Agenda item

The Executive Member for Finance submitted a report inviting Members of the Corporate Business Scrutiny Committee to consider revisions to the Financial Strategy including policy on reserves and the proposed planning assumptions to be used to update the Medium Term Financial Plan and to make recommendations to the Executive.

The Director of Internal Services referred to this report being the prelude to the annual budget round.  Members were advised that, due to the added level of complexity of this report, it had been broken up into 4 parts.

Introducing Part 1, The Director of Internal Services reminded Members that the number of benefit claimants was increasing although the rate of increase was falling. He also stated that the risk of increasing entitlement to council tax discount would be shared by East Herts, the County Council and the Police Authority pro rata to each Authority’s rate of council tax.

Members were advised that the cost of benefits to be awarded by East Herts in 2012/13 was estimated at £7m, which would reduce to an estimated £6.65m on implementation of the new scheme of council tax discounts.  Members were reminded that an allowance would need to be made for some growth in numbers becoming entitled to the new discount.

The Director of Internal Services advised that, for 2013/14, the latest estimate was that the discount scheme would reduce council tax income to East Herts by £733k, which would be offset by a government grant of £675k.  Members were advised that each 1% increase in the cost of discounts above the estimate would cost £7.3k and would not be offset by a grant increase.

The Director of Internal Services further advised that although the business rate retention scheme was starting from 1 April 2013, this did not mean that East Herts Council would be setting business rates.  The portion of the rate collected by the Government would be returned to the Authority and there was no risk to East Herts Council in respect of this scheme.

Councillor J Ranger commented on whether the Government’s estimate in respect of business rate income was in line with East Herts Council’s estimate.  The Director advised that until the 2013/14 accounts were closed in June 2014, the Authority would not know whether actual business rate income and the amount retained matched the estimate, although in-year monitoring would alert Officers to significant variations.

Under Part 2, Members were advised that the Financial Strategy and the Medium Term Financial Plan (MTFP) had a 5 year focus and Officers had made reasonable assumptions in terms of expected income and costs.

The Director of Internal Servicesstressed that it might be appropriate to put the next 5 years into the context of longer term trends given suggestions that austerity might last until 2020.  Members were referred to paragraph 3.4 of the report for the most significant service drivers and cost pressures in the period up to 2019/20.  Members urged caution when considering any period beyond the 5 year timescale as future changes were too uncertain to be used for any detailed planning.

The Director of Internal Services reminded Members that the Government always took a view on levels of local government spending, in respect of the national spending control for 2013/14.  A reduction of Revenue Support Grant by the Government would continue to exert considerable pressure at the aggregate level on Local Authority spending even if Authorities had increased business rate income.

The Director of Internal Services advised that all other assumptions detailed in Parts 3 and 4 of the MTFP strategy were included on the basis that all identified savings would be delivered.  The MTFP also assumed a 0% Council Tax rise in 2013/14, with the potential for increases after that time.  Councillor J Ranger sought and was given clarification in respect of future grants to Local Authorities.

The Committee received the report.

RESOLVED – that (A) the proposed financial strategy be recommended to the Executive for approval;

(B)   the Executive be requested to be very cautious about adopting a longer planning period;

(C)   the planning assumptions detailed in this report be recommended to the Executive for adoption in framing the 2013/14 budget and Medium Term Financial Plan to 2016/17; and

(D)   the Executive’s attention be drawn towards the increased risk factors in respect of the 2013/14 budget and Medium Term Financial Plan to 2016/17.