Budget-setting papers for the Special Cabinet meeting to be held on Wednesday 27 February 2019 and Special Borough Council meeting to be held on Thursday 28 February 2019 Contents Pages Priority – All Medium Term Financial Strategy 2019/20 1 – 94 Approval of Pay Policy Statement 2019/20 95 – 106 Members Allowance Scheme 2019/20 107 - 123 Member Report Medium Term Financial Strategy – 2019/20 Public To: Cabinet Date: 27 February 2019 From: Corporate Director for Resources Decision type: Key - Budget Portfolio: Resources Forward Plan reference: Priority: All priorities Ward(s): 1 What is the recommendation? 1.1 The recommendations set out below, are made in the context of the Council continuing to offer key services despite cuts in resources and increased demand. Since 2010 the council has delivered in excess of £83.5m in cuts and lost 1,400 jobs. The future challenge is to carry on delivering more, with minimal support from Government and in the face of continuing austerity. 1.2 The recommendations in this report are based on the decisions set out in the three- year Medium Term Financial Strategy agreed almost unanimously by the Borough Council 23 February 2017 and ratified by the majority of councillors on 9 March 2018. 1.3 The recommendation is that, in line with the previous decisions of the Council and taking into account the outcome of public consultation carried out between December 2018 and February 2019, Cabinet recommends to the Borough Council approval of the Medium Term Financial Strategy, which sets a balanced budget for the 2019/20 financial year, consisting of the following main components: • A balanced Medium Term Financial Strategy, incorporating the Shaping our Future 3 programme (Appendix 1) and other actions as previously agreed by the Borough Council on the 9 March 2018 as part of that strategy including: a) A 1.99% Council Tax increase for 2019/20 (Appendix 7); b) A 2.00% Adult Social Care Precept increase for 2019/20 (Appendix 7); • The setting of a General Reserve position of £5.098 million and the utilisation of Council earmarked reserves of £6.602 million as part of setting an overall balanced 2019/20 budget (Appendix 5); • The required Council Tax amounts and revenue allocations, applicable for the Borough of Redcar & Cleveland (Appendix 8); Version 8 (05/12/2018) Page 1 of 123 • An affordable medium term Capital Investment programme, including a revised 2018/19 position (Appendix 10); • A Treasury Management Strategy that sets the authorised limit for external debt for 2019/20 at £271.049 million (Appendix 11), as supported by the Governance Committee; • A Minimum Revenue Provision policy for 2018/19 (revised) and 2019/20; (Appendix 11), as supported by the Governance Committee. 2 What part of the Corporate Plan does this report deliver, and how? 2.1 These proposals underpin delivery of all the Council’s services and are designed to ensure that appropriate financial resources are provided to fund delivery of the agreed Corporate Plan priorities. It is a statutory requirement for the Council to set a balanced budget on an annual basis and, by doing so, the authority ensures that it is able to meet its targets and commitments. 2.2 The Medium Term Financial Strategy, and its supporting documents, may be approved only by the Borough Council, the legislation being clear that the decision cannot in any way be delegated. However, in line with the Council’s constitution and local government legislation, it is for Cabinet to propose a Medium Term Financial Strategy for the Borough Council to then consider for formal approval. 3 Background to the Recommendations 3.1 Ahead of Cabinet confirming its final budget proposals to the Borough Council, there is a requirement to publish draft proposals for public consultation. Accordingly, on 11 December 2018, Cabinet considered such proposals and a draft Medium Term Financial Strategy (‘MTFS’) to be approved for that purpose. 3.2 The proposals developed for consideration were based on the updated MTFS initially agreed by the Borough Council 23rd February 2017 and further ratified on the 9th March 2018, covering a 3 year period to 2020. In approving the MTFS for that period, the Borough Council agreed to a number of key estimates and assumptions for 2019/20 which would underpin and form the basis for the current budget proposals. These key estimates and assumptions included: • A balanced year-end outturn for the Council’s 2018/19 revenue budget being achieved; • Provision and assumptions for the year 2019/20 as follows: - A Council Tax increase of 1.99%; - An Adult Social Care precept of 2.00%; - RPI Inflationary increases in Fees & Charges income; - Capital investment programme, that includes an additional investment of £8.000 million, as part of the Area Growth Plans 3.3 There would be a very significant impact on our ability to set a balanced budget for the financial year 2019/20 year should these not now be achieved, especially given Version 8 (05/12/2018) Page 2 of 123 the factors highlighted in the following sections of this report. 3.4 The proposals considered by Cabinet in December 2018 focussed on proposing a revised balanced revenue budget for 2019/20, as a continuation of Shaping Our Future – our strategic approach to managing budget cuts and income growth which has successfully navigated us through a number of years of ongoing austerity. The forthcoming financial year, 2019/20 is the third and final year of phase 3 of the Shaping our Future programme. 3.5 As reported in December, the Council’s service and financial plans for 2019/20, revised and set in March 2018, have been further affected by national and local changes, not previously envisaged. The proposals at the time, therefore, included a re-profiled financial position in respect of the Shaping our Future programme (Phase 3) due to funding changes and an increase in service-related pressures experienced during 2018/19 which are anticipated to continue in 2019/20. These changes were essentially in respect of Business Rate income and the cost of delivering services within the Children & Families directorate due to significant increased demand. 3.6 Given this position, the draft budget proposals in December 2018 took into account and were based upon the assumptions set out in paragraph 3.2 above, but also needed address the following: Movements Reduction £’m Revenue Support Grant -4.091 Service Investment – original pressures -1.833 Shaping our Future – original reductions -3.096 Sub Total – As approved by Council – February 2017 -9.020 Service Investment – new pressures -4.640 Shaping our Future – new reductions -1.800 Sub Total – As proposed by Cabinet – December 2018 -6.440 Total Movements -£15.460m 3.7 The overall impact of this position was to effectively reduce the budget, prior to income offsets, the use of one off reserves and now the additional funding from the Chancellor of the Exchequers’ Budget 2018. 3.8 Since then, unfortunately, additional changes have occurred which will have further adverse implications for the budget proposals for 2019/20 as follows: • An additional pay award budget requirement of circa £0.505 million more than originally forecast; • An additional requirement for £0.550 million for the risk of further pressures within Children & Families Services; • An additional requirement for £0.290 million for directorate realignment in Resources and Growth, Enterprise and Environment; Version 8 (05/12/2018) Page 3 of 123 • Quantified Business Rates pressures of £1.205 million, following the completion and submission of the business rates return which has been offset by the receipt of a surplus levy payment. 3.9 So, in setting the budget for 2019/20, we now need to find a further £2.550 million in addition to the £6.440 million forecast in December 2018 and which formed the basis of the proposals which Cabinet approved at that time for public consultation – an overall total of demand pressures and budget cuts of £18.010 million. 3.10 Setting a Balanced Budget It is important to note that the revenue budget of the Council is complex and consists of a mixture of income streams, and expenditure requirements - both of which are generally based on some level of assumption and estimation. These amounts will naturally change, from one budget cycle to the next. 3.11 Essentially, however, the revenue budget for 2019/20 is affected by three key factors: • Income & Funding; • Service Pressures and Investment; and • Shaping our Future 3 Redesign. 3.12 The following paragraphs describe the position in terms of these factors and the issues that need to be considered and addressed in order to set a balanced budget for the forthcoming year. The factors for consideration also include the outcome of the public consultation which commenced in December 2018, full details of which are set out in section 6 and Appendix 12 of this report. 3.13 Income & Funding Income and funding is derived from the Revenue Support Grant received from Government (on a reducing basis), together with fees & charges generated from services that we provide, Council Tax, the Adult Social Care Precept, and Business Rates. 3.14 The Council has estimated and set itself a range of targets for growing this income, with this growth being a key component of the Shaping our Future Programme. Where we can grow the Council’s income, as well as bringing more cash into the Council and thereby helping to avoid the need for service cuts, the nature of the growth also supports the development of the Borough, by creating additional homes,