DETAILED REPORT

REPORT OF DIRECTOR OF RESOURCES

EXECUTIVE BOARD

30th September 2013

REVENUE BUDGET OUTLOOK 2014/15 to 2016/17

 

HEAD OF SERVICE & DESIGNATION.

C Moore, Head of Financial Services

DIRECTORATE

Resources

TELEPHONE NO.

01267 224160

AUTHOR & DESIGNATION

C Moore, Head of Financial Services

DIRECTORATE

Resources

TELEPHONE NO

01267 224160

The purpose of this report is to:

The key messages are:

The current three year Medium Term Financial Plan (MTFP) was agreed by Council in February 2013 and was based on estimates of known commitments and formulated in the context of the tough financial settlement for 2013-14 and indicative settlement for 2014-15.

For a number of years the Authority has acknowledged the difficult funding scenario that it has faced, and has recognised the need to do things differently and prioritise how it wishes to spend its (increasingly) scarce resources.

The Authority has been able to set balanced budgets despite decreasing resources whilst at the same time maintaining service standards to a large degree. During the last five years we have had to achieve and deliver significant levels of efficiencies as our resource base has reduced in real terms.

There will have been a range of savings that have contributed to our achievement of these targets, with efficiency and marginal reductions in service to the fore.

Moving forward, whilst still retaining a focus on efficiency, it is recognised that a fundamental shift is required in relation to the quantum and nature of saving proposals over the medium term to ensure that financial sustainability can be achieved and a balanced budget set.

Our overall financial standing has been maintained at a prudent level, with council tax level below the Welsh average. Many of our reserves are earmarked for specific purposes – whether this is to address liabilities now or in the future e.g. Insurance reserves, or for financing specific schemes. Our General Fund balance currently stands at 2.3% of our net budget and we have made limited use of such reserves to support ongoing expenditure

The Spending Review (SR) announcement from the Chancellor of the Exchequer on the 26th June 2013 confirmed that the UK is keeping to planned spending reductions of 11.5bn, offering no major giveaways through spending, and maintaining Total Managed Expenditure at 745bn in 2015-16

The chancellor had initially hoped to eliminate the structural deficit - the portion of borrowing that is not affected by changes in the economic cycle - entirely by 2014-15. The timeframe for this has now slipped to 2017-18.

While this announcement related to the financial year 2015-16 it is important to emphasise that previous budget cuts announced in the Autumn statement 2012, and the Chancellors Budget in March 2013 and Welsh Government decisions in its coming budget will have major implications for 2014-15 settlement.

The current SR is relatively short in period, simply going to the next election. Most commentators expect a more fundamental and medium term Comprehensive Spending Review to take place in 2015. All the evidence however points to the squeeze on public finances continuing, and austerity becoming the norm. The Institute for Fiscal Studies report of October 2012, commissioned by the WLGA indicated that we can expect the funding contraction to go until at least 2020/21

As outlined above, the Spending Review did not have any major implications for the 2014-15 settlement, but we do know that Local Governments’ prospects are fundamentally different from those previously indicated. The extent of this is dependent on the Welsh Government’s budget process and how it allocates the savings set out in the Chancellors 2013 Budget announcement (and the 2012 Autumn Statement) and how it reallocates resources to the NHS, Universal Benefits and the Economy, areas already identified by the Welsh Government for protection. There are no firm figures available to date, but the WLGA estimate that the impact could be 230m (110m in cumulative savings for 13-14 and 14-15 and 120m to give the existing NHS budget protection against inflation).

A letter from the Minister for Local Government and Government Business to the WLGA spokesperson for Finance and Resources on the 23 May 2013 has confirmed this position stating that indicative figures included in last year’s settlement can “no longer be considered as a basis on which to plan”.

The indicative settlement that informed the current Medium Term Financial Plan adopted by Council in February 2013 gave us an uplift of 0.9% for 2014-15. The Local Government Minister talks about English-style settlements which on average have seen a reduction of 4% per annum in cash terms throughout the 2010 Spending Review period.

For 2015-16 the Chancellor has said that the Welsh Resource budget will reduce by about 2%, which indicates that the Welsh Government resource budget may reduce by a further 270m.

It will be the choices that Welsh Government make, within this difficult funding environment that will shape the funding envelope coming to local government and it cannot be assumed that it will translate into a straight 2% cut for Local Government.

The revised financial model covers the three year period up to 2016/17, Whilst a 5 year projection has been considered, a 3 year timeline has been adopted as prudent given the high level of uncertainty regarding funding. The most important part for any financial plan or model is the underlying assumptions, the current key assumptions being:

 

2014/15

m

2015/16

m

2016/17

m

Current Strategy

275.475

277.220

 

1% Reduction

-5.698

-2.668

-2.641

2% Reduction

-8.417

-5.229

-5.124

3% Reduction

-11,135

-7.684

-7.454

4% Reduction

-13.854

-10.036

-9.634

Summary of Financial Model