Agenda item

            The Director of Corporate Services submitted the undernoted report which had been prepared in connection with the estimated expenditure of the Council for the year 2009/10:

 

“Relevant Background Information

 

      At the Strategic Policy and Resources Committee 9 January 2009 the Director of Corporate Services presented the revenue estimates for 2009/10. The district rate increase to support the revenue estimates was reported as 8.59%.

 

      At the Strategic Policy and Resources Committee on 23 January 2009 reductions in departmental budgets totalling £1,042,560 were agreed by Members.  Members were also notified of the rates package provided by the Minister of Finance and Personnel. The combined impact on the rates position of these measures is an increase in the district rate of 7.16% which is the equivalent of a 2.96% increase to the domestic ratepayer when the regional rate element is included.

 

      At the meeting it was agreed that the Chief Executive and Director of Corporate Services should provide the Strategic Policy and Resources Committee on 6 February 2009 with options for further reducing the required increase in the district rate.

 

      The purpose of this report is to present to Members the options for further cost reductions and to make proposals in relation to advancing the Council’s efficiency programme.

 

Key Issues

 

      Operating Context

 

      Before discussing specific cost reduction options it is firstly important to set them in the context of the overall financial position of the organisation and the economic environment.

 

      For many years the council through strong financial management has been a cash rich organisation with strong reserves and little borrowing. Major schemes like the Waterfront Hall and the Gasworks were developed without additional burden to the ratepayer. Also the council has invested in top class facilities across the city such as the Grove Well-Being Centre and the Falls Swim Centre. At the same time the council has consistently set a rate below inflation, reduced its base budget by £6.7m and maintained high levels of citizen satisfaction.

 

      Circumstances beyond the control of the council have served to create a new financial environment for the council. The Minister of Finance and Personnel just recently stated in the Assembly that ‘we are in a position of extreme volatility’and he indicated that there would be tight budgetary constraints over the next 2 years.  The dramatic economic downturn has led to significant losses in income from rates and fees and charges. Indications are that income from rates will not increase over the next couple of years because of the rising number of vacant business properties.  These losses have been exacerbated by claw backs from LPS and the decision last year not to partly fund the City Investment Strategy from the rate. This situation has had the following impacts: the council needs to bolster its reserves quickly; the Capital Programme requires significant loan funding which puts additional pressure on the rate; ways must be found to compensate for the loss of income and at the same time minimise the burden on the ratepayer.

 

      The combined rate for 2009/10 currently stands at an increase of 2.96% to the domestic ratepayer which is below the current rate of inflation of 3.1%. If this rate is agreed it will mean that the rate set by the council is again lower than the regional rate charge as the graph below demonstrates.  Members are asked to note that any further reductions in the rate increase which, while negligible to the ratepayer in terms of reduced weekly payments^[1], may seriously limit the council’s ability to respond to further losses of income and build a reasonable level of reserves.  They will also severely limit the council’s response next year to any unforeseen events. For example, flexibility in the budget allowed the council to deliver an immediate response to flooding in the past two years. For these reasons Members are asked to give consideration to accepting the rate increase as was reported to the Strategic Policy and Resources Committee on 23 January.

 

 

      Options for Further Cost Reductions 2009/10

 

      If Members decide that notwithstanding the issues faced by the council, the imperative remains a further reduction in the rate, options for further cost reductions are outlined below.  These options are the easier to realise as they do not impact directly on front line service provision and do not involve reductions in staff numbers.

 

·         Civic Hospitality –reduce the Civic Hospitality budget by £20,000, however, this may limit the council’s ability to respond to new requests.

 

·         Proms in the Park – Included within the estimate of expenditure for Major Events 2009/10 is £80,000 for the annual “Proms in the Park” event. To date the BBC has not committed this year’s event to Belfast and it appears that they are keen to share the event in different locations outside Belfast. Members could decide to remove the budget from the Major Events programme, saving £80,000, and advise the BBC that we are unable to hold the event in 2009 due to current financial pressure.

 

·         Hire of External Rooms – reduce this budget by £30,000 by prioritising use of council facilities for internal meetings. This reduction would still facilitate use of external venues for appropriate local public meetings, for example, DPP meetings.

 

·         Members Training – a review of the Members training budget for 2008/09 has shown a significant under spend. It is recommended that the budget is reduced by £20,000. Members should note that the officer training budget has already been reduced by 8.5%.

 

·         New Initiatives - the Corporate Plan contains a new budget heading for corporate thematic working totalling £500,000. This covers cross cutting priorities on areas like safety, older and younger people. Members could consider reducing this budget by £75,000. A reduction in the budget would not mean that the initiatives would stop but rather the pace and / or scale of implementation would have to be reconsidered and processes examined to ensure maximum efficiency.

 

·         Hospitality - the estimated cost of providing the trolleys / functions catering service in terms of consumables is £87,073. It is recommended that Members cap the level spent on catering consumables to £62,000 in 2009/10. This will produce savings of £25,000. It is not viable to reduce spending any more in this area unless Members are willing to consider reducing staffing levels.

 

      If Members agree to accept these reductions in expenditure totalling £250,000 then the revised rates position for 2009/10 is an increase in the district rate of 6.93% which is the equivalent of a 2.86% increase to the domestic ratepayer when the regional rate element is included. For the average household in Belfast this will result in an annual rates rise of £23.26– 45p a week.  Appendix One provides details of the impact of the rates increase on the main household types. This increase is just below the current rate of inflation and compares favourably to the average council tax bill increase in England of 3.5%.

 

      The following is a list of options which would yield further savings but will have an impact on front line service delivery and staff numbers / pay levels.

 

·         Summer Fun Days - last year 15 fun days were staged in 15 different venues across the city. A total of 2600 children attended. No commitment has been made towards these as yet i.e. no advertisement of dates/venues. These would normally be advertised in the What’s On booklet over the next couple of months. Members could decide to cancel the Fun Days which would save £30,000.

 

·         Refurbishment of Playgrounds – a rolling programme of refurbishment of has been planned for 28 playgrounds across the city throughout 2009/10. £75,000 would be saved if Members agreed to two playgrounds being excluded from the 2009/10 programme.

 

·         Local Area Working – the council is committed to integrating its services at a local level. Consultation with areas will start this year on a 21 area basis. Members could consider redefining this initiative in the context of the economic climate and reduce the budget by £75,000.

 

·         Cleansing Services - reduction in overtime - Overtime budgets in Cleansing Services have already been reduced by £34,000. A further reduction of £37,000 (approximately 2,450 hours) could be achieved by reducing operative hours on the street across the Waste Collection, Priority Waste and Street Cleansing services. This will almost certainly lead to employee relations problems for the Service and the Council.

 

·         Cleansing Services – equipment and operational supplies – a reduction in the available operational equipment and supplies across to support the cleansing service delivery could yield £7,000 of savings. This option may impact on the consistency of service delivery across the city.

 

·         Building Control - reduction in overtime – a reduction of £10,000 in overtime costs could be achieved if Members decided to remove the building regulation inspection service currently available on Saturday mornings and the summer service on Tuesday, Wednesday and Thursday evenings. This will mean that the current facility to book a same day inspection up until 5.00pm will be no longer available. 

 

·         Environmental Health - reduction in overtime - overtime budgets in Environmental Health have already been reduced by £12,100. A further reduction in overtime of £2,500 could be achieved by limiting the out of hours services in areas such as safety and night time noise cover.

 

      Strategic Approach to Efficiency

 

      Over the past four years the base budget of the council has been reduced by £6.7m. The council has achieved this through savings in areas such as advertising costs, training, procurement and better use of ICT.  The savings have been delivered without Members having to make difficult decisions about changing the organisation and front line services have not been affected. The next few years are going to be tough for the council at a time when we have reached the point where the potential return from quick wins and short term gains is diminishing. 

 

      This means that the council can no longer plan its efficiency programme on the basis of purely transactional type savings. A new more strategic approach to efficiency is required. This means that the efficiency programme needs not just to be couched in terms of targets but also in the context of how efficiency gains will be used to support the priorities of the council. In basic terms the council needs to move its efficiency programme from a transactional nature to transformation.

 

      There are three broad methods for creating transformational efficiency savings. These are:

 

·         Internal methods which involve reviews of and challenges to existing structures, processes, practices and finances.

 

·         Mutual methods which would require the council to work with other councils in areas like procurement and shared services.

 

·         External methods involve outsourcing and joint ventures.

 

      The council will need to decide which methods or combination of methods it wishes to pursue. Irregardless of method Members and officers will be required to make some tough decisions over the next few years. Councils in England have developed a mechanism to support Members fulfil this difficult role. The mechanism is known as a Budget and Transformation Panel. Its role is to provide scrutiny and oversee the identification and implementation of transformation projects. Members are reminded that it has already been acknowledged that this role should be undertaken within a three year planning context. This Panel is usually supported by some form of independent external assistance. An example of a transformation project is the ‘review of the centre’ which the organisation is currently undertaking. This will challenge existing structures and staffing levels but will potentially deliver savings over a number of years. The working of the Panel should be reviewed in March 2010. The Panel would consist of ten Members and be representative of the current political make-up of the council. The Panel would report to the Strategic Policy and Resources Committee on an advisory basis.

 

Key Messages

 

      The Head of Corporate Communications has drafted a set of key messages to accompany the rates announcement. He recommends that it is vital that there are no more than four overall key messages that Members should focus on in the announcement of next year’s rates.

 

      It is recommended that these should be:

 

1.   We have worked extremely hard to achieve an overall effect on the citizens of Belfast of a rates increase of 2.??per cent. The figure will result in an average increase across households in Belfast of less than 50p per week or £25 per year.

 

2.   This has been achieved against a backdrop of the toughest post –war economic climate and a significant fall in rate and revenue income.

 

3.   Without our commitment to efficiencies which has realised saving of around £6.7m over the past three years we would have been looking at doubling the rates burden.

 

4.   The council must show responsible leadership by achieving the balance between investing in the city and providing efficient value for money services.

 

      Further details of the key messages are provided at Appendix Two.

 

Recommendations

 

      Members are requested to:

 

1.   To consider the options for setting the rate 2009/10 outlined in this report.

 

2.   To recommend a domestic and non-domestic district rate for the special council meeting being held on 12 February 2009.

 

3.   To agree to the establishment of a Budget and Transformation Panel to oversee and scrutinise a base review of the budgets and the identification and implementation of transformation projects.

 

4.   Agree the key messages for the announcement of the rate.”

 

            The Director advised the Members that, subsequent to the report having been issued, further information had been received from the Land and Property Services Agency in relation to vacant properties and he tabled the undernoted report in this regard:

 

“Relevant Background Information

 

      Members will recall the Strategic Policy and Resources Committee was informed in October 2008 of the significant losses in rates income due to vacant properties. The council’s Building Control Unit has carried out two exercises to confirm the actual number of vacant properties in the city. 13,000 properties were inspected and over 50% were found to be occupied. Details of these properties were then passed on to LPS so that rates bills could be raised.

 

Key Issues

 

      LPS, for a variety of reasons, has not been able to process all the data on the properties found to be occupied. Consequently, the EPP which the council is using to calculate the rate for 2009/10 does not include rates income from these occupied properties. On Monday 2 February 2009, LPs informed the council that as a result of the vacant property exercise it has been estimated that £1,890,000 could be built into the council’s projected rates income for 2009/10 but ‘…it is for the council to decide whether it wishes to use this figure in the rate setting process.’ A copy of the letter from LPS is provided at Appendix One. 

 

      Basically what this means is that LPS, using a number of assumptions, has worked out that once all the data has been processed the council may potentially receive  £1,890,000 in additional rates income in 2009/10 from the properties which have been identified by Building Control as occupied. The LPS will not be changing the EPP to account for this which means the council needs to decide whether it wants to risk including the £1,890,000 or a portion of it when agreeing the district rate for 2009/10.

 

      If Members agree to include this all or an element of this estimated rates income then obviously the required rates increase will reduce. For example, if £1,000,000 was included then the rates increase would fall from 7.16% to 6.23%, Members, however, need to be aware of the risks associated with including all or any of this estimated income.

 

      The current economic climate is volatile. There is a real risk that the number of vacant business properties will rise during 2009/10. It is also likely that bad debt arising from business bankruptcies and liquidations will increase. These risks has not been factored into the LPS estimate. Given the economic climate it is possible that new losses could outweigh the gains estimated by LPS. If this happens there are two serious consequences for the council. Firstly, at the end of 2009/10 the council could be in a claw back position which it would have to pay from already depleted reserves. Secondly, it would have set a budget based on an inflated level of rates income which means that the level of expenditure incurred by the council would not be sustainable. Members would either have to increase rates to make up the shortfall or reduce expenditure even further.

 

      Example: Figures for illustrative purpose only

 

·         For 2009/10 District rate increase of 6% = £100m rates income.

·         If actual rates for 2009/10 = £95m (for example because of increased vacant business properties).

·         Then shortfall = £5m = £5m less in reserves.

·         This means for 2010/11 just to stand still the District rate must be increased by 6.31% or expenditure be reduced by £5.0m.

 

      Options

 

      Members are asked to consider the following options for dealing with the potential vacant property income.

 

      Option 1

 

      Apply none of the £1,890,000 potential rate income to the district rate for 2009/10. Assuming Members accept the cost reductions recommended in the report on the district rate under item 2(a) on the agenda the district rate increase would be 6.93% or 2.86% when the regional rate element is included. This is the least risk option and means the council will have greater flexibility to deal with the volatility of the current economic climate and the uncertainty over the rate base.

 

      Option 2

 

      If Members wish to take additional risk, then an element of the £1,890,000 potential rate income could be used to supplement the rate for 2009/10. Members are advised that the more of the £1,890,000 is used the greater the risk. Members are further advised that to use more than £890,000 would place the council at an unacceptable level of risk. For information, using £890,000 and the £250,000 cost reductions would result in a rates increase of 6.10% or 2.52% when the regional rate is included.

 

Recommendations

 

      Members are requested to:

 

1.   To note the contents of this report.

 

2.   Consider the two options for use of the potential additional rates income.”

 

            During discussion in the matter and following comments made by Members, the Chief Executive acknowledged that at the meeting on 23rd January there had been a broad agreement at the Committee that a comprehensive Budget Review should be undertaken with the aim of establishing a three year financial planning cycle.  He stated that the recommendation before the Members to establish a Budget and Transformation Panel was the mechanism proposed to enable the Budget Review to take place and establish a forum for constructive challenge to existing processes, practices and finances with the aim of creating greater efficiencies and value for money throughout the organisation.  The Panel would report to the Strategic Policy and Resources Committee and be supported with independent external assistance.  He stated, that if the Committee was minded to accept this recommendation, the proposals for the Budget Review would be brought forward to the Panel and to the Committee.

 

            With regard to the issue of Local Area Working, the Chief Executive explained that the Council was committed in its Corporate Plan to developing Local Area Working in advance of Community Planning.  He acknowledged the Members’ comments about piloting the initiative to determine resource consequences and suggested that, rather than the Committee considering at this stage the detail of the initiative, a report be submitted to a future meeting of both the Strategic Policy and Resources and the Development Committees which would outline the current proposals for the introduction of Local Area Working, the resource implications and potential of pilots and the actions that would corporately be required to ensure successful implementation of the initiative across the Council.

 

            The Committee concurred with the Chief Executive’s suggestion.

 

            After a lengthy discussion it was

 

Moved by the Deputy Lord Mayor (Councillor D. Browne),

Seconded by Councillor Stoker,

 

      That the Committee agrees that it would not be prudent, in light of the recent failings of the Land and Property Services Agency, to rely on the realisation of the potential rate income identified in the vacant property exercise and agrees to set the cash limits for the Committees as circulated previously and that the Council be recommended to approve the expenditure contained in the Estimates of Income and Expenditure as submitted to the Committee on 23rd January, a summary of which is set out below, and the District Rate be fixed accordingly to meet the expenditure for the financial year commencing 1st April, 2009, subject to the inclusion of the following cost reductions:

 

                                                       £

Civic Hospitality                         20,000

Proms in the Park                      80,000

Hire of external rooms                40,000

Members’ Training                      20,000

Hospitality                                   45,000

                                                  205,000

 

Summary of Estimates of Income and Expenditure

for year ending 31 March 2010

 

Year Ending 31/03/2009	COMMITTEE	Year Ending 31/03/2010
£		£
15,364,330	STRATEGIC POLICY AND RESOURCES COMMITTEE	19,146,520
5,590,580	Chief Executive’s Department	5,680,850
215,620	Legal Services Department	254,570
10,406,690	Corporate Services Department	12,189,780
(1,348,560)	Improvement Department	(1,478,680)
(500,000)	Rent Reviews	-
1,000,000	City Investment Fund	2,000,000
-	Corporate Thematic Priorities	500,000
23,796,450	DEVELOPMENT COMMITTEE	24,226,210
30,989,430	PARKS & LEISURE COMMITTEE	33,020,230
47,764,590	HEALTH & ENVIRONMENTAL SERVICES COMMITTEE	49,738,470
31,400	TOWN PLANNING COMMITTEE	30,450
	COST REDUCTIONS	1,042,560
117,946,200	NET DEPARTMENTAL EXPENDITURE	125,119,320
(4,518,050)	Less Adjustments re Capital charges	(3,399,790)
113,428,150		121,719,530
	Less
(4,040,970)	GENERAL EXCHEQUER GRANT	(4,246,910)
109,387,180		117,472,620
	Less
(2,400,000)	ESTIMATED CREDIT BALANCE	(2,400,000)
106,987,180		115,072,620
4,822,430	ESTIMATED PRODUCT OF 1p RATE	4,840,100
22.1853p	NON-DOMESTIC RATE IN £ FOR YEAR ENDING 31/3/2010	23.7748p
0.011449	CONVERSION FACTOR	0.011449
0.2540p	DOMESTIC RATE IN £ YEAR ENDING 31/3/2010	0.2722p

 

            The Director of Corporate Services indicated that the overall effect of those measures on the rates position for 2009/10 was that the required income in the District Rate would be 6.97%, which was the equivalent of a 2.88% increase to the domestic ratepayer when the Regional Rate element had been included.  This would require the Council to determine a Domestic Rate of 0.2717 pence and a Business Rate of 23.7325 pence to meet the Council’s estimated expenditure.

 

Amendment

 

Moved by Councillor Newton,

Seconded by Councillor Convery,

 

      That the issue be deferred until the special meeting of the Council scheduled to be held on 12th February.

 

            On a vote by show of hands five Members voted for the amendment and nine against and it was accordingly declared lost.

 

            The original proposal standing in the name of Councillor D. Browne and seconded by Councillor Stoker was thereupon put to the meeting when nine Members voted for and three against and it was accordingly declared carried.

 

            The Committee agreed further:

 

(i)      to the establishment of a Budget and Transformation Panel to oversee and scrutinise a Comprehensive Spending Review, the development of a three-year financial planning cycle and identify and implement transformation projects;

 

(ii)     to approve the key messages for the announcement of the rate as detailed in the report but to make specific reference to the inadequacy of the service provided to the Council by the Land and Property Services Agency.