Medium Term Financial Plan (MTFP)
The Council has a long established process of operating a medium term approach to its financial planning and in line with this it reviews the plan at least on an annual basis when it firms up the following year, by approving a detailed budget and Council Tax level for the year. In doing this, the Council also takes due consideration of future year demands on its resources and establishes its firm proposals for the coming year with due regard to prudent financial management in the medium term. The Council has a successful track record of managing its resources in this way.
Between the financial years 2010/11 to 2015/16 the Council has faced unprecedented financial challenges following the Governments response to the worldwide economic downtown by introducing significant public sector spending reductions. In the case of Darlington Borough Council by the forthcoming year this means an overall real terms decrease in government funding of £37.3m. To date this has resulted in the Council agreeing reductions to planned expenditure of £35.4m leading to reduction of 572 in the Council’s workforce.
It is predicted that comparable Government funding in real terms will reduce by a further £6.3m by 2020 in addition to the £37.3m already lost since 2010, an overall real terms decrease of £43.6m, a significant 55%.
These reductions are unprecedented. The Council’s main sources of income going forward are Council Tax and Business Rates and the ability to increase these sources of income to protect services and offset the loss of government grant is limited by the Government. Unless a referendum is held the Council cannot raise Council Tax by more than 4% each year, a maximum of 2% for general services and 2% towards adult social care expenditure and the rateable value of properties is set by the Government. Therefore the only way we can collect more revenue from these sources is to increase the numbers of properties built and attract more businesses to the Borough.
Darlington Borough Council has to date been proactive and able to adapt to an environment of significant service pressure and resource reductions. Despite the significant funding reductions the majority of spending reductions to date have been achieved without direct impact on the public, although it is regrettable that a significant number of jobs have been lost in the process.
The 1 December 2015 Cabinet report noted the two stage approach to the MTFP this year. The initial report (Phase 1) looks at the financial position to 2019/20 based on expenditure levels based on current service levels and concentrates on the 2016/17 budget, the council tax, the level of savings required and the use of balances. A further report (Phase 2) will look at stage two and make proposals on how the funding gap can be closed. This will be recommended for consultation with the findings being reported to Special Cabinet on 22 June 2016 to enable decisions to be taken with the final version of the MTFP being agreed by Council on 29 June 2016.
The priorities of the Council are set out in the Community Strategy – One Darlington Perfectly Placed (ODPP), developed in partnership with public services, business and the voluntary and community sector. It is proposed that the focus needs to be on putting in place the conditions that will enable the ODPP ambitions to be achieved in a climate of significantly reduced public spending. The three conditions are:
1. Building Strong Communities – enabling people to live fulfilling lives with less involvement from public services.
2. Spending Wisely – maximising value for all public expenditure.
3. Growing the economy – generate income streams, employment and opportunities.
In addition to the proposed spending reductions, annual council tax increases of 3.99% have been included in the MTFP as this is the limit by which council tax can be increased without a referendum. 2% of this increase relates to the Adult Social Care Precept which is restricted to expenditure on adult social care budgets.
Taking account of the above the Council’s General Fund balance at 1st April 2016 is projected to be £20.955M.
The Council has set a revenue budget of £86.987M for 2016-17 which is summarised at Cabinet portfolio level below:-
|Adult Social Care and Housing||32.983|
|Children and Young People||21.605|
|Health and Partnerships||7.775|
|Leisure and Local Environment||15.313|
|Economy and Regeneration||3.427|
|Efficiency and Resources||9.125|
|Contribution from revenue balances||(3.347)|
|Total net revenue budget||86.987|
The Budget is funded by:
|Business Rates retained locally||16.486|
|Top Up Grant||4.012|
|Revenue Support Grant||13.286|
|New Homes Bonus||2.698|
|Public Health Grant||8.807|
A detailed report prepared by the Chief Officers Executive (COE) was presented to Cabinet on 1 December 2015 for consultation. The views of Efficiency & Resources Scrutiny Committee were fed back to Cabinet on 11 February 2016. The results of the consultation and other updates were considered at the meeting and amendments were made to the Phase 1 budget that was recommended to Council on 25 February 2016. After further public consultation, the Phase 2 budget was recommended to Council on 29 June 2016.
As with the revenue budget in recent years the Council has developed a medium term financial plan for Capital. Local authorities’ new freedoms in capital investment and borrowing came into force on 1st April 2004 and under this system councils are able to borrow subject to affordable and prudent limits. This has ensured that there is even closer linkage between capital and revenue financial planning.
The MTFP includes planned capital investment of £80M between 2016-17 and 2019-20.
The capital investment requirements of Transport and Education services are largely funded by government programmes, which typically have a system of bids and/or assessments whereas the Housing Programme is funded from the Housing Revenue Account. The plans of these services are reviewed and updated on an annual basis and they contribute to the longer term view on financial planning for capital investment. The capital report also includes indicative allocations of future funding for the main areas of the capital programme, the majority of these being funded by capital grants and contributions from the Housing Revenue Account.
As a result of the implementation of the government’s self-financing initiative introduced from April 2012 and savings delivered in the Capital Works fund it has been possible to create a HRA Investment Fund. This will be primarily used to deliver the regeneration of Red Hall and a new build programme. A total of £20M is available for the development of 168 new council houses.
The Council can and has supplemented Government Capital Funding from its own resources such as capital receipts and prudential borrowing, although, in such challenging financial times the ability to fund from the Council’s resources is severely limited.
Borrowing to fund capital expenditure and the investment of money that the Council holds to meet future costs is managed in accordance with a Treasury Management Strategy, which is approved annually by the Council. The Strategy for 2016-17 was approved at the Council meeting on 25 February 2016 after being considered at a special Audit Committee on 29 January 2016. The management of the Council’s borrowing and investments is an integral part of the MTFP for both revenue and capital.
In setting the budget the Council has regard to public expectations and demands for services and the impact on Council Tax. Government support in the form of Formula Grant is determined by national formulae and does not vary with local spending decisions. In this way, nearly half of the Councils non-schools net budget funding is fixed which means that the Council’s expenditure decisions impact very significantly on Council Tax.
This is the amount paid to the Borough Council for band D properties excluding the average Parish Precept. This represents an increase of 3.99% in Council Tax levels from 2015/16. 1.99% of this increase is for the Councils general services and 2% is to fund Adult Social Care.
In addition to the Council’s own requirements, Council Tax bills include the Office of the Durham Police and Crime Commissioner precept (£165.95 for Band D), Durham and Darlington Fire and Rescue Authority precept (£95.76 for Band D) and in parish areas the Parish Council’s precept (ranging from £6.05 to £34.80 for Band D).
The latest version of the Medium Term Financial Plan was approved by Cabinet on 22 June 2016 and by Council on 29 June 2016.