Agenda item

Financial Strategy and Plan 2016/17

To recommend the Council to update the its financial strategy and action plan to help guide the management of the Council’s finances during a period of diminishing resources, and to build upon the work already achieved in this area in previous years.

Decision:

RECOMMENDED TO COUNCIL

That:

(1) The key financial principles and actions of the 5 year financial strategy be as set out in paragraph 6 of the Cabinet report.

(2) That the current 5 year Financial Model at Appendix 1 be noted.

(3) That a minimum level of general fund reserves of £5m be set, having considered the recommendations from the Corporate Governance & Audit Committee.

(4) That this authority continues to participate in a West Sussex Non-Domestic Rates (NDR) pool, until such time as the government fully localise NDR, at which point the situation will be reviewed.

(5) That the current resources position, as set out in Appendix 2, be noted.

(6) That a decision on the level of Council Tax for 2016/17 be deferred until the details of the Local Government settlement are known.

Minutes:

The Cabinet considered the report circulated with the agenda (copy attached to the official minutes). In the absence of Mrs Hardwick, Mr Dignum introduced the report.

He commented that it was not the ideal time to be presenting a Financial Strategy because the Chancellor of the Exchequer had only just announced the comprehensive spending review, setting out the Government’s own plans for the next 4 years. It was not yet clear how the Council would fare compared with the average real reduction of 24% in Government funding for Local Government planned over the next 4 years. There were three components in that funding: New Homes Bonus (NHB), Business Rates and Revenue Support Grant.

NHB receipts could be cut by far more than 24%. The Government’s favoured option as it goes out to consultation was a 2/3 cut, probably from 2017/18.

Local Government as a whole would keep 100% of business rates receipts by 2020, but it was not clear what proportion the Council would retain of business rates receipts in Chichester District.

Revenue Support Grant would, as expected, be reduced to zero by 2020 but the pace of elimination over the 4 years was not known.

Given these uncertainties, the 5 year Financial Model in Appendix 1 to the report was the best forecast that could be made at present. The underlying assumptions were that: no NHB would be received from new homes completed from 2017/18, but NHB from previous housing completions would be received for the full six years; no radical change was expected in business rates except the anticipated growth from new enterprises; Revenue Support Grant would fall steadily to zero by 2020/21.

The Model assumed no increase in Council Tax. Whether this would be sustainable in later years would depend on whether there were unforeseen cost pressures or income setbacks after 2017/18. On the current forecast, significant savings would be needed to offset a deficit in 2020/21. Major elements in the forecast included the expected gain if a decision was made to outsource leisure services, and a significant additional cost, perhaps of £700,000 per year from 2018/19, to meet the EU objective of 50% recycling by 2020.

On present forecasts, it appeared that an increase in council tax in 2016/17 would not be necessary, but no decision could be made until the Government policies were clearer. Moreover, not raising council tax had implications in later years. If the allowed 2% increase was not made then it was foregone forever; it could not be made up later.

All the Council’s policies conformed to the principles of prudent finance itemised in Sections 6 and 7 of the report.

Mr Dignum drew attention to paragraph 7.2(c) . The Corporate Governance and Audit Committee had endorsed the maintenance of a minimum level of general reserve of £5m.

As reported in paragraph 4.7, the Council had purchased a number of property assets which helped to reducedependence on centralgovernment funding, in addition to the economic and community benefits such investmentbrought to the district. Officers were currently investigatinginvestment opportunities in Property funds including one specifically designed for local authorities.These were pooled investments in property offering greater diversity and were backed by assets providing securityover the longer term. Although offering slightly lower income returns than in house investments (circa5% versus up to 8 – 9%), they did offer relativelygood returns for the long term, with onlymodest capital risk asopposed to traditional TreasuryManagement deposits. More detailed proposals, including a recommended level of investment in a property fund, would be brought forward in due course. Such investment returns would help to support the revenue budget in future years.

Based on current figures, the report also recommended remaining for another year in a pool for business rates with other West Sussex councils.

Mr Finch referred to the assumptions on pay settlements in paragraph 4.6 of the report, and added that bench-marking and other data was being analysed and a report would be brought to a future meeting with recommendations to ensure the Council kept ahead of the hiring curve. He commended the proposed financial strategy and plan and advocated an objective of not increasing council tax.

In answer to questions, Mr Ward confirmed that the 2% increase in council tax allowed for social care applied only to upper-tier authorities. He confirmed that he would provide an update of the financial model, explaining variances, after the local government settlement had been announced. No announcements had been made that the Government intended any clawback of Council’s reserves, and the Government was considering allowing the use of capital receipts to support revenue spending, which was not currently allowed.