Agenda item

 

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

 

“1       Relevant Background Information

 

1.1    This report provides an update for Members on the development of the 2014/15 revenue estimates, in line with the summary of the rate setting process for 2014/15 outlined in Table 1 below.

 

 

2       Key Issues

 

2.1    The report is presented in the context of the commitment given by Members, as part of the Investment Programme, that the Council would set a district rate at no more than the rate of inflation. The Consumer Prices Index (CPI) annual inflation stands at 2.2 per cent in October 2013, and is forecast by the Bank of England to be around 2.0% in 2014.

 

2.2    Departmental Estimates – This is the money required by departments to deliver services and typically covers expenditure on headings such as salaries, supplies and services. The departments have all completed their estimates for 2014/15 and the outcome is that an increase of £1,295,800 (1.00%) is required for 2014/15.

 

2.3    This increase comprises of the net effect of the following factors:

 

·      Departments will incur £3m of uncontrollable costs as summarised in table 2 below. This includes provision of a central budget to cover the potential for a 1% pay rise.

 

·      £1.7m of planned savings have been removed from budgets as part of the Council’s efficiency programme.

 

Table 2: Uncontrollable Costs

 

	£	%
Superannuation	900,000
Pay Rise	843,000
Pay Increments	300,000
Energy and Fuel Costs	469,000
Income Risk (North Foreshore Electricity)	292,500
Total Uncontrollable Costs	3,060,000	2.35

 

            Capital Expenditure Plans

 

2.4    Capital Programme: This is used to pay for enhancements to existing council assets or for the provision of new assets owned by the council. The capital programme is financed through an annual budget of £10.14m and this budget is sufficient to meet the spending plans included in the council’s investment programme and therefore no increase to the capital financing budget is required for 2014/15.

 

2.5    Leisure Capital Transformation Financing: This will be used to pay the £38m for the first phase of Leisure capital investment in Olympia and Andersonstown. The annual financing budget of £3.23m has been provided through the agreed transfer from the annual Belfast Investment Fund contribution meaning that no increase is required for 2014/15. 

 

2.6    Belfast Investment Fund: This is used to finance investment package schemes for non-council assets. The current annual contribution to the fund of £2.77m will ensure that £20m of Belfast Investment Funding is available by 2014/15. There is therefore no requirement to increase the current level of contribution to the Belfast Investment Fund during 2014/15.

 

2.7    Local Investment Fund – This is used to fund neighbourhood capital projects for non-council assets. The £5m fund has been fully financed and there is therefore no requirement to make additional contributions through the district rate during 2014/15.

 

2.8    Reserves – The council’s general reserves position at the year end is forecast to be at least £13m by the end of 2013/14. Given the uncertainty surrounding the financial implications of local government reform and the new rate base it is believed that this level of reserves is appropriate.

 

2.9    Rate Base – council officers are currently working with the LPS and the IRRV on the rates forecast (EPP) for 2014/15. At this stage we are not in a position to provide an accurate figure.  Update reports on the rate base position will be provided to the Budget and Transformation Panel and the Strategic Policy and Resources Committee in December.

 

         Scenarios

 

2.10   Scenario 1: 1% rate increase: This option summarises the current position of the revenue estimates prepared by departments.

 

2.11   Scenario 2: 0% rate: This option will require a reduction of £1.295m from the current position. There are three potential ways to achieve this:

 

·        £300k - £400k of efficiency savings from the VFM review of security;

 

·        Authorise the Director of Finance and Resources, in consultation with the Budget Panel, to further challenge the department estimates and report back to the Committee in December on reduction options.

 

·        Review the EPP position in December.

 

2.12   Scenario 3: -2% rate decrease: This option would require a reduction of £3.89m from the current position. The following issues need to be considered:

 

·        The options for scenario 2 would deliver a maximum of £1.295m of the required decrease. This means that a further £2.6m of savings would need to be found. It would not be possible to deliver this level of budget reduction through planned efficiency savings in the timeframe available.

 

·        The half year finance report shows that the Council’s budgets are becoming much tighter with a year-end variance between budget and actual expenditure forecast to be 0.5%. Therefore the option to find £2.6m of budget reductions without impacting on service delivery is not available

 

·        Members should note that this does not mean that the Council cannot deliver further efficiency savings. Indeed, the Council has committed to making £2m savings in 2015/16 to support the setting of the district rate and £2m savings from both the leisure budget and the new rate base to finance capital investment in leisure facilities.

 

·        The Strategic Policy and Resources Committee, at its meeting in September 2013, agreed to join iESE – a mutual which specialises in the delivery of efficiency savings. A review by an iESE expert of potential efficiency opportunities has already started. The types of efficiency projects she has identified which the organisation will need to consider in the coming years include:

 

o       Review of major spend areas such as cleansing and grounds maintenance.

o       Introduce a single point of contact for customers across a number of access channels e.g. telephone, mobile and face to face.

o       Rationalise all support services through a shared services approach.

o       Commercialise discretionary services such as the Zoo, Malone House and Belfast Castle.

o       Reduce the number of management tiers.

o       Streamline the number of job description types.

o       Develop and implement an accommodation strategy.

o       Review overall approach to community services and the level of grant support.

o       Review service levels and eligibility criteria for statutory services

o       Reduce energy and utility costs.

o  Reduce variable pay costs such as overtime and allowances.

o       Accelerate the procurement improvement programme.

 

         Preferred Option

 

2.13   The setting of the district rate for 2014/15 will be the last rate to be struck by the existing Council. In 2015/16 the Council will face the costs of delivering services to the areas transferring from Castlereagh and Lisburn; expanding its capital programme to include projects in these areas; and delivering the new functions and exercising the new powers transferring from central government.

 

2.14   There is a significant degree of uncertainty as to how much money will be available to finance these new responsibilities. The value of the new rate base and its income yield is unknown; the impact of the non-domestic revaluation will not be assessed until September 2014; the rates convergence and non-domestic revaluation relief schemes have not been agreed; and the amount of money to be transferred from central government has not been calculated.

 

2.15   This degree of uncertainty creates a high degree of financial risk to the organisation and for this reason the Director of Finance and Resources would view the setting of a -2% district rate to be imprudent at this time and would make it difficult for him to provide assurance on the robustness of the estimates which the Local Government Finance Act 2011 requires him to do.

 

2.16   The preferred option would be to present a report to the Committee in December based on the delivery of a 0% rate. The setting of a zero rate would represent a reduction of 2.2% in real terms based on the current CPI rate. This would mean that for the first time the Council would have set a 0% district rate in two consecutive years. It would also:

 

-        Sustain the commitment to provide £150m of capital investment as part of the Investment Programme and £105m of capital investment in leisure facilities.

 

-        Support the achievement of £20m of efficiency savings by 2015/16.

 

-        Provide a strong financial foundation for the new council.

 

-        Meet the commitment given as part of the Investment Programme to set the rate below inflation.

 

3       Recommendations

 

3.1    Members are requested to:

 

(a)        note the contents of the report;

 

(b)        agree to consider a detailed report based on a 0% district rate 2014/15 in December 2013.”

 

            The Committee adopted the recommendations.