1. Local Government Finance Explained

2. Objectives Questions Jargon Don’t panic!
Welcome!
Objectives Questions Jargon Don’t panic!

3. Our Agenda
The legal framework Revenue funding Capital funding The budget setting process The budget monitoring process

4. What the law says
The Council must have: A Medium Term Financial Strategy A balanced budget with adequate reserves Financial Regulations, usually as part of the Council’s Constitution A “Section 151” Officer

5. The “Section 151” officer
Section 151 of the Local Government Act 1972 Ensures effective financial management Provides financial advice, procedures and systems

6. The Auditors
Internal Audit Tests internal control at the council Detailed reports provided to management Work evaluated and considered by the Audit Committee (or equivalent)

7. The Auditors
External Audit Currently provided via the Audit Commission Provides audit and value for money opinions The future of local government external audit?

8. The Housing Revenue Account
The “landlord” function of providing council housing Only required if your authority owns housing stock “Ringfenced” and cannot be subsidised by the General Fund

9. The General Fund
All services apart from council housing Beware, non “landlord” housing duties will be part of the General Fund e.g. Housing Benefits, Support to Housing Associations etc

10. Revenue v Capital
Revenue The running costs of the council Generally under one year life e.g. Employee costs, transport & premises running costs, supplies and services

11. Revenue v Capital
Capital Creating and improving assets Over a one year life e.g. Buildings, infrastructure, vehicles, large items of equipment

12. Revenue v Capital
The council receives separate funding for revenue and capital Revenue funding may be used for capital purposes Capital funding cannot be used for revenue purposes

13. The current system Housing Rents Service charges Housing Subsidy Grant
HRA Funding
The current system Housing Rents Service charges Housing Subsidy Grant

14. HRA Funding
The new system (subject to the Localism Bill) Fully local funding of the HRA No Housing Subsidy Grant A one-off redistribution of debt between councils

15. Revenue funding - sources
Council Tax Formula Grant Specific grants Fees and charges Investment interest Use of reserves and balances

16. Council Tax
A tax on domestic properties The level of tax depends on the property value on 1 April 1991 The level of Council Tax must be formally approved by full Council prior to the start of the financial year

17. Controlling Council Tax Levels
Council Tax “Capping” In 2011/12, a one-off grant equivalent of a 2.5% increase in Council Tax From 2012/13 - local referendum on “excessive” increases

18. The New Homes Bonus
New for 2011/12 “Match funding” the increase in Council Tax base as a result of new homes Funding remains (and builds) for 6 financial years

19. Formula Grant
Government Spending Review 2010 determines overall amount The Local Authority “Settlement” informs each council of their individual grant allocation

20. National Non Domestic Rates
Nationally determined since 1990 Billing authorities send out bills and collect the tax Proceeds are “pooled” nationally Redistributed back to councils via the Formula Grant

21. Specific Grants
Money to reimburse all, or a proportion of, spending on defined services Can be subject to individual audit certification Many have been “rolled into” Formula Grant from 2011/12

22. Fees and Charges
Many individual services have specific legislation concerning charging The Local Government Act 2003 provides a power to charge for all discretionary services Income cannot exceed the cost under the LGA 2003

23. Investment Interest
Councils invest surplus funds to earn interest The Treasury Management Policy determines where the money is invested The balance between “risk” and “return” is key

24. Use of Reserves and Balances
Minimum level of reserves agreed by the council The Section 151 Officer reports on the adequacy of reserves Using reserves is fine, but once used, they are gone forever

25. Capital funding
Capital receipts Borrowing Capital grants Contributions from private developers Revenue contributions

26. Capital Receipts
The proceeds of sales of assets 100% usable for general fund assets “Right to Buy” receipts currently “pooled” – 75% are returned to central government

27. Borrowing
The Prudential Code for Capital Finance (CIPFA) Councils can borrow if considered affordable and prudent Councils can borrow from the banking sector, but usually use the “Public Works Loans Board”

28. Contributions from Developers
Town and Country Planning Act Section 106 The Community Infrastructure Levy

29. The Financial Management Process
Medium Term Financial Strategy
Capital Programme
Annual Budget
Revenue
Capital
Spending

30. Roles and Responsibilities - Members
Full Council debates and agrees the annual budget and the MTFS The Executive proposes the budget to full Council

31. Roles and Responsibilities - Members
Scrutiny reviews, influences and makes recommendations to improve service delivery and the budget etc. The Audit Committee monitors internal control and audit issues

32. The Budget Timetable April February September December Update MTFS
Full Council
Update MTFS
February
CONSULT?
September
Finalise Budget
December
Detailed Budgeting

33. Budgeting for Front Line Services
Service expenditure + Central recharges = Total expenditure - Income Net Expenditure

34. Budgeting for Central Services
Service Expenditure + Central recharges = Total expenditure - Recharges Net Expenditure (0)

35. The Capital Programme
Project based “Prudential Indicators” Has the MTFS picked up the revenue implications?

36. The Budget Monitoring Process
Approved Budget
Compare with actual spending
Impact on future years?
Service
Performance
Take action
on “variances”

37. Roles and Responsibilities
Delegated authority Detailed monitoring and control by “Budget Holders” The finance department provides budget monitoring information and support

38. Roles and Responsibilities
Executive members provide political overview of the budget monitoring process Scrutiny ensure budgets are being monitored thoroughly and review “problem areas”

39. Linking Finance and Service Performance Information
Over spend? - Unforeseen demand for a service? Under spend? - not achieving a service plan target Always consider both sides of the coin!

40. Key Messages
Local government finance is complex! Elected members approve the budget and ensure that spending and income are monitored effectively Always consider financial information alongside service performance information

41. Ian Fifield, Head of Training LG Futures Ltd. ian. fifield@lgfutures
Ian Fifield, Head of Training LG Futures Ltd. Tel:

42. These training materials provide LG Futures view of current practice and contain general advice and comments only. You should seek further advice from your organisation’s finance professionals before acting upon any of the specific issues covered within the materials or placing reliance upon them in any particular circumstances. © 2011 LG Futures Ltd. All rights reserved