Setting a political budget

1. Setting a political budget Councillor Alan Waters, Deputy Leader, Norwich City Council Learning & Development Manager LGIU

2. The Political Context National Picture

3. Local Government Finance – The Context • Local government grants from central government will reduce as a contribution to the overall deficit reduction programme. • Reductions in government grants confirmed to 2015/16 and can be anticipated at least up to 2017/18 and beyond! • Schools funding is the exception and is currently protected, but ring-fenced – mostly removed from Local Government control • Incentives for economic growth: Community Infrastructure Levy; New Homes Bonus; Localisation of Business Rates • Impact of Localism and Localism Act.

4. Cuts in central government grant: why are poorer areas most affected? • Councils with a low council tax base (lower tax banded properties) need more grant (RSG) than councils who have a large number of properties in higher tax bands. • Impact of Localisation of Council Tax Benefits • Effect of reliance on economic growth for funding • New Homes Bonus

5. LGA Funding projections 2010 - 2020

11. Educationand Public Health Education • School funding largely removed from local authorities either through DSG or Academy/Free Schools models, though responsibility for some services and early years remains Public Health • Now the responsibility of Local Authorities • Funded from a ring-fenced government grant for 2013/14 and 2014/15

12. The wider £ implications: welfare reform Implementing Welfare Reform – e.g. Localisation of support for Council Tax Housing benefit cap & ‘bedroom tax’ Pressures on services from the impact of Welfare reform changes Impact on local economy

13. Reducing budgets – Government view. Savings can be made through - different types of partnership working to deliver “affordable services” - more “outsourcing & private sector practices” - “Community budgets”

14. ‘Look after the pennies’: don’t overspend on bottled water!

15. Why is local government being treated so badly? • Ring-fencing of NHS, schools, International development; growth in welfare budget • Local government unprotected & hostile Secretary of State at CLG • Local Government has shown that “it can take it” – so government will continue to cut.

16. Issues of financial viability • Audit Commission • 43% larger single tier councils • 34% district councils • Short or medium term risk of not being financially viable

17. The Pickles Plan Reason for the frontloaded cuts It is important that local government restructure its administration and its services, and the only real way to do that is to start the process early on’ Eric Pickles – CLG Select Committee 2010

18. The Government’s ‘Vision’. “Even if there was 10% growth next year we would still want to shrink the State” Brandon Lewis, Under Secretary of State for Local Government

19. Key political point in managing the cuts The Poll Tax question…….. WHO GETS THE BLAME?

20. BACK TO BASICS How the system works

21. Back to Basics • The law • Capital and Revenue • The General Fund and the Housing Revenue Account

22. The Law • Local Government Act section 151 • The council must make provision for effective financial management • The “Section 151 Officer” • The Local Government Act 2003 • Medium Term Financial Strategy • “Balanced” and “robust” budget with “adequate” reserves • Councils must follow “proper accounting practice” Important residents know that you are running a tight ship.

23. The Law • Localism Act 2011 • Local referendum on “excessive” rises in Council Tax • Local Government Finance Act 2012 • Business Rates Retention • Local support of Council Tax • Changes on Council Tax for empty and second homes

24. Four Budgets • General Fund budget (under most pressure) • Non-Housing Capital Programme • Housing Revenue Account • Housing Capital Programme

25. Capital and Revenue Revenue Capital Expenditure on funding and improving assets – over a 1 year life New build, renovation, new vehicles and infrastructure Most councils have a “de minimis” level before expenditure becomes capital Income sources CANNOT be spent on revenue expenditure • Running costs expenditure – under 1 year useful life • Employee costs, maintenance and repairs, utility bills, supplies and services • Income sources CAN be spent on capital expenditure

26. General Fund and HRA Housing Revenue Account General Fund All other services Will include non-landlord based housing services e.g. some housing benefits, support to RSLs • Only required if council is a “landlord” to housing tenants (including ALMOs) • Therefore not required if council has sold its housing stock to an RSL • Income and expenditure is “ring-fenced”

27. HRA Funding • New system from April 2012 for councils with their own housing stock. • In exchange for taking a “one off” distribution of housing debt able to invest housing rents in upgrading and building new homes. • Councils developing long term investment plans for their housing stock & some modest new build.

28. But.. • Changes to the RTB scheme may reduce councils housing stock and the variety of homes it owns • ‘Help to buy’ – which may already be pumping up house prices - could have built 175,000 new affordable homes. • A cap on Housing Revenue Account borrowing – loss of estimated new build of 66,000 council houses.

29. General Fund Revenue – Key Issues • Council Tax • Business Rates and Government Grants • The New Homes Bonus • Fees and charges • Reserves and Balances

30. Council Tax • Local referendums for “excessive” increases – 2% for 2014/15 • Council Tax Freeze Grants available from 2011/12 through to 2014/15 • Freeze grant now part of the council’s base funding, but below inflation increases still erode the Council Tax base • Any support for Council Tax is a discount and so also affects the Council Tax base

31. Council Tax – always newsworthy! • Last year some councils not taking the council tax freeze grant got attacked for hitting “the hard pressed local taxpayer”. Important to get public endorsement for CT decision

32. Business Rate Retention • All councils benefit from any above inflation increases in business rates income • However, the percentage retained locally varies between councils • The level of (and collection rate for) business rates is now very important for councillors to understand

33. Government Grants – the SUFA Start-Up Funding Assessment The new way Government funding works…. SUFA = Formula Grant + Specific Grants that have been “rolled in”

34. An example - LB Ealing’s SUFA

35. The New Homes Bonus • Commenced in 2011/12 • “Match funding” for every new home and existing homes brought back into use • Funding available and builds over 6 financial years • Individually calculated, but included within your SUFA • “Top-sliced” in London, but not elsewhere

36. Fees and Charges • Check the legal position – some services must be free at the point of delivery • The Local Government Act 2003 enables a council to charge for all “discretionary” services • Under the LGA 2003 the charge can cover the full cost including overheads and depreciation • Do you know how what services you subsidise and are you clear why?

37. Investment Interest • Councils invest all surplus revenue and capital money to earn interest • All interest can be used to support revenue spending • Each authority has a Treasury Management Policy and investment strategy to determine where money is invested • The balance between “risk” and “return” is key

38. Reserves and Balances • All councils retain a variety of different reserves • LGA 2003 requires council to agree a minimum level of balances as part of its budget setting process • All reserves (including capital reserves) attract interest that can be used to fund revenue and capital expenditure • Note: the level of reserves is set by assessing risk or uncertainty facing a council • Also allows the council to ‘buy time’.

39. Capital Funding • Capital receipts • Borrowing – “affordable” and “prudent” • Capital Grants • “Section 106” agreements • The Community Infrastructure Levy • Revenue contribution

40. Contributions from Developers • Town and Country Planning and Land Act 1990 section 106 • A contractual agreement between council and developer to fund public realm etc. in a development • Individually negotiated • Community Infrastructure Levy • A tariff based charging scheme • A proportion must be spent locally

41. What is the role of elected members in the budget process?

42. Member Involvement in the budget process • Why should elected members involve themselves in the budget process?

44. Elected members legal obligations • Local Government Act 2000 – responsibility of the full council to approve the budget and council tax demand • Executive must act within the budget • Local Government Act 2003 – council required to prepare a medium term financial plan and • Chief Finance Officer required to make formal report to members when considering the budget • Section 151 officer • Section 114 1988 Act re unlawful expenditure or unbalanced budget

45. Member Involvement ‘Budget planning, setting, scrutinising and monitoring can be a time-consuming exercise but it is important that all councillors are involved in or take an interest in the budget process’. (Councillor’s Guide LGA)

46. Member involvement ‘ The budget process concerns choices that may be : • Politically led • Policy led • Aimed at redirecting the way existing services spend • An aid to cross-party working’ The key thing for a councillor is to ensure that the strategy and policies agreed by the council influence and inform the budget setting process ( LGA: Councillor’s Guide 2011/12)

47. Activity:Member Involvement What part do each of the following play in the Budget process: • The ruling group on the council • Cabinet members • The opposition groups on the council • Scrutiny members • Ward Councillors • Newly elected councillors

50. Planning • corporate strategy direction makes clear the priorities and aims of the organisation. Have strong headlines. • service planning translates them into measurable actions • capital planning integrated into medium and long term financial planning • Important to have good information to help decide on budget priorities. • A service planning • A