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Estimates 2014/15 and Medium Term Financial Strategy

Estimates 2014/15 and Medium Term Financial Strategy. Presented by Director of Finance and Technical Services Ian Young . Background. Reductions in Government Funding Practical Limits on Council Tax Increases Focus on Use of Reserves Ministerial View and Knight Review of Fire Service

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Estimates 2014/15 and Medium Term Financial Strategy

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  1. Estimates 2014/15 and Medium Term Financial Strategy • Presented by • Director of Finance and Technical Services • Ian Young

  2. Background • Reductions in Government Funding • Practical Limits on Council Tax Increases • Focus on Use of Reserves • Ministerial View and Knight Review of Fire Service • Budget – Long Term Application of Reserves not sustainable • Peer Group Report – Strong Financial Position up to 2016 • Invest to Save – Best Value Duty of Continuous Improvement • Value for Money • View Needed on Short, Medium and Long Term

  3. Current Position (Internal) • Budget Holders 17th November Net expenditure £31.034m • Increase of £307,000 or 1% • Equates to a Council Tax Increase of 7.5% or £4.65 p.a. avge • Proposed Application of £2m Reserves to finance peak in 2013/14 Capital Reduces Council tax Increase to 6.65% or £4.12 • Savings below Target (£577,000 v £950,000) • Eroded by Increases in expenditure £384,000 and Reductions in Income of £157,000 • Means Savings Programme still to deliver £1.3m Net by 15/16

  4. Current Position (External) • Effects will be driven by internal decisions in light of the External Position • Indicative for 2014/15 and 2015/16 • No changes yet to 7.3% and 8.1% Reductions in Funding following June Spending Round • Council Tax Freeze for both Years • Referendum Trigger 2% for both Years • Possible repeat of flexibility for Lower Quartile CT District and Fire Authorities (£5) for 2014/15

  5. Medium Term • 2016/17 to 2018/2019 • 2015 Election unlikely to change much • Forecasts for Pay and Cost Pressures • Cost Neutral 2015 Pensions Changes • Continued Grant Reductions • Increases in Business Rate Yield • Historically Reasonable Council Tax Increases (average 4% ) • Variable Capping/Referendum Triggers • No Ministerial Surprises • More Savings may be required

  6. Longer Term • 2018/2019 To 2023/2024 • New System of Local Government Financing 2013 • Links RPI to about 18% of Income via Business Rates with Potential for Growth • Should Provide some protection from Grant Reductions given Price Indices tend to drive Cost Pressures • Dependent upon District and City Positions • Business Rate Freeze/Revaluation • More Savings may be required

  7. Basis of Key Post 2016 Assumptions • Net Expenditure tied to Target CPI of 2% • Continuing Real Reductions in External Funding of 5% p.a until 2020, 2% thereafter • 4% p.a Council Tax increases • Level of Reserves available to support Invest to Save • £2m applied to support 2013/14 Capital Programme and 3 Year Moratorium on Major New Build • Minimum of £1.3m savings delivered by 2016/17 at the latest

  8. Level of Reserves • Estimated £5.7m @ 31.3.14 • Pay/Price £3,442,000 • Pensions £1,188,000 • Contingency £600,000 • General £324,000 • New Developments £103,000 • Earmarked Grants £47,000 • Capital £0

  9. Possible Calls On Reserves • Illegal for Preceptors to Budget for a Deficit • No Supplementary Precepts (Unlike Supplementary Levies) • Failure of Budget Assumptions • Incidence of Savings • Ready Reckoner of 1% Paybill =£180,000, 1% Council Tax =£200,000 • Pay/ Price covers 17% variation from assumptions • 1%,1%,2%,2%,2% = 8.3% to 2018/19 (Planned) • But e.g 2%, 2%, 4%,4%,4% = +8% or £1.6m • Thereafter? HM Treasury Average Earnings 4.75% for 2018

  10. Possible Calls On Reserves • Pensions Reserve – amended NFPS and RDS - Employers’ increase of 1% =£300,000 per year (4 years) • Possible financing of further Support Service reductions (LGPS) • Resourcing for Fire Cover Review/Partnership Working • New system of Local Government financing yet to bed down • Insurance Fund • One Off Referendum Costs?

  11. General Application • The application of Reserves to support Base Budget Expenditure simply to deliver a particular level of Precepts or defer necessary Base Budget reductions is not a sustainable policy in the medium to longer term • Invest to Save (Capital/Support for Introduction of Efficiencies) • Balance level of Reserves held, External Financing and Savings • 6% or 12%, 10% or 58% - Risk and Timeframe • Two, Five or Ten Year View?

  12. 10 Year Scenarios • Based on current “Real” position including £2m Support to Capital programme and 3 Year Moratorium • Reduces Reserves to minimum of c.10% of Net Expenditure (£3.0m) • Assumes £1.3m achieved by 2015/16 or 2016/17 at the latest • Council Tax Freeze for 2014/15, 2015/16 and 4% thereafter with Additional Savings of £750,000 • Referendum limit of 2% for 2014/15, 2015/16 and 4% • 2014/15 Increase of 5.5%, 2% 2015/16 • Maximum Flexibility of £5 increase for 2014/15

  13. Some Conclusions • Council Tax Freeze 2014/15, 2015/16 and 4% thereafter : • Requires £1.3m Original Target Savings no later than end of 2015/16 • Requires further savings of £750,000 by the end of 2015/16 • Reduces Reserves to £3m by 2016/17 with £790,000 contribution in 2014/15, £1.94m in 2015/16 • Will Require further savings of £700,000 over the two years 2018/19 and 2019/20

  14. Some Conclusions • 2% 2014/15, 2015/16 and 4% 2016/17: • Requires £1.3m Savings no later than end of 2015/16 • In the absence of further savings reduces Reserves to £3m by 2017/18 with an £600,000 contribution for 2014/15, £1.5m in 2015/16, £350,000 in each of the following two years • Requires £500,000 savings in 2018/19 and £400,000 in 2019/20

  15. Some Conclusions • At 5.5% 2014/15, 2% 2015/16 and 4% thereafter • Requires £1.3m Savings no later than end of 2015/16 • Requires contribution from Reserves of £900,000 in 2015/16 but balance restored over the three subsequent years

  16. Some Conclusions • A £5 (8.05%) increase in Council Tax in 2014/15 would contribute £430,000 to Reserves • Provided £1.3m savings made by end of 2015/16, minimum use of Reserves over the next four years • However, use of £640,000 could freeze Council tax for 2015/16 and 2016/17 • no requirement for additional savings unless to reduce Council Tax from the assumed 4% per year from 2018/19 or to Reduce the application of Reserves from 2018/19

  17. SomeConclusions • Need consensus on Planning Timeframe – Short, Medium, Long • Need consensus on the balance between expenditure plans, deliverability of savings, more efficiencies and Council Tax • Freeze can be only a short term consideration • Target savings a short term requirement • Further Savings a medium to long term consideration • Maximum increase provides long term assurance • Tables available - Updated as Budget moves towards February 2014

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