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2018/19 Budget Report

In line with Council’s instructions, this report seeks to provide additional information to inform the Council’s budget process.

Efficiencies & Operation

In past years each submitted budget report has highlighted the efficiencies that have been achieved based upon a comparison of the budget ten years earlier.  Those reports demonstrate that savings and efficiencies in excess of £80,000 have been achieved over that period and this report does not seek to repeat that information, merely summarise the total.  As previously stated the scope for achieving year on year efficiencies diminishes in scale due to the robust financial system in place.  However a concerted effort is maintained and reflected in the presented budget, with efficiencies continuing to be sought.

Over the past fifteen years the Council’s operation has expanded and has seen the introduction of new services and facilities including (but not limited to): the Litter Warden service; new play areas and open spaces; support for extended local library provision; Council Office and website; provision of Police Point; environmental improvements; extended youth provision; dog and litter bin provision and introduction of new technology.   The Council also supports the Cox Green Luncheon Club thereby providing valuable assistance for some of the most vulnerable in our community.

More recently the Council’s staffing has been expanded with the appointment of the Administrative Assistant at the Council’s Office to assist with the day to day operation and expanding workload.  This decision was taken after careful consideration of the Council’s expansion and operational requirements.  At the time it was acknowledged that the financial impact would be equivalent to approximately 10% on the Band D equivalent.  However due to the receipt of substantial Section 106 funds and the postponement of a joint Parish/Borough project (Ockwells Park), which released internal funds, that increase was able to be deferred by providing increased precept support.

Improved Financial Procedures

The introduction and appropriate operation of the earmarked reserves has also had a hugely beneficial effect upon the Council’s finances by removing potential spikes for income requirement – more specifically for capital expenditure.  The ‘smoothing out’ effect of the reserves has reduced the burden on particular financial years and allows for a more medium to long term approach.  This element of investment enables a stable funding base for the medium term financial plan.

Robust audit and review of expenditure levels has resulted in budgets that reliably reflect expected costs.  Early budgets contained generous contingencies in many categories to allow for the unexpected and to facilitate the short term.  The Council’s approach has been refined to the point that with the exception of health and safety areas, these contingencies have been all but eliminated.  This has resulted in an overall real term improvement for the Council Tax Payer.  Now, more than ever before, there is a direct correlation between the revenue raised through council tax and the value for money of direct services.  This drive for efficiencies within the budget has continued throughout this municipal year and the budget's background calculations continue to be refined to take into consideration Central Government targets, legislation and published direction.

Potential improvements to these procedures have been identified through the Risk Assessment process (detailed below), and these will be presented to the Finance Committee for consideration in the upcoming financial year.

Comparisons

This Council’s Band D equivalent element of the Council Tax bill has steadily been falling below the average for all of the ninety-six parish and town councils throughout the entire county of Berkshire as well as within the Borough of Windsor and Maidenhead.  Whilst it must be borne in mind that different local councils vary dramatically in the services they provide, all have the same legislative and administrative basis. 

It should also be noted that the vast majority of local councils have other streams of income in the form of hall hires, allotment rents, burial fees, community centre charges, markets, building rents, parking charges and other various business activities.  With the exception of a small element of recently introduced advertising revenue, this council has only one main source of income in the form of the precept.

Nationally, the average Band D equivalent for all town and parish councils for 2017/18 was £61.03.  Within the Royal Borough of Windsor and Maidenhead local councils, the average was £44.27.  The graph below displays the average Band D figures for the past ten years comparing all 8,825 parish and town councils within England, the 14 within Windsor & Maidenhead including and alongside this Council.


Source:  Ministry of Housing, Communities & Local Government

Analysis last year of parish and town council Band D equivalents within the last decade showed that Berkshire local council precepts have risen by over 30%.  By comparison, this Council’s Band D equivalent has risen by around 6%.  In monetary terms, this Council’s Band D had gone from being £1.65 above the Berkshire average to approximately £7.50 under the Berkshire average.

It is important to bear in mind the effects of inflation on the Council’s budget, particularly in the short and medium term.  Unless appropriately factored for, the ability of the Council to operate effectively can be severely eroded over time.  The presented budget appropriately takes this into consideration over the lifetime of the budget and forecasts.

The graph below displays the percentage increases for the same dataset as above, this Council is only shown in the last two years as there was no increase in any of the preceding years displayed.


Source:  ONS & Ministry of Housing, Communities & Local Government

Applicable Circumstances

National Economic Situation

Whilst the resulting upheaval of the unprecedented global financial event in 2008 has substantially subsided, there are still some legacy issues today.  In addition, and to some degree replacing those, are the issues surrounding the UK’s referendum decision to leave the EU.  There is much volatility and uncertainty around the consequences of this decision with varying degrees of impact for this Council.  One such impact is that of inflation with current predicted trends indicating a sustained period of higher inflation.  The Budget Book therefore takes this into consideration and uses the Government’s Office for Budget Responsibility (OBR) forecasting models in relation to RPI.  These have been compared against both Central Government targets, Bank of England forecasts and other relevant agency predications to ensure that a comprehensive outlook has been achieved insofar as is possible.

It should be noted that the official forecasts made and used during the previous budget round fell short of actual inflation by almost 1%.  The appropriate forecast corrections have been made to take this into consideration.  As there exists a risk of financial uncertainty surrounding ‘Brexit’, this has also been taken into consideration and the proposed budget provides limited flexibility for mitigation should it be required.

New Legislation – Tax Base

Current legislation introduced in the form of the Local Government Finance Act 2012, has had a discernible impact upon the compilation of the budget and is expected to impact future years.  One of the legislative changes in particular has been in relation to council tax benefit and the changes to how it is funded.  Whilst previously this did not affect this Council, the new system has resulted in a marked reduction in the Tax Base thereby impacting upon this Council's funding source base.  For the year of budget, the Tax Base has been reduced by nearly 148 Band D properties (against the pre Council Tax Support Scheme).  To ameliorate this Central Government made grant funds available to Billing Authorities which is anticipated will be used to limit the financial impact (although Government have not legislated or instructed Billing Authorities to do so).  As was undertaken last year, the Royal Borough has agreed to make a grant based upon the previous year’s figures, this equates to £5,827 and is included within the Budget Book figures (this is slightly more than last year but considerably less than previous years).  At this moment in time it is unclear as to whether future grants will be made by the Borough Council as there is no obligation to do so and neighbouring authorities are eliminating them altogether, therefore a prudent view has been taken and future grants are not included in the Budget Book.

New Legislation – Capping

Since the inception of parish and town councils, their fund raising abilities have not been subject to any form of restriction save for the 'ballot box judgement'.  Unlike other authorities which are subject to capping powers which can be used by the Secretary of State, parish and town councils have been able to levy precepts of any amount.  Recently introduced legislation has changed the capping powers whereby a rate of council tax increase can be set by Government above which will trigger a referendum.  This legislation has been widened to include parish and town councils.  Whilst not directly a capping power, it does introduce a very strong check on council tax rises as a referendum will involve considerable expense and delay which councils would be advised to avoid unless absolutely necessary.  As with previous capping powers, the rate set each year is at the discretion of the Secretary of State and therefore the figure and the timing of the announcement is not set and can vary from year to year.  This of course has the knock-on effect of adding an additional pressure to budget setting rounds as the customary announcements tend to be very late in the budget season.

As at the time of this report's compilation, an announcement had been made indicating that the Secretary of State is not inclined to set a trigger level for parish and town councils this year.  However, the Secretary of State has made it clear that the Government will monitor rises and may utilise the powers in future years if it considers increases to be excessive.

Risk Assessments

It is incumbent upon councils to undertake appropriate risk assessments throughout their operation.  A financial risk assessment has been undertaken as part of the budgeting process each year and the budget spreadsheet factors this in.  This year a standardised approach has been applied utilising the overarching strategy approved by Council which provides for risk assessments to be undertaken in a regularised manner, whilst at the same time allowing for them to feed back into the financial operation.  The general Financial Risk Assessment is included within the budget bundle for information and consideration.

Specific elements have also been identified which are addressed in this report or in the presented figures, these include:-

Inflation

The calculative index used by Council’s budget process is RPI and the resultant forecasts from official sources (Bank of England and Office for Budget Responsibility).  It is a generally accepted principle that town and parish council inflation levels are higher due to the level and specifics of their operations.  Notwithstanding this, revenue expenditure items in the Budget Book use RPI unless a specific criteria applies.

A consequence of actual inflation deviating from official forecasts is that over the Medium Term the resulting compound increase is greater than originally anticipated.  This is especially evident if the inflation level is higher in the Short Term as has occurred this year.  As highlighted earlier in this report, the current year’s inflation level was almost 1% higher than forecast which resulted in the effect of the originally set precept being just under inflation instead of just over.  The Budget Book takes this into consideration and adjustments have been made accordingly.

General Fund Level

To ensure an adequate cashflow and a degree of reactive responsiveness, a level has been applied equal to 60% of revenue expenditure.  This takes into consideration the payment of the precept in two instalments six months apart.  Largely due to the receipt of Section 106 funding and the release of Contingent Reserves the budget cycle exceeds this level, however, the short to medium term plan includes support for the precept which depletes this towards the level set without incurring unnecessary spikes on the precept requirement.  It is therefore considered an appropriate level and use for the General Fund.

Precept Support

There are occasions when a level of support is provided within the budget process to assist with leveraging changes into the Councils operation such as new responsibilities, services or expansion.  The short to medium term financial plan includes support for the precept amounting to just over £15,000.  This support is for the budget year plus four more, with the fifth year after budget having reduced this support to zero.  This level of support over the budget cycle is less than cyclical support set last year.  The increased pension contribution rates and higher than expected inflation have impacted the sustainability of providing the support to defer the cost of the recent staffing appointment.

Taking into consideration the General Fund Level comments above and the currently available forecasts, this level of support is felt to be appropriate and is contained within the Medium Term.  Any continued support past the fifth year would impact upon the Council’s financial abilities and could not be sustained.  Therefore, the presented levels are within acceptable tolerances.

Revenue Expenditure and the Precept

A properly compiled budget must seek to ensure that the precept requirement adequately funds the revenue expenditure as a minimum, unless exceptional circumstances dictate in the short term.  Any reduction below this funding removes the Council’s ability to invest/save for future capital expenditure.  Therefore, the compiled budget takes this into consideration appropriately and is reviewed ahead of every budget round.

Operational Costs - Pension

Every three years the Pension Fund undergoes a triennial valuation which results in the setting of the contribution rates.  The report’s publication was delayed by six months and so the contribution rates were not announced until after the budget setting process.  In the absence of guidance an allowance was made within the Budget Book, however when finally published the rates were higher than anticipated resulting in a budget category overspend.  Furthermore, the rates have been set at staggered increases over a three year period over and above that originally forecast (3.4%, 2.5% & 2.4% respectively). 

Earmarked Reserves

The vast majority of capital expenditure is funded through the utilisation of the Earmarked Reserves, this ensures that spikes in the precept are avoided as far as possible.  This approach is a prudent solution to a variable expenditure which will usually change considerably (up and down) from year to year.  To accommodate this area of funding, appropriate contributions into the Earmarked Reserves must be reviewed at least annually.  A certain amount of unexpected capital expenditure can also be accommodated with an alteration in the capital schedule/contribution levels.

The operation of the Earmarked Reserves is a robust method of forward planning and an invaluable tool for the financial procedures of the Council.  As part of the Risk Assessment and Review process a weakness has been identified.  Whilst the current arrangements work extremely well for the Short and Medium Term, expected capital expenditure in the Long Term is effectively masked from the process.  Any expenditure for capital items such as play area replacements that are anticipated further than six years from the current year are not appropriately considered.  This can result in a large expenditure item entering the final year of the Medium Term (forecast year 5) without an adequate provision, thereby requiring a five year accumulation of advance funding to avoid a single year precept spike instead of the longer lifespan accumulation.

This is identified in the presented Budget Book by the reduction in the four main Earmarked Reserves used for replacements by almost 90%.  Whilst accommodating the expenditure contained within the Medium Term, the closing balance of these reserves is low.  However, without an appropriate indication of expectations in the Long Term contribution levels cannot be adequately forecast.

To ameliorate this a separate capital replacement schedule should be implemented to take into consideration replacements with an expected lifespan of over six years or other/capital expenditure anticipated in more than six years.  Once completed and associated with the Budget Book its ongoing maintenance will inform the budget process in relation to appropriate levels for the Earmarked Reserves and the resultant annual contributions.

Notwithstanding the above the levels included within the presented Budget Book are based on the currently available information regarding the Short to Medium Term capital schedule.  These will be reviewed as part of the Finance Committee’s Schedule Review mentioned above.

General Data Protection Regulations (GDPR)

Parish and Town Council have been included within the new legislative regulations from the EU requiring compliance with the law as from May 2018.  This wide ranging and hugely significant piece of legislation places considerable responsibilities on councils, the full implications of which are still unknown (guidance from the Information Commissioners Office and central government is still evolving).  Setting up the initial compliance obligations involves auditing assessments of the Council’s entire record base and operation of both paper and electronic data as well as the introduction and implementation of required policies and practices.  Whilst the Council currently benefits from a considerable amount of IT work being carried out in-house, the obligations of GDPR may not be able to be fully met by this method.  Until the guidance is completed the task of initial compliance is difficult to cost, discussions with similar sized councils has resulted in a range of preliminary costs from £2,000 to £15,000 plus.  Furthermore, the ongoing cost of compliance is another unknown at this time.  A conservative approach has been taken within the Budget Book which provides the Council with an allowance for regulatory compliance in the budget year.  Once ongoing costs are established they will be incorporated for future years.

Summary

Consideration has been given to the decisions of the Council and its Committees, the current fiscal climate and the sustainability of the Council’s financial position as well as other budget year factors including, but not limited to:

  • The continuation of a high level of precept support to defer the staffing appointment is no longer sustainable and therefore the initial Council decision is implemented in the presented figures
  • Revised inflation forecasting based on official data
  • Increased operational costs
  • GDPR implications and the associated uncertainty
  • Sustainable level of precept support
  • Future sustainability of the Earmarked Reserves

The presented figures take into account all the areas identified within this report and where required will inform upcoming reviews.

The presented budget returns an annual Band D equivalent of £45.48 (87 pence per week) an increase equal to 14.86% for the next financial year.   This is an increase of £5.88 for the year (11 pence per week).

For information purposes, the number of Band D equivalents for 2018/19 is 3,073.72 which means that each £1 of the Band D equates to £3,073.72 raised.

As stated above, the short to medium term financial plan includes continued support for the precept from the General Fund, however at a reducing rate.  This Council's approach has been acknowledged by the Government appointed External Auditors thereby endorsing this Council's financial planning policies.  Taking inflation into consideration, this presented Band D equivalent is still lower in real terms than that of ten years ago, average for RBWM parish council precepts and substantially below the national average of all town and parish councils in England.

Sustainability

Proper financial management of public funds must take into consideration future sustainability even when exceptional circumstances prevail. Based upon the figures provided, the further five year projection shows that the efficiency drive and support can be sustained, whilst allowing the Council a degree of flexibility to be reactive where necessary.  Using extrapolated inflation predictions and risk managed support, the current budget forecasts indicate that the Council continues to be operationally sustainable whilst at the same time providing a level of investment for the future.
 
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