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Local Government Finance & Budget
- Briefing for All Members
Wednesday 9th January 2013
Denise Park
Executive Director,
Resources & Transformation
Liz Hall
Director of Finance
(s.151 officer)
Topics
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•
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Revenue budget
Capital spending and financing
Reserves
Budget Setting
Local Government Finance Settlement
Key changes to local government
financing and funding from April 2013
• 13/14 and 14/15 update
Budgets
•
•
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•
•
How are they put together?
What different ways are there to do it?
Who has been consulted?
What assumptions is it based on?
How robust is it?
Incremental budgeting
• Relatively easy to
do
• Understandable
• Stable
•
•
•
•
Focus on depts
Focus on inputs
Over-estimation
Little review of base
budget
• ‘salami slicing’
Incremental budgeting
Zero based budgeting
• Focus on priorities
• Challenges service
delivery
• Adapt quickly to
policy changes
• Encourages budget
ownership
• Difficult to do
• Time consuming
• Resistance from
‘losers’
• Many budgets
;locked in’ by
legislation
Participatory budgeting
• Credibility &
ownership by public
• Transparency
• Good for rationing
capital schemes
• Risks oversimplifying issues
• High interest in
some issues, none
in others
Priority led
budgeting
The Council’s budget process
• Tailored mix of approaches
• Incremental build up
• Focus on priorities and
statutory duties
• Public consultation reflected
The Revenue Budget
• Running costs
– Staff, buildings, commissioned
services, borrowing costs etc.
• Less Income
– Fees and charges
• = Net Revenue Expenditure
Funded from:
• Council Tax
• Government grants
Annual budget setting
• The Council has a statutory duty “to set an annual
“balanced” budget i.e. its planned revenue expenditure on
services must be contained within the estimated income
available”.
• Revenue expenditure includes payments for day to
day running expenses - including salaries and wages,
premises costs, equipment, materials, contracted
services and borrowing costs for capital
• Income comes largely from fees and charges for
services together with funding from government
grants and council tax
• A Medium Term Financial Strategy, MTFS, (for the
next 3-5 years) is also prepared and updated
annually
Councils budget 2012/13
HOW THE MONEY IS SPENT ON SERVICES
£000
%
Cultural and Related Services
19,481
5%
Environmental Services
16,339
4%
Planning and Development Services
13,990
3%
Children's Safeguarding and Protection
Education Services
25,641
6%
165,532
41%
Highways and Transport Services
14,351
4%
Housing Services
66,062
16%
Adult Social Care
51,795
13%
Central Services
25,516
6%
9,989
2%
408,696
100%
Other Operating Expenditure
WHERE THE MONEY COMES FROM
£000
%
Council Tax
50,254
12%
General Grants (RSG / Business Rates/ Other non ringfenced)
97,299
24%
126,798
31%
Housing and Council Tax Benefit Subsidy
71,450
17%
Other Service Specific Government Grants
5,500
1%
Contribution from Balances
6,684
2%
50,711
13%
408,696
100%
Dedicated Schools Grant
Other Fees and Charges
Capital Spending
• Each local authority also has a capital programme
• Capital expenditure is “spending on the acquisition,
creation or enhancement of assets which will last
longer than one year”
• Capital spending by local authorities is mainly for
buying, constructing or improving physical assets
such as:
- buildings – schools, libraries, leisure facilities etc.
- land, for development, roads, playing fields, etc.
- vehicles, plant and machinery - including street
lighting, road signs etc.
• It also includes grants made for capital purposes
Capital Funding
• Spending on capital assets is usually
funded by
- Capital receipts (from sale of assets)
- Grants or other contributions
- Long term borrowing
• The annual repayment and interest
costs of borrowing are charged to the
revenue budget
Reserves
• General (unallocated reserves)
– Must hold a minimum recommended level,
currently £5M
– Above this amount reserves can be used to
fund expenditure but can only be used once
• Earmarked reserves
– Held for specific purposes and/or future
liabilities
– Can also be held on behalf of other bodies,
e.g. schools
Reserves
• In setting the revenue budget the
council can
– Make a contribution to reserves to
replenish or build them up for the future or
to protect against risks
– Use reserves to balance the budget if there
is a shortfall – these can only be used once
and can create future problems if funding
ongoing costs
Local Government Finance Settlement
• Complex system of multiple data sets & formulae to
determine the distribution of Formula Grant from central
government to local authorities taking into account a
range of local factors.
• Formula Grant comprised (up to 2012/13)
- Revenue Support Grant (RSG)
- Redistributed National Non-Domestic (Business) Rates (NNDR)
- Other non-ringfenced grants
• Councils also receive a small number of specific grants
from government departments which can be ringfenced
for specific purposes
Local Government Finance Settlement
• Part of the public expenditure planning
framework
• The last comprehensive spending review
(CSR), in 2010, set government spending
plans for the four year period from 2011/12 to
2014/15
• However, details of specific funding for
individual Councils were only provided for the
first two years 2011/12 and 2012/13
Headline national figures from
2010 spending review
2010/11
£bn
2011/12
£bn
2012/13
£bn
2013/14
£bn
2014/15
£bn
Education
50.8
51.2
52.1
52.9
53.9
NHS
98.7
101.5
104.0
106.9
109.8
Local
government
28.5
26.1
24.4
24.2
22.9
Local Government Finance Act 2012
• Includes key technical changes to local government
financing and funding to take effect from April 2013
including
• A new local business rates retention scheme
• Localising Council Tax support in England (replacing
national Council Tax benefit) with a 10% overall
reduction in funding
• Technical changes to the way that Council Tax is
levied on empty properties and some other reforms
Funding in the future
• Reducing reliance on government grants
• Formula Grant largely replaced by funding
directly from business rates through a top-up
and tariff system
• Income from Council Tax will change (reduce)
• Council tax-base (number of Band D
equivalent chargeable properties) more volatile
due to localised council tax support scheme
Business rates retention scheme
• From April 2013, councils will retain a
proportion of business rates raised
locally (50%)
• Replaces the current system where
business rates are collected locally then
pooled and redistributed nationally
• No changes for business ratepayers
Business rates retention scheme
• Local Government Finance Report for 2013/14 will
set out for each authority:
(A) a “baseline” funding level
(B) an individual authority business rate baseline
• Where a local authority collects more than the
baseline it will pay a tariff to central government (B >
A)
• Where it collects less it will receive a top-up (A > B)
• BwD will receive a top-up
Business rates retention scheme
• Accurate forecasting of business rates
income will become more important for future
budget setting
• Safety net system in place if funding falls
below a set level
• A proportion of additional rate income
generated can be retained, but a levy will be
in place if this growth exceeds the set
proportion
Localising Council Tax support
• replacing the national Council Tax benefit
scheme, with a local discount
• 10% overall reduction in funding to
Councils
• Pension age claimants protected
• Scheme to be determined by 31st January
Settlement 2013/14
• Spending Power
• How much money a Council has to spend
(adjusted for comparison purposes) from
– Council tax income (including freeze grant)
– Council tax support grant
– Formula Grant including retained business
rates
– Other (but not all) unringfenced grants
– NHS funding for social care
Settlement 2013/14 & 2014/15
• Actual changes in government grants from
12/13 to 13/14 and 14/15
• Reductions in
13/14
14/15
£M
£M
–
–
–
–
–
Formula Grant
Early Intervention Grant
Other grants
Council Tax freeze grant
TOTAL
-1.8
-3.5
-0.7
+0.5
-5.5
-11.4
- 4.1
- 0.5
+0.5
-15.5
Other Budget factors to consider
• Inflationary cost increases
• Demographic / demand pressures
• Increased costs of capital programme
investment
• Reducing income and other contributions
• Economic pressures
• Welfare and other reform costs
• Use of reserves
The forecast budget gap
•
•
•
•
•
•
Reductions in grants
Changes in council tax*
Inflation
Council tax reform
Capital programme
Demographics / income &
other pressures
• TOTAL
13/14
14/15
£M
5.5
0.2
2.1
1.0
0.1
£M
15.5
(0.6)
4.9
1.3
2.3
3.6
12.5
7.2
30.6
Closing the gap
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•
•
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Review current services and costs
Increase council tax
Increase fees and charges
Use reserves
Cut services and costs
Timescales
• Council Forum 31st January
– Local council tax support scheme
– Early budget options
• Consultation – Jan/Feb
– Members, unions, staff, public, partners
• Finance Council 4th March
– Set balanced budget
– Agree council tax levels