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APPENDIX F

 

 

 

 

 

MAIDSTONE BOROUGH COUNCIL

 

MEDIUM TERM FINANCIAL STRATEGY AND EFFICIENCY PLAN


 

CONTENTS

 

 

1. Overview and Summary of Medium Term Financial Strategy and Efficiency †Plan1

2. National and Local Context6

Economic Outlook 2017-20226

Local Government Funding6

Stakeholder Analysis7

3. Corporate Objectives and Key Priorities10

4. Revenue Expenditure11

Budget Pressures11

Inflation12

5. Funding13

Revenue Support Grant13

Retained Business Rates13

Business Rates Growth and the Kent Business Rates Pool13

Council Tax14

Fees & Charges15

6. Capital Programme Ė Expenditure & Funding16

7. Balances & Earmarked Reserves16

8. Budget Risks18

9. Consultation20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.         OVERVIEW AND SUMMARY OF EFFICIENCY PLAN

 

Background

 

1.1          The Medium Term Financial Strategy (MTFS) sets out how the council plans to deliver its corporate objectives in financial terms over the next five years.†

 

1.2          The Government has offered a four year funding settlement to local authorities, covering the years 2016/17 to 2019/20, which the Council accepted in October 2016.† This provides some certainty about the level of income that the Council can expect for the next three years covered by the next MTFS, ie 2017/18 to 2019/20.

 

1.3          The Governmentís funding offer was conditional on the council preparing an Efficiency Plan setting out proposals for utilising the available funding.† This was published on the councilís website in October 2016.† Since the MTFS fulfils a similar purpose, as it reflects projected levels of funding over the period covered by the funding settlement, the Council adopted a unified approach to preparation of the two documents.

 

1.4          The strategy also sets out an overview of the capital plans of the Council and the criteria used to develop and approve these plans.† Delivery of the programme is dependent upon the availability of the resources required to finance the plans.

 

1.5          The strategy is reviewed on an annual basis for the following five year period.

 

Strategic Context

 

1.6          The Council has set two over-riding corporate priorities: keeping Maidstone Borough an attractive place for all; and securing a successful economy for Maidstone Borough.† These will be delivered both through our day-to-day revenue expenditure and through investment in the boroughís infrastructure as part of the Councilís capital programme.† Funding for revenue spending is tightly constrained, as set out below, but the Council will seek to optimise delivery of the priorities within these constraints.

 

1.7          There are a different set of issues with capital investment.† As set out in section 6 below, funds have been set aside for capital investment and further funding is available, in principle, through prudential borrowing.† The challenge is to ensure that capital investment delivers against the Councilís priorities, providing the required return on investment for the community.

 

Revenue funding

 

1.8          The Governmentís offer of a four year funding settlement was reported to Council when it set a budget for 2016/17, in March 2016.† The provisional local government finance settlement announced on 15 December 2016 confirmed these figures.

 

1.9          It was identified that savings and efficiencies totalling £6.5million would be required in order to cover the gap between projected resources and predicted spend.† Savings of £3m had been identified, including £2.2m savings to be delivered during 2016/17.

 

1.10       The forecast for the five year period from 2017/18 has been updated based on the provisional funding settlement and current budget requirement.† Savings and efficiencies totalling £4.3 million will be required over this period.† £3.5m of this total has now been identified, leaving a balance of £0.7million still to be identified in the later years of the strategy.

†††††

 

17/18

18/19

19/20

20/21

21/22

 

£ million

£ million

£ million

£ million

£ million

Total Resources Available (A)

†††††† 35.3

†††††† 35.8

†††††† 35.0

†††††† 35.7

†††††† 36.5

Predicted Expenditure Requirement (B)

37.2

†††††† 35.7

†††††† 36.4

†††††† 36.9

†††††† 36.3

Savings & Efficiencies Required (B-A)

†††††††† 1.9

††††††† -0.1

†††††††† 1.4

††††††† 1.2

††††† -0.2

Required Ė Cumulative (C)

1.9

1.8

3.2

4.4

4.2

Savings Proposals Ė Cumulative (D)

†††††††† 1.9

†††††††† 2.8

†††††††† 3.3

†††††††† 3.5

†††††††† 3.5

Still to be identified (C-D)

-

-0.8

-0.2

0.9

0.7

††††††††††† Table 1: Savings requirement 2017/18 Ė 2021/22

 

1.11       In accordance with legislative requirements the Council must set a balanced budget for 2017/18 at Full Council in March 2017. On the basis of existing agreed projections, the four year funding settlement will not allow the Council to set a balanced budget during 2020/21 and 2021/22 unless other actions are taken.

 

1.12       In developing the current MTFS / Efficiency Plan, there are therefore two main challenges:

 

-      Ensuring that the savings proposed are delivered and are sustainable; and

-      Identifying a strategy to address the remaining budget shortfall.

 

1.13       More broadly, given continuing uncertainty about the projections, and in particular the position after 2019/20, it is important that there is a clear strategy that will allow the Council to address future financial challenges and risks.

 

The approach to meeting the two main challenges described is set out below.

 

Delivering existing savings proposals

 

1.14       Previously identified savings proposals have been reviewed.† Where appropriate they have been adjusted, for example where the savings proposals are now no longer considered to be deliverable, or where they are not consistent with the rest of the strategy.†

 

Most of the previously identified savings proposals remain valid.† As they form an inherent part of the MTFS, it is essential that they are delivered.† Officers are developing, or have developed, implementation plans.† Progress with the savings is monitored carefully as part of the Councilís regular quarterly financial monitoring process.

 

Addressing the budget gap

 

1.14†††† The budget gap of £4.3 is considerable in relation to ††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††the Councilís net expenditure budget of around £19 million.† Owing to its size, no single initiative can be expected to close the gap.† A broader, cross-cutting approach has been necessary.

 

1.15      A two-fold approach has been taken to addressing the budget gap.† First, proposed budget savings have been identified, using a conventional approach.† Starting with the Councilís Strategic Plan priorities, Heads of Service were asked to put forward savings proposals, which were then subject to challenge.† The savings arise from a blend of different approaches including changes to the way in which service outcomes are delivered, efficiency improvements and transformation, additional income generation and reconfiguration of services.

 

1.16       These savings proposals, even if agreed in full, would not have been sufficient to close the budget gap for the whole period of the plan.† Accordingly, a more radical approach has been taken to identify further savings.† This has involved refocusing on the full range of services delivered by the Council, and considering whether the services delivered and the way in which they are delivered reflect the Councilís strategy and aspirations.†

 

1.17       The rationale for the approach is this: comparing what we want to deliver with what is actually delivered will indicate any potential misallocation of resources, and may allow resources to be freed up.

 

1.18       The technique used for this was a MoSCoW (must/should/could/wonít) analysis of the Councilís services. Each service was assigned one of the following four descriptions:

 

MUST - essential to the Council

SHOULD - important and its absence would weaken the Council

COULD - useful but the Council is still viable without it

WONíT - essential and can wait for now

 

The standard of service, both current and desired, was then categorised as gold, silver or bronze.

 

1.19       The outcome of an indicative service assessment using this technique is set out at was reported to Policy and Resources Committee in September. †This approach has allowed the Councilís expenditure to be prioritised.† This in turn assists with the evaluation of the detailed Officer spending proposals described above and will highlight those services that need to be the focus for meeting the residual budget gap.† The prioritisation approach also formed the basis of wider stakeholder consultation, as detailed budget proposals were developed for 2017/18.

 


 

2.         †NATIONAL AND LOCAL CONTEXT

 

Economic Outlook 2017 Ė 2022

 

2.1          The current national economic outlook is not favourable, making it even more important that the Council has financial plans that are robust and capable of withstanding shocks.† Specifically, indications are that inflation is likely to rise, increasing the Councilís cost base, but economic growth will slow down, with a potential reduction in tax receipts for national and local government.

 

2.2          The Retail Price Index (RPI) in the year to December 2016 rose to 2.5%, up from 1.2% in December 2015. The Consumer Price Index (CPI) 12 month rate (the amount prices change over a year) between December 2015 and December 2016 stood at 1.6%. The Office for Budget Responsibility published its Economic and Fiscal Outlook in November 2016 setting out its forecast up until 2020-21. †This forecasts that GDP growth will continue to slow into next year in the context of political and economic uncertainty surrounding the Brexit negotiations.

 

2.3          Current forecasts suggest GDP growth slowing to 1.4 per cent in 2017, and remaining at this level for the foreseeable future.† A weaker outlook for investment and therefore productivity growth following the referendum is the main cause.† On the more positive side it is predicted that consumer spending growth will remain stronger than the GDP growth and that there will be a positive contribution to GDP from growth in net trade assisted by the fall in sterling.

 

2.4          The Monetary Policy Committee (MPC) in August reduced the base rate from the 0.5% previously held for seven years to 0.25%. The MPC may well reduce the base rate further in the coming months.† The market reaction to the recent reduction has led to at least one major bank indicating that it may reduce its own interest rates to below base rate.

 

2.5          Trying to look ahead to predict the national economic position is challenging with the vote to leave the European Union affecting the current economic outlook and a lack of certainty regarding what a post Brexit UK will look like economically.

 

Local Government Funding

 

2.6          Central government funding for local authorities has reduced very substantially since 2010.† At the same time, the coalition government of 2010-15 and David Cameronís Conservative government of 2015-16 made significant changes to the way that local government is financed.† Further change is anticipated, given plans already announced by the previous government, and the challenging economic environment.

 

2.7          A key change in the structure of local government funding was the introduction of 50% business rates retention for local authorities in 2013.† This was part of an agenda of Ďlocalismí, giving more freedom and flexibility to local authorities.† In practice, the benefit of receiving 50% of business rates (with the 50% split 40:9:1 between the District Councils, County Council and Fire Authority in Kent) was severely limited by the system of tariffs and top-ups that was introduced at the same time, with the intention of equalising business rates income between local authorities.† Furthermore, a levy is paid to central government on business rates growth.

 

2.8          This means that the final value of the retained business rates for this Council is currently 6.6% of the amount collected. In practice this means that in 2016/17 the Council is projected to collect £60 million of Business Rates from Maidstone businesses of which just £4.6 million will be retained by the borough council.†

 

2.9          The adverse impact of the levy for Maidstone has been mitigated by the business rates pooling arrangement that most Kent local authorities have elected to join.† This allows most of the levy to be redistributed within the county.

 

2.10       The remaining 50% of business rates continued to go to central government, to be recycled back to local authorities in the form of Revenue Support Grant (RSG), allocated on a needs basis.

 

2.11       The Government recently consulted on the introduction of 100% business rates retention with effect from 2020.† As with 50% business rates retention, this would be linked to a mechanism for rates equalisation, which would mean that probably only a relatively small fraction of the 100% would in practice be retained by the Council.† The additional income would be accompanied by devolution of further responsibilities to local government.† The Government is currently considering consultation responses and the details of the new responsibilities to be devolved are therefore not yet known.

 

2.12       Whilst business rates have been and are likely to continue to be the main focus of Government reforms, the Councilís principal source of funding remains Council Tax.† Under current legislation, Council Tax increases are subject to a referendum if they exceed a specified limit, which is set each year by the government.† For 2017/18 the limit for this council remained the greater of 2% or £5.

 

2.13       There is the potential for the Council to grow both its Council Tax and Business Rates income, if the numbers of households and businesses respectively grow.† Growth forecasts have been reflected in the Strategic Revenue Projection using a series of prudent assumptions.

 

2.14       A further significant source of income for the Council is New Homes Bonus.† The Government distributes over £1 billion of grant in this form, based on increases in the local housing stock.† Maidstone is due to receive £4 million in New Homes Bonus in 2017/18.† Council has agreed that this be allocated to fund the capital programme.† The government announced cuts to the New Homes Bonus as part of the provisional finance settlement, following consultation on its future conducted last year.† New Homes Bonus has previously been paid for six years after a new home is built.† From 2017/18, it will only be paid for five years, and from 2018/19 for four years.† Additionally, the bonus will only be paid on housing growth in excess of 0.4%.† (Growth in Maidstone has averaged around 1% in recent years).† The money from cutting New Homes Bonus will be used to create a fund to support Adult Social Care.† The impact on Maidstoneís New Homes Bonus income, as compared with the projected amounts, will be a reduction of around £750,000 in 2017/18 and an ongoing reduction of around £1.5 million per annum in subsequent years.

 

2.15       Further details of how the Council funds its services are set out in section 5.

 

Stakeholder Analysis

 

2.16       Development of the MTFS / Efficiency Plan needs to recognise the Councilís position in relation to a wide range of stakeholders.† Income growth, for example, may mean additional contributions from Council Tax payers and businesses.

 

2.17       The table below maps out the key external stakeholders for the Council and how they are involved in the process of developing the financial strategy.† Further details about specific work on consultation are set out in Section 9 below.

 

Stakeholder

Approach

Key interests & issues

Action

Communication Channels

 

Parish Councils

 

Keep satisfied

 

Planning/enforcement

Environment

Playgrounds

 

Keep informed

 

Regular organised engagement

 

Quarterly meetings with KALC representatives and Parish Conference

Parish liaison officer

Alert to roadshow

Survey/briefings sent in good time for them to respond.

Citizens Advice Bureau and grant funded organisations

Engage and manage

Keeping funding

Keeping Accommodation

Supporting particular service user groups

 

Regular contact and information

 

Chair and Vice Chair of CHE,

and leadership team relationships

 

Briefings

 

Mid Kent Services Board

 

Engage and seek to influence

 

Shared services

Savings

 

Engage

 

Through MKS Board and Shared Service Boards , 151 officer meetings and Chief Executive meetings

KCC

 

Engage and Seek to influence

Waste Management, Public Realm, Economic Development, Public health , Maidstone families matter Planning, Infrastructure including Transport, Devolution

Potential for enhanced two tier working

Residents

 

Engage

 

Project teams and boards

 

Briefingpapers

 

Chief Executive and Wider Leadership Team

Businesses

Inform

Business rates/transport infrastructure/Town Centre Parking / CCTV

 

Engage

Through channels such as MBEP, One Maidstone and the Chamber of Commerce

 

Survey

NHS

Monitor

Public health, community safety Housing

Notify

Briefing from contacts

Kent Police

Engage and seek to influence

CCTV, public health, community safety, Housing,

Emergency planning

 

Engage

Briefing from contacts

Kent Fire and Rescue

 

 

Monitor

CCTV, public health, community safety, housing?, emergency planning

Notify

Briefing from contacts

Department of Communities and Local Government

Monitor

Managing within our resources

Set a balanced budget

Council tax rise

Notify

Formal contact with Efficiency Plan and budget returns

Department of Work and Pensions Ė Job Centre Plus

Monitor

Accommodation

Impact on residents

Notify

Briefing and Information

KCC Members

Keep informed

All services

Keep Informed

Seek Support

Survey

Briefing through contacts

Inform of Roadshow

MPs

Keep informed

All services, particularly those with a national dimension eg Flooding

Keep Informed

Seek Support

Direct briefing

Inform of Roadshow

Residents

Keep Informed

 

Engage

All (front facing services in particular)

Engage and Inform

Survey

Information in the Press

Website Information

On-line survey

Social Media

Face to face roadshows

 

Staff

Keep Informed

Jobs

Resident Interests

Service Standards

Doing more for less

Engage and Inform Regular contact

All existing internal communication channels

Local Media

Keep Informed

Cuts and Changes to services

Inform proactive

Reactive

Regular briefings and press releases

 

Other Kent District Councils

Keep Informed

Shared savings and efficiencies

Inform

Briefing for Leaders and Kent Joint Chiefs

Charities and Community Groups

Keep informed

Resident Interests

Opportunity to take on services

Inform

Briefings

Share survey

Table 2: Stakeholder Analysis

 

 

3.         ††CORPORATE OBJECTIVES AND KEY PRIORITIES

 

3.1          The Medium Term Financial Strategy and Efficiency Plan are intended to deliver the Councilís corporate priorities. As well as a vision and mission the Council has agreed two corporate priorities for 2015-2020 underpinned by 8 areas of action:

Corporate Priorities:

 

         Keeping Maidstone Borough an attractive place for all

         Securing a successful economy for Maidstone Borough

 

††††††††††† Action Areas:

 

         Providing a clean and safe environment;

         Encouraging good health and wellbeing;

         Respecting the character and heritage of our Borough;

         Ensuring there are good leisure and cultural attractions;

         Enhancing the appeal of the town centre for everyone;

         Securing Improvements to the transport infrastructure of our Borough;

         Promoting a range of employment opportunities and skills required across our Borough; and

         A home for everyone.

 

For 2017/18 our particular focus is on:

 

         Housing Ė tackling homelessness and improving supply;

         Delivering the Local Plan and implementing the Community Infrastructure Levy;

         Creating a sustainable future for Mote Park;

         Town Centre Regeneration;

         Devolution; and

         Maintaining a robust Medium Term Financial Plan.

 

3.2          We recognise that to meet our corporate priorities, working with our partners is essential, along with ensuring all our services provide value for money. Budget prioritisation is focused on ensuring we deliver our priorities with outcomes for our residents in relation to the action areas above. The plan and strategy reflect the level of resources required to achieve the key outcomes from the Councilís priorities within the strategic plan.

 

 

 

 

 

 

 

 

4.         †REVENUE EXPENDITURE

 

Budget Pressures

 

4.1          The Councilís focus on service delivery means that expenditure budgets have to be dynamic, reflecting changing service priorities and pressures.† Factors influencing expenditure include both the Councilís own strategic priorities and external pressures such as inflation.

 

4.2          Housing

 

Developments in the housing market have created very significant budget pressures for the Council.† A recent Strategic Housing Market Assessment indicates that 43% of households in Maidstone are unable to resolve their own housing issues on the open market.† Rents have risen and are significantly above the local housing allowance rate.† Homeless households in temporary accommodation have increased in number, with a corresponding increase in costs, leading to a forecast overspend of £357,000 against the temporary accommodation budget in 2016/17.† The Council has been successful in reducing the cost of providing temporary accommodation through direct investment in property, and plans to further develop its capacity to respond in this way which will minimise the cost of expensive third party accommodation.† In addition to this, proposed reforms to homelessness legislation are expected to significantly increase the Councilís legal obligations with regard to homelessness prevention and will place further pressure on these budgets.† Consequently a renewed focus on homelessness prevention is planned to operate alongside the temporary accommodation strategy in order to minimise the costs associated with homelessness.† As this work progresses, it is anticipated that there will be a continued short term impact on the budget from the Council meeting its homelessness obligations.

 

4.3          Planning

 

The Council submitted a draft Local Plan in May 2016.† This involved significant one-off costs. The Local Plan was subject to an Inspectorís Hearing which concluded on 24 January 2017.† Details of the modifications required by the Inspector and the consequent additional work needed are awaited.† Further one-off costs are anticipated to arise, although it is difficult to quantify these until the details of the modifications required by the Inspector and consequent work needed to ensure the delivery of the Local Plan are known.† In addition to this, the Council will need to consult on its final iteration of the Local Plan and carry out a Local Plan Review which is currently scheduled for April 2021. †

 

4.4          Museum and Cultural Activities

 

The Council is committed to developing Maidstone as a landmark cultural destination.† The services which enable this are not statutory in nature, so it is essential that maximum impact is achieved from minimal Council expenditure, levering in external expertise and funds wherever possible.

 

4.5          Commercialisation and Regeneration

 

Underlying all service delivery is a commitment to maximising external income from services wherever possible, trading on the Councilís areas of skills and experience.† The overall approach was subject to a refresh in November 2016, which refocussed the strategy on regeneration of the town centre with a particular emphasis on housing development to support to housing target identified in the Local Plan.

 

4.6         Transformation

 

More generally, the Council is making use of the transitional grant of £394,000 that it is due to receive from government in 2016/17 and 2017/18 to fund transformation initiatives.† This has included work on channel shift and will include work to enable the savings that have been proposed to help meet the budget gap.

 

Inflation

 

4.7          The past year has seen a steady increase in inflation. The annual increase in Consumer Price Index inflation (CPI) for the year to December 2016 is 1.6% (up from 0.2% for the year to December 2016). While central government no longer use the Retail Price Index inflation (RPI) a number of contractual arrangements at this Council do. The published increase in RPI for the year to December 2016 is 2.5% (up from 1.2% for the year to December 2015).

 

The Bank of England MPC has recently reduced the base rate and there are indications that it will consider doing so again before the end of the year. This is a reaction to the predicted decline in growth. This action is likely to impact on mortgages which form an element of CPI and RPI and will have a reducing effect on inflation. The inverse of this can be expected from the increase in the cost of imported goods due to the, already seen, reduction in the exchange rate. At this time the inflation indices used in the calculation of growth in the strategic revenue projection given at Appendix 1 have been kept the same as those used by officers in developing the figures for the initial consideration of the MTFS by this Committee on 29th June 2016. The following table sets out the assumptions made:

 

 

Increase

 

Employee Costs

1.0%

A base assumption relating to the growth in salaries for the year.

 

0.5%

The annual cost of performance related incremental increases for staff.

 

0.2%

Agreed by Policy & resources in February 2016 this increase reflects the growth necessary to fund the national living wage.

Electricity

2.0%

This increase is based on known factors relating to the Councilís contract with Laser.

Gas

0.0%

There is no expected increase in the cost of Gas.

Water

0.0%

There is no expected increase in the cost of water supply or disposal.

Fuel

1.0%

A predicted average increase based on previous trends as no forward looking information is available.

Business Rates

0.8%

Based on predicted long term changes in business rates.

Insurance

0.5%

The increase in insurance premiums has been higher in previous years but there have been no significant market issues.

Rent

5.0%

This increase is now confirmed as due for October 2018. The strategic revenue projection has been amended to allow for this. ††A review of Office Accommodation is being launched.

††††††††††† Table 3: Inflation Assumptions

 

5.         FUNDING

 

Revenue support grant

 

5.1      ††On the 10 February 2016 the Department for Communities and Local Government (DCLG) notified the council of the final figure for revenue support grant in 2016/17. At that time the government proposed a four year settlement that the Council may choose to accept. The revenue support grant for 2016/17 is £0.87m and the offer for the following three years 2017/18 to 2019/20 is zero. In addition the Government intend to reduce the business rates available to the Council by £1.589m in the financial year 2019/20. No changes to baseline and tariff charges will be made to allow for this reduction and it can therefore be seen as outside of the current business rates system and more in the nature of a negative revenue support grant.

 

5.2      ††At its meeting on 21 September 2016, Council agreed to accept the four year settlement offer and adopted an efficiency plan. The funding assumptions detailed below assume that the provisional finance settlement announced in December DCLG will be as received up to 2019/20.

††

Retained business rates

 

5.3      †The Government intends to introduce changes to business rates retention by 2020/21, following on from the end of the proposed four year settlement. The Council submitted a response to the consultation in October following careful consideration of the proposals.

 

5.4      †† The proposals include 100% local retention of business rates along with a series of additional responsibilities and a realignment of the shares of business rates received by each tier of local government. †As with the current 50% localisation of business rates, the proposal for 100% localisation will mean substantially less than that amount being made available to Maidstone Borough Council with the vast majority of the resource being redistributed elsewhere within local government. The Council can also expect to lose other specific grants such as Housing Benefit Administration Grant and potentially receive additional responsibilities.

 

5.5      ††The strategic revenue projection for 2020/21 and 2021/22 assumes that the impact of 100% retention and the adjusted redistribution by tier will mean that any change in the Councilís baseline business rates would be counteracted by loss of other grants so a net zero impact has been assumed.

 

5.6      †The impact of additional responsibilities has been modelled as part of growth pressures on the budget and an estimate of the likely financial impact included in the financial projections.

 

Business rates growth and the Kent Business Rates Pool

 

5.7      ††As a member of the Kent Business Rates Pool the council has the ability to retain more of the income from growth in business rates than it otherwise would. This is because the pool members who are charged a levy (district councils) are sheltered by the pool members who receive a top-up (major preceptors). Under a specific agreement made between Maidstone Borough Council and KCC in 2014/15 and across Kent in 2015/16 and 2016/17, the additional benefit is shared with Kent County Council. The shares and their value for the two years the scheme has been in operation are set out below:

 

 

SHARE BY PURPOSE

 

2014/15 £

2015/16 £

Estimate

2016/17 £

Estimate

2017/18 £

Maidstone Borough Council

30%

†144,119

30,941

134,000

280,298

Kent County Council

30%

144,119

30,941

134,000

280,298

Growth Fund

30%

144,119

30,941

134,000

280,298

Contingency

10%

48,040

10,314

45,000

93,431

 

100%

480,397

103,137

447,000

934,325

††††††††††† Table 4: Shares of the Kent Business Rates pool since commencement

 

5.8      ††It should be noted that the figure for 2015/16 was less than estimated. This is due to one of the high risk factors of locally retained business rates. The Council saw a higher than expected level of appeals for which a provision was required in 2015/16. This situation was the result of legislative change and is not expected to recur in 2016/17 or later years.† However, this remains a risk and the introduction of a new process for challenging rateable values, along with the 2017 revaluation will create increased uncertainty in this area.

 

5.9      †† Previously the Council held the income from growth in reserve and committed it in the year following its receipt. This meant that the resources were not yet committed and the Council had an opportunity to modify its plans for using the resources depending on how much became available.† In setting the 2016/17 budget the Council approved the use of the stable element of business rates growth, which is retained by the Council regardless of whether or not it is a member of the pool, into its base budget to maintain overall resource levels. From the current year onwards the earmarked reserve will hold only the growth protected by membership of the pool, with the intention of using it to implement the Councilís economic development strategy.

 

Council Tax Levels

 

5.10    †† Total Council Tax is a product of the tax base and the level of tax set by Council. The tax base is a value derived from the number of chargeable residential properties within the borough and their band, which is based on valuation ranges, adjusted by all discounts and exemptions.

 

5.11    †† The Council set its tax base for 2017/18 at 59,439.3, based on data extracted from the Council Tax records in mid-October 2016.

 

5.12    †† A major factor to be considered in setting the tax base for 2017/18 is the agreed scheme of local council tax support. Following consultation with residents, This scheme is undergoing a Kent wide review this year and the Council is consulting with residents on the options for the final scheme. It is currently the intention to report to Members with recommendations for Council in December 2016.

 

5.13    †† The level of council tax increase for 2017/18 is a decision that will be made at Council on 1 March 2017 based on an assumption made by Policy and Resources committee. At this time a decision on the increase in council tax is solely for planning purposes and to enable the necessary public consultation on the Councilís budget and MTFS.

 

5.14   †† As a general principle, the Council aims to set a balanced budget that enables it to provide the services required by its customers. The significant risks facing the future financial stability of the Council are considered when setting the Council Tax along with the strategic revenue projectionís assessment of the future reductions in resource levels.

5.15    †† In considering this issue Members should recognise the need to set a level of council tax commensurate with the level of service provision and to avoid the use of short term decisions that risk the councilís medium term liquidity and financial resilience. The actual increase is an issue for Council as a whole.

 

5.16    †† For many years the councilís ability to increase the level of council tax has been limited firstly by a cap and more recently by the need to hold a referendum for increases over a government set limit. The limit set by the government for 2017/18 has remained the greater of 2% or £5.00. †For 2016/17, the Council approved an increase of £4.95 (2.1%).

 

5.17    †† For planning purposes Policy and Resources Committee has adopted an annual increase in the tax base equivalent to 1% and an increase of £4.95 per annum in the charge, reverting to 2% in 2020/21 when this becomes a greater figure than £4.95.

 

Local income from fees and charges

 

5.18    †† The Council has a policy that guides officers and councillors to set the appropriate level of fees and charges based on demand, affordability and external factors. The policy is not influenced directly by the MTFS with the exception that charges should be maximised within the limits of the policy.

 

5.19    †† In developing the strategic revenue projection for 2017/18 a broad assumption of a 1% increase in future fees and charges was used for the development of the MTFS. To reflect this requirement the expected annual increase in other income is shown in the strategic revenue projection for 2018/19 onwards.† Actual increases planned for 2017/18 have been reflected in the list of savings to be delivered over the forthcoming financial year.

 

5.20    †† The council has approved a commercialisation strategy which has set a target for net income gained from new and enhanced activities of £1m over the five year period from 2015/16 to 2019/20.

 

5.21    †† The delivery of each proposal will be the responsibility of an individual service committee. For this reason the £1m target has not been reflected in the strategic revenue projection until individual committees have considered the level of income achievable

 

Summary of Resources

 

5.22    †† The table below summarises the resources as set out in the strategic revenue projection.

 

 

2017/18

£000

2018/19

£000

2019/20

£000

2020/21

£000

2021/22

£000

 

 

 

 

 

 

Revenue Support Grant

0

0

0

0

0

Business Rates Baseline Need

3,044

3,142

3,254

3,297

3,324

Business Rates Tariff Adjustment

0

0

-1,589

-1,621

-1,634

Business Rates Growth

1,025

1,076

1,130

1,187

1,246

Council Tax

14,599

15,042

15,493

15,960

16,442

Other Income

16,419

16,583

16,749

16,917

17,086

Total

35,087

35,843

35,037

35,740

36,464

††††††††††† Table 5: Resource and Income Levels

6.         CAPITAL PROGRAMME Ė EXPENDITURE AND†††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††† ††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††FUNDING†††††††††††††††††††††††††††††† ††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††

 

6.1          The capital programme for 2017/18-2021/22 was approved by Policy & Resources Committee on 18 January 2017 is set out at Appendix D. ††The current programme assumes expenditure totalling £60.4million to be spent over the next five years.† The new programme broadens the scope of the housing and regeneration agenda.†

 

6.2          Resources in earmarked reserves arising from the set aside of New Homes Bonus will total £11.1 million by 31st March 2017. †The New Homes Bonus resources were originally set aside by this Council to assist in the affordability of the Infrastructure Delivery Plan. Resources have been utilised for infrastructure schemes including the Town Centre, the Bridges Gyratory and the Medway Towpath.† Some resources have been utilised for commercial property acquisitions and capital expenditure to deliver commercial activity. The Council has considered consultation responses concerning the introduction of a Community Infrastructure Levy and it is anticipated that this will be the subject of Public Examination in 2017.

 

6.3          During 2016/17, it is anticipated that £6.6m of the Councilís earmarked resources will be used to finance expenditure for which the Council approved prudential borrowing. Should the Council wish to borrow to finance this expenditure it can do so at a later date thus substituting the resources used to finance the expenditure. However, it would be necessary to ensure the revenue resources are available to afford the necessary debt repayments. It is therefore essential to ensure that these regeneration schemes deliver revenue income.

 

6.4          The current funding assumptions used in the programme are set out in the table below along with the expected total expenditure:

 

Funding Source

2017/18

£,000

2018/19

£,000

2019/20

£,000

2020/21

£,000

2021/22

£,000

TOTAL

£,000

 

 

 

 

 

 

 

Earmarked Reserves

11,216

3,059

2,935

2,800

2,800

22,810

Capital Grants

800

800

800

800

800

4,000

Prudential Borrowing

0

9,003

10,960

7,615

1,425

29,003

Total Resources

12,016

12,862

14,695

11,215

5,025

55,813

 

 

 

 

 

 

 

Estimated Expenditure

13,046

16,432

14,695

11,215

5,025

60,413

 

 

 

 

 

 

 

Cumulative Balance of Resources

1,030

3,570

0

0

0

4,600

††††††††††† Table 6: Capital Programme Funding

 

7.         BALANCES AND EARMARKED RESERVES

 

7.1          An estimate of General Fund Balances to 31 March 2018 is included within Appendix E.† As at 1st April 2016 General Fund balances of £4.6 million existed alongside earmarked reserves of £16.5 million. The table below sets out the earmarked reserves held at the beginning of the current year.

 

 

 

 

 

 

 

 

1st April 2016

£,000

Capital Support (New Homes Bonus)

12,131

Local Plan (New Homes Bonus)

454

Neighbourhood Planning

85

Business Rates Reserves

3,665

Trading Account Surpluses

179

Total

16,514

††††††††††† Table 7: Earmarked Balances at 1 April 2016

 

7.2†††††† The table shows the balance of Capital Support Funding at the beginning of the year. The capital programme set out elsewhere in the MTFS report shows a programme that will spend this resource and the majority of the New Homes Bonus due in 2016/17

 

7.3†††††† The Business Rates Reserves are a combination of resources set aside to finance the deficit on the Collection Fund at the end of 2015/16 and the resources held for use on business growth and related economic development projects in 2016/17.

 

7.4†††††† Trading account surpluses reflect the balance held in surplus on trading accounts such as building control and land charges that cannot generate surpluses for the general fund but can break even over a period of years. These surpluses are utilised in years where the trading accounts are in deficit.

 

7.5†††††† It should be noted that the General Fund balance of £3.6 million includes a series of assumptions made in prior years about the use of the resources for purposes such as a commercialisation risk and an invest to save fund. These are not set aside in the formal way that earmarked reserves have been.

 

7.6†††† The Council has set a lower limit below which the Committee cannot take general fund balances and this is £2 million.

 

 

 

 

 


 

8.         ††BUDGET RISKS

 

8.1†††††† In preparing a Medium Term Financial Strategy, it is important to consider the risks that pose threats to its implementation.† This section sets out the key risks that have been identified and how they can be mitigated.

 

8.2†††††† The Council is actively seeking to embed a risk management approach as part of its approach to doing business.† It has adopted a risk management framework, which incorporates a process for identifying risks and assigning ownership of specific risks at an appropriate management level within the Council.† Details of risks are captured in risk registers at a corporate, service and project level.

 

8.3†††††† The major risk areas that have been identified as potentially threatening the Medium Term Financial Strategy are as follows.

 

National and local economic environment

 

8.4†††††† As set out in section 2, the current economic outlook is uncertain.† Recession would impact the Council by reducing its income and creating additional cost pressures, for example around homelessness.† These risks are mitigated to an extent by holding balances and reserves.† These give the Council the ability to manage fluctuations in income and give it time to adapt to changed circumstances.

 

Price inflation

 

8.5†††††† Linked to the overall economic position is the specific threat of price inflation.† Payroll accounts for the majority of the Councilís costs, so wage inflation in particular will have an impact.† Risk mitigation is similar to that for overall economic risks.

 

Changes in government approach to local government financing

 

8.6†††††† A new government was formed in July 2016 and it remains to be seen whether its approach to local government financing will be the same as that of the previous government.† Although the Council is not heavily dependent on government grants, it must operate within the overall framework for local government funding, which is set at a national level and is highly prescriptive.† Previous governments have taken advantage of the adaptability of local authorities to reduce central funding for local government significantly.† In an environment where national finances will continue to be under pressure, further changes cannot be ruled out, notwithstanding the four year funding settlement for local government announced earlier in 2016.

 

Delivery of savings & efficiencies

 

8.7†††††† The Council has committed to delivering £3.5million of savings from 2017/18 onwards.† This is a major challenge and will place pressure on the Councilís capacity for management and change.† The risk can be mitigated by effective planning and management but there remains a significant residual risk. The Council is making use of the transitional grant of £394,000 that it is due to receive from government in 2016/17 and 2017/18 to fund work that will help to deliver these savings.

 

 

Changed or new responsibilities

 

8.8†††††† The governmentís plans for 100% business rates retention involve local government taking on further functions.† It is not clear at this stage what functions, if any, will come to this Council, or whether the level of funding will be adequate.† Successive national governments have supported a Ďnew burdens doctrineí that requires Whitehall departments to justify why new duties, powers, targets and other bureaucratic burdens should be placed on local authorities, as well as how much these policies and initiatives will cost and where the money will come from to pay for them.† In practice, there has been considerable variation in the interpretation of this doctrine, and with a large scale transfer of functions there is scope for local authorities to face unfunded burdens.

 

Unforeseen spending pressures

 

8.9†††††† Such pressures include the cost of temporary accommodation, which has led to overspends in the Council in recent years, the cost of dealing with planning appeals, and the cost of temporary staff where it has not been possible to make permanent appointments.† To an extent these pressures can be mitigated by holding reserves, which are then utilised if there is an unavoidable spending pressure in any given year.† However, the resources would need to replenished subsequently.† The pressure would in any case have to be addressed as part of budget setting in the following year if it was expected to continue.

 

Income generation and collection - fees and charges

 

8.10†††† Income generated by the Council can be volatile.† For example, parking income can be sensitive to changes in the overall economic environment.

 

Council Tax Ė Council Tax base and collection rates

 

8.11†††† Council Tax income has in the past proved stable and has increased steadily with the growth in the number of homes.† Continued growth could be threatened by a downturn in the economy.† Collectability of Council Tax could be threatened if a large number of households face joblessness and loss of incomes.

 

Business rates income Ė overall level and collection rates

 

8.12†††† Business rates income is particularly vulnerable to ratepayer appeals.† The Council is less exposed than some authorities, owing to the diverse local economy in Maidstone.† However, a general loss of profitability in the retail sector (for example) could lead to a large number of appeals and possible consequent loss of income.

 

Availability of funding for capital expenditure

 

8.13†††† The Councilís investment plans depend on the availability of funding, whether through New Homes Bonus, capital receipts, or borrowing through the Public Works Loan Board.

 

Level of balances and reserves

 

8.14†† † As explained above, balances and reserves provide a measure of protection †against risks generally.† The result is that the overall risk profile of the Council will increase if balances and reserves are depleted.


 

9.         † CONSULTATION

 

Background

 

9.1          Each year the council as part of the development of the Strategic Plan and MTFS carries out consultation with our businesses and residents and other stakeholders on the priorities and spending of the council. A programme has been proposed that ensures the focus of annual consultations is not repetitive and builds a body of information over time. The intention of the consultation is to both inform and be informed by local residents, businesses and stakeholders.

 

9.2          Previous consultation has been focused on payment for services by council tax or direct fee at time of use, proposals for savings in discretionary services, request for new savings, variations in the level of customer service, questions on savings proposals and the effect of previous budget savings as well as areas where we should be focusing our efforts to make savings.† Our approach has varied from on-line surveys, face to face surveys, public roadshows to on-line budget simulator exercises.

Consultation† Approach

 

9.3          Consultation on the budget in Autumn 2016 was carried out across a number of channels in a variety of formats including:

         A face to face budget roadshow led by Councillors

         An on-line survey

         Briefings across all our communication channels

 

9.4          The results of the consultation has informed how resources have been prioritised and was reported to all four service committees as part of the refreshed strategic plan and final medium term financial strategy.