DRAFT MEDIUM TERM FINANCIAL PLAN 2012/13 –...

DRAFT

MEDIUM TERM FINANCIAL PLAN

2012/13 – 2016/17

CONTENTS

Section Page 1 Introduction 3 2 Executive Summary 5 7 3 Background 8 4 Financial Model o General Fund 1 o Capital Programme 22 5 Conclusions and Future Steps 26 6 Risks and Opportunities Log 27 7 Strategies & Policies o Capital Strategy 33 o Reserves Policy 37 o Corporate Charging Policy 42 o Efficiency & Value for Money Policy 46 8 Glossary 49 9 Appendices and Source Documents 57

Date Ratified TBC

Policy Author Helen Smith

Accountable Assistant Director Shelagh McGregor

Document Reference MTFP 1213.1

Previous Review Dates and Changes Made March 2011, Annual Update

Date for Review February 2013

Contact Details Helen Smith 01539 717217 [email protected]

SOUTH LAKELAND DISTRICT COUNCIL MEDIUM TERM FINANCIAL PLAN 2012/13 TO 2016/17

SECTION 1: INTRODUCTION

The Medium Term Financial Plan (MTFP) is key to corporate governance. It provides the financial planning mechanism to ensure the Council can deliver its corporate priorities. By providing a strategic forecast of both expenditure and resources, it is key to the Corporate Planning and performance Framework.

This Medium Term Financial Plan builds on the 2011 approved position. The Plan is kept under constant review. Major changes were made to the funding of local government during 2011/12 including the introduction of self-financing for housing authorities. There will be a brief period of consolidation during 2012/13 before the localisation of business rates and council tax benefits are introduced. At the same time there is an economic background of high inflation, low or negative growth and low interest rates. This requires constant monitoring of the key assumptions in the MTFP and a refresh of the Council’s approach to balancing future finances.

Whilst the new Government proposals aim to bring new flexibilities, it has not relaxed the imperative for local government to deliver savings over the next 5 years. For South Lakeland there is a need to find around £1.5m of new savings to enable the Council to balance its budget by 2016/17.

The purpose of the Medium Term Financial Plan is to ensure the Council, both individually and in partnership, can enable the delivery of the priorities set out in the Community Strategy, the Corporate Plan and the 5 Year Strategy.

Objectives

The main objectives of the Plan are to:

• explain the financial context within which the Council is set to work over the medium term

• identify the financial resources needed to deliver the Council’s priority outcomes as set out in its Corporate Plan

• provide a medium term forecast of resources and expenditure

• set out the Council’s policies on reserves & balances, efficiency & value for money and charging & income collection

• to achieve a stable sustainable budget capable of withstanding financial pressures.

Links

The MTFP complements and supports the policy framework which informs the Council’s financial planning:

• South Lakeland Sustainable Community Strategy

• SLDC Five Year Strategy

• Corporate Plan

• Treasury Management Strategy

• Financial Procedure Rules

• Service Plans

• Budget Strategy

In addition, the Plan supports the delivery of key Council strategies by identifying and providing for their implementation costs, including the

• Workforce Development Plan

• Information Strategy

• Corporate Property Strategy

• Housing Strategy

• Procurement & Commissioning Strategy Efficiency and Value for Money are key themes within all Council strategies and plans.

Scope

The Plan covers the General Fund revenue budgets, residual arrangements for the Housing Revenue Account and the Capital Programme.

Structure

The Plan is presented in 5 sections. Supporting information is provided in Appendices:

• Background –what the Council is seeking to achieve for its community, both individually and in partnership. It reviews the key economic challenges the council faces as a result of both macro economic pressures and financial demands being created at the local level

• The Financial Model – summarises the income expected to be available over the period of the strategy and where expenditure will be allocated. The model also presents the approach to savings, without which the Council will be unable to balance its revenue budget over the next five years. The model is divided into

o General Fund, including the residual arrangements for the Housing Revenue Account

o Capital Programme

• Conclusions and Next Steps – sets out the actions needed to ensure sufficient resources to meet the Council’s aspirations.

• Strategies and Policies – this section presents:

o Capital Strategy o Reserves Policy o Corporate Charging Policy o Value for Money and Efficiency Policy

• Managing Risk – this section describes the main risks and opportunities within the strategy and summarises the financial impact of different scenarios.

SECTION 2: EXECUTIVE SUMMARY

Summary

The Medium Term Financial Plan supports the delivery of the Council’s corporate priority outcomes. The Plan indicates that the Council’s finances are currently in a relatively sound condition. A set of actions is proposed to provide a framework to identify and secure the resources needed.

Headline messages from the Plan are:

General Fund

• The Council plans for council tax increases of 2.5% annually from April 2013, unless an income stream or savings are identified which can be used to set a lower level. For 2011/12 and 2012/13 the council tax was frozen in line with the Government offer of Council Tax Freeze Grant equivalent to a 2.5% increase for all Council’s who freeze Council Tax at 2010 levels.

• Future years’ revenue budgets need to accommodate financial growth to meet corporate outcomes and legal/health and safety requirements. Since the Council has a good record of delivering savings to offset these increases, the level of provision has been decreased to £100k pa.

• Following the transfer of the Council’s housing stock to South Lakes Housing there are new challenges in managing the impact of revenue costs previously charged to the Housing Revenue Account. However, the capital programme will benefit from a major injection of capital receipts.

• There is the risk that the trend of increased expenditure, due to increased demand, and reduced income, due to the economic climate seen over the last few years will continue. Projections of spend and income suggest a budget deficit on the General Fund building by around £400,000 per year. Although savings have already been identified and incorporated into the projections, further redirection of resources totalling £1.5m will be needed by 2016/17 to achieve sustainable budgets.

• A programme of budget reductions is being delivered. Service reviews have been carried out covering all Council services over the last 12 months. The resulting action plans detail an improved way forward with an implementation programme being delivered within three years.

• Alternative methods of service delivery will be developed, in particular focusing on priorities and incorporating a sustained programme of organisational re-engineering (OR) and efficiency savings. Income is reviewed annually as part of the implementation of the Corporate Charging Policy. Opportunities for shared service provision, where appropriate, are pursued. Effective procurement processes are developed, with increased emphasis on effective contract management. Service disinvestment is investigated, where appropriate

• The programme of budget reductions are closely monitored and reported quarterly as part of the Corporate Finance monitoring process.

• Although the General Fund Working Balance is healthy, reserves are lower than in the past. For reserves to remain sound, based on predicted need, the Council needs to continue the strengthening of reserves as set out in the future years’ forecasts, continue the clear policies set out in this Plan for their use - with the fundamental principle that they should not be used to fund recurring expenditure – and confirm the guidelines for their size, based on an assessment of risk, as set out in this Plan

• The Council plans to continue to maintain and expand its income from fees and charges by:

o Embedding the proposed Corporate Charging Policy in Section 5 of this report with a view to optimising income, using the principles set out in the Audit Commission report ‘Positively Charged’

o Subject to that review, seeking annual increases in income from fees and charges of at least 1% above inflation (RPIX) where possible, with the intention of altering the balance of costs between service users and council taxpayers generally.

• Opportunities should be taken to lobby the Government on key financial issues including the impact of proposals concerning:

o reform of the Council Tax

o the localisation of business rates

o the localisation of Council Tax benefits

SECTION 3: BACKGROUND

The Corporate Plan and the Community Strategy for South Lakeland set out a shared vision for the future:

“Making South Lakeland the best place to live, work and visit”

The Council’s priorities and strategic objectives are set out in the Corporate Plan 2012:

• Economy

• Housing

• Environment

• Culture and Wellbeing

The Council’s 5 Year Strategy, (December 2010) will move the Council towards being an ‘enabling’ authority. This will mean that the authority works with partners, the public sector and the community to find the right provider for a number of its current services while retaining direct delivery control of a limited number of key services.

The 5 Year Strategy sets out the strategic approach to how the Council will shape delivery of the outcomes. It is built on three key themes:

• One South Lakeland – a partnership approach to better achieving priorities

• Localism – Working together with our communities

• A sustainable Council – Delivering Value for Money Services

Common to each theme is the effective use of combined resources available to the public, private and voluntary sectors in South Lakeland.

With the emphasis clearly placed on Localism, the Council needs to continue and recognise the wider strategic picture and the opportunities that can be realised for the benefit of the districts communities. The issues and opportunities formerly identified through the Cumbria Strategic Partnership, the Cumbria Community Strategy and the South Lakeland Community Strategy still have relevance for the District.

The work of the new and emerging Local Enterprise Partnership and the Health and Wellbeing Board will need to be considered and influence future revisions of the MTFP.

The Council has made many improvements in recent years and has moved to becoming a “needs led” organisation. The focus on meeting needs has enabled the Council to define its priorities and importantly, understanding the critical dependencies between the priorities. he Council has identified the Outcomes it seeks to deliver.

Delivery of the Corporate Plan is also influenced by the Council’s core values:

• Valuing People

• Excellence

• Openness

The Corporate Plan is delivered by the means of annual service plans prepared by Directors, Assistant Directors and relevant staff across the Council. The service plans identify service issues and priorities and forecast financial commitments in accordance with the priority outcomes identified in the Corporate Plan.

This Medium Term Financial Plan enables the delivery of the Corporate Plan and the achievement of these outcomes. It recognises the need to provide resources for corporate priorities then sets out a strategy to identify how they will be financed within the medium term. The two Plans interact: the Medium Term Financial Plan acts to define the resources

available for new initiatives in the short-term while responding to the demand for financial growth in the medium term by planning for additional funding to be generated.

The Global and National Economies

The outlook for the global economy remains clouded with uncertainty with the UK economy struggling to generate sustained recovery that offers solid optimistim for the outlook for 2012, or possibly even into 2013. Consumer and business confidence levels are low and with little to boost sentiment, it is not easy to see potential for a significant increase in the growth rate in the short term.

At the centre of much of the uncertainty is the ongoing Eurozone sovereign debt crisis which has intensified, rather than dissipated throughout 2011. The main problem has been Greece, where the lack of progress raised uncertainty in the ability of the Eurozone to respond quickly and effectively to crises.

The US economy has encouraged with some positive news around the start of 2012 but any improvement in the weak rate of growth is likely to only generate slow progress in reducing the high level of unemployment which is acting as such a dampener on the economy. High levels of consumer indebtedness, a moribund housing market together with stubbornly high unemployment, will continue to weigh heavily on consumer confidence and so on the abiltity to generate a healthy and consistent rate of economic growth.

Hopes for broad based recovery have, therefore, focussed on the emerging markets but these areas have been struggling with inflationary pressures in their previously fast growth economies. China, though, has maintained its growth pattern, despite a major thrust to tighten monetary policy during 2011 to cool inflationary pressures which are now subsiding. However, some forward looking indicators are causing concern that there may not be a soft landing ahead, which would then be a further dampener on world economic growth.

Looking to the UK economy, the Government’s austerity measures, aimed at getting the public sector deficit into order over the next four years, have yet to fully impact on the economy. However, coming at a time when economic growth has been weak and concerns at the risk of a technical recession (two quarters of negative growth) in 2012, it looks likely that the private sector will not make up for the negative impact of these austerity measures given the lack of an export led recovery due to the downturn in our major trading partner – the EU. The housing market, a gauge of consumer confidence, remains weak and the outlook is for house prices to be little changed for a prolonged period.

• Economic Growth. GDP growth has, basically, flatlined since the election of 2010 and, worryingly, the economic forcecasts for 2012 and beyond have been revised lower on a near quarterly basis. With concerns of a potential return to recession, the Bank of England embarked on a second round of Quantitive Easing to stimulate economic activity. It appears very likely that there will be another expansion of quantitative easing in quarter 1 2012 in order to stimulate economic growth.

• Unemployment. With the impact of the Government’s austerity strategy resulting in steadily increasing unemployment during 2011, there are limited prospects for any improvement in 2012 given the prospects for weak growth.

• Inflation and Bank Rate. For the last two years, the Bank of Engand’s Monetary Policy Committee’s (MPC’s) contention has been that high inflation was the outcome of temporary external factors and other one offs (e.g. changes in VAT); that view remains in place with CPI inflation starting quarter 1 of 2012 at 4.8%, having peaked at 5.2% in September 2011. They remain of the view that the rate will fall back to, or below, the 2% target level within the two year horizon.

• AAA rating. The ratings agencies have recently reaffirmed the UK’s AAA sovereign rating and have expressed satisfaction with Government policy for deficit reduction. They have, though, warned that this could be reviewed if the policy were to change, or was seen to be failing to achieve its desired outcome. This credit position has ensured that the UK government is able to fund itself at historically low levels and,

with the safe haven status from Eurozone debt also drawing in external investment, the pressure on rates has been down, and looks set to remain so for some time.

UK Government

Following the General Election of May 2010 there was a change in national government pledged to reducing the underlying budget deficit. The new government started with a series of announcements of new initiatives and changes in funding including substantial grant cuts. The Comprehensive Spending Review in October 2010 emphasised the Government’s three main priorities; deficit reduction, localism and the Big Society. The provisional local government spending settlement in December 2010 saw a national reduction in grant to local government of 12.1% but major changes in the allocation models. The Autumn Statement 2011 set plans for public spending in 2015/16 and 2016/17 in line with the spending reductions over the Spending Review 2010 period.

The Government has a number of new initiatives that will develop over the next 12 – 18 months:

• Replacement of the current local government funding mechanism with self-financing from localisation of business rates from April 2013. This will be tied into the Governments aim of moving from funding based on spending need and tax capacity to a model based on tax based incentives. Other proposals currently before Parliament include the localism of council tax benefit, which, due to fluctuations in demand and a cut in government grant will introduce more uncertainty and added pressure on local government budgets. The Council taxes for 2012/13 were set under the new system of capping Council Tax increases with local referendums, triggered if the increase is higher than a level pre-set by the Government. Proposals have also been made to permit local authorities to set locally the level of Council tax discount for certain groups of properties including second homes and empty homes.

• The Government has introduced new sources of funding for local government to increase incentives to perform in certain areas of government priority.

• New Homes Bonus – a significant opportunity for additional funding equivalent to the council tax raised for each new home for 6 years, nationally this will provide around £1bn of additional funding

• Community Infrastructure Levy - provides opportunity for Local Planning Authorities to collect a levy from new developments to resource identified and agreed local infrastructure requirements in addition to the planning obligations required of a development. The strength of the levy is dependent on the values which can be generated through development. The Council would need to develop and formally adopt an infrastructure plan against which it would charge a levy.

• Tax Increment Funding would give Councils the ability to borrow against the proceeds of future business rates. This is expected to be introduced initially through a bid based process

• The Localism Act includes a Right to Bid which gives residents the opportunity to bid to take over local assets and a Right to Challenge which makes it easier for local groups to seek improvements in or bid to run local services

• The Localism Act also changed the national system for funding local government housing from a system of annual revenue grants and subsidies to a one-off exercise of debt redistribution. The Council had already carried out a housing options study to review funding available for housing authorities and, in March 2012, sold its housing stock to South Lakes Housing, an Industrial and Provident Society.

• The Cumbria Local Enterprise Partnership has established itself in 2011/12. The levels of national regeneration funding remain at approximately 25% of that which was formerly delivered through the Regional Development Agencies. Cumbria has

been successful in attracting investment from the Regional Growth Fund and the LEP has launched a new infrastructure fund, funded by the county allocation from the Growing Places Fund.

• The Government moved quickly to cap employer’s costs in government, both through public sector pay caps (although these are not binding on local government employers) and through proposals to change public sector pensions through reduced allowances for inflation, increased employee contributions and later retirement.

Financial Stability

The issue of financial stability is one that requires strong corporate governance supported by effective procedures, processes and controls with Council-wide involvement in supporting an integrated approach to the preparation of soundly based capital and revenue bids. The Medium Term Financial Plan is based on sound financial assumptions that are based on robust assessments.

The ‘robustness’ of the MTFP is highlighted in Appendix 11 which shows the key elements of the Council’s financial management framework. The risks log at section 6 summaries the key financial risks facing the Council and the mitigation factors to be taken to mitigate these risks.

SECTION 4: FINANCIAL MODEL

The Council has set a net General Fund revenue budget of £12.5m and a capital programme of £7.3m for 2012/13 (Appendices 1 and 6).

Over the last five years the Council has been working hard to ensure sufficient financial resources to meet demand for services. A number of approaches have been used:

• Service reviews, initially of high spending services but now widened to incorporate all services. The latest reviews have delivered detailed plans for shared services, income generation, outsourcing or commissioning which were tested against the relevance to achievements for the Council priorities

• Reviews of the Council’s management structures. A major review was completed during 2010 to create a fit for purpose staff structure capable of meeting change as part of its core capacity as well as reducing core costs. This restructure, alongside other organisation changes, resulted in on-going annual savings of around £1.2m per year. A review of the Corporate and Senior Management Teams is underway and savings arising will be incorporated to the updated MTFP.

• The Procurement team lead on ensuring the Council is efficiently and effectively procuring services including through working closely with other bodies within Cumbria. The Council’s Procurement & Commissioning Strategy ensures the Council is prepared for future challenges while ensuring we meet the principles of competition, equal treatment and fairness, transparency, openness and value for money. More effective contract monitoring should complement existing purchasing and tendering procedures.

• Through shared services the Council has been able to save on management overheads and rationalise business systems. Joint working is particularly advanced through the Revenues and Benefits and ICT shared services with Eden District Council.

• During 2011/12, the Council has undertaken a review of all services. Implementation of the review’s recommendations for future service delivery will continue through 2012/13 and 2013/14, being a central tenet of the Council’s approach to reducing costs whilst modernising service delivery in response to needs and the localism agenda

• Direct savings have generated reductions in the Council’s budgets. No allowance is made for inflation in expenditure budgets except where contractually committed or unavoidable e.g. energy & utility bills. Cross-service reviews of expenditure are carried out to target reductions e.g. travel, training, and expenses.

The revenue budget has been heavily dependent on major sources of income which are not necessarily buoyant, for example car park usage and local land charge income are both subject to market forces. A thorough review has been undertaken as part of the 2012/13 Budget Process which set income levels more realistically in the light of the economic climate.

At the end of March 2011 the Council resolved to formally consult tenants on the proposal to transfer ownership of the Council’s houses to South Lakes Housing. Following a positive ballot with the majority of tenants voting in favour of transfer, the Council resolved to transfer during March 2012. Had the transfer not been completed on time the Council would have been required to pay £69.9m to the Government as part of the HRA Self Financing settlement. Following transfer the Council will apply to close the HRA during 2012. An allowance has been made in the General Fund budgets from 2012/13 for costs that would previously have been charged to the HRA but which were not transferred to the new

landlord. Although the majority of the capital receipt will be used, over time, in the repayment of housing debt, there is some capital receipt available to assist in the funding of the Council’s Capital Programme.

The Capital Programme has been primarily focused on housing related spend as resources from the Government’s Single Housing Capital Grant and other grants are mainly directed towards housing. However, following the Comprehensive Spending Review there are major reduction in support to both housing and to economic development initiatives. Capital resources are available to meet the programme but borrowing has been reduced to limit the impact on the Revenue Budget and to better reflect the level of work which is deliverable. The MTFP reviews the prospects for subsequent years.

GENERAL FUND

A. REVENUE BUDGET FORECAST

This section of the Plan sets out the financial forecast for the General Fund Revenue Budget and considers the key factors that will influence the Council’s expenditure and income for the next five years.

1. Expenditure Forecast

The forecast is based on projecting forward current levels of service provision. The base budget for 2012/13 is uplifted to take account of expected pay and price increases through the period of the forecast. Adjustments are made to individual services to remove one-off items in the 2012/13 Budget from future years and to introduce the full year effects of initiatives starting part way through 2012/13. This base level of expenditure is then overlaid with the anticipated cost of new initiatives derived from the Corporate Plan, legal/health and safety requirements and budget savings/efficiencies.

a) Pay and Associated Costs

Assumptions:

• The forecasts assume a pay award freeze from 1 April 2012 for all staff. The projections assume annual pay awards increase to 2% from 2013/14 to reflect longer-term inflation projections. National insurance costs are based on current levels.

• Allowance has been made for staff increments over the life of the model but this is offset by a 3% allowance for vacancies and staff turnover throughout the forecast.

• The Cumbria Pension Fund was subject to a triennial revaluation which lead to new contribution rates from April 2011. The financial model assumes a proposed contribution rate of 13.1% for future service and a lump sum of £772,000 for 2011/12 rising to £1,076,000 for 2013/14.

• Because local government involves labour-intensive activities, the expenditure forecast is sensitive to changes in pay levels: a 1% increase/decrease would cost/save around £125,000.

Issues:

• Pay increases for local government staff are negotiated nationally between unions and Local Government Employers. Pay rates have been frozen for both 2010/11 and 2011/12 and the Employers have just proposed a further freeze for 2012/13.

• Although the Chancellor of the Exchequer announced a further two-year public pay cap at an average of 1% in his Autumn Statement in 2011 this is not binding on Local Government.

• As a result of the triennial revaluation of the pension scheme the Council has opted to adopt employer contributions based on a set percentage contribution for future service accrual and a fixed monetary contribution each year for past service liability instead of a set percentage contribution covering both. This will avoid the reduction in recovery of past service liability as staffing levels decline following reduction or transfer of services. The deficit will be recovered over a 19-year period rather than the previous assumption of 22 years, although this will be phased in between 2011/12 to 2013/14.

• Previous MTFPs assumed further increases in pension contribution rates beyond 2013/14. This now seems unlikely partially due to two decisions by the Coalition Government, firstly to base future pension increases on the CPI measure of inflation rather than the RPI measure of inflation which will reduce future pension growth by around 1% pa and the introduction of the Hutton Review to consider the viability of public sector pensions in the future by increasing employee contributions and increasing retirement ages. The final scheme is still being negotiated between the Government and unions.

b) Price Inflation

Assumptions:

• The forecast assumes that increases in expenditure budgets will be kept below inflation at 2% annually.

• A 1% increase in total running costs would result in extra expenditure of around £105,000.

Issues:

• The Council has a practice of limiting budgets wherever possible by not automatically making an annual allowance for inflation other than contractual obligations. This has worked well in recent years as a mechanism to avoid unnecessary rises in operational budgets, but it may not be sustainable in the medium term if inflation rates do not decrease.

• Inflation has been well above the 2% target for over 24 months since December 2009. Inflation (CPI) for January 2012 fell from 4.2% to 3.6% (RPI fell from 4.8% to 3.9%) and is projected to remain lower than 2011/12 levels now the impact of the increase in VAT in January 2011 has worked out. The Bank of England’s central forecast is for inflation to continue to decline during 2012 to below the 2% target by the beginning of next year. That partly reflects a further diminution in the upward pressure from past rises in energy and import prices. Further ahead, inflation is projected to rise slowly back towards the target, as the margin of economic slack gradually diminishes, and businesses continue to restore profit margins that were squeezed during and after the recession.

• The Council has embraced a culture of seeking efficiencies and a good track record for making significant procurement savings, a pattern that should continue as it goes forward with joint procurement initiatives.

• Short-term pressures will be alleviated by the use of contingency provisions and, if necessary, the General Reserve.

c) New Statutory Responsibilities & Priority Developments

Assumptions:

• Beyond 2013/14, a corporate amount of £100,000pa has been incorporated to cover newly recognised aspirations and growth bids

arising from the service planning process and for Health & Safety Initiatives.

Issues:

• The forecasts cannot predict with any accuracy the impact of major new statutory responsibilities until their operation has been set out by Government. The Localism Act introduced a new power of general competence, referendums, and changes to planning arrangements and community right to bid for assets.

• The Government have introduced a ‘New Burdens Doctrine’ which suggests that the net additional costs of all new burdens from central government policy or initiatives will be fully funded to help keep Council Tax down. Guidance was published during June 2011

• Experience over a number of years shows that, generally, statutory requirements represent a pressing and usually first call on available resources. Given that the forecast predicts deficits in future years’ budgets, the prospects for growth to cover new responsibilities depend heavily on the achievements of a programme of budget reductions. The Council now has a good track record of achieving substantial reductions and can approach that programme with confidence.

d) Efficiencies

Assumptions:

• The forecasts assume that efficiency savings will be found within other savings already built into the model and does not attempt to reduce expenditure further.

Issues:

• The Council met and exceeded the targeted efficiency programme set out by the previous Government. These savings assisted in containing overall budgeted expenditure, in particular by absorbing inflationary increases in priority services. Although the current government has abolished the requirement to measure and report the efficiency savings, the processes adopted by the Council will continue to be applied to maximise efficiency.

• Substantial public spending cuts have been predicted as part of the Government’s attempts to rebalance public finances and it is expected that the pressure will be to manage reductions in public expenditure without doing real damage to services. Gershon-style efficiencies such as merging back-office functions are one way of mitigating the effects of cuts in public spending.

e) Residual Arrangements for the Housing Revenue Account

• The Housing Revenue Account is a statutory account set up to collect the costs and incomes relating to Council houses and their tenants. The main income to the HRA is from rents charged to the tenants of Council houses.

• On 5th March 2012 the Council sold the 3,156 houses within the HRA to South Lakes Housing. During the second half of 2012 the Council can apply to the Secretary of State for permission to close the HRA.

• The majority of the direct costs of running the HRA will transfer to South Lakes Housing as the new landlord following transfer. However, currently non-direct costs such as staffing, pensions, asset maintenance

(particularly for play areas which are retained by the Council) and costs of the democratic core are charged to the HRA. Once the HRA is closed all remaining costs will fall on the General Fund. These costs are estimated at £300,000pa.

• There HRA is currently charged for the interest payments due on a proportion of the Council’s overall debt. From 2012/13 all interest on the Council’s debt is charged to the General Fund.

• The HRA Working balance will also be transferred to the General Fund. It is currently estimated that it will be around £750,000 once the HRA is closed.

f) Other Issues

• The government has proposed the localisation of council tax benefit and a reduction in subsidy. Latest proposals suggest that costs will be split between Cumbria County Council, Cumbria Police Authority and South Lakeland District Council in proportion to their share of Council Taxes with each authority receiving a share of funding.

• The Government is awarding New Homes Bonus to Councils as an un-earmarked grant based on matching the Council Tax that would be received from any net increase in properties for six years. Additional grant of £350pa is received for affordable homes. The grant is shared with Cumbria County Council with 80% due to SLDC and 20% due to the County Council. The Council is earmarking this grant from 2013/14 and the income will be added to the New Homes Bonus Reserve.

Income from the New Homes Bonus has been depressed due to properties within the district being identified as holiday lets by their owners, moved to the Non-Domestic Rating list and benefitting from the Small Business Rate Relief scheme.

• The Council has a quinquennial review of its property portfolio, last reported to Cabinet in April 2008. The review identified a backlog of planned maintenance. The Council has a GF Major Repairs Reserve which had a balance of £493,400 at 1 April 2011. The MTFP assumes a contribution to the Reserve of £50,000pa. The Council spends around £800,000 per year on maintenance of its GF properties.

2. Resources Forecast

The Council’s gross budgeted revenue expenditure for 2012/13 is around £69m. Once expenditure on housing and council tax benefits, currently met by 100% Government grant, is excluded and expenditure met from reserves the remaining gross expenditure of £25m is financed as follows:

2012/13 2013/14 2014/15 2015/16 2016/17

£000 £000 £000 £000 £000

Council Tax 8,116 8,319 8,527 8,740 8,958

Council Tax Freeze Grant 408 204 204 204 204

Formula Grant (including Revenue Support

Grant and Non-Domestic Rates) 4,380 0 0 0

Localised Business Rates 0 4,308 3,845 3,442 3,093

Collection Fund Deficit / Special Expenses 17 37 37 37 37

12,921 12,868 12,613 12,423 12,292

Other Service Grants and Contributions 1,909 1,979 1,979 1,979 1,979

Car Parking Fees and Charges 5,060 4,959 4,959 4,959 4,959

Investment Income 212 274 544 544 544

Other Income 4,516 5,100 5,526 5,718 5,911

Total Resources 24,618 25,180 25,621 25,623 25,685

a) Council Tax

Assumptions:

• The forecast assumes increases in Council tax of 2.5% annually from 2013/14. The actual council tax increase will be decided during the annual budget setting process.

• The forecast assumes no increase in the Council Tax base over the life of the plan.

• A 1% increase in Council Tax would result in extra income of around £81,000.

Issues:

• The Government encouraged Councils to freeze Council Tax for 2011/12 by offering Council Tax Freeze Grant equivalent to a 2.5% increase in Council Tax until March 2015. A further grant was offered for 2012/13 only.

• The Government effectively caps what it considers to be excessive council tax increases through defining a level above which a referendum would be required.

• The Council has a large number of second homes in its area. It has chosen to reduce the council tax discount on these from 50% to 10%. This income is supplemented by an agreement with Cumbria County Council by which it returns one-third of its income from the same source to the District Council. The combined proceeds are used to assist in one of its key priority outcomes, the provision of affordable housing in conjunction with partner organisations, with the agreement of the Local Strategic Partnership. The majority of this expenditure is capital in nature.

• The Government have recently consulted on options for Councils to set certain discounts for Council Tax locally, including proposals to reduce this discount to 0%. No additional income has been anticipated from this or any other proposed technical changes to Council Tax.

b) Formula Grant & Localisation of Business Rates

Assumptions:

• Formula Grant, comprising two elements; Revenue Support Grant and Non-domestic rates redistributed from the national pool, will be reduced by 16.8% for 2011/12 and 13.5% for 2012/13 as already announced.

• For 2013/14 and 2014/15, the remainder of the Spending Review period, the grant is assumed in line with the national reductions in funding for

local government. The percentage reductions for this Council in 2011/12 and 2012/13 were approximately double the national reduction and this is assumed to continue. Following the Autumn Statement 2011 it is now assumed this pattern will continue in 2015/16 and 2016/17.

• No assumptions have been built into the model to anticipate any changes in the method of Government support as a result of the localisation of business rates.

Issues:

• The formula grant settlement includes the re-allocation of non-domestic rates collected by local authorities and paid into the national pool. For 2010/11 there was £21.5bn of funding redistributed nationally but for 2011/12 this reduces to £19bn. The non-domestic rates are redistributed based on a fixed sum per resident (for 2010/11 South Lakeland estimates it will collect around £36m of NNDR but will receive around £6m from the pool). The difference between the formula grant entitlement and the redistributed rates is paid as Revenue Support Grant.

• Localisation of business rates will replace formula grant in April 2013. The legislation is still going through Parliament. Proposals will see the grant distribution for 2013/14 being largely based on the current formula but with a potential adjustment to reflect the increased costs of providing services in rural areas. From 2014/15 the income will increase (or decrease) depending on the change in the rateable values within the district. Where there is an increase in rateable values, the increase will be shared with the County Council on an 80:20 ratio. There will be system of levies, tariffs and top-ups to provide some protection from disproportionate decreases in income and to reduce the benefit from disproportionate increases in income.

c) Other Government Grants

Assumptions:

• Government grants have been reviewed against announcements

• No inflationary uplift is assumed for any Government grant.

• For the New Homes Bonus the receipts for 2011/12 and 2012/13 have been used as a base for estimating future receipts.

Issues:

• The Government has introduced the New Homes Bonus, payable to local authorities as a reward for delivering a net increase in homes, as recorded through the council tax base. The scheme is long term and designed to provide security in financial planning for Council’s who deliver new homes. In the financial model it is included to offset service expenditure in 2011/12 and 2012/13 only. From 2013/14 the income is earmarked through the proposed New Homes Bonus Reserve.

• The Council will continue to receive government subsidy to offset the costs of housing benefit and council tax benefit paid. The Government has proposed a reduction in the funding of council tax benefit and the localisation of the benefit in order that authorities can decide who would be eligible within their area. This proposal has not yet been reflected in the financial projections.

d) Service Grants and Contributions

The Council is alert to the availability of attracting both additional grant and other external funding streams. The Corporate Plan stresses the importance of partnership working which is key to achieving the Council’s priorities. Where appropriate, income will be sought from shared service and other partnership arrangements.

e) Car Parking Fees and Charges

The Council receives a substantial income of £5m from car parking and parking enforcement. This income is welcome as it funds essential services but the downside is that the Council’s budget has been reliant on its buoyancy. Car park usage is dependent on many factors: the economic viability of town centres, national and international tourism, fee tariffs and weather conditions. Income levels may become a particular issue for the future, especially when major improvement works will be required to a number of structures.

Maintenance of the income level is a risk to the forecast: a 1% decrease represents £50,000.

f) Investment income

Interest rates decreased sharply during 2008 resulting in lower than expected returns. However, these reductions were cushioned by a number of investments at fixed interest rates and repayment dates well into 2009. However, persistent low bank base rates have continued beyond original forecasts and predictions for future increases have been sluggish. These have been reflected in the forecasts.

The Council has a core investment, previously £13m, placed with a fund manager, Investec. Following the completion of the housing transfer the levels invested have temporarily increased. The fund’s objective is to produce a net rate of return that exceeds the 7-day LIBID rate by 10% but the manager’s returns have been inconsistent. As part of the Treasury Management Plan for 2008/09, the Council intended to review the position with a view to managing its investments in-house. However, with the volatility in returns and the failure of some banks it was felt to be preferable to continue with the current arrangements.

The forecast predicts continuing low investment income as a result of low interest. This forecast is an amalgam of several factors: gross interest earned on investments and temporary cash flow surpluses is offset by medium and long-term borrowing costs. For many years the only long-term borrowings were for the Council House Decency Programme and a few finance leases but the Capital Programmes for 2011/12 provides for borrowing to fund the Vehicle and Plant replacement programme. Following the housing transfer the Council has a capital receipt of £14m. Some of this receipt will be used to repay existing debt, some will be used to reduce future borrowing built into the capital programme and the remainder will be used for capital expenditure. In time it is hoped that some of the investment portfolio will be used for further debt redemption but premiums are payable if current interest rates are below the loan coupon rate. At the moment the levels of these premiums are prohibitive.

With forecast interest rates now so low it is less susceptible to a dip in forecast rates or a reduction in amounts invested than previously. The projections assume annual rates of interest provided by the Council’s treasury management advisors during February and assume no increase in the base

rate until 2014. The interest rate projections have not changed significantly since mid-2011.

g) Other Income

Major sources of other income are property rentals and fees and charges. The Council does not have a large portfolio of investment properties and the majority of rented assets are used in the provision of services. The Corporate Property Strategy outlines the steps needed to ensure that all asset holdings are relevant to the Council’s activities. In financial terms this means an assessment of disposal values and their potential contribution to the Capital Programme compared to ongoing rental streams.

The forecast assumes that income from fees and charges will increase by inflation on average. This will be a challenging target since certain fees are set nationally and cannot be influenced by the Council whilst others operate in a highly competitive market. Although the forecast uses inflation as an indicative increase, the Council should aim to maximise fee income wherever possible so that users contribute an increasing proportion of service costs rather than the council taxpayer generally. During 2011/12 the Council has reviewed many of its fees and charges to ensure they are appropriate and these have been reported to Cabinet and Council meetings as part of the Budget Process.

3. Reserves and Balances

The 2012/13 Budget assumes the following levels of reserves and balances:

31/03/2011 31/03/2012 31/03/2013

£000 £000 £000

General (Un-earmarked Reserves) 3,473 2,389 2,612

Other Earmarked GF Reserves 61 -78 -78

Capital Reserves 71 71 71

Total Reserves 3,605 2,382 2,605

General Fund Working Balance 2,223 2,279 2,329

Reserve

Full details to 2016/17 are given at Appendix 2, together with forecast levels.

In 2005 the Council began a process to strengthen its reserves by making regular contributions for capital, major repairs, IT replacements and to the General Reserve and working balance. Outturn under-spending and windfall grant income were added to these funds so that the Council’s financial position at both March 2008 and March 2009 was strong. Substantial use of resources to fund staffing and other organisation changes during 2009/10 and 2010/11 has enabled the Council to make major savings in future running costs and has reduced the overall level of reserves to a more prudent level. Contributions are included in the financial projections to ensure the General Reserve in particular returns to its target level. The forecast continues the Council’s commitment to maintaining prudent reserve levels. The forecasts will get a one-off benefit from the closure of the HRA and the transfer of the HRA Working Balance to the New Homes Bonus.

31/03/2008 31/03/2009 31/03/2010 31/03/2011

£000 £000 £000 £000

General (Un-earmarked Reserves) 4,989 5,099 3,731 3,473

Other Earmarked GF Reserves 360 317 198 61

Capital Reserves 2,283 1,283 223 71

Total Reserves 7,632 6,699 4,152 3,605

General Fund Working Balance 1,261 1,768 1,339 2,223

Reserve

The Council’s policies for the purpose, size and use of its reserves are set out in Section 5 of this Plan: the fundamental principle on the usage of reserves and balances is that they should not be used to fund recurring expenditure. The Chartered Institute of Public Finance and Accountancy (CIPFA) recommend that the following factors should be taken into account when considering the level of reserves and balances:

• Assumptions regarding inflation and interest rates • Estimates of the level and timing of capital receipts • The capacity to manage in-year demand led pressures • Ability to activate contingency plans if planned savings cannot be

delivered • Risks inherent in any new partnerships • Financial standing of the Authority (level of borrowing, debt outstanding

etc.) • The Authority’s record of budget management and ability to manage in

year budget pressures • Virement and year-end procedures in relation to under and overspends • The general financial climate • The adequacy of insurance arrangements

The assessment of the adequacy of reserves is very subjective. There is no ‘right’ answer as to the precise level of reserves to be held; it is a matter of judgement, the responsibility for which lies with the Assistant Director (Resources) under their statutory duty to review the level of reserves and advise the Council on their sufficiency. The reserves position is considered to be adequate for the 2012/13 Budget and the forecast suggests that they will remain so over the medium term if contributions are made as planned.

4. General Fund Forecast

Previous versions of the Medium Term Financial Plan projected budgetary deficits (the difference between forecast expenditure and expected resources) for the foreseeable future if the Council is to deliver its corporate ambitions. Although the Council’s management restructure in 2010 addressed a major part of this pressure this was more than offset by reductions in government funding and other government announcements. The review of the financial position however, since the Emergency Budget in June 2010 has generated more than £3m of savings proposals. Budget savings proposals have regularly been presented as part of the Budget Process and are summarised at Appendix 8.

Forecast budgetary position, further details are given at Appendix 4:

2012/13 2013/14 2014/15 2015/16 2016/17

£000 £000 £000 £000 £000

Expenditure Forecast 24,200 24,909 25,534 26,094 26,839

Total Resources -24,618 -25,180 -25,621 -25,623 -25,685

Transfer to / (from) Reserves 418 418 418 418 418Savings / Reductions / Efficiencies to be

identified 0 -147 -331 -889 -1,572

Budgetary Deficit 0 0 0 0 0

These forecasts assume

o Salary freeze in 2012/13 and increase of 2% from 2013/14. A 3% reduction in the pay bill to reflect vacancies and turnover

o Inflation otherwise of 2% (in practice budgets are not increased by inflation unless contractually unavoidable)

o 2.5% increase in Council tax from April 2013

o Formula grant reductions of 1.6% for 2013/14, 11% for 2014/15 and 10% thereafter in line with the Spending Review projections

o an expectation that £100,000 pa will be needed for further priorities and legal/health and safety requirements beyond 2013/14

5. Tackling the Budget Deficit

The achievement of the budget reduction exercises has demonstrated that the Council is capable of making major changes to its non-priority services and that it has the appetite for large scale budget reductions that will enable it to fund its new corporate outcomes. The process of seeking reductions will continue throughout the life of this Plan.

Projected Deficit 2013/14 £147,000 2014/15 £331,000 2015/16 £889,000 2016/17 £1,573,000

Reductions of £251,000 from 2012/13 rising to £1.1m in 2015/16 have been built into the annual base budget. Appendix 8 summarises the budget net reduction that these options will deliver when implemented. The majority of options are not considered to have a significant impact on the front line services the Council enables to be delivered. As can be seen from the Table above future years deficit projections are significant and the reality is that options to deliver a balanced budget in future years are likely to have a greater impact on these services. Significant further changes are planned to reduce the cost of back office services to SLDC and the options will come forward as part of the continuing process of reviewing services. . These options will include implementing efficiency savings identified as part of the reviews, sharing services, delivery through partnerships with other sectors and ceasing to allocate resources to certain areas. The work on identifying options continues and will be reported to future Committees.

6. Different Scenarios and Sensitivity Analysis

There are certain projections that are more certain than others. Certain budgets have been identified as having been more volatile in the past, particularly those that are demand led or reliant on income. Long-term forecasts of income and expenditure are subject to greater uncertainties. The impact of variations to the broad resource and expenditure assumptions regarding inflation and interest rates have been considered in the preparation of this plan.

The impact of a 1% reduction in the other main assumptions will have the following impact on the projected deficit:

Assumption Used in Forecast

Change Impact on 2012/13 Budget

National Insurance Contribution rate 9% contribution rate

1% increase in contribution rate to 10%

£80,000

Pension scheme 22.8% contribution rate

1% increase in contribution rate to 23.8%

£87,000

Other Inflation – Running Costs 2% inflation 1% increase to 3% inflation

£105,000

Interest 0.7% interest rate

1% increase in interest rate to 1.7%

£303,000

Assumption Used in Forecast

Change Impact on 2012/13 Budget

General Income – Excluding Government Grants

1% inflation 1% increase to 2% inflation

£109,000

Formula Grant / Retained Non-Domestic Rates

1% increase £42,000

Council Tax Income (SLDC only) 1% increase £81,000

The five most significant risk items have been identified and the summary of all the risks and the potential scenarios are highlighted in Appendix 8. The overall impact of the changes modelled could be:

2012/13 2013/14 2014/15 2015/16 2016/17

£000 £000 £000 £000 £000

Savings/Reductions/ Efficiencies to be identified 0.0 -148.0 -331.0 -889.0 -1,723.0

Additional Savings/ Reductions/ Efficiencies to be

identified under worst case scenario-400.0 -1,324.8 -2,133.5 -2,976.2 -3,858.3

Worst case scenario total deficit -400.0 -1,472.8 -2,464.5 -3,865.2 -5,581.3

Savings/Reductions/ Efficiencies to be identified 0.0 -148.0 -331.0 -889.0 -1,723.0

Reduced Savings/ Reductions/ Efficiencies to be identified under best case scenario246.0 977.8 1,530.5 2,420.2 3,318.3

Best case scenario total (Deficit) / Surplus 246.0 222.0 989.0 1,295.0 1,559.0

B. CAPITAL PROGRAMME

1. Background

The Council has set out its Capital Strategy and plans for capital expenditure via a five year rolling programme. The level of capital resources has fluctuated considerably in recent years due to changes in Government control and local circumstances. The Council has come through a period where its non-Housing resources have declined and the Programme was largely put on hold and it was unlikely that there would be significant increases in resources in the medium term. There has been a significant boost in resources due to the housing transfer. Details of the Programme are given at Appendix 6.

2. Capital Expenditure

The six year Programme provides for £22.6m of expenditure from 2011/12 to 2016/17 on schemes to deliver corporate priorities.

The capital programme is reviewed during the year and fully updated at least annually to ensure that the Programme continues to reflect the latest corporate priorities. Further assistance is provided for affordable housing by the sale of development sites to partner housing associations at nominal or below market values: the income foregone represents a major subsidy to assist in the provision of these homes.

3. Capital Resources

The Capital Programme forecasts the following availability of resources:

£000

Capital Receipts 8,600

Borrowing (unsupported General Fund) 4,037

Conversion of Reserve Contribution from

Revenue300

Council Housing Major Repairs Allowance 2,684

Second Homes (County & District) Council Tax

Income3,669

Other Revenue Monies and Over-programming 354

Housing Single Capital Pot Grant 1,182

Other Grants and Contributions 1,786

Total Resources 22,612

a) Capital Receipts

The Council traditionally financed a major proportion of its Capital Programme from capital receipts, with the majority of these receipts from the sale of Council Houses under the Right to Buy (RTB) legislation. In the years up to 2003/04, sales totalled around £4m per annum but this dropped away sharply in 2004/05 until only one home was sold in 2011/12.

During March 2012 the Council sold its housing stock to South Lakes Housing, generating a net receipt of £14m. Although some of the receipt is being used to repay debt the majority of the receipt is being used to fund future capital expenditure. Linked to the transfer will be on-going receipts for up to 15 years of around £600,000pa.

With this exception, the Programme assumes only minimal sales of non-Housing assets, which can be used in full to fund capital expenditure. The Council is undertaking a review of its assets to consider whether to adopt a more active programme of property disposals to generate funds to support the Programme. Risk factors: Minimal receipts from non – RTB disposals are anticipated. General experience suggests that non-RTB income will be better than predicted but sales proceeds are currently depressed by the recession.

b) Borrowing

The Capital Programme included borrowing only for the funding of replacement vehicles and plant, which replaces the use of leases for financing. For 2011/12 and 2012/13 this borrowing will be replaced with the use of the housing capital receipt (in lieu of repaying former housing debt, which would have incurred a premium, and then taking out new borrowing)

Risk factors: Additional borrowing increases revenue costs both through the interest to be repaid but also through the Minimum Revenue Provision which requires the Council to set-aside from revenue each year a proportion of future principal repayments. The MRP is based on the life of assets purchased using borrowing.

c) Major Repairs Allowance

Subsidy payable to the HRA included an allowance for major repairs. This revenue income has to be used to fund capital expenditure as identified by the South Lakes Housing’s Asset Management Plan. The income in the capital programme relates to expenditure up to the housing transfer in March 2012 only.

Risk factors: None - this income relates to monies received in 2011/12 prior to the housing transfer.

d) Leasing

Previous Programmes assumed leasing will be used to fund the replacement of vehicles, mainly relating to the waste and street cleansing service. Leasing has not delivered flexibility and value-for-money as a means of financing and has not been used recently.

Risk factors: Revenue budgets would need to provide for lease rentals associated with both types of leasing. If a leasing arrangement could not be agreed for particular assets, borrowing would be taken out as an affordable alternative.

e) Second Homes Income

Income from reducing the Council tax discount on second homes is mainly used for capital purposes: current levels of income are projected into future years. Income from Cumbria County Council is subject to a 10 year legal agreement where the County Council returns 33% of income to the District Council.

Risk factors: The Council negotiated with the County Council, seeking a better share than the proposed 25% and/or a long term arrangement that would allow it to borrow. The income is used to fund discrete housing initiatives and is not committed until it is certain.

f) Other Revenue Monies and Over-programming

A reserve, the Fund of Revenue Monies for Capital Purposes, represents revenue funds that are allocated to support the Capital Programme by topping up its resources. Other, smaller, amounts are allocated from replacement reserves. An element of over-programming is built into the Programme for non-Council housing.

Risk factors: The reserves and planned contributions are built into the revenue forecast. Changes to those contributions would require a modification to later years of the Programme.

Over-Programming may be used in recognition that there is likely to be slippage of capital expenditure. The element of over programming is usually modest: if spending exceed resources, the excess would be met initially from the General Reserve before adjustments to the balance of the Programme. There is no element of over-programming included in the current Programme.

g) Grants and Contributions

The major recurring capital grants for housing purposes were cut in the Comprehensive Spending Review. Substantial grants were used in 2007/08 and 2008/09 to fund land drainage schemes that have not yet been finally signed-off. Significant economic development grants were previously received from the North West Development Agency. This may be replaced by income from the LEP but no income has been assumed in the current programme.

The Council actively pursues external funding for its capital spending: the allocation of resources to new projects will introduce associated earmarked funding. Alternatively the Council encourages capital investment by other organisations where the objectives match its corporate priorities and makes contributions towards their projects.

Risk factors: Minimal grant levels are now assumed within the programme. Disabled facilities grants have been largely protected from cuts. No firm commitments have been made against future years grants.

The income from grants and contributions is mainly used to fund discrete initiatives and is not committed until it is certain.

4. Sufficiency of the Capital Programme

The Capital Programme is forecast to meet the prioritised and known identifiable needs until 2016/17. No capital income stream is certain but some resources carry a higher risk than others, particularly the capital grants. In financial terms, a reduction or cessation of grants could be managed as the Council does not commit these resources until they are confirmed, although there would be an impact on corporate outcomes.

In financial terms, the current Programme appears to be skewed towards Housing schemes, within the ‘Living’ priority theme. This is understandable as affordable housing is a major local priority which, other than the management of the Council Housing stock, is mainly addressed by means of capital investment. Also, the Council takes advantage of the availability of earmarked resources that can only be used for housing purposes. In the longer term, it is expected that the Council will want to expand its non-Housing programme.

A Capital prioritisation exercise was undertaken during January 2012 and the five-year capital programme has been rebuilt around the results of the exercise. There are a number of projects on the prioritised list which have not yet been built into the programme until further details of the business case for each is developed.

The planned review of Council assets will decide whether to adopt a more active programme of property disposals. This is a realistic source of additional capital income as a number of sites have high development values. However, the current economic climate is likely to make this approach unrealistic in the short term.

The Prudential Code permits Councils to borrow to fund capital investment provided that the borrowing is affordable, prudent and sustainable. Borrowing costs fall to be met from revenue accounts. Any additional borrowing taken out would therefore need to be affordable in terms of Council tax or housing rents.

SECTION 5: CONCLUSIONS AND FUTURE STEPS

This plan and the forecasts set out in this document indicate how the Council can respond to the financial challenge of reduced Government Grants, increased demand for council services and a freeze on Council Tax increase. Last year’s MTFP identified that we were heading into challenging financial times and that a radical review of the Council including some service cuts would be inevitable. The Coalition Government has set a significant challenge by the size of the reductions to Grants over the next four years. In setting our Budget, we have followed our budget strategy, minimising price pressures and cost increases and driving out all possible efficiency savings across the Council.

This plan covers a period of 5 years, however, as part of the planning process, longer-term risks, liabilities and developments are considered in order to ensure that the longer-term strategy is not jeopardised. This work includes maintaining a watching brief, and where, possible planning for the external risks set out in section 6 below including potential legislative changes and proposals to change grant and subsidy arrangements and entitlements.

The process of developing the Medium Term Financial Plan is ongoing. The financial projections are reviewed at least quarterly and any major issues identified as part of the Council’s Corporate Financial Monitoring process. Work will continue to identify how, in future years, the Council will deliver services within the resources available. This will include consultation on the options. Progress will be reported regularly during 2012/13 and form part of the future budget setting process. We focus on delivering the Council’s medium term objectives and ensuring the Council can be clearly seen to provide value for money services for residents.

Action Action Owner

Planned Completion Date

Review & update MTFP financial projections to include:

Monitor savings currently incorporated in financial projections as listed at Appendix 8 as part of the Council’s quarterly Corporate Financial monitoring process

SMT July 2012 Oct 2012 Jan 2013

Review impact of LSVT (housing transfer) on General Fund base budgets following audit of final HRA

SMT Oct 2012

Review impact of Government proposals for pension reform SMT July 2012

Review impact of Government’s localisation of business rates SMT July 2012

Review impact of Government’s localisation of Council Tax benefits

SMT July 2012

Impact of proposals for Community Right to Buy and Right to Manage and other issues raised within the Localism Bill

SMT July 2012 and on-going

Review of devolvement of allocation or resources decisions and delivery mechanisms

SMT Summer 2012

The Medium Term Financial Plan is a high-level document that does not make specific

recommendations for service changes and hence has no direct equality and diversity implications. The service plans being developed as part of the Council’s performance management framework will be Equality Impact Assessed.

SECTION 6: RISKS AND OPPORTUNITIES LOGS

REF VULNERABILITY / TRIGGER

CONSEQUENCE LIKELI-HOOD

IMPACT ACTIONS TO CONTROL THIS RISK

1. Revenue budget and Capital Programme may not be integrated and aligned with Corporate Plan.

Resources not directed to achieving corporate outcomes, leading to inappropriate spending.

Low Marginal Both the revenue budget and the Capital Programme are now embedded in the corporate planning cycle. All revenue budgets and capital programme schemes are linked to corporate plan priorities

2. The programme of budget reductions does not deliver the required level of savings to correct the forecast inherent budget deficit.

Council will be forced to cut services and/or make knee-jerk and potentially irrational spending reductions.

Significant Marginal Universal acceptance of the problem by heightened awareness. Clear direction and identification of measures by Members and Officers. Strict project management to ensure that proposals are implemented.

3. Resources cannot be identified to fund new service development.

Corporate outcomes may not be delivered.

Low Marginal Accurate assessments of spending needs to be built into the budget forecast. Project management of reduction programme.

4. Further loss of income from investments as interest rates reduce.

Revenue budget unable to cope with reduced income

Low Marginal Retention of external fund managers, close monitoring of returns, already minimal levels of projected interest receipts.




5. • Provisions for pay, price inflation are inadequate e.g. fuel

• Income falls below targets

• Government grant is withdrawn suddenly

In-year budgetary pressure and potential overspending, jeopardising service delivery.

Low Marginal Close monitoring and short-term use of revenue contingency provision and General Reserve followed by review for following year.

6. The resilience of the budget is not re-enforced by the strengthening of reserves and balances.

Budget may not be able to cope with unexpected events and spending plans may have to be curtailed.

Low Marginal Close adherence to the Plan’s proposals for the maintenance of reserves and balances.

7. Government introduces a more stringent capping system through the specification of levels above which a referendum will be triggered

Revenue budget unable to cope with basic inflationary increases, further pressure on resources and service delivery.

Low Marginal Maintenance of General Reserve as a buffer against unexpected restriction on council tax increases. The Plan uses realistic assumptions for forward planning.

8. Government proposals for local government to become self-financing from business rates leave the Council with reduced revenue resources.

Income streams will be insufficient to fund service delivery.

Significant Critical The detail behind the Government proposals is expected during May 2012. Monitor Government proposals. Maintenance of General Reserve as a buffer against unexpected changes in funding.

9. Council is reluctant to take tough decisions in a number of service areas e.g. fees & charges or grants payable

Income streams may not be optimised leading to reduced resources available for spending on priority services or projected savings may not be generated

Low Critical Financial decisions in non-priority areas should be made on commercial principles backed by sound business cases.




10. Budgetary control procedures are not understood and followed.

Variances from budgets are not identified and acted upon, leading to inappropriate/unauthorised spending.

Low Marginal Ongoing review of procedures to ensure that budget monitoring information is appropriate and meaningful. Greater emphasis on trend analysis and the use of customer data. Closer liaison between Finance staff and budget holders.

11. Ferry Nab development may not deliver the predicted income streams to the predicted timescales

Lower than expected income streams leading to reduced resources available to spend on priority services

Significant Marginal Effective project management of development

12. Reduction in economic development funding if Cumbria LEP is unable to attract significant funding through bidding for Regional Growth Fund monies.

Inability to improve employment prospects within the district

Significant Critical

13. Additional unexpected costs following LSVT

Budget may not be able to cope with additional costs and spending plans may have to be curtailed.

Significant Marginal Careful monitoring of liabilities arising from the housing transfer

14. The Council is unable to meet future demand for services

Service falls below all acceptable standards.

Significant Critical




15. Pension funding – in particular the deficit on the Cumbria fund following the international financial slow-down.


Low

Critical Movement to alternative method of contribution based on set percentage for current service accrual and fixed contribution for past service costs should reduce inherent problem of declining staff base for contributions. Government reform of pension scheme should alleviate impact of declining investment returns.

16. Costs of asset maintenance, as identified in the Asset Management Plan, exceed resources available.

Budgetary pressures force cuts in standards of maintenance.

Significant Marginal A quinquennial review of maintenance requirements is prepared. The General Fund Planned Maintenance fund exists to meet abnormal spending needs.

17. Future demographic and other changes demand additional expenditure

Significant Marginal

18. Potential creation of Internal Drainage Board

Unavoidable Levy payable to Internal Drainage Board

Significant Marginal Monitor proposals, review treatment as special expense

19. Potential loss of surplus-generating assets through the proposed Community right-to-buy

Budget may not be able to cope with loss of income

Low Marginal Approve an effective Asset Transfer Policy

20. Higher that estimated increase in costs due to international political uncertainty e.g. fuel


Significant Marginal

These risks have been mapped onto the Council’s risk management matrix – see Appendix 10.

The Council has a comprehensive system of risk identification and management. These risks are monitored and reported quarterly during the period of the plan and actions taken where necessary to mitigate risks.

OPPORTUNTIES

REF OPPORTUNITY / TRIGGER CONSEQUENCE LIKELI-HOOD

IMPACT ACTIONS TO ACHIEVE THIS OPPORTUNITY

A. Significant increase in net dwellings increases New Homes bonus.

Additional funding to support either expansion of existing services, provision of new services or prevents reduction in existing services

Low Significant Maximise addition of properties (& minimise removal of properties) on valuation list by end of September annually; maximise increase in number of affordable homes through planning requirements or provision of support, financial or otherwise.

B. General Power of Competence

Potentially could allow Council to provide additional services

Low Significant Recently approved by Localism Act, review areas where new powers could be used.

C. Localisation of business rates Potentially could provide funding to support either expansion of existing services, provision of new services or prevent reduction in existing services

High Significant Monitor proposals, respond to consultation.

D. Shared services Potentially could provide additional funding to support either the existing level of service or enhanced service levels

High Marginal Review existing services, work with other public services in the area to review service provision and potential sharing of services

E. New advances in technologies Potentially could reduce staffing requirements or existing non-staffing costs; could permit new or enhanced services

High Marginal Monitor developments in technology

F. Community Groups wishing to take over services

Potential transfer of costs to alternative provider who may be able to provide existing services at lower cost or enhanced services at existing cost

Low Marginal Monitor proposals for Community Right to Manage, respond to consultation

G. Opportunities for generating additional income for services – relaxation of national controls e.g. planning fees

Potential increase in income High Marginal Monitor proposals, respond to consultation

These opportunities have been mapped onto an opportunity management matrix – see Appendix 10. These opportunities will be reviewed to determine which opportunities should be pursued actively.

SECTION 7: POLICIES & STATEGIES

A: CAPITAL STRATEGY 2012

1. Introduction

This Capital Strategy sets out the Council’s approach to meeting community and service needs through its capital investment programme. The Council’s priorities, objectives and corporate outcomes are set out in its current Corporate Plan which was approved 23 February 2012. The Plan is supported by a set of annual service plans. The Capital Strategy describes how the deployment of capital resources will contribute to the achievement of these aims. The Capital Strategy will continue to be reviewed with regard to its relevance in the changing context in which local government organisations work.

The Capital Strategy is consistent with the Council’s other plans, policies and strategies. Its financial implications are reflected in the Medium Term Financial Plan (MTFP) and 2012/13 Revenue and Capital Budgets and operational aspects in the Corporate Property Strategy.

2. Capital Resources

Context:

The introduction of the Prudential Code for Capital Finance in April 2010 gave local authorities greater freedom to borrow, provided that both capital and revenue expenditure is affordable. The Council uses the Code in making decisions on the overall level of capital expenditure, taking into account the revenue implications of projects, such as operating costs and interest lost on the use of capital receipts. These are built into the MTFP to determine affordability.

The MTFP assumes that revenue budgets will provide a regular contribution of £100,000 per annum towards capital expenditure over the five year period. This ensures that there is a level of contingency for expenditure which is attached to capital projects which is more accurately defined as revenue in nature.

The Large Scale Voluntary Transfer of the Housing Stock on the 5 March 2012 meant that the Council was in receipt of significant additional Capital resources. The 5 Year Capital Programme approved by Council on the 23 February included proposals to make use of part of this receipt in the programme to be delivered.

The Council applies the following principles when determining the level of resources available to finance capital expenditure.

Principles:

• Grant funding or other external contributions will be sought where possible, provided that service development and Council objectives are not constrained by the grant conditions.

• Capital receipts will be used at a rate consistent with the impact of lost investment income on revenue budgets being manageable.

• Borrowing will be considered to finance schemes where debt charges are supported by central government, where it is certain that they can be accommodated in revenue budgets or where savings will be generated as a result from the investment.

• Funding of vehicle purchase will be either through borrowing or leasing based on the most economically or operationally advantageous. Borrowing will be repaid over the projected life of the vehicles purchased.

• Revenue resources will be used, as appropriate, to support the Capital Programme, with resources being held as revenue monies where possible.

At present, the Council does not believe that the Private Finance Initiative is an appropriate method of funding because of the long-term revenue commitments that are involved.

3. Planning and Prioritisation

The Council’s Capital Programme is based on a five year rolling cycle. All schemes within the current programme support at least one of the Council’s key objectives.

The Council continues to utilise ‘Capital Prioritisation Criteria (CPC)’ to allocate resources to projects. The scheme was reviewed and updated during 2011/12 for the updated priorities set out in the Corporate Plan, before being applied to the 5 Year Capital Programme approved as part of the 2012/13 Budget. Proposed new schemes have been scored against the criteria, which has enabled the resources available to be prioritised in an agreed manner. The CPC are attached at Appendix 7.

A review of the Capital Programme is undertaken each year as part of the budget process. Decisions on the phasing of projects will depend on the availability of funds, the priorities attached to each scheme and the implications for the revenue budget. The Programme is updated regularly during the year using the same principles to take account of new opportunities and demands. The Cabinet is able to alter phasing and to allocate up to £50,000 of resources to a scheme that is urgent, necessary and in accordance with Council priorities. Otherwise amendments can only be made by full Council.

4. Procurement and Best Value

The Council keeps its procurement strategy and contract procedure rules under review in order to conform to relevant legislation and best practice. Where appropriate, it makes use of design and build methodology, industry quality standards and has created the opportunity for future e-tendering.

In addition to obtaining best value in procurement, the Council applies the results of formal Best Value and service reviews in selecting potential schemes for capital investment.

5. Consultation

Consultation generated by the corporate planning process extends to the Capital Programme.

6. Project Management and Monitoring

All schemes have a designated lead officer. Project management disciplines are used to ensure that targets are met and expenditure contained within budget. The Council uses a modified version of the Prince 2 methodology to manage its major schemes; a Project Initiation Document should be approved through the appropriate process before a scheme commences. The Contract Procedure Rules require the reporting of material variations in contracts to the Cabinet or relevant service committee.

Capital budgets are held on the financial ledger and reported monthly to Managers and Portfolio Holders. Programmed capital expenditure is monitored monthly, with

the quarterly and outturn position reported to Cabinet and full Council. Reporting mechanisms are continually being developed to support the new process.

7. Performance Measurement

Performance management needs to be further developed alongside project and contract monitoring. This is part of a larger exercise to expand performance management to all of the Council’s activities. The Corporate Property Strategy contains a number of performance measures, which will be used in monitoring the effectiveness of the programme.

Principal criteria will be:

• Timescale for completion compared to target

• Outputs compared to target

• Financial outturn compared to target

• Impact on service delivery

8 Partnership Working

The Council could not achieve its objectives without the input of its key partners. For example it works in partnership with the following to deliver both the Community Strategy and its Corporate Plan:

• Members of the Local Enterprise Partnership, particularly the County Council, Primary Care Trust, Police Authority, voluntary and community groups

• Lakes Leisure, the leisure trust set up by the Council

• Housing Associations and Registered Social Landlords (inc. South Lakes

Housing)

• Local Area Partnerships

• Key funding agencies such as Housing and Communities Agency, Environment Agency, Sport England and English Heritage.

Partnership working extends to capital projects, examples from the corporate themes being:

Theme and Outcome Scheme

Best Place to Live: Addressing Housing Needs

Enabling schemes delivered by Housing Associations and funded largely by contributions from Cumbria County Council and SLDC from the proceeds of council tax on second homes.

Best Place to Visit: A sustainable tourism industry which meets the needs of both local people and visitors

Development of the Castle Dairy in conjunction with Kendal College and Kendal Town Council.

9. Cross-Cutting Projects

A number of projects lead to benefits across the Council’s priority themes, examples being:

• The Council’s refurbishment schemes for car parks are designed with safety in mind, incorporate environmental improvements where possible and, by attracting visitors, encourage the prosperity of the locality.

• The development of Ferry Nab is similar to the above but also significantly contributes to the balancing of the revenue budget into future years and the best value from assets being generated.

10. Risk Management

The Council builds risk management into all of its activities and processes, including the delivery of capital schemes. This ranges from risk assessments built into every new proposal for capital investment and subsequent contracts through to the corporate risk register which highlights the need for management of the following capital related risks:

• Inability to meet the local need for affordable housing

• Programme management does not continue to improve

• Assets do not meet DDA requirements

• Capital funding available is insufficient to meet aspirations

Action plans are drawn up to minimise these risks.

11. Capital Programme

The 2011/12 review of the Capital Programme allocated £31m of resources to projects (£23m when former HRA projects are excluded) that will assist in delivering its corporate outcomes. Minimal borrowing has been assumed for General Fund purposes due to the difficulties in funding the revenue costs of borrowing. The Programme assumes the continuation of the arrangement with Cumbria County Council to return a proportion of its income from council tax on second homes to the District Council to be used to provide affordable housing. The Programme approved also includes the use of £4.4m of the capital receipt from the Housing transfer which occurred on the 5 March 2012.

The detailed capital programme is shown at Appendix 6.

B: RESERVES POLICY

INTRODUCTION

Under the Council’s Constitution, the power to establish financial reserves is limited to full Council except that Cabinet can set aside minor amounts (up to £35,000 in aggregate) where this would assist in the efficient operation of the Council’s activities. Similarly Council determines the use of reserves although Cabinet can make or adjust transfers from reserves up to £35,000 to assist in the Council’s financial management. For balances on Reserves see Appendix 2.

POLICY

The Council maintains a number of financial reserves. This summary sets out the Council’s policy on each one. It details the level and nature/purpose of each reserve. In all cases these are based on an assessment of needs and risk.

The fundamental principle governing the use of reserves is that they should not be used to fund recurring expenditure. If exceptional circumstances make this a necessity, the use of the reserve should be clearly stated and approved as an exception to the rule.

GENERAL (UNEARMARKED) RESERVES

1. General Reserve

Purpose:

• To provide a buffer against future financial risks in the medium term: pension fund contributions, government grant, investment income, contract review factors

• To enable the Council to progress major organisational and transformational changes by providing resources to fund the initial costs of those developments.

Level:

The level of this reserve is determined in conjunction with that of the General Fund Working Balance. Relevant factors are an assessment of risks attaching to:

• pay and pension costs

• inflationary pressures

• interest rates

• government grant

• income from fees and charges. (For more details of the risk and an assessment of the potential financial exposure please see the Risk Assessment of Level of Reserves – February 2012 at Appendix 3). The main use of this reserve in recent years has been to fund the one-off costs of staff redundancy and early retirements to enable organisational reorganisation and the discontinuation of direct provision of services.

The Medium Term Financial Plan provisionally assumes a £200,000 annual contribution to the Reserve, depending on quantification of the potential impact of these factors. Taking these into account alongside an allowance for organisational changes, the target minimum balance for the reserve should be £1.0m with a preferred level of £1.5m which is approximately 10% of net revenue expenditure. The maximum balance should be set at £3.0m

Unless allocated for a particular purpose, revenue budget under-spending and windfalls are added to the General Reserve.

Following the closure of the Risk Management Fund, and the transfer of the balance on that fund to the General Reserve, £100,000 has been earmarked for risk management activities.

2. LABGI Reserve

Purpose:

• To fund non-recurring initiatives that contribute directly to one or more of the Council’s priority initiatives, with a preference for economic development.

Level:

The Reserve accumulated funds from the Government’s Local Authority Business Growth Incentive (LABGI) scheme grant. Grants received under the LABGI scheme should be the only contributions to the Reserve – there should be no minimum or maximum contribution. The minimum balance on the reserve should be zero. This fund is now practically fully committed and should be closed once the committed spend is achieved.

3. General Fund Major Repairs Reserve

Purpose:

• To fund major repairs and maintenance to General Fund properties that are not capitalisable and would be difficult to accommodate in the annual planned maintenance programme, on the basis that the Reserve:

o acts as a backstop for emergency major repairs

o accumulates funds as necessary to meet an abnormal year in maintenance terms

o is able to assist in meeting regular maintenance costs.

Level:

The Reserve has been accumulating funds so that it can deal with the larger repairs for which it was established. The annual contribution is £50,000. A minimum backstop requirement of £50,000 per annum should be set for the contribution to the Reserve with a target of at least £100,000 and a maximum of £500,000 in advance of an abnormal maintenance year.

4. IT Replacement Reserve

Purpose:

• To fund the replacement of hardware and software with a preference for the updating of the corporate and networking infrastructure.

Level:

The Reserve has been used regularly since its inception and is a valuable addition to mainstream funding. With the introduction of the IT shared service there will no longer be a requirement for SLDC alone to fund all replacement of servers, for example. Additionally, the use of virtual servers and increased use of thin-client technology has reduced the costs of IT replacements. The minimum level should be £40,000 and a maximum of £250,000. It is proposed the annual contribution is a minimum of £40,000.

5. Economic Development Fund

Purpose:

• To encourage economic development in the District and to ensure that unused funds in a particular year can be carried forward.

Level:

The Fund assists the Economic Development Strategy by carrying forward resources that cannot be spent at the end of a budget year. Its maximum level should be linked to the Constitution’s limits and set at £35,000 plus amounts earmarked for specific purposes.

6. Planning Delivery Grant Reserve

Purpose:

• To enable monies provided by Planning Delivery Grant to be earmarked for expenditure and to be carried forward for use in a subsequent accounting period if necessary

Level:

Established in March 2010 when Planning Delivery Grant was no longer earmarked by government. The balance in the fund represents monies received in 2009/10 but not spent by 31 March 2010. This source of grant funding has now been discontinued and the fund will be closed when the current balance is spent. The maximum level should therefore be £127,000 and the minimum level zero.

7. New Homes Bonus Reserve

Purpose:

• To enable monies provided by New Homes Bonus to be earmarked for expenditure and to be carried forward for use in a subsequent accounting period if necessary.

Level:

To be established in 2012/13 from the uncommitted element of the HRA Working Balance following the approval of the Secretary of State to close the HRA. The balance in the fund represents monies received from the HRA Working Balance and income from the New Homes Bonus received in subsequent years but not spent by 31 March of each year. The maximum level should not exceed £1,000,000 and the minimum level should be zero.

CAPITAL RESERVES

8. Fund of Revenue Monies for Capital Purposes

Purpose:

• To provide support to the Capital Programme

• To supplement the capital finance available to the Programme by revenue contributions

• To cover ‘grey area’ expenditure and allow flexibility in financing decisions.

Level:

The level of the Fund depends on the Council’s holding of capital receipts and its aspirations for capital expenditure. The Council aims to build up the Fund in

preference to retaining capital receipts by converting and ‘switching’ resources wherever possible when financing capital expenditure. The Fund should have a minimum balance available at the 31 March each year prior to funding the capital programme of £100,000 to ensure that it has a buffer to meet unexpected un-capitalisable expenditure. An appropriate operational maximum level for the Fund from 1 April 2011 would be £2,000,000.

9. Second Homes Income Reserve

Purpose:

• To enable monies provided by reducing council tax discounts to be earmarked for capital expenditure and to be carried forward for use in a subsequent accounting period if necessary

Level:

The annual income from second homes is currently around £750,000. It is spent on a mixture of large developments and programmes of minor assistance to meet the need for affordable housing. The reserve acts to preserve the funds in the event of slippage: if expenditure matches plans, the minimum balance will be zero. The maximum level should be 25% of the annual income i.e. £250,000 although this could be exceeded in exceptional circumstances where funds are being accumulated over a period of years for a major project.

EARMARKED RESERVES

10. Kendal Employment Development Fund

Purpose:

• To assist economic development in the Kendal area.

Level:

The Fund was set up by a Section 106 legal agreement that made a contribution of £200,000 to the Council with strict conditions on its use. Since grants are paid out from the Fund and its only ongoing source of income is loan repayments the Fund will never exceed the initial contribution. The minimum level is zero.

11. Building Control Fee Income Reserve

Purpose:

• To record surpluses and losses on the trading activities of building control in accordance with statutory guidance.

Level:

Building control operates in a commercial environment with a three year rolling accounting period. Operating surpluses can only be used for investment back into the service. A minimum level of £300,000 debit is specified as (in theory) the Reserve could fall into deficit in the first or second years of the accounting cycle. The maximum level of £300,000 is related to the annual turnover of around £700,000.

WORKING BALANCES

12. General Fund Working Balance

Purpose:

• To provide a general working balance and contingency to cushion the Council against uneven cash flows, sharp budgetary changes and unexpected events or emergencies.

Level:

The level of the Working Balance is set by reference to the risks attaching to the General Reserve. In essence the Working Balance represents the Council’s backstop contingency and its bare minimum reserve that should never be depleted. The level has been £1.0m historically but this was to be increased in £50,000 annual steps to a target level of £1.5m. Due to General Fund underspends in 2010/11 the Working Balance increased to £2.22m. The forecast level at 1 April 2012 is £2.3m and at 1 April 2013 is £2.3m.

13. Housing Revenue Account Working Balance

Purpose:

• To provide a general working balance and contingency to cushion the Housing Revenue Account against uneven cash flows, sharp budgetary changes and unexpected events or emergencies.

Level:

The level of the working balance was set by reference to the risks attaching to the HRA, taking account of its relatively small annual contingency provision. Legislation required the Council to budget to avoid a year-end deficit on the Account and a healthy working balance is a key element in rent setting. Taking these factors and the risks attaching to an activity with a turnover of £11m into account, the HRA aimed for a target working balance of £600,000 within a range of £200,000 minimum to £1,000,000 maximum levels.

The Council sold its entire HRA housing stock to South Lakes Housing in March 2012. Once all required steps have been completed the Council will apply for Secretary of State approval to close the HRA. A significant proportion of the uncommitted element of the balance on the HRA, on closure, will be transferred to the New Homes Bonus Reserve. It is expected this balance will be up to £700,000.

C. CORPORATE CHARGING POLICY

Introduction

Officers and Members should ensure that all relevant issues are addressed when considering the possible introduction of new charges or reviewing current charges. Reviewing charges does, of course, result in politically sensitive issues for Members. Charging is an important and appropriate way of financing services and provides an alternative to council tax in paying for the Council’s services. The Council needs to make its approach and policy on charges clear to the public and explain why it is appropriate to introduce charges or increase charges in appropriate circumstances. This can be achieved by following the principles and processes outlined in this charging policy.

It is also important to recognise that charging is just one aspect of the Council’s overall financial management arrangements and the service and financial planning process. Clearly, Members and management ensure that services are provided efficiently and effectively and that costs are regularly scrutinised and reduced wherever possible. Hence, when new charges are being considered or current ones reviewed, this is in the knowledge that all other steps to mimimise the net cost of the service have been taken.

Issues

The adoption of a strategic approach to charging and questioning the role of charges in the provision of services is very important in terms of the impact on the community and the Council’s financial position. In considering charges, the following questions should be addressed: -

• why are we providing this service?

• who benefits from the service – individuals or the community?

• do we subsidise this service from Council Tax?

• what are we achieving by subsidising it?

• how much do residents and businesses value the service?

• how willing and able are they to pay for it?

• what effect does charging have on the supply and demand for a service?

• how can charging affect behaviour and assist service objectives?

Principles

1. Charges should be considered where only some members of the public benefit from the service provided. The overall principle for charging should be that the “user pays”, and non-users do not support users through Council Tax.

2. Future charging proposals must be judged in the light of the Council’s corporate aims and service objectives and also identify whether charging is an appropriate alternative to Council Tax in paying for the service in question.

3. Charges should be set at levels that, as far as possible, do not preclude members of the public from using or benefiting from a service. Consideration should be given to the ability of individuals, including those of limited means, to meet the charges and benefit from the service available and consistently reflected in agreed charges.

4. Charging arrangements should be efficient and practical and should demonstrate responsible asset management for the benefit of the whole district, i.e. that sufficient income is raised through charges to ensure that the assets employed in providing the services are fully maintained and improved when necessary.

5. Charges can be levied to raise revenue for the general provision/improvement of services, to offset Council Tax rises or to help fund specific projects.

6. Charges can be used to regulate demand and change behaviours where this is appropriate to meet the Council’s aims and priorities.

7. Appropriate use of all additional powers introduced by Government will be considered.

8. Charges should be subject to consultation with users or beneficiaries of the service where appropriate.

9. Charges can be market-led and may be set according to market demand and taking into account competition from other providers of the service.

10. The extent of any subsidy should be determined and charging levels should take account of comparisons with other Local Authorities’ charges and charging policies and the willingness of users to pay for valued services.

Process

1. It is the responsibility of Assistant Directors to ensure reviews of charges are undertaken annually as an integral part of the service and financial planning process. This will involve Assistant Directors and members considering current charges and the potential for new charges in relation to all Council services.

2. Appropriate consultation with service users, potential service users, Council taxpayers and other stakeholders should be undertaken in respect of any proposed significant changes to current charges or in relation to the introduction of significant new charges.

3. All charges need to be consistent with the Council’s corporate and service aims, strategies and service priorities.

4. Where possible, meaningful objectives for charges should be set and these should be viewed over the long term, not just as short-term financial targets.

5. All charging proposals need to be considered each year by Cabinet or relevant service committee. Variations to charges will generally apply from 1 April, and any ‘mid year’ proposals for new or amended charges should be submitted to the Cabinet.

CORPORATE CHARGING POLICY Annex A

1. Objectives of Charge - Set out the principal objective(s) of setting the charge:

• Recover cost of service provision • Generate surplus income (where permitted) • Maintain existing service provision • Fund service improvements or introduction of new service(s); • Manage demand for service(s) • Promote access to services for low-income households; • Promote equity or fairness; • Achieve wider strategic policy objectives (e.g. encouraging green policies);

2. Other factors influencing decisions on whether and how much to charge:

• The Council’s historic approach to charging • The views of local politicians, service users, potential service users and

taxpayers • Other councils’ and service providers approach to charging • Levels of central government funding and policy objectives • The Council’s overall financial position • Changes in demand for services • Policy on Concessions • Availability of powers to charge for discretionary services (e.g. pre application

planning advice) • Central government policy objectives

3. Targeting Concessions - The following target groups should be considered:

• OAPs • Unemployed • Young persons under the age of 18 • Students in full time higher education • Community Groups • Those in receipt of income-related benefits, tax credits, attendance allowance,

disability living allowance and other appropriate groups

4. Trading

The Council is empowered to sell goods or services to other public bodies or trade commercially through a company with non-public bodies. The objectives should be considered for relevant services (including Building Cleaning and Maintenance, Vehicle Maintenance, Grounds maintenance, Legal Services, Human Resources, IT, Payroll, Planning and Development Services) as follows to:

• Deliver services more strategically on an area-wide basis • Achieving greater efficiency • Capitalise on expertise within the council • Utilise spare capacity • Generate income • Support service improvement

5. Value For Money

• Has charging been used as a tool for achieving strategic policy objectives?

• Has the optimum use of the power to charge been used? • Has the impact of charging on user groups been monitored? • Has charging secured improvements in value for money? • Has charging been used as a tool to reduce increases in Council Tax?

6. Means of charging and collecting income:

• Where possible, income should be collected in advance, or at the time, of service delivery

• Consider the cost-effectiveness of income collection – invoicing is a relatively high-cost means of collecting income

• Consider the Council’s Financial Procedure Rules in setting up income collection procedures.

D. EFFICIENCY & VALUE FOR MONEY POLICY

1. Introduction

Value for Money (VfM) is defined as the relationship between economy, efficiency and effectiveness (‘3Es’). Achieving VfM means achieving a balance between all three: relatively low costs, high productivity and valued outcomes.

This is consistent with the duty of Best Value placed on the Council under the Local Government Act 1999 to “secure continuous improvement in the way in which [it] exercises [its] functions, having regard to a combination of economy, efficiency and effectiveness”. This duty has been clarified by the Best Value Statutory Guidance published in July 2011.

The Council recognises its duty of Best Value and its responsibility to achieve VfM in service delivery including economic, environmental and social value provision. It will seek to incorporate VfM principles in delivering services by taking account of costs, quality of services and the local context.

2. Objectives

The Objectives of this VfM Policy are to identify the Principles of VfM and to ensure that these Principles are reflected in the Council’s service planning and delivery.

3. VfM Principles

The Principles of VfM are illustrated in the following diagram:

• Economy is the price paid for inputs (of a given quality) to a service

• Efficiency is the level of productivity (the outputs produced for the level of inputs used)

• Effectiveness is the quantitative or qualitative impact achieved by the outputs.

• Social Value is about seeking to maximize the additional benefit that can be created by procuring or commissioning goods and services, above and beyond the benefit of merely the goods and services themselves.

4. Putting the Principles into Action

To demonstrate VfM, the Council will seek to achieve the optimum balance between the above Principles and strive for continuous improvement in all aspects of service delivery by the following means:

a) Identifying local needs and priorities

We will:

• Recognise the Duty to Consult through the involvement of stakeholders through the use of citizens’ panels, user-satisfaction surveys and other customer feedback

• Identify priorities to meet the needs of our community, both as an individual service provider and a partner, and ensure that these take account of national and regional priorities

• Ensure that community needs and priorities are reflected in our plans and strategies, e.g. Community Strategy, Corporate Plan and Service Business Plans.

b) Securing resources at the appropriate price having regard to the level of quality required

We will:

• Implement our Procurement Strategy to secure the most advantageous combination of price and quality

• Consult, and work in partnership as appropriate with, other public and private sector service providers

• Use all appropriate methods to achieve economies, including e-procurement, joint working, shared services and market testing.

• Ensure that these methods are recorded in our formal procedures, including Contract Procedure Rules, Procurement Code & Toolkit and Financial Procedure Rules

• Restrict any budgetary growth and increases in Council Tax to the minimum necessary to achieve our declared aims

• Strive to attract external funding to supplement our own resources where appropriate

• Ensure that long-term (‘whole life’) costs are taken into account in the acquisition of resources

c) Allocating resources in accordance with agreed aims

We will:

• Ensure that resources are allocated in accordance with our plans and strategies, including our Medium Term Financial Strategy and Annual Budget

• Demonstrate a clear link between our agreed priorities and allocation of resources

• Continuously seek to identify opportunities for increased efficiency without adversely affecting service quality

d) Ensuring services are delivered to meet customers’ needs, utilising the minimum level of resources required and by the most appropriate means, including via partnerships

We will:

• Deliver services in accordance with our Business Plans and Customer Service Strategy

• Monitor cost levels to ensure they are commensurate with agreed service quality

e) Reviewing service delivery to ensure good practice is adopted and to secure continuous improvement

We will:

• Adopt working practices – independently and in partnership – to support the drive for increased efficiency and effectiveness, including promoting the use of electronic service delivery and working with other service providers as appropriate

• Implement our Performance Management Framework to assist in achieving economy, efficiency, effectiveness and continuous improvement in services, including:

- Regularly monitoring performance and ensuring elected Members have quality information to perform the scrutiny function

- Comparing the Council’s performance with that of other similar service-providers

- Challenging our own performance by a variety of methods, for example through service reviews, scrutiny exercises, budget reviews, human resource reviews, compliance with our Corporate Governance Framework, internal audit functions and working with external auditors, inspectors and other agencies. Service reviews will be monitored quarterly through O&S Committees.

f) Undertaking necessary training and development to promoting a ‘VfM culture’ within the Council and its partners

We will:

• Ensure that the structure and processes of the organisation are conducive to the achievement of VfM

• Utilise training & development programmes as appropriate to inform Members and officers and to foster a VfM culture within the organization

5. Responsibilities

While everyone within the Council has a general duty to ensure the Council provides value-for-money services, responsibilities may be summarised as follows:

Body Responsibility

Cabinet Ensuring that the Vfm Policy is adopted and adhered to

Scrutiny Members Holding the Cabinet to account in this duty

Corporate Management Team Ensuring that the Council’s strategic direction is consistent with the contents of this Policy

Assistant Directors and all officers Ensuring that services are delivered in accordance with this policy

SECTION 8: GLOSSARY

Best Value

A general duty for local authorities to demonstrate that they deliver high quality services that provide overall value including economic, environmental and social value.

Budget

A statement defining the Council’s policies over a specified period of time in terms of finance. Budgets usually include statements about the use of other resources (e.g., numbers of staff) and provide some information on performance measures.

Budget Requirement

The estimated revenue expenditure on General Fund services that needs to be financed from the Council Tax and Formula Grant after deducting income from fees and charges, certain specific grants and any funding from reserves.

Capital Expenditure

Spending that will provide benefit over a period of years. This includes spending on the acquisition, construction or improvements of assets (e.g. land, building, vehicles, and equipment) either directly by the Council or indirectly by grants or loans to others. Capital expenditure is defined by legislation: items falling outside of the definition must be charged to a revenue account.

Capital Programme

A schedule of the Council’s capital expenditure plans for a period of several years together with the funds that will pay for that spending.

Capital Receipts

The proceeds from the sale of land or other assets. Capital receipts can be used to finance new capital expenditure within rules set down by the Government, but they cannot be used to finance revenue expenditure.

Until April 2004, the Government set proportions of receipts that were usable for capital expenditure or reserved (set-aside) for debt redemption.

Since April 2004, the majority of Right to Buy sale proceeds are paid to the Government (with certain concessions): the remainder and non-RTB receipts can be re-invested in new capital expenditure, subject to affordability.

Capping

A system of controlling the spending of local authorities whereby Central Government limits a local authority’s budget requirement either because it is deemed excessive or is deemed to show an excessive increase over the previous year. Direct capping by Ministers was replaced for the 2012/13 Council Tax setting process by local referendums if Council Tax increased by more than the amount specified by Ministers.

Comprehensive Area Assessment

CAA was a system set up by the Government to carry out periodic inspections and assessments of local authorities’ performance, resulting in each Council being placed in a grade which is widely publicised. The CAA was abolished by the Coalition Government in spring 2010.

Comprehensive Spending Review (CSR)

The Government sets out its plans for public spending over a three-year period via its Comprehensive Spending Review (CSR). The latest review, CSR10, applies from 202011/12 to 2014/15; it is generally accepted as introducing a very tough regime for local government requiring just under £2bn of savings over four years. The details for individual authorities are fleshed out in the Revenue Support Grant (RSG) settlement.

Contingency

Money set-aside in the budget to meet the cost of unforeseen items of expenditure, or shortfalls in income and to provide for inflation that exceeds that provided in service budgets.

Corporate Plan

A document that sets out the Council’s policies, priorities, objectives and targets for a period of several years. The Plan is reviewed annually.

Council Tax

The main source of local taxation to local authorities, Council Tax is levied on households within the South Lakeland area by the District Council and the proceeds are paid to Cumbria County Council, Cumbria Police Authority, Parish Councils and its own General Fund.

Damping

The damping mechanism ensures that each authority received a minimum cash increase, or maximum decrease, in formula grant each year: for losing councils like South Lakeland, in the past grant was maintained at this ‘floor’ level via redistribution from gaining authorities. Although the distribution methodology was changed in 2006/07, the Council’s grant continued to be protected and for 2010/11 was £107,000 (1.6%) above its calculated level (£270,000 or 4.1% in 2009/10). Now under the formula from April 2010 South Lakeland moves from being protected by the floor arrangements to contributing to the floor protection of other authorities

Debt Charges

A term for the interest paid on loans raised and repayments of principal. Also known as capital financing costs or loan charges.

Debt Free Status

South Lakeland had no long-term external debt between December 2002 and March 2006. Until April 2004 this, together with other conditions set by statute, gave it certain concessions regarding the amounts of capital expenditure that it could finance from capital receipts. Other than a transitional benefit, this concession largely disappeared with the introduction of the Prudential Regime.

Direct Revenue Financing

See Revenue Contributions to Capital.

Estimates

The amounts which are expected to be spent, or received as income, during an accounting period. The term is also used to describe detailed budgets, which are either being prepared for the following year, or have been approved for the current year.

External Audit

The independent examination of the activities and accounts of local authorities to ensure the accounts have been prepared in accordance with legislative requirements and proper practices and to ensure the authority has made proper arrangements to secure economy, efficiency and effectiveness in its use of resources. Currently Council’s external auditors are

the Audit Commission. The Government have announced the Audit Commission will be abolished after the 2011/12 audit process.

Fees and Charges

Income raised by charging users of services for the facilities. For example, local authorities usually make charges for the use of leisure facilities, car parks, planning, building regulations, collection of trade refuse etc.

Financial Procedure Rules

A written code of procedures approved by the Council as part of its Constitution, intended to provide a framework for proper financial management. These usually set out rules on accounting, audit, administrative procedures and budgeting systems.

Formula Grant

Formula Grant is un-earmarked assistance from the Government towards the Council’s revenue expenditure. It comprises two elements; Revenue Support Grant and Non-domestic rates redistributed from the national pool. In 2003/04 the method of distribution changed and South Lakeland was a major loser in the new system although it received limited protection by means of a damping mechanism.

Although higher spending needs of sparse areas are recognised to an extent, the grant mechanism tends to favour deprived areas of the country. In addition, South Lakeland believes that its needs as a tourist destination are not properly represented in the grant calculations. The Government has changed the way the grant is calculated to take greater account of relative needs and reduce the proportion allocated to basic costs.

From April 2013 Formula Grant will be replaced with the localisation of business rates.

Fund of Revenue Monies for Capital Purposes

A reserve set up by the Council by contributions from the General Fund revenue account to provide additional funds to supplement its capital programme and to meet one-off spending associated with capital schemes that fall outside the definition of capital expenditure in legislation.

General Fund

The main revenue account of the District Council. Day-to-day spending on services is met from the fund. Spending on the provision of Council housing, however, must be charged to a separate Housing Revenue Account.

Efficiency Reviews

Following its Gershon review, the Government set up a three-year initiative to demonstrate that councils are making efficiency savings in the delivery of their services. These savings could be cashable or non-cashable. An annual target level of savings was set (2.5% for 2005 to 2007): the Council had to submit plans to show how they will be achieved and subsequently account for their implementation. The Gershon programme was superseded by a further requirement to make targeted cashable savings of 3% pa for the years 2008 to 2009 and 4% for 2010. The Government has scrapped the requirement to measure efficiency savings but the financial settlement for local government assumes Council’s will continue to concentrate on efficiency as a means of saving money. The Government’s Open Public Services White Paper sets out its vision on how this can be achieved.

Gross Expenditure

The total cost of providing the Council’s services before taking into account income from Government grants and fees and charges for services.

Growth

Any increase in spending from one year to another which enables the Authority to pay for more services (staff, goods, etc) rather than to meet higher costs.

Growth items are also referred to as investment or service development items. Proposals for growth are subject to a competitive bidding evaluation process to assess their contribution to corporate outcomes or statutory/health and safety requirements before being considered for inclusion in the revenue budget.

Housing Revenue Account (HRA)

Local authorities are required to maintain a separate account – the housing revenue account – which sets out the expenditure and income arising from the provision of Council housing. The costs of all other services are charged to the General Fund.

Interest and Investment Income

Surplus cash funds held by the Council (reserves, balances, set-aside capital receipts) are invested in order to earn interest that is credited to its revenue accounts.

Internal Audit

An independent appraisal function established by the management of an organisation for the review of the internal control system as a service to the organisation. It objectively examines, evaluates and reports on the adequacy of internal control as a contribution to the proper, economic, efficient and effective use of resources.

Leisure Trust

The Council’s leisure management activities are operated by an autonomous organisation, Lakes Leisure. This Trust enjoys certain financial and other benefits that would not apply to the Council.

Local Authorities Business Growth Incentive (LABGI) Scheme

In 2005/06 the Government introduced a scheme whereby a proportion of business rates generated by increases in rateable values in an area beyond specified thresholds is returned to the principal authorities in that area based on a premise that economic development activity by the authorities will have stimulated the growth. The scheme was initially for a three-year trial period, later extended, and the distribution of monies was made as general grant with no conditions attaching to its use. The Coalition Government has scrapped the scheme.

Net Expenditure

Gross expenditure less specific services income, but before deduction of revenue support grant.

Outturn

Actual income and expenditure in a financial year.

Provisions and Reserves/Funds

Amounts set aside in one year to cover expenditure in the future. Provisions are for liabilities or losses which are likely or certain to be incurred, but the amounts or the dates on which they will arise are uncertain. Reserves are amounts set aside which do not fall within the definition of provisions and include general reserves (or ‘balances’) which every authority must maintain as a matter of prudence.

Procurement

Procurement is the process of acquiring goods, works and services, covering both acquisition from third parties and from in-house providers. The process spans the whole cycle from identification of needs through to the end of a services contract or the end of the useful life of an asset. Procurement involves obtaining best value for money by choosing the option that offers the optimum combination of whole life costs and benefits to meet the customer’s requirement.

Prudential Regime/Prudential Code

Until 31 March 2004, local authorities’ capital spending was controlled by Central Government, largely by limiting their borrowing. In April 2004 the Government introduced a new prudential system for capital finance. As well as using capital receipts and revenue monies to finance capital expenditure, Councils can now borrow up to limits set by themselves so long as their decisions can be shown to be affordable and prudent. The system is governed by a statutory code which local authorities are obliged to follow.

Reserves

See Provisions and Reserves

Revenue Contributions to Capital

Resources provided from an authority’s revenue budget to finance expenditure on capital projects, frequently as a ‘top-up’ to other capital resources. Also known as Direct Revenue Financing (DRF).

Revenue Expenditure/Revenue Account

Running costs, including employees, premises, supplies, services and debt charges. These are recorded in revenue accounts together with income from Government grants, fees and charges.

Revenue Support Grant (RSG)

A grant paid by Central Government to aid local authority services in general, as opposed to specific grants, which may only be used for a specific purpose.

Grant is distributed to Councils based on the Government’s assessment of their spending needs. This is determined by a set of formulae that reflect factors such as population, geography, deprivation and economic characteristics.

Where a Council’s entitlement falls, a floor mechanism moderates the total reduction, for 2011/12 the maximum possible drop in grant is 13.5%.

Right to Buy (RTB)

A Government scheme whereby tenants of Council houses are offered incentives to buy their homes. The sale proceeds represent capital receipts for the Council.

Spending Power

Term introduced by the local government finance settlement in December 2010 to take into account other sources of fund when comparing government grant allocation between authorities. Spending power is the total of Council Tax, formula grant, specific grants & NHS spending to support social care & benefit health.

Treasury Management

Management of the Council’s cash flow, borrowing and investments, governed by agreed policies and annual statements.

Value for Money (VFM)

A much-used term that describes a service or product that demonstrates a good balance between its cost, quality and usefulness to the customer. A VFM audit takes into account the economy, efficiency and effectiveness (known as the ‘three Es’) of a local authority service, function or activity.

Zero Based Budgeting

An approach to building budgets up from scratch which is essential when creating a new budget and useful when reviewing budgets or calculating estimates for periodic and ad hoc income and expenditure. Under this approach, estimates are constructed on the basis of the individual activities the authority plans to enter into and the particular revenues it expects to generate.

SECTION 9: APPENDICES AND KEY SOURCE DOCUMENTS

APPENDIX

1 General Fund Revenue Budget 2011/12 – 2016/17

2 General Fund: Forecast Financial Reserves 2011/12 – 2016/17

3 General Fund: Risk Assessment of Reserves

4 Medium Term Financial Forecast: General Fund summary 2012/13 – 2016/17

5 Housing Revenue Account Projections: 2011/12 – 2012/13

6 Capital Programme Summary

7 Capital Prioritisation Criteria

8 2010/11 Budget Process - 5 Year Savings and Growth Proposals

9 Financial Factors relevant to the Plan & Impact of Scenarios

10 Medium Term Financial Plan Risk Matrix & Opportunity Matrices

11 Key Elements of the Council’s Financial Management Framework

KEY SOURCE DOCUMENTS

SLDC Documents:

5 Year Strategy (December 2010)

Corporate Plan 2012 – 2016 (February 2012)

People Strategy & Workforce Development Plan (February 2010)

Procurement & Commissioning Strategy 2010-15

Revenue Budget and Capital Programme 2012/13: Reports of Assistant Director (Resources): Cabinet, Joint O&S Committee & Council December 2011, January & February 2012

Constitution: Financial and Contract Procedure Rules (Part 4)

Treasury Management Policy

Treasury Management Plan 2012/13 (March 2012)

‘Financial and Performance Snapshot’ report of Anna Capaldi, Consultant (November 2004)

External Documents:

‘Delivering Efficiency in Local Services’: ODPM Initiative (Gershon Review)

Open Public Services White Paper: HM Government (July 2011)

Localism Act 2011

Best Value Statutory Guidance: DCLG (July 2011)

Local Government Finance Bill and associated documents

Spending Review 2010: HM Treasury

Autumn Statement 2011: HM Treasury

CIPFA Documents:

Prudential Code for Local Authorities

Guidance on Local Authority Reserves and Balances (February 2003)

After the Downturn: Managing a significant and sustained adjustment in public sector funding (December 2009) (with SOLACE)

Rebalancing the Public Finances: the end of the beginning (October 2010) (with SOLACE)

A Practical Guide for Local Authorities on Income Generation (2011)

Audit Commission Documents

Positively Charged: Maximising the benefits of local public service charges (2008)

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