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 of 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 Tax funds approx. 20% of Council Expenditure Council Revenue Funding • Needs Assessed Formula Funding from Government accounts for 1/3 rd of Council Expenditure. £97m of this is collected and retained from Lambeth businesses in the 103 form of Business Rates and the remainder 133 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 151 94 homes built each year. 31% of the Council’s funding comes directly from Central Government and 42% from Locally collected Taxes Council Tax Formula Funding (including Business Rates) Other Government Grants Other Income
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) • A number of income sources of Planning Applications (£2m) the Council are restricted in what • School Buy-Backs (£4m) the income can be used for or • Commercial Waste (£3m) have little scope to be able to vary • Cemeteries & Crematoria (£2m) the charges levied. For example: • • Commercial Rents (£5m) Parking charges • Building Control fees • Residential and Nursing Care Income (£6m) • Temporary Accommodation Housing Rental Income (£18m)
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 120 total expenditure 147 Adults & Public Health Childrens Services These figures exclude spend on Benefits and the Dedicated Corporate Resources 71 Schools Grant (DSG) as these are Neighbourhoods and separately funded by specific 139 Growth Government grants. It also excludes spend on Council Dwellings as this is ring-fenced.
Council Net Expenditure Summary by Service ADULTS & PUBLIC CHILDREN'S CORPORATE NEIGHBOURHOODS & HEALTH SERVICES RESOURCES 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 The Net Budget Requirement is the amount to be funded by No Recourse to Public Funds 3,547 Council Tax, Business Rates and Non Specific Government Corporately Held Pressures 29,193 Grants Net Budget Requirement 286,554
Council Funding Challenges • Between 2010 – 2020 the Council will have had to make savings of over £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 February Budget & – updating the Council Tax Setting Medium Term Financial Strategy July – September Directorate - December Local Government review of budgets and Funding Announcement identification of savings November Finance Planning Report – savings proposals presented
Updated MTFS Position 2018/19 - Funding Gap £26.4m 2018/19 2019/20 2020/21 2021/22 2022/23 Total Position at Budget Report February 2018 £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 * 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.
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