To seek the Committee’s views on the draft Medium Term Financial Strategy (MTFS) 2010/13.

The Committee considered the draft Medium Term Financial Strategy (MTFS) 2010-13.

The report noted that the MTFS was to be considered by Cabinet on 21 February with a view to Council approving the Strategy on 5 February.

The Director of Resources commented on the context within which the Strategy had been prepared.  He noted the considerable uncertainty over the financial position of local government generally in face of the state of the economy and national finances.

The national grant settlement for local government in the final year of the Comprehensive Spending Review 2007 provided for the Council to receive a 4% increase in grant (£2.2m).  However, the prospects for future years were more difficult with the Council projecting a 5% reduction year on year.

The original MTFS had originally envisaged a 4.7% Council Tax increase, reduced to 3.9% last year.  The Strategy now assumed 2.9% for 2010/11 and the following two years but it was likely that there would be a need to be flexible on this point. 

A 1% reduction in Council Tax meant an £830k reduction in the base budget year on year.  Whilst the Government might be seeking lower Council Tax rises the Council needed to weigh the implications of any reduction in the proposed increase carefully given the range of budgetary pressures it faced.  The Director was monitoring the situation and developing contingency plans with colleagues.  He would present a clear statement on the latest position to Council in February.

In discussion the following principal points were made:

·         Noting that the Government had indicated that it expected to see Council Tax rises “substantially” below 3%, Members questioned whether a proposed rise of 2.9% was sustainable.

      The Director said that the Government never set a firm limit for capping in England.  He was monitoring proposed rates across the Country.  The average proposed increase by unitary authorities had originally forecast 3.9% but this was reducing.  The average for county councils was currently slightly lower at 3% but this was also reducing. 

      The Government had the power to cap the Council’s Council Tax increase.  This would mean the Council incurring the substantial cost of rebilling and having other consequences that the Council would wish to avoid.

·         That, whatever the future prospects, the Council expected to receive a 4% increase in Government grant for 2010/11.  It was questioned how the proposal to increase Council Tax by 2.9% in this context would be perceived by the public and Government.  In a year of a General Election there would be great pressure to reduce the level of Council Tax increases and it was asked what contingency plans were in place should there be a need to reduce the rate of increase.

The Director of Resources reiterated that there were a number of budgetary pressures, for example the need to respond to new legislation and increases in the costs of contracts.  If the proposed level of Council Tax increase was reduced, mindful that the MTFS had originally envisaged an increase of 4.7%, consideration would need to be given to service reductions.  He had advised Directors of the need to be flexible and to be prepared to revisit budgets.

·         It was asked what increase would be required to support a standstill budget.  The Director replied that an increase of 2.9% was required in 2010/11 to set a balanced budget as shown in appendix D to the MTFS.  In the face of a Government Grant reduction in 2011/12 the projected increase of 2.9% that year would not maintain a standstill position.

·         That with inflation rates at such a low level the public would question the need for a 2.9% increase.  The Council needed to demonstrate that it was striving for efficiencies and this was likely to be an ongoing requirement in the light of the current financial picture.  The Council would also need to demonstrate that its staffing levels were appropriate, noting reductions being made by a number of other authorities.

·         That there were a number of key change programmes across the Council, some now joint with NHS Herefordshire, which had evolved over time and indeed changed names.  It was essential that the envisaged savings from these programmes were rigorously tracked. 

·         Clarification was sought on the management change reserve of £915,000 identified as an emerging pressure in appendix D to the MTFS.  The Director explained that given the projected 5% grant reduction year on year from 2011/12 it was possible that there would have to be voluntary redundancies.  It was prudent to make provision for this possibility.

·         The implications of voluntary redundancies on the superannuation fund were discussed, mindful also that the Council was part of a joint scheme with authorities in Worcestershire and their actions could have a bearing on the fund.  The Director reported that although part of a joint scheme the Herefordshire commitments to the Fund were ring-fenced.  A report was due in the Autumn following the statutory triennial review of the fund and the outcome would need to be taken into account in preparing the 2011/12 budget.

·         In response to a comment about pressures on children’s services, the Director noted that it was proposed that the service would receive a net budget increase of some £1m. 

·         That the scrutiny review of support for carers had reinforced the importance of the contribution that carers made and it was important that support to carers was maintained.

·         Pressures on the Adult Social Care budget and the difficulty in achieving efficiency savings were commented on.

·         The likely local government pay award and the timing of its announcement was discussed. 

·         The Cabinet Member (Corporate and Customer Services and Human Resources) suggested that individual scrutiny committees might want to look in more detail at service pressures that Directorates faced and efficiency savings that Directors proposed to make.

·         Clarification was sought on the Capital Programme.  The Cabinet Member (Resources) confirmed that funding was in place to support the development of Plough Lane, balanced by savings on running costs and the capital receipts from the disposal of surplus properties.

It was suggested that, accepting that a consultation was underway on the Local Development Framework, the MTFS did not adequately reflect the intention to complete a number of major capital schemes within the lifetime of the Strategy.  It was further suggested that specific reference needed to be made in the MTFS to these major schemes, such as the Butter Market in Hereford.  The Director replied that a full review of the Programme was being undertaken.  Schemes already underway were being progressed.  He noted that the VAT partial exemption limit needed to be reviewed before any capital funding was awarded to the Butter Market Scheme.

·         Asked about the specific government grant for the supporting people scheme the Director reported that the specific ring-fenced grant would cease to be provided in 2010/11 and future funding would be subsumed within the general Area Based Grant.

·         The proposal in the 2010/11 budget to transfer £2m to general reserves in 2010/11 was discussed.  The Director commented that this was in accordance with the Council’s decision to replenish reserves drawn on in setting the 2009/10 budget and made provision to balance the budget in future years.

·         It was noted that whilst the 2009/10 Council Tax level at Band D for Herefordshire (excluding Parish Councils) was below the average for unitary authorities it was above the average once parishes police and fire were included.  It was requested clarification be provided.

RESOLVED:

That Cabinet be advised

         (a)           that the Committee notes the development of the budget is ongoing, expresses concern over the projected level of Council Tax at 2.9%, and highlights also the potential pressure on the superannuation fund; and

         (b)          following review of the Capital Programme the Committee requests that the text of the Medium Term Financial Strategy should be adjusted to make clear the major schemes it is proposed to complete.