Agenda item

To submit a report by the Head of Function (Resources)/Section 151 Officer.

The report of the Head of Function (Resources) incorporating the draft Revenue Budget for 2019/20 was presented for the Executive’s consideration.

The Portfolio Member for Finance reported that setting the Revenue Budget for 2019/20 was always going to be a challenge - this task has become yet more difficult after the disappointing provisional settlement which Anglesey has received from Welsh Government which has left the Council with a funding gap of approximately £7m (before any savings and Council Tax increase are taken into account). The Council is therefore facing having to make some very difficult decisions. Although services have identified a total of £3.747m savings to date, the current 2018/19 budget is forecast to overspend due mainly to pressures on Children’s Services, and this will have to be funded from general reserves meaning that the Council’s balance of general reserves will reduce further to below the minimum recommended balance. The Portfolio Member said that the provisional budget including the list of proposed savings in Appendix 4 as well as the level of Council Tax increase will be subject to public consultation. The impact of various levels of Council Tax increase is shown in the table at section 10.2 of the report with options to increase the Council Tax by between 5% and 10% being considered. The financial situation going into 2019/20 is difficult and savings will have to be implemented as will a significant increase in the Council Tax. The exact level of increase is dependent also on whether Welsh Government passes on any or some of the extra funding which it received in the Chancellor’s Budget to local government and if so, what will be Anglesey’s share of this money.

The Head of Function (Resources)/Section 151 Officer said that the first step in setting the Revenue Budget for 2019/20 is to create standstill budget i.e. a budget required to  provide the same level of service as in 2018/19 but adjusted for any known or committed changes (e.g. increase or decrease in costs) – the main changes are detailed in sections 3 and 4 of the report -  and after adjustments for staffing changes and pay and price inflation which are detailed in sections 5 and 6 of the report. However, in order to ensure that the budget provides a realistic level of funding, additional changes are required to reflect the current demand and any additional known budget pressures - especially in Children’s Services to support the increasing number of children in care, and as a result of that, in Education Out of County fees as outlined in section 7 of the report. The Officer pointed out that the Welsh Government has transferred two grants (Teachers’ Pay Grant and Free School Meals Grant) that it intends to award Councils in 2018/19 into the settlement in 2019/20. For the reasons given in paragraph 7.5 of the report it is recommended that these two grants are not transferred into the service budgets but are treated as additional general funding.

Based on all of the adjustments and assumptions set out in section 3 to 7 of the report, the standstill budget for 2019/20 comes to £137.402m – an increase of £6.457m or 5% on the 2018/19 final budget which is a significant increase and which is due to the combined effect of a number of factors all impacting on the Council at the same time – pay increases, teachers pensions revaluation, pressures on Children’s Services, National Living Wage etc.

On the other hand, Anglesey has received a provisional reduction of 1% in the settlement from Welsh Government for 2019/20 so although the Council’s costs have increased by 5%, the funding it has been given which is used to meet ¾ of its costs has reduced by 1% meaning that the funding shortfall (before savings and an increase in Council Tax) is even greater and totals £7.156m. Although there does not appear to be one clear reason why Anglesey has fared so badly in this year’s settlement, the funding formula appears to have favoured urban areas in South Wales which is likely due to population increases in those areas which results in the formula allocating more funds to those areas. It is hoped the final settlement due to be announced on 20 December, 2018 will improve on the provisional figure; efforts are being made to achieve a better final settlement outcome for local government.

The Officer said that the total savings found to date is £3.747m which leaves £3.4m of the £7.156 shortfall to be funded through Council Tax and/or an increase in the Council Tax premium. Section 10.5 of the report outlines some of the options available either as one option or a combination of options to close this gap – it would require a Council Tax increase of 9.72% to completely close the gap without implementing any other option. Using the Council’s reserves to plug the gap in 2019/20 as well as drawing on them to fund the overspend on the 2018/19 budget could possibly take the balance of reserves down to under £4m which is well below the minimum level assessed by the Section 151 Officer as appropriate for the needs of the Council (around £6.5m) thereby increasing the financial risk faced by the Council and meaning that further cuts would be required in 2020/21; although it is an option, it is not a course of action that is recommended.

The Officer concluded by saying that a set of unfavourable circumstances has made what was a challenging situation worse leaving the Council having to make some very difficult choices if it is to balance the budget for 2019/20.

The Executive thanked the Head of Function (Resources)/Section 151 Officer for the report and presentation which it believed explained the Council’s position clearly and fairly and would help the public understand all the competing factors which have to be considered and addressed is setting the 2019/20 budget. In responding to the report and the proposals presented the Executive made the following points –

•           That the financial situation is regrettable. It was noted that local government has again lost out to the NHS in the Welsh Government’s proposed spending plans for 2019/20 and that Anglesey is close to the bottom of the local government pile having seen its funding settlement reduce by 1% which is a blow to all the people of Anglesey.

•           That it is irresponsible of the Westminster Government to announce that austerity is coming to an end when local government budgets clearly reflect the opposite.

•           That the options for closing the funding gap faced by the Council as outlined in section 10.5 of the report are difficult and will likely  have an impact on the residents of Anglesey.

•           That as much as the Authority would like to avoid having to raise the Council Tax  being amongst the lowest charging councils in Wales for Council Tax - this is not an option ; where in previous years the Council has managed to lessen the impact of   cuts by focusing savings on reducing administrative costs, supporting functions and on implementing efficiency measures, this is no longer possible leaving the Council with very little room to manoeuvre as the cuts that can be made without affecting services and the public have been made.

•           That the Council’s services across the board are undergoing review to identify where savings can be made.

Councillor Aled Morris Jones, Chair of the Corporate Scrutiny Committee reported from the Committee’s 6 November, 2018 meeting which had considered the initial 2019/20 Budget proposals. The Committee recognised the financial challenge facing the Authority in 2019/20 and was concerned by the implications for the Council of the provisional Welsh Government settlement. The Committee was agreed that it should formally respond to the Welsh Government expressing its disappointment with the provisional settlement and to press for additional funding in the final settlement. In terms of how the Council should close the funding gap, the Committee recommended that an increase in Council Tax and the empty homes /second homes premium should be the method by which the funding gap is closed and the budget balanced. Councillor Jones said that those were the views of the Committee collectively but not necessarily his own views.

It was resolved –

•           Not to allocate the two grants incorporated in to the AEF to the budget of the relevant services as the additional costs have been allowed for in the standstill budget.

•           To approve the standstill budget for 2019/20 of £137.402m and that this should form the basis of the 2019/20 revenue budget.

•           That the Executive determine the proposed increase in the Council Tax for 2019/20 which will be subject to public consultation.

•           That after allowing for the proposed increase in Council Tax, the Executive should seek to make sufficient savings in 2019/20 to balance the revenue budget without resorting to the use of general reserves and to ensure that the required savings in 2019/20 are achievable.

•           That the Executive should seek the opinion of the public on the proposed savings.