Agenda item

Report by Chief Financial Officer (attached).

The Executive considered a report by the Chief Financial Officer (circulated previously), the options and/or alternatives and other relevant facts set out in the report regarding the Revenue Budget 2019/20, Capital Programme and Medium Term Financial Strategy 2019-2023.

The Head of Resources highlighted the following:

·         Government settlement December 2018.  The provisional 2019-20 settlement (including the Rural Services Delivery Grant) was £3.269m (Year 4).  In cash terms this was £363,000 less than 2018-19 (10% reduction) in line with the Medium Term Financial Plan.  75% Business Rate Pilot bid for Devon had been unsuccessful.  There were no new changes announced for the New Homes Bonus for 2019/20, however potential changes for 2020/21.   The Rural Services Delivery Grant matched the 2018/19 level.  Council Tax levels for District Councils could be increased by up to 3% or £5 whichever was higher.  The referendum in relation to Council Tax levels for Town and Parish Councils had been deferred.  The Government had awarded one off funding for Brexit over a 2 year period of £17,500 for 2018/19 and £17,500 for 2019/20.  This grant would be placed in an earmarked reserve.

·         Government settlement change in funding by class of Authority.  The Shire Districts and County Councils had received the largest reduction in funding from 2015/16 to 2019/20.

·         Medium Term Financial Plan (2018-22) approved by Council in February 2018 was based on a number of financial assumptions about the future which included funding from Central Government, retained Business Rates income and future Council Tax levels, cost pressures and savings plans and contributions to and from reserves (e.g. vehicle replacement).  The forecast budget gap from 2019/20 to 2021/22, as at February 2018 was outlined.

·         New Homes Bonus changes introduced in 2017. 

·         New Homes Bonus provisional level of funding to 2019/20.  The level of funding for 2018/19 was £1,313,520.  The Medium Term Financial Plan assumed £1.3m for 2019/20 therefore there was an additional £146,000.  £100,000 from the New Homes Bonus would be placed into a reserve for one off capital projects.

·         Business Rates Retention.  100% Business Rate Pilot had been accepted for Devon for 2018/19.  The pilot programme was for one year.  The estimated additional one-off business rates gain was £0.750m.  This gain had been placed into earmarked reserves 2018/19 for future year projects.  The Government had invited bids for 2019/20 pilots, however Devon had been unsuccessful and would revert back to the Devon Pool (50% scheme).

·         The 2019/20 Business Rate retention forecast was £1.690m.  The 2019/20 draft budget (above baseline funding) was £1.502m. 

·         Local Government Finance funding reforms which included: Spending Review for the period 2020/21; a review of relative needs and resources; Business Rates Retentions pilots, business rates baseline reset, Fair Funding review, New Homes Bonus review, Reforms to Local Government funding would change the level of resources available and have an impact on revenue budget; indicative allocations would be announced during the Autumn 2019.

·         Council Tax levels for 2018/19 Band D properties had been increased by £5.16 (equivalent to 2.99%).  Rural Councils could increase levels by up to 3% or £5 whichever higher.  By increasing the level by 2.99% for 2019/20 would increase NDC’s proportion of Council Tax for Band D properties from £178.02 to £183.35 (an increase of £5.33).

·         Strategic Grants – it had been recommended that the level of grants be reduced by 8%, which had been included within the draft budget for 2019/20.  However, the Council’s actual funding settlement had been reduced by 10%.  Supporting statements from the organisations in receipt of Strategic Grants were contained within Appendix 2 of the report.  It was proposed that the strategic grant for the South Molton Swimming pool be removed in full as the pool was now operated by a commercial organisation 1610 Limited which was a private company limited by guarantee.  1610 ran a number of pools in the South West area and across the country. Parkwood provided a service to the Council for the management of the Leisure Centre and Ilfracombe swimming pool. 1610 did not provide a service on behalf of the Council.  The statement of accounts of 1610 had been reviewed for the year ending 31^st March 2017 which included £1.5m held within its general fund reserves. Their general reserves were higher than was held by the Council.  The reserves had grown by £110,000 in 2016/17.  A statement had been included in the accounts from the Chief Executive Officer stating that the company had seen a growth in the core business.  The business employed 500 staff and one employee was paid between £90,000 - £99,000.  In preparation of the report, the Regeneration Manager had contacted Devon County Council regarding the Exeter Area Rail Project and no justification had been received.  However, since the publication of the report an email had been received from Devon County Council to advise that they still retained half of the strategic grant awarded for 2018/19 and gave no clear indication of how the remaining grant would be spent.

·         Draft Revenue Budget 2019/20 - cost pressures and savings; options to balance the budget; how it would be funded.

·         Draft Revenue Budget 2019/20 (Appendix 1) – was now predominately funded by taxation.  Business rates retention and New Homes Bonus were both at risk of change for 2020/21 onward.  It showed a balanced budget and assumed:

o   2.99% increase in Council Tax (each 1% equates to circa £60,000)

o   Strategic Grants have been reduced at the proposed levels.

o   Parish Grants not reduced by 50% as outlined at the Parish Forum and previously notified to Parish Councils.  It was now proposed to be included within the Medium Term Financial Strategy to fully remove the grant in 2020/21.

o   Savings from service reviews which included CCTV and Trade Waste being implemented and delivered.

·         Reserves (Appendix 3).  General fund balance forecast level at 31 March 2020 was £1.161m (9.3% of the net budget).  The recommended level was between 5-10%.  Earmarked reserves forecast level at 31 March 2020 was £3.289m.  In compliance with the Local Government Act 2003, the Chief Financial Officer assured the Executive of the robustness of the estimates and the adequacy of the proposed financial reserves.

·         Medium Term Financial Strategy (2019-2023) was based on a number of financial assumptions about the future which included: funding from Central Government; retained business rates income and future Council Tax levels; cost pressures and savings plans; and contributions to and from reserves (e.g. vehicle replacement).  Appendix 4 detailed the modelled financial projections.

·         Capital Programme for 2018/19 to 2021/22.  9 business cases for capital funding had been submitted.  The gross cost of the business cases was £7,320,000.  The net cost to the Council was £3,720,000.  The Project Appraisal Group had scored all of the business cases as either “medium” or “high”.  The business cases had been submitted for the following projects:

§  Rolling Road.  There was an opportunity to provide this service to other Local Authorities provided it did not impact on the core business of the Council.

§  Vehicle Replacement Programme.

§  Material Recovery Facility Infrastructure. 

§  HR and Payroll System.

§  Pannier Market Re-roofing works. 

§  Contact Centre Telephony software.

§  Digital Transformation Asset and Financial Management System.

§  ICT Office Technology fund.

§  Disabled Facilities Grants.

·         The Leisure Centre and Watersports Centre potential capital funding bids had not been included within the draft Capital Programme and would be considered by the Special Executive at its meeting on 26^th February 2019.

·         The total cost of the projects of £3.720m would be funded by earmarked reserves (£1.764m), Section 106 heritage contribution (£0.050m), existing capital programme (£0.194m) and borrowing need would be increased (£1.712m). 

·         (£0.592m) borrowing costs had been included within the draft budget for 2019/20.  Future year borrowing costs had been included in the Medium Term Financial Plan.  The borrowing costs would increase to £0.786m by 2022/23.  The business cases generated net annual savings of (£0.030m).  Without any further capital receipts in addition to the amount that had been forecast already, it was estimated that borrowing costs could increase to £1.140m in 2028/29 due to additional future year vehicle and ICT replacements.

·         Draft Capital Programme (Appendix 5).  The total Capital Programme 2018/19 to 2021/22 was £19.968m which would be recommended to Council for approval on 25^th February 2019.

·         How the total Capital Programme 2018/19 to 2021/22 would be funded.

·         Projected underlying need to borrow in accordance with the 10 year Capital Strategy.

·         Risks identified that could affect financial plans.

·         Timeline – Council at its meeting on 16^th January 2019 approved the Council Tax base; the budget and capital programme would be considered by the Executive on 4^th February 2019 and Overview and Scrutiny Committee on 12^th February 2019; Council on 25^th February 2019 to consider the approval of the budget and capital programme and setting of Council Tax; Special Executive on 26^th February 2019 and Council on 13^th March 2019 to consider the potential Leisure Centre and Watersports Centre capital projects.

The Head of Corporate and Community gave advice to the Executive regarding the status of the company 1610 and advised that giving a grant would raise issues of State Aid.  1610 was a commercial organisation that bid for contracts with Local Authorities.  The contract was between 1610 and the Swimming Pool trustees.  If the Council awarded 1610 a grant, it could have an impact of the funding that Council received.  There were various exemptions and de minimis levels that applied. External specialist advice could be sought, however it would cost in the region of £2,000.  When the Council entered into a new contract for the Leisure provision, it would include a clause that the Council could not award funding to other competitor organisations.

In response to questions from the Executive and other Members, the Executive were advised of the following:

·         The Leader and Head of Resources had met with 1610 prior to taking over the management of the South Molton Swimming pool.  It was made very clear that any future grant awarded to 1610 would be subject to the annual budget setting process and was therefore not guaranteed.  At that time, the company’s financial position was unknown.  South Molton Town Council owned the swimming pool land.

·         Local Authorities and Rural Services Network were continuing to lobby the Government regarding the inequality of funding for Local Authorities.  The Council still received less than the national average of funding. 

·         There had been a significant reduction in the number of Council employees from around 500 in 2010 to 350 in 2019.  The reduction had been carried out in a managed way.  All vacant posts were reviewed by the Senior Management Team to assess whether the post was still required or whether it could be delivered in a different way.  The Council was now at capacity and therefore there was a need to make ongoing efficiency improvements delivered by the ICT infrastructure.  To date the Council had not made any staff redundancies.

Councillor Luggar left the meeting.

·         The funding gap in the future year’s budget needed to be addresses by achieving savings and efficiencies.  Costs for borrowing increased the budget gap.  There were various options to consider.

·         For every £1 awarded to the AONB, it attracted £3 from the Central Government.

·         The Council had a contractual arrangement with Parkwood for leisure provision.  The Council would not have a contractual arrangement with 1610.

·         The de minimis level had been set at €200,000 over a three year period.  There would be a need to review the funding that the Council had received over that period.

·         1610 had been contacted to provide an impact statement if the funding was withdrawn by the Council.  An email response had been received which made a general case if funding was reduced however it did not specify what impact it would have.

·         If funding was awarded to 1610, then a funding agreement should be put in place to specify the level of service the company should provide.

DECISIONS

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            REASONS FOR DECISIONS/RECOMMENDATIONS