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Finance and Budget Scrutiny Select Committee Introduction to local government finance. Agenda. Revenue vs capital The Council budget The balancing act Why budget? Key activities Approaches to budget setting [FBSSC only] Budget variances Retention of business rates

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Presentation Transcript
agenda
Agenda
  • Revenue vs capital
  • The Council budget
    • The balancing act
    • Why budget?
    • Key activities
    • Approaches to budget setting [FBSSC only]
    • Budget variances
  • Retention of business rates
  • Treasury management [FBSSC only]
    • Treasury management
    • Counterparty risk
    • Controls and governance
  • Recommended reading
revenue vs capital
Revenue vs capital
  • Revenue funded by:
      • Council tax
      • Central government grants
      • Business rates
      • Fees and charges
  • Capital funded by:
      • Capital receipts
      • Grants
      • Borrowing
      • Contributions from the revenue budget
the balancing act
The balancing act

RSG

Grants

Business rates

Council tax

Rents

Fees andcharges

Employees

Premises

Transport

Supplies and services

Capital financing

Expenditure

Income

why do we need to budget
Why do we need to budget?
  • Planning
  • Monitoring
  • Controlling
  • Measuring performance
key activities
Key activities
  • Previous year
    • closure of accounts
    • audit of accounts
  • Current year
    • budget monitoring & control
    • budget updates
    • updating forecast outturn
  • Next year
    • provisional/final grant settlements
    • public consultation
    • detailed estimates
    • considering saving/efficiency proposals
    • finalising formal budget proposal
    • medium term financial strategy
approaches to budget setting
Approaches to budget setting
  • Incremental budgeting
    • + Simple, focuses on changes
    • - Historic, inconsistent with effective planning
  • Zero-based budgeting (ZBB)
    • + Justifies activities, prioritises resources
    • - Resource intensive
  • Other
    • Activity-based budgeting (ABB)
    • Planning, programming budgeting systems (PPBS)
    • Rolling budgets
monitoring budgets
Monitoring budgets

Variances can occur due to:

  • Delays in processing payments/income
  • Uneven spending patterns
  • Incorrect profiling of budgets
  • Mis-codings
  • Centrally managed budgets e.g. repairs and maintenance
  • Activity/demand changes
  • Incorrect budget assumptions
  • Poor management of resources
new developments business rates
New developments: business rates
  • Position up to 2012/13
    • Collected business rates as an agent for the government
    • Rates set centrally
    • Business rates redistributed by govt according to perceived need
    • Redistribution NOT connected to amount collected
    • SCC net gainer
  • From 2013/14
    • 49% retention by collecting authorities
    • System of tariffs and top-ups to set equitable starting position
    • System of levies and safety nets to protect big losers
    • Rates still set centrally
    • Benefit: authorities will keep 49% of any incremental increases in rates collected
treasury management tm
Treasury management (TM)
  • "The management of the organisation's cash flows, its banking, money market and capital market transactions and loan management; the effective control of risks associated with those activities; and the pursuit of optimum performance consistent with those risks.“
  • Management of RISKS
    • Counterparty (creditworthiness)
    • Liquidity
    • Interest rate
  • Predicting the future…
  • Security of principal always more important than yield or liquidity
tm counterparty risk
TM counterparty risk
  • (for investments)
  • Institutions on Sector’s weekly credit list (creditworthiness)
    • Credit ratings (Moody’s, Fitch, S&P)
    • Modified by Sector’s expertise
    • Recommend durations, not £ limits
  • Local authorities and government bodies
  • EU only with Aaa sovereign rating
  • Aaa-rated money market funds (MMFs)
  • Our annual investment policy defines individual limits (£10m)
tm controls governance
TM controls & governance
  • Treasury management strategy statement
    • Treasury management strategy
    • Annual investment strategy
    • MRP (minimum revenue provision) policy
  • Treasury management practices (TMPs)
  • London Code
  • Legislation/regulation
  • Prudential code/prudential indicators
    • Annual change in capital financing requirement
    • Ratio of financing costs to net revenue stream
    • Borrowing limits
    • Maturity limits
    • Fixed/variable interest rate exposure
    • etc
  • The role of this committee
recommended reading
Recommended reading

On the finance library intranet page at

http://intranet.salford.gov.uk/customer/finance/finance-accountancy/finance-links.htm

  • A brief guide to local government finance for councillors (CIPFA)
  • A comprehensive guide to local government finance (CIPFA)