Estimates 2014/15 and Medium Term Financial Strategy Presented by Director of Finance and Technical Services Ian Young

Reductions in Government FundingReductions in Government Funding Practical Limits on Council Tax IncreasesPractical Limits on Council Tax Increases Focus on Use of ReservesFocus on Use of Reserves Ministerial View and Knight Review of Fire ServiceMinisterial View and Knight Review of Fire Service Budget – Long Term Application of Reserves not sustainableBudget – Long Term Application of Reserves not sustainable Peer Group Report – Strong Financial Position up to 2016Peer Group Report – Strong Financial Position up to 2016 Invest to Save – Best Value Duty of Continuous ImprovementInvest to Save – Best Value Duty of Continuous Improvement Value for MoneyValue for Money View Needed on Short, Medium and Long TermView Needed on Short, Medium and Long Term Background

Current Position (Internal) Budget Holders 17 th November Net expenditure £31.034mBudget Holders 17 th November Net expenditure £31.034m Increase of £307,000 or 1%Increase of £307,000 or 1% Equates to a Council Tax Increase of 7.5% or £4.65 p.a. avgeEquates to a Council Tax Increase of 7.5% or £4.65 p.a. avge Proposed Application of £2m Reserves to finance peak in 2013/14 Capital Reduces Council tax Increase to 6.65% or £4.12Proposed Application of £2m Reserves to finance peak in 2013/14 Capital Reduces Council tax Increase to 6.65% or £4.12 Savings below Target (£577,000 v £950,000)Savings below Target (£577,000 v £950,000) Eroded by Increases in expenditure £384,000 and Reductions in Income of £157,000Eroded by Increases in expenditure £384,000 and Reductions in Income of £157,000 Means Savings Programme still to deliver £1.3m Net by 15/16Means Savings Programme still to deliver £1.3m Net by 15/16

Effects will be driven by internal decisions in light of the External PositionEffects will be driven by internal decisions in light of the External Position Indicative for 2014/15 and 2015/16Indicative for 2014/15 and 2015/16 No changes yet to 7.3% and 8.1% Reductions in Funding following June Spending RoundNo changes yet to 7.3% and 8.1% Reductions in Funding following June Spending Round Council Tax Freeze for both YearsCouncil Tax Freeze for both Years Referendum Trigger 2% for both YearsReferendum Trigger 2% for both Years Possible repeat of flexibility for Lower Quartile CT District and Fire Authorities (£5) for 2014/15Possible repeat of flexibility for Lower Quartile CT District and Fire Authorities (£5) for 2014/15 Current Position (External)

Medium Term 2016/17 to 2018/ /17 to 2018/ Election unlikely to change much2015 Election unlikely to change much Forecasts for Pay and Cost PressuresForecasts for Pay and Cost Pressures Cost Neutral 2015 Pensions ChangesCost Neutral 2015 Pensions Changes Continued Grant ReductionsContinued Grant Reductions Increases in Business Rate YieldIncreases in Business Rate Yield Historically Reasonable Council Tax Increases (average 4% )Historically Reasonable Council Tax Increases (average 4% ) Variable Capping/Referendum TriggersVariable Capping/Referendum Triggers No Ministerial SurprisesNo Ministerial Surprises More Savings may be requiredMore Savings may be required

Longer Term 2018/2019 To 2023/ /2019 To 2023/2024 New System of Local Government Financing 2013New System of Local Government Financing 2013 Links RPI to about 18% of Income via Business Rates with Potential for GrowthLinks RPI to about 18% of Income via Business Rates with Potential for Growth Should Provide some protection from Grant Reductions given Price Indices tend to drive Cost PressuresShould Provide some protection from Grant Reductions given Price Indices tend to drive Cost Pressures Dependent upon District and City PositionsDependent upon District and City Positions Business Rate Freeze/RevaluationBusiness Rate Freeze/Revaluation More Savings may be requiredMore Savings may be required

Basis of Key Post 2016 Assumptions Net Expenditure tied to Target CPI of 2% Continuing Real Reductions in External Funding of 5% p.a until 2020, 2% thereafter 4% p.a Council Tax increases Level of Reserves available to support Invest to Save £2m applied to support 2013/14 Capital Programme and 3 Year Moratorium on Major New Build Minimum of £1.3m savings delivered by 2016/17 at the latest

Level of Reserves Estimated Estimated Pay/Price£3,442,000Pay/Price£3,442,000 Pensions£1,188,000Pensions£1,188,000 Contingency£600,000Contingency£600,000 General£324,000General£324,000 New Developments£103,000New Developments£103,000 Earmarked Grants£47,000Earmarked Grants£47,000 Capital£0Capital£0

Possible Calls On Reserves Illegal for Preceptors to Budget for a Deficit No Supplementary Precepts (Unlike Supplementary Levies) Failure of Budget Assumptions Incidence of Savings Ready Reckoner of 1% Paybill =£180,000, 1% Council Tax =£200,000 Pay/ Price covers 17% variation from assumptions 1%,1%,2%,2%,2% = 8.3% to 2018/19 (Planned) But e.g 2%, 2%, 4%,4%,4% = +8% or £1.6m Thereafter? HM Treasury Average Earnings 4.75% for 2018

Possible Calls On Reserves Pensions Reserve – amended NFPS and RDS - Employers’ increase of 1% =£300,000 per year (4 years) Possible financing of further Support Service reductions (LGPS) Resourcing for Fire Cover Review/Partnership Working New system of Local Government financing yet to bed down Insurance Fund One Off Referendum Costs?

General Application The application of Reserves to support Base Budget Expenditure simply to deliver a particular level of Precepts or defer necessary Base Budget reductions is not a sustainable policy in the medium to longer term Invest to Save (Capital/Support for Introduction of Efficiencies) Balance level of Reserves held, External Financing and Savings 6% or 12%, 10% or 58% - Risk and Timeframe Two, Five or Ten Year View?

10 Year Scenarios Based on current “Real” position including £2m Support to Capital programme and 3 Year Moratorium Reduces Reserves to minimum of c.10% of Net Expenditure (£3.0m) Assumes £1.3m achieved by 2015/16 or 2016/17 at the latest Council Tax Freeze for 2014/15, 2015/16 and 4% thereafter with Additional Savings of £750,000 Referendum limit of 2% for 2014/15, 2015/16 and 4% 2014/15 Increase of 5.5%, 2% 2015/16 Maximum Flexibility of £5 increase for 2014/15

Some Conclusions Council Tax Freeze 2014/15, 2015/16 and 4% thereafter : Requires £1.3m Original Target Savings no later than end of 2015/16 Requires further savings of £750,000 by the end of 2015/16 Reduces Reserves to £3m by 2016/17 with £790,000 contribution in 2014/15, £1.94m in 2015/16 Will Require further savings of £700,000 over the two years 2018/19 and 2019/20

Some Conclusions 2% 2014/15, 2015/16 and 4% 2016/17: Requires £1.3m Savings no later than end of 2015/16 In the absence of further savings reduces Reserves to £3m by 2017/18 with an £600,000 contribution for 2014/15, £1.5m in 2015/16, £350,000 in each of the following two years Requires £500,000 savings in 2018/19 and £400,000 in 2019/20

Some Conclusions At 5.5% 2014/15, 2% 2015/16 and 4% thereafter Requires £1.3m Savings no later than end of 2015/16 Requires contribution from Reserves of £900,000 in 2015/16 but balance restored over the three subsequent years

Some Conclusions A £5 (8.05%) increase in Council Tax in 2014/15 would contribute £430,000 to Reserves Provided £1.3m savings made by end of 2015/16, minimum use of Reserves over the next four years However, use of £640,000 could freeze Council tax for 2015/16 and 2016/17 no requirement for additional savings unless to reduce Council Tax from the assumed 4% per year from 2018/19 or to Reduce the application of Reserves from 2018/19

Some Conclusions Need consensus on Planning Timeframe – Short, Medium, Long Need consensus on the balance between expenditure plans, deliverability of savings, more efficiencies and Council Tax Freeze can be only a short term consideration Target savings a short term requirement Further Savings a medium to long term consideration Maximum increase provides long term assurance Tables available - Updated as Budget moves towards February 2014