Agenda item

To consider and endorse to County Council for agreement, the draft budget and the council tax precept (including the additional Social Care Levy) taking into account proposed amendments from Cabinet Committees and late changes to the draft Budget and MTFP published on 11th January 2016.

Cabinet received a report setting out the proposed budget for 2016/17 and the Council’s Medium Term Financial Plan (MTFP) 2016-19 for consideration and comment before it would be considered and determined at County Council on 11 February 2016. The proposed draft budget included a 1.998% council tax increase (up to the referendum limit) and a further 2% through the social care levy. The draft budget represented the Council’s response to the local budget consultation and consequences of the Spending Review and Autumn Statement 2015 and the provisional Local Government Finance Settlement.

Ms Susan Carey, Deputy Cabinet Member for Finance and Procurement introduced the item. 

She began by congratulating officers, particularly Dave Shipton and Lizi Payne for the timely production of a clear and detailed draft budget based on the information currently available to the Council, which was made even more difficult than usual this year because the provisional local government finance settlement announcement just before Christmas was so significantly different to what the Council had expected. In particular, the changes to various grants, together with a redistribution change had affected the Council in a fundamental way and these changes were made very late.  She observed that the balancing of the 2015/16 budget would be extremely difficult as reported in the last item and that the setting of the 2016/17 budget had also presented significant challenges.  The squeeze on local government finances would continue to present increasing problems in the future, particularly 2017/18.

She went on to refer in particular to the following:

1. The proposed Revenue Support Grant (RSG) settlement included three key changes, which were set out in detail in paragraph 1.2. The combined effect was a reduction of £18m more than had been anticipated following the Spending Review, which had been done without consultation or prior notification and could not have been anticipated.
2. There was some good news, however, in paragraph 1.3, where confirmation was given about an increase in the council tax base, both in terms of collection and a growth in housing stock. 
3. However, even if KCC decided to increase Council Tax up to the referendum level (1.998%) as well as the additional 2% social care levy, there remained a shortfall when compared to the additional spending demands of almost £80m as detailed in paragraph 1.4 of the report. Announcements about a number of specific and ring-fenced grants were also still awaited.
4. At such short notice, the proposed budget included a greater use of reserves in a way that had not been planned.
5. The Capital budget was also under significant pressure, as described in paragraph 1.6; as the Council’s revenue budget decreased, the amount of money used to finance borrowing would also have to be reduced and, therefore, it was unlikely that any new borrowing would be considered and new schemes would have to be limited to resources available from capital grants and external sources/receipts.
6. She referred to the table in paragraph 2.1, which showed a significant reduction in the Council’s funding settlement over the next three years, although there was some hope on the horizon with the Better Care Fund (BCF) monies due to come in from 2017/18. However, Ms Carey stated that there remained significant concerns about how the Government calculated settlements for local authorities to meet their increasing needs, particularly social care obligations, which were set to make up over a half of the Council’s expenditure thus squeezing all other services.
7. In terms of the effect on Council Tax payers, the figures in table 4 at the top of page 16 confirmed that the budget proposals as currently presented would mean an increase of just under £40 per year for Band C properties, which equated to approximately 78 pence per week.; this included the proposed 2% social care levy.
8. The budget consultation was undertaken before the Spending Review, before the announcement about the social care levy and before the Council knew that its financial settlement would be worse than anticipated. However, the key messages coming back from the consultation were very much in line with what the Council has received before, which was that respondents wanted the Council to prioritise spending on those that were the most vulnerable. It was noted that there would be much more information on the budget consultation with the papers for the Budget County Council meeting in February.
9. It was confirmed that the Council would be responding in writing to the Government giving its views about the financial settlement and that response was in the process of being drafted. 
10. Reference was made to paragraph 1.13 of the supplementary papers under the heading ‘Treasury Management Strategy’, where it was confirmed that the Council had received payments of more than £50m from the deposits in Icelandic banks, which represented more than originally deposited and included interest payments, with more interest payments to come. It was noted that KCC was the only local authority to receive all of its money back as other authorities had settled at less than 100%.

The Leader, Mr Paul Carter, thanked Ms Carey for her detailed presentation of the budget proposals and welcomed the proposed budget put forward for approval to the County Council.  He reiterated that the outlook was bleak and exceedingly challenging and the settlement had been much worse than expected and worse for County Councils compared to inner London Boroughs and the Northern Metropolitan Councils. However, the Leader stated that the Secretary of State would say that this was the provisional settlement; there was an ongoing consultation and that the final settlement would be debated and agreed in the House of Commons in early February and the Council was doing everything it could to influence the final decision. Such a late decision on the final settlement made the Council’s medium term financial planning very difficult. He also mentioned the decisions on certain grants, which had also not been made yet, some of which were significant, such as the public health grant. Mr Carter also stated that one of the strong points being made to the Government both by KCC in its responses to consultations and by the County Councils Network (CCN) was that the Council Tax rates payable in the City of Westminster was almost half that paid in Kent, which could not be regarded as fair or justifiable and had to be addressed by Government in the review of the redistribution and devolution of commercial rates. He added that if the inner London Boroughs had the same levels of Council Tax as Shire County Councils and their RSG was reduced accordingly, it would raise £700m to £800m.  In conclusion, Mr Carter stated that the level of financial pain was set to continue for the next 2-3 years, which was getting into the realms of impossibility, which is why it was so important to make sure that there was a much fairer distribution of RSG to County Councils without which it would be become impossible to continue to deliver high quality statutory services and the highly valued non-statutory services.

Mr Andy Wood, Corporate Director of Finance and Procurement confirmed that it was anticipated that the final 2015/16 financial settlement for local government was likely to be made on Wednesday 3 February, the same day as the County Council budget papers were due to be published. Mr Wood stated that he shared the Leader’s cautious optimism that the level and intensity of lobbying in recent weeks would result in a more positive final settlement for County Councils. Mr Wood also stated that the current budget proposals included a £4m gap, which had yet to be found but he was expecting this to be met from an increased Council Tax base and a surplus on the collection funds. He also mentioned the better than expected level of Better Care Fund (BCF) monies but reiterated the cautiousness of the Leader and Ms Carey in relation to the as yet unannounced grant decisions, which could worsen the Council’s funding position. 

The Leader stated that the uncertainties outlined by Mr Wood and Ms Carey made the all-Member briefing on Monday 8 February even more important and timely, in order to ensure that all Members had a good understanding about the final financial settlement in good time before the Budget County Council meeting on Thursday 11 February.

No further comments were made.

It was RESOLVED that: