PAPER B

Purpose: For Decision

Committee Date Title Report of PURPOSE 1.

FULL COUNCIL 21 SEPTEMBER 2011 BUDGET REVIEW LEADER AND CABINET MEMBER FOR RESOURCES

As part of the Medium-Term Budget Strategy process, a mid-year budget review report is made to Council each September to give an update on the local authoritys financial position. This takes into account the previous financial years outturn, the current years delivery of savings and budget monitoring position, along with the forecast budget position for the next financial year. In the context of the updated financial position this report sets out a range of initial proposals for consideration, as preparation for achieving a balanced and sustainable budget in 2012/13 and in subsequent years.

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OUTCOMES 3. To understand the overall financial position facing the Council and to agree the initial areas for possible budget savings that need to be worked up in preparation for reporting to Cabinet and Council in February 2012, enabling the 2012/13 Budget Strategy and Council Tax level to be agreed.

BACKGROUND 4. The Council set the 2011/12 Budget and Capital Programme at its meeting on 23 February 2011. This was against a background of the 2010 Comprehensive Spending Review and the final Financial Settlement for Local Government for 2011/12 which significantly reduced the level of government funding which the Council receives, on an ongoing basis. In overall terms it is estimated that over the four financial years 2011/12 2014/15 the loss of grant would be 20.8m. Due to frontloading of the reductions, nearly 80% of this reduction would be faced in the first two years. After allowing for projected increased costs, assumed council tax rises and the transfer of health funding, the net budget gap over the four year period totalled some 33.134m, of which 17.833m was applied in 2011/12. Savings were agreed to deliver the latter figure in February 2011. This leaves a projected budget gap of 15.301m over the subsequent three financial years. The 17.833m savings agreed for 2011/12 will have a full year effect of an B-1

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additional 3.366m being delivered in 2012/13. This leaves a remaining gap of 11.935m, of which 3.835m falls in 2012/13. This excludes the additional reductions in grant that arise from the transfer of functions to academies which currently is 366k per annum from 2012/13 but is currently being consulted upon by Government and therefore could change. STRATEGIC CONTEXT 7. The councils Corporate Plan and the Medium-Term Financial Strategy to deliver it were agreed by Council at its meeting on 15 June 2011. It provides a framework for the delivery of the authoritys services, setting out how resources will be prioritised over the remaining two years of the current council term. It is a clear statement of the Eco-Island vision, aims and priorities, and outlines the key outcomes and actions which will support the delivery of the Councils priorities. The key priorities in the Corporate Plan provide a framework for the setting of the Councils budget and where resources should be prioritised: i.e. to deliver the outcomes required that will make a difference to the way services are delivered and improved for residents and visitors. The activities set out within individual service plans aim to deliver the required outcomes and are supported by service budgets. The Medium-Term Budget Strategy adopted at Full Council on 23 February 2011 directed resources to the eight key priorities which were subsequently agreed in the Corporate Plan: i. ii. iii. iv. v. vi. vii. viii. Raising educational standards; Highways PFI; Keeping children safe; Supporting older and vulnerable residents; Housing and homelessness; Regeneration and the economy; Waste strategy; Delivery of budget savings through changed service provision.

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BUDGET REVIEW 10. This Budget Review takes into account a number of considerations that come together to inform the Councils overall financial position and how the Council can deal with it. These are: The outturn position for 2010/11; Delivery of the 2011/12 Budget; The projected resources and need to spend position for 2012/13; The longer term impact of Government proposals on Local Government funding.

2010/11 Outturn 11. The Outturn position for 2010/11 (subject to sign off by the Audit Committee) was reported to Cabinet on 21 June 2011. This indicated that in overall terms there had been an underspend of 787,000 and that 2.669m had been set aside for B-2

severance costs. This underspend was despite the local authority facing significant financial challenges in 2010/11, including in-year reductions in funding from the Coalition Government. 12. As highlighted in the report to Cabinet the main areas of individual overspend in 2011/12 related to adult social care packages (4.061m); parking income shortfall (1.030m); childrens placements (0.559m) and school transport (0.592m). These totalled 6.242m which was much in line with the budget pressures indicated during the year of a 6.3m potential overspend from these particular service areas. Action was successfully taken to offset these overspends through spend controls, management controls on staffing and there were compensating savings from increased planning income, waste management and savings in other service areas that more than offset these. In the particular areas where there have been recurring pressures these have now been dealt with in the 2011/12 budget, by resetting the base to match the likely demand. Adult social care has been a pressure area for some time as a result of increased need (due to demographics) outstripping the budget available. In order to redress this, the budget for 2011/12 was increased by 3.4m (the core overspend from the previous year) and by another 2.2m in respect of demographic / need increases. On parking income the target income for 2011/12 and the income budget was reduced by 1m. For childrens placements 500k was added for demographic need pressures. For school transport the letting of the new school lift contract led to higher costs than the previous budget, partly due to an enhanced service being provided at primary age, leading to an overspend in 2010/11 of 592k. As part of the 2011/12 budget strategy 547k was added to this budget. In overall terms the outturn position for 2011/12 is very positive and reflects successful financial and budget management right across the Council. Delivery of the 2011/12 Budget 16. Within the 2011/12 budget gross savings of 20.558m were agreed. After allocating additional resources to economy, public transport and lifeguards totalling 225k; 1m for parking income reduction and 1.5m for children and young peoples services this gave net savings of 17.833m. Detailed savings plans have been put in place for some 16.2m of this, with a further 1.6m in hand related to procurement savings and staff restructures. Of the 20.558m gross savings some 15.611m (77%) related to management savings, back office efficiencies and income with 4.947m (23%) coming from direct service related savings as set out in Appendix 5. The first quarters monitor for 2011/12 is showing some minor budget pressures in adult social care and childrens agency placements, but these are currently being offset by contract savings within adult social care. There are also projected savings within leisure contracts and projected income from car parking is currently expected to exceed the income target. Furthermore the prudent management of debt is delivering reduced costs.

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It should be appreciated that it is still very early in the financial year and there are a range of issues and pressures that could arise and adversely impact on individual budget areas. However the pattern of spend and the savings plans that have been implemented, as well as the continued tight budget and financial control being exercised, gives rise to a reasonable level of confidence that those budget pressures likely to arise will be offset by further vacancy savings and capital financing savings. The overall position at quarter 1 is that the budget is robust and that in overall terms will not be exceeded. Regarding the Capital Programme, the total re-profiled capital budget (including slippage from 2010/11) is 68.5m. Although some areas of spend are behind profile, others are progressing well and the overall programme is only 11% behind profile at the end of quarter 1. Some projects have been deliberately delayed to fit in with the County Hall project and achieve value for money. It is anticipated that spend will pick up during quarter 2 now that this particular contract is in place. With regard to the transfer/closure of Waterside Pool the Council agreed a reduced level of saving leaving a budget of 100k in 2011/12 to enable consideration of proposals to keeping the pool in operation. A delegated Cabinet decision was recently published recommending disposal to Waterside Community Trust. This proposal would entail additional costs to the Council that are not provided for and Council will need to agree the financial implications if it is to proceed. This would be 50,000 for cost of capital works, 16,061 start up grant and 25,600 reduction in income that the Council currently receives, from transferring to the Trust the responsibility for the management and maintenance of the boats on Ryde canoe lake and also the canoe lake caf from 2012/13 onwards. 2012/13 Budget

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The Local Government Finance Settlement that followed the Comprehensive Spending Review set out the grants that the Council is likely to receive in 2012/13. Although the figures are still provisional they are not expected to change substantially. The grant loss in 2012/13 (excluding academies) is 4.771m. After allowing for health transfer monies, additional costs and an assumed 2.5% council tax increase the budget gap is 7.201m. The savings agreed as part of the 2011/12 budget have a full year effect of 3.366m giving a remaining savings target of 3.835m. On top of this the Council is also due to lose 366k of grant in respect of the transfer to academies, which would need to be met by further reductions in spends. The basis of the amount is still being consulted on and may reduce or even increase. The savings target could increase if pay awards, inflationary impacts and statutory need increases above the levels projected and / or the actual settlement for 2012/13 reduces grants further. This may happen if there are adjustments to the level of grant taking into account any other transfer of responsibilities. The Medium-Term Financial Strategy assumes Council Tax increases of 2.5% each year. For 2011/12 an assumed increase of 2.5% was met by a council tax freeze B-4

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grant and therefore no increase was actually applied. There is no proposal, currently, that the Government will fund a further council tax freeze in 2012/13. There is likely to be an expectation however that any increases are kept as low as reasonably practical which aligns with the Councils desire. 28. In previous years the Government have set a capping level for council tax increases. Within the Localism Bill currently passing through Parliament there is a proposal that the Secretary of State for Communities and Local Government will set principles for the calculation of Council Tax increases in any year and that if a Local Authority want to increase their level above the level calculated it would be deemed excessive and a referendum would have to be undertaken. It is likely that due to the cost of the referendum (100k+) and the practicalities of budget setting effectively that the Secretary of States principles will be the capping level. For 2012/13 this may be below the 2.5% level. It is not anticipated that the Council would be seeking to set a level that would invoke the requirement for a referendum. Government funding and future years 30. The 2010 Comprehensive Spending Review set out the proposals for public finances for the four financial years 2011/12 2014/15.It also highlighted a number of changes that would be introduced that would impact on local government responsibilities and resourcing. The overall projection of grant loss and resultant budget gaps are set out in Appendix 1. This projects that over the four year period loss of grant will amount to 20.8m with the budget gap over the remaining three financial years being 11.935m. In addition to this there are four key areas that will impact during the period covered by the Comprehensive Spending Review:(a) Local Government Resource Review The terms of reference of the Local Government Resource Review (LGRR) were published on 17 March 2011.The key element is the localisation of business rates. A consultation was issued on 18 July 2011 which set out a number of proposals. Consultation ends on 24 October 2011. On the 19 August 2011 the Government published eight technical papers covering the detailed aspects of how the proposed new arrangements would work and setting out some options being considered. These covered: o o o o o o o o Establishing the baseline; Measuring business rates; Non-billing authorities; Business rates administration; Tariff top-up and levy options; Dealing with volatility; Revaluation and transition; Renewable energy. B-5

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A top-up and tariff arrangement will be applied whereby the total Revenue Support Grant for 2012/13 is likely to be set as the baseline and then business rates would be retained locally by local authorities in 2013/14. Those authorities with excess business rate income would then pay back the excess over their grant entitlement as a tariff and those authorities (such as the Isle of Wight) with less business rate income than their grant entitlement would receive a top-up for the difference. (A summary of the position is set out in Appendix 2 to this report.) There are a number of areas of concern. Firstly, if the 2012/13 provisional total grant after damping is used as the baseline, it will already have had 2.853m removed because of this damping, and then this would be embedded for ever. Secondly, how the base position and top-up grant is indexed in future years will determine the Councils overall resources. For the Isle of Wight the increase in business rate growth is likely to be much less than the increase in need to spend on services through demographic and other need pressures, therefore leading to a further budget gap. Within the proposals there are options to operate a safety net and levy arrangements whereby the government would recoup some of the business rate growth and use it to pay a safety net to those authorities who experience negative or minimal growth. In overall terms the amount projected to be collected in business rates in England in total will exceed the overall amount paid to local authorities in total Revenue Support Grant. Consequently the Revenue Support Grant system will disappear. Strategies and investment to attract new businesses and promote existing businesses to grow will be an essential part of maintaining and increasing limited resources, thereby incentivising local authorities to be more pro-active in such work. The Council will be responding to the consultation in detail by 24 October 2011, and a report will be brought to Council the previous week for consideration. It will also be working with other local authorities who may be adversely affected by such changes, to ensure that a coherent case is put to the Coalition Government. (b) Localisation of Council Tax Benefit The Department of Communities and Local Government published a consultation document on localising support for council tax in England on 2 August 2011. Currently council tax benefit is determined and set nationally, but administered locally. The proposals are to transfer control and delivery of Council Tax Benefit to local authorities with effect from 1 April 2013. The intention is, prior to transfer, to reduce the overall level by 10% and that local schemes will be developed. There will be no change in the entitlements for claimants of pensionable age. Instead the thrust is to provide initiatives to incentivise people to get back to work and thus reduce the benefit paid. B-6

Financial concerns relate to the potential increased arrears that may arise, the ability to fund increased growth in claimants during a year, given that no rationing of benefit paid is proposed and the risk of a significant reduction in the administration grant currently received. A summary of the proposals is set out in Appendix 3 to this report. (c) Localism Bill The Localism Bill currently passing through Parliament will be enacted this year and the final proposals will have a direct impact on the duties of the Council and its resources and need to spend. In particular the duties on community right to challenge, listing and receiving nominations for assets of community value, planning reforms, local referenda and member code of conduct will all need to be assessed and appropriate changes implemented. The Council is already preparing for such possible changes. (d) Other national legislative and policy changes A White paper on Open Public Services has recently been published and this set out a reform programme for the delivery of public services .It has key principles of choice, decentralisation of power, diversity of providers, fair access to services and accountability. It is likely to fundamentally change the way we deliver services but it is in line with the overall principles set out in the 7 December 2010 Cabinet report on the Council Organisation: Future Shape and Direction. As part of the Welfare Reform Bill currently passing through Parliament there is the proposal to implement from October 2013, over a four year period, a Universal Credit. This will have a major impact on what we do locally and how it is delivered as well as potential impacts on debt collection. The Council is already in dialogue with the Department for Work and Pensions regarding these changes. Conclusion 33. In conclusion the 2010/11 outturn and the budget monitoring position for the first quarter are positive with the general fund balances being at a healthy level. It is still early in the financial year and tight financial and budgetary control needs to be maintained. The overall position for 2012/13 shows a revenue budget gap (after taking account of full year effect of 2011/12 savings) still to be met of 3.835m. After 2012/13 there will need to be further changes to the way services are delivered and funded, particularly given the possibility that resources will be even less than was set out in the 2010 Comprehensive Spending Review. It is clear that the Council needs to plan on the basis of significant changes to the services it delivers and how they are delivered within a framework of severely constrained resources for the foreseeable future. The 2011/12 gross revenue budget is 338m but excluding schools and benefits is 183m. After allowing for statutory duties and certain costs that are difficult to reduce B-7

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in the short term the effective controllable base from which savings have to be made is only some 98m. The further savings of 11.935m required represents some 12% of this. 37. Taking all these factors into account means that the Council needs to adopt a medium-term approach and to develop appropriate deliverable and sustainable strategies that will result in a stable financial position and the savings required achieving it.

PROPOSED WAY FORWARD 38. Building on the agreed principles set out in the report to Cabinet on 7 December 2010, and taking into account what has already been implemented as part of the 2011/12 budget process, consideration needs to be given to the areas where savings proposals should be worked up for 2012/13 and beyond. The 7 December 2010 report to Cabinet and the Corporate Plan agreed in June 2011 identified those priorities where resources should be directed. The December 2010 principles also highlighted those areas where changes to service delivery and savings need to be made. The relevant principles, along with proposed areas for development of further savings proposals (for 2012/13), are set out below: (i) Identifying those services which we will no longer provide or those that we might enable others to provide with minimal input from the Council The 2011/12 Budget made changes relating to tourist information centres, libraries, Waterside Pool, Ventnor Botanic Gardens, Dinosaur Isle and toilet provision. Areas to be developed for 2012/13 (a) (b) (c) (ii) Education Participation (Connexions); Transfer of responsibility to NHS for arrangement and delivery of the first 30 day care packages from hospital discharges; Transitional support for community leisure centre provision.

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Reducing the shape and size of the organisation in order to secure effectively the vision and outcomes of the Council within the resources available; The 2011/12 budget included significant staffing reductions related to overall management costs, communications, performance and partnership as well as a range of direct service reductions. The full year effect of the staffing reduction in 2012/13 is 13m. Any further savings are likely to impact on service delivery and / or require a reduction or cessation of specific areas of work. Areas to be developed for 2012/13 (a) Further review of overall structures in the light of benchmarking comparisons and affordability; B-8

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Implementation of the Youth Services Review; Street-based services and staff.

Reducing our financial commitments over the next four years to meet the resources available through: all areas of statutory duty to be subjected to robust challenge; reducing central support services on a pro rata basis; disposal of assets that are surplus to requirements; raising income through charging to sustain discretionary services; procurement and contract management savings; refuse collection revised arrangements; Highways PFI contract efficiencies and savings.

Areas to be developed for 2012/13 (a) (b) (c) (d) (e) (f) (iv) Review of staff terms and conditions; Debt management strategy; Procurement and contract management strategy; Restructure of Resources Directorate; Market testing ICT and shared services; Review of income generation.

Developing and implementing different delivery models moving from direct provision to commissioning; reviewing all core services; pursuing the opportunities created by partnerships; reviewing commercial / trading undertaking; promotion of web based services rather than face to face.

Areas to be developed / implemented for 2012/13 (a) (b) (c) (d) (e) (f) (g) (h) (i) operation of in-house business model for leisure centres; Future operation of the Cowes Chain Ferry; Joint service arrangements in the Economy and Environment Directorate, potentially with Southampton City Council; Operation of in-house business models for adult and childrens social care services and Wightcare; Establishing an integrated NHS / ASC crisis response and reablement service; Establishing direct payments as the principal means by which adult social care recipients are supported; Developing a new model for adult and childrens social care out of hours service; Review of the provision of Children Centres and Family Support; Developing joint school improvement service (challenge and support) with another provider, potentially Southampton City Council.

Appendix 5 to this report sets out more details on the areas being developed for savings, as set out in paragraph 40 above. B-9

CONSULTATION 41. For the 2011/12 Budget the Council undertook a number of service specific consultation exercises and equality impact assessments as well as a general budget stakeholder workshop and on-line simulator. The results of these exercises were analysed and fed into the budget process to influence decisions on resource allocation. The Overview and Scrutiny Committee also played a key role in considering and scrutinising the budget and relevant meetings were held with recommendations feeding into the Cabinet consideration. The Overview and Scrutiny Committee at its meeting on 28 July 2011 considered the overall position on the 2010/11 outturn, the progress on the 2011/12 budget delivery and the initial position for 2012/13. For 2012/13 consultation will be undertaken later in the year which will include service specific consultation exercises where required general budget stakeholder workshop and on-line simulator as well as that required to undertake necessary equality impact assessments and the consideration that follows.

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FINANCIAL / BUDGET IMPLICATIONS 46. This report is entirely about the overall financial and budgetary position of the Council and updates the financial and budget issues that the Council is now facing following the outturn position for 2010/11, the first quarters performance in 2011/12 and the projected budget position over the next three financial years. The Coalition Government has published a number of consultation documents that will affect funding of local authorities from 2013/14 and an initial view of these proposals and their potential impact is set out in the report. For the 2012/13 Budget and Council Tax setting the report to Cabinet will be published on Friday 3 February 2012. It is necessary, therefore, that over the next four months the necessary work and consultation takes place in order to develop the proposals that will deliver a legally balanced, sustainable and deliverable budget. The Council has a general duty to make arrangements to deliver Best Value and the Government has recently issued new Best Value Guidance to Local Authorities setting out clear expectations for councils considering changing funding to local voluntary and community groups and small businesses. These relate to Local Authorities avoiding passing on disproportionate reductions by not passing on larger reductions to the voluntary and community sector and small businesses as a whole than they take themselves and ensuring that at least three months notice is given and appropriate information is provided, consultation undertaken and opportunity to the organisation, service users and wider community to put forward options on how to reshape the service or project. B - 10

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LEGAL IMPLICATIONS 51. The Council will need to set a lawful and balanced budget and Council Tax level for 2012/13 at the Council meeting on 29 February 2012. In developing any proposals the necessary equality impact assessments and consultation processes will need to be followed. The ability to implement savings that deliver a full year effect in 2012/13 is dependent on undertaking the necessary statutory processes and consultation within a timescale that enables savings proposals to be implemented with effect from 1 April 2012. It is therefore necessary now to identify those areas that are likely to be the subject of savings proposals so that they can be properly worked up.

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PROPERTY IMPLICATIONS 53. There are no specific property implications of this report but the ability to support the capital programme is dependant in part on the ability to dispose of surplus assets and generate capital receipts. The delivery of the strategic asset management strategy is also essential in driving the Councils revenue costs down.

EQUALITY AND DIVERSITY 54. The Council has to comply with Section 149 of the Equality Act 2010. This provides that decision makers must have due regard to the elimination of discrimination, victimisation and harassment, advancing equalities, and fostering good relations between different groups (race, disability, gender, age, sexual orientation, gender reassignment, religion/belief and marriage/civil partnership). Equality impact assessments will be completed in respect of relevant proposals as part of the decision making process to enable members to take into account and if necessary mitigate the impacts as part of the decision making process.

SECTION 17 CRIME AND DISORDER ACT 1998 55. Section 17 of the Crime And Disorder Act 1998 (as amended by Police and Justice Act 2006) provides that: it shall be the duty of each authority to exercise its various functions with due regard to the likely effect of the exercise of those functions on, and the need to do all it reasonably can to prevent, crime, disorder, anti social behaviour adversely affecting the environment, and substance misuse in its area. As part of the development of any budget proposals the implications and impacts will be assessed in accordance with Section 17 requirements.

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OPTIONS 57. In relation to developing the approach to the 2012/13 Budget there are three main options:(i) To agree those areas identified in the report that should be worked up for consideration in the budget decisions in February 2012 and consult with residents / stakeholders as appropriate and to develop relevant Equality Impact Assessments. B - 11

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To agree a different list of areas to be worked up for consideration in the budget decisions in February 2012 and consult with residents / stakeholders as appropriate and to develop relevant Equality Impact Assessments. To defer consideration of the areas to be developed until later in the budget process

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RISK MANAGEMENT 58. The key risks of the 2011/12 Budget Strategy relate to budget pressures being even higher than anticipated, savings and efficiencies not being achieved, proposed income levels not being achieved and inflation higher than expected. These risks are contained in the strategic risk register. General Fund balances of at least 5m need to be maintained on top of earmarked reserves to provide a sustainable position which protects the financial health of the council in the medium term. Savings implementation plans have been adopted and are rigorously monitored through Service Boards and the Budget Review Board process. Budgetary control and reporting have been further strengthened and an officer authorisation panel process controls staffing, publications and related costs. The first quarters budget monitor indicates that the overall budget is likely to be achieved for 2011/12. There are however still risks in budget pressures arising in the next three quarters and the tight financial control that has successfully delivered the overall budget in previous year should be maintained. For 2012/13 and future years it is essential that the Council identifies the necessary measures to deliver a lawful balanced and sustainable budget and that proposals are worked up so that the necessary decision making process can be followed.

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EVALUATION 62. Due to the timescales involved in developing robust budget proposals and enabling proper processes to be followed it is recommended that either option 1 or 2 is adopted.

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RECOMMENDATION (i) That Council agrees those areas identified in paragraph 40 of the report that should be worked up for consideration in the budget decisions in February 2012 and consult with residents / stakeholders as appropriate and to develop relevant Equality Impact Assessments. OR (ii) That Council agrees to a different list of areas that should be worked up for consideration in the budget decisions in February 2012 and consult with residents / stakeholders as appropriate and to develop relevant Equality Impact Assessments. AND That Council agrees that in respect of the disposal to the Waterside Community Trust that provision be made for 50,000 within the Councils capital programme, a one-off start up grant of 16,061 be met from general fund balances and that the reduction of income of 25,600 from 2012/13 be dealt with as part of the budget strategy for 2012/13.

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APPENDICES ATTACHED. Appendix 1: Revenue budget gaps 2011/12 2014/15. Appendix 2: Local Government Resource Review. Appendix 3: Localising support for council tax in England. Appendix 4: 2011/12 savings analysis. Appendix 5: Areas to be developed for savings.

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BACKGROUND PAPERS Report to Cabinet 21 June 2011: Financial management report for quarter 4 (to 31 March 2011) & outturn position for 2010/11. Report to Cabinet 16 August 2011 quarterly performance and finance report. Department of Communities and Local Government consultation on Local Government Resource Review: Proposals for Business Rates Retention (July 2011).

Contact Point: David Burbage Strategic Director of Resources 823606 e-mail David Burbage@iow.gov.uk

DAVID BURBAGE Strategic Director of Resources

CLLR DAVID PUGH Leader and Cabinet Member for Resources

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