The Head and Finance and Performance submitted a report, the purpose of which was to present to Council an update on the implications for the Medium Term Financial Strategy (MTFS) following revision of funding assumptions for 2015-2016 to 2018-2019. 

            She reported that the MTFS funding projections for 2014-15 to 2017-18, which were reported to Council in February 2014, were based on information available at that time, including potential percentage changes in Aggregate External Finance (AEF).  The worst case scenario was that an estimated £44m would be required to fund the budget gap, whilst the best required £23m over this period; however the MTFS was predicated on the Most Likely Scenario of £36m.  The Head of Finance and Performance informed Council that following the Comprehensive Spending Review; the Welsh Government revenue budget was reduced by -0.1% in 2014-15 and -0.4% in 2015-16.  It was the intention of the Welsh Ministers to protect funding for the National Health Service, schools and universal benefits and as a consequence Welsh councils were told to expect English style reductions to their settlements in 2014-15 and 2015-16.  The Head of Finance and Performance stated that the final Local Government Settlement showed a reduction of Aggregate External Finance (AEF) of -0.3% which were indicative and subject to change as a result of further UK budget revisions.  No figures were given for 2016-17 and 2017-18 and in view of the macro-economic and fiscal projections and in the absence of other information, the MTFS assumed reductions in AEF of -4% for 2016-17 and -2% for 2017-18.  She stated that the MTFS which was reported to Cabinet on 24 June 2014 was based on a reduction in funding from Welsh Government of -4% for each of the years 2015-16 to 2017-18.  The Minister for Local Government and Government Business has subsequently advised that whilst the 2015-16 indicative settlement allowed for a reduction in funding of -1.5%, councils should consider in their planning assumptions how to respond to a reduction of as much as -4.5%.  The Head of Finance and Performance advised the Council to plan for a reduction in funding of -4.5% for each of the years 2015-16 to 2018-19 which, would result in a budget shortfall of £12.4m in 2015-16 with a need to find recurrent savings of £50m over the period 2015-16 to 2018-19.  This excluded the impact of unknown but likely cuts to specific grants, the uncertainty of the value of protection for schools budgets and the impact on services of new legislation such as the Social Services and Wellbeing (Wales) Act and collaborative arrangements.

                        The Head and Finance and Performance also reported that the Council would enter into negotiations on the proposed pay award for 2014-15 for NJC employees, which would add a recurrent amount of £1.170m to the base budget based on the proposed pay award.  The Council would still try and limit job losses, but would inevitably be greater in number than previously anticipated.

                        The Head and Finance and Performance reported that one savings proposal, namely COM1, MREC of £750k was recorded as red in status and this amount

would be held centrally within the inflation provision to mitigate the risk of the saving not being achieved.  Discussions were taking place with Neath Port Talbot Council but due to changes in the timescale for the procurement this saving would not be achieved in 2014-15 and the value of savings for future years also needed to be re-profiled.  The Communities Directorate was in the process of developing alternative achievable savings proposals to be reported to Cabinet in September.

                        The Head and Finance and Performance also informed Council that the budget savings proposals to transfer homecare hours to the independent sector (ASC1) amounting to £164k was still achievable in full in 2014-15, but would reduce in 2015-16 and 2016-17. The Wellbeing Directorate would identify as part of the general budget savings review, alternative savings proposals to meet any shortfall in future years.

                        The Head and Finance and Performance outlined the funding assumptions and budget savings required in the MTFS approved by Council in February 2014 compared to the revised funding projections and also outlined the revised forecast budget shortfall for the Council.

                        The Head and Finance and Performance informed Council that for each of the future years up to 2018-19 it had been assumed that the commitment by the Welsh Government to protect schools budgets could be by as much as 0.6% per annum based on the change in the Welsh Government budget for 2015-16, but as yet this had not yet been quantified or confirmed it was impossible to predict the Welsh Government budget beyond the current Comprehensive Spending Review.  On this basis, it had been assumed that schools would absorb all salary related and price inflation relating to delegated school budgets and consequently the budget savings required could be higher than predicted. 

The Head and Finance and Performance reported on the value of budget savings identified to date and the current budget shortfall based on the revised funding assumptions, which meant that assuming that all budget savings proposals identified were achievable, there was a current forecast budget shortfall of £16.2m for the period 2015-16 to 2017-18, with a further £11.8m required for 2018-19.  She stated that the immediate focus must be on delivering the identified budget savings proposals, including substitute proposals in the 2014-15 budget and in particular recurrent budget savings of £12.4m to achieve a balanced budget for 2015-16.  The Head and Finance and Performance informed Council that options to deliver savings on a prioritised basis from 2016-17 to 2018-19 would be explored over the coming months, which would mean that savings would not fall equally across all services and would inevitably shape the future the type and volume of services which the Council would be able to provide in the future.

                        The Head and Finance and Performance reported that the financial position faced by the Council was extremely challenging, with the immediate concern being the impact that the continued national fiscal tightening would have on services in the longer term as the level of services required would impact on the type and level of services the Council can provide.  There was no alternative but to deliver the budget savings proposals as setting a balanced budget is a legal requirement and the use of reserves to fund recurring expenditure was unsustainable.

                        The Head and Finance and Performance reported that the Council would be required to identify £12.4m of budget savings to achieve a balanced budget for 2015-16 and £50m over the period 2015-15 to 2018-19.  It was imperative that a balanced budget was achieved and essential that revenue service expenditure and capital expenditure was contained within the identified budgets for the current

            year.  In addition to the statutory requirement to set a balanced budget, the Council’s Chief Financial Officer must report on the robustness of the budget and the adequacy of proposed and this must form a part of the Council’s budget consideration and decision making.  This included identifying risks associated with identified savings, the implications and contingency plans if savings were not delivered as planned and as such it was essential that the savings put forward are deliverable or where they are at risk contingency plans are produced.

            A member of Council referred to the robustness of the budget and the risks associated with the identified savings and questioned whether contingencies were in place.  The Head and Finance and Performance informed Council that savings for 2014-15 were being monitored on a regular basis with the majority of savings on track and whilst it was too early to predict expenditure in 2015-16 there would be a contingency plan in place.

            A Member of the Council expressed concern that the Communities Directorate had been the continuing focus of having to make cuts in expenditure which could place the services it provides at risk.

            Members of the Council congratulated the Head and Finance and Performance and her team on basing the MTFS on a reduction of AEF of -3.0%, as if it had based the MTFS on the indicative AEF allocation of -1.5% the Council would be looking at having to make greater savings.

RESOLVED:         That Council:-

                        (1)   Approve and adopt the revised MTFS for 2015-16 to 2018-19;

                        (2)   Noted the impact of the proposed pay award for 2014-15;

                        (3)   Note the actions being taken in relation to the MREC and Homecare budget savings proposals for 2014-15.