Medium Term Financial Strategy 2023-24
3. Key Budget Pressures and Resources
3. Key Budget Pressures and Resources
- 3.1. This section provides an update on the financial resources available to and spending pressures facing the Council along with the assumptions to inform the updated projections. Internal resources are influenced by local decision making, for example council tax, sales, fees and charges, rentals, capital receipts from asset disposals and use of available reserves. External resources include government grants, business rates although whilst the Borough Council collects the rates, it does not set them and has very little discretion over reliefs that can be granted, however local decisions that support future growth in business rates will see a direct benefit returned to the council through the business rates retention scheme.
- 3.2. Government Grants - The allocation in 2023/24 of revenue support grant (RSG) is £2.6m. It is expected that this will roll over to 2024/25 with an inflationary increase. Future allocations of RSG will dependant on the reviews of local government funding namely the fair funding review and business rates reset which are now not expected to be delivered until 2025/26 or possibly 2026/27 depending on the timing of a General Election. The Council continues to be one of the largest receivers of RSG compared to similar tiers of authorities, this is primarily due to the previous method of funding allocation for local government reflecting local characteristics of deprivation and spending. This remains a risk for future funding reforms.
- 3.3. Allocations of Services Grant (£155k) and Funding Guarantee Grant (£263k) were made in 2023/24, the forecasts assume that these continue in 2024/25.
3.4. Long-Term Plan for Towns
- On 1 October funding and support totalling £20m was announced for Great Yarmouth as part of the new "Long Term Plan for Towns". Detailed guidance on the fund is still to be announced on the £1.1 billion funding that is being invested into 55 towns. From the information that has been published to date, the following in known:
- towns will be required to develop a Long-Term Plan to invest in and regenerate their town
- funding is to be allocated over 10 years to support the plan to be spent on issues that matter to local people including regenerating high streets and securing public safety
- funding and support of £20 million (25% resource and 75% capital).
- 3.5. The conditions of the funding and what the funding can be used for is not known and as further guidance is received, this will be taken into account as part of the setting of the capital and revenue budgets.
3.6. New Homes Bonus (NHB)
- New homes bonus has been part local government funding for over ten years and reforms are long awaited. The aim of the scheme was originally to incentivise and reward Councils for building new homes in their areas. The grant is calculated by multiplying the national average council tax by the net additional homes growth (net of movements in long-term empty properties and demolitions), in addition to additional supplement of £350 per affordable dwelling. The system splits the grant between local authority tiers; 80% to the lower tier (GYBC) and 20% to the upper tier (NCC) with annual allocations of NHB Grant being announced as part of the finance settlement based on annual returns.
- 3.7. There are fundamental flaws in the current system in that those authorities with fewer sites and low land values are disadvantaged even when meeting their local plan housing targets. There is a clear inequity in the current system due to the factors that drive the delivery of new homes, for example land value, number of housing developers operating in an area and local demographics that influence the number of homes that are delivered. The current system makes no allowances for those areas that have a higher-than-average proportion of lower council tax banded properties, such as Great Yarmouth, for example 68% of the properties in the borough are in bands A and B, compared to a national average of 41% and county average of 55%. There is a potential for a further year of NHB funding allocation, at this time, no additional funding has been factored into the forecasts.
3.8. Business rates retention
- The current system of business rates retention sees 50% of the rates collected locally retained for the provision of services and has been in place since April 2013. Under the scheme business rates are shared between central and local government. The current splits are 50% local (40% Borough and 10% County) and 50% central government.
- 3.9. The localised scheme is not without risk and complications. Businesses have the right to appeal the valuation of their premises which if successful can be backdated. Local Authorities can mitigate some of the risks of the payment of successful appeals through the making of provisions against which payment of appeals are made. The risk is whether the provision raised is sufficient to cover refunds as they materialise.
- 3.10. The current business rates system allows pooling whereby growth that would be paid to central government can be retained in the pool. Norfolk Local Authorities have operated a business rates pool since the introduction of business rates retention, albeit with varying membership over the years and due to the uncertainty of the impact of covid on business rates in 2021/22 the Norfolk pool (of all Norfolk authorities) was disbanded. It is recommended that the Council continue to be in the business rates pool for 2024/25.
3.11. Council Tax
- The current band D equivalent for the boroughs Council tax is £181.48. The maximum annual council tax increase for a district council is set by government at 3% or £5 (band D) above which would trigger a referendum. The current strategy assumes annual increases of £5 per annum. 2023/24 was the first year that the annual increase to the cap would have been slightly above the £5 at to £181.76, an increase of £5.28. The current capping for Council tax for borough and district councils is the same irrespective of the current D, for example the lowest Band D of £110.46 to the highest of £395.64 for 2023/24 meant that the maximum increases for band D ranged from £5 to £11.86 for a band D property.
- 3.12. It is recommended that the MTFS reflect increases to band D to maximum Band D for the borough element, this would mean a band D of £186.91, an increase of £5.43.
- 3.13. Second Home Premium - Originally anticipated to be in place for 2024/25 from the Levelling up Bill, this is likely to be implemented from 2025/26 now, it will require approval for the charging and would deliver in the region of £180,000 of additional Council Tax Income per annum and would be prudent to factor into future financial forecasts.
- 3.14. The Council tax base is an assessment of the number of dwellings expressed in Band D equivalents after allowing for non-collection, discounts, and new property growth. The tax base for 2023/24 is 29,851, the annual forecasts assume an annual increase of 500. The level of council tax discounts has a direct impact on the net collectable council tax and therefore income that is received in the general fund. The Local Council Tax Support Scheme (LCTS) is essentially a discount that supports those households and individuals that are on low income. The scheme for 2024/25 is currently out for consultation and any changes will impact on the tax base for 2024/25.
3.15. Sales, fees and charges
- Income from sales, fees and charges from the provision of services continue to be an essential source of funding for local authorities. These include income from demand led services for example, car parking, planning and building control and waste services. The general principles of the policy allow for annual increases of RPI plus up to 2% to cover the cost of service delivery. With the current level of RPI for 2024/25 the policy would allow for increases upto 10.9%. All fees and charges will be reviewed for the budget setting process and brought forward for recommendation.
- 3.16. In addition, within the levelling up bill the Government agrees that it is important for local planning authorities to have the resources they need to deliver an effective planning service. The bill if approved by Parliament, will increase planning fees by 35% for major applications and 25% for all other applications, with an indexation mechanism that will maintain the real value of the fees income. This is a national fee increase that will benefit all local planning authorities in England. No additionality of income has been factored into the financial projections at this stage due to the current pressures on the income budget and also investment required in the service to deliver planning performance.
3.17. Interest rates
- The continued increase in the official Bank rate has put pressure on both the general fund and housing revenue account in terms of increased borrowing costs for capital projects. Whilst there has been some mitigation from increased interest receivable from investments the overall impact on capital projects need to be taken into account as part of the longer term capital programme delivery.
- 3.18. The borrowing requirements for the Council continue to be undertaken in line with the treasury management strategy. Due to slippage in the capital programme some of the planned borrowing will be re-profiled to 2024/25 this is therefore expected to mitigate the impact of the increased costs of borrowing costs in the year.
3.19. Minimum revenue provision
- The MRP is set annually based on prior and forecast capital spend to be financed by borrowing, it reflects the allowance in the revenue account for the repayment of debt incurred for capital expenditure. New capital receipts identified and generated serve to reduce the need for external borrowing for capital purposes to smooth the future MRP charges. This approach continues to be proactively explored for significant capital receipts in the medium term to reduce the call on the revenue account of the impact of financing capital spend from borrowing.
3.20. Employee costs
- The 2023/24 budget assumed an annual increase in the employee pay award of 5% per annum, this was following the final offer of £1,925 for the 2022/23 pay settlement. The final offer for 2023/24 of £1,925 upto spinal column point 43 then 3.88% above this is still to be agreed by all unions (at the time of production of the document).
3.21. Council Tax Base
- Annual tax base growth has averaged 455 over the past 10 including 2021 which saw a reduction due to covid. An increase of 455 would add in the region of £235,000 per annum of additional Council Tax revenue (after allowing for a £5 increase in band D).
3.22. Simpler Recycling Consultation
- The Government has recently published its response to the Simpler Recycling Consultation which includes the following:
- Councils won't have to put the reforms in place for households until April 2026
- Councils will have a lot of flexibility over the number of bins they have to provide, reducing the need for changes; and
- charges for garden waste collection will continue as at present
- 3.23. The reforms will place the following obligations on local authorities in respect of households:
- collecting food waste on a weekly basis separately from all non-organic waste
- collecting garden waste where requested
- collecting dry recycling (card and paper, glass, plastics and metal) separately from residual and organic waste - but with no requirement to collect these dry recycling streams separately from each other
- Councils will, therefore, have to provide no more than three bins (with an optional addition for garden waste)
- 3.24. There is anticipated to be funding for the above new burdens. Some of the funding will come from central government and some from (Extended Producer Responsibility) EPR, but all EPR funding for new burdens will be in addition to EPR to fund the existing commitments of local authorities in collecting and disposing of packaging waste. The exact amount of the funding and whether it will cover all the costs is not yet known and as further guidance is published plans will need to be made to implement the changes.
- 3.25. As further guidance and implications of the new requirements are issued, the financial projections will be updated accordingly, at this time no allowance has been made for any impact.
3.26. Net cost of services (NCS)
- The detailed budget monitoring reports have highlighted pressures on the revenue account in the current year. The more significant areas experiencing pressure are property services income levels for which some pro-active review work is underway within the service to mitigate where possible shortfalls in income in the current year. Further work aligned to the asset management plan including a review of assets and liabilities need to be completed over a realistic timescale to inform future budget savings and additional income opportunities. The other significant pressure on the revenue account currently is in relation to temporary accommodation due to increased demand for housing. Alternative options are currently being considered and proposals will be brought forward for recommendation.
- 3.27. As the work on the detailed budget for 2024/25 is pulled together the service budgets will be updated to reflect the latest position in respect of inflation and demand. It is prudent to assume that the inflation on expenditure will be greater than the increase in the corresponding income, resulting in anticipated net growth in the net cost of services.