Lambeth Medium Term Financial Strategy Finance presentation for - - PowerPoint PPT Presentation

Lambeth Medium Term Financial Strategy

Finance presentation for Overview and Scrutiny Committee

Agenda

• Introducing the Revenue Budget
• Sources of the Council’s Income
• Council Expenditure
• Government Reductions and Funding Challenges
• The Budget Setting Process
• Medium Term Financial Strategy
• Projected Net Cash Limits
• The Housing Revenue Account (HRA)
• Capital Expenditure
• Questions

The Revenue Budget

• The revenue budget is the amount the Council spends on its day to

day running of services, including wages and salaries, property and transport running costs and payment to suppliers.

• In addition to running costs of services, Councils have to fund the cost
• f borrowing money to pay for their capital assets.
• The Council also needs to meet the cost of certain other local service

providers, such as the Environment Agency for flood prevention work, through what are known as levies.

Revenue and Capital

• By law, Councils cannot borrow to fund revenue day to day

expenditure or use income from selling assets for this purpose. Borrowing and income from selling assets can only be used to fund asset related ‘Capital’ expenditure.

• However, money can be set aside from day to day revenue to fund

building projects.

• For this reason day to day revenue expenditure is distinctly separate

from expenditure on capital projects within Local Authorities.

Council Revenue Funding

• Council Tax funds approx. 20% of Council

Expenditure

• Needs Assessed Formula Funding from

Government accounts for 1/3rd of Council

• Expenditure. £97m of this is collected and

retained from Lambeth businesses in the form of Business Rates and the remainder redistributed by Government as a Top-up from Rates collected elsewhere.

• The Council also receives £9.7m of New

Homes Bonus (NHB) from Government provided based on the number of new homes built each year.

103 151 94 133

Council Tax Formula Funding (including Business Rates) Other Government Grants Other Income

31% of the Council’s funding comes directly from Central Government and 42% from Locally collected Taxes

Council Funding – Council Tax

• Council Tax is usually expressed in legislation as a proportion of Band

D properties. The Council Tax Rate in Lambeth for 2018-19 for a Band D property is £1,386.27.

• Each 1% increase in Council Tax would raise approximately an

additional £1m for expenditure on services in Lambeth.

• Approximately 20% is added to the Council Tax bill to be collected on

behalf of the Mayor of London’s Greater London Authority (GLA)

Council Funding – Business Rates (NNDR)

• The Council collects £125m from Lambeth Businesses and this is split

between the Council and the GLA.

• 2018/19 is the first year of the Business Rates ‘London Pool’ where

Councils across London retain more business rates locally in lieu of Government funding. Under the Pool Councils in London keep Rates income growth going forward but are also exposed to risks should Business Rates receipts fall.

• The Council retains less Business Rates than it needs for its funding so the

Government provides a top-up as part of a needs redistribution formula.

• Business Rates will increase in importance in the next few years. Other

revenue grants (such as the Revenue Support Grant) will be removed and replaced by higher Rates retention. The Government is also reviewing the redistribution of funds as part of its Fair Funding review in 2020/21.

Council Funding – Other Grants

• The Council pays out money in Housing and Council Tax Benefits and

is funded for these by Government. The Council also passports funding to schools in the form of the Dedicated Schools Grant. There are other specific grants provided to fund services

Dedicated Schools Grant £217m Housing and Council Tax Benefit £252m PFI Grants £11m Public Health Grant £30m Pupil Premium £15m Young People’s Learning Agency 6th Form Grant £6m Better Care Fund £11m

Council Funding – Other Income

• With reducing Government Funding, other sources of income become more important. Key sources of

income include:

• Parking (£26m)
• Planning Applications (£2m)
• School Buy-Backs (£4m)
• Commercial Waste (£3m)
• Cemeteries & Crematoria (£2m)
• Commercial Rents (£5m)
• Residential and Nursing Care Income (£6m)
• Temporary Accommodation Housing Rental Income (£18m)

A number of income sources of the Council are restricted in what the income can be used for or have little scope to be able to vary the charges levied. For example:

• Parking charges
• Building Control fees

Council Revenue Expenditure

• The Council spends

approximately £477m on services

• Adults & Public Health are the

highest areas of spend (31%)

• Staffing Costs account for

£122m or approximately 25% of total expenditure These figures exclude spend on Benefits and the Dedicated Schools Grant (DSG) as these are separately funded by specific Government grants. It also excludes spend on Council Dwellings as this is ring-fenced.

147 139 71 120

Adults & Public Health Childrens Services Corporate Resources Neighbourhoods and Growth

Council Net Expenditure Summary by Service

ADULTS & PUBLIC HEALTH CHILDREN'S SERVICES CORPORATE RESOURCES NEIGHBOURHOODS & GROWTH Total £000 £000 £000 £000 £000 Expenditure 147,060 139,404 70,848 118,653 475,965 Specific Grants/Other Income (65,518) (69,119) (9,807) (77,707) (222,151) Net Expenditure 81,542 70,285 61,041 40,946 253,814 No Recourse to Public Funds 3,547 Corporately Held Pressures 29,193 Net Budget Requirement 286,554

The Net Budget Requirement is the amount to be funded by Council Tax, Business Rates and Non Specific Government Grants

Council Funding Challenges

• Between 2010 – 2020 the Council will have had to make savings of
• ver £250m to meet Government Funding Reductions. Although

austerity has been faced across the whole public sector, cuts have fallen disproportionally on Local Government and on Lambeth.

• Government Grant funding for Lambeth over the period will have

reduced by over 50%

• The Council has a Medium Term Financial Plan (MTFP) covering the

period to 2020/21. A key challenge for the Council going forward is to ensure delivery of identified savings together with identifying new efficiencies to ensure the Council has sufficient funds to meet its priorities going forward.

Council Funding Challenges - continued

• Alongside the reduction in Government Funding, there are a number of

pressures the Council faces going forward including:

• Demographic challenges in funding Adult Social Care in future with an

ageing population in the Borough. In October 2017 the Local Government Association (LGA) published a report estimating the national gap in funding for Adult Social Care in Councils to be £5.8bn by 2020.

• An increase in demand for Children Social Care Services in Lambeth

including Special Education Needs.

• Welfare Reform changes, Universal Credit and the impact on the Council
• Uncertainties in funding, including changes to Business Rates retention and

the Government’s Fair Funding Review

The Budget Setting Process

July Financial Planning Report – updating the Medium Term Financial Strategy July – September Directorate - review of budgets and identification of savings November Finance Planning Report – savings proposals presented December Local Government Funding Announcement February Budget & Council Tax Setting

Updated MTFS Position 2018/19 - Funding Gap £26.4m

* Adverse movement in 19/20 & 20/21, due to forecast reduction on core government funding above previous estimates. Favourable movement in cash limit in last 2 years, due to forecast increase in Council Tax Income greater than forecast loss on core government funding.

2018/19 2019/20 2020/21 2021/22 2022/23 Total £m £m £m £m £m £m

Funding Gap 22.437 17.967 0.335 40.739 Savings Agreed

• 18.437
• 16.467
• 0.335
• 35.239

Identified Mitigations

• 2.500

0.000 0.000

• 2.500

Adult Social Care pressures (funded)

• 1.500
• 1.500

0.000

• 3.000

Balanced Budget 2018/19 to 2020/21 0.000 0.000 0.000 0.000

July 2018 Financial Planning Changes:

Change in Net Cash Limit from Prior Years & Grants Rolled in * 0.943 2.165

• 2.103
• 4.860
• 3.855

New Pressures Identified: Technical Adjustments 3.065 2.009 6.378 0.622 12.074 Build up Balances

• 2.692

4.131 0.000 0.000 1.439 Unavoidable Growth- Inflation

• 0.840
• 0.255

3.945 4.140 6.990 Unavoidable Growth- Contingency

• 6.751

0.900 0.167 1.100

• 4.584

Unavoidable Growth- Pensions 0.300 2.240 0.000 0.000 2.540 Unavoidable Growth 2.220

• 3.000

1.000 1.000 1.220 Undelivered Savings 10.606 0.000 0.000 0.000 10.606 Total Identified New Growth 5.908 6.025 11.490 6.862 30.285

Revised Funding Gap 6.851 8.190 9.387 2.002 26.430

Savings already agreed 17.967 0.335 0.000 0.000 18.302 Savings to be identified 24.818 8.525 9.387 2.002 44.732 Position at Budget Report February 2018

Council Net Cash Lim imit Forecast- 5 Year MTFS

2018/19 2019/20 2020/21 2021/22 2022/23 Revenue Support Grant 0.000 31.691 0.000 0.000 0.000 Business Rates Top Up 52.881 62.686 40.145 41.578 43.062 Business Rates Retained 97.162 46.975 98.378 95.517 93.976 Better Care Fund 6.390 10.865 10.594 10.382 10.174 New Homes Bonus 9.726 8.872 8.025 7.949 7.583 ASC Support Grant- one off 0.943 0.000 0.000 0.000 0.000 Provision for BR appeals 0.00 (2.321) (4.267) (4.907) (4.000) S31 Grants 2.800 2.900 6.187 6.310 6.437 Central Gov Funding 169.902 161.669 159.062 156.829 157.231 % Reduction of Core Gov Funding (7%) Council Tax 117.626 122.879 127.095 131.431 135.889 FORECAST NET CASH LIMIT 287.528 284.548 286.157 288.260 293.120 2018/19- London Business Rates Pilot Pool 2019/20 Last Year of 4 Year LG Financial Settlement 2020/21 Fair Funding Review and BR Retention= rolling in of RSG into BR Retention, resulting in greater % of collected BR income retained locally 2021/22 BR Revaluation Year

The Housing Revenue Account

• The Housing Revenue Account (HRA) is ring-fenced from the rest of Council

income and expenditure by law.

• The Council has approximately 24,000 Council Dwellings valued at £2.4bn.
• The Council receives approximately £175m in income from rents and service
• charges. This is spend on repairs, maintenance, supervision and management of

the Housing stock.

• Following the Summer 2015 budget there is an enforced rent reduction of 1% per

year for the four years 2016/17 – 2019/20

• The reduction in rents compared to the 2015/16 business plan is expected to

create a £28.4m funding shortfall once the full four-year impact is factored in

• Any surpluses are ring-fenced for re-investments in Council Housing and cannot

be used to fund wider non-housing related Council expenditure.

Capital Expenditure

• The Capital Investment Programme (CIP) had over £300m worth of

spend allocated for 2017/18. This included spend on:

• Housing Stock Improvements
• Housing Regeneration
• Highways and Transportation
• Parks and Leisure
• Cemeteries
• Your New Town Hall Project
• Schools

Capital Funding

Capital Funding 1718

Grants HRA Major Repairs Reserve Capital Receipts Section 20 Receipts Earmarked Revenue Borrowing Other

Borrowing is an important source of financing capital

• expenditure. The ability

to pay back borrowing and financing interest payments are important considerations when setting the Capital Investment Programme going forward

Conclusion

• With over £1bn of Gross Spend and £1.2bn worth of assets, the

Council’s operations are comparable in size to a FTSE 100 company.

• Day to Day expenditure (Revenue) is legally required to be funded

separately from Asset Expenditure (Capital).

• Housing Stock expenditure and funding is also ring-fenced in the

Housing Revenue Account (HRA)

• In recent years the Council has faced significant funding challenges

and demand pressures and will need to continue to meet these

• ngoing challenges in coming years.

Questions