integrated plan part a – overview 04… · revenue and capital budget position and a detailed...

INTEGRATED PLAN

PART A – OVERVIEW

Contents Page

Part A: Overview

Section 1: Strategic Context and Key Decisions 3 - 9

Section 2: Revenue Budget Funding 10 - 15

Section 3: Risk Management, Uncertainties, Contingency andSensitivity Analysis

15 - 18

Section 4: Capital Programme 18 - 19

Appendix A: Summary Budget Movements & Funding Statement 20 - 21

Appendix B: Local Government Act 2003 - S25 Report of theDirector of Finance

22 - 26

Part B: Strategic Direction and Financial Consequences

1. Adult Care & Health portfolio 27 - 50

2. Children, Young People & Families portfolio 51 - 75

3. Community Safety & Waste Management portfolio 76 - 101

4. Education, Libraries & Localism portfolio 102 - 126

5. Growth, Infrastructure, Planning & the Economy portfolio 127 - 142

6. Highways & Environment portfolio 143 - 164

7. Public Health & Prevention portfolio 165 - 177

8. Resources & Performance (including Central Items) portfolio 178 - 204

9. Education, Libraries & Localism portfolio – Schools 205 - 214

Part C: Capital Strategy 215 - 259

Part D: Treasury Management Strategy 260 - 291

Part E: Insurance and Risk Strategy 292 - 303

Part F: Equalities Impact Assessment 304 - 315

Part G: Supporting Technical Information & Summary Tables 316 - 339

IP Part A: Overview 1

Guide to using the Integrated Plan pack

The Integrated Plan is a multi–part pack and each section forms a standalone document.Each part includes summary and detailed tables and commentary to explain them. Itincludes:

Parts A and B (supported by the detailed schedules at Part G), set out the overallrevenue and capital budget position and a detailed narrative for each Portfolio’s budgetproposals.

Part A provides an overview of the proposed revenue budget and capitalprogramme, including a review of the budget estimates and adequacy ofreserves. It also includes the legal declaration of the Director of Resources/s151officer on the robustness of the estimates provided.

Part B sets out, for each Cabinet Portfolio, the Strategic Direction and FinancialConsequences. These set out the future service direction and priorities,including details of revenue budget movements (pressures and savings) andcapital programme proposals. They also include benchmarking comparisons andan assessment of key risks in delivering services within the IP.

Parts C to E provide the detailed strategies that support the Council’s financialprocesses. Part F summarises the equalities impact assessment. Part G providessupporting detailed schedules.

the Capital Strategy (part C), including changes arising from new guidance, anddetailing how the Council will invest in its property and infrastructure assets anduse its resources to deliver financial returns and service efficiencies;

the Treasury Management Strategy (Part D), a statutory requirement setting outthe Council’s approach to borrowing and financial investments, includingchanges arising from new guidance;

the Insurance and Risk Strategy (Part E), sets out the Council’s approach to riskmanagement and insurance;

the Equalities Impact Assessment is also included (Part F), which considers thecumulative equality impact of IP proposals; and

Detailed supporting schedules provide other technical information and financialsummaries, and these are included in Part G.


1 Introduction – Strategic Context and Key Decisions

1.1 The Integrated Plan (IP) sets out the Council’s plans for service delivery withinavailable funding. It brings together services’ key priorities and plans for deliveringthese, alongside the strategies that shape how the Council manages its resources.

1.2 These plans have been set in the context of the difficult challenges that the councilfaces, including:

Increasing demand for services from our growing and ageing population,including increasing complexity of needs of existing service users, forexample within social care related services;

Inflation which impacts upon the Council’s suppliers and providers theCouncil contracts with to provide some services;

Significant savings already delivered by the Council since 2010, and; Further reductions in grant funding expected over the period.

Ongoing investment in Hertfordshire

1.3 Despite these challenges, investments are planned to ensure that Hertfordshirecontinues to be a county where people have the opportunity to live healthy, fulfillinglives in thriving, prosperous communities. This Integrated Plan supports this bydelivering:

Support for vulnerable people: additional funding to address growingdemand and changing needs, including for disability services; support forthe care workforce to attract and retain people into vital caring roles,including the continued application of National Living Wage and to maintaina differential for pay levels immediately above this for third party providers’staff;

Investment in tackling Domestic Abuse in Adults and Children’s though thecreation of a dedicated team funded from central reserves ahead of the newlegislative requirements;

Investment to help meet the challenges of a growing county, through £8madditional investment in Hertfordshire’s local road network, so that thisreaches £37m over a 5 year period;

Support to the Growth and Infrastructure team to provide the capacity andexpertise necessary to respond to the planned economic and populationgrowth across the county, and resource for this team to develop proposalsand ensure Hertfordshire is well placed to bid for major infrastructurefunding; and

Further investment in growth in Hertfordshire, made possible through use ofthe additional funding arising from the successful Hertfordshire bid to beconsidered for the business rates retention pilot.

Medium term financial position

1.4 The IP outlook now shows a balanced position for 2019/20, but this is in contrast tothe significant later challenges (£20.2m rising to £44.7m).

Summary IP position2019/20 2020/21 2021/22 2022/23

£m £m £m £m

Savings to be found - 20.240 30.250 44.659


1.5 The table above highlights that the financial outlook deteriorates significantly from2020/21. This is due to a combination of:

Loss of one-off government grants worth announced for 2019/20 only Difficulties in bringing forward substantial new efficiencies and new policy

choices in the current IP round.

1.6 Consideration of the pattern of estimated resources and spending across the IP2019 period highlights that:

Resources are forecast to grow at an average rate of 1.3% per year Spending is forecast to grow at an average rate of 2.7% per year The resulting gap of 1.3% equates to a position that worsens at a rate of

about £10.5m per year. (For 2019/20 this position is largely addressedthrough one-off measures, as set out above from section 3.9)

1.7 Securing a balanced financial plan for 2019/20 proved more challenging than wasoriginally expected, a fact attributable to the way that significant savings have beenrequired every year since 2010. The easier options have already been taken.

1.8 The extent of the gap presented in the table above for later years therefore providessome cause for concern, and early work will need to be undertaken to ensure that abalanced and sustainably budget can be prepared in forthcoming years.

1.9 This position also responds to additional, unforeseen service pressures that thatmanifested during the current year (2018/19), as reported in the quarterly monitorsto members. These pressures have been most noticeable in social care, and thecurrent IP has been prepared to reflect the estimated future impact of those currentpressures.

1.10 The chart below shows illustrates a worsening financial outlook, setting out both thelevel of savings required overall, and the level of savings already found and yet tobe identified. The extent of the savings required as presented in the table above forlater years gives cause for concern, and early work will need to be undertaken toensure that a balanced and sustainable budget can be prepared in forthcomingyears.

-

20

40

60

80

100

2019/20 2020/21 2021/22 2022/23

£m

s

Year

IP 2019/20 savings

Savings identified to be identified


Securing a balanced budget

1.11 The table below sets out how the budget gap identified for 2019/20 and reported toCouncil in February 2018 moved to a balanced position by January 2019.

2019/20£m

2020/21£m

2021/22£m

2022/32£m

Budget Gap at February 2018 6.593 22.416 28.170 28.170Inflation - pay (0.451) (0.541) (0.630) 4.289Inflation - non-pay (5.544) (6.332) (7.767) 2.575Demography (0.024) (0.267) (0.391) 9.873Capital Financing (0.825) 0.866 4.074 7.404Other Pressures 19.841 9.206 10.679 15.402Changes in grant funding (12.953) (0.105) (0.105) 5.370Council Taxbase / collection fund (3.201) (2.477) (3.831) (24.634)Additional Savings (3.436) (2.526) 0.051 (3.790)Gap at January 2018 0.000 20.240 30.250 44.659

1.12 It can be seen from the table above that substantial pressures were presented overand above those already included in IP 2018 (an additional £17.9m from serviceareas, plus £1.9m other pressures). These responded to pressures identifiedthrough financial monitoring in the current year.

1.13 It can also be seen in the table above that mitigations to counteract the pressurespresented arose from :

additional one-off funding received from government (£12.9m, includingfunding for social care and winter pressures),

reductions in inflation costs (£5.9m lower than estimated, through constraintin the application of provisions for standard non-pay inflation, consistentwith previous years),

reduced costs of capital financing (£1.3m, mainly through re-programmingof capital schemes which has reduced borrowing requirements), and

changes to the level of collection fund and council tax base estimations(£3.2m).

1.14 The council continues to invest to deliver services more efficiently and with betteroutcomes for users. We will continue to prioritise frontline services – the vastmajority of savings are proposed from efficiencies rather than policy changesimpacting service delivery. This IP provides for funding to be set aside to supportthe anticipated costs associated with organisation-wide transformation.

Planning assumptions

1.15 As in the previous IP, revenue and capital plans have been set for a four yearperiod which is now extended out to 2022/23. However, while core governmentfunding for 2019/20 is covered by the four year settlement provided in 2016,revenue funding beyond this is uncertain. Forward projections in this IP assume a£5m per annum ongoing reduction. Resources will also be impacted by theoutcomes of the government spending review (“SR19”), the Fair Funding Review,75% business rate retention, and the outcomes of the health and social care green


paper. All of which the government propose to implement from 2020/21 and whichis likely to give change in resources that cannot yet be predicted.

1.16 For the IP period, services will continue to face demand pressures from populationchanges, not only from the growing elderly population but more significantly fromlearning disability and children’s special education needs, higher expectations andthe duty to meet these. This higher demand has impacted the market for socialcare, increasing prices for specialist care. £43.2m additional expenditure is requiredin 2019/20 to continue to deliver the same level of service on the same basis as theprevious year and to meet new responsibilities.

1.17 Revenue budgets (the net running costs of the Council’s services) are based on thecurrent year budget, which is then adjusted for inflation, for any unavoidablechanges (for example population increases), any new legal and statutoryresponsibilities, and where services are funded by specific grants. Any avoidablechanges are challenged, and the resulting costs are compared to forecast overallfunding, with the difference – the savings gap – to be met by making savings, or byreviewing and where appropriate reducing reserves.

1.18 In response, services seek new ways of working to deliver improved services andefficiencies, through digital and commercial initiatives and through smarter use ofour workforce. There is a continued focus on the need to develop preventativestrategies to reduce demand and deliver better outcomes for Hertfordshire residentsand businesses, such as the review and redesign of adult social care services overthe IP period.

1.19 The Council is developing its Capital and Investment strategies to make best use ofthese resources, recognising the impact of capital spend on the revenue budget,and the opportunities to add value and generate income streams from these assets.The proposed Capital Programme also invests in the infrastructure that will beneeded for a rising population and to support economic growth.

1.20 This report includes details of the overall funding context including the impact of thegovernment’s Provisional Settlement for Local Government, announced on 13December 2018. This will be updated for the Final Settlement, other fundingannouncements and for final council tax and business rates income collected byDistrict Councils, and will be reported to Cabinet (18th February 2019) and CountyCouncil (19th February 2019).

1.21 As part of the preparation of the IP, the Council secured an independent review ofits resourcing estimates across the IP period. The result of this review confirmedthat the Council is making a prudent and realistic assessment of the likely level ofresources for all income areas. LG Futures also commented that “Overall, [we]would expect your funding to be close to the amount forecast. There is a level ofprudence built into the assumptions already and therefore we would not suggestany more is added.”


Key decisions in IP 2019

1.22 Key decisions in this Integrated Plan include:

Decisions on the level of Council Tax, to raise council tax by 2.99% in2019/20;

Planned efficiency savings to be delivered in all years; Provision for specific inflation on spending budgets where there are

contractual or statutory increases, but otherwise requiring services toabsorb non pay inflation within existing budgets (part G table 7 refers);

Continuing to maintain a differential above National Living Wage for ourcare staff and those of our key providers;

Proposed levels of capital investment, and the planned funding to achievethis;

The new capital investment schemes proposed, and also the changes toinvestment required by previously agreed schemes, and the associatedrevenue costs of these;

The requirement to provide forward funding for schools expansion schemeswhere developer contributions are only expected to be received at a latestage in the construction process; and

Use of £10m capital receipts per annum to support the capital programmeand reduce borrowing costs, whilst also earmarking surplus sites for furtherdevelopment to generate enhanced future receipts and/or income streams.

Chief Finance Officer assurances

1.23 It is a requirement of every Council budget that the designated s151 officer (ChiefFinance Officer) provides assurances through a Section 25 Statement on:

The robustness of the estimates presented to Council, and The adequacy of the reserves available to the Council, given the risks and

uncertainties it faces.

The formal statement is provided as Appendix B at the end of Part A.

Budget 2019/20

1.24 The proposed 2019/20 revenue budget is £819.2m, an increase of 1.8% from2018/19. The revenue budget increases to £848.4m by 2022/23.

1.25 Table 1 in Appendix A at the end of Part A summarises the movements from the2018/19 original budget over the Integrated Plan period 2019/20 to 2022/23; thebudget by service is shown in Table 4 in Part G (Other Technical Information).

1.26 Key movements from the previous IP are set out in the table on the next page. Thistable shows how the budget for 2018/19 was in balance (1 – net revenue budget2018/19), and moves to a balanced position for 2019/20 (4- net revenue budget2019/20).


Analysis of the overall Budget Movement between 2018/19 and 2019/20

£m £m £mExpenditure Income Net

1) Net Revenue Budget 2018/19 804.577 (804.577) 0.000

Pressures on budget:Inflation - pay 5.495 5.495Inflation - non pay 5.178 5.178Pressures - demography 10.545 10.545Pressures - other:

Adult Care Services 14.580 14.580Children's Services 4.161 4.161Other 13.865 13.865

Grant Reductions 23.489 23.489Collection Fund balances 7.420 7.4202) Increase in pressures 53.824 30.909 84.733

Met by:Reversal of one-off items from 2018/19):

Technical Adjustments (14.371) (14.371)Transfer to Transition Reserve (5.960) (5.960)

Existing proposed savings (13.514) (13.514)New efficiency savings (5.346) (5.346)New policy choice savings 0.000 0.000One-Off Grants (for 2019/20 only):

Fire Pensions Grant (1.882) (1.882)Social Care Grant*1 (7.063) (7.063)Business Rates Levy re-distribution (1.873) (1.873)School Improvement Grant (0.600) (0.600)

Additional iBCF grant (previously notified) (8.182) (8.182)Business Rates Pilot (1.308) (1.308)Council tax increase (including tax-basegrowth)

(24.127) (24.127)

ASC Precept increase (tax-base growth only) (0.507) (0.507)3) Mitigation of pressures (39.191) (45.542) (84.733)

4) Net Revenue Budget 2019/20 819.210 (819.210) (0.000)

1.27 The movement from 2018/19 to 2019/20 shows increased pressures on the budget,with an overall increase in pressures of £84.7 m, made up of £53.8m of proposedincreases to spending and £30.9m of decreases in income items (2 – increase inpressures).

1.28 These pressures were mitigated through a combination of technical adjustmentsthat reverse previous one-off expenditure items and increases in savings, totalling£39.1m, and increased income items of £45.5m (chiefly planned increase in counciltax, with some anticipated one-off increases in income through iBCF and some lateannouncements of one-off income that had not been anticipated).

1.29 Key movements from the previous IP, set out in the table above, are described inmore detail below.

*Winter Pressures grant is not included in the Council's budget above due to the requirement to treat asPooled funding. It is anticipated £4.2m will be received as part of the County and CCG (NHS) Pooledbudgets.


Inflation: As noted above, pay inflation is modelled at 2.0% per year plus theadditional increases on lower bands included in the employers’ offer for 2019/20.These give a total cost of £5.5m (effective 2.7%) for each year’s increase.Standard non-pay expenditure inflation has been frozen again for 2019/20 (andassumed at 2.0% thereafter), as indicated in the previous CLG report, with onlyexceptional service specific inflation applied where, for example, contractsstipulated a requirement to uplift prices by inflation.

Pressures: Demographic change in the elderly and child populations, togetherwith growth in Learning Disability and other social care client groups, continues togenerate the greatest pressures. These forecasts have been subject to detailedreview and challenge.

In addition, other pressures include the National Living Wage (NLW), whereprovision has been made to meet NLW and maintain a differential for pay levelsimmediately above this, and social care pressures to reflect additionalplacements in Adult Disability Services beyond the level forecast in the 2018/19budget.

Grant Reductions: As notified as part of the Government’s four year settlementoffer, core Government grants have reduced by £23.5m. This includes reductionsin the Settlement Funding Assessment, and Public Health grant.

Collection Fund: The collection fund reflects the year-to-year differencesbetween estimated and actual collection of Council Tax and Business Rates, dueto changes in collection rate and levels of base-growth. 2019/20 estimates thecollection fund balances to be significantly lower than that experienced during2018/19 (£7.4m).

Technical adjustments: This figure represents the reversal of items included inthe budget for 2018/19 as one-off values (which therefore need to be removedfrom the 2019/20 base budget). These are all contained within Central Itemsbudgets, and comprise the reversals of one-off funding announced for adultsocial care (£2.584m) and SEND (£160k), as well as the one-off transfers toreserves of funding for Invest to Transform (£5.2m), Infrastructure (£2m),Insurance reserve (£1m), and contingency (£1.6m).

Savings: Existing savings options have been reviewed to confirm they aredeliverable, and new efficiency savings have been identified. Officers willcontinue to monitor delivery of savings during 2019/20, and report on any issuesin the quarterly Finance monitor.

Additional one-off grants: Growth in grant funding in 2019/20 only, arising fromanticipated receipts for social care (£7m), the national levy account surplus(£1.9m), fire pension scheme funding (£1.9m) and school improvement grant(£0.6m).

Other Funding: This includes the gain anticipated from the 75% business ratesretention pilot (£1.3m), and previously notified iBCF grant increases.

Council tax: Anticipated increases as a result of the 2.99% increase in the rateof Council Tax, along with growth in the tax-base.


2 Revenue Budget – Funding

Provisional Finance Settlement

2.1 The Government announced the provisional Local Government Finance Settlementfor 2019/20 on 13 December 2018, following the announcement of overall spendingand funding plans in the Chancellor's Autumn Budget 2018 on 29 October.

2.2 This was the final year of the Government’s four year settlement offer forauthorities who submitted an Efficiency Plan, including Hertfordshire. A number ofthe reductions to funding were therefore known in advance when preparing theproposed budget, including an anticipated reduction of £23.7m in Governmentgrants between 2018/19 and 2019/20.

2.3 The Government also calculates authorities’ Spending Power, which includesincome from locally raised Council Tax and Adult Social Care Precept. TheCouncil’s Spending Power for 2019/20 is £770.497m, of which £160.9m is fundedby central government grants and business rates. Whilst Government calculate thisas an increase of £16m from 2018/19, it should be noted this includes an assumedincrease in Council Tax receipts of £27m.

2.4 The Provisional Settlement also announced the removal of negative RSG usingforegone business rates, with the Total Settlement Funding Assessment (SFA), theGovernment’s calculation of need to be met by (previously) Revenue Support Grant(RSG) and business rates, still reducing by 12.6% between 2018/19 and 2019/20.

2.5 Notably, all funding announcements were for one year only, compoundinguncertainty on the level of funding to be expected after April 2020.

2.6 Changes to New Homes Bonus are as announced previously, with payments forgrowth reduced to a four year period from 2018/19. As in 2018/19, bonus will notbe paid on the first 0.4% of growth, with an additional £20m national fundingannounced to maintain the 0.4% baseline.

2.7 The Provisional Settlement also included details of further authorities selected topilot 75% business rates retention. MHCLG had approved 10 authorities to pilot thescheme last year, and Hertfordshire’s application for 2019/20 to be part of thesecond phase of the pilot was successful.

2.8 Furthermore, the Secretary of State confirmed timelines for changes to BusinessRates Retention, and the implementation of a Fair Funding Review that will re-assess funding need across all authorities. These are expected to be introduced in2020/21, when the current four year settlement ends. Whilst there may be sometransitional protection, these changes may give some significant fundingmovements from 2020/21.

2.9 The funding position at table 2 shows the latest estimates of available CentralGovernment funding based on the provisional Settlement, together with projectionsof other income sources including Council Tax and Business Rates Collection Fundbalances. It assumes some continued reductions of £5m per annum in funding for2020/21 to 2022/23.


2.10 The Adult Social Care Precept was introduced for 2016/17, allowing authoritiesproviding social care to raise an additional precept of up to 2% of council tax pa forfour years, provided that they could demonstrate that this was needed to meetincreased costs of social care. The 2017/18 Provisional gave further flexibility byallowing the precept to rise by up to 3% in a year, on condition that the totalincrease to 2019/20 does not exceed 6%. The Council has raised precepts of 2%in 2016/17, 3% in 2017/18 and 3% in 2018/19, and therefore it is not possible toraise any further Adult Social Care precept in 2019/20. Conversely, although theCouncil cannot raise the precept in 2019/20 (and further guidance for later years instill awaited), demand pressures on adult social care services are continuing toincrease.

2.11 Additionally, the Settlement confirmed referendum threshold for General Counciltax increases to be used for 2019/20 as 2.99%.

2.12 In his Budget speech the Chancellor announced a repeat of the £240m WinterPressures Grant for 2019-20 and an additional £410m for adults and children’ssocial care. Local authorities subsequently received notification of provisionalallocations in a letter in November. The County Council’s allocation of £4.134mWinter Pressures Grant has been directly allocated to the service as the Grantmust be pooled into the Better Care Fund (BCF) via the improved BCF.

2.13 The Social Care Support Grant for adults and children’s social care has beendistributed according to the ASC RNF. However, this will be consulted on as part ofthe 2019-20 provisional settlement consultation process. Whilst the money is un-

ringfenced MHCLG has said that “the funding has been given in response tocouncils concerns about pressures on adult and children’s social care services andthe expectation is that councils will use the funding to meet those pressures.£7.063m has been included in Table 2.

2.14 Funding for the agreed increase in pensions for firefighters to the value of £1.882mhas been provided by government (for 2019/20 only), and is included in table 2.

The graph below shows a breakdown of how the authority’s resources are funded.

-

200.0

400.0

600.0

800.0

1,000.0

£m Changing ResourcesCouncil Tax & CollectionFund Balances

Other Grant Income

Better Care Fund

Business Rates Retentionscheme (includes RevenueSupport Grant)


2.15 The gap between forecast expenditure and resource funding is widening over theperiod of this Integrated Plan, as shown in the table below.

Business Rates

2.16 Business Rates income is received as a proportion of income collected by localDistrict/Borough councils, increased by “top up” from, or reduced by “tariff” to,central government to an assessed baseline level of need. Income increases eachyear by the nationally set rate, 2.4% for 2019/20 (based on September CPI).

2.17 Estimates of business rates income in Hertfordshire will be confirmed at the end ofJanuary by district councils, who act as billing authority.

2.18 In September 2018, the Ministry of Housing, Communities and Local Government(MHCLG) invited authorities to apply for pilot 75% Business Rates Retentionschemes, which would allow retention of 75% growth in business rates, andHertfordshire (the County Council and the ten Districts) submitted a bid.

2.19 Hertfordshire was one of 15 successful bids, out of 35 applications. This gives theopportunity to work with the 10 districts and boroughs to better understand the newrates retention arrangements ahead of the national rollout of these arrangementsfrom April 2020.

2.20 It also provides the opportunity to retain an additional £11.3m of business ratesgrowth within Hertfordshire, which can be used to support the delivery of publicservices.

2.21 The anticipated benefit to HCC is £1.3m, based on current information andassumptions. A further £2.3m is anticipated to be available to be directed toinvestments supporting economic growth across the county.

Grants

2.22 Table 2 shows the grants provisionally announced for 2019/20. Non-ringfencedgrants are available to support all Council services, although where these relate to

700.0

750.0

800.0

850.0

900.0

£mFunding Gap

Expenditure forecast

Total Funding


specific services (for example School Improvement, Independent Living Fund) therelevant service budget is normally increased to reflect the funding.

2.23 Ringfenced grant is received for Public Health responsibilities. Indicative figures for2019/20 were published alongside the 2018/19 allocations, which showed areduction of £1.26m (2.6%) to the grant.

2.24 There are still a number of outstanding Government grant announcements,including some smaller non-ringfenced grants.

Council Tax and Social Care Precept

2.25 The 2018/19 IP assumed a general council tax increase of 2.99% in 2018/19 and2019/20 and 1.99% thereafter, in the context of the increasing pressures andfunding reductions outlined later in this document, and the projected medium termfinancial position.

2.26 In the Provisional Settlement, the Secretary of State announced a referendum limitof 3%. An additional 1% raises £5.9m income, and increases the Band D CouncilTax for the year by £13.20. This report assumes a general council tax increase of2.99% in 2019/20 and 1.99% in subsequent years.

2.27 The Band D Council Tax for Hertfordshire County Council in 2018/19 was£1,320.46 which compares with a county council with fire responsibilities averageof £1,304.10, ranging from £1,212.38 (Worcestershire) to £1,426.19 (Oxfordshire).See graph below.

Comparative Data, 2018/19 Band D Council Tax

2.28 The final council tax base and collection fund balance estimates for both CouncilTax and Business Rates will be provided by districts in late January. These reflectchanges in the tax bases for Council Tax and Business Rates, together with thecollectability of income, impact of reliefs and business rates appeals (which mayhave a significant backdated element). Early forecasts indicate a lower thanprojected surplus on the Council Tax Collection Fund than in 2018/19, although

£1,100£1,150£1,200£1,250£1,300£1,350£1,400£1,450

Ba

nd

DC

ha

rge

Authority (County Councils with Fire Responsibilities)

2018/19 Band D Council Tax


there are tax base increases from housing growth and revised assumptions forCouncil Tax Support. The IP presented to January Cabinet assumes a surplus of£6.0m in 2019/20, and £4m in subsequent years.

2.29 For the Business Rates Collection Fund, a deficit of £1.5m is estimated, inrecognition of the continued risk from appeals, where there is considerableuncertainty following the April 2017 revaluation and changes to the appealsprocess.

Overall Resourcing

2.30 Overall resourcing assumptions are summarised below.

Area of resources Key assumptions made in this IPCouncil tax receipts(includes the collection fund).

Council tax income assumedin 2019/20 is £612m

It is expected that there will continue to bemodest growth in the tax base arising fromknown plans for housebuilding inHertfordshire.

Collection rates are expected to remain as atpresent. Future council tax increases arelimited to the known referendum threshold for2019/20 (3%), and the previously announcedgeneral policy for later years (2%).

Settlement FundingAssessment (SFA)(includes anticipated levels ofbusiness rates retained andtop-up/tariff applied bygovernment based on thecalculated level of fundingrequired by the authority; also,revenue support grantestimates)

SFA funding assumed in2019/20 is £126m.

For 2019/20, the values assumed are basedupon the level of funding notified in theprovisional financial settlement for localgovernment in December 2018, as adjustedfor the creation of the business rates retentionpilot.

For later years, previous assumptionsregarding levels of funding have been retainedin the absence of clear guidance on how ratesretention will be enacted (a prudent estimateof growth has been included).

Additionally, a general level of provision forfurther funding reduction has been made atthe value of £5m per year to reflect a generalrisk of further grant reduction and/or additionalresponsibilities being given (see also the noteon government grants, below).

Government grants and otherfunding.

Government grant funding isestimated as £68.2m in2019/20, which includes

Where clear statements about future levels offunding have been made these are included inthe estimates.

Where no clear statements have been made,it is assumed that 2019/20 values are


Area of resources Key assumptions made in this IP£46.3m of Public Healthfunding and £7.0m of one-offsocial care funding.

continued without change into future years. (Ageneral provision for further reduction is madeunder the SFA section, above)

Better Care Fund (BCF, alsoiBCF)

BCF funding assumed in2019/20 is £12.9m.

It is anticipated that funding received underthe BCF is continued at current funding levels,without change, (pending the publication ofthe green paper on health and social care -delayed from summer 2018).

3 Risk Management, Uncertainties, Contingency and Sensitivity Analysis

Risk Management

3.1. Service departments have reviewed the risks attached to delivering the 2019/20budget and reflected any significant risks in the Corporate Risk Register. TheCorporate Risk Register is reported regularly to the Resources and PerformanceCabinet Panel as part of the Quarterly Performance monitor.

3.2. The Audit Committee advises the Executive on relevant audit matters including therisk management system and risk related issues. This function has been exercisedthrough regular reports concerning the operation and effectiveness of the CorporateRisk Process and updates on other risk management activity. To strengthen theCommittee’s effectiveness in this oversight role, the Committee also considers, ateach meeting, a report that focuses on a risk or risks from the Corporate RiskRegister based on a particular theme.

Identified Risks and Uncertainties

3.3. A number of risks and uncertainties exist over the medium term which couldpotentially increase or decrease costs, including:

Risk that social care costs escalate above the increases already included withinthe IP:

- Social care costs typically involve packages of care being arrangeddependent on an individual’s needs. Budgets for social care are set basedon estimated future levels of activity and average costs for different types ofcare package. In the event that either costs are greater than anticipated, ordemand levels exceed those estimated, overspending can arise.

- This type of risk is especially related to :

adult disability services, services for older people, independent placements for children with complex needs and

provision of services for unaccompanied asylum seeking children,and

home to school transport (which is provided for children with complexneeds).

- Mitigations are in place to manage these risks, however the volumes ofactivity, values of budgets involved (more than 50% of net revenuebudgets), and level of financial constraints being experienced can mean


that a relatively small level of change can lead to significant variationsemerging.

Risk of provider failure (including social care provider failure):

- This risk is particularly acute in the social care market, and there is a risk tothe Council that a contractor may withdraw from the market with little priornotice, or that a provider may be deeded ‘inadequate’ and so be forced tohand back its contracts. The need to make alternative arrangement maylead to increases in costs.

Risk of not realising savings as planned, examples include:

- time taken to implement new social care strategies, for example wherethese require now accommodation to be found

- additional income from review of adult social care charging policy- the fragility of the independent care market

Impact of unfunded cost pressures arising from waste disposal arrangements,including for example recycling costs or future decisions on the Energy RecoveryFacility (ERF),

Tender pricing; the Council is exposed to the risk that wider economic factorsmay lead to the tenders received for future procurements being significantlyhigher than anticipated, leading to unexpected budget pressures. This is morelikely in construction contracts, but may also affect contracts for services.

Risks and uncertainties associated with Brexit. There are a number of risks thathave been identified that may arise, with different consequences. Significantuncertainty remains over these risks and the way they may be transpire for theCouncil. Identified risks will be monitored during the coming months. Key risksinclude:

- workforce availability for the safe delivery of services;- the impact of inflation rate or interest rate volatility on the Council’s

suppliers; the impact of the same changes on the Council’s investmentsand borrowing costs;

- the impact of relative economic buoyancy or sluggishness on the localpopulation and businesses and the consequent impact upon business ratesreceipts and wider local prosperity;

- the possibility that any impact from Brexit may also be different between theshort and medium term impact

Risk of commercial bus operators ‘handing back’ contracts for services wherethese struggle to secure value for money

Risk to contributions from Clinical Commissioning Groups for protection of adultsocial care and funding of children’s services;

Highways maintenance: risk of road repairs due to severe winter weather andpotential exceptional maintenance, including special requirements for coal tardisposal


Potential income from business rates growth; impact of business rate appealsfollowing revaluation and changes to the appeals system

The Collection Fund balance and council tax base for future years, as well ascouncil tax support schemes and wider council tax reforms;

Outstanding grant announcements;

Inflation: non-pay inflation including exceptional inflation, an example being thepotential for higher than expected increases in energy and transport costs;possible impacts on Council suppliers of input price changes arising from Brexitarrangements

Volatility in interest rates, impacting on borrowing costs and investment income(e.g. from Brexit decisions, but also from other economic factors); and

Ability to sell assets and secure capital receipts.

Contingency

3.4. The figures included in this report provide for a general contingency of £6.8m in2019/20, based on an assessment of risks and uncertainties, as detailed above.This level of contingency has been taken into account when assessing therobustness of estimates and adequacy of reserves.

Sensitivity Analysis

3.5. The Council’s budget is constructed using best estimates for both the levels andtiming of spending, cashable savings and resources. Table 3 below gives anindication of the sensitivity of the overall budget to movements in the assumptionsunderpinning our budgets.

Table 3: Impact of changes in our assumptions

Variable Change

CashImpact

Impact oncouncil

tax

£’000 %*

1 (person change in) Asylum seeking minor (with All Rights ofAppeal Exhausted) seeking to attend University

27 0.00

1% change in numbers of Children Looked After (10) per year 502 0.09

10% increase in Unaccompanied Asylum Seekers (9 per year) 100 0.02

1% change in older people client numbers (21) inresidential/nursing care per year

412 0.07

1% change in older people home care hours (15,798) per year 318 0.05

1% change in physical disability client numbers (1) in residential/nursing care per year

62 0.01

1% change in learning disability client numbers (9) inresidential/nursing care per year

625 0.11

1% change in learning disability client numbers (14) in supportedliving per year

446 0.08

1% increase in waste management spending 449 0.08


Variable Change

CashImpact

Impact oncouncil

tax

£’000 %*

10 extra precautionary salting service outings for bad weather 361 0.06

10% change in emergency repairs needed on the highway(category 1)

465 0.08

1% increase in operational fire and rescue response activities 244 0.04

1% change in pay inflation 3,875 0.66

1% change in standard/income price inflation 6,052 1.03

+1% change in interest rates on borrowing (additional cost) 316 0.05

+1% change in interest rates on investments (additional income) (1,505) (0.26)

-1% change in interest rates on borrowing (reduced cost) (286) (0.05)

-1% change in interest rates on investments (reduced income) 698 0.12

1% change in Business Rates Retention Scheme 1,246 0.21

1% change in other non-ringfenced grants 200 0.03

£1 million change in collection fund balance 1,000 0.17

1% change in Council Tax 5,898 1.00

* This is shown only to quantify the theoretical impact in the context of council tax.It does not presume that if there were any such movement that it would be passedon through increased council tax.

4. Capital Programme, Funding and Financing Charges

4.1. The capital investment programme and the revenue cost of this is set out in thetable below:

Capital Programme and associated revenue costs

2019/20£'000

2020/21£'000

2021/22£'000

2022/23£'000

Capital Programme 242,783 248,919 210,445 155,361

Borrowing Requirement 90,877 96,346 88,378 64,544

Revenue Cost of Capital 21,680 25,050 30,159 33,515

4.2. A breakdown by Portfolio of the proposed capital investment programme for IP2019 set out in the tables below, along with the planned sources of funding.


Summary Proposed Capital Programme 2019/20 – 2022/232019/20

£’0002020/21

£’0002021/22

£’0002022/23

£’000Adult Care & Health 19,839 28,207 23,894 21,915Children, Young People andFamilies

2,429 2,690 3,890 100

Community Safety & WasteManagement

10,498 11,436 8,308 5,139

Education, Libraries & Localism 69,254 77,335 75,936 42,869Growth, Infrastructure, Planning& the Economy

725 725 725 725

Highways & Environment 112,943 106,985 90,967 81,078Public Health & Prevention 725 - - -Resources & Performance 15,747 10,255 6,725 3,535Capital Investments 10,623 11,286 - -Total 242,783 248,919 210,445 155,361

Proposed Capital Financing 2019/20 – 2022/232019/20

£’0002020/21

£’0002021/22

£’0002022/23

£’000Borrowing 90,877 96,346 88,378 64,544Capital receipts 10,000 10,000 10,000 10,000Grant 79,516 66,753 78,509 68,851Contribution 46,222 63,113 15,166 8,763Reserves 16,168 12,707 18,392 3,203Total 242,783 248,919 210,445 155,361

4.3. The Council continues to invest significantly in its infrastructure and assets. Theproposed 2019/20 – 2022/23 capital programme is £242.8m in 2019/20, of which£90.9m is funded from borrowing (i.e. HCC funded). Schemes within the capitalprogramme include:

funding for the provision for older people’s housing in Hertfordshire thatmeets identified need;

further primary and secondary schools expansion and new schooldevelopments, largely externally funded;

completion of the LED street lighting programme; the construction of bridges over the Baldock rail crossing to enable to

delivery of 2,800 homes; the construction of a new household waste recycling centre; and delivery of a new Archive and Heritage centre.

4.4. In recent years, the Council has used revenue contributions, one-off underspends,Capital Financing and Capital Receipts to sustain the capital programme whileminimising the need for new borrowing, thus delivering savings in the costs ofinterest and of Minimum Revenue Provision (MRP – the amount the Council isrequired to set aside in its revenue budget for debt repayment).

4.5. The capital strategy and treasury management strategy are both included in the IPpack in the usual way. This year, these statements are updated to reflect recentchanges to relevant national guidance. Details of the changes required and howthey have been applied are set out in an appendix to the capital strategy.


APPENDIX A

Table 1: Summary Budget Movement Statement

2018/19£m

2019/20£m

2020/21£m

2021/22£m

2022/23£m

788.647 Original Budget 804.577 804.577 804.577 804.577

(3.225) Technical Adjustments (14.371) (14.971) (14.971) (14.971)

8.141 Inflation 10.673 26.329 41.668 56.929

793.563 Base Budget 800.879 815.935 831.274 846.535

Pressures for change:

0.050 Previous Policy Decisions (0.050) (0.050) - (0.050)

10.642 Demography 10.545 21.020 31.704 41.968

6.029 Legislative 6.289 11.285 13.563 16.933

1.095 Capital Financing 0.948 4.479 9.449 12.779

16.980 Other 25.419 22.559 24.695 26.099

34.796 Total Pressures for Change 43.151 59.293 79.411 97.729

828.359 Subtotal 844.030 875.228 910.685 944.264

Savings:

(5.013)Existing efficiencies - ongoingimpact

(9.562) (20.301) (29.887) (33.553)

(0.563)Existing Policy Choice - ongoingimpact

(3.952) (5.164) (6.216) (6.236)

(21.170) New efficiencies (5.346) (5.148) (5.278) (5.433)

(2.996) New Policy Choice - - - -

(0.000) Further savings required 0.000 (20.240) (30.250) (44.659)

(29.742) Total Savings (18.860) (50.853) (71.631) (89.881)

5.960Transfer to reserve - TransitionReserve

(5.960) (5.960) (5.960) (5.960)

804.577 REVENUE BUDGET 819.210 818.414 833.094 848.422


Table 2: Funding Statement

2018/19£m

2019/20£m

2020/21£m

2021/22£m

2022/23£m

- Business Rates Pilot: Baseline 124.653 - - -- Business Rates Pilot : Gain 1.308 - - -

142.614Business Rates Retention Scheme:Settlement Funding Assessment - 119.565 114.565 109.565

142.614 125.961 119.565 114.565 109.565Non-ringfenced Grants:

4.937Business Rates Retention Tax LossReimbursement 4.406 4.406 4.406 4.406

- Levy Account Surplus 1.873 - - -3.474 New Homes Bonus 3.033 2.524 2.049 1.574

- School Improvement Grant 0.600 - - -0.605 SEN Reform - - - -2.005 Independent Living Fund 1.944 1.944 1.944 1.944

- Fire Pension Grant 1.882 - - -2.584 Adult Social Care Support Grant - - - -

- Social Care Support Grant 7.063 - - -1.175 Other non-ringfenced grants 1.125 1.125 1.125 1.125

14.780 21.926 9.999 9.524 9.049Ringfenced Grants:

32.798 Public Health Grant 31.926 31.926 31.926 31.92614.760 Public Health - Health visitors 14.376 14.376 14.376 14.37647.558 46.302 46.302 46.302 46.302

Better Care Fund:4.727 iBCF - old 12.909 12.909 12.909 12.909

Council Tax and Collection FundBalances:

540.686 Council Tax 564.813 583.827 603.462 623.739

42.291Council Tax relating to Social CarePrecept 42.798 43.312 43.832 44.358

11.002 Collection Fund Balance - Council Tax 6.000 4.000 4.000 4.000

0.918Collection Fund Balance - BusinessRates (1.500) (1.500) (1.500) (1.500)

594.897 612.112 629.639 649.794 670.597

804.577 TOTAL 819.210 818.414 833.094 848.422


APPENDIX B

Local Government Act 2003: Section 25 Report of the Director of Finance

1. Introduction

1.1.The Local Government Act 2003 (Section 25) requires that when a local authorityis agreeing its annual budget and Council Tax requirement, the Section 151Officer must report to it on the following matters:

the robustness of the estimates made for the purposes of the calculations,and;

the adequacy of the proposed financial reserves.

1.2.The Council is required to set a balanced budget and must have due regard to theadvice of the Director of Resources (s151 officer). The following report thereforeprovides commentary on the robustness of the budget and the reserves in placeto support the Council. It also considers the medium term financial position of thecouncil.

2. National context

2.1.Strategically the financial and economic context facing the Council remainssimilar to recent years, which is a continuation of the reduction in centralGovernment funding. The Government announced the Provisional Settlement on13 December 2018. This was the final year of a four-year settlement period, andthe grant reductions were very largely in line with previous governmentannouncements. There were some one-off grants, including for social care, thatwere announced in the October Budget.

2.2.Beyond 2019/20 there remains considerable uncertainty over public financesgenerally, and for Councils more specifically as follows:

A new Spending Review is expected during Summer 2019. This shouldoutline overall levels of public expenditure from 2020/21 onwards. There ishowever no certainty over how many years this will cover. Alsoannouncements at that stage are likely to be high level and the impact onlocal government may not be known at that point, being dependent on furtherdecisions within Government later in the year. However, many commentatorscurrently point out that the public finances remain in a challenging position,and with commitments already made in other areas of public spending (e.g.Health), austerity may not have ended in local government

Government is currently consulting on two major aspects of how funds areallocated to Councils as follows:

The fair funding review is proposing changes to how the total pot ofgovernment grant is allocated to councils

The business rate review is looking at whether councils should retain agreater proportion of business rate income in their areas

2.3.Even if the funding review benefits Hertfordshire, normally any such formulachanges are phased over time, rather than being implemented immediately.


2.4. In view of this there is a high level of uncertainty regarding the level of funding theCouncil can expect through government post April 2020. The position is only likelyto be clear when the 2020/21 Settlement is announced in December 2019.Budget planning for that financial year will need to consider the potential risk anduncertainty around only knowing the grant position around 3 months before thestart of the financial year.

3. Local context

3.1.Hertfordshire County Council has successfully delivered significant savings since2010. These savings mean that the proposed 2019/20 current budget is some£335m lower than it otherwise would have needed to have been if those savingshad not been made, and the accumulated total of savings in the period is nearly£2bn.

3.2.The Council has proactive approach to financial planning, and a good track recordof delivery. This is underpinned through the following processes, including:

A robust budget setting process, including risk analysis and challenge onassumptions and estimates.

monthly reporting to Senior Management Board on budget monitoringforecasts including any remedial management action required and formalreporting on delivery of savings; with further quarterly reports being providedto Cabinet.

the operation of a robust risk management approach;

the council’s internal control framework, including the financial regulationsclearly defined financial roles and responsibilities;

regular liaison with the external auditor (EY);

the operation of the internal audit function and its role in assessing controlsand processes to highlight any major weaknesses and advise on bestpractice.

3.3.The 2019/20 Budget has been through the process outlined above. Potential risksare outlined in Part A of the IP documentation, but overall the budget isconsidered robust and deliverable.

3.4.The position for future years continues to be challenging. The Council facessignificant financial pressures from increases in demand for services, in particular,but not exclusively, for social care. Indeed in future years this increased demandis a greater issue in terms of impact on the budget gap than grant reductions.Also it is apparent that further efficiencies become harder to achieve and realise,and will require more resource and investment to achieve.

3.5.Over the medium term the Council faces further financial pressures, as outlined inpara 3.4 above. Combined with an assumption on modest further grant reductions(£5m per annum), this means that the Council still has the following budget gapsin future years

2019/20 2020/21 2021/22 2022/23£m £m £m £m

Savings to be found - 20.2 30.3 44.7


3.6. It is also important to consider how this has moved in recent years. This isoutlined in the following table that shows for the last 3 IP rounds, whilst for all ofthem the budget for the following year has been balanced, the financial position infuture years has varied:

2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

£m £m £m £m £m £m

2017/18 IP - Feb 2017 - 20.9 41.9 - - -

2018/19 IP - Feb 2018 - - 6.6 22.4 28.2 -

2019/20 IP - Feb 2019 - - - 20.2 30.3 44.7

As can be seen, the medium-term position in February 2018 improved from that ayear before in February 2017 (in that the budget gap in year 2 of that IP reducedfrom £20.9m to £6.6m). This was partly because the approach in the 2018 IPround proactively took a medium term view and aimed to identify savings in futureyears as well. The position in 2019 has deteriorated (in that future year’s budgetgaps are now wider – with the Year 2 position increasing from a gap of £6.6m to£20.2m).

The Council has continued to try and take the medium term view on the financialposition. However, whilst further pressures have continued to emerge (mainlyaround disability services and costs of children’s care and transport) it has notproved possible to bring forward further efficiency savings to fully offset thesepressures. This is perhaps indicative of points made earlier that it is provingdifficult to continually identify and deliver efficiency savings. The Council will needto consider how it tackles this medium term position to deliver financialsustainability.

4. Level of reserves and balances

4.1.The Council retains several named reserves to respond to specific issues. Theseare projected to be £198.1m as at 31 March 2019 and £184.9 as at 31 March2020. These reserves are described in Table 11 in Part G of the Integrated Plan,together with estimated opening and closing balances. A summary of this isshown below:

Reserves Summary Balance at1 April2018

ForecastBalance at31 March

2019

ForecastBalance at31 March

2020£000s £000s £000s

Balances held on behalf of Schools (86,785) (63,893) (54,781)Other reserves held for other parties (8,912) (6,478) (4,430)

Subtotal – Non HCC Controlled reserves (95,697) (70,371) (59,211)Earmarked (73,523) (77,113) (80,243)ITT (20,883) (18,665) (13,426)

Balances - General Fund (31,497) (32,000) (32,000)

Subtotal – HCC Controlled reserves (125,903) (127,778) (125,669)TOTAL (221,600) (198,149) (184,880)


4.2. In reviewing reserves, the following should be noted:

A number held on behalf other bodies and are not available for generalCouncil use, including schools (£63.9m), the LEP (£6.5m);

A further £77.1m are earmarked for specific purposes

The invest to transform fund is used to support transformation. Given thescale of the financial challenge outlined above, the Council is likely to requiresignificant investment to drive transformation in the future

Balances are held for emergency purposes, and once used are gone

In responding to the general uncertainty of future funding, and especially theshort period between the December 2019 settlement and the start of thefinancial year, the council established a transition reserve that currentlystands at £9m

The Council also holds a contingency budget, which will be £6m for 2019/20.On current plans this drops to £4m in future years, and it may be necessary torevisit that level in future budget plans

4.3. In assessing the adequacy of the Council’s reserves, the robustness of theestimates, the identified risks and uncertainties and the level of the generalcontingency all need to be considered.

4.4. It should also be noted that the following is the expected approach if risks orfinancial pressures emerge during the year:

Departments will exhaust all options to find corresponding savings. Ifnecessary a council wide approach will be taken

If this cannot deliver a balanced budget, then consideration will be given touse of contingency. This will be considered by SMB, and will only beconsidered during the second half of the financial year when other optionshave been exhausted and the financial picture is clearer

Reserves will be only used as a last resort

In comparison to other County Councils, Hertfordshire has a relatively low level ofreserves. However, the approach outlined above has proved successful in recentyears, and the Council has not had to make unplanned used of its reserves inrecent years.

4.5.As such the level of reserves is currently considered to be adequate. This viewdoes depend on the following:

Departments delivering savings plans outlined in the IP

The Council developing realistic plans to deliver balanced budgets over themedium term


5. Conclusion

5.1.Although the level of risk remains significant and the position is challenging, onceall the above points are taken into account it is the view of the Director ofResources that the budget proposals for 2019/20 are credible and deliverable.

5.2.The medium term financial position of the Council is very challenging, as outlinedin para 3.6 above. It is recommended that the Council does not wait for theregular IP timeline in the Autumn of 2019, but rather starts work early in the newyear to develop options for delivering medium term financial sustainability for theCouncil. All options will need to be considered, including further efficiencies,income options, transformation and policy choices.

Steven PilsworthInterim Director of Resources (Chief Finance Officer and Section 151 Officer)


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