1. Local Government Finance & Budget - Briefing for All Members Wednesday 9th January 2013 Denise Park Liz Hall Executive Director, Director of Finance Resources & Transformation (s.151 officer)

2. 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

3. 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?

4. Incremental budgeting Relatively easy to do Understandable Stable Focus on depts Focus on inputs Over-estimation Little review of base budget ‘salami slicing’

5. Incremental budgeting

6. 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

7. Participatory budgeting Credibility & ownership by public Transparency Good for rationing capital schemes Risks over- simplifying issues High interest in some issues, none in others

8. Priority led budgeting

9. The Council’s budget process Tailored mix of approaches Incremental build up Focus on priorities and statutory duties Public consultation reflected

10. 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

11. 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

12. Councils budget 2012/13 HOW THE MONEY IS SPENT ON SERVICES £000% Cultural and Related Services19,4815% Environmental Services16,3394% Planning and Development Services13,9903% Children's Safeguarding and Protection25,6416% Education Services165,53241% Highways and Transport Services14,3514% Housing Services66,06216% Adult Social Care51,79513% Central Services25,5166% Other Operating Expenditure9,9892% 408,696100%

13. WHERE THE MONEY COMES FROM £000% Council Tax50,25412% General Grants (RSG / Business Rates/ Other non ringfenced)97,29924% Dedicated Schools Grant126,79831% Housing and Council Tax Benefit Subsidy71,45017% Other Service Specific Government Grants5,5001% Contribution from Balances6,6842% Other Fees and Charges50,71113% 408,696100%

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. Headline national figures from 2010 spending review 2010/11 £bn 2011/12 £bn 2012/13 £bn 2013/14 £bn 2014/15 £bn Education50.851.252.152.953.9 NHS98.7101.5104.0106.9109.8 Local government 28.526.124.424.222.9

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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 31 st January

27. 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

28. Settlement 2013/14 & 2014/15 Actual changes in government grants from 12/13 to 13/14 and 14/15 Reductions in13/1414/15£M –Formula Grant-1.8-11.4 –Early Intervention Grant-3.5- 4.1 –Other grants-0.7- 0.5 –Council Tax freeze grant+0.5+0.5 –TOTAL-5.5-15.5

29. 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

30. The forecast budget gap 13/1414/15£M Reductions in grants5.515.5 Changes in council tax*0.2(0.6) Inflation2.14.9 Council tax reform1.01.3 Capital programme0.12.3 Demographics / income & other pressures3.67.2 TOTAL12.530.6

31. Closing the gap Review current services and costs Increase council tax Increase fees and charges Use reserves Cut services and costs

32. Timescales Council Forum 31 st January –Local council tax support scheme –Early budget options Consultation – Jan/Feb –Members, unions, staff, public, partners Finance Council 4 th March –Set balanced budget –Agree council tax levels