Agenda item

To recommend a budget for 2018/19 to Council for approval.  

That it be RECOMMENDED TO COUNCIL that:

1.      a net budget of £8,732,790 be APPROVED.

2.      a Band D Council Tax of £114.36, an increase of £5.00 per annum, be APPROVED. 

3.      the use of New Homes Bonus, as proposed in Paragraph 3.5, be APPROVED.

4.      the Capital Programme, as proposed in Appendix A to the report, be APPROVED.

5.      the Capital Prudential Indicators, as proposed in Appendix B to the report, be APPROVED.

6.      the annual Minimum Revenue Provision (MRP) statement, as contained in Appendix B to the report, be APPROVED.

7.      the 2018/19 Treasury Management Strategy, as proposed in Appendix C to the report, be APPROVED.

8.      the 2018/19 Flexible Use of Capital Receipts Strategy, as proposed in Appendix D to the report, be APPROVED.

9.      the Council’s involvement in a 100% Retained Business Rates Pilot in Gloucestershire for 2018/19, as detailed in Appendix E to the report, be NOTED.

86.1           The report of the Head of Finance and Asset Management, circulated separately at Pages No. 1-39, set out the proposed budget for 2018/19. Members were asked to recommend the budget to Council for approval along with a Band D Council Tax of £114.36; the use of New Homes Bonus as proposed in Paragraph 3.5 of the report; the Capital Programme as attached to the report at Appendix A; the Capital Prudential Indicators, as attached to the report at Appendix B; the Annual Minimum Revenue Provision statement at set out at Appendix B to the report; the 2018/19 Treasury Management Strategy, as set out at Appendix C to the report; the 2018/19 Flexible Use of Capital Receipts Strategy, as set out at Appendix D to the report; and to note the Council’s involvement in a 100% Retained Business Rates Pilot in Gloucestershire for 2018/19, as detailed at Appendix E to the report.

86.2           The Head of Finance and Asset Management advised that the Council had considered its financial position, as shown in the Medium Term Financial Strategy, at its meeting on 5 December 2017. That Strategy had outlined the budget pressures facing the Council currently, and in future years, and explained that the deficit over the next five years was estimated to be around £3 million with a gap of £1,100,000 suggested for 2018/19. Since the production of the Medium Term Financial Strategy, the Chancellor had given his autumn statement, the employers had made a pay offer to the Unions and the details of the provisional Local Government Finance Settlement had been received for 2018/19 – the final settlement was expected at the end of January. The headlines from those announcements were set out at Paragraph 1.3 of the report and included: no new monies being available to support local government in the current spending review period with the exception of the Rural Services Delivery Grant; a proposal had been made to move to 75% retained business rates from 2020; Gloucestershire had been confirmed as one of the 10 new 100% retained business rates pilots for 2018/19; no changes would be made to the New Homes Bonus funding; planning fees were to increase by 20% from 17 January 2018; the Council would have increased flexibility in Council Tax setting of an additional 1% resulting in a new referendum threshold for District Councils of £5 or 3% whichever was greater; and a pay offer had been put forward of 2% in both 2018 and 2019 with extra weighting for the lowest paid. The report before Members brought together the general information on the financial climate, the detailed figures associated with the 2018/19 budget, and the work undertaken by the Transform Working Group, and made a proposal for a balanced budget and resultant Council Tax. The Head of Finance and Asset Management explained that, as the Council’s Chief Financial Officer, he was required to make a statement on the robustness of the estimates and adequacy of the financial reserves; that statement was set out at Paragraph 10 of the report and the Council had an obligation to have regard to that statement when it made its decision on the proposed budget.

86.3           Members were advised that much of the deficit faced had been met through increased income and financing streams as well as increased Council Tax. There was concern that future budget setting may not be able to use those funding streams and, as such, Members and Officers would be faced with tough decisions on the operation of the Council, including the possibility of having to reduce or stop some services and taking further risks on commercial activities. In terms of the salient points contained within the report, the Head of Finance and Asset Management explained that the Council was currently in the third year of a four year funding deal from the government which effectively guaranteed the level of core funding from central government until 2019/20 – the expected figures were set out at Paragraph 2.3 of the report and showed significant reductions over the next two years but particularly a reduction of £180,000 in 2018/19. No further alterations would be made to the New Homes Bonus scheme in 2018/19 so the Council was able to maintain the cash levels it received and Paragraph 3.3 of the report detailed the projection up to 2022/23. The total allocation of New Homes Bonus for 2018/19 was £3,179,723; the proposed use was set out at Paragraph 3.5 and included things like base budget support; housing and homeless support; a Growth Hub Navigator; and a Community Funding Officer. An improved position was being seen regarding business rates retention which was helpful. In addition, the Council had recently been advised that Gloucestershire had been successful in its bid to be in the 100% retained business rates pilot scheme for 2018/19. This meant that Tewkesbury would have to re-join the Gloucestershire business rates pool but, as there was a ‘no detriment’ clause in the pilot agreement, it should be no worse off than under the current scheme and would hopefully benefit from additional business rates retention. As the announcement had been for a one year pilot only, the financial gain, if realised, would be treated as one-off windfall which meant monies generated could be used for the Council’s benefit in 2019/20. The base budget had therefore been amended so that it reflected the actual tariffs and baselines relevant to Tewkesbury in 2018/19 but the net effect was in line with the substantive position of the 50% retention scheme. Given the increasing level of deficit for 2018/19, and the medium term financial forecast of continued deficits, the Head of Finance and Asset Management indicated that it had been necessary to recommend an increase to the Council Tax in order to balance next year’s budget and improve the Council’s financial footing moving forward. It was recommended that the maximum amount allowed, before the threshold to require a referendum, was agreed which was an increase of £5 per year on a Band D property. It was noted that the government’s projections for Councils core spending power assumed that all Councils would increase the Council Tax by the maximum available to them. The impact of the proposals on the Borough’s Taxpayers was set out at Paragraph 5.5. For Members’ information, the report also contained a record of its Council Tax for 2010/11 through to 2018/19.

86.4           In terms of the budget proposals, the base estimates had been compiled and were identified at Paragraph 6.1 of the report. The projection within the Medium Term Financial Strategy had highlighted a potential deficit of £1.1 million for 2018/19 but the draft budget requirements put forward by the service areas had seen that increase to £1.6 million prior to the agreement of savings plans and increased income; these had resulted in the net cost of services only increasing by £37,462 for the next financial year. After deducting the finance streams highlighted at Paragraph 6.5 of the report from the net cost of services, the balance of expenditure to be funded by Council Tax payers was £3,872,070 for 2018/19. The Council Tax base had increased by 1,346.3 Band D equivalents over the previous year to a total of 33,858.6. Dividing the amount to be funded by tax payers by the tax base gave the new Band D Council Tax level for the Borough of £114.36. The Head of Finance and Asset Management explained that, at the recent meeting of the Transform Working Group, Members had requested information which would enable them to see the impact that different levels of Council Tax would have on the budget and that information was set out at Paragraph 14.1 of the report. He reiterated that, given the deficit faced, the estimated deficit for the following year and the difficulties faced over the next five years, Officers were unable to recommend a Council Tax increase that was below the government threshold limit of £5 per year. However, the figures were set out for Members information as requested. He felt it should also be borne in mind that, even with the proposed increase, the Council would remain the fifth lowest Council Tax in England and below the national average. The risks to the budget were set out at Paragraph 7.0 of the report and included issues such as the local government settlement currently only being provisional; possible changes to the New Homes Bonus funding scheme in future; the possibility of an increase in interest rates; the introduction of Universal Credit and subsequent impacts; and the agreed salary award which could be more than the current 2% offer. In addition, the current Capital Programme, attached to the report at Appendix A, was a significant size totalling £38.62 million over the four year period. The government would now allow flexible use of capital receipts for transformational projects which would generate ongoing savings, subject to the approval of the Strategy before the beginning of the financial year; that Strategy was attached to the report at Appendix D for Members’ approval.

86.5           During the discussion which ensued, a Member thanked Officers for the work that had gone into the report and for the additional information that had been included following the Transform Working Group meeting. He had requested clarification about the different options of Council Tax levels so that Members could more easily look at alternatives to the £5 increase which was recommended by Officers. He felt the Council needed to be careful about increasing the Council Tax beyond the anticipated rate of inflation and questioned how the shortfall in the budget of £58,234 could be funded if it decided to implement a 3% increase rather than the 4.57% increase which was recommended. In response, the Head of Finance and Asset Management advised that the Council would have two options: to use one-off monies to support the budget – although in his view this should be a last resort; or to look at the base budget for increased ongoing income or savings. The Council’s largest expenditure was employees so it was likely that redundancies would have to be considered in the first instance with discretionary services being targeted initially. In response, the Member felt, rather than redundancies, increased income could be a good option. He indicated that, as an authority, the Council already had a strategy based on growing its businesses and it was now starting to see a significant increase in its business rates reserve. In addition, its commercial investment income had been growing, and was set to continue, and he felt the Council’s anticipated revenue from those activities was being underplayed. In response, the Head of Finance and Asset Management indicated that business rates income was volatile with the future of the scheme remaining unclear. The intention was, at some point, to move to 75% retained income but, as yet, the government had not confirmed how the scheme would work or what the criteria for it would be. The Council had faced significant losses through appeals in previous years and, with all of this in mind, he felt that the estimates contained within the report were realistic; especially given that no information had yet been released on the 2017 Valuation List meaning the Council had no assurances in respect of appeals, or that the provision it had put aside to cover appeals would be adequate. In addition, it was unclear whether the 100% retained business rates pilot would extend beyond 2018/19. In terms of the commercial investment income, he explained that the additional investment which the Council had recently approved was yet to be spent and properties would have to be secured before any additional income could be put into the budget. There was a need to balance short term benefits against securing long term rates to pay for the borrowing. This would normally have been done immediately but the Council had been able to hold off as interest rates were low and remaining fairly flat; however, there were fears going into 2019 about the implications of Brexit and how that could affect interest rates so this had to be borne in mind as a risk. The Chief Executive advised that residents of the Borough had enjoyed very low Council Tax rates and would continue to do so even if there was a £5 per year increase - in fact the Council Tax was low enough that it was considered a strategic weakness against the rest of the Council’s income. He felt it should be borne in mind that a local authority’s costs did not increase in the same way as general inflation which was one of the reasons for the significant deficit. In addition, given that Council Tax was one of the major sources of income over which the Council had control, it had to ensure it was taking all of the revenue it could. The other sources of income which were currently bolstering the budget included commercial investments, New Homes Bonus funding and business rates and all three of those areas were volatile - either being subject to market issues, government policy or appeals - so it would not take too much fluctuation in those areas before the Council was in significant trouble. He would not wish to recommend a Council Tax which saw people paying more than was needed but, given where the Council was with income and the deficit, he felt the Council should not add risk by approving a Council Tax for a lower increase than the amount the government had allowed.

86.6           A Member agreed with that advice and felt the Council’s Tax base was so low that it made no sense not to increase to the full £5 per year especially given that would still not really be enough. He understood that, when the Council Tax increased, residents always thought the full amount went to the Borough Council but he had no issue with explaining this was not the case and he felt other Members should have a similar view. Another Member agreed and felt that an increase of 10p per week on a Band D property to preserve the services currently provided would not be a problem for most residents. She questioned whether, if the Council Tax increase was agreed at less than that recommended by Officers, and staff therefore needed to be made redundant, there would be redundancy and pension costs to be paid. In response, the Head of Finance and Asset Management confirmed that there could be costs depending on the service areas and whether the redundancies were voluntary or compulsory. Another Member thanked the Finance Team for their hard work in putting together a balanced budget and questioned what the reasoning would be for increasing at less than the recommended £5. In response, a Member reiterated his view that the Borough Council Tax residents should not necessarily be asked to pay an above inflation increase in Council Tax without the Council having a robust debate about the other options available and this was why he had asked for the additional information to be included in the report. He would favour a 3% increase based on the Council’s financial planning for income, in particular business growth income, and the commercial investment strategy and he did not think that to continue to say the Council Tax was the fifth lowest in England would justify the proposed above inflation increase. Another Member was of the view that he would have no problem justifying a £5 increase; he felt that staff struggled to provide services on the resources they had currently and he did not see how this could continue if further income was not generated through increased Council Tax. A Member explained that those households referred to as the ‘just about managings’ (JAMS), were mostly in Bands A-C for Council Tax purposes and would not be paying an increase as much as £5 per year so, from her perspective, the increase would be acceptable. It was further noted that Members should remember that a 3% increase for 2018/19 would take £58,000 out of the budget for that year but also for each year thereafter; it was that cumulative effect which was the reason the Council had suffered previously from low increases / Council Tax freezes. 

86.7           A number of other Members indicated that they would support the recommended Council Tax increase for the reasons discussed and, upon being put to the vote, it was