Your Councillors


APPENDIX A

Budget Strategy Risks

The risk matrix below provides a summary of the key budget risks.  The risk register that follows provides more detail.

Likelihood

5

 

 

 

 

 

 

 

 

 

4

 

L

H,N

 

Black – Top risk

 

 

 

3

 

G, M

B,D

 

Red – High risk

 

 

 

2

E

C,F

A

J

 

Amber – Medium risk

 

 

 

1

 

I,K

 

 

Green – Low
risk

 

 

 

 

 

1

2

3

4

5

 

Blue – Minimal risk

 

 

 

 

 

Impact

 

 

 

 

 

 


A.   Failure to contain expenditure within agreed budgets

H. Adverse impact from changes in local government funding

B.   Fees and Charges fail to deliver sufficient income

I. Constraints on council tax increases

C.   Commercialisation fails to deliver additional income

J. Capital programme cannot be funded

D.   Planned savings are not delivered

K. Increased complexity of government regulation

E.   Shared services fail to meet budget

L. Collection targets for Council Tax and Business Rates missed

F.   Council holds insufficient balances

M. Business Rates pool / pilot fails to generate sufficient growth

G.   Inflation rate predictions in MTFS are inaccurate

N. Adverse financial consequences from a disorderly Brexit

 

The budget risks may be ranked, based on the scores shown below, as follows:

 

 

Financial impact (in any one financial year)

Risk

Ranking

Lower

Upper

Mid-point

Likelihood

Weighted

 

 

£000

£000

£000

%

£000

H. Adverse impact from changes in local government funding

1=

 250

 750

 500

75

 375

N. Adverse financial consequences from a disorderly Brexit

1=

 250

 750

 500

75

 375

B. Fees and Charges fail to deliver sufficient income

3=

 200

 600

 400

50

 200

D. Planned savings are not delivered

3=

 250

 750

 500

50

 250

L. Collection targets for Council Tax and Business Rates missed

3=

 100

 300

 200

75

 150

J. Capital programme cannot be funded

6

 375

 1,125

 750

25

 188

G. Inflation rate predictions in MTFS are inaccurate

8=

 100

 300

 200

50

 100

M. Business Rates pool / pilot fails to generate sufficient growth

8=

 100

 300

 200

50

 100

A. Failure to contain expenditure within agreed budgets

9

 200

 600

 400

25

 100

C. Commercialisation fails to deliver additional income

10=

 100

 300

 200

25

 50

F. Council holds insufficient balances

10=

 100

 300

 200

25

 50

E. Shared services fail to meet budget

12

 50

 150

 100

25

 25

I. Constraints on council tax increases

13=

 50

 150

 100

5

 5

K. Increased complexity of government regulation

13=

 50

 150

 100

5

 5


Budget Strategy Risk Register 2018/19

The following risk register sets out the key risks to the budget strategy 2018/19 onwards. The register sets out the consequences of each risk and the existing controls in place.

Ref

Risk (title & full description)

Consequences

Key Existing Controls

Overall Risk rating

I

L

A

Failure to contain expenditure
within agreed budgets

The Council overspends overall against its agreed budget for the year

Failure to meet the budget makes it more likely that the Council will have to rely on short term expedients to balance the budget from year to year, rather than following a coherent long term strategy.

 - Embedded and well established budget setting process

- Medium Term Financial Strategy

- Balanced budget agreed by Council for 2019/20.

 

-          Strong controls over expenditure and established process for recovering from overspends

4

2

8

B

Fees & Charges fail to deliver sufficient income

Fee charging services may be affected if there is a downturn in the economy, resulting in Fees and Charges failing to deliver the expected level of income.

The total value of all Council income from fees and charges is around £20 million. A loss of income for service budgets will require restrictions on expenditure levels and delivery of all objectives may not be met.

- Fees and charges are reviewed each year, paying careful attention to the relevant market conditions

- Where the Council is operating in a competitive market, the aim is to ensure price sensitivity does not lead to a loss of income.

- Procedures are in place to ensure that fees and charges are billed promptly (or in advance) and that collection is maximised.

4

3

12

C

Commercialisation fails to deliver additional income

The commercial activities currently being delivered and projected in the MTFS do not deliver the expected level of income.

The medium term financial strategy includes a contribution from commercial opportunities, so any shortfall would have an impact on the overall strategy.

Income generation from commercial activities supports the revenue budget and is required in ordered to pay back capital investment.

- The Council set aside a provision of £0.5m against losses from activities that do not deliver. This provision is cash limited but available to cover short term losses.

- Individual risks associated with specific projects within commercialisation strategy will be assessed, both as part of the project appraisal process and during the course of delivering the projects.

3

2

6

D

Planned savings are not delivered

Failure to deliver savings and / or failure to monitor savings means that the Council cannot deliver a balanced budget

The level of saving required to achieve a balanced budget is significant and non-delivery of these savings will have a major consequence on managing financial viability of the organisation.

 

Not achieving savings will impact the overall delivery of the Medium Term Financial Strategy and would require appropriate action, which might include the suspension of some Council services, redundancies, etc.

 

- The risks associated with delivery of savings proposed in the current Medium Term Financial Strategy have been reviewed as part of the budget setting process. 

 

- Savings proposals are separately identified and monitored in the Council’s general ledger.

- The ability to achieve the targeted savings is monitored quarterly in budget monitoring reports to the Corporate Leadership Team and to Service Committees.

4

3

12

E

Shared Services

Shared services, which are not entirely under the Council’s control, fail to perform within budgeted levels.

Failure of a shared service to manage within the existing budget will have the same consequences as for any overspending budget, ie it would require appropriate action, which might include the suspension of some Council services, redundancies, etc.

The arrangements governing shared services include a number of controls that minimise the risk of budget overspends and service failure, including quarterly reporting to a Shared Service Board comprising representatives of the authorities involved.  The shared services are required to report regularly on financial performance and key indicators.

2

2

4

F

Insufficient Balances
Minimum balance is insufficient to cover unexpected events

OR

Minimum balances exceed the real need and resources are held without identified purpose with low investment returns

Additional resources would be needed which would result in immediate budget reductions or use of earmarked reserves.

 

The Council would not gain best value from its resources as Investment returns are low in the current market.

 - The Council has set a lower limit below which General Fund balances cannot fall of £2 million. 

- At the beginning of the 2018/19 financial year unallocated General Fund balances stood at £7 million.

3

2

6

G

Inflation rate predications in MTFS are inaccurate

Actual levels are significantly above or below prediction

Unexpected rises will create an unbudgeted drain upon resources and the Council may not achieve its objectives without calling upon balances.

 

Services have supported the budget strategy through savings. Levels below those expected would result in an increase in balances or unused resources that could be used to achieve strategic priorities.

- Allowances for inflation are developed from three key threads:

o    The advice and knowledge of professional employees

o    The data available from national projections

o    An assessment of past experience both locally and nationally

- MTFS inflation projections are based on the government’s 2% inflation target.

3

3

9

H

Adverse impact from changes in local government funding

The financial implications of the new local government funding regime to be introduced in 2020/21 remain unclear.

The Council no longer receives Revenue Support Grant (RSG), but the amount of Business Rates that it retains depends on the funding regime set by central government.  This will change in 2020/21 but the precise impact on the Council is unknown..

- The Draft Medium Term Financial Strategy to 2023/24 includes an adverse scenario which allows for a significant impact on the Council’s resources,

- The Council has developed other sources of income to ensure it can maximise its resources while dealing with the consequences of government strategy.

4

4

16

I

Constraints on council tax increases

The limit on Council Tax increases means that the Council must manage expenditure pressures even if these potentially give rise to cost increases greater than 3% per annum.

The limit on Council Tax increases means that additional pressures, such as those arising from providing temporary accommodation, have to be absorbed by making savings elsewhere.


- The budget for 2019/20 incorporates a Council Tax increase of 3%. 

- Budget planning is based around the assumption of a 2% increase in 2020/21.

.

2

1

2

J

Capital Programme cannot be funded

Reduction or total loss of funding sources means that the capital programme cannot be delivered

The main sources of funding are:

o    Internal borrowing

o    PWLB borrowing

o    New Homes Bonus

o    Capital Grants

o    Developer contributions (S106)

A reduction in this funding will mean that future schemes cannot be delivered.

- Council has been able to fund the capital programme without recourse to borrowing so far,

- Council has confirmed in the past that borrowing is acceptable if it meets the prudential criteria.

- Local authorities continue to be able to access borrowing at relatively low cost through the Public Works Loan Board but there is a risk that this may be subject to restrictions in future.

5

2

10

K

Increased complexity of government regulation

Complexity of financial and other regulations along with increasing delays in providing guidance reduce the ability of the Council to identify risks at an early stage.

On a number of occasions, most recently with the introduction of GDPR, the financial consequences of government regulation have been significant. Failure to provide adequate warning would leave the council little time to prepare through the medium term financial strategy.

In general these events bring consequences to other agencies and external relationships.

 

- The Council has formal procedures for monitoring new legislation, consultations and policy / guidance documents.

- Our relationships with organisations such as the Council’s external auditor provide access to additional knowledge regarding relevant future events.

2

1

2

L

Business Rates & Council Tax collection

Council fails to maintain collection targets for business rates and council tax

 

Failure to achieve collection targets will reduce the level of key resources to ensure a balanced budget. This will mean further cuts in other budgets or the cost of financing outgoing cash flow to other agencies in relation to taxes not yet collected.

Business rates due are in excess of £60 million for 2018/19.

Council tax due is in excess of £80 million per annum.

 

 

- The Council has a good track record of business rates and Council Tax collection. 

- Steps are taken to maximise collection rates, such as active debt collection, continual review of discounts, etc.

- Nonetheless, increasingly difficult trading conditions for some businesses may lead to a deterioration in collection performance.

 

3

4

12

M

Business Rates pool (17/18) / pilot (18/19)

Changes to rateable value (RV) or instability of business rates growth within the pool/pilot may not generate projected levels of income

Changes in RV or instability in growth will result in a reduction in income from business rates and a potential consequence for the Council. The proceeds from the pilot are based on Business Rates receipts for Kent & Medway as a whole.

- The pool (pilot 18/19) is monitored quarterly Kent wide and Maidstone is the administering authority. The projected benefit of the pool across Kent as a whole is projected to be around £10m in 2018/19.

- The Council applied successfully with other Kent authorities to take part in a 100% Business Rates Retention pilot in 2018/19.  This will mean Kent & Medway retaining a further £30m of business rates growth.

- Provisions have been made when projecting business rates income for bad debts and losses on appeal so any loss of income would relate to the excess over the provisions already made.

3

3

9

N

Adverse financial consequences from a disorderly Brexit. The increased probability of no deal with the EU means that the adverse financial consequences from Brexit are likely to be correspondingly higher.

Short term - Increased costs in delivering services, eg arising from traffic congestion

Medium term/ long term – Risk of recession, which could lead to a fall in business rates income, increasing pressure on homelessness budgets, and adverse central government funding settlements.

-          Thorough preparation for Brexit, with an officer Brexit business continuity planning group to co-ordinate our response and liaise with other Kent authorities

4

4

16

 


 

Impact & Likelihood Scales

RISK IMPACT

 

 

 

 

RISK LIKELIHOOD