Medium Term Financial Forecast

2007/08 – 2009/10

Budget Strategy Consultation Document

Contents

Introduction	Page 3
1. Background	Page 4
2. Financial Context	Page 6
3. Priorities for Investment	Page 9
4. Mitigating Risks and Pressures	Page 12
5. Value for Money and Efficiency	Page 14
6. Issues and Choices	Page 16
7. Outline Budget Strategy	Page 19
8. Next Steps	Page 21
Appendices

Medium Term Financial Forecast 2007/08 – 2009/10

Budget Strategy Consultation Document

Introduction

We are a fast-improving council (Audit Commission 2005), with big ambitions for our communities. We currently provide a huge range of services, many of which touch the lives of our residents every day, and will spend over £300M this year and employ over 7000 staff. However, the council is constantly working to ensure its services meet the needs of the people it serves while providing value for money.

The Council will set its 2007/08 budget in February 2007. This document has been produced at this early stage of the process as a basis for an informed debate on the issues and choices facing us in setting that budget.

Priorities and funding decisions always mean difficult choices. Feedback is essential contribution to the debate about improving services while keeping tax down.

We are keen to listen and ready to improve.

This document aims to:

· Explain the key financial issues affecting the council

· Set out the timetable for budget decisions

· Outline the initial budget strategy used by the council’s Executive

· Invite comment and debate

To do so it is structured into the following sections:

1. Background information

2. Financial context

3. The council’s priorities for investment

4. Mitigating risks and pressures – how the council will use its budget to manage the considerable risks and pressures it faces in providing services

5. Value for money and efficiency

6. Issues and choices

7. Outline budget strategy – taking into account all of the above, how the council’s Executive is approaching this budget process

8. Next steps – key dates for decision-making and public consultation

Section 1 - Background

The council, together with partner organisations (including the police, health and others) has developed a long-term strategy to guide the district’s development and help improve public services. In preparing this strategy much work was done to ask residents and groups to identify what they thought the area should look like by 2025.

The result is a shared ‘Community Strategy’ for North Somerset, setting out the long-term priorities for the area over the next 20 years. You can download a copy of the community strategy from http://www.northsomersetpartnership.co.uk/

The council shows how it will use its people and financial resources to help deliver this long-term vision through its own corporate plan. The council’s corporate plan sets out our aims and priorities over a 3-year period, and shows how we plan to redirect resources, where possible, to focus on the issues that are most important. In turn this influences individual service and team plans, and even individual staff appraisals. We call this our Performance Management Framework. This framework ensures that all staff in the council are focused on delivering priorities.

It is has been recognised for some considerable time that North Somerset Council is a low spending, low funded authority, and with fast growing demands for services such as adult care, the pressure placed on the revenue budget is extreme.

Analysis on the budgeted cost of services provided by North Somerset Council in 2006/07 on a per head of population basis with other unitary authority groups clearly demonstrates this point .

	NSC	Nearest Unitary Neighbours	All Unitary Authorities
Gross spend per head	£1,201	£1,323	£1,406
Govt funding per head	£208	£243	£337

If the Council was to receive funding at the level of our nearest unitaries, we would receive an additional £7million to invest in services, or opt for a 9% decrease in council tax bills.

Section 2 - Financial Context

This section sets out the short and medium-term financial context.

For 2006/07 the council set a budget with a council tax rise of 4.9%. The budget featured:

· An increase in net revenue spending of 6.2%

· Extra spending on adult care services due to rising demand and the cost of care in the community services increasing.

· £1.9m efficiency improvements, meeting the ‘Gershon’ targets set out by Government for all councils.

· An increase in funding for schools of around 6.7%, through the new, ringfenced, Dedicated Schools Grant from central government.

· Reductions in spending on most services, despite high levels of cost inflation.

· A capital programme of £22.5m, within which the major projects were for customer access, schools, transport and affordable housing.

· Just over £1m of reserves were used to support the 2006/07 revenue budget.

At the time of preparing this document, the Council is projecting a slight overall overspend on its revenue budget, due to three principal factors:

· Demand for care in the community (notably home care) in excess of budgeted increases (overspend of c£1M)

· An unexpected reduction in the amount of household waste to be disposed of (underspend of c£400k)

· An increase in interest income receivable, due to the combination of higher interest rates and delayed capital spending (underspend of c£500k)

For 2007/08 the outlook facing the council is reasonably clear:

· For the first time, the Government has issued a 2-year grant settlement which provides greater certainty of resources in 2007/08.

· The Government has also indicated that it expects the average council tax rises not to exceed 5% in 2007/08, thus effectively setting a maximum amount of council tax income.

· The overall financial position for local government for the next 2-3 years is now reasonably clear; and further changes are extremely unlikely prior to any changes made as a result of the Lyons Inquiry*.

*: The Lyons Inquiry is an inquiry established by the Government to consider the case for change to the way local government is funded, including the possible reform of council tax.

The following table sets out the main features of the financial landscape and context affecting North Somerset:

National Features	Local Features
The Comprehensive Spending Review planned for 2007 will be set within existing national spending limits The Government’s intention to cap to avoid “excessive” rises in council tax The “Gershon” agenda for efficiency and value for money is likely to be extended The new grant system provides stability but appears to be merely a “sticking plaster” pending the Lyons Inquiry results	The council tax rise for 2006/07 is low compared to recent years but still twice the rate of inflation The short-term revenue benefit of the Housing Stock transfer will diminish gradually Non-earmarked reserves are above the recommended level The Council is, to date, achieving its Gershon targets The Council is experiencing significant demographic, demand and other financial pressures

Government grant figures already announced for 2007/08 are:

· An extra £951k of Formula Grant (the new name for Revenue Support Grant and National Non-Domestic Rates) which is an increase of only 2.3% and will mean considerable pressure on service budgets for 2007/08.

· The council’s grant entitlement will actually be £1.1M more, but the Government will withhold this sum under its “ceiling” arrangements to protect councils with declining grants.

· An extra £5.7m of Dedicated Schools Grant which will mean an average increase of around 6.4% in schools’ budgets.

Beyond 2007/08 the outlook is much less clear. Announcements are awaited on:

· The outcome of the Government’s latest Comprehensive Spending Review, which sets spending budgets for public services nationally. The Treasury’s message to date is that public spending growth will be limited to that of the economy generally, and that there will be little or no “new” money for services provided by local government.

· The outcome of the Lyons Inquiry into the financing of local government, expected at the end of 2006. It is now thought to be unlikely that Lyons will recommend any radical changes and it may be some time before even minor changes are reflected in legislation. This is unsatisfactory, given the comments made by the council to the Inquiry:

a) With Council Tax rises averaging up to 5% per annum, affordability is a keen issue for the higher than average proportion of elderly people within North Somerset whose incomes are rising at a lesser rate than those of employed people;

b) There is a significant number of people within the above group who are “capital-rich but income-poor” and for whom Council Tax benefit does not provide assistance;

c) The basis for valuation of Council Tax is now 15 years old and bears no resemblance to current property values;

d) There is a lack of understanding of local government finance amongst the public, and specifically confusion about the respective roles and powers of local and central government.

· The Local Government White Paper, which could potentially result in significant changes to the functions and organisation of local government, both in terms of the services it provides and the way it is funded. Government says that it expects to publish the White Paper during ‘Autumn 2006’.

With a continually rising population, rising customer expectations and rising costs, the implication for North Somerset is (except for schools) for continued small increases in funding, with real terms reductions in spending on most services.

The budget process for 2007/08 commenced earlier this year, with a series of budget planning principles being adopted by the council’s Executive. While the scale of financial pressure is severe, the council has the ability to steer its budget process towards a successful outcome through early planning and by maximising its opportunities.

In brief, the planning principles are:

· Council tax – to assume a rise in council tax of no more than 5% and to seek options for lower rises

· Revenue – Aim to achieve council-wide efficiency savings of at least £2m to help minimise council tax increases

· Reserves - to reduce the level of reserves from £10M to £7M no later than March 2009 by:

Ø Using reserves to avoid the need for unsupported borrowing

Ø Smoothing the impact of ex-Housing Revenue Account costs on the General Fund (in so far as costs are fixed in nature and cannot be shaken out)

Ø Unlocking future resources (for example through “invest-to-save”, developing VFM skills and processes, and preparing for the Local Area Agreement)

Ø Investing in ‘improvement priority’ services, especially those facing significant financial pressure

· Capital – to maximise opportunities for investment through pooling of resources and seeking external funding wherever desirable; while avoiding the use of “unsupported borrowing” (which places a strain on the revenue budget)

· Improve further the awareness of officers, members, partner organisations and the public of the financial position facing the council, and the choices necessary

· Pay specific and detailed attention to the council’s most significant spending pressures – waste disposal, adult social care, pay and pensions – in order to manage carefully, and alleviate where possible, the impact on the council’s overall budget.

Section 3 - Priorities for Investment

The council has made real progress towards delivering on our corporate priorities and the broader objectives set out in the Community Strategy. However, we are aware that there is more to be done. With an increasingly challenging financial position the council has to be very clear about what its priorities are and what they are not, in terms of the services we provide. As part of the review process for the corporate plan this year, we identified seven priorities on which we will focus our improvement efforts over the next two years. By putting additional focus on these priorities we will provide sufficient capacity to further improve our performance and ultimately improve customer satisfaction.

Our improvement priorities for 2006–08 are:

Ø Improve transport infrastructure

Ø Reduce alcohol and drug misuse and violent crime

Ø Reduce anti-social behaviour

Ø Increase public reassurance

Ø Continue to improve customer services across the council

Ø Continue to improve communications and community involvement in council decision making

Ø Continue to achieve better value for money and more effective service delivery

Given the constraints on the revenue budget, as shown in section 6 : Issues and Choices below, the council will strive to consider whether it can take advantage of new funds, such Local Area Agreement or housing transfer receipt funding, to help it deliver on these priority areas.

Improvement Priority	Planned Investment and Sources of Funding
Improve transport infrastructure	ü Through our Local Transport Plan we will invest over £2m in roads maintenance, bridges and footway maintenance in 2007/08 ü We will also be investing up to £270k to help us prepare bids to Government for funding for major transport improvement schemes in the area. Sources include our Capital Programme, reserves, Planning Delivery Grant and Section 106 developer contributions
Reduce alcohol and drug misuse and violent crime	ü We will use £150k of Health Awareness Standards Fund and Healthy Partnerships Funding from Government to develop advice and guidance for young people to help them avoid alcohol and drug misuse ü By bringing together funding streams for Drug and alcohol treatment and commissioned services, and making better use of the local voluntary sector, we plan to make efficiency savings, which will help us to meet the ever-increasing demand for these types of services. We will be investing £675k through our Supporting People Service alone ü We will build upon this work by focusing existing resources through the LAA, especially on alcohol related crime issues ü We will introduce accreditation for dry houses and alcohol related accommodation, funded through existing partnership funding streams
Reduce anti-social behaviour	ü We plan to develop and improve our youth services over the next two years, using Youth Opportunity Fund and Youth Capital Grants of £400k, £780k of Standards funding and £500k of Education Welfare Service funding ü We will increase the number of areas covered by CCTV surveillance systems, investing £100k from the funding received from the sale of council housing earlier this year ü We will invest £200k to renew children’s play areas across North Somerset, and a further £300k to deliver 5 new multi games areas across the district. This will also be funded from the money received from the sale of council housing
Increase public reassurance	ü We plan to introduce Houses of Multiple Occupation (HMO) licensing, which will generate additional income for the council and will also provide more robust management and quality assurance information on privately rented properties ü Our Care Connect service for older people will be expanded to provide referrals on fire safety issues, blue badges, trips and falls, health promotion information, Carelink and Telecare services
Continue to improve customer services across the council	ü We will invest, through our Asset Management Plan, to increase the percentage of our buildings that are suitable and accessible for disabled people ü We will invest nearly £20k in customer care training during 2007/08 for our staff ü We plan to invest around £200k to improve the range of council services that are available through the councils website ü We plan to invest more than £600k from our capital programme in 2007/08 to improve the standards of service provided through the council’s customer service contact centre arrangements ü We will extend direct payments and self-directed care management initiatives throughout the community, giving people more personal choice about the types of assistance and care they receive. We currently invest around £1m a year in this area of care provision
Continue to improve communications and community involvement in council decision making	ü We will improve the circulation of our community magazine, North Somerset Life, so that more households receive it, and ensure 12 editions a year are produced ü We will improve our arrangements for consulting children and young people on key issues relating to the council, setting up regular survey mechanisms through our schools ü We will put in place comprehensive arrangements for involving stakeholders in the development of a corporate strategy for older people
Continue to achieve better value for money and more effective service delivery	ü We have already set up a ‘Value for Money Team’, who have been tasked to lead more than 20 reviews, aiming at improving the efficiency of the council, and reducing costs. This has been funded for 2 years through the use of council reserves ü We will reduce our maintenance backlog for council buildings through a programme of planned investments over 2007/08, totalling around £1m ü We will improve our Human Resources/Payroll functions and systems, which will deliver efficiency savings

Section 4 - Mitigating Risks and Pressures

The budget provides the opportunity for the council to reflect on these demands and risks, make some clear decisions about whether to, and how best to address these issues, and understand the financial result of these decisions.

For 2007/08 the Council is facing significant cost inflation, far in excess of that in the Retail Prices Index. This arises from:

· Staffing – increases in employers’ pension contributions and increments

· Contracts – in some areas of the Council’s spend the Council is contractually committed to reimbursing contractors for their cost increases – examples are highways maintenance and home to school transport where labour and fuel costs have risen sharply; another example is rising residential and nursing care fees

· Energy – like all users, the Council has experienced steep increases in energy bills

North Somerset has a growing population and notably an increasingly elderly population. The numbers of people meeting criteria for residential, nursing and home care have all risen over time, and sharply recently which could be associated with changes in local NHS provision. The Council continues to work in a robust but collaborative way with local healthcare providers to ensure that the Council’s interests are safeguarded.

Pay and pensions – the total cost of employing staff has risen sharply in recent years, due to pay agreements and increasing employers’ pension contributions. For 2007/08 total costs are due to