REVISED - PAPER C1
Purpose :
For Decision
REPORT TO THE
EXECUTIVE
Date : 12 FEBRUARY 2003
Title : REVENUE
SUPPORT GRANT SETTLEMENT, THE ISLAND COUNCIL
BUDGET FOR 2003/04, COUNCIL TAX 2003/04 AND FORWARD
PLAN TO 2005/06
REPORT OF PORTFOLIO HOLDER FOR RESOURCES
SUMMARY
1.
On 3 February 2003 the Government’s final Settlement for the Local
Government Finance Settlement for 2003/4 was announced. The announcement came after the deadline for
committee reports. As indicated in my
previous report therefore, this updated report replaces the one sent with the
agenda papers, which should therefore be destroyed to avoid any confusion.
FINAL SETTLEMENT FOR 2003/04
2.
There has been
a major change in the local government finance system for 2003/4 after a lengthy
review. The results of the review represent a major change and a major shift in
resources away from the South East of England. As part of the original December
proposals IWC would have lost the Area Cost Adjustment (ACA) which under the
former system compensated all authorities in the South East for the higher cost
of labour in the region. In 2002/3 ACA was worth over £6 million of grant to
IWC. In addition there continued to be
no recognition of the extra costs of being an Island (£4m plus).
3.
SSA (Standard
Spending Assessment) has been replaced by FSS (Formula Spending Share).
4.
The government has:
·
changed the
basis of the grant distribution formula (IWC loses substantially)
·
imposed a
resource equalisation (IWC loses again)
·
brought in a
system of floors and ceilings in grant with a floor of 3.5% to limit grant
losses and a ceiling of 8% on gains
·
a similar
damping system within the Education FSS block
·
increased its
assessment of spending need to a figure closer to actual spending levels, but
without providing any extra finance to fund the change
5.
The Council made written representations on the Settlement
concentrating on the uniqueness of the Island, the loss of the Area Cost
Adjustment and the overall effect of the change in the system. On 14 January the Leader of the Council,
together with the Resources Portfolio Holder, the Leader of the Conservative
Group, the Leader of the Labour Group and the local Member of Parliament met
with the Minister of State for Local Government and the Regions, Nick Raynsford
MP to press these issues.
6.
It is particularly pleasing to note therefore that the representations
to the Minister achieved some success.
7.
The only local authority to achieve any significant change from the
consultation process was this Council. One
of the changes sought by the delegation was the extension of the Area Cost
Adjustment factor applying to Hampshire to the Island, as has been the case
since the Area Cost Adjustment came into being. The argument used was that the sample size in the earnings survey
was too low to give sufficient confidence of accuracy. This argument proved successful.
8.
Because of the temporary protection provided by the 3½% grant floor in the original proposals, the improvement in
2003-04 is limited to just under £1 million. Beyond next year the Council will
eventually be £4.5 million per annum better off as a result of the change.
9.
The general transfer of resources away from the South East remains a
problem. In 2003/4 therefore the effect of the grant system changes is a 9%
Council Tax increase due to the system change alone, notwithstanding the
restoration of the Area Cost Adjustment.
There remains therefore a substantial los of grant compared to the
average local authority.
10.
The Council will now receive a 5.4% cash increase in
grant and business rates in 2003/4. The
increase in the Council’s FSS is greater than this at 7.6%, so that the gearing
effect on Council Tax (which finances only part of spending) produces a far
greater percentage increase in Council Tax.
11.
Full details of the changes at national level are set
out in Appendices 1 and 2.
Floors and Ceilings
12.
The Government has announced an 8% ceiling and a 3.5% floor on grant
increases, together with a parallel system in respect of Education FSS. This Council receives temporary protection
from the latter of £1,460k in 2003-04.
Isle of Wight Council Situation
13.
Appendix 3 sets out the
proposed Settlement for the Isle of Wight Council.
Education
14.
The Secretary of State for Education and Skills is proposing that resources
be passported through to schools so as to give schools not less than a 3.2%
cash increase in per pupil funding on a like for like basis. Unfortunately, those resources have not been
made available to the Council via the grant system. The shortfall in resources
amounts to £807k.
15.
This means that passporting in full could only be at the expense of
reductions elsewhere or an increase of a further 1.8% in next year’s Council
Tax.
16.
However this may only delay the problem of the underfunding of schools
passporting until the future, albeit with more time for schools to adapt.
17.
Members will also be aware that the Council has recently received a ‘2
star’ rating for this service in the CPA process and retaining that rating will
in part be dependent on funding levels.
18.
On 29 January the Executive agreed to notify the Secretary of State
that the proposed Schools Budget will be at least at passporting level and made
a recommendation to the Council on 19 February to give effect to this proposal.
19.
There is scope within the non-schools block following a rigorous
examination of resources to make a further transfer of £1.1m into the Schools
Budget in addition to the passporting already agreed. If agreed in full or in part, this would provide funding to help
avoid real terms reductions, without further raising the Council Tax beyond
that due to passporting. The draft
budget assumes at this stage that these resources remain within the Education
sector.
Teachers’ pay
award
20.
At the time of writing the teachers’ pay award for 2003 has not been
settled. The award must be met from
within the Schools Budget.
Social Services
21.
There are many heavy service pressures on Social Services particularly
in the areas of elderly residential care and community support, with the additional
emphasis on facilitating prompt hospital discharge, enhanced support for foster
carers and the recruitment of social work staff are pressing issues for
children’s services.
22.
If the Social Services budget rose by the same percentage as the FSS,
then it would provide 8½% to cover inflation and additional service pressures.
23.
This would, however, fail to address all the service pressures in
Social Services or the economic forces affecting the private sector
providers. Furthermore, the chances of
the Council retaining its ‘star’ rating for parts of the service and the
consequential impact on CPA will be potentially affected by funding levels.
24.
From 1 April 2003 the Government is introducing its Supporting People
Scheme aimed at providing a new system of financing people needing help to live
an independent life. This involves a
transfer of function from Housing Benefit to Social Services. The budget is prepared on the basis that the
effect will be neutral on the Council’s budget. If it is not the cost will need to be met from within whatever
resources are made available to Social Services.
Directors’
Proposals
25.
After consideration in the light of the proposed grant settlement and
the public consultation exercise and as a basis for discussion the Directors
have put forward proposals for a draft budget which would increase the Council
Tax by 14.99%. This is set out in
summary in Appendix 4.
26.
The draft
proposals would:-
·
provide for £1
million (3.5%) of Social Services extra spending over and above the increase in
FSS equal to a £2.277 million 7%
increase in spending over and above inflation.
·
identify
savings of over £1.1m.
·
require the
Local Public Service Agreement (PSA) commitments to be met from within the
draft totals.
·
provide a
budget for schools which includes 3.5% for the April teachers’ pay award, as
well as funding for forecast extra pupil numbers
·
provide
funding for schools at a level significantly above that required by the
Secretary of State, which in itself is £807k more than that provided by the
schools FSS.
·
reflect the
Executive’s view that the proposals of the independent review body to increase
members’ allowances be not implemented.
27.
Each 1% change in Council Tax for this Council’s services necessitates
a £449k change in expenditure and produces an £8.95 per annum change in Band D
Council Tax or £7.96 for the typical Band C Island Council Tax Payer.
Other
Uncertainties
28.
At this stage the actual level of some pay awards for 2003/04 is
unknown.
29.
There are as always a number of budget pressures which will need to be
considered as part of the process. If
the Secretary of State for Education and Skills rejects the Council’s actual
Schools Budget he may institute a process which could lead to him prescribing a
minimum Schools Budget for 2004-05. This
could only happen if the Council set a Schools Budget more than £1.1 million
lower than that assumed in the draft proposals.
Balances
30.
As a result of spending pressures of £935,000 in the current year,
offset by reductions of £517,000, it is
expected that the General Fund balance at 31 March 2003 will be reduced
to just over the £2 million level (less than 1.4% of net expenditure). The District Auditor has commented that this
is a very low level of balances leaving little flexibility for meeting unexpected
liabilities or reductions in income.
31.
The earmarked balance of the Renewal and Repairs Fund is £1,250,000
after allowing for the purchase of land for an access to housing development at
Pan. This has to cover any emergency
expenditure (for instance landslips) and the purchase of land and/or other
costs in connection with the situation at Prestwood Farm.
Capping
32.
There is no pre-announced capping limit for 2003/04 although reserve
powers will still be available to the Government to curb what it might decide
are excessive increases in spending or Council Tax in that year or taking a
trend over several years.
Capital
Allocations
33.
The Council has received its main capital borrowing approvals for
2003/4. These are set out in Appendix 5
and show a very large increase in the Education sector partly as a result of
basic credit approvals replacing direct grants and supplementary credit
approvals, together with a 19% reduction in Highways from the current year
which included approximately £1 million in respect of Niton Undercliff and an
overall 10% increase. There will also
be some specific Supplementary Credit Approvals (SCAs) to come. A full report on the capital programme appears
elsewhere on the agenda. The draft
budget provides sufficient revenue funding to support the total capital
programme.
Future Years
34.
The new grant system introduced for 2003/4 causes on its own a
substantial shift in Government support away from the South East of England in
general and the Isle of Wight in particular. This shift in resources seems
likely to be a feature of the system for several years to come. Because of the
operation of the Education FSS protection in the current year there will be a
further adverse effect in 2004/5 and probably 2005/6 as that protection unwinds. It is therefore particularly important this
year to plan ahead for the medium term in the budget process this year.
35.
The Minister of State has also announced a review of the funding of
local government. This will examine
inter alia the balance of funding of local government from its various sources.
Police
36.
The Hampshire Police Authority precepts separately on the Island
Council and Hampshire Councils. It has
its own FSS and its precepts do not count against any potential capping limit
for the Island Council. The Police
Authority precept for 2003/04 will be set on 18 February.
Consultation
37.
During the Autumn a consultation process was carried out.
The public were
asked:
·
about their priorities for services
·
whether they would prefer reduced services or higher Council Tax
increases
·
about the concept of increasing charges to balance the budget.
38.
The results of the earlier consultation process were reported to the
Executive on 15 January are repeated at Appendix 6, now updated for the second
and third rounds of public consultation.
39.
On 15 January the Executive referred the budget to the Co-ordinating
Committee to consider and to invite Select Committee involvement in the
process. The results of Select
Committee deliberations to hand so far are also set out in Appendix 6.
40.
The document is quite detailed and members should bear its contents in
mind throughout the budget process leading to the Council Tax being finally
set.
41.
Consultation has also been carried out with local business community
and trade union representatives and the main issues raised are also set out in
Appendix 6. It was particularly
pleasing that the business community agreed to join with the Council in
lobbying the Government for proper recognition of the Island’s financial needs.
Risk Assessment
42.
There are several risks involved in the budget setting process.
43.
First, there is a risk of getting wrong the balance between what
Council Taxpayers can reasonably be asked to provide and the service levels
that the taxpayers and service users might reasonably expect to receive. This is a matter of political judgment but
nevertheless is a heavy responsibility.
44.
Secondly, there is a risk that the balance between services will not be
appropriate leading to a mismatch between demand and resources and the risk of
challenge, or loss of the current status of those services.
45.
Thirdly, there are uncertainties about the effect of external factors
on the Council’s services, for instance bedblocking and the penalties
therefore.
46.
Finally, there is a risk that the Deputy Prime Minister may use his
reserve capping powers if he believes that either the level of spending or the
increase in the Council Tax is excessive.
47.
The budget process will need to take account of all those factors which
of course apply to all top tier local authorities.
48.
A risk
assessment of the Council’s balances has been carried out. This demonstrates that general balances of
£2 million are sufficient, taking into account the uncommitted balance of the
Renewal and Repairs Fund, to cope with any reasonable assumption in respect of
unforeseen circumstances provided that:-
·
strong financial control is maintained
·
there is no material breach of service cash limits
·
the level of pay awards and price increases remains at around the 3%
level with any excess being met from within service cash limits
Council Tax 2003/04
49.
On 22 January 2003 the Council fixed its Tax-Base for 2003/04 at
50,106.8 Band D equivalent properties.
There is an anticipated surplus on the collection fund attributable to
this Council of £100,000. Subject to
rounding this would produce a Council Tax, as follows:
£'000s Budget requirement 148,028
Less -Revenue
Support Grant 56,058
Business Rates 40,260
Total requirement 51,710
Less Collection Fund Surplus 100
Required to be
met by Council Taxpayers 51,610
Tax Base (No of
Band D equivalent dwellings) 50,106.8
Council Tax for Isle of Wight Council
purposes at Band D £1,030.00 (after rounding)
50.
For this Council’s services this would mean an increase of 14.99% or
£2.29 per week for the typical Band C taxpayer.
51.
To this figure needs to be added the anticipated Hampshire Police
precept and individual parish and town precepts where applicable.
52.
If approved, the draft resolutions set out below would give effect to
the proposals of the Directors as now updated.
Members may of course make alternative proposals.
53.
If a different level of Council Tax increase for this Council’s
purposes is desired the following table sets out the changes needed, to achieve
it:-
Council Tax Increase Changes
% £000
17 + 905
16 + 456
15 + 7
14 - 442
13 - 891
12 -
1,340
11 -
1,788
10 -
2,237
9 -
2,686
6 -
4,033
3 -
5,379
This is set out
more fully in Appendix 7
Timing
54.
By law the Council must set its Council Tax before 11 March 2003
[Section 30(6) of the Local Government Finance Act 1992]. However in order to be able to collect the
first instalment of Council Tax on 1 April as normal the Council Tax will need
to be fixed by not later than 20 February in order to allow for the setting up,
preparation, printing and distribution of Council Tax bills. Any deferral which caused so much as a one
day delay in distribution of bills would result in extra printing costs and
delay the first and could jeopardise each subsequent instalment date. This
could mean a minimum cost of £15,000 for extra printing costs plus over £6,000
for each subsequent day’s delay.
55.
In addition there will be
additional costs, unquantifiable at this stage arising from any consequential
effects on payment patterns and delays in recovery procedures and disruption to
court schedules if the authority were to be capped.
Summary
56.
The draft resolutions set out below are provided as a starting point
for debate. They are based on the draft
budget considered by the Executive on 15 January, adjusted for subsequent
developments. The salient points are:
·
The Council Tax would increase by 14.99%
·
Provision has been made for the expenditure increases and reductions
shown at Appendix 4
·
Sufficient funds are provided to allow significantly more than full
passporting to schools budgets
·
Substantial extra resources for Social Services
DRAFT RECOMMENDATIONS
i That the revenue
estimates for 2003/04 be £148,028,000 after making the changes set out in
Appendix 4 attached.
ii That the Council is
recommended to set a Schools Budget of at least £57,155,001 for 2003-04
exclusive of the LSC allocation.
iii That the Schools
Budget shares be determined by the Director of Education and Community
Development within the approved service budget.
iv That authority be delegated to the Executive to determine
the initial capital programme within the limit of available capital resources
and having given consideration to the views of Select Committees; and
thereafter for the Directors Group to manage the programme from day to day
within available resources and subject to any direction from the Executive.
BACKGROUND PAPERS
Local Government
Finance Report (England) 2003/04
Department of the
Environment letters of 5 December 2002 and the enclosures thereto
Island Council
Budget Book 2002/03
Contact
Point: John Pulsford ( (01983) 823601 mailto:[email protected]
|
J PULSORD Strategic
Director for Finance and Information and County Treasurer |
R R BARRY Portfolio
Holder for Resources |