Agenda item

            The Director of Finance and Resources submitted for the Committee’s consideration the undernoted report:

 

“Relevant Background Information

 

1.1       The Council is statutorily obliged to set a district rate by 14 February every year.  It is important to note that the rates bill received by ratepayers contains two principal elements.  The first is the district rate which is set and received by local Councils.  The district rate accounts for 45% of the total rates bill.  The second element is the regional rate which is set and received by the Northern Ireland Executive and this accounts for the remaining 55%.  In terms of the district rate, this provides 74% of the total funding of Council activities; the remaining amount comes from fees, charges, derating support and specific grants.

 

1.2.      The rates bill, including both the district and regional elements, is levied by the Land and Property Service (LPS) which is an executive agency of the Department of Finance and Personnel.  Rates are a property tax, based on the valuation (the NAV) of how much the property would be rented for in the case of business premises, and how much it would be sold for (capital value) in the case of domestic premises.

 

1.3.      Each year, normally in November, the LPS will issue to local Councils an estimate of how much it expects to raise from the total rate collected from their area.  This amount is known as the estimated penny product (EPP).  Economic conditions obviously play a major role in the growth or decline of the rate base.  In times of economic prosperity the rate base will normally rise, whilst in times of recession the rate base will fall as businesses close and the level of bad debt increases.  However neither of these things happen immediately as it takes time for new properties to be put on the rate base and similarly it takes time for properties to come off the valuation list.

 

1.4.      Members will note that the amount to be collected by way of the rate is always an estimate.  This means that once the rate is actually collected for the year of account, an actual penny product (APP) will be established and a finalisation figure will be provided by the LPS to the Council.  This will mean either that less has been collected than estimated, in which case the Council will be required to pay money back to the LPS, or more has been collected than estimated, which means that the LPS will pay a balance payment to the Council.  Members will be happy to note that the finalisation figure for 2009/10 has now been received from the LPS and shows a slight positive surplus of around £200k.

 

1.5.      Apart from the notification of the EPP and APP the other main variables in setting the rate are the agreement of:

 

(i)      the departmental estimates

(ii)     the level of the capital programme

(iii)    the level of the city investment strategy

(iv)   special contingency budgets, eg Waste Plan

(v)    the level of reserves.

 

1.6.      The agreed Council process for setting the rate for 2011/12 is set out in the table below:

 

 

1.7.      The Committee agreed at its meeting on 21 May 2010 that an upper target for the indicative rate for 2011/12 should be set at 2.5%, followed by a direction to officers to work up three scenarios within this limit of 0%, 1% and 2.5%.

 

1.8.      In addition an indicative efficiency target of £1.7m was agreed and officers were directed to develop an efficiency programme which in so far as possible would not impact upon the delivery of frontline services.

 

1.9.      The purpose of this report is to give an initial assessment on the range of scenarios for the rates of 2011/12.  It is important to note that much more detailed work is required and there is a range of external variables, most notably the EPP, which are still not fully established.  More detail on these variables is set out at paragraph 3 below.  The figures presented within this report are therefore subject to change and will be refined in the period between now and Christmas.  Nonetheless Members have expressed a desire to engage early in this process and the initial scenarios are presented to assist Members in the party briefings and consideration of the capital programme which will take place over the coming weeks.

 

1.10     Members will also need to consider the issues arising from two other reports on the agenda: The Proposals for Use of the 2010/11 Underspend and the report on the Capital Programme.

 

Key Issues

 

2.0       Current Position

 

2.1       Scenario 1 – zero growth in the rates

 

            The first scenario for the consideration of Members is one which means zero growth in the rates.  Based on current estimates, this scenario would mean the following:

 

 

2.1.1    Departmental Estimates – This is the money required by departments to deliver services and typically covers expenditure on headings such as salaries, supplies and services. All departments have prepared estimates for 2011/12 and these are subject to ongoing review and challenge. Based on current estimates, this scenario would mean that net expenditure is budgeted to rise by £2.3m which equates to some 2% increase from 2010/11.  Two of the main elements are increases in landfill tax and gate fees (£1.3m) and increased pension contributions (£0.6m), both of which are outside the Council’s control.  There has been considerable emphasis placed on minimising departmental estimates and absorbing inflationary pressures.  The indicative efficiency target of £1.7m has therefore been surpassed. In order to achieve the overall zero growth scenario, Departments have identified efficiency savings of £2.2m.

 

2.1.2    Capital Programme - There is also a separate report on the agenda on the capital programme. Most of the capital programme is currently financed through loans and therefore the rates set need to cover the cost of borrowing to the council. This scenario provides the additional £700k

            needed to finance existing ongoing schemes in 2011/12 and to finance the Mercury Abatement at the Crematorium and developments at Dunville and WoodvalePark. Additional capital schemes which are subject to Members’ prioritisation cannot be funded from this current zero growth scenario.

 

2.1.3    City Investment Strategy – This scenario assumes no growth from the £3m per annum currently invested in the City Investment Strategy. This fund has been put in place to support major iconic projects and help lever in additional money into the city. This fund is currently supporting the Titanic Signature Project, the MAC, the Lyric and the Connswater Greenway. There is a separate report on the agenda on Investment in the City.

 

2.1.4    Waste Plan – The costs of managing waste continue to rise. Indeed, it is estimated that costs to Belfast City Council will be some £5m higher in 2014/15 compared to 2010/11.  The council needs to prepare financially for this increase in order to avoid a one off hike in the rates in 2014/15.  The zero growth rates scenario therefore assumes a stepped increase of some £1.3m to help meet this financial commitment in 2014/15, building on the £1.2m set aside in 2010/11.  This money will primarily be directed to actions which enhance recycling, thus reducing the amount of waste for landfill and assisting the Council to meet its landfill diversion targets.  Future reports will provide more information on the financial implications of the Waste Plan.

 

2.1.5    Reserves – Members will recall that a significant element of the rate increase in 2010/11 was attributable to the need to increase reserves to an acceptable level. Given that approach and the 2010/11 underspend, this zero growth scenario assumes that there does not need to be a contribution from the rates to reserves in 2011/12.

 

2.1.6    Summary

 

            Taking into account departmental cost increases, the additional financing needed for the capital programme and the funding needed for the Waste Plan, reductions of almost £8m are needed in order to achieve this zero growth rate scenario. These reductions represent some 6% of rateable income.

 

2.2       Scenario 2 – 1% growth in the rates

 

            This scenario reflects the same position as scenario 1, except that it also allows some £1.5m to be made available to fund City Priorities. These could be used to fund additional revenue projects and/or additional capital projects. For ease of reference, the £1.5m would fund some £15m of capital expenditure if it was all invested to finance capital schemes.

 

2.3       Scenario 3 – 2.5% growth in the rates

 

            This scenario reflects the same position as scenario 1, except that it also allows some £3m to be made available to fund City Priorities. These could be used to fund additional revenue projects and/or additional capital projects. For ease of reference, the £3m would fund some £30m of capital expenditure, if it was all invested to finance capital schemes.

 

2.4       The separate report on the agenda on the capital programme sets out potential capital projects which could be prioritised for investment within scenario 2 or 3 and Appendix 2, which has been circulated to the Members sets out some information on potential options for investment in revenue programmes on a local area basis.

 

3.0       Future Variables Impacting on Rates Setting

 

            As already advised, there are some significant variables which are still uncertain at this stage which could significantly alter the scenarios outlined above. The key outstanding variables are:

 

3.1.1    Clarity on the EPP – the estimated penny product (EPP) is provided by LPS to the Council as an estimate of what the rates will yield in income for the Council in 2011/12. As the Council is dependent on the district rate for some 74% of its income, this figure can make a significant difference to the rates that the council needs to set in order to cover its planned expenditure. The EPP will only be available in November, although engagement is continuing in the interim with LPS officials.

 

3.2       Effects of cuts in government funding – the implications of the Spending Review on the council for 2011/12 are not known at this stage but should external funding be withdrawn, this would have an impact on council services and potentially staff. Further work is needed around the risks to external funding as the situation becomes clearer.

 

3.3       Decisions on the use of the 2010/11 underspend – there is a separate report on the agenda on this issue. If the proposals within the report are agreed, they would provide £700k of additional savings in 2011/12 which are not factored into the scenarios above.

 

3.4       Review and Challenge – much work is still ongoing to review the figures presented and ensure their accuracy.

 

3.5       Level of the Regional Rate – whilst this has no direct impact on the estimated expenditure of the council, the regional rate represents some 55% of the rates bill experienced by rates payers. It will therefore be a relevant factor in determining the level of district rate and is currently unknown.

 

4.0       Proposed Process For Moving Forward

 

            It is recognised that this is only an initial assessment of the current position and that much more work and engagement is needed with Members in the coming weeks and months to provide Members with the necessary information and advice to support their decisions about the level of rates to be set.

 

            In particular more work is planned on:

 

·         Obtaining greater clarity on the future variables;

·         Developing the detail on what can be achieved within the various scenarios;

·         Working up proposals for any investment in City Priorities, including prioritisation of the capital programme;

·         Providing further advice and information on the Waste Plan;

·         Providing further advice on reserves.

 

         This will enable the scenarios to be worked up in more detail for Members’ consideration.  Ongoing engagement is planned with Members during November through the Budget and Transformation Panel, the Strategic Policy and Resources Committee and party briefings. A further report will be provided to Members for the Strategic Policy and Resources meeting on 19 November.

 

5.0    Decision Required

 

         To note the information provided and that a further report will be provided to Committee at its meeting on 19 November.

 

Recommendations

 

         Members are asked to:

 

(a)     note this update report on the rates and that further engagement is planned on this issue in the coming weeks and months;

(b)    agree that the efficiency programme should achieve a minimum of £2.2m in 2011/12 in the areas outlined; and

(c)     approve the appointment of a permanent graphic designer in order to facilitate the achievement of some of these efficiencies”

 

            During discussion, the Head of Corporate Communications indicated that the Council employed currently one permanent and one temporary graphic designer.  The temporary graphic designer affected annual savings of £135,000 by performing work in?house.  If the Committee did not agree to retain the post and make the appointment on a permanent basis, this would require the work to be outsourced and would result in additional costs to the Council.

 

            Accordingly, the Committee:

 

(i)   noted the contents of the report and that further engagement was being planned on the issue in the forthcoming weeks and months; and

 

(ii)  approved the appointment of a permanent graphic designer in order to facilitate the achievement of some of those efficiencies.