Agenda item

(NOTE: A copy of the report that was considered by the Executive on 4^th February 2019 is attached).

Council received a presentation by the Head of Resources regarding the Revenue Budget 2019/20, Capital Programme and Medium Term Financial Strategy 2019-2023 and highlighted the following:

·         Government settlement December 2018.  The final 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.  A copy of an email received from the Head of Sports, Activities and Aquatics of 1610 was tabled.  The Head of Resources and Leader had previously met with 1610 and advised that funding was subject to annual budget approval process and could not be guaranteed for 2019/20.  The company’s pension fund liability was negative, however this would be same as for any organisation including a Local Government Pension Scheme for its employees.  The Council was in exactly the same position and the deficit liability was made good for future year’s contributions to the Fund and it was not funded by using reserves.  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. Following this, the Executive had taken the decision to reduce the grant in full to the Exeter Area Rail Project.

·         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  Members 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:

o   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.

o   Vehicle Replacement Programme.

o   Material Recovery Facility Infrastructure. 

o   HR and Payroll System.

o   Pannier Market Re-roofing works. 

o   Contact Centre Telephony software.

o   Digital Transformation Asset and Financial Management System.

o   ICT Office Technology fund.

o   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 was recommended to Council for approval.

·         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 was 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.

In response to questions, the Head of Resources advised the following:

·         The re-roofing works for the Pannier Market was a priority.  A business case for the provision of toilets within the Pannier Market had not yet been brought forward.

·         In relation to Disabled Facilities Grants, the Council had a statutory responsibility to undertake adaptations to accommodation.  The Grants were funded through the Better Care Fund.

·         The redevelopment of Seven Brethren had not yet been included within the Capital Programme.

·         The Council previously provided specific Welfare Reform advice on Universal Credit which was funded directly by the Department for Works and Pensions (approximately £15,000) and a temporary post had been provided within the Customer Services Team.  This funding had now be re-directed to the Citizens Advice Bureau and the manpower had been reduced within the Customer Services Team.