Statement of Accounts 2008 to 2009

1. Introduction

The purpose of this foreword is to provide the reader with an understanding of the accounting statements, a review of the Council’s financial performance in 2008/09 and an explanation of the overall financial position.

Accounting Statements

The accounts have been prepared in accordance with the Accounts and Audit Regulations and the Code of Practice and guidance issued by the Chartered Institute of Public Finance and Accountancy (CIPFA).  The accounting policies adopted by the Council are outlined in this document and have been fairly and consistently applied. 

The statements comprise:

The Core Statements 

Income and Expenditure Account

This statement is fundamental to the understanding of a local authority’s activities, in that it reports the net cost for the year of all the functions for which the authority is responsible, and demonstrates how that cost has been financed from general government grants and income from local taxpayers. 

Statement of Movement on the General Fund Balance

This compares the Council’s spending against its council tax requirement for the year, taking into account the use of reserves built up in the past and contributions to reserves earmarked for future expenditure. 

Statement of Total Recognised Gains and Losses

It is necessary to consider all gains and losses recognised in a period when assessing the financial result for the year. This statement brings together all the recognised gains and losses of the Council during 2008/09. 

Balance Sheet

This statement is fundamental to the understanding of the Council’s year-end financial position. It shows the balances and reserves of the Council and its long-term indebtedness and its fixed and net current assets employed in its operations all as at 31 March. 

Cash Flow Statement

This summarises the inflows and outflows of cash during the year. 

Notes to the Core Statements

These are set out after the above core statements. They provide further information and interpretation of the content of the individual statements. 

The Supplementary Financial Statements 

Housing Revenue Account

The Council is required by law to account separately for the provision of housing. This account shows the expenditure on managing, maintaining and providing the Council’s housing stock and how this is financed by rents and other income. 

Collection Fund Account

This shows the transactions of the Council relating to its responsibilities for collecting Council Tax and National Non-Domestic Rates within the District and the way in which these have been distributed to precepting authorities. 

Annual Governance Statement

This Statement replaces the Statement of Internal Control of previous years. It recognises, records and publishes the Council’s governance arrangements. It also reports on any significant identified weaknesses and actions planned to rectify them.

2. Context for the 2008/09 Accounts

Corporate Aims and Objectives 

The Council is committed to the delivery of its Corporate Plan. This plan is integrated into the Council’s budget, which allocates the resources available to meet these objectives. The main headings of the plan are shown below: 

Improving Thanet’s Economic Prosperity – attracting quality employment opportunities to the area, helping those who are unemployed and attracting inward investment. 

Safe Neighbourhoods – making Thanet a safe place to live and reducing people’s fear of crime. 

Keeping Thanet Beautiful– improving and maintaining high levels of cleanliness in Thanet. 

Decent Quality Housing – ensuring the people in Thanet have access to good quality and secure accommodation that they can afford. 

Supporting Healthy and Cohesive Communities – improving the health and wellbeing of the people who live in Thanet, creating a sense of community within the local towns and villages of Thanet and promoting a feeling of belonging for all residents. 

Modern Council – making the best use of our resources to provide residents with high quality, consistent and efficient services. 

Financial Context

Sitting alongside the Corporate Plan is the Council’s Medium Term Financial Plan (MTFP). This forecasts the Council’s resources (income) and spending commitments over a rolling three-year period, taking account of external factors (government grants, new legislation, inflation and contractual commitments). Each year the budget evolves from the Council’s Corporate Plan and the MTFP. 

3. Changes in presentation and accounting policies

Local government accounting standards and policies are set out in the Code of Practice on Local Authority Accounting in the United Kingdom: A Statement of Recommended Practice (SORP), which is issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) and updated on an annual basis. The main changes in the SORP 2008 are detailed below. 

  • The basis on which the value of quoted securities is to be measured has been amended. Quoted securities held as assets in the defined benefit scheme are now valued at bid price rather than mid-market value. The effect of this change is that the value of scheme assets at 31 March 2008 has been reduced by £0.329m. The financial results for 2007/08 have not been restated as the adjustment is not regarded as material in the context of the value of scheme assets and the overall pensions deficit. Instead it has been included in the value of actuarial losses shown for 2008/09.

  • Under statute some expenditure is allowed to be treated as capital for financing purposes, but does not result in the acquisition of a fixed asset for the Council. Previously this expenditure was referred to as “Deferred Charges” and was treated as capital expenditure before being written out through the revenue account. With effect from 2008/09 this expenditure is now charged to revenue and is reversed out through the Statement of Movement on the General Fund Balance to ensure that there continues to be no impact on the Council Tax payer. This expenditure is now referred to as “Revenue Expenditure Funded from Capital under Statute.”

  • “Death bed revaluations” on the sale of fixed assets to restate the value of the asset to the sale price are now prohibited. There is no significant impact on the 2008/09 accounts.

4. Summary of the 2008/9 Financial Year

The Council provides a variety of services relating to both taxpayers and rent payers. It’s spending is further split between revenue and capital in accordance with statute and accounting practice. Revenue expenditure is generally incurred on items that are consumed within the year and is financed from Council Tax, National Non-Domestic Rates, Government grants, fees and charges and other miscellaneous income. Capital expenditure is incurred on items that provide value to the Council or community for more than one year and is generally financed by borrowing, grants, revenue balances and proceeds from the sale of capital assets.

Revenue Outturn

The Council’s financial position has inevitably been affected by the global credit crunch and the unsettled banking environment. This has impacted upon the Council’s expenditure levels and investment income receipts as well as other income streams both due to reduced demand as well as potentially increased defaults on debts (although for 2008/09 this does not appear to be the case, as the analysis on Housing Revenue Account bad debts has enabled a reduction in the bad debt provision). There has been a dramatic uptake in concessionary fare passes; investment income has fallen due to the reduced interest rates; planning fees and land charge income have fallen due to the decline in the housing market; and the number of housing benefit claimants has risen significantly. These have all been on an unprecedented scale. However, the Council has reacted quickly by controlling discretionary spend and containing overspends within existing budgets.

In February 2008 the Council approved a net revenue budget for 2008/09 of £22.981m. This resulted in an increase of £8.46 (4.50%) to the Band D rate over the previous year.

Cabinet received regular budget monitoring information throughout the year. The last report in April 2009 showed a draft overspend on the General Fund for the year of £116k. Subsequent to this report, a number of minor underspends were identified which negated this overspend, resulting in a balanced budget position. 

The closing position identified a need to set aside a sum of £150k to meet future costs of refurbishing the refuse vehicles and a further £100k as a contribution to capital towards replacement bins in 2009/10. Savings of £250k have been delivered within the waste service and therefore £250k has been set aside in earmarked reserves to meet these identified costs.

The following savings have also been achieved and these have been set aside in earmarked reserves to meet specific purposes:

Earmarked Reserve

Amount credited

Reason

 

£’000s

 

Customer Services

522

An underspend of £522k has arisen on Housing Benefit subsidy. This has been transferred into this earmarked reserve to minimise the impact of any future volatility on this activity. This reserve will also be used to offset any additional costs that may arise in respect of the concessionary fares scheme following the successful Stagecoach appeal and the increased take-up of the scheme.

 

Homelessness

91

The economic downturn payment received in respect of homelessness of £30k has not yet been utilised. Further monies received in respect of rent deposits of £61k were also unspent at year-end. These monies have been set aside in a new Homelessness Reserve to fund the rent deposit scheme and other homeless prevention initiatives.

Priority Improvement

160

The Council set aside monies in the 2008/09 budget to cover the costs of severance payments over the three years of the Medium Term Financial Plan following staff restructures. The unspent element of £86k has been set aside to meet future severance costs as required. Savings of £74k arising in 2008/09 from the re-tendering of the insurance contract have also been set aside in this reserve to pump prime invest to save projects which will be needed to deliver future years’ base budget savings.

The draw down against General Fund Balances for the year of £963k is in line with the approved budget. The General Fund Balance at 31 March 2009 is £2.076m. This represents 9.4% of the Budget Requirement which is slightly below the Council’s reserves strategy to maintain a balance of 10% of the Budget Requirement. It is intended to bring the reserves up to the recommended level in 2009/10.

Housing Revenue Account

The increase in the Housing Revenue Account balance for the year was £3.638m. The Council had budgeted to break-even. The main reason for the variance is that the HRA Repairs Reserve has been closed and the balance on this reserve of £3,203k has been transferred into HRA balances. This reserve has not been used for the last two years as repairs expenditure to HRA properties has been contained within the HRA budget. It is therefore prudent to transfer this to HRA balances to strengthen the long term viability of the HRA.

The remaining variance of £435k is detailed below:

Comparison of Budget to Final Outturn – Major Variances

 

 

£’000s

Slippage in repairs expenditure

(345)

Reduced pension costs to the HRA

(100)

Reduced central support charges to the HRA

(82)

General underspends on supervision and management

(60)

Reduced insurance charge due to change in provider

(60)

Increased Housing Subsidy payable

121

Increased voids resulting in reduced non-dwelling rentals

16

Increase in electricity charges after charges to tenants had been set

30

Reduced admin charge agreed with leaseholders

47

Increased electricity charges for communal areas

30

Reduced bad debt provision

(57)

Miscellaneous

3

Redundancy Costs 22

 

(435)

The accumulated HRA reserve balance at 31 March 2009 is £7.974m. The balance provides flexibility for delivery of the Housing Business Plan which is in the process of being reviewed.

Capital Expenditure

The Capital Programme has also been affected by the national economic situation, particularly in regard to the Council’s ability to generate capital receipts to fund the programme. As a consequence, schemes have been deferred to later years and spend slowed down to ensure the programme could be funded. 

Total expenditure on capital items, including grants and loans, amounted to £12.051m, of which £2.968m was met by capital grants, £23k from revenue resources, £2.183m from capital receipts, £1.191m from the major repairs reserve, £408k from the capital projects reserve, £716k from developers’ contributions (S106 receipts) and £4.562m from borrowing. 

The main items of capital expenditure are set out below:

 

£’000s

Fixed Assets

 

Council Dwellings

2,917

General Fund assets

2,967

Expenditure not resulting in assets

6,167

Total Capital Expenditure

12,051

Revenue expenditure funded from capital under statute (expenditure not resulting in assets per the above table) has now been included as part of the deficit on the Income and Expenditure Account in line with the new requirements of the 2008 SORP. This includes Disabled Facility Grants and Environmental Enhancement Grants.

The economic climate also resulted in volatile asset values. To ensure that the Council’s asset values are stated fairly within the accounts revaluations were conducted and as a result, impairment losses of £31m were charged to the HRA to reflect the fall in housing values and impairments of £3m to the General Fund to reflect the fall in value of the Investment Properties.

Treasury Management

As at 31 March 2009, the Council had £6.936m in investments. The impact of the credit crunch and global concerns over the banking sector in 2008/09 has highlighted the importance of the security and liquidity of the Council’s investments. The Council’s rigorous review of ratings, share prices and business news meant that the Council reacted quickly to failing banks and thus avoided having any investment at risk in Icelandic banks when they went into receivership. Investments have deliberately been restricted to short periods in order to keep funds relatively liquid and thereby allow investments to be switched to other institutions if necessary. Other funds have been held in interest bearing accounts that are either instant access or one week’s notice accounts which pay a competitive rate of interest of at least base rate. A Debt Management Account Deposit Facility (DMADF) was opened in the year. All deposits placed here are guaranteed by the Government and therefore have the equivalent of a sovereign triple-A rating. However, the interest rates offered tend to be lower than the banks and building societies. Over the latter half of the year, the Council has been placing all its surplus funds in this facility to ensure security. As more stability returns to the banking sector, then investments will be moved to banks and building societies whose credit rating meets the requirements of the Council’s Investment Strategy, to take advantage of higher interest rates.   

The Council’s total borrowing at 31 March 2009 was £27.203m. The Council has not taken out any additional borrowing during the year. 

Pensions Liability

As part of the Conditions of Employment, the Council offers retirement benefits in accordance with statutory requirements. These payments, investment assets and future liabilities are managed as part of the Kent County Pension Fund on behalf of all contributing member authorities. Local authorities are required to account for their share of the pension deficit, the impact of which can be seen in note 41 to the Core Financial Accounts, which shows that the total value of liabilities (i.e. future commitments from the fund) is £112.9m (£117.2m at 31 March 2008), compared to the estimated assets which are valued at £59.3m (£73.5m at 31 March 2008) – a net deficit of £53.6m. The financial assumptions at 31 March 2009 are more favourable than they were at 31 March 2008. All else being equal, this serves to reduce the value of the liabilities and thus has a positive impact on the pension position. However, the last year has been hard for the investment markets, resulting in much lower than expected returns. Unfortunately this has outweighed the improvement on the liability side of the balance sheet. The resulting deficit is being made up over a number of years by increasing the rates at which contributions are payable into the fund. 

5. Group Accounts

Local Authorities with interests in subsidiaries, associates and joint ventures are required since the 2005 SORP to prepare Group Accounts in addition to their financial statements. In determining whether it is necessary to publish Group Accounts a local authority should consider their interests in all types of organisations. Thanet District Council has considered their relationships with organisations and has concluded that there is a Group Accounts relationship in respect of East Kent Opportunities LLP (EKO). This is a Limited Liability Partnership between this Council and Kent County Council to bring forward the economic development and regeneration of Eurokent and Manston Park sites. EKO was incorporated on 4 March 2008. KCC and this Council each had 50:50 ownership, control and economic participation in the joint venture during 2008/09. Each partner has contributed 38 acres of land. For the purposes of Group Accounts, this arrangement is treated as a Joint Arrangement, Not an Entity (JANE). 

The EKO accounts for the period ended 31 March 2009 will be audited by external auditors Baker Tilley before being lodged at Companies House. 

6. Approval

In accordance with Regulations 10(3) and 10(4) of the Accounts and Audit Regulations 2003, the Governance and Audit Committee approved the 2008/09 Statement of Accounts on 25 June 2009.

These unaudited accounts were replaced and subsequently re-approved on 29 September 2009.

Signed :                                                        Date:               

Chair of the Governance and Audit Committee 

For further information on the accounts please contact the Director of Finance and Corporate Services on:

  •  01843 577000
  • or write to :
    Director of Finance and Corporate Services, Thanet District Council, PO Box 9, Cecil Street, Margate, Kent CT9 1XZ.