Agenda item

Report of the Cabinet Member Finance

The Cabinet Member Finance introduced the report which proposed a broad strategy and outlined a process for setting the budget and council tax for 2018/19. It also outlined a number of principles that needed to be established at this stage to enable budget preparation to commence.

The Cabinet Member said that between 2009 and the present Government core funding for the council had been reduced from £8.8 million to £2.4 million a year.  The proposed settlement for 18/19 was indicating a further reduction of just under 11.5 % or £0.364 million. Radical changes in the way services were organised had already been embraced to cope with these reductions.

There was still huge uncertainty around future funding settlements. By not including the Local Government Finance Bill in the Queen’s Speech, the Government had given a very strong indication that it would not be proceeding with 100% business rates retention yet. In addition Members were reminded of the late changes to the New Homes Bonus calculation, through the introduction of a 0.4% baseline target, which had significant financial consequences for the council.

The Cabinet Member informed that a consultation paper on the 2018/19 settlement had been launched which suggested proposals for further reforms to the New Homes Bonus calculation which may include further increases to the baseline target. It was assumed that the consultation would feed into the Autumn Statement announcements on 22^nd November 2017.

The Cabinet Member expressed concern that decisions relating to New Homes Bonus continued to be made only a few months before the start of the new financial year impacting on the ability for district councils to understand the impact on their budgets. This was contrary to the stated aim of 4 year settlements which was to reduce this uncertainty.

The Cabinet Member referred to the Medium Term Financial Plan for 2017 – 2020, approved in February this year which projected a funding gap of £3.961m. The projections had now been updated to reflect the best estimates of the financial pressures impacting on the Council, including an updated view on business rates income and the potential funding cuts after the Autumn Statement was announced. The updated estimate of the funding gap for 2018/19 was now £1.079m.

She explained that given the current uncertainty surrounding business rates retention, new homes bonus and pay awards for the public sector, it was prudent to defer the full publication of the MTFS to the Cabinet meeting in December 2017 as part of the interim budget proposals. This would enable the Cabinet to react positively to any changes announced in the Autumn Statement and to ensure that the MTFS was robust and fit for purpose.

In terms of closing the projected funding gap of £1.079m a proactive approach in identifying budget savings, had identified potential savings and additional income of £635k, leaving £444k to find, assuming a £5 council tax increase.

The Cabinet Member Finance believed the longer term approach closing the funding gap was fundamentally through economic growth and investment and the efficient utilisation of assets. Cabinet was continuing to work closely with the Executive Management team. A commercial strategy which would  sit alongside the MTFS would be reported to Cabinet in December 2017. In addition, resources would be focussing on supporting and delivering the growth agenda including major developments in North West and West Cheltenham.

The Cabinet Member Finance stated that in order to deliver a balanced budget in 2018/19 the shortfall in funding would be met by the budget strategy (support) reserve. This would give the Council more time to deliver its long-term strategy for delivering the substantial savings required. The work of identifying budget savings would however continue up to the publication of the draft budget proposals and beyond.

She informed Cabinet that the anticipated level of business rates due to the Council in 2018/19, taking into account the re-developments at the Brewery, John Lewis and Jessops Avenue, was above the baseline funding target which would result in Cheltenham still being liable to a ‘levy’. It was the advice of the Section 151 Officer therefore that the Council would benefit from remaining in the pool in 2018/19 as it would result in a reduction in the levy payment due to Government.

She reported that the Government had decided to proceed with expansion of the pilot programme for 100% business rates retention for 2018/19. These would run alongside the five current 100% pilots which had been in operation since 1^st April 2017.The Gloucestershire Chief Financial Officers had met and discussed the modelling of how a pilot scheme may work across Gloucestershire. Whilst it suggested there were potential financial gains from becoming a pilot, the gains needed to be measured against the risks. The 2018/19 pilots programme was seeking to remove the ‘no detriment’ clause which meant that Gloucestershire authorities would need to ‘forego’ guaranteed Revenue Support Grant and Rural Services Delivery Grant for an uplift in its baseline funding targets. In return it would take on all of the risk on business rates appeals which was currently shared with Central Government.

The deadline for submitting a bid to become a pilot was 27^th October 2017 and officers were undertaking further modelling and sensitivity analysis around appeals exposure and risk in order to determine whether Gloucestershire should put itself forward. Given the volatility and numbers involved, it was anticipated that a further Full Council meeting would be required to ensure appropriate permissions were in place. However, should Gloucestershire determine to submit a bid with a ‘no detriment’ clause, it was proposed that the existing delegations outlined in 6.2 of the report would stand on the basis that Cheltenham would be no worse off in proceeding with a bid to become a pilot for 100% business rates retention in 2018/19.

The Budget Scrutiny cross party working group would continue to support the budget process as outlined in section seven of the report. The proposed key stages in the process for setting the budget for 2018/19 were summarised in the timetable at Appendix 2.

The Cabinet Member then highlighted that in terms of pay awards in local government for interim budget modelling purposes 1% had been assumed with a contingency held in general balances for an amount equivalent to a further 1%. Reports were suggesting that Government was proposing to scrap the 1% cap on pay rises for public sector workers as part of the Autumn Statement.

Finally, the Cabinet Member stated that Cabinet was determined to ensure that Government funding cuts did not feed through into large council tax increases or service cuts. This was a huge challenge, but was one to be embraced if Cheltenham was to be a town with good services and a strong economy.

The Leader reiterated the uncertainty surrounding business rates and questioned the participation in the pilot when there was no real idea of what was coming next.

RESOLVED THAT

1.    The budget setting timetable at Appendix 2 be approved.

2.    The budget strategy outlined in section 5 be approved

3.    The expected cut in government baseline funding of £364k for 2018/19, the estimated funding gap of £1.079m and the large amount of work done so far to close this gap be noted.

4.    The intention for this Council to remain in the Gloucestershire Business Rates Pool in 2018/19 as outlined in section 6 be noted and to consider the merits of applying to the Government to pilot 100% Business Rates Retention in 2018/19.

5.    The Section 151 Officer and the Cabinet Member for Finance be requested to consider suggestions from the Budget Scrutiny Working Group in preparing the interim budget proposals for 2018/19 as outlined in section 7.