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CABINET

Meeting date: 2 February 2010

From: Deputy Leader and Corporate Director Resources

Paper No.

9(1)

DRAFT REVENUE BUDGET AND CAPITAL PROGRAMME PART A - RECOMMENDATION OF CABINET MEMBER

1.0 EXECUTIVE SUMMARY

1.1 The purpose of this report is to present Cabinet’s recommended draft Revenue Budget and Capital Programme to Council for approval on 18 February, covering:

• The provisional Revenue Budget for 2010/11 and later years

including the allocation of the Dedicated Schools Grant

• The precept on District Councils in 2010/11 • The levels of the County Council's share of council tax in 2010/11

for the eight property bands

• The draft Capital Programme for 2010/11 to 2013/14

• The planned use of General Reserves and earmarked reserves in 2010/11, and the updated strategy in respect of general reserves

1.2 The Council’s Medium Term Financial Plan for 2010/11 to 2012/13

comprises the revenue budget and capital plan papers, together with the value for money and efficiency strategy and review of fees and charges. In addition two other papers on the agenda provide important contributions to the Medium Term Financial Plan:

• The Treasury Management strategy for 2010/11 which sets out the

Council’s approach to cash management, long term borrowing and investment of cash balances; and

• The risk management strategy and refresh of corporate risks which present an analysis of the corporate risks facing the Council in 2010/11 and proposals to mitigate these risks.

1.3 Since the December draft budget, there have been a number of

developments:

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H:\Cabinet\2010\020210\papers for cabinet\reports\9 1 Draft Revenue Budget and Capital Programme.doc

a) The revised budget proposals take account of November’s serious

flooding in Cumbria which have a significant financial impact on the Council both in 2009/10 and 2010/11.

• Significant additional revenue costs have been incurred. Whilst

the Government will meet some of these costs under Bellwin arrangements, the Council is expected to meet the first £1.2m and agreed at Council on 21st January to meet these costs from reserves. There have also been drawings of £1.8m on the insurance reserve.

• There has been significant damage to highways infrastructure

and plans for highways capital expenditure have required revision. Government support is available for some of this work through Department for Transport funding, but the Council is required to fund the first £3m and certain other repair costs.

The report sets out a number of contributions arising from the flooding, totalling over £12m of which £9m relates to the restoration of the highways.

b) In light of the significant progress to settle historic equal pay claims,

the equal pay reserve and the annual £9m contributions to the reserve have been reviewed. For 2010/11 it is proposed that the balance of the contribution to the reserve (after paying borrowing costs of c£3m) should be used to fund highways reconstruction work and maintain general and earmarked reserves.

c) In moving from dealing with historic equal pay, to implementation of

single status/job evaluation, it is also proposed that the equal pay reserve should be renamed ‘equal pay and modernisation reserve’.

d) As a result of consultation responses set out in Appendix A, the

proposals incorporate:

• Additional resources for combating domestic violence and support for Lakes Alive

• Reduced increases in Adult Social Care charges from those

originally proposed

• Proposals to limit council tax increases to 1.9% in 2010/11

e) The proposals take account of the Chancellor’s December pre budget report, with the increase in employers national insurance contribution. Latest forecasts on inflation and interest rates, and changes to the council taxbase and the deficits or surpluses on collection fund as reported by District Councils are incorporated.

f) The report sets out the Council’s response to the proposals in the

Free Personal Care at Home Bill;

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1.4 A high level summary of the draft Revenue Budget appears in the

attached tables at Appendix B. 1.5 Members should note that a presentational revision has been included to

take account of the need to show area based grant as a general government grant. Expenditure met by area based grant increases the Council’s budget requirement for 2009/10 from £337.864m to £363.078m.

1.6 For 2010/11 the net position increases by £22.051m (6.1%) from

£363.078m to £385.129m. The increase includes £10.1m in respect of supporting people expenditure previously paid as specific grant but now met by area based grant. The figures lead to a projected Band D Council Tax of £1,161.50 (1.9%). The budget requires a precept of £204.729m. Including schools, the Council’s overall budget exceeds £850m gross, and £363m net.

1.7 The draft capital expenditure in 2010/11 is £154.635 million (inclusive of

new additional schemes proposed) in an overall programme of £361.774 million over the three years (Appendix G).

1.8 The Councils revised efficiency and value for money strategy is at

Appendix D and the updated review of fees and charges policy is at Appendix I.

2.0 POLICY POSITION AND BUDGETARY AND EQUALITY IMPLICATIONS

AND LINKS TO THE CORPORATE PLAN 2.1 The County Council’s Budget is a key part of the policy framework for the

County Council and links directly from the Council Plan and Directorate service plans. This year the emphasis has been on ensuring that priority setting and the budget process has been fully integrated with service planning. Cabinet Members and the Corporate Management Team have led the strategic planning process to ensure that it has been sequenced correctly with resources and delivery plans aligned to the Council’s priorities.

2.2 The Council is committed to delivering real outcomes for the people of Cumbria through the delivery of efficient, modern, high quality services that provide real value for money. In order to achieve this it is essential that the Council’s finances are sound and support the delivery of our strategic priorities. This year the Council has increased its engagement with local communities and stakeholders to support the development of priorities and budget options, with more extensive engagement earlier in the process. The strategic planning process has been further strengthened, incorporating benchmarking analyses against other local authorities when examining proposals for growth and increases in fees and charges, and scope for savings. In this way service needs, resources and priorities are being developed throughout the Council to ensure value for money for the people of Cumbria.

2.3 Equality impact assessments have been undertaken for policy development issues included in the budget.

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3.0 RECOMMENDATIONS 3.1 Agree to recommend for Council approval:

i) The 2010/11 draft revenue budget, including the budget requirement of £385.129 million

ii) A total precept of £204.729m as set out below

£ Allerdale 36,337,373 Barrow 25,025,613 Carlisle 40,081,776 Copeland 25,827,303 Eden 23,904,374 South Lakeland 53,552,563 204,729,000

iii) Council Tax increases of 1.9% at the following level for each property band as set out below

£ Band A (up to £40,000) 774.33Band B (£40,001 to £52,000) 903.39Band C (£52,001 to £68,000) 1,032.44Band D (£68,001 to £88,000) 1,161.50Band E (£88,001 to £120,000) 1,419.61Band F (£120,001 to £160,000) 1,677.72Band G (£160,001 to £320,000) 1,935.83Band H (£320,001 and over) 2,323.00

iv) The draft Capital Programme for 2010/11 to 2013/14

v) The schools budget

vi) The use of reserves and levels of forecast reserves

vii) The revised efficiency and value for money strategy

viii) The revised fees and charges policy.

3.2 That Cabinet agree the proposed use of the Improvement and Efficiency Reserve

Stewart Young Deputy Leader

PART B – ADVICE OF CORPORATE DIRECTOR – RESOURCES

4.0 BACKGROUND

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4.1 This report sets out the background to the 2010/11 budget and the Cabinet’s recommendations to Council on the draft budget and capital plan.

4.2 Consultation on the Council’s budget proposals was launched on 4 November 2009, with publication of a consultation paper, together with a full set of growth and savings options. During November all Scrutiny Panels and Scrutiny Management Board had an opportunity to comment on the budget proposals. In addition the Council arranged a series of meetings and briefings for Trades Unions, the Third Sector and the business community. To engage the public the Council launched a budget simulator before Christmas. Appendix A provides a full analysis of consultation, demonstrating how consultation has informed final consideration of the recommended budget.

4.3 As a result of consultation, the budget proposals incorporate:


• More modest increases in Adult Social Care charges than originally proposed

• Proposals to limit council tax increases to below 1.9 % in 2010/11

Details are provided at paragraph 7.4.

4.4 In light of significant progress in settling historic equal pay claims, the equal pay reserve and further contributions to it have been reviewed. For 2010/11 it is proposed that the £6m balance of the £9m contribution after funding borrowing costs be used to support the significant highways work following the November flooding and subsequent cold weather and to reinstate reserves depleted as a result of the flooding. In moving to implementation of single status/job evaluation, it is proposed that the equal pay reserve should be renamed ‘equal pay and modernisation reserve’. Details are set out in paragraph 7.7.

5.0 NATIONAL CONTEXT

5.1 The Council budget is being set within a period of considerable uncertainty. Whilst it is certain that the financial framework for local government will require us to make considerable real terms savings over the next three years, it is not known how and where these savings will be made at national level.

5.2 The economic situation over the last year has meant that the government has had to inject resources into the national economy, and despite this quantitative easing, access to credit remains limited, and the economic recovery looks likely to take longer that previously forecast.

5.3 A recent Society of Local Authority Chief Executives/Chartered Institute of Public Finance and Accountancy paper outlined how Government figures show that the overall public sector expenditure, Total Managed Expenditure, is likely to rise to 48% of Gross Domestic Product(GDP) in the current year, a level last seen in the 1970’s, whilst tax proceeds are expected to fall to levels last seen in the 1980s. This is combined with overall government borrowings moving to levels of above 12% of GDP, compared to previous recessions

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where they were at 7% or 8% of GDP, and the prediction is that public sector debt with rise to over 77% of national income.

5.4 The conclusion by all economic commentators is that at some stage this will have to be funded from a combination of reducing reserves/reducing public spending and/or increasing tax revenues.

5.5 This year, possibly more than any other year therefore, financial planning has been very difficult. The detail of how Government will meet the repayment costs of borrowing undertaken to support the economy is at present unknown.

5.6 Within the next few months there will be a general election, and whatever the result there will be consequent changes to some national policies that in turn will impact on how the County Council delivers services. Some of the more significant examples of recent or prospective changes in government policy are set out in this report.

5.7 The national context will continue to be one of greater demands for local authority services and support, whilst available funding is reduced. The County Council is seeking to anticipate the potential changes, however, the Medium Term Financial Plan will inevitably need to be modified in the light of the general election results and subsequent local government finance settlements.

5.8 Priority setting and formulating the budget has therefore been considered in the context of this bleak and uncertain outlook for public sector finances.

• While the Grant Settlement for 2010/11 is known and was confirmed on 26 November, the expectation is that Formula Grant and Specific Grants may come under significant pressure in future spending reviews.

• Rather than a 2.5% increase in Formula Grant assumed in the Medium Term Plan for 2011/12, the Council may face a cash freeze or an actual reduction in Formula Grant.

• Cuts in Specific Grants could be more severe with some authorities planning on 10% (or greater) reductions in grants. Specific Grants, including Area Based Grant, help support a range of activities and are particularly significant for Children’s Services and Adult Social Care

• The proposals recognise the need to minimise council tax increases. The Medium Term Financial Plan assumes that council tax increases will be pegged at 1.9% for 2010/11, the lowest increase since the introduction of council tax, and 2% for the remainder of the Plan. Further pressure to keep council tax at current levels would significantly add to budget pressures. Each 1% reduction in council tax would add £2.0m to the budget pressures.

• Pay and other inflationary pressures may have eased compared with the assumptions for 2010/11 built into the Medium Term Plan but there is concern that inflation could accelerate in light of quantitative easing and increased Government borrowing.

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• Capital is likely to come under significant pressure in future spending reviews and Government spending plans show a significant reduction in capital spend in 2010/11.

5.9 The 2007 Comprehensive Spending Review(CSR) charting the medium term strategy for public expenditure is nearing completion. CSR 2010 has been postponed and the assumption is that public expenditure will be subject to severe constraints in future spending plans. The Provisional 2010/11 Local Government Finance Settlement was announced on 26 November, confirming the 5.2% increase in Formula Grant to £144.505m.

5.10 The Government’s pre budget report was presented on 9 December. The report set out that spending growth will average 0.8% per year in real terms between 2011/12 until 2014/15. Health, schools and police growth are protected. The report outlined additional £550m of savings to be found from local government by 2012/13, and a 1% cap on public sector pay in 2011/12 and 2012/13, and an additional 0.5% increase in national insurance contributions in 2011/12. There has been no indication of the overall level of support that local authorities can expect beyond 2010/11.

5.11 The Queen’s speech in January put forward proposals for a Free Personal Care at Home Bill, to be introduced from October 2010. The forecast cost of this initiative was set out to be £420m if which 63% would be met from existing Department of Health budgets and the balance would be found by local authorities through ‘efficiencies’. Consultation on this has raised concerns about the timing, the funding methodology, particularly the assumption that there are spare efficiencies, when authorities are using these to meet other pressures, and the robustness of the cost estimates. The estimated cost for the County Council is in the region of £1.4m in 2010/11 and £2.8m in 2011/12.

5.12 In January 2010 the Chancellor indicated that a full budget would be presented prior to the general election and emphasised the need to reduce government borrowing, warning that the next spending review will be the toughest for 20 years.

5.13 The Council’s Formula Grant allocation for the period of the current spending review has been above average, with the County making a significant contribution to those ‘floor’ authorities to ensure that they received a minimum level of increase. A major review of the formula should be due to conclude with consultation in the summer of 2010. At this stage it is impossible to predict the likely outcome of any changes, however formula changes tend to bring with them turbulence in the grant distribution.

5.14 There are also national changes under consideration in respect of changes in responsibility and Formula Grant that represent potential risks to the County’s financial position. Over the medium term county councils are expected to take responsibility for the administration of concessionary fares. The change is likely from April 2011 and would bring with it the risk of meeting any shortfalls in funding. Distribution of concessionary fares funding is subject to consultation and the Council will be closely monitoring developments. No assumptions have been made in the budget proposals for changes in administration and funding.

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6.0 PLANNING ASSUMPTIONS

6.1 The assumptions made in drafting the budget proposals are that council tax increases are set at 1.9% for 2010/11 and at 2% throughout the remainder of the medium term plan, and that there is a 2% reduction in formula grant in 2011/12 and 2012/13. In seeking to set a balanced budget in 2010/11 and beyond, the budget proposals were based on the broad assumptions that £29.5m additional efficiencies would be required to be made:

Original Planning Assumption

2010/11£m

2011/12£m

2012/13 £m

Total

Budget Gap Budget Gap Budget Gap Budget Gap

Council Tax at 2% (0.4) (14.1) (15.0) (29.5)

6.2 Members will be aware that there have been national discussions regarding setting 0% increase in Council Tax. This would add £4m to the budget gap for 2010/11 set out above and a similar sum for each of the following years. If formula grant were frozen at its current levels, rather than reduced by 2% a year, the position would improve by £8.6m over the 2 year period 2011/12 and 2012/13.

6.3 As regards specific grants, the starting principle is that where specific grants are reduced, expenditure is also reduced. There does, however, need to be recognition that some grants are not ring-fenced and for others services are provided as part of mainstream service provision. For Cumbria a 10% reduction in specific grants would add approximately £5m to budget pressures with a further £7m pressure on schools if the reduction were extended to grants currently passported through to them.

6.4 The current Medium Term Financial Plan identified budget gaps of £4.0m in 2010/11 and £6.1m in 2011/12. The potential budget gaps shown above have reduced as a result of a significant easing in inflationary pressures. The inflation assumptions used in preparing forecast in the summer were as follows:

Original Planning Assumption

2010/11 2011/12 2012/13 2013/14

% % % %Pay 1 2 2 2Employers NI - 0.5 - -Non Pay Inflation 1 1 2 2

6.5 In light of the November Bank of England inflation report, inflation forecasts have been further refined incorporating an additional 1% for non pay inflation in 2011/12. Of particular concern is RPIX, which is used for indexing the majority of the Council’s contracts.

6.6 Forecasts have continued to be monitored and reviewed and for 2010/11 the assumption is that there will be no increase for pay levels and that general

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inflation will be absorbed by directorates. The only inflation allowance for 2010/11 is where the Council has contractual commitments to non standard inflation, for example some contracts specify that charges will be increased in line with Baxter indices. The most recent RPI figures showed the largest ever increase between two months, and whilst there appear to be exceptional circumstances related to oil prices and the changes in VAT rates, there must remain concern that this is the start of an upward acceleration. The budget proposals therefore include a central contingency of £2.0m should these assumptions prove optimistic, and in order to assist in managing some of the other pressures outlined further in this report.

6.7 Provision has also been included for employers pension contribution increases in anticipation of the triennial actuarial review of the pension fund and for the increases in employers national insurance contributions announced in the pre budget report. The table below summarises the inflation assumptions.

2010/11 2011/12 2012/13 2013/14 % % % %Pay - 2 2 2Employers NI - 1 - -Non Pay Inflation - 1 2 2Central contingency £2m

6.8 Pressures identified during the last strategic planning round have been incorporated in the projections for 2010/11 and 2011/12. As part of the budget process pressures have been reviewed and new pressures identified for later years.

6.9 The pressure in relation to Free Personal Care at Home has not been incorporated into the budget, and remains a significant budget risk. Should this proposal be implemented in 2010/11 as set out in the Queen’s speech it is proposed that it is met by reviewing and implementing previous budget proposals including some of the social services charging options previously rejected.

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7.0 REVENUE BUDGET PROPOSALS

7.1 The draft revenue budget is summarised in Appendix B, with further detail set out in Appendix B (i). The forecast budget requirement and total council tax required for the next three years together with the year on year changes is shown in the table below:

2010/11 2011/12 2012/13

Budget Requirement (£000) 385,129 387,083 388,428

Council Tax Requirement (£000) 204,919 209,018 213,198

Council tax £ 1,162.64 1,185.89 1,209.61

Council tax change % 1.9 2.0 2.0

Budget requirement change % 6.3 0.51 0.35

Budget requirement change % (like for like comparison)

3.1

7.2 The table shows the impact of the forecast decrease in formula grant following 2010/11, the final year of Comprehensive Spending Review 2007. At Council Tax levels of 1.9% in 2010/11 and 2% in subsequent years, the Council has identified substantial savings to provide for only minimal increases in its Budget Requirement.

7.3 The draft revenue budget incorporates the net effect of surpluses and deficits on the collection fund for 2009/10 of £750,000. Notifications have not been received from all Districts and this remains an estimate at present. It is anticipated that the November flooding has had an adverse impact on council tax, with mandatory relief (and potentially discretionary relief) on empty properties reducing the taxbase. It is assumed that the taxbase remains unchanged for the 2011/12 and 2012/13 and that there is neither a deficit nor a surplus on the Collection Fund in these years.

7.4 The following changes have been incorporated following publication of draft budget proposals:


• More modest increases in Adult Social Care charges than originally proposed where for 2010/11 a 2.5% increase is incorporated rather than a 5% increase

• Proposals to limit council tax increases to 1.9% in 2010/11.

7.5 Budget option sheets in respect of the new and revised proposals are attached at Appendix B(ii). This appendix also includes revised wording in respect of the options in relation to Member’s Budgets.

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7.6 As set out in last year’s Medium Term Financial Plan, the intention is to build up general reserves. The advice from the Chief Finance Officer is that the target level should be revised towards £14 million. Appendix C details the proposed budgeted contributions to and from earmarked reserves and general balances. The budget proposals revise the proposals last year to utilise only £250k instead of £750k of the CWM dividend.

7.7 In respect of the contribution to the single status and equal pay reserve, borrowing has now been undertaken for the first tranche of claims, after taking account of the borrowing costs of approximately £3m, an annual contribution of £6m would have remained. It is proposed that there is no contribution in 2010/11 only, and that these resources are utilised to rebuild reserves depleted as a result of the flooding, and also to invest in highways asset management following the flooding.

7.8 A second capitalisation directive has been received for 2009/10 allowing the Authority to borrow for a further tranche of claims, largely related to schools. Given the pressure on government finances, the opportunity for future capitalisation directions beyond 2009/10 to meet the cost of claims is highly uncertain. Appendix C (i) gives details of the forecast levels of reserves as at 31 March 2010 taking into account the effect of the budget proposals in Appendix C.

7.9 Additional service efficiencies are required of £2.4m 2011/12 increasing to £4.1m in 2012/13 in order to achieve the proposed 2% Council Tax increases. These figures will contribute to the cashable efficiency targets set by the Government.

Improvement and Efficiency Reserve

7.10 The Council has established an improvement and efficiency reserve to help fund the investment needed to deliver the significant investment programme. Council agreed that £1.3m should be used for this purpose, with the investments being repaid as a first call on future savings. Scrutiny have been consulted on each proposal and as part of the budget proposals Cabinet are being asked to approve proposals to utilise the reserve, subject to the agreement of business cases by the Corporate Director – Resources. The reserve would be repaid as efficiencies are released.

Efficiency

7.11 The Government has set a target for delivering cashable efficiencies increasing from an annual 3% to 4% in 2011/12. As part of its strategic planning process the Council sets out how it expects to meet its efficiency targets with improved working practices and methods of service delivery.

7.12 Efficiencies are not only important in budgetary terms, but if the Council is to continue to improve the value for money that it provides in its services and achieve better outcomes for the people of Cumbria, then it needs to continually review and improve the way it delivers its services.

7.13 The budget proposals incorporated in the draft budget identify additional £26.5m efficiencies over the three years. The Medium Term Financial Plan already included planned efficiencies of £1.8m and there has been £2.1m

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slippage on efficiencies planned for 2009/10. Hence total efficiencies are £35.0m and the Council is making good progress in achieving the Government’s efficiency targets. An updated efficiency and value for money strategy is included at Appendix D.

Year 2010/11 £m

2011/12 £m

2012/13 £m

New efficiencies for 2010/11 and beyond

4.0 15.4 28.0

To balance later years (paragraph 7.9)

2.4 4.1

Efficiencies already included in Medium Term Financial Plan

0.9 1.8 1.8

Efficiencies slipped from 2009/10

2.1 2.1 2.1

Total 7.0 21.7 35.0

7.14 In October 2009 the Council reported that it was on course to achieve the Government’s 3% efficiency target, forecasting efficiencies of £19.0m against its £18.4m target for the two years 2008/9 and 2009/10. For 2010/11, the final year of the three-year efficiency period, the target increases from 3% a year to 4%. The budget proposals contribute towards the target and as part of the updated efficiency and value for money strategy, further work will be required to ensure that all efficiencies are captured.

Equal Pay

7.15 Significant progress has been made in settling historic equal pay claims, the equal pay reserve. The Authority utilised the capitalisation direction it received in 2009/10, which enabled it treat what would otherwise be revenue costs as capital, and hence borrow. Of the annual £9m contribution, £3m is required to meet annual borrowing costs, leaving a remaining annual contribution of just over £6m.

7.16 The Authority has received a further capitalisation in relation to the balance of claims that largely relate to school based staff. This will be utilised to undertake prudential borrowing, and the associated costs will be met by schools.

7.17 The annual £6m remaining contribution to the reserve have been reviewed, and it is advised that this could be utilised for purposes other than equal pay but for one year only in light of the need to implement single status/job evaluation.

7.18 For 2010/11 Cabinet propose that the balance of the contribution to the reserve should be used to fund reconstruction work and on the advice of the Chief Finance Officer to support general and earmarked reserves depleted as the result of the flooding. However, the full contribution would be required from 2011/12 to fund the implementation of single status/job evaluation.

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7.19 Given the significant progress in dealing with historic equal pay issues and the focus on single status/job implementation, it is recommended that the equal pay reserve be renamed the ‘equal pay and modernisation’ reserve, providing additional flexibility, allowing the Authority to manage transition costs associated with the likely future need to reduce the Authority’s size, and restructuring necessary, such as the Heads of Service review. Drawings from the reserve would continue to be authorised by the Corporate Director – Resources

Budget Implementation

7.20 The Cabinet budget proposals set out later in this report include a number of efficiencies which will involve reviewing business processes and may give rise to reductions in staffing. The County’s current strategy to manage these changes is that the costs are met from the department that is implementing the change. In order to deliver this strategy there is a need for proper planning so that staffing changes can be delivered through staff turnover and redeployment.

7.21 Some of the budget proposals however involve significant reviews of service provision, and it may not be possible to manage the cost of change within Directorate budgets in one financial year. In order to support the changes necessary, it is proposed that where necessary the Equal pay and Modernisation reserve is used to assist in managing this transition.

Issues for 2011/12 Onwards

7.22 The next actuarial valuation is due in April 2010 with new employer contribution rates due to be implemented from April 2011. Provision has been made in the budget for a potential increase in employee contribution rates. There has been much national debate about the future of the Local Government Pension Scheme and the pre-budget report announced reforms to the scheme from 2012/13 to reduce the costs of the scheme. The Fire pension scheme has also been revalued in 2009, and current indications are that the consequent changes will be implemented in 2011.

Council Tax and Capping

7.23 The Government has made clear that council tax capping would be at lower rates than in previous years. In the Final Settlement Statement 20 January 2010, the minister repeated the previous warnings over Council Tax levels, saying:

“We have made clear that we expect the average Band D council tax increase in England to fall to a 16 year low”.

7.24 Whilst the Government has already initiated capping action against three police authorities for 2010/11 to limit their council tax increases to around 3%, no other decisions have been taken on capping for 2010/11. However, the minister added:

“I am also putting all authorities on notice that the Government will not hesitate to cap any excessive council tax increases set by individual authorities in 2010/11 and that it would be a mistake for any authority to

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presume they will not be capped if they stay within the capping principles which applied in 2009/10.”

Attention would be focused on both increases in overall budget requirement and council tax increases.

7.25 The proposals to limit council tax to 1.9% for 2010/11 and then at 2% for the remainder of the plan are not expected to attract attention from Government in terms of capping.

Joint Financial Plans

7.26 The Cumbria Strategy relies not only on the delivery of Services by the County Council, but also on the delivery of joint services and outcomes through a number of partnerships. A number of these partnerships rely on joint financial planning in order to deliver their outcomes, with the County Council being a contributory partner (Appendix E). The County Council’s element of these plans is included within the Budget.

Implementation of International Financial Reporting Standards

7.27 From 1 April 2010 local authority accounting will follow International Financial Reporting Standards(IFRS). This is a major development and some of the changes to accounting practices would have potentially significant budgetary impacts if their effects were not mitigated by Government. The primary impact of IFRS relates to the accounting treatment of employee benefits, leases, Private Finance Initiative and Public Private Partnership schemes.

7.28 The Department for Communities and Local Government has published a consultation document on draft regulations and statutory guidance setting out the proposed measures to mitigate the impact of IFRS on budgets. It is anticipated that the draft regulations are sufficient that the budgetary impact of IFRS offset.

7.29 It should, however, be noted that the concession in respect of leases applies only to leases existing on the date of the consultation paper and that new leases are entered into in accordance with the new accounting standards. This would mean that part of lease costs which were previously accounted for as revenue, would be capital in nature. The Authority will need to review all new leasing arrangements to ensure that they are accounted for in accordance with the new regulations, and the financial implications properly considered in the decision making processes.

8.0 SCHOOLS FUNDING

8.1 The ring fenced Dedicated Schools Grant (DSG) was introduced in 2006/07 and comprises funding in respect of the Individual Schools Budget and the Central Expenditure incurred by the Authority on behalf of schools.

8.2 The indicative DSG baseline for 2010/11 is £277.950m (before any deduction for Academies), an increase of £7.690m, or 2.8%. On current pupil estimates, this equates to an increase of 4.2% per student. Each pupil will attract a guaranteed unit of funding of £4,136. The final 2010/11 allocation will be based upon the January 2010 pupil census and notified to the Council in June.

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However, this figure may be subject to further changes and it is worth noting that the final DSG figure was not notified to the Council until 26th November 2009. The Council has no discretion to reduce the size of the DSG but can make additional resources available.

8.3 There are certain specific types of central expenditure that can only be held centrally with the agreement of the Schools Forum. These include:

• school specific contingency for the purposes of making in-year adjustments of school budget shares

• funding for combined services • funding for servicing the costs of a prudential borrowing scheme • funding for premature retirement and redundancy costs • SEN transport costs

8.4 In addition to the type of expenditure that can be incurred by the local authority from the central expenditure, there is also a limit placed on its size. This operates by restricting the increase in central expenditure, to the increase in the Individual Schools Budget.

8.5 The Schools Forum can veto or allow the Council to increase the level of central expenditure.

8.6 As per the budget agreed by Council in February 2009, the Schools Forum has agreed to allow the financing costs of school reorganisation building work in Barrow to fall against the Schools Budget, subject to the Prudential Borrowing tests being met, ie to ensure that costs of borrowing are exceeded by the savings accrued from the reorganisation. Based on total Prudential Borrowing Costs of £7m, the amount to be charged to the Schools Budget in 2010/11 is £280k, an increase of £234k on the 2009/10 amount. Full interest costs will be incurred in later years, following project completion.

8.7 The Schools Budget 3-year plan for 2009/10 to 2010/11, agreed by Council in February 2009, included £300k repayment in each of those years to cover the costs of closing schools deficits. The costs of schools closing in Barrow at the end of the last Academic Year (August 2009) will be met by using funds identified in the Schools Budget in 2010/11. Once these repayments have been made, funding will be available to be re-allocated within the Schools Budget in future years.

8.8 At the end of March 2009, individual school balances stood at £10.5m. Once the deficits of closing schools have been removed from this figure the net position was a surplus of £12.685m. This breaks down into:

241 schools in surplus: £17.582m 81 schools in deficit: (£4.896m) Net position: £12.685m

8.9 Returns from schools suggest that this figure will not reduce further from March 2010, and may well increase, although it is stressed that these are indicative at this stage.

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8.10 A £12.685m net balance accounts for around £6m earmarked funding and the remainder in delegated or non-earmarked budgets. The non-earmarked amount is equal to 2.5% of total funding.

8.11 DCSF has published guidance on excessive balances which are defined as 8% for primary and 5% for secondary, although in practice, according to the guidance, most primary schools should be able to manage with balances of 4-5% and secondary schools with 2-3%. This would give a range in Cumbria of between £7.9m and £10.6m, compared with the £6.7m. It is expected that non-earmarked funds will drop to around £4m by March 2010 although, it should be stressed that the DCSF definition of earmarked funds includes School Development Grant, which schools can carry forward each financial year and in many cases is not earmarked at school level. Guidance published by DCSF in December 2009 states that Local Authorities should move towards making allowances for unspent Standards Funds only where these are ring-fenced. Estimates of the impact of funding, work underway by schools facing financial pressures and this new guidance suggest that non-earmarked balances are expected to rise during 2010/11 to around £7m and to around £8m in 2011/12.

8.12 A number of schools in Cumbria do exceed the recommended limits, but all such funds are earmarked to cover specific future pressures, such as building work, covering the costs of a falling roll or any payments which will be incurred for equal pay back pay. The Local Authority works with schools in deficit to produce an Action Plan and a balanced budget within an agreed timescale. This involves a joint approach from Resurces and school improvement officers to ensure there is a balance between balancing the budget and ensuring education provision. The Schools Forum also considers how it can help schools in such circumstances.

8.13 Appendix F sets out the proposed schools budget for 2010/11 that is being considered by the Schools Forum on 25th January.

9.0 CAPITAL PROGRAMME

9.1 Implementing the Capital Programme should be viewed as a 3 to 5 year process as most schemes are progressed over a number of years. Moderate spend variations between years are not generally a significant issue. Details of the current position on the 2009/10 capital programme and the forecast outturn for the year is given in a separate report on the agenda. In planning the 2010/11 programme it has been assumed that where schemes have slipped in 2009/10, the slippage will be carried forward to next year

Development of the Capital Programme for 2010/11 – 2012/13

9.2 The Council is required to review its capital spending plans each year and set a Capital Programme. The Council is heavily committed to an expanded programme through, for example, the Academies projects and Building Schools for the Future. The whole capital programme is being reviewed by the Strategic Investment Group under the leadership of the Corporate Director - Resources, emphasising the need for robust business cases, realistic phasing and clear funding arrangements. Prospects for capital funding are likely to be more severe than for Revenue and the expectation is that there will be

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reduced capital funding from 2011/12, even for Children's Services. This could impact on programmes such as highways and property maintenance resulting in further demands for these to be funded from revenue.

9.3 Formulating the capital programme centres on four main issues:

• Availability of resources to fund the programme:

o Capital Grants

o Borrowing, both notional supported and prudential borrowing

o Other capital funding including capital receipts and direct revenue funding

• The outcomes of the review by Strategic Investment Group including the extent to which the existing programme is committed and can be changed

• The capital implications of savings and growth proposals arising from the draft revenue budget

• Review of any new bids for capital resources and the scope to deliver these within existing resources or otherwise.

Funding to support the draft Capital Programme

9.4 There are three main funding sources available to support the Authority’s Capital Programme: capital grants; borrowing; and other funding, including capital receipts/use of reserves and revenue contributions.

9.5 Capital Grants – These are issued by Government departments and agencies to fund capital investment, usually for specified purposes. Many of these require local authorities to make a financial commitment to the running costs of the schemes. A significant proportion of the Council’s Capital Programme is supported by grant, and specifically Children’s Services where nearly all the programme is supported in this way.

9.6 The allocation of capital grants for schools and other Children’s Services varies. Some are allocated on a three year basis in line with CSR 2007 whilst others are allocated in line with bidding processes and project plans. Capital grants for transport are allocated in line with CSR 2007. The availability of grants from agencies varies and where projects are fully grant funded expenditure is matched to the timing and amount of expenditure available.

Notional Supported Borrowing.

9.7 Some support for borrowing is provided via Formula Grant based upon the notional borrowing levels identified in the sub groups of the single capital pot. Full revenue support for borrowing costs is, however, not provided. At most 30% is currently supported via revenue grant funding. The Council’s grant settlement is not affected by its actual spend on capital: the grant would be paid even if the notional supported element of the capital programme were not utilised (although there may well be an impact on future grant settlements).

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Notional supported borrowing is used to resource part of Children’s services and a substantial proportion of the transport capital programme.

9.8 In theory, the Authority has freedom to apply supported borrowing as it wishes. In practice, however, endorsement by the Department for Communities and Local Government (DCLG) and Department for Children Schools and Families (DCSF) of the Education Asset Management Plan, relies on confirmation that, as a minimum, all “Education” funds are being spent on Education. The transport allocations are based upon the County’s local transport plan submission, and not meeting the plan objectives may lead to reductions in subsequent years.

9.9 The notional borrowing allocations provided to the end of CSR 2007 are as follows:

2010/11£000’s

Children’s Services 3,427Transport 25,532Total 28,959

9.10 Next year, 2010/11, will be the last year of CSR 2007 and as such there are

no clear indications as to what funding may be available to support capital in 2011/12 and beyond.

Prudential Borrowing 9.11 Under the Prudential system the Council has the ability to borrow in excess of

the amount being supported by Government to fund further capital investment. However, such borrowing must be affordable, sustainable and prudent. The Council must meet the whole of the capital financing costs associated with this level of extra borrowing (referred to as Prudential Borrowing) via either compensating savings or by an increase in the level of Council Tax. A fundamental principle when determining affordability of capital spending is that all borrowing undertaken by the Council is secured on its future revenue income.

9.12 In order for Members to be able to make an informed decision on capital spending plans various mandatory indicators and limits (referred to as Prudential Indicators) need to be taken into account and set at the start of each financial year. Council are required to set the prudential indicators prior to the start of the new financial year and Cabinet will propose draft indicators as part of the medium term financial plan.

9.13 The current levels of Prudential borrowing in the draft Capital Programme (excluding new additional schemes proposed) and their impact are set out below:

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Approved to 31.3.09

2009/10£000’s

2010/11£000’s

2011/12 £000’s

2012/13£000’s

Children’s Services *1,600 *5,900 (met by

DSG)(5,400met by DSG)

Adult Social Care 150 6,300 Environment 10,190 4,451 Local Committees 1,008 1,008 1,008 Safer & Stronger 3,025 758 689 705 656Other 6,759 6,529 1,885 1,169 835Total 19,974 14,496 15,782 2,882 1,491

Financing Cost – General Fund (cumulative)

1,997 3,287 4,325 4,613 4,762

Impact upon Council Tax (cumulative) £

11.32 18.64 24.54 26.17 27.02

9.14 Capital Receipts/Reserves – These arise from the sale of assets such as surplus land. The current market conditions for capital receipts remain difficult and, where capital receipts are not generated as planned, additional borrowing would be required or reductions in the Capital Plan may need to be considered. The balance on the usable capital receipts reserve at 1.4.09 was £0.2m, £2.0m of capital receipts having been used in 2009/10 to finance the Council’s equal pay offer. The 2009/10 capital programme assumed receipts in year of £2m and £1.5m thereafter. Given the negligible balance on the usable capital receipts reserve and current market conditions it has been deemed prudent to slightly revise assumptions in respect of receipts to £1.8m in 2010/11 and £1.3m thereafter. In addition it is assumed that there will be receipts of at least £900k in respect of older peoples comes.

9.15 Another source of funding potentially available to support the capital programme is the annual receipt of £340k from the Amey partnership, to March 2012.

9.16 Revenue Funding/Balances – As in previous years, it is open to Members to use revenue funds to support the capital programme. Clearly any revenue contributions need to be considered alongside other revenue budget issues. In the light of the current budgetary situation however, no contribution has been assumed. Given the current level of revenue balances it is not recommended that these be used to support the capital programme.

Existing Programme & Resources

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9.17 Given the major uncertainty surrounding the level of funding of the capital programme, the focus in drafting the capital programme has been on ensuring that existing capital schemes are properly aligned with corporate priorities as part of the strategic planning process. A review of the capital programme has been undertaken, including analysis of the extent to which the existing programme is committed.

9.18 Appendix G shows the revised draft Capital Programme resulting from this exercise.

9.19 In respect of the Transport capital programme a number of different options have been considered, looking at ways in which improved value can be achieved within the resources available using the experiences from the highways review, as well as delivering on the Council’s priorities.

9.20 There has been an increase in £2m in funding between 2009/10 and 2010/11. The proposals in allocate this £2m to meeting some of the costs that fall to the Authority from the recent flooding. The overall allocation to local committees remains largely unchanged, and the balance of the programme is split between integrated transport and highways asset management. Together with the £3m revenue resources from suspending the contribution the equal pay reserve, the total proposed resources for Highway Asset Management is £11.5m.

9.21 The level of financial support from Government in 2011/12 and 2012/13 is unknown. It is very likely that we will see a significant reduction in grants and supported borrowing. Because of the difficulty in predicting this we have produced the medium term capital programme to show that the level of spend on certain schemes will be equal to the level of Government financial support. Years 2 and 3 of the programme must therefore be considered as indicative only at this stage and will be subject to change as announcements on future funding are made.

9.22 The Capital Programme includes some very significant schemes in relation to the Academies and potentially Building Schools for the Future. As well as the risk of uncertainty of Government funding surrounding the latter, there are a number of financial risks related to the delivery of land and the building programme, which will need to be very carefully managed, and monitored.

Additional Schemes Proposed

9.23 The table below sets out new capital schemes being proposed that have been included in the draft Programme shown in Appendix G. Since 8 December one addition has been made in respect of the Capital proposal to deliver the carbon shift saving. The proposal sheet related to this option is included at Appendix G (i).

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Scheme 2010/11 £’000

2011/12 £’000

£2012/13 £’000

Carbon Shift 2,700 Building Schools for the Future 1,000 1,000 2,000Non Partnerships for Schools Academies costs

782 1,702 571

On street parking infrastructure 2,100 Fire Mobilising Infrastructure 750 Fire Behaviour Training Facility 100 Fire Equipment Rooms Upgrade 50 ICT Investment 2,000 2,000 2,000Total 9,482 4,702 4,571

9.24 Some of the savings and growth proposals in the draft revenue budget have capital implications. These total £6.6m in 2010/11 and £11.9 million over the three years of the programme.

9.25 The process for formulating the capital programme has of necessity focused on reviewing the existing programme rather than on the evaluation of new bids for capital resources. Nevertheless some potential calls on additional capital expenditure have been identified. These total £2.9m in 2010/11 and £6.9m over the three years of the programme.

9.26 It is proposed that the additional schemes be met from new prudential borrowing. The impact of this in revenue terms and on council tax is as follows:

2010/11 2011/12 2012/13

Capital Expenditure £000 9,482 4,702 4,571

Financing costs (cumulative) £000

948 1,418 1,875

Impact upon Council Tax (cumulative) £

5.38 8.04 10.64

Incremental Council Tax increase %

0.47 0.23 0.22

9.27 The draft revenue budget set out at Appendix B includes the impact of the additional capital financing costs of these schemes.

Future Prospects & Assumptions

9.28 Over the years the Council’s borrowing and borrowing costs have increased. Whilst the Council has seen overall increases in its resources, provided that borrowing costs do not increase at a faster rate than overall resource growth, the increasing capital programme is sustainable. However, the Council is

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entering a possible scenario where resources might not increase (or might even reduce) and where Government support for programmes such as transport may be reduced.

9.29 What this means in practice is that to continue to borrow at current rates would be unsustainable and over time increase the Council’s borrowing costs as a proportion of its overall costs.

9.30 A sustainable level of borrowing would be at the rates that the Council is currently repaying debt, some £13m a year, plus any increase in its overall budget requirement. If the Council continues to receive Government support, then this figure would increase. The question to be asked is what the Council’s future approach might be in respect of:

• Highways transport programme beyond 2010/11

• Other prudential borrowing - £13m in 2011/12 and 2012/13

• The Council’s current capital receipts policy.

9.31 The options available are limited. Essentially they consist of:

• Reviewing the existing programme and taking out non essentials

• Moderating borrowing levels down to resources available

• Financing additional costs from revenue.

• Reviewing the capital receipts policy so that receipts are not assigned to specific projects.

10.0 STATEMENT OF ROBUSTNESS, ADEQUACY OF RESERVES AND BUDGET RISK

10.1 The Local Government Finance Act 2003 places a duty on the Council to reinforce sound financial management and in this respect the Chief Finance Officer is required to provide a statement on the robustness of the budget and the adequacy of the reserves. The Act also provides potential intervention powers if the Government believes balances are at too low a level. This assessment is set out at Appendix H.

General Reserves

10.2 In February 2009 the Council agreed a strategy to increase the reserves over a three to five year period to a level of about £12m. Progress has been made in implementing the strategy with uncommitted general reserves standing at £9m at March 2009, however subsequent unforeseen events have meant that the Council has needed to draw on these reserves. There also remain considerable pressures on the 2009/10 budget. There are plans in the 2010/11 budget to replenish some of the reserves, but there is a need to continue with the current reserves strategy, and if this proves unsuccessful there may be a need to seek ongoing revenue contributions. Given the increased financial risks that are facing the Authority over the coming years, the target has been revised to £14m. Without adequate reserves the Council

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remains vulnerable to costs such as those of the recent flooding, potential budget variations and changes from its development programme.

10.3 In respect of single status and equal pay, given the significant progress that has been made over the last year, the reserve is deemed adequate when considered alongside the Council’s 2009/10 capitalisation direction.

10.4 The recent flooding has meant that the Council has needed to review its reserves in order to identify resources to support the flood recovery. At the end of 2009/10 the Council held a capital reserve of £4.2m that related to costs incurred in respect of CNDR. These resources had originally been earmarked to support the reserves strategy, however with the part of revenue contribution from equal pay being utilised to support reserves, it is recommended that this balance is used to support meeting the DfT threshold on the Emergency Capital Highways Maintenance funding and other betterment costs that the Authority would be required to meet.

Budget Risk

10.5 The assessment and addressing of risks is an important element of sound financial management. Appendix H(i) discusses risk and highlights various potential risks

10.6 The County has embarked upon a number of programmes that present exciting opportunities to develop services and improve outcomes for the people of Cumbria, such as academies programme, implementation of new ICT, the carbon shift programme and delivering transformation and more efficient Council Services. These significant ambitions also bring with them risks, together with the current economic and political risks and risks associated with service demand.

10.7 The key for the County is that these risks are managed effectively over the coming years and that the Council is in a strong enough financial position to manage adverse risks.

11.0 POLICY CONTEXT AND COUNCIL PLAN

11.1 The budget sits within the context of the Council Plan and provides the financial strategy to deliver the Council Plan. As such it reflects the Council’s priorities and those within the Cumbria Strategy.

11.2 The budget also draws upon the financial elements of the Council’s ICT Strategy and Human Resources Strategy. The main elements of the former relate to the continued development of the Council’s corporate systems. In respect of the latter, there are obvious key elements is respect of equal pay and single status, but also the financial support that is included within the budget for work force development, to ensure that the Council has a skilled workforce over the medium to long terms to deliver its priority outcomes.

11.3 The budget proposals have been developed to support the Council’s priorities as set out in the following schedule:

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Theme Priority

Outcome Key projects

Healthier – improving the health and wellbeing of adults

People lead healthy and independent lives

Self directed support – a range of specific projects aimed at increasing choice and control for people Promoting Independence – supporting the third sector to increase capacity in local communities Tackling health inequalities – a range of projects to deliver health improvements Transforming the market for social care – Cumbria Care modernisation and other commissioning projects aimed at changing service provision to support more people in their own homes Implementation of the staff wellbeing programme and the Cumbria Wellbeing Through Good Management Group campaign

Wealthier – a sustainable and prosperous economy

Local people benefit from Cumbria’s prosperous economy

Support the development of the nuclear sector, environmental technologies and renewables in line with Britain’s Energy Coast Masterplan Deliver the employment and skills measures in the Anti-Poverty Strategy Action Plan Build on the Workstart programme to implement an inclusive employment programme Deliver the Carlisle Northern Development Route by 2012 Deliver a portfolio of projects to support business development and employment growth Introduce new cross public sector development and redeployment programmes with partners Implement the Skills Award with partners to give our staff skills for the future

Happier – improving the life chances and well being of children and young people

People reach their full potential to learn and earn

Secondary school transformation through initiatives such as Building Schools for the Future (BSF) Primary school transformation – aided through the Primary Capital Programme

Greener – world class environmental quality and effective connections between people and places

People enjoy living in a high quality and sustainable environment

In partnership, deliver the Climate Change Action Plan, and develop adaptation plans and organisational responses to extreme weather events Implementation of the Shanks contract Continuing waste minimisation initiatives and exploring opportunities for greater efficiencies Working through Cumbria Waste Management Partnership to develop options for countywide waste management

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The county’s carbon footprint is reducing People move easily and safely around the county

Minerals & waste Development Framework – develop and implement sustainable policies for waste management Local Sites Partnership – co-ordinating the surveying of county wildlife sites and geological sites Deliver the Biodiversity Action Plan Develop and deliver the Carbon Reduction Plan Deliver the Climate Change Action Plan Introduction of modern staff travel plans, wider use of technologies such as video conferencing, electronic document Highways review – via ‘systems thinking’ customer project Transport review – in order to help us provide the transport people need Deliver the Carlisle Northern Development Route by 2012 Barrow Public Realm Deliver the Public Rights of Way Improvement Plan Deliver the Transport Recovery Programme. Phase 1, covering infrastructure recovery and temporary road bridges will be delivered this year. Phase 2 included major permanent bridges and will be complete by 2012.

Safer – creating safe and secure communities

People are safe from harm

A modern fire and rescue service reviewing the way it delivers its services to the people of Cumbria to ensure that people are safe from harm Safeguarding children through a range of preventative services, we will be supporting families to help themselves which will reduce the need for the Council to become formally involved in their lives. Safeguarding adults – continuing to strengthen our systems and services improving decision making and raising public awareness

Better -improving council services

People have confidence that their council delivers effective and efficient services that provide value for money

Shared services – the Council is joining up with other organisations to deliver services where appropriate, to make the best use of resources The Council is reviewing its charges and benchmarking them with other similar authorities to ensure that we are charging the right price for our services. Review of high cost services – we are reviewing our services and focussing on those that are high cost, to investigate whether they can be delivered more efficiently and effectively at a lower cost to provide real value for money.

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People find council services easy to use The council has the right number of people with the right skills sets, attitudes and behaviours working in modern and efficient ways People can have a say about decisions that affect them

The Customer Access Project – we will deliver 28 local links across Cumbria deliver a network of 8 key numbers that will deal with all our council telephone enquiries Customer Access Reviews – a programme of reviews to examine how services are best delivered in order to ensure that customers access services more effectively Equality for All - undertaking a range of work to ensure the council is meeting its legal duties and tailoring services to meet the needs of people from all backgrounds. Managing Impact of Migration programme Readiness for change – review of key Human Resources policies, building a workforce plan, putting development programmes in place to ensure staff have the skills they need Implementation of the Workforce Plan Creating a modern pay and reward system Implement the ICT strategy to ensure a system which is fit for purpose Better Places for Work –reviewing how we provide back office services with an ambition of moving towards modern and flexible ways of working, making the best use of technology and modern workspaces. Mainstream community engagement standards across the Council Deliver a communications programme that will educate and inform residents about how they can influence relevant Council decisions Deliver improved online consultation and information

11.4 The following paragraphs set out the main thrust of the budget proposals

outlined in Appendix B (i), in the context of the delivery of the Council Plan.

Greener and leaner

11.5 The Council has made a commitment to reduce CO2 emissions by 25% by December 2012 against a 2007 baseline. It has taken action to reduce energy consumption by introducing energy conservation programmes in existing key buildings and as part of routine building maintenance. It has reduced travel costs by limiting business travel and introducing video conferencing facilities which reduce the need for council officers and councillors to travel from one end of the county to another.

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11.6 Taken together these measures will save £708k in the next year and the intention is to accelerate the cultural change required to dramatically reduce the Council’s carbon footprint and increase savings in future years – to £1.32m in 2011/12 and £1.62 in 2012/13.

11.7 The clear focus on carbon reduction should also ensure that the Council avoids government carbon trading fines. As a result the £660k annual provision to meet the cost of such fines in the medium term financial plan is unlikely to be required.

11.8 Other areas for savings include reviewing current transport arrangements across a range of services such as vulnerable adults, home to school and environmental services. By 2011/12 the review could deliver savings of £1.85m rising to £4m by 2012/13.

11.9 By working more closely with colleagues in District councils in a joint waste arrangement there is a real opportunity to remove duplication and inefficiency – and improve the quality of service. By investing £375k in the new arrangements over the next two years, annual savings of £1.9m are estimated to be possible by 2012.

Improving Cumbria’s schools

11.10 The Government has two schemes for improving the quality of secondary schools using improvements to buildings as part of a strategy to transform learning and achievement. These are the Academy and Building Schools for the Future Programmes. Both these schemes involve significant multi-million development programmes and whilst the costs identified reflect current estimates, these costs will be refined as the programmes develop.

11.11 The Council has been successful in working with partners to secure funding for new Academies in Barrow and Egremont and two in Carlisle. These new schools are now open, and new buildings and facilities will follow over the next three years. Most of the £100m required for new buildings comes from the Government and Academy sponsors, but the Council is responsible for the commissioning process and for making sure that clean and secure sites are handed over to the developers. A further £600k of revenue and £3.0m of capital for additional costs arising from the project is included in the proposed budget.

11.12 The Council is now preparing a bid to the Government’s Building Schools for the Future Programme - initially to secure an £80m investment in schools across West Cumbria. These improvements are an important aspect of the Britain’s Energy Coast programme and are intended to inspire a real change in educational aspiration and attainment in the west of the county. Further bids to the BSF programme to improve schools elsewhere in the county may follow. The budget proposes investing £1m revenue in each of the next two years to support this work plus £4m capital over three years. In addition given the very significant cost at a national level, there is a risk that BSF as a programme may be reviewed by any incoming government.

A modern fire service

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11.13 Plans are in place for continuing the modernisation of the fire service in the next year by investing in some areas and making some savings in others. The impact will not be great over the next 12 months, but the pace of modernisation will have to accelerate in future years. The Council will conduct a thorough review of the service and expects to bring forward further measures for reform as part of next year’s Integrated Risk Management Plan and budget consultation process. Efficiencies of around £1m are incorporated in the budget for 2011/12 and 2012/13.

11.14 The Private Finance Initiative scheme will see five new fire stations built in Cumbria as part of a joint project with Merseyside and Lancashire services. The new stations would be at Patterdale, Workington, Penrith and two in Carlisle. This proposal would cost £350,000 over three years and there may be some capital receipts associated with relocating to new buildings. Some staff may also have to move their work locations

11.15 The move to a Regional Control Centre in Warrington in 2012 means that there is a need to update current IT software provision to ensure that data meets the requirements of the new facility and is timely, relevant and accurate. This proposal would cost £150,000 over the next three years.

11.16 As part of modernisation, the Council is exploring partnership working jointly with another authority or even by another authority. The extent of any partnerships has not been determined yet and estimated savings are £250k a year.

11.17 Two workshops in Kendal and Dalston are used to repair and service vehicles. The proposal is to close the Kendal workshop and upgrade the facilities at Dalston to provide a more effective service at a single site. A review of the purchasing and supplies stores facility in Cockermouth is also planned. Taken together these measures will save £210k over three years

Making our services easier to use

11.18 Services should be built around the needs of the people who use them. Access to services should be simple and straightforward, but all too often they can seem complicated and confusing. The Council is applying ‘LEAN System Thinking’ across its services to streamline processes and make things much simpler. By stripping out waste and duplication, services can be much more efficient and effective.

11.19 In Children’s Services work on early intervention in social care is expected to reduce demand for resource intensive acute response leading to savings of £1.01m in 2010/11 rising to £2.615m in 2011/12 and £3.205m in 2012/13.

11.20 In Adult Social Care savings of £1m in 2011/12 and £1.5m in 2012/13 are expected.

11.21 Reviews of Highways and Transport in relation to reactive highways maintenance requests are expected to lead to savings of £150k in 2011/12 and £800k in 2012/13.

11.22 Further business improvement work in other areas will save an additional £74k in 2010/11, £254k in 2011/12 and £419k in 2012/13.

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11.23 These reviews will result in services becoming much more accessible to the public through the Council’s website, a telephone contact centre and Local Links offices in communities. Wherever possible customer contact arrangements will be shared with District Councils or other public bodies – so that one phone call or visit will be all it takes to resolve all and any council enquiry – whichever council is responsible for delivering the service.

11.24 Greater use of modern ‘assistive technology’ to check that people are safe and well at home will save £1.9m a year for Cumbrian taxpayers by 2011/12.

11.25 Review of the £13m Supporting People programme can deliver efficiencies and allow us to focus resources and efforts on what is most important to vulnerable adults and older people in Cumbria. Savings of £505k in 2011/12 and £1.01m in 2012/13 are forecast.

Reviewing high cost services

11.26 Benchmarking shows a number of areas where Cumbria County Council services cost more than those provided by other councils and yet we perform less well. Premises Unit provides catering and cleaning services to the council and schools. A review of all aspects of the unit will consider whether it can be more cost effective by adding new services such as facilities management, the benefits of sharing services with other organisations, and whether it would be better to commission such services from the private or voluntary sector. The aim will be to deliver £275k savings in 2011/12 rising to £625k in 2012/13.

11.27 Cumbria Care employs 3,000 dedicated, skilled and caring individuals, but in many cases struggles to provide the level of care that people expect in the 21st century. Many Cumbria Care homes are in old-fashioned buildings which do not meet modern needs. Following completion of feasibility work, the Council plans to reduce existing residential care provision in Barrow and build a new fit for purpose 60 bed residential home, together with providing 28 extra care housing places. This will save £103k in 2010/11 with £228k investment in transition costs in 2011/12. Savings of £458k are forecast for 2012/13 which will be ongoing.

11.28 The existing policy of focusing Cumbria Care’s Home Care provision on support to service users with more complex or rehabilitative needs will continue. This means that an increasing number of less intensive care packages will be commissioned from the independent sector, resulting in savings of £86k in 2010/11, rising to £258k in 2011/12 and £343k a year by 2012/13.

11.29 A review of grants and subscriptions which are paid by the Council to third parties is expected to save £184k in 2010/11, rising to £224k in 2011/12 and £264k in 2012/13.

Charging for services

11.30 The budget proposals include a review of charging policies to make sure frontline services are protected. Appendix I sets out the Council’s updated strategy for fees and charges.

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11.31 Unlike other parts of the country, there are currently no charges for on-street parking anywhere in Cumbria. Whilst parking meters are common-place elsewhere, Cumbria has adopted a free ‘disc-parking’ system. With a £250k investment next year, annual revenues of around £700k per year could be possible from 2011/12.

11.32 Introducing charges for some planning processes such as sustainability assessments and pre-planning application discussions could generate £110k per annum.

11.33 Increased charges for Windermere Ferry would generate revenues of £50k from 2010/11 rising to £100k in 2012/13.

11.34 Increasing fees and charges for library and cultural services by 5% in 2010/11 and by 2.5% in 2011/12 and 2012/13 would generate an additional £60k next year rising to £90k in 2011/12 and £120k in 2012/13.

11.35 A review of charges across the range of Adult Social Care activities could provide savings in excess of £700k in 2010/11 rising to £1.6m in 2012/13. These increases have been modified in light of consultation on the draft budget.

Modernising the Council’s offices and workplaces

11.36 The Council occupies a wide range of properties across the county. Many are old and not fit for purpose as modern workplaces. They make inefficient use of space, have poor disabled access, and have high maintenance, energy and utility costs. Support services – such as cleaning, record management, mail, and ICT are expensive, and because we have so many buildings in different places – the cost of staff travelling between them is high. The ‘Better Places for Work’ project will create fit for purpose front and back office facilities in Carlisle, Whitehaven/Workington, Penrith, Kendal and Barrow rationalising an existing 49 buildings down to just ten. In each location there would be a single council office or ‘Local Link’ open to the public to access council services and a second office for back office support functions. The project will realise savings of £110k in 2010/11, rising to £780k in 2011/12 and £4.54m in 2012/13. The project will require an annual capital investment of £500k.

Delivering services more efficiently and effectively

11.37 The budget proposals include a full review of how the Council is organised leading to savings of £705k next year rising to £3.29m by 2012/13. Examples include the following:

11.38 Elected councillors have taken a lead in modernising the authority by proposed that an independent remuneration panel should explore how member special responsibility allowances could be rationalised to achieve savings of £50k per annum from next year.

11.39 The Council is reviewing a number of allowances and benefits available to staff. Essential car user arrangements will be reviewed to save an additional £133k per annum on top of those already identified from 2011/12. A review of the severance policy should save £150k per annum from next year. Review of

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recruitment and retention arrangements is expected to save £175k in 2010/11 rising to £325k per annum from 2011/12 onwards.

11.40 The Council has rationalised its HR support services over recent years and established a single HR Service centre to standardise and streamline HR procedures. By bringing all remaining elements of HR administration into the service centre and automating processes, further savings are possible. The service centre could also support shared service arrangements with other partners, generating income and economies of scale. These are expected to deliver an additional £140k savings by 2011/12.

Council services to reflect demographic change

11.41 Cumbria has a significantly ageing population, with one in three people expected to be of retirement age by 2028. By 2012/13 it is envisaged there will be an additional 400 people aged over 85 living in the county. Around half of these people will receive some social care from the local authority. The budget includes an additional £524,000 a year to help look after the increasing number of older people.

11.42 For a range of reasons – including medical advances there are now a higher than average number of vulnerable younger adults with a physical disability reaching the age of 18. The budget includes an extra £75,000 in 2010/11 and an extra £150,000 in each of the years 2011/12 and 2012/13 to help meet these needs.

11.43 Nationally, more people with a learning disability are both living through their childhood into adulthood and into old age, despite needing complex care and support. The budget provides an additional £260,000 in 2010/11 to £1,383,000 in 2012/13 for demographic changes.

12.0 SUSTAINABILITY

12.1 Sustainability issues have also been considered as part of the budget development process, and where appropriate advice provided to Members to support the decision making process.

12.2 The County is making a positive contribution to sustainability, through four strands:

• Sustainability assessment of major policy documents – Cumbria is seen nationally as being a leader in this field

• Through practical action – by taking forward the green action at work programme – a work based approach to reducing environmental impact from the County’s operations through reducing the use of resources such as energy, water and waste

• Through leading development of the Cumbrian climate change strategy and action plan, through the Cumbria Strategic Partnership. This will help meet the four national indicator targets in carbon reduction. Again Cumbria is seen regionally as the leader in this area.

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• Through drawing up a cross cutting Carbon Management Plan to reduce the County’s Carbon Emissions, and longer term produce financial savings.

12.3 In addition there is ongoing work in respect of biodiversity and delivering greater sustainability through planning policy and work on transport planning, landscape and the historic environment. For example sustainability appraisals now form a key element of the scheme design in significant transport schemes.

12.4 The budget supports the work being done to improve sustainability through a number of specific budget proposals and also through the day to day culture of resources being considered in their widest sense.

13.0 EQUALITY IMPACT

13.1 Appendix J sets out the position in respect of the options contained within the proposed budget and the Equality impact assessments that have been undertaken for the policy development issues included in the budget.

14.0 OPTIONS

14.1 The options for Cabinet are to agree to recommend the proposals in this paper to Council as set out in section 3 above or to recommend alternatives to the proposals.

15.0 RESOURCE AND VALUE FOR MONEY IMPLICATIONS

15.1 Resource and value for money implications have been set out throughout the report and appendices.

16.0 LEGAL IMPLICATIONS

16.1 The key statute for the budget making process is the Local Government Finance Act 1992. Section 32 imposes a duty on a local authority to calculate its budget requirement for each financial year.

16.2 Part 2 of the Local Government Act 2003 adds a series of duties and powers to give statutory support to important aspects of financial good practice. This includes the provisions in respect of the requirement for the Chief Finance Officer to report on the robustness of the estimates, including the adequacy of the reserves.

16.3 Cabinet is required to agree a budget proposal to recommend to County Council.

16.4 County Council is required to agree the budget by the statutory deadline of 28

February 2010.

16.5 The Council is required to consult on its draft council plan and budget and Appendix A sets out the results of consultation.

17.0 CONCLUSION

17.1 The draft Revenue Budget and draft Capital Programme for 2010/11 and later years is set in the context of the Council Plan and the resources available as

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described in this report and the Appendices. This is the platform for the next three years to enable delivery of the County’s priorities.

17.2 In considering the recommendations to this report Members need to consider the balance that has been struck between the following:

• The County’s priorities

• The longer term three-year financial planning period

• The need for capital investment and its revenue consequences and the serious challenges associated with equal pay and single status

• The need to seek ongoing and sustainable efficiency savings and deliver value for money

• The potential impact of future budget changes

• Feedback from the budget consultation process

• The overall balance of the Council’s budget between the needs of service users and the impact of the level of any increase on the council tax

Diane Wood Corporate Director Resources Kate McLaughlin-Flynn Chief Finance Officer Simon Smith Head of Financial Strategy January 2010 cf.xx.2009 APPENDICES Appendix A – Results of Consultation Appendix B – Budget Requirement & Council Tax Appendix B(i) – Summary of Draft Budget Proposals Appendix B(ii) – New Proposals as Result of Consultation Appendix C – Budgeted Contribution to & from Earmarked & General Reserves Appendix C(i) – Forecast Level of Reserves Appendix D – Efficiency and Value for Money Strategy Appendix E – Joint Financial Plans Appendix F – Proposed Schools Budget Appendix G – Capital Programme Appendix H – Robustness of the Budget, Reserves and Budget Risk Appendix I – Fees and Charges Policy Appendix J – Equality impact assessments

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IMPLICATIONS Staffing: None Financial: As set out throughout the covering report and the

Appendices. Electoral Division(s): All

Executive Decision No

Key Decision Yes

If a Key Decision, is the proposal published in the current Forward Plan? Yes

Is the decision exempt from call-in on grounds of urgency? N/A

N/A If exempt from call-in, has the agreement of the Chair of the relevant Overview and Scrutiny Committee been sought or obtained?

Yes Has this matter been considered by Overview and Scrutiny? If so, give details below. Has an environmental or sustainability impact assessment been undertaken? N/A*

The budget has been considered in the context environmental impact and sustainability Has an equality impact assessment been undertaken? Yes N.B. If an executive decision is made, then a decision cannot be implemented until the

expiry of the eighth working day after the date of the meeting – unless the decision is urgent and exempt from call-in and the Head of Member Services has obtained the necessary approvals.

PREVIOUS RELEVANT COUNCIL OR EXECUTIVE DECISIONS • Preparing for the Strategic Planning Cycle 2010/11 – Council 9 September

2009 • Consultation pack – 3 November 2009 • Draft Budget and Council Plan – Cabinet 8 December 2009 CONSIDERATION BY OVERVIEW AND SCRUTINY Budget proposals considered by all Scrutiny Panels and Scrutiny Management Board BACKGROUND PAPERS RESPONSIBLE CABINET MEMBER Stewart Young, Deputy Leader of the Council REPORT AUTHORS

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Contacts: Diane Wood, Corporate Director – Resources, Tel: 01228 226260 Email: [email protected] Kate McLaughlin-Flynn, Chief Finance Officer, Tel 01228 226312 Email: [email protected] Simon Smith, Head of Financial Strategy, Tel 01228 226261 Email: [email protected]

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