The purpose of this report is to present Cabinet with the draft Medium Term Financial Strategy 2018-19 to 2021-22, which sets out the spending priorities of the Council, key investment objectives and budget areas targeted for necessary savings. The strategy includes a financial forecast for 2018-22 and a detailed draft revenue budget for 2018-19.

The Section 151 Officer presented a report, the purpose of which was to present Cabinet with the draft Medium Term Financial Strategy 2018-19 to 2021-22.

He referred to the background of the report, and pointed out to Cabinet that the process for the Budget this year had followed the same principle of last year.

The report commenced with a Budget Narrative and then outlined the current situation and the financial context of the Council’s MTFS. He reminded Members that the Welsh Government had announced its draft Budget for 2018-19 on 3 October last, with the most significant headline of this, being that there would be an additional £230m in 2018-19 and £220m in 2019-20 for the Welsh NHS. The Cabinet Secretary had highlighted the risk to the Welsh Government of the UK Government’s £3.5 billion of unallocated cuts for 2019-20, which could result in a further cut of up to £173m to the Welsh budget dependent upon where the unallocated cuts fall.

The Section 151 Officer then advised that Councils received their provisional settlements from Welsh Government on 10 October. The headline figure is a reduction of £19 million, or 0.5%, across Wales and, for Bridgend, a reduction of 0.6% in Aggregate External Finance (AEF), or £1.16 million. However when adjustments are made for new responsibilities in respect of homelessness prevention (£236,000 for Bridgend), the true impact for Bridgend is estimated to be a like-for-like reduction of £1.396 million or -0.73%. Welsh Government has reported that the settlement also includes an additional £42 million across Wales in recognition of social services pressures and £62 million in respect of school funding, but these amounts, which are not ring-fenced or notified at individual authority level, are already included in the figures above. The settlement also includes £1.8 million floor funding to ensure that no authority has to manage with a reduction of more than 1% to its Revenue Support Grant next year.

The provisional settlement compares favourably to the -3.2% “most likely” assumption that is contained within the Council’s original MTFS for 2018-19 and is better even than the “best” case scenario assumption of -1.5%.

He then highlighted that unlike previous years, Welsh Government had provided an indication of funding levels for 2019-20, being a further budget reduction in 2019-20 of 1.5%.

Paragraph 4.8 then referred to specific grants, and the Section 151 Officer stated that though the full picture on these was as of yet unclear, there would be a deficit compared to previous years.

The report then identified that there was highly likely that there would be a Council Tax increase of 4.2% for 2018-19, with an assumed annual increase 0f 4.5% for the period of 2019-2022.

Paragraphs 4.12 to 4.14 of the report then gave information in table format of the Current Year 2017-18 financial performance as at September 2017. This showed that as of this date, there was a net spend of £2.495m, comprising £710,000 net over spend on Directorates and £3.208m net under spend on corporate budgets.

The next section of the report concentrated on the MTFS for the period 2018-19 to 2021-22, with the Principles of this being detailed in paragraph 4.18 of the report and remaining unchanged.

The 2018-19 AEF figure is a reduction of -0.6% based on the published Provisional Settlement. In the July report to Cabinet on the MTFS, it was stated that the Council would continue to work towards a most likely scenario in its planning assumptions for 2018-22 of an annual reduction in AEF of -3.2% and an assumed increase in Council tax of 4.2% in 2018-19 and 4.5% for each year thereafter, recognising the ongoing uncertainty around our funding in future years. However, as outlined in paragraph 4.7 the Cabinet Secretary has stated that the indicative settlement for 2019-20 is a further reduction of 1.5%. Given this message, and in recognition both of the twin risks around public sector pay (uncertainty around future pay awards and possible equal pay issues driven by the National Living Wage) and elevated inflation, it is proposed that the 2019-22 MTFS assumptions are adjusted to include:

·          A most likely annual reduction of -1.5% in AEF, with best and worst case scenarios of -1.0% and -3.0% respectively

·          An uplift to the assumed annual provision for pay, prices, demographic and unavoidable pressures for the outer three years of the MTFS

Table 4 in paragraph 4.20 of the report, showed the Council’s potential net budget reduction requirement based on the forecast resource envelope, which confirmed that during the current life period of the MTFS, the most likely scenario was that over the 4 years the Council would be required to make savings amounting to £31.914m.

Paragraph 4.22 of the report included Table 5 that showed the current position in respect of addressing this most likely forecast budget reduction.  It also reflected that £13m of budget reduction proposals have already been identified over the period of the MTFS, including the full £6.123m required for 2018-19. The table further showed that the Council still needs to develop proposals to the value of £18.7m and a range of options were under consideration in order to deliver the shortfall. The Section 151 Officer pointed out to Members, that £4.882m in terms of Budget Reduction Proposals for 2018-19 were presently Amber on the RAG status.

He then referred to the Budget Reduction Proposals identified by categorisation, and he was pleased to inform Cabinet that 78% of these had been/were being targeted by making Smarter Use of Resources.

With regard to paragraph 4.28 of the report headed Scrutiny and Challenge, the Section 151 Officer confirmed that a full consultation i.e. ‘Shaping Bridgend’s Future’ was launched in early October and would run until 3 December. The report explained what this would cover and that the results would be collated and presented to Cabinet in December, in order to further inform decisions on the final MTFS.

The Draft Revenue Budget was then broken down by Directorate and Department in table format at paragraph 4.29 of the report, whilst the next section of the report gave a resume on pressures, such as Pay, Prices and Demographics. He explained that National pay increases for public sector workers have been capped at 1% for a number of years, and that over recent months, pay offers to both the police and fire services have both been above 1%, implying, if perhaps not a total abandonment, then at least a relaxation of pay restraint. Whilst no agreement has yet been reached for national pay bargaining, 1% has been assumed in the 2018-19 draft budget. Any increase above this will undoubtedly place additional pressure on Council resources, and may result in further budget reductions if not funded by Welsh Government. Funding for pay increases will be retained centrally until further information is known he added.

He then further added, that price inflation has been allocated to service budgets, where known, and that these would be further reviewed for the final budget and amended where necessary with updated inflation rates. It was likely that this would be a much bigger consideration over the period covering the MTFS.

Paragraph 4.34 of the report then confirmed the budget proposed for Schools, and that for 2018-19 the 1% efficiency target set last year would be lifted due to a better than expected settlement. Also, in recognition of the detrimental impact which the Welsh Government’s decision to reduce the Education Improvement Grant is forecast to have, it was recommended that an additional £500k be delegated to school budgets also.

The Section 151 Officer then referred to Appendix A to the report, where information was provided in respect of Budget Pressures, both the type that were unavoidable and discretionary.

He then advised that in order to support service improvement, there were a number of areas which it is proposed to increase in the draft Budget. These represented the conscious choice of members to invest in enhancements, and were outlined in paragraph 4.36 (Table 8) of the report.

In terms of Budget Reduction proposals, £6.123m had been identified from service and corporate budgets, in order to achieve a balanced budget, (Appendix B to the report referred.)

In respect of Corporate Budgets, he explained that it was proposed to implement reductions totalling £2.610m, for temporary relief for unforeseen over spends.

Fees and Charges were referred to in paragraph 4.39 of the report, whilst Council Reserves were as had been reported to Cabinet in October explained the Section 151 Officer.

The next part of the report referred to the Capital Programme and Capital Financing Strategy developed in line with the MTFS principles, which reflect the Welsh Government draft capital settlement for 2018-19, providing general capital funding of £6.328m.

Table 10 in paragraph 4.43 of the report, showed the 2017-18 Annual Allocations of Capital Funding, which were in the process of being reviewed for any further opportunities to release capital for new schemes.

The Capital Financing Strategy principles in the next section of the report remained unchanged confirmed the Section 151 Officer.

In respect of Capital Receipts the Council estimated that around £21m could be generated in 2014, and thus far, circa £15.8m had been delivered, with £5.2m to be realised over the next 2 years.

The Section 151 Officer with reference to paragraph 4.49 of the report stated that In recognition of the scale and importance of future capital expenditure requirements, the 2018-19 draft revenue budget includes £500,000 as a recurrent revenue budget to meet the costs of additional unsupported borrowing. In line with prudent accounting practice, the costs of any investments made will be repaid within the life of the particular asset. Whilst the funding has not yet been earmarked for specific investments, it is estimated that the funding will provide between £5 - £15m of capital works, depending upon the type of investments approved by Council.

The Deputy Leader thanked the Finance team for preparing the report and emphasised that the document was a draft and still open for amendment at this stage. Cabinet would take on board the responses of the public budget consultation, along with comments from Scrutiny prior to presenting the final version of the Medium Term Financial Strategy to Council on 28 February 2018.

The Leader stated that he was encouraged that Members had already began to consider the process of the Medium Term Financial Strategy via the Budget Research and Evaluation Panel (BREP). He looked forward to their input and the contribution of all Members via the BREP, the Overview and Scrutiny Committees and the workshops organised. He added that whilst the majority of savings made so far and proposed, were due to improved efficiency, reduced administrative costs and greater collaboration. Some savings had been made and will have to be made by reducing or cutting frontline services to balance the Budget.  

RESOLVED:                  That Cabinet submitted for consultation the 2018-19 Annual Budget and development of the MTFS 2018-19 to 2021-22, as set out in this report.