 and 153
respectively.
An extract from the budget report showing the distribution of the savings plan across
directorates and the expected job losses for the years 2011/12 to 2013/14 is shown at
Appendix 1.
The revenue budget report to Council also identified that the future prospects for 2012/13
indicated that, in addition to the increase in savings expected from the 2011/12 savings
programme, there would be a need for further savings amounting to £18.1m in 2012/13.
An extract from the budget report showing the projection of the budget position for 2012/13
is shown at Appendix 2.
Clearly, therefore, there will be a need to continue to seek volunteers for early retirement
and severance to achieve the desired reduction in jobs, and that this will entail further
redundancy payments needing to be made in 2011/12.
Progress with Job Losses in 2011/12
The member panel established to consider VER/VS applications recommended by
strategic directors for approval as a means of delivering their proposed savings have
agreed a total of 371 applications for VER/VS against the 592 target job losses for the
2011/12 revenue budget. The remaining 221 are predominantly expected from the crosscutting, corporate savings proposals that have yet to be implemented.
Of the 371 applications received so far, 237 were approved for staff to leave by 31 st March
2011 and therefore their redundancy and early retirement costs have fallen to be met in the
2010/11 financial year, with statutory redundancy costs of £1,805,517 being met from the
capitalisation direction of £2,470,000 received on 24 th January, 2011.
The remainder of the capitalisation direction, amounting to £664,483, has been applied to
VER/VS applications earlier in the year relating to the delivery of savings for the 2010/11
revenue budget.
Members will recall that the funding strategy for meeting all costs associated with approved
VER and VS applications is as follows :
Early retirement costs - agreement has been reached with Greater Manchester
Pension Fund to spread the capital cost over three years through allowance
made in the annual employers’ contribution rate as assessed by the Pension
Fund actuary.
D:\99195018.doc

Statutory redundancy payments – seek to fund via prudential borrowing or
usable capital receipts via a capitalisation direction from the Secretary of State.

Enhanced redundancy payments – to be funded from revenue.
In adopting the above strategy members were made aware that the capitalisation direction
applied for in respect of statutory redundancy payments in 2010/11 was £6.5m but the final
direction approved by the Secretary of State was only £2.470m, meaning that the number
of approvals to VER/VS applications up to 31st March 2011 required to deliver budget
savings in 2011/12 were limited so as to not exceed the capitalisation limit, with remaining
applications being implemented on or after 1st April, 2011.
Estimating the Potential Capitalisation Requirement for 2011/12
It is expected that statutory redundancy costs will be incurred during 2011/12 arising from
VER/VS approvals in the following circumstances :For the 2011/12 revenue budget savings requirement :
The 134 applications that have been paid out so far since 1st April.

The remaining 221 applications expected to deliver the 592 total job losses.
For the 2012/13 revenue budget savings requirement :
A further 86 applications expected to deliver the additional full year savings of
£6.7m expected in 2012/13 from the approved 2011/12 savings programme.

A further 232 applications expected to deliver new and additional savings
required in 2012/13 to meet the funding gap of £18.1m referred to in the future
prospects section of the 2011/12 budget report to Council on 2nd March.

A further 75 applications to achieve early delivery of the savings and job losses
required for 2013/14 as identified in the 2011/12 savings plan, and

A further 75 applications to provide for further job losses that may be required in
2012/13 should the delivery of the 2011/12 fall short of expectations, as is
currently being indicated from some of the cross-cutting proposals.
In addition, there are a further 50 applications expected from school-based staff.
In total, therefore, provision needs to be made for statutory redundancy payments to a
further 739 staff in addition to the 134 redundancy payments already made since 1st April.
In determining an average redundancy cost, the following trend of statutory redundancy
payments for VER applications has been evident :2009/10
2010/11
2011/12
D:\99195018.doc
average payment
average payment
average payment (to date)
£13,296
£12,263
£12,971
There is no obvious reason for the dip in average payments in 2010/11 and therefore an
average of £13,000 is proposed to be used for determining total redundancy payments to
VER applicants in 2011/12.
The trend for VS applications is :2010/11
2011/12
average payment
average payment (to date)
£ 5,563
£ 4,823
Again, there is no obvious reason for the variation between the years and as VS has only
been available for the 2011/12 budget round (and was not available in earlier years) it is
proposed that the overall average of £5,330 is used for determining total redundancy
payments to VS applicants in 2011/12.
On the basis of the VER/VS applications approved since 1st April, 2010 there has been a
50:50 split between VER and VS.
Therefore, using the above information and assumptions would give an estimate of total
statutory redundancy payments during 2011/12 as follows :
134 VER/VS applications approved to date in 2011/12
£1,178,847

370 VER applications @ £13,000 each =
£4,810,000

369 VS applications @ £5,330 each
£1,966,770
--------------£7,955,617
=
Total
Say
£8,000,000
=========
It is therefore recommended that approval be given to apply for a capitalisation
direction from the Secretary of State for redundancy payments in 2011/12 amounting
to £8m.
The proposed application form is attached at Appendix 3.
JOHN SPINK
City Treasurer
D:\99195018.doc
Appendix 1
Extract from 2011/12 Budget Report to Council 2nd March, 2011
DISTRIBUTION OF SAVINGS AND JOB LOSSES 2011/12 TO 2013/14
Chief Executive
Customer & Support Services
Children's Services
Community Health & Social Care
- Neighbourhoods
- Culture & Leisure
- Adult Social Care
Environment & Community Safety
- Environment
- Community Safety
Sustainable Regeneration
- Housing
- Planning
Cross-Cutting
Total Efficiencies for the Year
D:\99195018.doc
SAVINGS
2011/12 2012/13 2013/14
£000s £000s £000s
5,474
3,727
3,875
3,792
5,595
7,168
5,736
7,565
8,676
JOB LOSSES
2011/12 2012/13 2013/14
Nos
Nos
Nos
27
53
58
106
152
187
109
108
134
596
914
3,383
1,016
1,379
7,033
1,368
1,780
10,280
5
0
37
9
0
71
19
0
135
2,311
431
2,778
473
2,860
480
47
6
59
9
60
9
2,150
4,552
10,576
39,915
2,150
5,646
9,296
46,658
2,150
6,746
9,296
54,679
20
25
210
592
20
37
160
678
20
49
160
831
Appendix 2
Extract from 2011/12 Budget Report to Council 2nd March, 2011
PROJECTION OF THE PRELIMINARY BUDGET POSITION FOR 2012/13
Resources Available
Council Tax
Formula Grant
Specific Grants
£m
95.3
125.1
+ 2.5% on 2011/12
Early Intervention Grant
HB/CTB Admin Subsidy
Preventing Homelessness
Council Tax Freeze Grant
Learning Difficulties Grant
NHS Social Care Grant
13.3
2.7
0.2
2.3
7.3
3.5
-----------
29.3
-----------249.7
Spending Requirement
Base Budget (Revenue Spending Power)
Adjustments for Commitments – BSF, Greengate
Capital Financing
Inflation
Early pension costs (£4m to be spread over 3 years)
258.0
2.9
3.8
8.5
1.3
-----------274.5
Less : Savings – full year effect from 2011/12 budget
-
6.7
-----------267.8
Less : Resources Available
-
Further Savings to find
-
249.7
-----------18.1
=======
D:\99195018.doc
Appendix 3
APPLICATION FOR CAPITALISATION DIRECTION 2011/12
See Annex A attached.
D:\99195018.doc