To receive a presentation on the preparation of the 2012/13 budget and the Executive’s view on emerging options.

The Committee received a presentation on the preparation of the 2012/13 budget and the Executive’s view on emerging options.

The Leader of the Council highlighted the following points:

·         That the financial outlook remained extremely difficult.  The Executive had formed the view that top slicing of budgets was neither sustainable nor appropriate. The administration proposed to adopt a zero based budgeting approach for the remainder of its term in office.

·         The Executive did intend to take up the Government’s offer of a one year grant of 2.5% of the Council tax base equivalent to £2.2m, in exchange for not increasing the Council Tax for 2012/13.  This was a voluntary scheme and some Councils had indicated that they would not participate in it.  Unlike in 2011/12 the grant was for one year only and would not be added to the base budget.  This had implications for funding in future years.  Because it was a one off sum it was proposed to use the grant to fund transition in 2012/13 as zero based budgeting was introduced.  He said that he would welcome the Committee’s assistance with this transition process.

·         Additional challenges that lay ahead for 2012/13 included localisation of the Council Tax Benefits and Business Rates and the transfer of responsibility for Public Health to local authorities.

The Chief Officer – Finance and Commercial then gave a presentation. This covered:

·         Future Strategy: future vision as a Council; priorities for the next few years; and what needed to done to deliver the vision and priorities.

·         Budget 2012/13: and future years outlining the challenges and future strategy for 2013/14 and 2014/15.

Future Strategy

Key themes in the future vision included: community leadership; the relationship with residents; commissioning of services and the implications of more outsourcing; localism - the future role of town and parish councils and other local community groups; partnerships - the role of the Herefordshire Partnership, collaboration and cross border working; and development of workforce skills and capabilities.

In terms of future priorities he suggested there was a need to be clear about the long term priorities given the financial challenge and to have a better understanding of the impact the Council would get for the money it spent: for example: where would it invest, protect, or reduce spend? How would it deal with the challenge of an aging population -a step change in early intervention and prevention/increased (or matched) funding for the third sector and community action?

To ensure delivery early action was required to achieve fundamental change.  This involved pump prime funding for change; and a programme of “root and branch” reviews including value for money benchmarking and recommissioning/market testing; and changing eligibility criteria.  The Council needed to consider whether there were areas to which it could shift resources to fund priorities, whether to explore community budgets and the scope for pooling more budgets. Other issues included developing a closer link between funding services and outcomes; increasing income/trading and reducing public subsidy; Options for cost reduction included posts, suppliers, property; and investment in new technology

Budget

He informed the Committee of the Government’s offer of a one year grant equivalent to 2.5% of the Council Tax base, worth £2.2m if council tax were frozen.  This was a voluntary scheme.  The indications were that some unitary authorities may decline but no counties were saying they would not accept.  He noted that accepting the grant meant losing the ‘increase to the base budget of a 2.5% council tax increase.  He also noted that the 2011/12 council tax freeze grant dropped out of the budget in 2015/16.

He provided a short overview of the 2012/13 budget noting that in 2010 the Council had agreed a two year approach including savings targets and funding for budget pressures, with a council tax increase assumption of 2.5% in the base budget. The current 2012/13 position showed a £1.8m shortfall but this would be affected by the approach to using the council tax freeze grant.  There was a need to continue to support the transformation agenda in social care

He reported on the ‘Star Chamber’ process for challenging budget savings.  Savings proposals included service reviews, income, cost reductions, organisational redesign and shared services.

Agreed budget pressures in the financial plan totalled £2.2m, but the latest refresh indicated unfunded pressures.  These were being reviewed as a matter of urgency. 

The budget model included provision for inflation on supplies and services; £250 p.a. increase for staff on lower pay scales (£283k); contract inflation; an additional £1.5m for social care announced in Comprehensive Spending Review (CSR) 10, an additional £500k for the Waste Reserve; a change management fund of £1m; a further 9.5% (£5.7m) formula grant reduction (down to £54.4m) and other further grant reductions (£932k).

The current savings target was £1.8m, currently being reviewed to consider the impact of council tax grant.  It was proposed to deliver savings through service reviews (such as Business Support) target of £250k; combination of commissioning and procurement £250k; an additional income target of £400k.  This left a gap that was subject to further work.

Other considerations relevant to the 2012/13 budget included: costs of new capital projects to be built into future plans depending on Cabinet’s decision; reduction to grants rolled into Formula Grant being allocated a review of waste management contract costs.

He outlined issues and risks for future years.  These included: no funding certainty after 2012/13; the 2010 local government settlement only covered 2 years; the settlement for 2013/14 likely to be announced in December 2012; the impact of changes to housing and council tax benefits (council tax benefit to be cut by 10% and prioritised) the impact of the transfer of Public Health responsibilities and the localisation of business rates; the on-going debate about future funding of Academies and possible further reductions in public sector funding.

The position for 2013/14 and 2014/15 indicated savings of at least a further £2m per annum were needed.  An approach based on continuing to cut existing budgets was not sustainable.  There was evidence of general support for council tax increases if these were explained. These needed to be considered as part of future strategy but a referendum would be needed if an increase was ‘excessive’.  This required a ‘root and branch’ review of the future planning process and a longer term assessment. The planning process for the next CSR would commence early in 2012.  There were many unknown factors but the estimated impact needed to be assessed.

From 2013/4 there would be a further financial challenge. The key questions for a future approach from 2013/14 needed to be defined, focussing on the future vision as a council; future priorities and what needed to be done to deliver the vision and priorities.

In discussion the following principal points were made:

·         The Leader clarified that the zero based budgeting exercise would review every service budget and establish a new budget base.

·         The Government’s offer of a one year grant was debated.  There was concern about the implications for the base budget and knock on effect on funding in future years.  The Leader acknowledged these concerns but expressed the view that, on balance, the best course was to accept the grant and aim to achieve a better outcome for the County through a transformation programme funded by the grant.

·         The Committee also discussed the localisation of business rates.  It was noted that once the base figure was set the Council had little influence over the sum raised.  The level of the rates would be set centrally.  The only way in which increased income could be generated would be to increase the base through the growth of new businesses or the expansion of existing ones.  There were policies in place to seek to encourage this growth such as the Economic Development Strategy.  It was noted that business rates from the Enterprise Action Zone would be payable to the Local Enterprise Partnership (LEP) and divided amongst the partners.  Members requested a briefing on the operation of the LEP.

·         It was requested that care should be taken to ensure that the reduction in staff numbers within the Council did not place on impossible burden on those who remained, with the pressures on those working in social care being of particular concern.  The Leader acknowledged concerns about the health and wellbeing of staff.  He added that he considered action had been taken to minimise the use of agency staff, requesting that if Members considered there were any examples where the use of agency staff was inappropriate these were brought to his attention. 

·         The Deputy Chief Executive and Director of Corporate Services commented in relation to the provision in the Change Management reserve for redundancies that organisational redesign had involved the loss of around 200 posts in the last two years.  The majority of these had been natural wastage voluntary redundancies.  However, the proposed root and branch examination of services as part of the zero based budgeting exercise was likely to have further effect on staffing levels, given the proportion of the budget represented by pay.

·         The Leader indicated that he proposed to review the current policy for business rate relief.  He considered that there were examples, such as some national charities, where the provision of this relief provided an unfair trading advantage.  He acknowledged concerns expressed by Members agreeing that this was potentially sensitive and would require careful consideration.  He added that he had concerns about the effect of high rent increases by landlords.  These could lead to business closures, and empty properties which currently qualified for business rate relief. He intended to examine whether the Council’s powers could be used to encourage landlords to keep rates down and properties in use and invited views from all Groups on the Council.  It was noted that this issue would require further consideration as the budget proposals were developed.

·         It was confirmed that there was ongoing work to pool budgets with NHS Herefordshire to seek to maximise the use of resources.

In conclusion it was agreed that it would be helpful for the Committee to receive a briefing note on any implications for the authority of the Chancellor of the Exchequer’s autumn statement as soon as possible; and for a future briefing on the Local Enterprise Partnership.   The policy on relief on business rates would require further consideration as the budget proposals were developed.