Agenda item

To discuss the Council’s budget strategy and budget deficit in detail and to determine whether the subject requires further scrutiny.

(Reports attached)

Members considered the budget strategy and deficit item on the agenda.  The Chair informed the Committee that questions had been proposed for Officers to answer regarding the budget strategy process. 

a)           What was the intention when the Council set the three year Medium Term Financial Plan (MTFP): that it would balance; or run at a deficit; or even set a surplus?

Officers explained that the intention of the MTFP was to advise Members and other Officers of the forecast position and what actions the Council would need to take based on assumptions in the Plan.  Members would be requested to take action for the forthcoming financial year in order to achieve a balanced budget in time for Council Tax setting.  For the current year the Council’s forecast had been for there to be a deficit and that there would be a need for the Council to make savings over time. 

Members enquired what the deficit was.  Officers explained that at the time of the report, the Plan had identified a budget gap of £630,000 for the years 2009/10, £720,000 for 2010/11, and 130,000 for 2011/12.  Members asked for the current position regarding this deficit.  Officers explained that owing to the savings that had already been approved by the Council, there would not be the need to make further savings until 2012/13.  Officers explained that this was because when the original budget setting took place it was assumed that there would be a 2.9% pay increase.  However this had now been set at 1.5%.  It was important to note that the Council would need to take into consideration the costs that would be incurred through the Job Evaluation exercise in 2010. 

b)           What are the “rules” for setting MTFP?  Can we set a deficit in every/any year (assuming the current year must always show a balanced budget)?

Officers explained that it was possible for deficits to exist within the MTFP but these had to be addressed in the budget setting process. The Audit Commission’s Use of Resources Key Lines of Enquiry (KLOE) process also had clearly set out the requirement for the Council to manage the financial health of the organisation effectively.  Members asked whether the MTFP process was based on a formula or on Officers own assumptions.  Officers explained that it would be based on their estimations and on other sources.  These sources included using information gathered from regular meetings with treasurers from other local authorities.

c)            At what stage does the Council have to take steps to seek a balanced budget / MTFP?

Officers confirmed that the Council had to have taken steps to seek a balanced budget by March each year for the Council Tax setting. 

d)     Is there any maximum level of a deficit which can be set for each year of the MTFP?

Officers confirmed that there was not any maximum level of deficit which could be set in the Plan each year of the MTFP.

e)           Is there any maximum level of planned surplus which can be set for each year of the MTFP?

Officers confirmed that there was no maximum level of planned surplus which could be set in the Plan for each year of the MTFP. 

f)              How commonplace is it in local government i) to have a MTFP ii) for MTFP to have a deficit?

Officers confirmed that it was common for other local authorities to have a MTFP and for these Plans to contain a deficit. 

g)           Can we see examples of other Councils MTFP to compare how they are written and set out?

Officers informed Members that there were many examples of MTFPs on the webpages of different local authorities.  These ranged from simple one page reports to large reports aimed at a variety of audiences including Councillors, Officers and external partners.  Officers offered to ask the Council’s auditors for examples of MTFPs produced by other local authorities. 

h)            What steps, if any, are the Council currently taking to address the deficit in the MTFP (if so – when will they come to the Council/Overview and Scrutiny/the Executive)?

Officers explained that the Council had already taken steps to address the deficit.  Members asked if the recent interest rate drop would be likely to increase the deficit.  Officers explained that this was unlikely as they had factored in the potential for decreases when the economic situation began to impact on interest rates. 

i)              What are the current projections of the MTFP (have they changed for the better/for the worse)?

Officers explained that with regards to current projections of the MTFP, the Council would not need to make savings until 2012.  However, this forecast would need to take into account the findings of the consultants’, SERCO’s, business case.  The Chair questioned what would happen if inflation or wages were to rise before 2012.  Officers explained that there was a £200,000 margin for 2011/12 that could cover for this eventuality. However, if circumstances were to significantly change, Officers would report a revised forecast to Members. 

Members commented that similar questions regarding the MTFP process had been asked by Members on previous occasions and at other meetings.  They agreed that this process should be open and transparent and Members should take the opportunities that are provided to input into the process. 

j))    How often will/can you report major changes to the MTFP to

       Council/Overview and Scrutiny/the Executive?

Officers explained that they would have to report any major changes to the MTFP for Members’ consideration as soon as they occurred.  Members asked what percentage pay award would result in utilisation of the £200,000 margin.  Officers confirmed that a rise in 1.5% would impact significantly on this margin assuming that the Job Evaluation had an impact on the salary bill of 3%.

RESOLVED that

1)                 Officers provide best practice examples of MTFP documents from other local authorities; and

2)                 the report be noted.