Budget & Medium Term Financial Plan2012/13 – 2015/16

Budget & Finance Overview & Scrutiny Committee8th November 2011

Clive Heaphy / Mick BowdenFinance and Corporate Services

Economic Update

• Economic predictions are gloomy and universally negative

• Recovery has ground to a halt – GDP predicted 0% in 2012

• Inflation remains high at 5% but predicted to fall

• Interest rates remain low at 0.5% and not predicted to rise

• Households reluctant to spend – fear of jobs; falling real income; high inflation on basic goods and services

Uncertain times ahead – requires tough longer-term decisions

• Downturn deeper than previous recessions

• Recovery slower to get started

• End is a long way off

• Policy impact of projections : employment, interest rates and consumer confidence

• 2015/16 marks the end – Political implications

GDP RECOVERY: A LONG, SLOW HAUL

• Severe gap opening up between Wages and Inflation

• Even if inflation falls (as predicted), gap only likely to narrow rather than reverse

• Impacts on consumer confidence and spending behaviour

• Public sector worse hit than private sector

INFLATION VS. WAGES : A WIDENING GAP

SR10 – 20th October 2010

COMPOSITION OF THE TIGHTENING IN 2014-15

© Institute for Fiscal Studies

£ billion October 2010 Spending Review

Tax 29.8Spending 80.5

Investment spending 17.0Current spending 63.5Of which:

Debt interest 10Benefits 17.7Public services 35.7

Total tightening 110.3% Spending 73% Tax 27

General Coalition Objectives

Elimination of structural deficit over 5 years

Reduction in local government funding from £29.7bn to £24.2bn over 4 years – a reduction of 26% in real terms

Introduction of Universal Credit and Housing Benefit Reforms – “it pays to work”

Priorities – NHS, Schools, Infrastructure (Crossrail, London underground, HS2)

Dependency on strong continuing economic growth

Public sector pensions - commit to a form of defined benefits and increased employee contributions

Banking Levy £2.5bn annually

Local Government Policy impact

Headline 7.1% pa real terms reduction in formula grant in 2011-12; Less ringfencing of LG revenue grants (except simplified schools grants, public health grant)

Council Tax Benefit: reduce by 10% - localise CTB from 2013-14

Household benefit caps £500/£350 p/w from 2013

Borrowing from PWLB 1% more expensive – although rates have now fallen by 1%

Schools budget up 0.1% per annum (including pupil premium) - numbers up 0.7%

Additional £2bn by 2014-15 to support social care

Community budgets pilots in 16 areas

New homes bonus / Tax increment financing / Business Rate reform

Funding to freeze council tax in 2011-12 – support for 4 years - now extended

Themes - 2012/13 to 2015/16

Continuously reducing budgets

On-going demand pressures in key areas

Unable to make small efficiency savings – looking increasingly to transformation changes or to stop providing services

Need to have absolute clarity about what Brent in 2015/16 will look like

Smaller in spend terms and headcount

Targeted rather than universal spending / Controlled demand

Clear priorities – do what we do well; stop doing things that are not a priority or affordable

More commissioning than provider?

Efficiency or Transformation

1 2 3 4 50%

20%

40%

60%

80%

100%

120%

Where savings come from over 5 years

Efficiency Transformation Total Savings

Funding Gap – 2011/12 – 2015/16

Revised Financial Forecast 2012/13 - 2015/16 2011/12 2012/13 2013/14 2014/15 2015/16 £'000 £'000 £'000 £'000 £'000 Gross spend requirement 291,388 294,336 302,810 319,100 335,704 Gross resources (294,894) (282,816) (281,241) (269,871) (267,556) Gross Cumulative Funding Gap / (Surplus) (3,506) 11,520 21,569 49,229 68,148 Contribution to/(from) Balances 2,500 2,239 0 0 0Deficit / (Surplus) on Collection Fund 1,006 0 0 0 0 Net Cumulative Funding Gap / (Surplus) 0 13,759 21,569 49,229 68,148 Net Annual Deficit / (Surplus) - 13,759 7,810 27,660 18,919

Central Items – Reasons for the increase

£4.1m provided over four years for additional capital financing charges

£3.8m provided over four years for increases in levies predominantly the fixed element of the West London Waste levy

£3.9m provided over four years for increases in Concessionary Fares. The Concessionary Fares budget for 2011/12 is £13.8m and there is provision for a 9% increase in 2012/13 and 5.5% in subsequent years.

£1.7m provided over four years for increases in a number of areas including South Kilburn Development (£0.6m), Premature Retirement Compensation (£0.5m)and Carbon Tax (£0.6m)

Demand and inflation – Reasons for the increase

£5.0m provided annually to meet demand and loss of income pressures e.g. transfer of social care clients to Adults, additional temporary accommodation charges following the benefit changes, children’s social care legal costs and the loss of Council Tax and HB grant

£12.3m provided over four years for non pay inflation

£5.6m provided over four years for additional contributions to the Pension Fund

£7.8m provided for pay awards of 2% annually from 2013/14

£1.3m provided over four years for national insurance and other changes

Council Tax Freeze Grant

• Currently receiving £2.6m per year up to and including 2014/15 relating to 2011/12 freeze

• Announcement 3 October 2011 - further £2.6m for 2012/13 only if Council Tax frozen in 2012/13

• Not clear what level of Council Tax increase will be deemed “excessive” in 2012/13

• Possible Option 1 – 3.5% / 2.1% / 0%

• Possible Option 2 – staggered – 0%, 3.5%, 2.1%

• Possible Option 3 – staggered with no increase in 2014/15 – 0%, 3.5%, 0%

• Each 1% raises £1m

• Unless tax base grows, resources are lost permanently

Council Tax and temporary grant

£m

2011/12 2012/13 2013/14 2014/15 2015/16 102.0

104.0

106.0

108.0

110.0

112.0

114.0

116.0

118.0

Based on no increases in Council Tax CT Increase 2.5% pa

£12m real Gap by 2015/16

Formula Grant (or equivalent)

£m

2011/12 2012/13 2013/14 2014/15 2015/16120.0

130.0

140.0

150.0

160.0

170.0

180.0

190.0

200.0

Grant Payable Real grant increased at 2.5% pa

£47m real Gap by 2015/16

BRENT COUNCIL - Medium Term Financial Projections 2012/13 - 2015/16

2012/13 2013/14 2014/15 2015/16 £m £m £m £m

Council Tax Increase (Possible option 2) 0.0% 3.5% 2.1% 2.0% Funding gap after identified savings 13.7 7.8 27.8 19.2 less Additional Council Tax Revenues 0.0 -3.6 -2.2 -2.2 Adjustment for 2012/13 Council Tax Freeze Grant -2.6 2.6 0.0 0.0 Funding Gap after Council Tax increases 11.1 6.8 25.6 17.0 New Homes Bonus -1.7 -1.0 -1.0 -1.0 Lower growth/inflation than assumed -2.0 -2.0 -2.0 -2.0 New Central Savings identified in budget planning -1.0 0.0 0.0 0.0 Use of Redundancy Earmarked Reserve -2.0 -1.0 -2.3 0.0 Funding Gap after agreed adjustments 4.4 2.8 20.3 14.0

Risks

• Level and complexity of savings

• Low reserves - £9.5m in 2011/12 – Raise to £12.0m in 2012/13

• 2011-12 outturn position

• Lack of clarity regarding future funding (Business Rate Retention)

• Lack of growth of Council Tax base

• Demand Growth

• Lack of clear prioritisation

• Pensions

• Economic stagnation

• Policy changes

Allows LA landlords to support their own stock from their own (rent) income

Self financing HRA from April 2012 / Abolish HRA Subsidy (£8.5m to Brent in 2011/12)

One off national debt reallocation based on assessment of debt that can be afforded over 30 years (receipt to Brent around £185m)

National rent convergence policy continues

Will lead to:-– HRA Business Plans guided by local priorities;– more money for Council Housing; and – more transparency for tenants

Council Housing Finance Reform

National Rent policy for rent increase – RPI (Sept 11) = 5.6% plus– 0.5% real increase plus – At least 1.1% uplift to target rent

This equates to around a 7.1% average rent incease

Draft forecast debt reallocation due in Nov 2011, and final due Jan 2012

Feb 2012 Executive – agree HRA budget 2012-13 and rent increase

28 March 2012 – Debt repayment day

HRA 2012-13

Maintain a strategic approach and use a variety of tools

• ‘One Council’ Programme continues to deliver 2/3 of the saving but at increased pace

But we also need to:

• Identify further savings through ceasing activities or scaling back their scope

• Keep strict control of new commitments and match with corresponding savings

• Take tough decisions early to deliver full year savings over the next three years

• Ensure no overspends in 2011-12 – we must come in on budget

Closing the gap

Immediate Actions

• Develop clear and detailed understanding of Political objectives and priorities

• Stop things that are not priority

• All central items to be robustly reviewed

• “Inescapable” Growth to be minimised

• Council Tax Strategy for the medium term

• Consider limiting Capital Programme or repaying debt

• Learn and join with others

Closing the gap

Strategic Actions

Date Action

July First service and budget planning awaydaySeptember Service planning and budget guidance issuedSeptember/ October

Work on formulating draft budgets

October First stage budget meetings between F&CS and service areas2-3 November Second service and budget planning awaydays – issues to be considered as part of the First

Reading debate8 November Budget and Finance Overview & Scrutiny – 1st Reading DebateNovember / December

Continue to develop proposals for achieving 4 year budget targets including ‘star chamber’ meetings

21 November Full Council. First reading of Policy Framework and Budget7 December Schools Forum meets to agree funding formula and budget issues12 December Report to Executive on Performance and Finance Review 2010/11 – 2nd Quarter15 December PCG - Detailed consideration of budget issues

Up to January Consultation with residents, businesses, voluntary sector, partner agencies and trade unions on budget proposals

Service and Budget Planning

Timetable for 2012-13 (1)

Date Action

Mid-December Confirmation of the following year’s funding from central government

15 December Release of the Mayor’s consultation draft GLA budget

11 January Budget and Finance Overview & Scrutiny collects evidence and discusses 1st interim report

25 January Greater London Assembly considers draft consolidated GLA budget

End of January PCG agree budget proposals to be presented to February Executive

1 February Schools Forum meets to agree the recommended Schools Budget

9 February GLA ‘s final consideration of consolidated budget

February Budget and Finance Overview & Scrutiny receives budget proposals prior to the Executive. Discusses 2nd interim report

13 February Executive considers and announces administration’s final budget proposals, agrees fees and charges for the following year and agrees savings/budget reductions for the HRA budget report as well as the overall average rent increase

16 February Budget and Finance Overview & Scrutiny receives the outcome of the Executive’s budget report and agrees a final report

27 February Full Council agrees budget

Service and Budget Planning

Timetable for 2012-13 (2)