Budget 2012/13and

Medium Term Financial Plan 2012-16

Budget & Finance Overview & Scrutiny8th February 2012

Councillor Muhammed ButtDeputy Leader of the Council

2011-12 – Forecast outturn

• On target to achieve budget for 2011/12

• Challenging year with considerable service and financial risks

• 97.5% of planned £41.7m of savings ‘One Council’ savings achieved

• Strong financial disciplines applied rigorously throughout the year

• Reserves not used to achieve target – end year reserves £10.080m

2011/12 Forecast Outturn (Based on December 2011 figures)

Latest PositionOver/(Under) Spend

£’000 £’000

Service Areas Adult Social Services 292 Children and Families 108 Environment and Neighbourhoods 0 Regeneration and Major Projects (106) Finance and Corporate Services/ Central Services (114)

180Central Items / Government Grants (180)Net Over/(Under) Spend 0

Financial Pressures 2011/12 (1)

• Children & Families - Social Care placements (£318k), Legal Costs (£131k net) and delay in closing Crawford Avenue (£190k)

• Adult Social Care – Placement costs (£800k), Transitions (£280k net), frontline agency staff (£600k) and Brent Transport (£400k) offset by operational savings

• Environment & Neighbourhoods - Delay in achieving Library savings (£250k) and metered parking offset other transport savings

Financial Pressures 2011/12 (2)

• Regeneration & Major Repairs – Temporary accommodation (minus £250k net)

• Corporate Services – Schools payroll losses (£250k), Procurement and Design Services

• Central costs – Debt servicing costs (minus £384k) from lower interest rates and slower drawdown on Civic Centre

Economic situation

• Europe expected to be in full recession; UK ‘on the edge’ with risk of double dip - Strong risk of Euro break-up

• Government borrowing up now over £1,000,000,000,000

• OBR downgrade of growth forecasts for 2012/13 and 2013/14 – impact on public finances?

• Public sector pay restraint/pensions overhaul

• Rising unemployment for another 18 months

• Inflation peaked at 5.2% now 4.2% and falling

• Interest rates remain at 0.5% until end of 2014 or beyond

• House prices falling/flat in most of UK

Settlement for Brent for 2012/13

£m

Adjusted Formula Grant 2011/12 165.060

Floor Reduction (7.4%) (12.215)

Base Formula Grant 2012/13 152.845

Add 2011/12 Council Tax Freeze Grant 2.575

Formula Grant 2012/13 155.420

• Further 7.4% reduction in grant - cumulative 19.3% cut over 2011/12 and 2012/13

• Business rates collected in England in 2012/13 (£23.1bn) exceed Formula Grant payable (£22.9bn) for the first time – excess used to fund Council Tax freeze grant

Real terms Formula Grant Loss - 2011/12 to 2016/17(Effective grant – Business Rate retention in force from April 2013)

2011/12 (Pre CSR

cut)

2011/12 (Post CSR

cut)

2012/13 2013/14 2014/15 2015/16 2015/17

2011/12 Grant + 2.5% pa

187 191.675 196.466875 201.378546875

206.413010546875

211.573335810547

216.86266920581

Im-plied Grant (Best Case)

187 165.4 152.8 152.1 139 132.05 122.8065

Im-plied Grant (Worst Case)

187 165.4 152.8 152.1 139 127.88 116.3708

110.0130.0150.0170.0190.0210.0230.0

Gra

nt

- £

m

Post CSR

Council Tax

• Localism Act 2011 allows the government to determine levels of council tax increase above which local authorities are required to seek approval via a local referendum

• For 2012/13 this has been set at 3.5% for London authorities

• 2012/13 Council Tax Freeze grant equal to 2.5% increase in funding.

• Brent - £2.575m receivable in 2012/13 only – propose acceptance

• This funding is in addition to 4 year grant in 2011/12 – 2014/15

• This is NOT an excessive rise as defined in the Localism Act and thus is not subject to a referendum

Real terms Council Tax Loss - 2011/12 to 2015/16(Assumes a static Council Tax base)

2011/12 2012/13 2013/14 2014/15 2015/16

2011/12 Council Tax + 2.5% pa

105.6 108.24 110.946 113.71965 116.56264125

Council Tax with MTFP in-creases

105.6 108.2 109.296 112.0284 112.32911

Council Tax with no in-creases

105.6 108.2 105.6 105.6 103

101.0103.0105.0107.0109.0111.0113.0115.0117.0

Coun

cil T

ax ta

ke -

£m

Brent Council Tax 2012/13

• 3rd year of Council Tax freeze

• GLA Requirement to be added on – expect £306.72 not £309.82 – Decision on 9th February

£’000

Proposed Brent budget 260,392

Less Formula Grant (155,420)

Less Net Surplus on Collection Fund (774)

Total to be met from Council Tax for Brent Budget 104,198

Taxbase (Band D equivalents) 98,398

Band D Council Tax (£) £1,058.94

Budget process• Proposals developed by the Executive, taking account of the

advice of officers.

• The key processes for doing this are as follows:• Borough Plan and updated medium term financial outlook considered

by the Executive in July 2011;• Away-days involving both Executive and Corporate Management Team

members considered key service and budget issues likely to affect the council in future years;

• Development by officers, in consultation with relevant Lead Members, of budget proposals for individual service areas;

• A process of external consultation with residents and businesses;• Consideration of matters raised by Overview & Scrutiny

• Approval to the detailed budget proposals in the report and publication

The basis of our budget

• Sustainable medium term plan which allow Council objectives and priorities to be met – not just a 1 year issues

• Realistic spending totals year-on-year (no use of reserves)

• Reserves maintained at agreed level

• Maintain real value of Council Tax where possible

• Investing for transformation

• Commitment to efficiency

• Control debt interest costs through judicious use of prudential borrowing

Budget Requirement 2012/13

Change on 2011/12 £’000Budget requirement 2011/12 267,889add inflation provision 2,025add cost pressures 7,158less change in central budgets (3,456)less service area savings (11,724)less reduction in contribution to balances (1,500)Proposed budget requirement for 2012/13 260,392

Requirement £’000Service area budgets 240,634Non-ringfenced Grants (27,213)Central items 41,180Inflation provision and cost pressures and savings held centrally 4,791Contribution to balances 1,000Proposed budget requirement for 2012/13 260,392

Service Area Budgets 2012/13

2012/13Revised

BaseBudget£’000

Cost Pressures Savings 2012/13Draft

Budget

£’000£’000 % £’000 %

Adult Social Services 89,936 2,229 2.5 (2,613) (2.9) 89,552

Children & Families 52,928 1,690 3.2 (3,216) (6.1) 51,402

Environment & Neighbourhood 36,691 641 1.7 (3,259) (8.9) 34,073

Regeneration & Major Projects 33,864 1,194 3.5 (1,781) (5.3) 33,277

Central Units 31,781 1,404 4.4 (855) (2.7) 32,330

Total Service Area Budgets 245,200 7,158 2.9 (11,724

) (4.8) 240,634

Impact of the One Council Programme

2010/11 2011/12 2012/13 2013/14 2014/15 Actual Forecast Budget Budget Budget £'000 £'000 £'000 £'000 £'000

Cross-cutting savings/cost avoidance 10,099 29,419 34,671 42,034 48,534

Service project savings/cost avoidance 1,590 12,279 22,688 29,352 33,148

TOTAL PROGRAMME SAVINGS 11,689 41,698 57,359 71,386 81,682

Total Programme costs (4,290) (2,639) (4,017) (6,017) (6,017)

NET PROGRAMME SAVINGS 7,399 39,059 53,342 65,369 75,665

Risk Assessed reserves = £12m 4½% of net budget requirement

Risk Assessment for Reserves settingPotential

RiskAverage

Likelihood Net risk

£’000 % £’000Demand risks 6,500 20.0% 1,300New legislation and other statutory changes 9,500 20.0% 1,900Interest rate risks 5,000 20.0% 1,000Procurement risks 3,900 20.3% 790Pay risks 600 20.0% 120Grant risks 2,600 19.0% 495 Savings/income risks 40,584 15.0% 6,088Asset management risks 1,000 10.0% 100Major disaster 500 30.0% 150

Total General Fund revenue risks 70,184 17.0% 11,943

Schools

• Schools budget overspent by £5.7m at the end of 2010/11 and forecast £7.2m by end of 2011/12

• Principle issue is SEN/Statemented spending – Schools Forum have approved a plan to recover deficit by 2014/15 but relies on no further overspending in-between

• School balances are £12m – 6th highest in London based on last CIPFA statistics

• Flat-cash settlement for 2012/13 with £6,236 per pupil (compared with England average of £5,082)

• Pupil premium up from £488 to £600 per disadvantaged pupil

• Forum have asked for 15% reduction in centrally funded items – we do not propose to agree this.

HRA• From April 2012, new HRA self financing system is being implemented,

under which HRA Subsidy will be abolished in return for a one-off redistribution of debt. The HRA budget for 2012/13 has therefore been compiled on the basis of this new framework

• No cross subsidy permitted with General Fund

• Average 7.14% Rent increase (RPI + ½% + ¼ of the way to target rent)

• 2011/12 – overspend of £0.4m but HRA still £0.7m surplus balances ; Rent collection 99.6%

• Optimised ALMO – new management agreement needed from September 2012 – focus on collaborative savings

• 30 Year Business Plan being prepared for member approval in Spring.

Capital Programme

Resources

Amended 2011/12 position

(third quarter)

£’000

2012/13£’000

2013/14£’000

2014/15£’000

2015/16£’000

Grant and External Contrib. (66,750) (61,426) (47,103) (33,208) (17,361)Capital Receipts (15,507) (23,775) (7,315) (8,815) (22,320)S106 Funding (13,595) (14,156) (15,781) (8,523) (7,940)Unsupported Borrowing (12,545) (2,280) (6,730) (6,972) (6,972)Self-funded borrowing (33,409) (80,453) (1,718) (200) (200)Total GF Resources (141,806) (182,090) (78,647) (57,718) (54,793)Housing HRA (8,704) (13,846) (9,284) (9,284) (9,284)Unsupported Borrowing (5,953) 0 0 0 0Self-funded borrowing (11) 0 0 0 0Total Resources (156,474) (195,936) (87,931) (67,002) (64,077)

Capital Programme• Capital is not free money – it has long term consequences,

particularly when budgets are falling 2012/13

£m2013/14

£m2014/15

£m2015/16

£m

Budget Requirement (£m) 260.4 258.8 254.6 259.5

Capital Financing Charges (£m) 25.6 26.6 28.1 29.7

Capital Financing as a % of budget 9.82% 10.28% 11.04% 11.43%

2012/13£’000

2013/14£’000

2014/15£’000

2015/16£’000

Cumulative unsupported borrowing costs 68 426 1,007 1,599

Impact on Band D Council Tax – using 2012/13 council tax base of 98,398 of unsupported borrowing £0.69 £4.33 £10.23 £16.25

Medium Term outlook• Continued (increased?) pressure on public sector budgets – local

government likely to bear the biggest strain

• Indications of grant equivalent cuts of 5-8% in 2015/16 and a further 7-9% in 2016/17

• April 2013 – large number of changes implemented• Abolition of Formula Grant – introduction of Business Rate retention• Localisation of Council Tax Benefits with only 90% of current funding• Housing Benefit reforms bite / HB fraud transfers to DWP• Community Infrastructure Levy• Audit Commission replacement

• Recruitment/Retention issues – 4 year pay freeze, increased pension costs, undervaluing of public sector workers, chaotic change

Medium Term Financial position

• Savings based on Council Tax increases of 3.5%; 2.5%; 2,5% respectively – significantly higher if lower or nil rises

• Allowance for pay inflation of 1% in 2013/14 and 2014/15 and 2% in 2015/16; No general allowance for non-pay inflation

• Levies: Forecast to grow from £2.579m in 2012/13 to £2.803m in 2013/14, £3.043m in 2014/15 and £3.293m in 2015/16

• Freedom Pass/concessionary fares: £14.771m in 2012/13. Additional £1.360m (2013/14), £887k (2014/15) and £936k (2015/16) in forecast.

• New Homes Bonus – growth of £1.4m per annum

Budget Gap 2013/14£m

2014/15£m

2015/16£m

Net savings required: Annual 9.3 11.6 5.3Cumulative 9.3 20.9 26.2

Summary• Savings target over the spending review period (2011/12 to

2015/16) remains around £100m

• £41.7m savings largely on target for 2011/12

• Considerable risks – cost pressures could be higher and savings make take longer to achieve than we think

• 2013 onwards – many changes in the funding regime, many as yet unspecified

• Savings on this scale are painful and energy & morale sapping

• Civic Centre and regeneration remain the key focal points

• Preserving our reserves is critical in a time of heightened risk