CABINET by tyndale


21st December 2004
Medium Term Financial Plan 2005/2006 – 2007/2008 and
Revenue Budget 2005/2006



1.   This report provides a broad summary of the current year’s revenue issues,
     sets out the Draft Revenue Budget for 2005/2006, outlines the medium
     term financial position for 2005/2006 – 2007/2008, and sets out Council
     Tax issues for consideration by Members.



2.   The report has been based on the 2005/2006 Revenue Support Grant
     Consultation paper released by Central Government on the 2 nd December

     Current Year’s Revenue Budget

3.   The Council set its revenue budget after the use of available balances at
     £164.4m in 2004/2005. No General fund balances were applied to support
     the overall expenditure of the Council. A Council tax increase of 6.9% for
     Middlesbrough was applied.

4.   In setting this year’s budget approximately £1.5m of efficiency savings were
     identified. No cuts in services were proposed and an extra £0.6million was
     provided for Education. This enabled the Education spending to be
     maintained at the level of our Formula Spending Share (FSS).
5.   In setting this years budget it was assumed that the overall spending
     position in 2003/2004 would be approximately £260k under budget, which
     is in line with the provisional out-turn. The current years budget
     incorporated all known spending pressures at the time of budget setting.

6.   The 2nd Quarters 2004/2005 Budget Clinics were held during November
     2004. The following table summarises the net position.

              Social Services                            -30
              Environment & Neighbourhood serv.         180
              Education                                  -56
              Corporate Services                       -220
              Regeneration & Culture                      -0
              Central costs                            -315


7.   A number of Structural budget pressures were identified in respect of the
     Enterprise Centres income targets £60,000, Coroners Costs £43,000 and
     Health & Safety recharges £20,000. These pressures have been built into
     the Draft 2005/2006 Annual Revenue Budget and the ongoing Medium
     Term financial Plan.

     Budget Principles

8.   The Executive Board approved the following Budget Principles on the 9th
     November 2004.

         to keep Council Tax increases to reasonable levels
         to maintain appropriate balances, central provisions and earmarked
         to make services fully accountable for their own budgets and
          spending, and enforce a policy of no unauthorised overspending
          within service areas.
         to maintain appropriate medium term budget planning and monitoring
          processes, ensuring known commitments are provided for and
          budgets are set in real terms with the effect on service delivery clearly
         to ringfence increases in Education FSS to Education Service budgets
          and to seek to maintain Education planned spending at FSS.
         to ensure effective budget consultation processes are followed.
         to ensure that the Council’s financial strategy reflects the objectives of
          the Council.
         to maximise the efficient, effective and economic use of resources, in
          conjunction with partners where appropriate, and in accordance with
          local strategic plans and priorities.
         to maximise available resources to the environment and regeneration
         no increase in Social Services expenditure other than pay awards and
         to ensure that the impact of legislative changes are considered as part
          of the budget setting process.

9. The 2005/2006 Draft Revenue Budget and the Medium Term Financial Plan
   have been based on these budget principles.

      Projected Revenue Budget

10.   The 2005/2006 projected revenue budget is attached at Appendix A. The
      main variances from the current year’s budget are summarised below and
      explained in paragraphs 11 to 22.

                                                         £`million    £`million

       2004/2005 Revenue Budget                                        164.412

       Add variances to current years budget
         Pay awards and Inflation                           5.603
         Effect of previous Council Decisions               0.140
         Education spend at FSS                             1.741
         Housing Stock transfer                             0.661
         Efficiencies                                      -1.000
         Social services Specific Grant                     0.992
         Grant fallout                                      0.551
         Additional investment in the Environment           0.585
         Other                                              0.647         9.920

       2005/2006 draft revenue budget                                  174.332

11.   Pay awards have been provided for at the approved rate. The Aggregate
      Schools budget has been assumed to increase by 3% for inflation. Running
      costs and other Inflation has been provided at 2%. Income for fees,
      charges, grants and recharges have been estimated to be 2.5%.

12.   Additional provisions have been made within the budget for pay and
      inflation to meet the potential impact of job evaluation and to make a
      provision for potential Social Services independent price sector rises

13.   Provision has been made for the full year effect in 2003/2004 of previous
      Council decisions in respect of the additional revenue costs associated with
      the new Art Gallery (£100,000) and the proposed new skatepark
      development within the Borough (£40,000)

14.   Education spending has been assumed to be in line with our Formula
      Spending share (FSS) as indicated in the following table: -

      Estimated Available Education Resources
      2005/2006 Education FSS                                          79.007

      LESS Education expenditure

      2004/2004 Education expenditure                                  74.772
      Schools budget inflationary increase                              1.692
      Other education inflationary increase                             0.802

      Net Resources available 2004/2005                                  1.741

15.   Provision has been made for the impact of the Housing Stock transfer with
      took place on the 15th November 2004. The following table summarises the
      revenue impact of the proposed Housing Stock transfer on the Council.

                                       2005/06       2006/07        2007/08
                                       £`million     £`million      £`million

       Grounds maintenance                0.131          0.137           0.144
       Support Services                   0.836          0.874           0.915
       Community Protection Team          0.137          0.144           0.150
       Retained Housing Function          0.200          0.210           0.219
       Right to Buy income               -0.625         -0.625          -0.625
       Mortgage interest                 -0.018         -0.018          -0.018

                                         0.661           0.722           0.785

16.   A restructuring of our outstanding loans, together with the impact of
      Housing Stock Transfer and distribution of previous Cleveland county
      Council Debt is estimated to produce efficiency savings of £1million in

17.   As part of the Revenue Support Grant Consultation paper, existing Social
      Services Specific Grants in respect of Training Support Grant, residential
      Allowances Grant and preserved rights are being transferred to Social
      Services Formula Spending share (FSS). This is a shift in funding sources
      and has been anticipated to be broadly neutral.

18.   Allowance has been made for the fallout of existing grant support to the
      Community Warden Service (£451,000) and the Libraries Book Fund

19.   At a meeting of the Executive on the12th October 2004, additional
      investment in the Environment in respect of Waste Recycling, Junk Job
      Service, and weed control was agreed. The ongoing impact has been built
      into the 2005/2006 Draft Revenue Budget and the Medium Term Financial

20.   Other costs consist of increased pension contributions £437,000; Structural
      budget issues £123,000, the potential additional cost of licensing £200,000
      and investment in Communications, peoples Strategy and GIS.

21.   The current year’s efficiency target of approximately £200,000 will be met
      by reductions within the existing capital financing and leasing budgets.

22.   There are a number of additional potential pressures, including the targeted
      £250,000 surpluses from Trading Accounts that are being examined during

      Medium Term Financial Plan

23.   A medium term financial plan (MTFP), outlining a broad financial position
      for the period 2005/2006 to 2007/2008 has been prepared on the basis of
      current information. The MTFP projects the levels of resources and

      commitments across a three year period, and is used to support strategic
      policy and service planning across the Council.

24.   The level of resources estimated to be available has been based on the
      2005/2006 Revenue Support Grant settlement, released by Central
      Government on the 2nd December 2004

25.   Provision has been over the three year period for the fall out of specific
      grant funding for the warden service (£1.0million) and economic
      development activities (£0.4million) from 2006/2007. The potential increase
      in superannuation rates (estimated cost £0.9million) has also been
      provided for from 2005/2006. Appendix C sets out the expected position
      over the medium term.

      Council Tax Issues

26.   In setting this years budget the Council agreed to set our Council Tax at “ a
      reasonable level”. Previous strategies have linked the increases to Central
      Government assumptions.

27.   The Central Government assumed Council Tax increase associated with
      the 2005/2006 Revenue Support Grant Consultation paper is 4.8%

28.   An additional 1% increase in Council Tax generates approximately
      £380,000 per annum to the Council. Appendix C demonstrates the
      Councils expenditure `limit` at varying Council Tax Levels.

29.   In additional to Central Government assumptions, consideration can also
      be given to Neighbouring Councils, local averages, regional averages,
      Unitary Council averages and averages for England. The following table
      sets out the average Council Tax per dwelling for these groups, identifies
      the percentage increase which would raise our Council Tax to those
      averages and shows the additional Council Tax Income that would be
      generated: -

                                 2004/2005         Percentage          Income
             Averages          Average C Tax      Middlesbrough       Generated
                                Per Dwelling       Council Rise        £`million
                                     £                  %

      Middlesbrough                   797

      Local                           835              4.8               1.8
      North East                      851              6.8               2.6
      Unitaries                       894             12.2               4.6
      National                        967             21.3               8.1

30.   In agreeing the Council Tax rise, it is important to note that Central
      Government have retained the power to cap, what they identify as, excess
      Council Tax increases. This must be borne in mind when setting the
      Council Tax; for example should the Council determine that it wishes to set
      its Council Tax at the North East average, it is suggested that a longer
      implementation period of say two-three years should be assumed.

31.   A number of scenarios have been applied in respect to the level of Council
      Tax increase, which identify the potential surplus or gap from the
      expenditure requirements of the council. These are not exhaustive, and are
      provided for illustrative purposes to help inform the decision making
      process: -

                                              2005/2006     2006/2007    2007/2008

       National Standard C Tax Increase
       Council Tax Increase                     4.8%          5.5%            5.1%
       (Surplus)/Gap £`million                 (0.415)       (0.255)         (0.272)

       Average 5% C Tax increase 2004/2005
       to 2006/2007                             5.0%          5.0%            5.0%
       Council Tax Increase                    (0.491)       (0.135)         (0.104)
       (Surplus)/Gap £`million

       4% increase in 2004/2005 followed by
       5% in the next two years
       Council Tax Increase                     4.0%          5.0%           5.0%
       (Surplus)/Gap £`million                 (0.109)        0.266          0.317

       Average 4% C Tax increase 2004/2005
       to 2006/2007                             4.0%          4.0%           4.0%
       Council Tax Increase                    (0.109)        0.664          1.148
       (Surplus)/Gap £`million


32.   Members will be given the opportunity to receive an informal presentation in
      respect of the Medium Term Financial plan in December. Subject to
      Members recommending the Medium Term Plan, and the variances to the
      2004/2005 revenue budget, it is proposed to carry out consultation on the
      budget proposals during, January as follows:

          addressing Community Councils in Cluster Group areas,
          the works council
          senior staff with Middlesbrough Council
          Local Chamber         of   Commerce    and     other   Business     Sector
          /Local Strategic Partnership,
          consultation with Headteachers/ Governing bodies,
          consultation with the Health & Social Care Forums,
          consultation with the Middlesbrough Voluntary Sector Partnership
          consultation with other Strategic Partners & Stakeholders ( e.g.
           Cleveland Police Authority)


 33.    The Council is required to set a budget by 11th March 2005. The
        formulation of the budget strategy together with the recommended
        variations to the 2004/2005 budget will determine the budget allocations
        to service areas for 2005/2006


 34.    It is recommended that Executive Members :-

       a.   Note and consider the contents of the report.
       b.   Approve the Draft 2005/2006 Revenue Budget for consultation;
       c.   Request a further report on the 2005/2006 Revenue Budget be
            submitted to the Executive in February 2005 for Approval.


 36.   The Council is required under legislation to set a revenue budget and agree
       the level of Council Tax for 2005/2006 by 11th March 2005.

 Paul Slocombe
 Director of Resources
   Name: Paul Slocombe
   Tel no: 729032

                                                                Appendix A
                    DRAFT REVENUE BUDGET 2005/2006
                                                £`million    £`million

2004/2005 revenue budget                                       164.412

Add provision for pay awards & inflation
  Pay awards                                         1.594
  Job evaluation                                     0.750
  Schools budgets                                    1.692
  Service Middlesbrough                              0.629
  Social Services Independent sector prices          0.500
  Other                                              0.438       5.603

Add net effect of previous decisions
  Art Gallery                                        0.100
  Skate park development                             0.040       0.140

Net Education resources position
   Ringfence to FSS Increase                         1.741       1.741

Add Housing stock Transfer

   Grounds maintenance
   Service Middlesbrough Support Services
   Housing Revenue account overheads
   Com Serv. enforcement/ CCTV
   Retained Housing function
   Right to buy income (share agreement)
   Mortgage interest                                             0.661

Less Efficiency Savings
   Capital Charges                                  -1.000       -1.000

Add Social services Grant changes
  Training support                                   0.176
  Residential Allowances Grant                       0.520
  Preserved Rights                                   0.296       0.992

Add Grant Fallout
   Community Wardens                                 0.451
   Libraries Book Fund                               0.100       0.551

Add environmental Services Investment
   Waste Recycling                                   0.370
   Weeds                                             0.040
   Junk Jobs                                         0.120
    CCTV                                             0.040
   Travellers Sites                                  0.015       0.585

Add Other
  Pension contributions                              0.437
  Magistrates Courts                                -0.309
  Emergency Planning                                 0.101
  Communications                                     0.010
  GIS                                                0.035
  Health & safety                                    0.020
  Enterprise Centres                                 0.060
  Licensing                                          0.200
  Coroners Costs                                     0.043
   Peoples Strategy                                  0.050       0.647

2004/2005 Draft Revenue budget                                 174.332

                                                                      Appendix B

             Medium Term financial Plan 2005/2006 to 2007/2008

                                           2005/2006     2006/2007     2007/2008
                                            £`million     £`million     £`million

2004/2005 Base budget                       164.412       164.412       164.412

   Pay awards and Inflation                    5.603        10.419       15.399
   Effect of previous Council Decisions        0.140         0.509        0.513
   Net Education changes                       1.741         3.744        4.595
   Housing stock transfer                      0.661         0.722        0.785
   Efficiencies                               -1.000        -1.000       -1.000
   Social Services Specific Grant              0.992         0.992        0.992
   Grant fallout                               0.551         1.877        2.127
   Environment Investment                      0.585         0.785        0.785
   Pension Fund                                0.437         0.887        1.350
   Other                                       0.210         0.210        0.210

Net requirements                            174.332       183.557       190.168

Use of balances                                0.000         0.000         0.000

Adjusted net requirements                   174.332       180.172       190.168

                                                     Appendix C
          Impact of Council Tax Increases

2005/2006       2005/2006          2005/2006        `Gap`
Council Tax      Band D            Expenditure       from
 Increase       Council Tax           Level       2005/2006
    %                 £             £`million    requirements

    0.0           987.46            172.912          1.420
    1.0           997.33            173.294          1.038
    2.0         1,007.21            173.677          0.655
    3.0         1,017.08            174.058          0.273
    4.0         1,026.96            174.058         -0.109
    4.8         1,034.86            174.746         -0.415
    5.0         1,036.83            174.823         -0.491
    6.0         1,046.71            175.205         -0.873
    7.0         1,056.58            175.587         -1.255
    8.0         1,066.46            175.969         -1.637
    9.0         1,076.33            176.352         -2.020
   10.0         1,086.21            176.734         -2.402


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