Executive Summary

The National Economic Outlook

National debt has increased significantly in the last couple of years due to the financial bailout of Northern Rock and the Royal Bank of Scotland, the nationalisation of Bradford and Bingley and the Government purchase of shares in major banks like HBOS. The Government intervened in the banking system to reinforce the stability of the financial system, with particular reference to enabling banks to increase their capacity to lend and in turn support the growth of the economy. The Pre-Budget Report confirms the intention of the Government to secure the long term stability of the national economy.  It also reaffirms the Government plans to reduce borrowing to 5.5% of GDP in 2013/14, consistent with debt falling in 2015/16. These plans will inevitably result in cuts in public spending.

The Local Government Finance Environment

Local Government in general, and district councils specifically, are facing the toughest financial outlook for many years.  The Government is committed to existing 2010/11 spending plans, however, there remains uncertainty about funding for most areas of local government beyond 2011. The Government has stated its commitment to protect funding for education, police and health. It follows that this will result in reductions in funding to other areas and therefore local authorities will need to plan on the basis of significant cuts from 2011 onwards. Further, given that both main opposition political parties have stated that the plans to reduce public sector debt are not sufficiently ambitious, it is reasonable to assume that if there is a change in government, the level of required savings will be even higher.

For the purposes of the MTFP, a cut of 3% in Government funding has been assumed each year for 2011/12 to 2014/15. This assumption has been based on the views expressed by a number of commentators, whose views can range from an optimistic 0% growth to a pessimistic -8% reduction.  A settlement that remains at its current level (i.e. 0% reduction) would change the bottom line by providing an additional £1.53m more than currently predicted  over the 5 years (i.e. a 3% cut); whereas a reduction of 8% would require additional savings of £2.24m over that currently targeted over the full 5 years of the MTFP. 

Meeting the Communities Needs

In 2007 the Council approved the Corporate Plan 2007 – 2011, which set out our aims and ambitions for Thanet across six key themes: Thanet’s Economy, Safe Neighbourhoods, Beautiful Thanet, Quality Housing, Healthy Communities and Modern Council.  Building on previous plans, this latest offering was shaped by numerous consultations with our communities and partners from both the public and private sectors. In response to the economic environment, the Corporate Plan is being refreshed and a number of projects are being removed or re-phased. However, we are confident that in following this revised plan our actions will still meet the needs of the many communities within the District and will contribute to making Thanet a better place to live, work and visit.

The Medium Term Financial Plans

The Council’s finances are captured within three different plans.  A separate one exists for the General Fund Revenue Account; the Housing Revenue Account; and the Capital Programme, which contains financial projections for both General Fund and Housing Revenue Account capital expenditure. 

The General Fund Revenue Account

The General Fund Revenue Account is where all of the expenditure and income that relates to the day-to-day running costs of the core services of the Council is recorded. 

The net budget requirement (after taking into account income from fees and charges and other specific grants) is met by a combination of Central Government Grant (59%) and Council Tax (41%).  With more than half of the Council’s net budget being funded from Government Grant, a reduction in this funding as predicted from 2011/12 makes the task of continuing to improve and evolve whilst honouring the commitment to keep Council Taxes as low as possible very difficult to achieve.

Identifying value for money efficiencies is therefore fundamental to the decision making processes of the Council. The Council has a good history of having achieved efficiencies through smarter procurement, collaboration with others and through improvements to business processes. However, with the financial outlook over the medium term not improving, more savings are needed in order to balance the Council’s budget. A sum of £6.3m is required to be saved over the period of this plan.  The Value for Money and Improvement Programme will continue to be a key vehicle in delivering these savings and will include a range of service reviews, which will look for greater efficiencies and policy direction to determine its non-priority services. 

The budget estimates for the General Fund Revenue Account over the next five years are summarised in Table 1.  

Table 1

Summary General Fund Revenue Proposals 2010 – 15

Reserves

Councils must have regard to the level of reserves needed for estimated future expenditure when calculating the budget requirement. The Council has reviewed its level of reserves, taking account of the financial risks that could pose a threat to the Authority over the medium term. As a result of this exercise, the Council has set its optimal level of general reserves at 10% of the net revenue budget, which is felt to be a sufficient level of contingency. The budget proposals will result in a balance on general reserves at 31 March 2011 of £1,883k which is only 8.16% of the 2010/11 net revenue budget requirement. Every effort will be made to replenish the General Reserve to the recommended level at the earliest opportunity from in-year underspends.

In addition to the general reserve, a number of earmarked reserves exist. These are sums set aside for specific purposes and essentially allow funds to be saved over a number of years for large and often one-off items of expenditure, thereby smoothing the impact on Council Tax. The need for these reserves has also been considered over the medium term.

The Housing Revenue Account

The Housing Revenue Account is used by the Council to record expenditure and income that relates to the operation of its council houses.  These include costs of maintaining the houses, expenses for running communal areas and the overheads associated with council house services.

The Housing Revenue Account sits outside of the Council’s own accounts and has to be budgeted for separately.  Strict rules govern what can be charged to this account.  Any money remaining in the budget at the end of the financial year is carried forward in a special reserve for future housing needs and can not be used by the Council for other purposes.

The budget projections for the Housing Revenue Account for the medium term are shown in the table below.

Table 2

Summary Housing Revenue Account Revenue Proposals 2010 – 15

The Capital Programme

The Council’s plans for capital investment are used to develop the Capital Programme, which includes capital expenditure associated with both the General Fund and Housing Revenue Account.  The programme is driven by the need to get maximum value for money from the Council’s assets by making sure that they are well maintained and remain fit for purpose, within the limits of available funding.

Although the Council can borrow to fund its capital expenditure, the cost of the repayments often makes this option unaffordable and so its future capital requirements in the medium term will depend upon a well managed programme of asset disposals; using assets that are no longer suitable or cost effective to fund the acquisition and development of assets for improved service delivery.  The Council’s Asset Management Strategy provides the framework against which this process is managed to ensure that the best decisions are taken at the right time. In the current economic climate, selling assets does not necessarily represent value for money for the taxpayer and therefore the planned disposal of some assets has been put on hold until market conditions pick back up. This has inevitably resulted in reduced capital receipts which in turn means that the Council’s resources for capital spend has been significantly reduced. It is important, therefore that only the most important schemes are selected against the limited resources. The proposed programme has been driven predominately in response to health and safety issues. It also addresses those priorities as identified in the public consultation carried out as part of the 2009/10 budget process.

The asset investment plans over the next five years are summarised in the following table.

Table 3

The Capital Programme 2010 – 15

The remainder of this Medium Term Financial Plan provides a more detailed explanation of the factors that have been used to arrive at this summary.

Next: Local Government Finance Environment

Back: Introduction

• Introduction
• Executive Summary
• Local Government Finance Environment
• Local Government Act 2007
• Value for Money
• The Local Context
• Developing Financial Plans
• General Fund Revenue Account
• Housing Revenue Account
• Capital Programme
• Treasury Management

Financial Services

E-mail:

accountancy@
thanet.gov.uk

Tel: 01843 577000