BUDGET 2016-17 AND MEDIUM TERM FINANCIAL PLAN 2016-20

 

To:                               Extraordinary Cabinet – 28 January 2016

Cabinet - 19 January 2016

 

Main Portfolio Area:    Financial Services and Estates

 

By:                               Portfolio Holder for Finance and Estates

 

Classification:              Unrestricted    

 

Ward:                          All wards

 

 

Summary:                  To present the budget strategy for the General Fund, Housing Revenue Account and Capital Programme for 2016-17 and the Medium Term Financial Plan for 2016-20

 

For Decision

 

 

1.0          INTRODUCTION

1.1          The purpose of this report is to present the Budget for 2016-17 and financial projections for the following years up to 2019-20.

2.0          EXECUTIVE SUMMARY

2.1          This report finalises the funding position for 2016-17 based on the Autumn Statement and subsequent Local Government Financial Settlement.  It also sets out budget pressures and service priorities that are reflected in setting the 2016-17 budget.

2.2          The Medium Term Financial Plan (MTFP) is rolled forward to cover 2016-20 with updated assumptions where appropriate. It also reflects savings themes to manage the future financial position.

2.3          A review of the Council’s reserve holdings has been undertaken. The proposed reserve balances are considered to be adequate for supporting the Council’s ongoing needs and plans.

2.4          The budget assumptions for the Housing Revenue Account are outlined within the report and the proposed Housing Revenue Account balance is considered to be sufficient to support the 30 year HRA Business Plan.  The proposed Housing Revenue and Capital budgets were presented to the East Kent Housing Tenant Board for consultation and comment on 14 January 2016. 

2.5          The capital programme is dependent on the Council’s ability to generate capital receipts or to support borrowing to fund the programme. The programme within this report reflects health and safety requirements, Council priorities, and schemes that will generate a revenue saving.

 


 

3.0          GOVERNMENT FUNDING AND COUNCIL TAX

3.1          When drawing the budget proposals together, the Council needs to consider its various government funding streams. These are detailed below.

Business Rates Retention

3.2          The Government introduced a new Business Rates Retention Scheme from 1st April 2013. The scheme provides an incentive to councils to grow their local economy by allowing them to retain a proportion of the business rates collected. In return, authorities also now share the risk of a fall in rate yield, subject to a safety net mechanism.

 

3.3          A baseline 2013-14 funding level was established by the Government for each authority. The baseline is increased annually by a standard formula.

3.4          Authorities whose business rates grow above the baseline are able to retain a proportion of that growth in revenue (after paying a levy to HM Treasury), while those whose rates decline or grow at a lower rate experience reduced or negative growth in revenue (subject to the operation of a safety net).

3.5          The national scheme requires the first 50% of any new business rate yield goes to the Treasury with the balance being split 80% to the district and 20% to the county and major preceptors. The safety net mechanism ensures that no authority’s income falls by more than 7.5% of their baseline funding level.

3.6          Following a court ruling in January 2015 on the method of valuation of purpose-built GP surgeries, substantial reductions to rateable values had to be implemented, with subsequent overpayments being backdated to earlier periods. As a result the Council’s share of the provision for appeals was increased by £1.472m, with £1.197m of this increase being funded by central government, the balance having been set aside as part of the 2014-15 accounts.  

3.7          Forecasts on business rate income should be treated with caution as they are subject to volatility due to the closure of businesses, appeals, changes in valuation methodology applied and unforeseen changes.

3.8          During 2015-16 the Council joined with other Kent authorities in operating a business rates retention pool and this arrangement is continuing for 2016-17. This area is highly volatile but indications are that this arrangement could lead to additional retention of around £200k per annum.

3.9          A recent announcement from the Chancellor advised that Councils are to retain all locally raised business rates by the end of the decade under local government reforms.  The changes will also end the distribution of core grant from Whitehall to town halls. This decision will inevitably impact on MTFP assumptions and as more details emerge as to the potential financial impact of this change, they will be reflected in the MTFP.

Local Government Settlement Funding

3.10       Prior to the 2015 government announcement, the MTFP assumed further cuts of 40% across all funding sources from Central Government for 2016-20. The Council has faced significant cuts in funding over a number of years, this has seen Thanet’s net revenue budget reduced by around 30% from 2010-11 to 2016-17.  The 2015 Financial Settlement for 2016-17 indicates that the comparable level of government funding will be as set out in Table 1 below paragraph 3.20


Housing and Council Tax Scheme Administration Grant  

3.11       The Council receives grant funding to cover the administration costs associated with the Local Council Tax Support and Housing Benefit schemes. This grant funding is proposed to be reduced by £241k for 2016-17.

Ø    DWP Housing Benefit Admin Grant – Indicative allocations have been made available identifying a reduction in this grant of £197k, this being the removal of Fraud funding along with 6% targeted efficiencies.

Ø    CLG Localised Support for Council Tax Administration Grant – As yet this allocation has not been made available, however it is assumed that this will see a reduction in allocation of around £44k.

Council Tax Reduction Scheme Funding

3.12       The CTRS was introduced from 1st April 2013 to replace the Council Tax benefit system. The scheme is localised, although there are a number of criteria that are nationally determined.

3.13       The CTRS is under a three year agreement with KCC, and 2015-16 is the last of the three years.  However, in view of the significant time constraints in devising and implementing a new scheme for the financial year 2016-17, as well as the yet unknown impact on claimants of national welfare changes, major preceptors and districts. It has  recently been agreed to extend the existing scheme for one year.

3.14       During the financial year 2016-17, it was agreed that a full review of the common scheme and other tailored schemes across Kent would be undertaken for a new scheme to be implemented from 2017-18.

Council Tax Base adjustments for minor preceptors

3.15       The Council shares the Revenue Support Grant (RSG) with parish councils to reflect that parishes do not have direct funding for Council Tax support and a reduced tax base.  This was paid at the level of £145k in 2015-16.  It is proposed that the level of this support should be reduced by the commensurate reduction in Council RSG funding and should therefore be £130k.

Council Tax and Collection Fund

3.16       There is an assumed 1.97% increase in the council tax that will be levied in 2016-17.

3.17       Council Tax base for 2016-17 is 1.6% higher than the 2015-16 level and a 2% increase is expected for future years.  This reflects the continuing efficiency of shared service arrangements for council tax collection, the operation of the Council Tax Reduction scheme and the increase in the number of households.

3.18       The Council Tax requirement for the Council’s own purposes for 2016-17 (excluding Parish precepts) is £8,712k. This is determined after taking into account the Council’s allocation of business rates, revenue support grant and the Council’s share of the Collection Fund surplus.  The Council Tax Base is the number of properties within the District adjusted to account for different valuation bands, various discounts and an assumed collection rate. The assumed collection rate for 2016-17 is 97.25%, which is the same percentage used in 2015-16.

3.19       Each year the Council Tax is calculated based on assumed levels of collection rates. At the end of the year any surplus achieved in the collection fund is available to be shared proportionately between the Council and major preceptors.  It is expected that a surplus will be achieved in 2015-16 of which £163k would be available in 2016-17.

3.20       Taking into account all the above, the overall funding position is illustrated in Table 1 below:

TABLE 1 – EXTERNAL FUNDING

2016-17 Revised

£m

2017-18

 

£m

2018-19

 

£m

2019-20

 

£m

Council tax

8,712

9,063

9,429

9,809

Revenue Support Grant

2,460

1,446

809

98

Non-Domestic Rates Baseline

4,630

4,716

4,855

5,010

New Homes Bonus

2,921

2,899

2,850

2,934

Business Rate Retention

200

200

200

200

Council Tax Collection Fund

163

100

100

100

19,086

18,424

18,243

18,151

 

4.0          MEDIUM TERM FINANCIAL PLAN 2016-20

4.1          A  Medium Term Financial Plan (MTFP) was approved by Council in February 2015, covering the period 2015-16 to 2018-19. In the light of the continuing unprecedented economic climate in which the Council finds itself, this document has been reviewed and updated, not only to reflect the external environment, but also new developments and changes to internal policies and practices. The revised MTFP covering the period 2016-17 to 2019-20 is shown at Annex 1. It captures what is expected in terms of funding opportunities and the general economic environment for the next four years against what the Council foresees as its budgetary demands, as a result of inflationary and other pressures. It presents outline financial plans that show what the Council intends to do in order to deliver its statutory services and priority discretionary services whilst continuing to deliver its key financial strategies. The plan addresses the assumptions used in the budget calculations, the risks that could have an impact on future financial standing and the degree to which the budget models are sensitive to change. 

4.2          Where future years’ figures have been referenced in the text below, these have all been prepared based on the strategies and assumptions that are laid out in the MTFP at Annex 1.

4.3          Future years challenges and opportunities centre around the following 3 consultations that this Government will undertake in relation to future funding arrangements:

Ø    Consultation on the future of New Homes Bonus (NHB) and the period for which this will be paid– Currently NHB is paid in arrears for a period of 6 years. Although this government has guaranteed the future of NHB.  It is intending to consult amongst other things, on the period for which this would be paid.  For example, if NHB were to be paid for four years instead of six (the preferred Government option), it is estimated that without replacement funding, this could see a loss in the region of £900k per annum from 2017-18.

Ø    Consultation of the future of Business Rates – Government is looking to vary the current methodology around Business Rate retention, moving to 100% being retained by Local Authorities and with it, the potential for self financing.  This will present opportunities, as in principle Local Authorities will not be reliant on Central Government, but will also bring with it additional responsibilities and therefore challenges. More will be known when full consideration is given to the pending consultation.

Ø    Welfare Reform To date there has been minimal impact from the proposed welfare reforms. However, future changes will potentially impact on both the Housing Revenue Account and General Fund.  This will need to be closely monitored in order to manage the impact on increased bad debt; an increase in demand for smaller or cheaper accommodation; an increase in demand for debt management advice and possible increases in homelessness.

5.0          THE GENERAL FUND RESERVE ACCOUNT.

5.1          The Basis of the 2016-17 General Fund Revenue Budget

5.2          The following budget strategy has underpinned the development of the General Fund Revenue Account:

Ø    To adequately resource the Council’s statutory services and the corporate priorities as set out within the Corporate Plan.

Ø    To maintain a balanced General Fund such that income from fees and charges, Council Tax and Government and other grants is sufficient to meet all expenditure.

Ø    To keep Council Tax increases as low as possible to avoid a local referendum, subject to a satisfactory level of Government grant.

Ø    To maximise the Council’s income by promptly raising all monies due and minimising the level of arrears and debt write offs, so as to optimise its treasury management potential.

Ø    To engage local residents in the financial choices facing the Council.

Ø    To minimise the impact on the general public and business communities from charges levied by the Council as set out within its approved fees and charges.

By following these principles it has been possible to draft a budget that is sufficient to meet the Council’s day to day needs, as well as enable its priorities as set out within the Corporate Plan to be progressed.

5.3          Budget Consultation

5.4          A total of 617 responses have been received in respect of the budget consultation.  The responses have highlighted the top 5 priorities as being recycling and waste; street cleansing; community safety; environmental health and parks and open spaces.  These areas, which significantly overlap with the Council’s corporate priorities, have been protected from budget cuts wherever possible in recognition of their importance to Thanet’s residents.

5.5          Development of the Budget

5.6          The Council’s adjusted opening net base budget of £19.631m is the starting point for future budget proposals.

5.7          Given the economic context in which the Council finds itself, the overarching approach to developing the budget is to keep budgetary growth to a minimum to reduce the need to find compensating savings in order to deliver a balanced budget.

 

6.0          Budget Pressures

6.1          Reduced Government Funding The Financial Settlement announced for Thanet on 17

December reflected a reduction in allocation of 14.8% in Settlement Funding Assessment as compared to current funding levels.

 

6.2          Inflation and Pay– Included within this category is an allowance for inflation and an amount to support the Pay for Contribution scheme, totalling £419k.

 

6.3          Insurance – The new insurance contract is currently under consideration and a review of risk has resulted in an anticipated increase in premiums/excess/self-insurance to the value of £100k.

 

6.4          Changes in Accounting Treatment – Changes in the way in which we account for the Homelessness and Council Tax Base adjustments for minor preceptors elements of the Settlement Funding have resulted in notional growth of £256k.

 

7.0          Budget Savings

7.1          Given the above budget pressures, it is necessary to identify a range of savings and these are set out below

7.2          Net Impact of Past Year Adjustments – Offsetting agreed past year pressures against targeted past year savings results in a net saving being carried into 2016-17 of £281k.

7.3          East Kent Services (EKS) Fee – Negotiations with EKS have resulted in a £150k reduction in the management fee, to be delivered through a range of efficiency measures.

7.4          Organisational Efficiencies – Through closely scrutinising service budgets, identifying cost control and reductions and targeting smarter and more innovative service delivery models, it is anticipated that a saving of £440k can be achieved.

7.5          Asset Management – A review of asset management will aim to maximise the potential of the portfolio and will include a review of the number and condition of assets. In addition to informing the asset disposal programme, it is estimated to generate savings in revenue costs of £100k.

7.6          Parish/Events Funding – A review of the level of grants to parishes, including Events funding and Floral Grants, will contribute £56k to the budget pressures.

 

8.0          Fees and Charges

8.1          Fees and charges proposals were agreed by Council on 3 December. As a result of benchmarking all the Council’s fees and charges and the income targets, additional income of £244k has been factored into the budget for 2016-17.

8.2          As part of the decision to increase fees and charges, Council agreed that £9k would be funded from a contribution from Ramsgate Town Council. This will be top-sliced from the net payment that would otherwise be made to the town council.

 


9.0          HOUSING REVENUE ACCOUNT BUDGET AND HOUSING CAPITAL PROGRAMME

9.1          The Council’s responsibilities in respect of the need to keep a Housing Revenue Account (HRA) are contained within Section 74 of the Local Government and Housing Act 1989 (‘The Act’) and its use is heavily prescribed through statute.  The HRA records all of the revenue expenditure and income relating to land, dwellings and other buildings provided under Part II of the Housing Act 1985 and corresponding earlier legislation.  It must be kept separate from the General Fund Revenue Account and therefore is to all intents and purposes ring-fenced.   Although the HRA for an individual year may result in a deficit, it is a requirement of ‘The Act’ that overall it must maintain a surplus, which means that expenditure must be carefully planned to remain within the limits of the anticipated income streams over the medium term.

9.2          The Operation of the Housing Revenue Account

Before the estimates are able to be calculated, the context in which the budget is to be built must be considered.

9.3          HRA Service Expenditure - As explained above, the HRA is a separate record of all of the Council’s expenditure on its social/affordable housing provision (i.e. Council Houses).  This includes the following expenditure:-

Repairs & Maintenance – Spend in relation to the day to day repair and maintenance and those works that cannot be deemed as capital repairs such as painting and decorating and contractor repair costs.

Supervision and Management General – Supervision and management costs that are applied across the whole stock e.g. ALMO Management Fee and support costs from other services.

Supervision and Management Special – Supervision and management costs that are applied to only specific homes e.g. communal lighting and grounds maintenance.

Depreciation and Impairment – A charge to reflect the use of HRA assets in the delivery of services.

Rents, Rates Taxes and Other Charges – All other costs that the HRA incurs as landlord e.g. insurance costs and Council Tax costs for empty HRA properties.

Increased Provision for Bad Debts – To reflect that not all rents and charges will be recoverable

9.4          HRA Service Income – Income received from the running of the Council housing stock is allocated under the following headings:

Gross Rental Income – Income from rents on council houses, shared ownership properties and leaseholder ground rents

Non-Dwelling Rents – Income from shops at Newington Centre, aerials and garages

Charges for Services and Facilities – Tenant service charges and heating service charges

Contributions towards Expenditure – Leaseholder re-charges and rechargeable repairs

9.5          HRA Non-Service Expenditure and Income - These include an apportionment of the investment income that is achieved on balances and any grants and contributions receivable.

As part of the changes to self-financing, the Council opted to split the one loan pool and move to a two loan pool approach, where loans are charged directly to the Housing Revenue Account or General Fund and where each fund is charged their costs of borrowing directly determined by their loan portfolio. Therefore, debt interest costs for the charges associated with the repayment of loan interest are also charged here.

9.6          The Housing Revenue Strategy

The main strategic objectives of the Housing Revenue Account, which provide the underlying principles for financial planning, and allow the Council to remain within the legislation, are as follows:

Ø    To maintain a Housing Revenue Account that is self-financing and reflects both the requirements of residents and the strategic visions and priorities of the Council.

Ø    To maintain current Housing Stock at Decent Homes Plus standard

Ø    To increase or improve the Council’s housing stock through new build and bringing empty properties back into use.

Ø    To consider the disposal of stock that is not viable to generate capital receipts for re-investment in new or existing stock.

Ø    To maximise the recovery of rental incomes by moving void properties to “target rent”, reducing the number of void properties and minimising the level of rent arrears and debt write offs.

Ø    To maintain a minimum level of HRA reserves of £800k but with a target level of reserves of £1m.

9.7          Details of the HRA estimates

9.8          The main assumptions that have been applied to the HRA for the 2016-17 estimates are summarised below:

9.9          Contract and Price Inflation - For direct expenditure budgets, price increases have been included at 2%, which is the best estimate of the level of inflation at this point in time, unless there is a known within a specific contract, in which case this has been used.

9.10       Repairs and Maintenance

Day to Day Repairs Contract

Work has commenced on the procurement process for the re-tendering of the contract. It is intended that the contract will be let for an initial period of four years to 2020, after which the repairs and maintenance contracts throughout the East Kent Housing Areas should then be in line for a joint procurement programme. 

Cyclical External Refurbishment and Repairs Contract

A new contract is due to be let as a joint procurement programme with Dover and Shepway Council and growth has been factored in during 2016-17 and 2017-18 to enable a catch up programme on the back log of works. The new contract is due to begin in February 2016 and £75k of 2015-16 budget will be carried forward into 2016-17.

CCTV

CCTV at the high rise blocks is currently under review and a new contract is likely to be re-tendered in 2016-17.


 

Cleaning Contract

The cleaning contract was due to be re-tendered in November 2015 but a nine month contract waiver has been put in place. The cleaning contract will now be re-tendered to commence in June 2016.

Gas Servicing

The contract is due to be re-tendered in 2016-17. The new contract is due to include properties with storage heaters as well as gas boilers. An estimated growth of £54k has been factored in to 2016-17 onwards.

Roof Ventilation Fans

The roof ventilation fans at the tower blocks are due to be inspected in 2016-17. It is estimated that works will be required following the inspection and growth of £5k has been factored in during 2016-17 for these works.

Lightning Conductors

The lightning conductor servicing costs will increase from 2016-17 and growth of £3k has been factored in to 2016-17 onwards.

Rodent Control and Damp Proofing Works

Works have increased and growth of £14k has been factored in from 2016-17 onwards.

Asbestos Removal

Asbestos removal is now being undertaken while the property is void. £9k will be moved from other areas but growth of £11k will be required from 2016-17 onwards.

Paladin Bins

A review of the paladin bins is being undertaken by East Kent Housing in 2015-16. It is likely that replacement bins will be required at a number of sites. Growth of £2k has been factored in to 2016-17 for urgent replacements. Following the review, a replacement programme may be necessary and further growth factored in from 2017-18 onwards.

Disabled Adaptions

A business case has been provided to increase the budget to £400k (an additional £70k) from 2016-17 onwards to assist with the increased waiting list. This is a demand-led budget and the additional budget will assist to decrease the back log.

SMART Meters (Tower Blocks)

This will commence in 2016-17. The 2014-15 Estate Improvement Programme budget of £231k has been ring fenced for this work to be carried out.

 

9.11       Supervision and Management General – The Council agreed at its meeting in February 2010 that an Arm’s Length Management Organisation (ALMO) was the preferred option for sharing Landlord Services in East Kent. The East Kent Housing ALMO (EKH) was formed and from 1 April 2011 it commenced the management of the Council’s social housing.

The ALMO management fee is calculated on an activity based costing basis, in that the Council’s charge is based on the amount of staff provided to deliver the service and their supporting budgets.  The management fee base budget will remain the same for 2016-17.

In October 2015 Universal Credits commenced in Thanet and £50k has been allocated in anticipation of the effects of Universal Credits and Welfare Reform.

A stock condition survey is to be commissioned in 2016-17 to re-evaluate the Council’s stock to ensure that we continue to meet Decent Homes Plus standard, therefore £60k has been budgeted to 2016-17 to enable this survey to be carried out. 

In 2014-15 the Court Cost Application Fee increased from £100 to £250 per online issued case and to £280 for other cases. This, along with the number of referrals has impacted on the budget and growth of £10k has been applied from 2016-17.

9.12       Supervision and Management Special – A new 2 year fixed price electricity contract commenced in 2015-16 and 2016-17 estimates have been recalculated accordingly and therefore £8k growth has been factored into the 2016-17 budget based on the revised estimates.

9.13       Rents, Rates, Taxes and Other Charges – With the addition of the new affordable units as part of the Empty Homes Programmes, Margate Intervention and the new build programme, the budgets that the Council holds as a landlord have been reviewed and increased for running costs.  These include insurance costs, Council Tax due on void properties, utility standing charges on void properties and utility budgets for new build properties.  This has resulted in budgetary growth of £12k off set against the new rental costs generated from the schemes.  The Insurance contract has recently been re-tendered in 2015-16 to commence January 2016.

9.14       Provision for Bad or Doubtful Debts – The provision for bad or doubtful debts for 2016-17 will remain the same at £170k.

9.15       Depreciation for Fixed Assets – In accordance with the statutory requirements, the Council has to make a depreciation charge to reflect the use of the HRA assets over their useful lives. Within the Housing Subsidy system the Council received a Major Repairs Allowance to fund capital works, which was set to reflect the need to replace building components as they wore out. It was therefore considered to be an appropriate measure of depreciation for the HRA assets. With the cessation of the Housing Subsidy System there is no longer a Major Repair Allowance and so work has been undertaken as to how best to calculate the depreciation charge moving forward.   The estimated depreciation charge for housing stock is calculated at £2.571m in 2016-17, the depreciation charge for other HRA assets is estimated to be at £59k.

9.16       Debt charges – Since the self-financing settlement, the Council has operated a two loan pool approach whereby the HRA and GF are each responsible for the repayment of their own apportionment of loans.  As part of the self-financing settlement, the HRA had its debt capped at £27.792m.  The Council has been successful in a bid to the Affordable Homes Programme Local Growth Fund 2015-2018 with an application to extend the HRA borrowing headroom by £1.115m to enable the new development of 20 units on HRA land. This allows the HRA to increase its debt cap for capital expenditure incurred between 1 April 2016 and 31 March 2017 on the new development project. In 2016-17 the HRA debt cap and borrowing headroom could increase to £28.907m. As at the 1 October 2015 the HRA had £20.041m of loans outstanding.

9.17       Rent Increases – Since April 2002, most rents for social housing have been set based on a formula set by Government.  The intention was to align council rents with those of housing associations by adopting a formulaic approach to calculating rents, known as rent restructuring. Landlords were expected to move the actual rent of a property to the formula rent over staged increases through applying the guidance set by Government of Retail Price Index plus 0.5% plus up to an additional £2 where the rent is below the formula rent for the property.

9.18       In October 2013 the government published a consultation paper on rents for social housing from 2015-16.  The consultation ended on 24th December 2013 and in May 2014 the government issued its final guidance on rents for social housing.  The purpose of which was to provide stability to the rent setting process and Housing Business Plans for the next 10 years.

9.19       Since then as part of the Summer Budget 2015 the Government announced that both Social and Affordable Rents would be reduced by 1% a year for four years resulting in a 12% reduction in average rents by 2020-21. The rent baseline for the reductions will be the rent payable on 8th July 2015.

9.20       The financial impact of the 1% baseline reduction in 2016-17 is approx. £129k on base budget. However, the impact on the HRA Business Plan for 2016-17 is estimated at £448k as a 2% increase on base had been assumed each year. Over the rental decrease period of 2016-17 to 2019-20 it is estimated that the impact on the HRA Business Plan will be a loss in rental income of £4.56m.

9.21       In the 2013 guidance the Government confirmed that Social landlords could charge tenants with an income of over £60,000 a market rent. The ‘Pay to Stay’ policy was discretionary. As part of the Summer Budget 2015 the Government announced that the discretionary ‘Pay to Stay’ scheme would be made compulsory and that the household income threshold limit would be reduced to £30,000. Local Authorities will be expected to pay the additional rental income to the Exchequer.

9.22       Rental estimates are based on the new government guidance for rental decrease of 1% for 2016-17 to 2019-20 and a 1% inflationary increase from 2020-21 onwards until further guidance is received.

9.23       Social rents will be decreased by 1% in line with the Summer Budget 2015 announcement and government rent guidance.  Across the whole stock the average rent is £81.96, this is an average decrease of £0.83p per property.


 

TABLE 2 – AVERAGE SOCIAL HOUSING PROPERTY RENTS

Property

Est. Ave Rent

 

 

Bedsits

£57.44

1 Bed Flat

£67.79

1 Bed House

£78.50

2 Bed Flat

£76.75

2 Bed House

£85.42

3+ Bed Flat

£86.99

3 Bed House

£93.05

4 Bed Flat

£90.86

4 Bed House

£102.85

5 Bed House

£111.27

 

9.24       New units created as part of the Margate Intervention Programme and Empty Homes Programme come under the Affordable Rent Programme.  Affordable rents are calculated at up to 80% of the market rental income and are inclusive of service charges. They will be decreased by 1% in line with the Summer Budget 2015 announcement and government rent guidance.

 

TABLE 3 – AVERAGE AFFORDABLE RENTS INC OF SERVICE CHARGES

 

Property Type

Average Actual Rent

1 Bed House

£78.50

1 Bed Flat

£70.22

2 Bed House/ Bungalow

£93.39

2 Bed Flat

£100.38

3 Bed House

£115.69

3 Bed Flat

£122.66

4 Bed House

£145.69

4 + Bed Flat

£147.82

 

9.25       The financial impact of the 1% reduction for affordable rents in 2016-17 is estimated at approx. £2k.

9.26       Affordable rent guidance requires that on each occasion that an affordable tenancy is issued, whether let to a new tenant or if an existing tenancy is re-issued, the rent must be re-set based on a new valuation.  The only exception is where the property is re-let to the same tenant following a probationary period coming to an end

9.27       Non Dwelling Rents - Income generated from aerials on tower blocks is expected to increase as a number of leases are due for renewal; £8k is anticipated in extra income.  Garage rents will be increased in line with market rents.

9.28       Service Charge Increases – A review of the service charges within the HRA was undertaken last financial year to take into consideration Welfare Reform changes, Department of Work and Pensions requirements and feedback from the Tenant Board that they are not easy to understand.  A proposal was taken to the Tenant Board on 9 October 2013 to make the service charges easier to understand and available for tenants to scrutinise. Service charges are now calculated based on actual cost.  The Summer Budget 2015 announcement implied that variable service charges will not be capped or affected by the 1% reduction and this has been assumed for the budget setting process.

9.29       Heating Charges – Heating charges will be recovered on actual cost based on usage and contract price and then apportioned across the block dependant on bedroom size.

9.30       Investment Income – This consists of interest accruing on mortgages granted in respect of Right to Buy sales and interest on HRA balances. The base rate remains low which in turn means that investment interest will be low. The budget for 2016-17 of £75k is based on achieving an average interest rate of 0.60%.

The Housing Revenue Account Reserves

9.31       The Council operates three HRA reserves: a HRA Major Repairs Reserve, the HRA Balance Reserve and the HRA New Properties reserve, each of which is discussed in turn:

9.32       Housing Revenue Account Major Repairs Reserve – The annual Major Repairs Allowance (MRA) that was paid to the Council as part of the HRA Subsidy had to be placed in a Major Repairs Reserve, to be used to meet HRA capital expenditure on housing stock or debt repayment only.  This has been replaced with the equivalent of the actual depreciation charge for dwellings being transferred to the Major Repairs Reserve. The estimated transfer to the Major Repairs Reserve for 2016-17 is £2.57m.

9.33       This funding, together with previous allocations of supported borrowing and revenue contributions, with good management, has enabled the Council to maintain the housing stock in a good condition. The Council currently maintains its social housing to Decent Homes Plus standard. As at 1 April 2015 this reserve balance was £6.5m which is higher than usual due to the difficulties over the last few years with the kitchen contract - work that was due to be undertaken during 2012-13 and 2013-14 on the kitchens was delayed and therefore funds budgeted for the back log of works have been set aside to enable a catch up programme over the next 3 years.

9.34       Housing Revenue Account Balance Reserve – This reserve holds the balance of the HRA Account and is used to draw down to balance the revenue budget and smooth out any peaks and troughs within the 30 year business plan. It is maintained by annual contributions from the HRA.  As at 1 April 2015 this reserve balance was £5.39m, however funds have been committed for the development of the Fort Road Hotel and 93 Westcliff Road and are estimated to be at £3.44m by financial year end.

9.35       HRA New Properties Reserve – This reserve holds funds set aside to fund either new build properties or the acquisition of suitable properties for use within the HRA.  Earmarked match funding for the Margate Intervention and Empty Property programme has been set aside in this reserve as agreed by Cabinet.  As at 1 April 2015 this reserve balance was £4.70m and is due to be drawn down during the 2015-16 and 2016-17 programmes.  Income generated from affordable rents will continue to be set aside in this reserve for re-investment in a new build programme.


 

TABLE – 4   DRAFT - HOUSING REVENUE ACCOUNT BUDGET

 

2016-17

£’000

2017-18

£’000

2018-19

£’000

2019-20

£’000

Expenditure

 

 

 

 

Repairs & Maintenance

3,762

3,720

3,666

3,701

Supervision & Management – General

3,042

2,983

2,984

2,986

Supervision & Management – Special

553

560

566

573

Rents, rates, taxes and other charges

368

369

370

370

Bad or doubtful debts provision

170

170

170

170

Depreciation/impairment of fixed assets

2,816

2,816

2,816

2,816

Capital Expenditure funded from HRA

1,522

525

525

525

Debt Management Costs

9

9

9

9

Non-service specific expenditure

800

800

800

800

 

 

 

 

 

Gross Expenditure Sub Total

13,042

11,952

11,906

11,950

 

 

 

 

 

Income

 

 

 

 

Dwelling Rents (gross)

-12,900

-12,773

-12,652

-12,537

Non-dwelling Rents (gross)

-227

-228

-230

-231

Charges for services and facilities

-382

-390

-398

-406

Contributions towards expenditure

-266

-266

-266

-266

 

 

 

 

 

Income Sub Total

-13,775

-13,657

-13,546

-13,440

 

 

 

 

 

Net Costs of Services Sub Total

-733

-1,705

-1,640

-1,490

 

 

 

 

 

HRA Investment Income

-76

-76

-76

-76

Debt Interest Charges

1,170

1,170

1,170

1,162

Government Grants and Contributions

-610

0

0

0

Adjustments made between accounting basis and funding basis

602

602

1,430

602

 

 

 

 

 

(Surplus)/Deficit on HRA

353

-9

884

198

 

 

 

 

 

 

 

 

 

 

Housing Revenue Account Balance:

 

 

 

 

 

 

 

 

 

Estimated Surplus at Beginning of Year

-3,449

 

-3,096

-3,105

-2,221

(Surplus)/Deficit for Year

353

-9

884

198

Estimated Surplus at End of Year

-3,096

-3,105

-2,221

-2,023

 

 

 

 

 

 


 

10.0       THE HRA CAPITAL BUDGET

10.1       A minimum level of £10k has been set for capital expenditure on a fixed asset which is expected to be in use for more than one year. Capital expenditure below this value is not treated as capital and is therefore not recorded on the asset register or funded from capital resources.  Capital expenditure can be met from loans, capital receipts, capital grants or revenue contributions.

10.2       Due to the complex and large scale nature of capital projects, the original budgets have to be based on estimations that often need revising as the project advances.

 

10.3       The HRA Asset Management Strategy

10.4       The Strategic Housing Team is currently developing a new HRA Asset Strategy.  On-going work has been undertaken to identify underutilised garage areas and a programme of New Build sites have been identified for development. The Council continues to review the land holdings within the HRA to develop a long-term new build programme.  As part of the review, those small areas of land that no longer meet housing requirements and are not considered suitable for development will be reviewed for disposal to generate further capital receipts for re-investment into the new build programme.

10.5       The existing housing stock is continually reviewed for its suitability to provide good quality housing.  Where stock is identified that requires considerable capital investment which far exceeds its worth to the authority, and or it has a greater market value consideration, will be given to disposal in order to generate capital receipts to fund new developments to increase the number of units or re-investment into the existing stock.  The disposal of Coast Guard Cottages has recently been identified as falling into this category.


Available Capital Funding

10.6       Capital expenditure can be financed from revenue resources, capital grants, usable capital receipts and borrowing. The General Fund can only be used to fund General Fund related capital expenditure, and the HRA can only finance expenditure on HRA assets; there can be no cross subsidisation between accounts. In both cases, the revenue resources are limited.

10.7       Capital Grants – These are offered by Government Departments to assist with certain types of expenditure.  The HRA has recently been awarded £1.37m funding towards the delivery of a new build programme for 58 new affordable units within the district from the Homes and Communities Agency (HCA) Affordable Homes Programme 2015-18.

10.8       Housing Capital Receipts - On the 26 July 2012 Cabinet gave approval to enter into an agreement with the Secretary of State for Communities and Local Government which allows the Council to retain additional Right to Buy receipts over and above that budgeted by Treasury. Under this regime, Treasury receive 75% of income on sales for approximately the first four right to buy properties and the Council is able to keep all of the sales income over and above.

10.9       Unsupported Borrowing – The Local Government Act 2003 gave local authorities the ability to borrow for capital expenditure above the level supported by Government Grant, provided that such action complies with the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Prudential Borrowing (“The Prudential Code”); the objectives of which are to ensure that capital investment plans are affordable, prudent and sustainable.  Essentially, it provides a number of controls to ensure that the Council does not incur additional debt without fully understanding the financial implications both now, and in the future. A housing debt cap of £27.792m has been set for the Council, being the maximum amount the HRA can borrow which must not be exceeded. This differs from the way the maximum debt levels are set within the General Fund, which are governed by the Prudential Code and the setting of a number of indicators.  The Council was successful in a bid to the Local Growth Fund to have the HRA borrowing cap increased by a further £1.11m in order to deliver an additional 20 affordable units between 2015 and 2018. 

10.10    HRA Capital Reserves – A summary of the HRA reserves has been detailed in para (9.31).  The major repairs reserve is used to fund expenditure on the council housing stock and the new properties reserve is utilised to fund the creation of new affordable homes.

10.11    Revenue Contribution to Capital – Revenue contributions from surpluses generated from rental income can be utilised to fund any budgetary shortfall within the capital programme.



The Capital Programmes for 2016-17 to 2019-20

10.12    Housing Revenue Account Capital Programme – The Housing Revenue Account Capital Programme has been set to ensure that the Council’s social housing stock meets Decent Homes Standard Plus and to provide a continuing maintenance scheme to the Council’s housing stock.

10.13    The Roofing programme was re-tendered in 2015-16. A number of blocks have been surveyed and are in need of roof replacements in 2016-17 and 2017-18. These properties also require structural works and so both works will be carried out at the same time to make best use of scaffolding costs. Some properties have also been identified from the stock condition database as needing roof replacement surveys to be carried out.

10.14    A number of properties have been identified as needing structural and repointing works. Where applicable these works will be carried out at the same time and budgets have been combined to accommodate this.

10.15    The new cyclical external repair and refurbishment contract is currently being re-tendered and this will include both external decoration works and repointing associated with external decorations.

10.16    Kitchen and Bathroom replacement budgets have been increased to reduce the back log of work incurred whilst the previous contract was terminated and re-tendered.  It is intended that this will continue for another three years to bring the replacement programme back on schedule. Re-wiring is now completed at the same time as kitchen replacements and so the budget has been increased by £50k p.a. to allow for these works to be carried out.

10.17    A report has been carried out to review fire safety. A number of works have been identified from this report and a three year programme has been proposed.

10.18    The communal heating systems at the high rise tower blocks are currently under review. Any works identified will be deferred until the stock condition survey data has been completed. A full review of the viability of the tower blocks will be carried out in 2016-17.

10.19    A number of blocks have been identified as in need of door entry system upgrades and replacements. The budget has been increased by £5k in 2016-17 to allow these works to be carried out.

10.20    Thermal Insulation works are currently being carried out when the property becomes void. The properties in rural locations are due for a review and are most likely to require works to be carried out following the survey. As a result the budget has been increased by £50k in 2016-17.

10.21    Disabled adaptions budgets have been increased by £70k p.a. to cope with demand.

10.22    The Margate Housing Intervention Programme sets out to transform the housing market in two of England’s most deprived wards, Cliftonville West and Margate Central.  The properties that are currently in the programme will continue to be developed. The programme will continue to be closely monitored and the rental income generated re-invested to continue the programme.

10.23    With the flexibilities now available as part of the self-financing changes, the Council is currently developing an HRA Asset Management Strategy to review land and buildings within the HRA, including garage sites to ensure they are being put to best use and obtaining value for money for the tenants.  This has been the driving factor towards the first tranche of a new development programme for the HRA consisting of 58 new units.  The second phase of the new build development programme is to be funded by HCA grant funding, HRA reserve balances and prudential borrowing.

10.24    As mentioned in para (10.9) the Council has recently made an application to Government to extend the borrowing headroom by a further £1.11m to facilitate the building of a further 20 new units of affordable accommodation. The 20 units will be funded by Right to Buy 1-4-1 receipts and prudential borrowing.

10.25    A detailed breakdown of the HRA capital programme is provided in Annex 4.

11.0       The Draft Capital Budgets 2016-17 to 2019-20

11.1       The draft Housing Revenue Capital Programme for 2016-17 that is proposed for Members’ approval is £11.4m, which will be funded from the HRA reserves, revenue contributions to capital, prudential borrowing, grant funding and RTB 1-4-1 receipts. A summary of this programme and the proposed funding sources are shown in the following table:

 

TABLE 5 – DRAFT HRA CAPITAL PROGRAMME

         

2016-17

£’000

2017-18

£’000

2018-19

£’000

2019-20

£’000

Total HRA Capital Programme Expenditure

11,450

3,615

3,495

3,195

 

 

 

 

 

HRA Capital Resources Used:

 

 

 

 

HRA Major Repairs Reserve

3,260

3,090

2,970

2,670

HRA Revenue Contributions

1,522

525

525

525

New Properties Reserve

1,479

 

 

 

Grant Funding

610

 

 

 

Prudential Borrowing

3,675

 

 

 

RTB 1-4-1 Receipts

904

 

 

 

Total Funding

11,450

3,615

3,495

3,195

12.0       GENERAL FUND CAPITAL PROGRAMME

12.1       A minimum level of £10k has been set for capital expenditure on a fixed asset which is expected to be in use for more than one year. Capital expenditure below this value is not treated as capital and is therefore not recorded on the asset register or funded from capital resources.  Capital expenditure also includes grants that are provided for the enhancement of buildings to increase the extent to which they can be used by a disabled or elderly person. Capital expenditure can be met from loans, capital receipts, capital grants or revenue contributions.

12.2       Due to the complex and large scale nature of capital projects, the original budgets have to be based on estimates that often need revising as the project advances. This in turn leads to re-phasing of the capital programme, in order to keep the overall costs within the agreed bottom line.

12.3       The Asset Management Strategy

12.4       By far the largest element of the Council’s capital worth (as represented by the fixed asset values on the Balance Sheet) is in its property holdings, with a total of £180 million showing as the net book value of all property assets as at 31 March 2015 (after depreciation has been applied). In line with Government and best practice guidelines, the Council is required to have prepared and published an Asset Management Strategy (AMS) which outlines its approach to its material asset holdings. This is to ensure that it acts responsibly in terms of undertaking a stewardship role over valuable public assets whilst deriving the maximum use from them in terms of service delivery so that value for money is able to be evidenced.

12.5       The Council’s Asset Management Strategy outlines the principles, criteria and processes that form the cornerstone of the following draft Capital Programme. This requires a continuous assessment of the relative value of an asset (both financial and non-financial) in order to ensure that the Council’s investment in its assets is working to optimum effect. This is especially important in the current financial climate, where assets that are no longer viable or surplus to requirements need to be disposed of in order to reduce the Council’s liabilities and to generate capital receipts to fund new developments or be transferred for Community benefit.

12.6       Capital Receipts

12.7       The level of capital receipts available from the sale of surplus assets has been limited over the last few years. Reasons for this have included the economic situation, assets being removed from the disposal list following consultation, and capital funding being switched from reserves to capital receipts wherever possible due to significant pressures on the Council’s revenue budget. The proposed programme of capital expenditure is sensitive to projections of available capital funds. Members should note that this will be monitored closely during the 2016-17 financial year, as it may be necessary to adjust the programme in year depending on asset disposal and funding outcomes.

12.8       No assumption has been made with regard to the utilisation of any anticipated receipt with regard to the Royal Sands Development.  In the event that a capital receipt is forthcoming it will be allocated as is usual for all capital receipts within the capital bid process and scoring regime.

 

 

13.0       THE CAPITAL BUDGET STRATEGY

13.1       Although the Asset Management Strategy is used to inform the capital budget, it is only one element. In order to ensure that the capital budget is able to meet the Council’s needs in the wider sense and to manage the impact on the revenue budget, the development and use of the capital programme is underpinned by a capital strategy as follows:

Ø    To maintain an affordable four-year rolling capital programme.

Ø    To ensure capital resources are aligned with the Council’s strategic vision and corporate priorities.

Ø    To undertake Prudential Borrowing only where there are sufficient monies to meet in full the implications of capital expenditure, both borrowing and running costs.

Ø    To maximise available resources by actively seeking external funding and disposal of surplus assets

Ø    To engage local residents in the allocation of capital resources where appropriate.

13.2       Due to the limited availability of capital receipts and the need to contain the level of borrowing undertaken to minimise the revenue impact, it has been necessary to review the Capital Programme. This is to ensure sufficient funding is available for existing schemes that have commenced and that any new projects are of the highest corporate priority and/or reduce the pressure on the revenue account. Bids have been assessed, scored and reviewed by the Council to ensure they focus on its core priorities. The results of the scoring process will be shared with the Portfolio Holder for Finance and Estates.

13.3       The level of resources available raises a number of issues and risks for future years, which need to be addressed. Over the past few years the Council has seen significant constraints in its available capital receipts.  It is difficult to estimate the funding level achievable, as a number of changes often arise to the asset disposal programme once the consultation process has been completed. In the event that sufficient disposals cannot be realised in 2016-17 onwards this will result in a further need to take action, which could increase the revenue pressure on the General Fund.  Regular monitoring will need to be reported back to members and the Capital Programme adjusted accordingly.

13.4       There is limited scope for future investment in new assets or making improvements to existing buildings.  The asset management review will in part be driven by the need to maintain the council’s significant asset-based income streams, within the context of a deterioration in the condition of those assets. The current portfolio is not maintainable with the current funding available and given the Council’s funding position, this is unlikely to improve.  It is likely that over the next four years some difficult decisions will need to be made on some of the asset holdings.

13.5       There are limited capital resources to fund any overspends/new requirements which could occur during the financial year.  Any additional schemes during the financial year will require an existing scheme to be deferred or funds re-allocated unless there is headroom in the General Fund to borrow.  A review has been undertaken of the vehicles, plant and equipment needed to deliver front-line operational services and a total budget of £2m has been estimated for this purpose for the period from 1 April 2016 to 30 March 2020 inclusive.

Available Capital Funding

13.6       Capital expenditure can be financed from revenue resources, capital grants, usable capital receipts and borrowing. The General Fund can only be used to fund General Fund related capital expenditure, and the Housing Revenue Account (HRA) can only finance expenditure on HRA assets; there can be no cross subsidisation between accounts. In both cases, the revenue resources are limited.

A summary of the 2016-2020 capital resources utilised to fund the Capital programme is detailed in Annex 1, but shown graphically below.


13.7       Capital Grants – these are offered by external funders to assist with certain types of expenditure.  Capital grants include: Environment Agency, Lottery funding and European grants. The Disabled Facilities Grants allocation for 2015-16 is £1.277m and it has been assumed that this will continue for 2016-17.

13.8       Capital Receipts – When a fixed asset is sold, provided that the sale receipt is over £10k, the income has to be treated as a “capital receipt”, which means that it can only be used to fund capital expenditure. All of the monies received from the disposal of General Fund assets are available to the Council for use.

13.9       Unsupported Borrowing – The Local Government Act 2003 gave local authorities the ability to borrow for capital expenditure above the level supported by Government Grant, provided that such action complies with the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Prudential Borrowing (“The Prudential Code”); the objectives of which are to ensure that capital investment plans are affordable, prudent and sustainable.  Essentially, it provides a number of controls to ensure that the Council does not incur additional debt without fully understanding the financial implications both now and in the future. It is anticipated that borrowing of £1.839m will be required to support the General Fund Capital Programme in 2016-17.

13.10    Capital Projects Reserve – A mid-year review of the capital programme will be undertaken in light of the limited capital receipts achieved to date. It is anticipated any balances remaining within the capital projects reserve will be fully utilised to balance the existing 2015-16 programme.

14.0       THE CAPITAL PROGRAMMES FOR 2016-17 TO 2019-20

14.1       A number of capital programmes agreed for 2015-16 have been re-phased while schemes are being reviewed. Ramsgate Port & Harbour Low Carbon Plan £105k has moved to 2016-17, Margate Pedestrian Connections £24k, Jackey Bakers Enhancements £50k, Marina Management System £78k, Crematorium Memorial chapel £40k and Boat Wash Separator £25k have been re-phased to 2017-18.

14.2       Existing Programmes already agreed – Programmes already agreed from previous years within the four year programme are the Disabled Facilities Grant, Swimming Pool/Sports Hall Essential Capital Repairs, Property Enhancement Programme,  CCTV, Dreamland, Sea Wall Refacing Works West of Westgate Bay and East of Epple to Westgate Bay, Operational Services Vehicle Replacement Programme, Thanet Crematorium Columbaria Provision, Thanet Crematorium Memorial Chapel Area, Ramsgate Port & Harbour Low Carbon Plan and Ramsgate Main Beach Timber Groyne Installation.

14.3       Continuing Service – Led Capital Schemes - Due to pressure on the Council’s funding position, the Property Enhancement Programme has been reduced to £nil for 2016-17 and £80k pa thereafter, the Swimming Pool/ Sports Hall Essential Capital Repairs has been reduced to £30k for 2016-17 and £nil thereafter, and the Ramsgate Port & Harbour Low Carbon Plan has been scaled down to £565k. The Public Conveniences annual capital budget has also been removed and a full review of this area will be undertaken. A review of The Disabled Facility Grant budget has identified that the Council funded element is no longer required as currently there is no waiting list for adaptations and has therefore been removed, although the externally funded element of £1.277m has been assumed as continuing. The provision for the Margate Cemetery extension has been removed, pending a review of how to take this project forward.


 

14.4       New Capital Projects

Ramsgate Port – Berth 4/5 Replacement – This project is necessary to retain an aggregate berth facility at Ramsgate. It will protect/enhance income from Ramsgate Port and reduce maintenance costs.

Ramsgate Harbour – Smart Metering – This project is for further implementation of smart metering within the inner and outer marinas where it is currently not in place. This system will enable the Council to advance-charge customers for electricity usage, which will provide administration benefits and reduce the risk of non-payment. Security will also benefit from improved access controls.

14.5       The Draft Capital Budgets 2016-17 to 2019-20

14.6       The draft General Fund Capital Expenditure Budget for 2016-17 that is proposed for Members’ approval is £4.332m (including 2015-16 slippage identified below), which will be funded in the main from capital grant, usable capital receipts and prudential borrowing. This is shown in summary format below.

TABLE 6 – DRAFT CAPITAL PROGRAMME

 

2015-16 Slippage

£’000

2016-17

£’000

2017-18

£’000

2018-19

£’000

2019-20

£’000

Statutory and Mandatory Schemes

 

1,277

1,277

1,277

1,277

Schemes continuing from prior years

105

927

703

 

 

Annual Enhancement Schemes

 

780

580

330

580

Wholly/Part Externally Funded Schemes

 

168

851

 

 

Replacements and Enhancements

 

1,000

100

 

 

Area Improvement

 

 

 

 

 

Capitalised Salaries

 

75

75

75

75

Total Capital Programme Expenditure

105

4,227

3,586

1,682

1,932

 

 

 

 

 

 

Capital Resources Used:

 

 

 

 

 

Capital Receipts and Reserves

0

1,091

592

155

155

Capital Grants and Contributions

 

1,402

2,268

1,277

1,277

Contributions from Revenue

0

0

0

0

0

Prudential Borrowing

105

1,734

726

250

500

Total Funding

105

4,227

3,586

1,682

1,932


 

15.0       RESERVES

15.1       General Reserve

15.2       The Local Government Finance Act 1992 requires precepting authorities, such as Thanet District Council, to have regard to the level of reserves needed for future expenditure when calculating the budget requirement. Each year the Council reviews its level of reserves and a draft proposal of the recommended levels of reserves is shown at Annex 5 to this report. No change in reserves is currently proposed.

15.3       Earmarked Reserves

15.4       It is good practice to use reserves to ‘save’ funds over a period of time to spread the impact on the Council Tax of large fluctuating expenditures.  The table overleaf shows the planned level of reserves, which will be used to fund anticipated expenditure during the year.

15.5       At the end of the financial year 2014-15, the Council had to utilise some funds set aside in earmarked reserves to provide an increased provision for liabilities in relation to animal exports.  Further payments have taken place during 2015-16 which have utilised the provision set aside and required further draw down from earmarked reserves.  The Council currently has an outstanding investigation with the Health and Safety Executive in relation to some employees.

15.6       It has been necessary during the year to undertake a review of the Capital Programme and revise funding sources to enable the Insurance and Risk Management reserve to be increased to fund one off liabilities the Council may face.


TABLE 7 – PROPOSALS FOR RESERVE HOLDINGS FOR 2015-16

Reserve

Balance

Proposed

Proposed

Estimated

Proposed

Proposed

 

Drawdown

Contribution

Balance

Drawdown/ Contribution

 Balance

31.3.15

2015-16

2015-16

31.3.16

2016-17

31.3.17

£000's

£'000s

£'000s

£’000s

£'000s

£’000s

Capital Projects Reserve

954

-954

0

0

0

0

Council Election Fund

118

-118

40

40

40

80

Cremator and Cemeteries

406

-480

126

52

126

178

Destination Management

400

-250

0

150

0

150

Decriminalisation Fund

210

-40

0

170

0

170

Dreamland Reserve

117

0

0

117

-117

0

East Kent Services Reserve

303

-203

0

100

0

100

Economic Development & Regen

198

-98

0

100

0

100

Environmental Action Plan

162

-162

0

0

0

0

General Fund Repairs

316

-316

40

40

0

40

Homelessness Fund

276

0

0

276

0

276

Housing Intervention Reserve

172

-100

0

72

0

72

Information Technology Investment

311

-100

0

211

0

211

Local Plan

418

-113

0

305

0

305

Maritime Reserve

356

-356

0

0

0

0

NDR Equalisation Reserve

1,205

-1,030

0

175

0

175

New Homes Bonus Reserve

137

-137

0

0

0

0

Office Accommodation

31

-31

0

0

0

0

Pay & Reward Reserve

291

-185

0

107

0

107

Pensions Fund

412

-220

0

192

0

192

Priority Improvement Reserve

478

0

0

478

0

478

Renewal Fund

10

-10

6

6

0

6

Risk Management

103

0

2,000

2,103

-2,000

103

Slippage Fund

1,101

-1,101

0

0

0

0

Unringfenced Grants

353

-193

0

160

-160

0

VAT Reserve

433

-300

0

133

0

133

Vehicle, Plant and Equipment Reserve

227

0

350

577

-577

0

Waste Reserve

13

0

0

13

0

13

Total

9,511

-6,497

2,562

5,577

-2,688

2,889


Using Reserves for Planned Expenditure

15.7       General Reserves – The reserve stands at the recommended level per the risk assessment shown at Annex 5.  There are no planned withdrawals from the General Fund balance to support the base budget.

15.8       Using Reserves to Support the Net Budget Requirement – Aside from using earmarked reserves to meet planned but irregular expenditure, reserve balances can also be used to provide additional funds to simply contribute towards the bottom line funding requirement.  Given that reserves are one-off funds their use in this way should be by exception, as to use them to meet on-going base expenditure will ultimately give rise to a ‘structural gap’ which will need to either be met from future base savings, or additional base growth as in previous years.  For 2016-17 a sum of £40k is proposed to be utilised from the Decriminalisation Reserve.

15.9       2016-17 General Fund Revenue Budget Proposals

15.10    The impact of the above changes when applied to the 2015-16 base give a net budget requirement of £19,086k for 2016-17 which is considered sufficient to enable the delivery of the Council’s statutory services as well as its priority discretionary services.

15.11    A summary of the key changes that have been made to arrive at the draft General Fund Revenue Budget for 2016-17 is shown in Table 8:


 

 

TABLE 8 - GENERAL FUND REVENUE BUDGET

 

2016-17

 

£’000

Opening Funding Position

19,631

Budget Pressures (including Inflation)

775

Savings

-1,036

Fees & Charges

-244

Net Service Revenue Budget

19,126

Decriminalisation Reserve contribution to traffic related services

-40

Net Budget Requirement

19,086

Funded by:

 

Government Funding (including RSG Business Rates and New Homes Bonus)

10,211

Collection Fund Surplus

163

Council Tax

8,712

Net Financing

19,086

Tax Base

40,691

Indicative Band D Council Tax

214.11

% increase on Band D

1.97%

16.0          COUNCIL TAX FOR 2016-17

16.1          The council’s net budget requirement is met from the settlement funding assessment, made up of Revenue Support Grant and the Baseline Funding Level (the local share of business rates), plus New Homes Bonus.  The rest (known as the Precept) has to be raised by local taxes in the form of Council Tax.

16.2          The 1.97% increase identified in the above table represents a £170k increase when applied to the revised tax base of 40,691.

17.0          A STATEMENT OF ASSURANCE FROM THE SECTION 151 Officer

17.1          Under the Local Government Act 2003 the Chief Finance Officer, who for Thanet District Council is the Director of Corporate Resources and Section 151 Officer, is required to give Members an opinion on the robustness of the budget estimates and the adequacy of reserves.  This has to be done after consideration of the context within which the Council is required to operate, both in the short and medium term.

17.2          The main areas of uncertainty which could put the budget under pressure for 2016-17 are future cuts in government funding, the delivery of savings, the achievement of income targets and uncertainties around the full impact of potential one-off liabilities.  Whilst there are other areas of uncertainty around budget estimates for planned expenditure, the risk of overspending can largely be controlled by officers.  It is a fact that the draft budget relies upon the delivery of substantial savings, however, the estimates for these have been developed by the Service Managers who are responsible for their delivery, with the guidance of the Financial Services staff, and as a consequence the figures contained within this report are believed to be achievable.  Increases in fees and charges have been proposed with due regard to like charges elsewhere in the county and differential rates are used to take account of socio-geographical factors.  The consideration that has gone into the production of the budget estimates, combined with the fact that the Council has an up to date financial system in place and operates sound budget monitoring and other financial control systems, means that the Chief Finance Officer believes the Council is well placed to deliver against the budget proposals presented within this report.

17.3          As regards the level of reserves, the proposals are supported by a robust financial risk assessment and their purpose is clearly laid out and well understood. The level of earmarked reserves are reduced substantially over 2015-16 and 2016-17 and this limits the flexibility of the Council to accommodate significant unexpected adverse financial events, as well as placing constraints on the Council’s ability to exploit opportunities. The maintenance of a general contingency of 12% of net revenue expenditure provides some comfort, but overall there is less headroom in the 2016-17 budget and 2016-20 MTFP which will be reflected in the level of financial controls and compliance over the short and medium term.

17.4          In conclusion, it is the Director of Corporate Resources and Section 151 Officer’s opinion that the budget is robust and achievable and that the proposals for reserves are adequate.


18.0       OPTIONS

The scenario presented in this report, and the recommendations following, have been drafted to meet the requirements of agreed budget strategies and to take account of prevailing economic conditions. Any of the assumptions could be varied; however, there would be too many possible permutations to present in this report. The proposals in this report represent a balanced budget and any variations to the proposals would require proper costing before agreement.

19.0       CORPORATE IMPLICATIONS

19.1       Financial and VAT

19.2       The financial implications for the General Fund budget are laid out within the body of the report.

19.3       Based upon the financial risk assessment contained within Annex 5, it would at this stage be appropriate to maintain General Fund balances of at least 12% of the net service revenue base.

19.4       Legal

19.5       Section 151 of the 1972 Local Government Act requires a suitably qualified named officer to keep control of the Council’s finances. For this Council, this is the Director of Corporate Resources, and this report is helping to carry out that function.

19.6       The requirements of other relevant statute have been referenced within the body of this report, where relevant.

19.7       Corporate

19.8       Corporate priorities can only be delivered with robust finances. Both the draft budget and the level of reserves recommended in this report are believed to be sufficient to meet these priorities and develop Services.

19.9       Equity and Equalities

19.10    There are no equality issues identified in respect of the savings highlighted in these budget proposals as these budget cuts will not impact on service delivery. Any further impacts of the budget proposals identified at service level will be assessed by the service managers where there is a relevance to the duty. A full assessment of the equality impact will be undertaken for any specific service changes.

19.11    A five week public consultation was held giving local residents and businesses an opportunity to comment on the budget proposals.  The consultation was available to complete online and hard copy surveys were made available on request, for collection from the council offices and local libraries and printed in the local newspaper.    Promotion was undertaken throughout the five week period, including social media, website, press and posters.  A total of 617 responses were received by the closing date.  The HRA budget, including the proposed rent increases, was presented to the Tenant Area Board. A Business Rates Stakeholder meeting was undertaken on the 18 January to discuss the Council’s corporate Priorities and consultation and changes with regards to the Business Rates proposals.

20.0       Recommendations

20.1       That Members approve the draft Medium Term Financial Plan at Annex 1.

20.2       That Members approve the draft General Fund Revenue budget estimates for 2016-17 to 2019-20 and the resulting budget requirement for 2016-17.

20.3       That Members approve that the level of general reserves be held at £2.011m, and specific earmarked reserves be used as identified in Annex 5.

20.4       That Members approve the HRA budget estimates for 2016-17 to 2019-20 and the HRA services charges as shown at Annex 3.

20.5       That Members delegate the approval of the EK Housing Management Fee to the Director of Community Services in consultation with the Portfolio Holder for Housing and Planning.

20.6       That Members agree to a reduction in the grant to minor preceptors as per section 3.15.

20.7       That Members approve the General Fund and Housing Revenue Account Capital Budgets for 2016-17 as detailed at Annexes 2 and 4.

21.0       Decision Making Process

21.1       Cabinet is responsible for proposing the budget to Full Council. The final budget proposals will go to Council for approval on 4 February 2016 after being considered by Overview and Scrutiny Panel on 26 January 2016.

Contact Officer:

Nicola Walker – Interim Head of Finance

Matt Sanham – Corporate Finance Manager

Reporting to:

Tim Willis – Director of Corporate Resources and S151 Officer

 

Annex List

Annex 1

Medium Term Financial Plan

Annex 2

GF Draft Capital Programme

Annex 3

HRA Tenant Service Charges

Annex 4

HRA  Draft Capital Programme

Annex 5

Financial Risk Assessment and Level of General Fund Reserves

 

          Background Papers

 

Title

Where to Access Document

Medium Term Financial Plan 2015-2019

 Full Council 5th February 2015

 

http://tdc-mgapp-01:9070/Published/C00000141/M00003473/AI00023094/$Annex1MTFP201519v6.docxA.ps.pdf

EKH Tenant Forum Agenda

13th January 2016

 

Corporate Consultation Undertaken

 

Finance

Tim Willis, Director of Corporate Resources & Section 151 Officer

Legal

Tim Howes, Director of Corporate Governance & Monitoring Officer

Communications

Hannah Thorpe, Head of Communications