SHEFFIELD CITY COUNCIL Chief Executive’s Directorate REPORT TO CABINET DATE 22 October 2008 REPORT OF The Director of Corporate Resources ITEM SUBJECT Medium Term Financial Strategy 2009-2012 SUMMARY See separate Executive Summary RECOMMENDATIONS See Paragraph 14 RELEVANT SCRUTINY BOARD IF DECISION CALLED IN Not applicable FINANCIAL IMPLICATIONS Yes PARAGRAPH 14.1 CLEARED BY Eugene Walker Revenue Budget and Capital Programme 2008/2009 – Special BACKGROUND PAPERS Council 7th March 2008 CONTACT POINT FOR ACCESS Ryan Keyworth TEL NO. 27 34386 AREA(S) AFFECTED City-wide CATEGORY OF REPORT OPEN Statutory and Council Policy Checklist Category of Report OPEN CLOSED Financial Implications YES NO Approved by Eugene Walker Equal Opportunities Implications YES NO Property Implications YES NO Area Panel(s) Affected City-wide Environmental Sustainability YES NO Community Safety Implications YES NO Human Rights Implications YES NO Relevant Scrutiny Board if decision called in Strategic Resources and Performance Press Release YES NO Sheffield City Council Medium Term Financial Strategy 2009-12 Sheffield City Council Medium Term Financial Strategy Executive Summary 2009-2012 Context Sheffield City Council’s Medium Term Financial Strategy (MTFS) is impacted by national and local policy agendas and inspection regimes. Sheffield City Council Corporate Plan The Sheffield City Council Corporate Plan for 2008 – 2011 has a number of key priorities for the City that will be addressed in this planning period. The plan is called the “City of Opportunity” and its aim is to make Sheffield a place where every individual has the opportunity to realise their potential, irrespective of their background, circumstances, or where they live. Comprehensive Spending Review 2007 The results of the Comprehensive Spending Review were announced in November 2007. The total increases in local government funding over the period 2008/2009 to 2010/2011 are 4%, 4.4% and 4.3%, however, the increase for Sheffield is significantly lower and lower than current rates of inflation. Area Based Grants A number of traditionally ring-fenced specific government grants have been moved into a more flexible grant regime that gives Local Authorities a greater degree of flexibility to direct funding to local priorities subject to achieving performance targets agreed with the government. Comprehensive Performance Assessment / Comprehensive Area Assessment During the life of this MTFS, the Audit Commissions main inspection regime for Local Authorities will change. The Comprehensive Area Assessment will be a more risk based forward looking approach that will focus more on the delivery of outcomes for an area as a whole and its citizens. Key Strategies Income Strategy Government grant funding levels are tight for the period of the MTFS. The Council is able to levy fees and charges for a wide range of services provided to the public. Some fees are regulated, eg planning fees, whilst others are at the Council’s discretion eg parking charges. The planning assumption is that fees and charges will rise by 5% (in line with RPIX) unless set elsewhere or otherwise agreed. Page 1 of 3 Sheffield City Council Medium Term Financial Strategy 2009-12 The current economic climate is also affecting the Council’s ability to raise income from some services (eg planning and building standards). Significant work will be required to bring the costs of these services in line with the income projections. A key objective of this strategy is to keep Council Tax increases to a minimum. A comprehensive income strategy for the Council will be developed in the coming period. Expenditure Strategy The Council will face significant cost and demand pressures throughout this period. Additional investment in the proposed Highways PFI scheme will need to be secured through efficiency savings and cost (eg Energy price inflation) and demand pressures (eg social care) will = to be contained. As this strategy is being developed, the economy and global financial system is subject to unprecedented levels of volatility and uncertainty. It is likely that the UK economy will suffer a period of down-turn and that additional pressures on Council services will result. The Council will also be operating in a less stable climate in terms of fee income, capital financing arrangements and asset values. All these issues are being taken into account in the preparation of the detailed financial projections. Key Financial Projections At this stage in the budget process, detailed financial projections are not available. Pressures and savings opportunities are being quantified and categorised as are efficiency opportunities. At this stage, a total £8.7m of pressures have been identified as Unavoidable, with further work in progress to understand and quantify recommended investments and policy choices and other pressures. A significant number of savings opportunities are also being discussed with relevant Cabinet Members. Once this work is completed and savings proposals fully developed, a further report will be brought forward for Cabinet approval before Christmas. Key decisions recommended in the MTFS Key decisions and recommendations are made in the MTFS report. They are: Decision Detail Approve the planning 2009/10 2.0% assumptions for Council Tax 2010/11 1.5% setting detailed in section 5.2 of the main report 2011/12 1.5% 2012/13 0.0% Page 2 of 3 Sheffield City Council Medium Term Financial Strategy 2009-12 Approve the revised objectives See main report for list of financial strategy as outlined in section 3.1 of the main report and consider any further objectives Approve additional investment £550k for Workstyle Project on the Outstanding Sheffield £250k for detailed business cases for Programme detailed in section Customer Services Transformation and 3.3.6 of the main report Workstyle Total £800k Approve the approach for the Categorisation 2009/10 2010/11 distribution of years two and ABG Flexible three of the Area Based Grant, Pot (including 20.08% 20.08% including Working WNF) Neighbourhoods Fund detailed in section 5.3.2 of the main Passported 69.77% 60.58% report Funding Pooled Young 10.15% 10.15% Persons ABG Employment, Enterprise and 0% 9.19% Skills Pot Total 100.00% 100.00% Approve the allocation of Approve existing allocation of Reward LPSA Reward Grant as Grant to Sheffield Safer Communities detailed in section 5.3.3 of the Partnership and consider any further main report allocations as part of a further report to Cabinet in December. Approve the treatment of the Recommendation is to leave any amount PCT contribution to Continuing above that required for the current NCC Care costs detailed in section budget unearmarked and consider it 5.5.2 of the main report alongside the wider 2009/10 general fund revenue budget. Corporate Finance 14th October 2008 Page 3 of 3 Sheffield City Council Medium Term Financial Strategy 2009-2012 Sheffield City Council Medium Term Financial Strategy 2009-12 Sheffield City Council Medium Term Financial Strategy 2009-12 Table of Contents 1 Introduction 3 2 Process 4 3 Context 5 4 Comprehensive Performance Assessment 15 5 Income Strategy 17 6 Expenditure Strategy 29 7 Risks and Sensitivities Affecting the MTFS 32 8 Overview Financial Projections 35 9 Risks and Financial Reserves 35 10 Capital Strategy 39 11 Housing Revenue Account 42 12 Treasury Management Strategy 43 13 Governance Statements 48 14 Recommendations 49 15 Appendix – Performance Against Financial Strategy Objectives 50 16 Appendix – LPSA Performance Reward Grant 52 17 Appendix – HRA Forward Financial Projections 53 18 Appendix – Council Tax Comparisons – 2007/8 and 2008/9 54 19 Appendix – Top five income streams for each directorate 55 20 Appendix – Breakdown of Area Based Grant 2008/09 – 2010/11 56 Page 2 of 56 Sheffield City Council Medium Term Financial Strategy 2009-12 1 INTRODUCTION 1.1 Purpose This report sets out the Medium Term Financial Strategy and forward budget projections for the next three years including detailed revenue budget implications for 2009/10 & beyond. 1.2 Background 1.2.1 2008/9 Budget Process The 2008/9 budget process was successfully completed with Council approval on 7 March 2008. The 2008/9 budget was set within the context of a 2.5% Council tax Increase and within a 2.6% increase in general Government grant for non- school services. Cost increases in some of the services outstripped the grant increase combined with additional demand pressures; particularly in adult and children's social care services meant that efficiencies and savings had to be found to sustain investment in priority services. The savings were a combination of specific measures, together with holding non-priority budgets at the level of the previous year. Priority services, such as social care and highways, were funded for inflation or other cost pressures. Savings measures allowed £10.5 million to be invested back into key services to meet their cost pressures. 1.2.2 Medium Term Financial Strategy The Medium Term Financial Strategy (MTFS) details the Council’s financial projections for the next 3 years, covering all aspects of Council spend: • Revenue • Capital • Housing Revenue Account The MTFS provides detailed analysis and narrative on the Council’s financial position plus supporting information on: • Income and Expenditure Strategy • Service Financial Issues • Risks and Sensitivities • Reserves • Borrowing and Investing Page 3 of 56 Sheffield City Council Medium Term Financial Strategy 2009-12 In previous years, the components of the MTFS were covered less formally via a number of different reports, discussions and presentations. Recently, the environment in which the Council is operating is becoming more complex. There are three major initiatives in progress or just about to begin: • Outstanding Sheffield • Organisational Transformation Programme • Highways PFI Individually, these programmes have significant financial implications for the Council for a number of years to come in terms of both Revenue and Capital Expenditure. As these three programmes are taking place in parallel there is a need to bring all the different aspects of the MTFS together in one place to ensure the impact of these initiatives is fully considered.