Mendip District Council


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Mendip District Council

  1. 1. Mendip District Council Medium Term Resource Strategy 2007/8 to 2011/12 Contents 1 Foreword 2 Introduction 3 Service and financial planning 4 Reserves and balances 5 Revenue Budget strategy 2006/7 to 2011/12 6 Growth pressures, service enhancements and efficiency savings 7 Risks 8 Options for maintaining a balanced budget and funding priority services. 9 Recommended Budget Strategy 2007/8 onwards 10 Capital Strategy 2007/8 to 20010/11 11 Capital and asset management pressures 12 Capital funding 13 Approach to prioritising investment 14 Delivery in partnership 15 Conclusion Appendices 1 MTRS-five year revenue projections 2 Growth and savings 2007/8 3 Budget – service level summary 4 Budget - cost centre summary 5 Earmarked reserves 6 Capital resources available 7 Capital programme 1
  2. 2. 1 Foreword The first question is why does Mendip District Council need a Medium Term Resource Strategy (MTRS)? The answer to this short question is more difficult and is tied up with the size of the council and the numerous services we provide to residents, businesses and visitors to the district. The first part of the answer is to look at what we wish to deliver over the next five years. The council has a set of priorities contained in the corporate plan and the community strategy. To achieve the vision and objectives on the three priorities will take longer than one year. The Council set three priorities in February 2003 which were: • Safer, cleaner streets • Greater prosperity • Better resource management Cabinet has decided to tighten the focus of those priorities – they have served us well but now we intend to build on these foundations. The main thrust of the Council’s work will concentrate on: 1. Enhancing Mendip as a place to live 2. Enabling an environment where individuals and business can prosper 3. Encouraging and supporting communities and individuals to improve the quality of their life 4. Ensuring value for money is provided in all services. These priorities recognise the Council has a major role to play in the district but does not have the means or powers to achieve all of these things without the help of partners and the communities we serve. The Council has agreed that if their plans are to succeed it must ensure that financial and other resources are available in the medium term to meet their goals. The MTRS demonstrates those goals are realistic and achievable over the time scale set out in the Corporate Plan. It is a statement of how the vision of the council will be resourced. The MTRS is more than a budget projection exercise to prepare for setting the council tax for the forthcoming year. The annual review of the MTRS will identify projects that can deliver efficiency savings two, three or four years hence for improving services in other areas. 2
  3. 3. The Councils aim is to stop being finance driven. We have moved from finance dictating the Councils business outcomes to the services councillors wish to develop driving resources available through longer term planning. It is important to recognise that the process includes not only the overall financial strategy including revenue, capital and treasury management, but also the human resource strategy the Council has to deliver our services. We also work with a number of partners to deliver improvements. These include the county, town, city and parish councils, the NHS, police service, voluntary sector and others. The Council has, over the last few years, aimed to integrate their revenue, capital, asset management and treasury management strategies. They have recognised that decisions to invest in new assets to improve services will have ongoing costs but may also generate savings. The remainder of the MTRS shows how we continually develop our strategies to improve services while not increasing council tax by more than 3%. Since May 2003 this has been one of our principal objectives – to develop services which have the taxpayer’s interests as a central plank of our policy. Cllr Paul Treby 2 Introduction This report sets out the Councils framework for a Medium Term Resource Strategy (MTRS) for the period 2007/8 to 2011/12. It identifies the key elements of the strategy and the challenges and opportunities the Council faces. The financial strategies are based upon the long term vision from the Councils Corporate Plan and Community Strategy. Choices have to be made regarding the use of scarce resources – income from taxation, fees and charges, accommodation and human resources available. The strategy is based around achieving the Council’s priorities using all these resources but also through better procurement of services to help achieve the vision of “more for less” In particular we look at known funding pressures on the capital and revenue budgets and the medium term forecast of resources available to deal with any funding gaps. 3
  4. 4. The Council has developed a strategy that  Ensures the level of reserves is appropriate.  Identifies service delivery trends, changes in legislation etc. that will have a service and financial impact.  Accurately predicts levels of spend in the future to avoid under spends  Identifies whole life costs of capital projects and ensures all projects are adequately funded and resourced.  Costs areas of new or increased priority services  Provides efficiency savings where possible to fund new investment or enhanced services  Increases value for money  Ensures all projects, including short term revenue projects, are adequately funded and resourced. The remaining sections deal with the Councils approach to long term planning and managing the resources it has available. 3 Service and financial planning Our service, performance management and financial planning systems encourage a critical review of existing expenditure to create the ability to reallocate resource to new developments. The Budget should be seen as a statement of community priorities to be implemented by managers and a managerial performance target. The role of all elected members in the process is to –  set the strategic priorities for the period – five years is our ideal  agree the key projects for the coming year  Agree the five year rolling MTRS including decisions on the strategy for use of balances, assumptions on government grant, income generation, capital strategy and asset management and set indicative council tax levels for future years.  Scrutinise proposals for growth and savings as set out by managers and challenge existing budget allocations  Decide between options presented for growth and savings  Decide on options available for increasing fees and charges  Take a corporate view of the budget position as the year progresses- approving solutions to in year problems to revise the corporate plans of the Council when required.  Set the level of council tax and the approved budget each year. 4
  5. 5. The Council has identified a number of guiding principles which help to “get the job done”: • Sound financial management • Valued and well supported staff • Focused on our priorities • Well planned approach to service delivery-including good project management • Strong community leadership • Accessible decision making by partners, business and residents which includes high quality communication. • Efficient and effective services The Council employs a relatively small number of people direct, around 200, as many of our services are provided by partners from the private sector. The Council has approved a people strategy which is available from our website. 4 Reserves and balances Over the last few years the Council had not relied on reserves to fund ongoing spending plans. They have been used to fund discreet projects or to fund spending that has arisen mid year where neither could be forecast when the budget was set. The MTRS assumes Council will continue with the policy of balancing the budget each year without having to rely on the use of reserves. The Council has previously agreed that reserves should not fall below £1m and should be maintained at around £1.2m. Although this is a considerable sum the Council’s turnover is over £80m as shown in the table below. The size of our budgets together with the range of services we provide requires the Council to maintain a prudent reserve. 2007/8 Base budget COST OF SERVICES £'000 Expenditure Salaries & wages 6,641 Premises Costs 1,186 Transport & Travel 261 Contracted Services 7,927 Other Supplies & Services 5,878 Housing Benefit Costs 23,871 Capital Charges 3,724 49,488 Income Housing benefit subsidy -25,444 Fees & Charges Car Parks -2,494 5
  6. 6. Fees & Charges Other Services -2,643 Other Income -1,710 -32,291 NET COST OF SERVICES 17,197 Capital and pension reserve adjustments -3,683 Interest & Investment Income -793 -4,476 NET EXPENDITURE 12,721 In February each year the Council sets a budget which must provide sufficient resources to take it to March of the following year. We take a realistic view of likely inflation, known new items of expenditure etc but the reserves are a prudent way of ensuring continuity of service provision. The reserves are all invested securely to gain interest for the Councils benefit. In addition to these general reserves the Council also holds a number of earmarked reserves. The Council uses these set aside reserves to cover future known liabilities such as maintenance, housing benefit subsidy claw back etc. The Council, and cabinet in particular, wishes to see sustainable growth, and sees these reserves as a prudent way of putting money aside now to pay for future costs. A full list of earmarked reserves is shown at appendix 5 5 Revenue Budget strategy 2006/7 to 2011/12 The Councils overall strategy is to match annual income to expenditure and to have council tax increases at 3% or below. This has been difficult over a number of years as government has: • Handed new functions to local authorities with only part of the funding needed attached e.g. Licensing, recycling and concessionary fares. • Revenue Support Grant (RSG) settlements are not guaranteed to meet basic inflation • Introduced annual efficiency targets which need to be met (Gershon). • Inflation in some areas- mainly gas prices for heating leisure facilities – have increased dramatically. 6
  7. 7. The main variable in our budget strategy is the level of RSG the Council will receive in future years. The government intends to provide us with a three year RSG settlement. – we will know the 2008/9 three year settlement later in 2007 following the Chancellor of the Exchequer announcing the outcome of the governments three year spending review. In the total government funding available, any addition / reduction in this figure can be used to fine tune a budget following government settlements in December each year. For 2007/8 the government grant increase was 4.1% as shown in the table below Increase 2006/7 2007/8 £ % £'000 £'000 £'000 Revenue Support Grant 6,463 6,729 266 4.1% Business rate pool contribution 1,248 1,299 51 4.1% 7,711 8,028 317 4.1% The headline figure of 4.1% is above the rate of inflation, but the cash increase as well as the percentage increase needs to be compared to the cost pressures we face. Government grant at just over £8m is the major income source for the Council as the table below demonstrates. These percentages are the norm for councils in England and Wales. £'000 % Government grant 8,028 60.1% Council tax income 5,326 39.9% 13,354 100.0 % Mendip District Council collects the council tax for all the bodies shown below, but retains less than 10% for its own use since 2006/7. Proposed 2003/4 2004/5 2005/6 2006/7 2007/8 £ £ £ £ £ Mendip District Council 116.62 120.12 123.60 127.18 130.87 Somerset County Council 858.36 907.29 939.05 986.00 7
  8. 8. Avon & Somerset Police Authority 111.69 125.09 131.34 137.84 Parish precept ( average) 38.54 39.60 40.99 42.83 Total Band D council tax bill 1,125.21 1,192.10 1,234.98 1,293.85 The Cabinet has proposed to increase the council tax by 2.9%. Mendip District Council will approve a budget and set the tax in late February A 1% increase in council tax will generate around £50,000 on income and cost a taxpayer an additional £1.27 per year. Each year the Cabinet approves the inflation assumptions which underpin the budget strategy (pay award, fees and charges strategy). Appendix 1 shows the base budget going forward for five years. The inflation assumptions we have used are: Assumptions 2007/8 2008 onwards Inflation - Pay 3.00% 3.0% Inflation - Price 2.50% 2.5% Finance Settlement (RSG/NNDR) 4.11% 1.0% Council Tax 2.90% 3.0% Indications from government are that future year’s revenue support grant settlements will be lower than inflation, to show a prudent financial forecast we are assuming a 1% increase in government grant. 6 Growth pressures, service enhancements and efficiency savings Pressures on the Councils budgets can arise in a number of ways: 1. Government initiatives / requirements of legislation which are not funded by government and some costs fall to the council tax payer 2. The Council wishes to develop services and are willing to fund these from efficiency gains or reductions in services elsewhere or from additional council tax income. 3. Reduced income from fees and charges or reduction in government specific grants e.g. car park income or planning delivery grant. Over the last few years the Council has provided funds to develop services linked to its priorities. We also develop services to comply with government initiatives. These two different strands of service development need to be resourced as the Cabinet feel this trend will continue over the foreseeable future. For that reason the high level MTRS shown at Appendix 1 has £400,000 uncommitted growth for 8
  9. 9. each of the years 2008/9 to 2011/12. This has been partially offset by a 3% efficiency target in those years. The Cabinets proposals for the main items of growth and savings are listed in full at Appendix 2. We have shown the major changes to our budget split between growth and savings items to show clearly where we have made savings which has been used to fund growth. We also show those growth and savings items categorised as either recurring or non recurring items. Non recurring are one off items which effect 2007/8 finances only. Recurring items are ones which affect our budgets for a number of years to come. 7 Risks There are risks around projecting the Councils income and expenditure over five years with any certainty. The preceding paragraphs demonstrate the need for us to project resources and the funds needed to progress the Councils corporate plan in a sustained manner- providing for growth and setting aside funds when necessary to meet unavoidable costs. The main risks faced are as follows:  Revenue support grant may differ from the forecast. Each 0.5% variation equates to £40,000 in cash.  Pay inflation has been estimated at 3%, the employer and employees have not yet agreed the pay award- low risk of change and grade changes in year can be managed via the vacancy factor. It is not anticipated that the employers NI or superannuation rates will change over the life of this MTRS  Contract inflation- the Council works with a number of private sector partners in delivering services, detailed budgets and the MTRS uses forecasts of the indices used on those contracts to calculate likely inflation. Risk in this area over the five year period is medium over the life of the strategy.  Other non-pay inflation – these consumable budgets have been inflated by the forecast of non pay inflation.  Benefit take up and subsidy. This is the largest single expenditure item in the council’s budget. Around one in seven household receive housing benefit, council tax benefit or both at a cost of over £25 million. Most of these costs, including an administration grant, are recovered from government. Changes to council tax banding and the effect on take up and subsidy are medium to high risk. Similarly the rent levels charged by 9
  10. 10. landlords compared to rents the government are willing to subsidise may impact on benefit, subsidy and homelessness costs. Each year we recalculate likely take-up levels of benefit and the subsidy we can claim.  Fees and charges – income for demand led services such as car parking is vulnerable to over and over achievement from increased / decreased tourism in the area.  Investment income – the current 2005/6 budget relies on £875,000 on investment income. The income is generated mainly from the accumulated capital receipt from asset disposal and as the Council spends its investments to fund capital projects the income will decrease. 8 Options for maintaining a balanced budget and funding priority services. There are a number of options open to the Council in driving forward to meet their priorities over the next five years. 1. Continue to produce efficiency savings – “more for less” and continue to work with the partnership, enable, or share service provision to reduce costs. Current examples include the business support partnership, Somerset Waste Partnership. The South West Audit Partnership and the work done by the Mendip Strategic Partnership and voluntary organisations financially supported by Mendip District Council. 2. Raise income from new sources – markets, car parks from pay on exit barrier etc. Service managers currently examine all of their fees and recommend changes according to the market they serve. 3. Redirect resources from non priority areas. The Council has followed this methodology since the 2004/5 budget. 4. Raise council tax by around 3%, but more than the prevailing rate of inflation. 9 Recommended Budget Strategy 2007/8 onwards 1. In principle, the Council continues its present policy of a balanced budget each year without use of reserves to fund ongoing costs. 2. Council tax rises to be around 3%. 3. Maximise income from fees and charges by increasing usage where possible. 4. All future growth bids – capital and revenue, be subject to the same prioritisation regime. 5. Management team review under spending in 2006/7 with a view to establishing if current budgets can be reduced. 10
  11. 11. 6. Balances remain at £1.2 million due to the risks outlined above – mainly government funding. 10 Capital Strategy 2007/8 to 20010/11 The Capital strategy guides future spending decisions. It is considered by the corporate management Team and the Cabinet and approved by the Council. Presently the Council is debt free and the revenue account enjoys £875,000 of investment income. The investment income comes from two sources – the capital receipts and our management of the Councils cash flows. We attempt to collect all council tax and business rates instalments at the beginning of the month and pay salaries and the main Precepting bodies towards the end of the month. Capital spending improves services with new assets and replaces existing assets as they reach the end of their useful lives. The Council has approved a capital strategy and asset management which is updated on an annual basis and complies with the prudential code. The strategy identifies the Councils spending priorities and the key partners we are working with in realising them. It also includes details of the process for agreeing the capital programme and the arrangements for evaluation of completed projects. Schemes are ranked on their ability to help the Council meet its stated objectives. The current capital programme for 2007 to 2012 is included at appendix 7 . To aid long term planning it is recommended that a five year rolling programme is produced. Each draft scheme will still be subject to a detailed “start” report coming to Cabinet for detailed approval before any money is spent on a scheme. 11 Capital and asset management pressures The Council faces a number of pressures on its capital resources. The main ones identified are:  Housing enabling investment  Disabled facility grants and other housing grants which are part funded by government  Asset management – both backlog repairs and new schemes.  Projects to improve the efficiency and effectiveness of the Councils operations generally- this includes modernisation of computer systems and energy management systems.  Contractual liabilities – e.g. sewers not transferred from the Councils ownership at the transfer of the housing stock. 11
  12. 12. 12 Capital funding The council is currently debt free following the transfer of the housing stock in 2001. The resources available to the council include:  Usable capital receipts mainly from the stock transfer.  The continued disposal of surplus land, mainly ransom strips, to enhance resources and reduce liabilities  Diminishing right to buy receipts from the sale of ex council houses  Revenue funding of capital schemes. At some point in the future the Council may need to consider borrowing to fund its capital programme. 13 Approach to prioritising investment We have been prioritising schemes for inclusion in the final capital programme for a number of years. The procedure for the approval of the council’s capital programme has been updated in October 2006 and is summarised as: Service managers work up schemes to maintain operational assets or enhance services. The initial prioritisation takes place when service managers complete two forms for Corporate Management Team. The scheme is outlined in broad terms and covers– • replacement of worn out assets • new assets required to deliver the Councils priorities • statutory and / or health and safety issues – complete with risk assessment • timescales- start date, end date and implications of delaying the scheme to a future year • Key milestones – this aids the corporate management of the final approved programme- milestones include likely dates for planning consent, tender period etc. The advantage of the process is that officers with corporate responsibilities – asset management, procurement, engineering, legal and finance etc are involved in project planning at an early stage. The second part of the appraisals are the financial appraisal- option 1 is costing a do nothing option in the first two financial years or so- this may mean increased revenue costs or forgone savings, but needs to be considered by the Council. Most problems have more than one solution involving capital and revenue costs or both. The Councils Corporate management Team prioritise the schemes using 12
  13. 13. a risk matrix for contractual commitment and health and safety issues before recommending a programme to Cabinet. 14 Delivery in partnership Like most councils, Mendip recognises there are practical limits to what we can achieve on our own. The Council has a key role in working closely with other organisations to make improvements that can impact on the quality of life for people in the district. The Council works with a number of partners in the public and private sector, some examples include: 1. Town and City councils- The Council agreed a strategy for providing public conveniences in the district which involved new building, refurbishment and transferring ownership of surplus assets to the town or city councils. The improved service has won national wards for the improved provision. 2. The Mendip Strategic Partnership is a key group of people from a wide range of organisations who have produced a community strategy for the Council. The ongoing work of the partnership is jointly funded by Mendip District Council and Somerset County Council. 3. The Council works with housing associations as strategic partners for the provision of social housing in the district. Despite the loss of Local Authority Social Housing Grant (LASHG) the Council has continued to support the meeting of housing needs in the district. 4. Private sector companies working in partnership with the Council have invested in capital projects with the Council. This includes improvements to leisure facilities to improvements to the IT infrastructure 5. The Council has a strategy of improving recycling rates in the district. It has attracted significant sums over the last few years to purchase the vehicles and equipment required to operate an expanding door step collection service for residents. 6. The partnership arrangement with the County council and other districts has enabled us to attract government funding to purchase and develop a customer services system to greatly improve our services to residents, businesses and visitors. 7. The Council has entered into a partnership arrangement to provide our internal audit service. Mendip District Council is s founder member of The 13
  14. 14. South West Audit Partnership which has increased resources available and improved financial performance. 8. The Council anticipates joining the Somerset Waste Partnership in 2007 which will reduce our costs and improve the service to households. The partnership is made up of the five district councils who are responsible for waste collection and the county council who are responsible for disposal. 15 Conclusion The report above taken with appendices 1 to 7 attached show the financial strategies the Council wishes to adopt over the next few years. These will be updated at least annually as the financial climate changes. 14