.
NORTH LONDON WASTE AUTHORITY
REPORT TITLE
2014/15 SECOND BUDGET REVIEW
REPORT OF
FINANCIAL ADVISER
FOR SUBMISSION TO
AUTHORITY MEETING
DATE
29 SEPTEMBER 2014
1. SUMMARY OF REPORT
This report is the second in the current year on the Authority’s finances. It concludes that the
Authority is forecast to have a revenue surplus of £6.489m at 31 March 2015, i.e. an increase of
£2.769m compared with the first budget review.
Taken together, the transfer of waste from Hendon for treatment at Edmonton, the shredding of
civic amenity waste and a forecast reduction in the residual waste stream could produce a saving
in waste treatment costs of £4.323m in 2014/15. Information provided by constituent boroughs
however, indicates that the Authority will see a reduction in non-household and chargeable
household residual waste tonnages with a consequent reduction in income of £0.554m. The
overall net effect of these changes is a saving of £3.769m.
After including the release of revenue balances of £1m for Sites and Planning work approved at
the June meeting, the net saving for all changes in this review is £2.769m.
Because of the new contractual arrangements that are expected to be in place from December
2014, no forecast information is provided for 2015/16 and future years. A further review of the
2014/15 budget together with an up-to-date detailed assessment of the budget and resource
requirements for 2015/16 reflecting the expected new contractual arrangements will be reported
to the Authority in December.
2. RECOMMENDATIONS
The Authority is requested to note:(i)
The second review of the 2014/15 revenue budget.
(ii)
That a third review of the 2014/15 budget will be reported to the Authority meeting in
December together with an up-to-date assessment of the budget and resource
requirements for 2015/16.
Signed by the Financial Adviser
Agreed by Mike O’Donnell
Date:
18 September 2014
3.
Introduction
At the Authority meeting in June I advised Members that the Authority was forecast to have a
revenue surplus of £3.720m at 31 March 2015. As a result of the second review, forecast
revenue balances at the year-end are now estimated to increase by a further £2.769m to
£6.489m. This report provides details of the main changes and other issues that have arisen
since the June meeting.
4.
Second Budget Review
4.1
Transport, Disposal and Landfill Tax: (- £4.323m)
4.1.1 The current waste treatment contract with LondonWaste Ltd ends in December 2014. The
Authority is currently negotiating a new contract with the company, results of which will be
reflected in the third budget review reported to the December meeting. In this report all
financial forecasts assume no change to the current prices.
4.1.2 Based on data for April to July 2014, officers are currently forecasting that total residual
waste entering the waste stream in 2014/15 will be 578,101 tonnes i.e. a reduction of
5,031 tonnes (0.86%) on 2013/14 actual tonnage.
4.1.3 The 2014/15 budget, after an allowance for possible growth in the underlying waste
stream (before recycling) and the proposed increase in borough recycling activity,
provided for the treatment of 585,484 tonnes of residual waste. The residual waste
stream is forecast to be 7,383 tonnes lower than budget.
4.1.4 Details of the percentage movement in forecast 2014/15 residual tonnage levels for each
borough compared with 2013/14 may be summarised as follows:Table 1
Barnet
Camden
Enfield
Hackney
Haringey
Islington
Waltham Forest
September Forecast
(Second Review)
%
- 3.70
+ 0.01
- 0.25
+ 1.74
+ 0.63
- 0.12
- 3.90
Overall Position
- 0.86
The figures in table 1 reveal a mixed picture but in line with data reported to recent
meetings, the trend of declining overall volumes is slowing and for some boroughs the
Authority is currently forecasting an increase in 2014/15. In preparation for the
forthcoming budget process the Authority will liaise with borough officers to determine
whether the early year waste stream changes are likely to continue for the remainder of
the year and beyond. The outcome of this review together with an up-to-date assessment
by boroughs of their recycling ambitions will help inform an assessment of the impact that
this could have on the Authority’s 2015/16 waste treatment services and budget
requirements. Conclusions from these discussions will be reported to the December
meeting of the Authority as part of the detailed update on 2015/16 budget prospects.
Based on the July data, the saving in treatment costs and Landfill Tax in 2014/15 is
estimated to be £0.317m.
4.1.3
At the June meeting it was reported that the transfer of tonnage from the Hendon waste
stream to the Edmonton facility had begun and that based on a transfer of 50,000 per year
an annual saving of up to £2.5m could be achieved. At that time officers were of the view
that it was premature to assume this saving would be achieved but advised that Members
would be kept informed of progress in future reviews. The transfer arrangements have
now been in place for some months and are working well. Current information indicates
that a budget saving of £2.540m could be achieved in 2014/15 based on current contract
prices.
4.1.4
Also reported to the June meeting was the trial shredding and incineration of residual civic
amenity waste that would otherwise be sent to landfill. The trial was successful and it is
anticipated that some 89% of this waste stream will be shredded and incinerated. In
2014/15, taking into account the part year effect of this change and a slightly lower than
budgeted tonnage, it is forecast that there could be a net saving to the Authority of
£1.466m in 2014/15 at current contract prices.
4.2
Commingled Income Payment Scheme (CIPS)/Income from sale of recyclates.
4.2.1
Although tonnages sent by boroughs to the Authority’s MRF contractors are broadly in line
with expectations, the downward trend in the sale prices for recyclates is continuing. The
2014/15 budget assumed an income of £25 per tonne however in the light of actual
income for the first quarter of £23.71 boroughs may wish to review their own budget
forecasts. Payments to boroughs in relation to their additional costs of collection are set
by reference to the income received, thus making the scheme cost neutral for the
Authority.
4.3
Sites and Planning Process Costs: – (+ £1.000m)
4.3.1 The second budget review reflects the Authority’s decision at its June meeting to increase
the budget by £1m.
4.4
Charges to Boroughs for Non-Household Waste: (+ £0.545m)
4.4.1
Following an internal review of its trade waste operation and support services, Camden
has formally advised the Authority of tonnages of residual and recyclable waste that are
substantially different to those previously provided. If borne out by the year end
declarations, there will be an estimated £0.545m reduction in the Authority’s income. The
Authority has no means of making good this shortfall in 2014/15 so there will a
commensurate reduction in its retained revenue balances at 31 March 2015. This plus
the ongoing effect of this permanent reduction in income will have to be recovered through
an increased levy in 2015/16 although the increase may be mitigated by other, favourable
budget variances.
4.5
Charges to Boroughs for Household Waste: (+ £0.009m)
4.5.1 Camden has also reported changes to the tonnages of residual and recyclable chargeable
household waste. The estimated reduction of £0.009m in the Authority’s income is
considerably less than for non household waste but will similarly reduce the level of
retained balances at 31 March 2015 and increase the levy in 2015/16.
4.6
Table 2 provides a summary of the current position.
Table 2
2014/15
Original
Budget
2014/15
First
Review
2014/15
Second
Review
Variance
Between
1st & 2nd
Review
£’000
£’000
£’000
£’000
26,073
1,382
13,809
2,967
6,126
1,585
2,457
2,843
766
316
259
298
297
2,974
1,000
8,242
71,394
26,073
1,382
13,809
2,967
6,126
1,585
2,457
2,843
766
316
259
298
297
2,974
1,115
8,242
71,509
23,364
1,408
12,169
2,967
6,126
1,585
2,457
2,843
766
316
259
298
297
2,821
2,115
8,242
68,033
(2,709)
26
(1,640)
0
0
0
0
0
0
0
0
0
0
(153)
1,000
0
(3,476)
Net Expenditure
Contingency
(105)
(2,974)
(75)
(2,500)
(5,654)
65,740
1,315
(105)
(2,974)
(75)
(2,500)
(5,654)
65,855
1,315
(105)
(2,821)
(75)
(2,500)
(5,501)
62,532
1,315
0
153
0
0
153
(3,323)
0
Total Net Expenditure
67,055
67,170
63,847
(3,323)
Financed By:
Balances b/fwd
Return of Earmarked Reserve to Revenue
Charges to Boroughs (Non-household waste)
Charges to Boroughs (Household waste)
Levy – Base Element
Levy – HWRC Element
(6,907)
(1,000)
(10,691)
(2,005)
(44,375)
(2,077)
(10,742)
(1,000)
(10,691)
(2,005)
(44,375)
(2,077)
(10,742)
(1,000)
(10,146)
(1,996)
(44,375)
(2,077)
0
0
545
9
0
0
Total Resources Available
(67,055)
(70,890)
(70,336)
554
(3,720)
(6,489)
Expenditure
Main Waste Disposal Contract (ex CA Waste)
Civic Amenity Waste
Landfill Tax
Composting Services
MRF Services
Transfer Stations and Other Sites
Household Waste Recycling Centres
Corporate and other Support Service Costs
Operations Team
Waste Reduction Programme – New Initiatives
Technical and Planning Team
Joint Communications Initiative
Recycling Initiatives
Commingled Income Payment Scheme
Sites and Planning Process Costs
Revenue Funding – Capital Programme
Income
Rents
Sale of Recyclates
Interest on Balances
Estimated Dividend Stream (LondonWaste Ltd)
Forecast Balances at 31 March 2015
Retained Balances
0
(5,000)
(5,000)
0
(2,769)
5,000
5.
Review of the Outlook for 2015/16, 2016/17 and 2017/18
5.1
Members will be aware that with effect from December 2014 the Authority expects to have
a new contract with LondonWaste Ltd for waste treatment services and is considered
elsewhere on this agenda. Subject to finalisation of the terms and prices and the award of
the contract, the new arrangements will be reflected in the third review of the 2014/15
budget and the 2015/16 budget forecast that will be presented to the December meeting.
6.
Conclusion
6.1
In the June report I drew attention to two operational changes which had the potential to
reduce the Authority’s cost base. Given the initial successs of these changes, the second
review allows for the estimated benefit of these changes in 2014/15 at current contract
prices. Allowing for other changes, the second review is currently forecasing that
balances could improve by a further £2.769m to £6.489m at 31 March 2015. The impacts
of these changes and the proposed new contract will be examined in more detail in
December when Members will be provided with details of the 2014/15 third budget review
and an up-to-date assessement of the Authority’s 2015/16 budget and resource
requirements.
7.
Comments of the Legal Adviser
7.1
The Legal Adviser has been consulted in the preparation of this report and has no
comments to add.
Local Government Act 1972 - Section 100 as amended
Documents used in the preparation of this report: Reports to the Authority 13 February 2014 and 26 June 2014
2014/15 budgetary control working papers
Contact Officers:
R A Bench - Head of Finance
N Harris - Deputy Head of Finance
North London Waste Authority
Unit 1B
Berol House
25 Ashley Road
London N17 9LJ
Tel:
Email:
020 8489 5867/8609
robert.bench@nlwa.gov.uk
nick.harris@nlwa.gov.uk
rb/nlwa/201415 2nd budget review