Estimates 2014 15 and medium term financial strategy
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Estimates 2014/15 and Medium Term Financial Strategy. Presented by Director of Finance and Technical Services Ian Young . Background. Reductions in Government Funding Practical Limits on Council Tax Increases Focus on Use of Reserves Ministerial View and Knight Review of Fire Service

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Estimates 2014/15 and Medium Term Financial Strategy

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Estimates 2014 15 and medium term financial strategy

Estimates 2014/15 and Medium Term Financial Strategy

  • Presented by

  • Director of Finance and Technical Services

  • Ian Young


Background

Background

  • Reductions in Government Funding

  • Practical Limits on Council Tax Increases

  • Focus on Use of Reserves

  • Ministerial View and Knight Review of Fire Service

  • Budget – Long Term Application of Reserves not sustainable

  • Peer Group Report – Strong Financial Position up to 2016

  • Invest to Save – Best Value Duty of Continuous Improvement

  • Value for Money

  • View Needed on Short, Medium and Long Term


Current position internal

Current Position (Internal)

  • Budget Holders 17th November Net expenditure £31.034m

  • Increase of £307,000 or 1%

  • Equates to a Council Tax Increase of 7.5% or £4.65 p.a. avge

  • Proposed Application of £2m Reserves to finance peak in 2013/14 Capital Reduces Council tax Increase to 6.65% or £4.12

  • Savings below Target (£577,000 v £950,000)

  • Eroded by Increases in expenditure £384,000 and Reductions in Income of £157,000

  • Means Savings Programme still to deliver £1.3m Net by 15/16


Current position external

Current Position (External)

  • Effects will be driven by internal decisions in light of the External Position

  • Indicative for 2014/15 and 2015/16

  • No changes yet to 7.3% and 8.1% Reductions in Funding following June Spending Round

  • Council Tax Freeze for both Years

  • Referendum Trigger 2% for both Years

  • Possible repeat of flexibility for Lower Quartile CT District and Fire Authorities (£5) for 2014/15


Medium term

Medium Term

  • 2016/17 to 2018/2019

  • 2015 Election unlikely to change much

  • Forecasts for Pay and Cost Pressures

  • Cost Neutral 2015 Pensions Changes

  • Continued Grant Reductions

  • Increases in Business Rate Yield

  • Historically Reasonable Council Tax Increases (average 4% )

  • Variable Capping/Referendum Triggers

  • No Ministerial Surprises

  • More Savings may be required


Longer term

Longer Term

  • 2018/2019 To 2023/2024

  • New System of Local Government Financing 2013

  • Links RPI to about 18% of Income via Business Rates with Potential for Growth

  • Should Provide some protection from Grant Reductions given Price Indices tend to drive Cost Pressures

  • Dependent upon District and City Positions

  • Business Rate Freeze/Revaluation

  • More Savings may be required


Basis of key post 2016 assumptions

Basis of Key Post 2016 Assumptions

  • Net Expenditure tied to Target CPI of 2%

  • Continuing Real Reductions in External Funding of 5% p.a until 2020, 2% thereafter

  • 4% p.a Council Tax increases

  • Level of Reserves available to support Invest to Save

  • £2m applied to support 2013/14 Capital Programme and 3 Year Moratorium on Major New Build

  • Minimum of £1.3m savings delivered by 2016/17 at the latest


Level of reserves

Level of Reserves

  • Estimated £5.7m @ 31.3.14

  • Pay/Price£3,442,000

  • Pensions£1,188,000

  • Contingency£600,000

  • General£324,000

  • New Developments£103,000

  • Earmarked Grants£47,000

  • Capital£0


Possible calls on reserves

Possible Calls On Reserves

  • Illegal for Preceptors to Budget for a Deficit

  • No Supplementary Precepts (Unlike Supplementary Levies)

  • Failure of Budget Assumptions

  • Incidence of Savings

  • Ready Reckoner of 1% Paybill =£180,000, 1% Council Tax =£200,000

  • Pay/ Price covers 17% variation from assumptions

  • 1%,1%,2%,2%,2% = 8.3% to 2018/19 (Planned)

  • But e.g 2%, 2%, 4%,4%,4% = +8% or £1.6m

  • Thereafter? HM Treasury Average Earnings 4.75% for 2018


Possible calls on reserves1

Possible Calls On Reserves

  • Pensions Reserve – amended NFPS and RDS - Employers’ increase of 1% =£300,000 per year (4 years)

  • Possible financing of further Support Service reductions (LGPS)

  • Resourcing for Fire Cover Review/Partnership Working

  • New system of Local Government financing yet to bed down

  • Insurance Fund

  • One Off Referendum Costs?


General application

General Application

  • The application of Reserves to support Base Budget Expenditure simply to deliver a particular level of Precepts or defer necessary Base Budget reductions is not a sustainable policy in the medium to longer term

  • Invest to Save (Capital/Support for Introduction of Efficiencies)

  • Balance level of Reserves held, External Financing and Savings

  • 6% or 12%, 10% or 58% - Risk and Timeframe

  • Two, Five or Ten Year View?


10 year scenarios

10 Year Scenarios

  • Based on current “Real” position including £2m Support to Capital programme and 3 Year Moratorium

  • Reduces Reserves to minimum of c.10% of Net Expenditure (£3.0m)

  • Assumes £1.3m achieved by 2015/16 or 2016/17 at the latest

  • Council Tax Freeze for 2014/15, 2015/16 and 4% thereafter with Additional Savings of £750,000

  • Referendum limit of 2% for 2014/15, 2015/16 and 4%

  • 2014/15 Increase of 5.5%, 2% 2015/16

  • Maximum Flexibility of £5 increase for 2014/15


Some conclusions

Some Conclusions

  • Council Tax Freeze 2014/15, 2015/16 and 4% thereafter :

  • Requires £1.3m Original Target Savings no later than end of 2015/16

  • Requires further savings of £750,000 by the end of 2015/16

  • Reduces Reserves to £3m by 2016/17 with £790,000 contribution in 2014/15, £1.94m in 2015/16

  • Will Require further savings of £700,000 over the two years 2018/19 and 2019/20


Some conclusions1

Some Conclusions

  • 2% 2014/15, 2015/16 and 4% 2016/17:

  • Requires £1.3m Savings no later than end of 2015/16

  • In the absence of further savings reduces Reserves to £3m by 2017/18 with an £600,000 contribution for 2014/15, £1.5m in 2015/16, £350,000 in each of the following two years

  • Requires £500,000 savings in 2018/19 and £400,000 in 2019/20


Some conclusions2

Some Conclusions

  • At 5.5% 2014/15, 2% 2015/16 and 4% thereafter

  • Requires £1.3m Savings no later than end of 2015/16

  • Requires contribution from Reserves of £900,000 in 2015/16 but balance restored over the three subsequent years


Some conclusions3

Some Conclusions

  • A £5 (8.05%) increase in Council Tax in 2014/15 would contribute £430,000 to Reserves

  • Provided £1.3m savings made by end of 2015/16, minimum use of Reserves over the next four years

  • However, use of £640,000 could freeze Council tax for 2015/16 and 2016/17

  • no requirement for additional savings unless to reduce Council Tax from the assumed 4% per year from 2018/19 or to Reduce the application of Reserves from 2018/19


Some conclusions4

SomeConclusions

  • Need consensus on Planning Timeframe – Short, Medium, Long

  • Need consensus on the balance between expenditure plans, deliverability of savings, more efficiencies and Council Tax

  • Freeze can be only a short term consideration

  • Target savings a short term requirement

  • Further Savings a medium to long term consideration

  • Maximum increase provides long term assurance

  • Tables available - Updated as Budget moves towards February 2014


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