Agenda item

Report by the Leader and the Executive Team to Executive on 4th February 2019 (attached) together with minute extract of Executive of 4th February 2019 (to follow).

The Committee considered a report to the Executive on 4th February 2019 by the Leader and Executive Team together with a minute extract (circulated previously) 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. 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 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 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 from the Committee, the Head of Resources confirmed that:

·         For 2019/20, Devon would revert back to the business rates pooling arrangements under the original 50% scheme. The Government planned to reset all Council’s baseline funding as part of the Fair Funding Review for 2020/21 year.

·         All district councils in Devon were part of the pooling arrangements, South Hams had withdrawn for a couple of years but had now re-joined the pool.

·         New sources of funding could be obtained via the CCTV options, income generation together with the utilisation of assets.

·         The government was reviewing the New Homes Bonus Scheme for 2020/21 onwards.

·         The previous grant was originally given to South Molton Swimming Pool when it was in operation as a small trust. However, the pool was now operated by 1610 Limited, which was a commercially run organisation and managed 17 sites across the country and had general fund reserves of £1.5m. The company currently employed 500 staff and had set themselves up as a charity, which also meant that they would potentially benefit from a reduction in business rates. As the company was set up as a commercial organisation the Executive considered that it was unfair to continue to fund the organisation and proposed to withdraw the grant in full. When 1610 assumed responsibility for the pool the Council met with them and future funding was discussed. The Council agreed to honour the funding for the first year 2018/19 and indicated further funding would be subject to annual budget approval. However, they had not submitted their accounts at that point. The Council had now viewed their latest accounts for and it was agreed that it was not pertinent to continue to award the grant.

·         The Community Councillor Grants (CCG) had been reduced because of the reduction to 42 Councillors from May 2019.  Each individual Councillor’s budget would remain the same.

·         There were plans to replace the Pannier Market roof and the Town Centre Manager would be looking to utilise the building for events in the evenings and weekends. An update of which could be provided to a future meeting.

The Committee raised concerns in relation to the potential impact or even loss of South Molton swimming pool following the discontinuation of the grant.

RESOLVED:

(a)  that the decisions and recommendations of the Executive be 

endorsed, subject to some reservations in relation to the higher risk environment that the Council was moving into and whether there was sufficient prudence in the assumptions underlying future years MTFS; and

(b)  that the amount under the pooling arrangements under the original 50% scheme be circulated to the Committee.

Councillor Worden abstained from the vote.

Councillor White declared a prejudicial interest in the Pannier Market discussions, left the room and took no part in the discussions.