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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 • • • • • • 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 • • • • • 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 • • • • • 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