To ask the Strategic Monitoring Committee to consider and comment on the Cabinet’s budget strategy for 2007/08.

The Committee was invited to comment on the Cabinet’s budget strategy for 2007/08.

The Head of Financial Services presented the report.  The report to Cabinet on 8th February was appended.  The Committee was invited to submit comments for Cabinet’s consideration on 22nd February prior to recommendations being made to Council.

The Head of Financial Services drew attention to the following key points:

·          That the proposals in the budget were consistent with the Medium Term Financial Strategy (MTFS) which had previously been reported to the Committee.  Whilst assumptions in the Strategy about the immediate future held good he noted that the outcome of the Lyons Inquiry into local government funding, which would potentially have implications for the medium term, had not been completed.

·          There was a projected underspend on the revenue budget, for the fourth consecutive year, suggesting a need for closer alignment of resources to plans.  This also suggested that there was sufficient capacity within the base budget to manage without inflation on non-pay budgets for at least 2007/08.

·          That financial cover had been provided for the £5.8 million of savings which the MTFS assumed would be generated from the Herefordshire Connects project.

·          That Cabinet had proposed a Council Tax increase for 2007/08 of 3.8% compared with the assumption in the MTFS of 4.7%.  This would lead to a reduction in planned income of some £600,000 per annum over the next three years in the base budget.  It was unlikely that this could be recovered given the Government’s stance on the level of Council Tax increases.

·          That Local Authority Business Grant Income (LABGI) of at least £1 million was expected, although this was yet to be confirmed.

·          That work to assess the likely outturn for ICT budgets was ongoing and would be reported in the next Integrated Performance Report.

·          The potential hotspots and identified remedies as set out in paragraphs 30 and 31 of the report.

·          Increases in Directorate base budgets.

·          The assumptions for inflation in 2007/08.

·          Invest to save and invest to mitigate proposals.

·          The position on the capital programme, noting the slippage in 2006/07 and the reduction in proposals for 2007/08 having regard to the capacity of the revenue account to absorb the financial implications arising from prudential borrowing.

In the course of discussion the following principal points were made:

·          The proposed Council Tax increase for 2007/08 of 3.8% compared with the assumption in the MTFS of 4.7% was discussed.  It was noted that this reduction was identified in the report as one of the budget hotspots.  The remedy seemed to be to meet the resulting shortfall in the MTFS from reserves and the LABGI grant.  It was asked what the implications of this would be for the Council’s financial position and for services.

The Head of Financial Services replied that the reduction in the Council tax increase assumed in the MTFS did have implications.  Because the shortfall could be met from the various sources described in the report in 2007/08 the impact on service delivery would be minimal.  Some of the remedies identified in the report were, however, one-off measures and the position would need to be reviewed.  The key for the future was the delivery of the savings envisaged from the Herefordshire Connects Programme.

The Chief Executive commented that officers were obliged to highlight to Members the consequences of the proposed reduction in the Council Tax increase for 2007/08, compared with the assumption in the MTFS, for the base budget and that it was likely to be difficult to recover this sum through increases in future years.  It was for Council then to reach a judgment on the level of Council Tax it wished to set.

·          A Member observed that there were circumstances in which it was appropriate for reserves to be used rather than simply carried forward for no discernible purpose.

·          On behalf of the Cabinet it was stated that the years of consecutive underspends, the view that the estimate of the savings which would be generated by Herefordshire Connects was a conservative one and a recognition of the pressure caused by rising bills on residents, in particular those with fixed incomes, had been factors which had influenced Cabinet’s proposal for what it considered to be a deliverable budget.

·          In response to a further question about the anticipated cashable efficiency savings from the Herefordshire Connects Programme the Head of Financial Services said that the level of saving deliverable in 2007/08 was uncertain for the reasons set out in the report. 

The Chief Executive commented that the Council’s external auditors had expressed some concerns about the ability to deliver the Herefordshire Connects Programme, without quantifying that risk.  Measures had been taken in the budget to cover the assumed risk.  He considered that the budget proposals provided a stable base to cover any difficulty in the delivery of the Programme in 2007/08. 

·          A question was also asked about the selection of a preferred partner for the  Herefordshire Connects Programme, as referred to in the report.  The Director of Corporate and Customer Services explained that a partner was needed to help to deliver the project, filling skill gaps and helping to realise the benefits of the Programme.   She emphasised that a key aspect of the Programme was that savings generated were reallocated to corporate priorities rather than to the Service which had generated the saving.

·          It was noted that whilst savings from Herefordshire Connects in 2007/08 could not be determined at this point it had been agreed that there was a need to proceed with the invest to save and invest to mitigate proposals financing these from reserves pending delivery of the savings.

·          The limited flexibility open to the Council in setting the Council tax and the likelihood that this would be reduced further in future years was acknowledged.

·          A further question was asked about the level of the Council’s reserves.  It was noted that the Council had operated with the aim of a General Reserve of £3 million but there was a case for this to be reviewed, looking at how much needed to be set aside to cover the risks the Council needed to manage and how much contingency was provided for other purposes.  A report was requested setting out the position on the Council’s reserves, the level of reserves needed to manage risk and what scope further reserves might afford the Council in its future financial planning.

·          A question was asked about the proposed replacement of Weobley Library.  It was noted that this was not included in the list of confirmed Capital Programme bids for 2007/08.

In conclusion the Committee noted without further question each of the decisions on the budget made by Cabinet on 8th February.

RESOLVED:

That    (a)        Cabinet’s draft Budget Strategy and proposals for the Capital Programme for 2007/08 be noted;

                        and

(b)       a report be made to the Committee, setting out the position on the Council’s reserves, the level of reserves needed to manage risk and what scope further reserves might afford the Council in its future financial planning.