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SPEND TO SAVE SCHEME 199798

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					                                                        THIS REPORT RELATES
STIRLING COUNCIL                                        TO ITEM 11
                                                        ON THE AGENDA


REPORT BY DIRECTOR OF FINANCE & INFORMATION SERVICES


25 September 1997                                        NOT EXEMPT


                         1997/98 SPEND T0 SAVE SCHEME




1     PURPOSE

      1.1   This report provides an outline of the proposed submission to the
            Scottish Office to access Scottish Office grant under the 1997/98
            Spend-to-Save Scheme to fund costs of voluntary severance incurred
            over the last six months.



2     SUMMARY

      2.1   In March of this year, the Resources Committee considered a report on
            a trawl for voluntary severance which indicated that as many as 250
            employees might be interested in voluntary severance. It was noted
            that the costs could be as much as £2million and it was agreed that this
            would be an unacceptable burden on the Council Tax.

      2.2   The then Secretary of State had announced proposals for a Spend-to-
            Save Scheme providing for payment of a special grant to cover such
            severance costs provided that the Council can demonstrate that by
            incurring them it can achieve long-term savings. However, the payment
            of this grant was conditional upon the Council being prepared to give up
            an equivalent part of its 1997/98 capital allocations. The limited nature
            of the Council’s General Services Capital Programme meant that if the
            scheme was confined to this programme area, it would not have been
            possible for the Council to participate in the scheme.

      2.3   At a meeting earlier in the year, George Kynoch, then Minister of State
            for Local Government indicated that the Scottish Office would look
            favourably on a request by any Council to forego Housing capital
            allocations instead. The Resources Committee was advised that it
            would be possible to reschedule Loans Fund repayments by the
            Housing Revenue Account in a way that would enable sufficient
            Housing capital allocations to be released under the Spend-to-Save
            Scheme. The Committee authorised an application under the Spend-
            to-Save Scheme on that basis.
                                       -2-

3   RECOMMENDATION(S)

    3.1   It is recommended that the Committee approves the following :


          •   a final submission for grant under the 1997/98 Spend-to-Save Scheme
              amounting to £2million subject to forgoing an equivalent amount of its
              Housing Capital Allocation;

          •   that the Director of Finance and Information Services be authorised to
              reschedule capital receipts from Right-to-Buy sales as outlined in this
              report; and

          •   that the revenue saving in loan charges arising on the Housing Revenue
              Account from that rescheduling be used to fund an equivalent revenue
              contribution to Housing capital expenditure, i.e. CFCR.




4   CONSIDERATIONS

    4.1   Grant under the 1997/98 Spend-to-Save Scheme may only be used for
          the purposes of generating long-term savings and the Scottish Office
          has confirmed in a letter dated 22nd August that the Council’s initial
          application to use the grant to meet costs of voluntary severance is in
          line with that criteria. This letter also invites the Council to firm up this
          initial application for grant and for this to be submitted by 26th
          September, 1997.

    4.2   In making this final application, Councils must certify that the grant will
          only be used for the purposes of generating long-term savings and that
          the costs so financed will not exceed the Council’s original bid which
          was £2million. Revisions to final applications will not be permitted after
          26th September.

    4.3   The numbers and costs of voluntary severance following the latest trawl
          undertaken earlier this year are summarised in Appendix 1 which also
          indicates the long term savings which will be achieved.

    4.4   In the last six months or so some 221 employees have left the service
          of the Council at a cost of almost £2million in additional pension
          benefits and redundancy payments. These costs will achieve a saving
          of £3.5million in the current year and future annual savings of
          £3.9million. All of these savings have been taken account of in this
          year’s Revenue Budget either as the means of securing specific
          savings or vacancy management targets.
                                        -3-

    4.5   It is intended that the grant to cover the aforementioned costs of
          £2million will be made available under the General Fund but this will be
          secured by forgoing an equivalent amount of Housing capital allocation.
          It is therefore important that the Housing Account isn’t seen to be
          subsidising the General Fund and it is believed that the means of
          rescheduling Loans Fund repayments will ensure that this does not
          happen.

    4.6   Since 1980/81, Stirling District Council has received almost £57million
          from council house sales. This capital income is banked in the
          Council’s Loans Fund and is credited to revenue over a long number of
          years thus offsetting some of the loan charges which the Housing
          Revenue Account bears in relation to past capital spending on council
          house provision. An examination of the Loans Fund records has shown
          that these receipts are being credited to revenue over a much longer
          period than the average redemption rate for debt carried by the Housing
          Account. The present method does not accord with normal accounting
          practice.

    4.7   It is therefore proposed to reschedule the application of those receipts over a
          shorter period more in line with the average debt redemption rate. By doing
          this, there will be a reduction in loan charges falling on the Housing Revenue
          Account of approximately £2.054million between 1996/97 and 1997/98. This
          revenue saving would then be used as a revenue contribution to capital
          expenditure (CFCR) and would therefore be sufficient to cover the loss of
          capital allocation under the spend-to-save scheme, leaving a small surplus of
          £54,000 which could be used to support either additional capital or revenue
          spending.


    4.8   By applying the saving as CFCR, the amount of this year’s Housing
          capital programme to be financed by borrowing will be reduced and in
          turn future year’s loan charges will be reduced. This will offset the
          effects of accelerating the use of the receipts from Right-to-Buy sales
          and thus the various adjustments should have a neutral long-term effect
          on the Housing Capital and Revenue Accounts. Indeed, in the short-
          term the adjustments will lead to annual savings in loan charges in
          excess of £500,000 over the next three years which can only ease the
          pressures on the Housing Revenue Account.

    4.9   The proposal to reschedule the receipts from Right to Buy sales has
          been discussed with the Council’s External Auditor and he has
          indicated his approval in principle. The proposal is also in line with
          recognised accounting practice.



5   POLICY IMPLICATIONS

    5.1   The Spend-to-Save Scheme has allowed the Council to achieve a
          significant reduction in employees through voluntary severance which
          will help to keep spending closer to budget in the current year and
          provide long-term savings.
                                          -4-

6   CONSULTATIONS

    6.1   The following were consulted in the preparation of this report :

          •     Chief Executive

          •     Director of Housing and Social Services

          •     Head of Personnel Services



7   RESOURCE IMPLICATIONS

    7.1   A significant reduction in employee numbers has been achieved and
          with the one-off costs being covered by government grant as outlined in
          this report, the Council will gain the immediate benefit of reduced
          employment costs as well as future annual savings.



8   BACKGROUND PAPERS

    8.1   Scottish Office Finance Circular No. 4/1997 dated 17th February, 1997
          Scottish Office letter to Chief Executives dated 11th June, 1997
          Scottish Office letter to Director of Finance and Information Services
          dated 22nd August, 1997.




9   EXEMPT INFORMATION

    9.1   9.1      Not applicable.
                             -5-




Author(s)
Name           Designation               Tel No/Extension

Bill Dickson   Director of Finance &     442854
               Information Services



Approved by
Name           Designation               Signature

Bill Dickson   Director of Finance &
               Information Services



Date                         Reference
-6-
                                             -7-

                                                                                   APPENDIX
1




Spend-to-Save Scheme - Summary of Severance Costs and Staff Savings



                                            Additional   Additional    STAFFING SAVINGS
                                           Retirement/    Annual
             Service              No. of   Redundancy     Pension                   1998/99
                                 Leavers   Lump Sums       Costs
                                                £            £           £             £
Finance & Information Services        1            4,570           0     17,614        17,614

Education Services                   49            231,646   46,077     845,470      1,181,882

Civic Services                        8             78,562     4,756    117,012       117,013

Community Services                   21            218,108     5,464    309,831       333,577

Tech & Commercial Services           25            384,405   12,390     488,345       491,059

Housing & Social Services            51            491,605     9,467    760,018       779,859

Housing Revenue Account               4             48,272     1,871    104,110       104,110

DLO/DSOs                             62            525,695   10,426     859,784       881,328


TOTALS                              221       1,982,863      90,450    3,502,184     3,906,441
-8-

				
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