Appendix 3

Revenue Budget 2007/08

2007/08 Base Budget

1 Service base budgets (£1,297.6m)

1.1 Provisional base budgets which formed the basis of the provisional guidelines set by the Cabinet in September 2006, totalled £1,282.8m. The base budget has subsequently increased by £14.8m to £1,297.6m, mainly as a result of additional specific grant of £7.7m, allocations from the contingency for the waste management contract of £3.6m, inclusion of proposals to use the reward grant from the first public services agreement of £2.5m and the carry forward of planned underspending from 2006/07 of £0.5m.

Inflation to November 2006 prices

1.2 In preparing the base budget at November 2006 prices, allowance has been made for the full year effect of pay awards at the level supported in 2006/07 and for inflation on the waste management contract but has otherwise been restricted to the allocations made in 2006/07. In total allowance has been made of £ 43.4m for inflation between November 2005 and November 2006, made up as follows:

Table 1

1.3 Actual inflation is estimated at £44.9m, or £1.5m more than the allowance made in the budget. For the schools budget, inflation cost £0.3m less than assumed, mainly as a result of higher assumptions having been made about the rate of non-pay inflation, leaving an increase of £1.8m relating to the remainder of the budget.

1.4 Pay increases for both teachers and local government staff in 2006/07 had been agreed prior to the 2006/07 budget being set, and were fully provided for in the budget. The excess costs of inflation therefore relates to non-pay budgets, for which apart from schools, a general allowance of 2.5% was made, together with an additional £ 2.5m for social care contracts and street lighting energy costs. Table 2 analyzes the main variations between actual and estimated non-pay inflation on non-schools budgets.

Table 2

Other Variations

1.5 Variations other than inflation add £12.6m to the base budget and can be categorised as follows:

Table 3

1.6 Details for each service of the most significant variations compared with the repriced budget for 2006/07 are set out in the annex to this appendix.

Allocation for Future inflation

1.7 Included within service base budgets is a provision for future inflation, so that the budget is presented on a cash-limited basis, based on the following assumptions agreed by the Cabinet in September together with specific assumptions for school budgets:

1.8 Provision has been retained centrally mainly for increased costs arising from the Pay and Benefits project, the waste management contract, business rates and interest rates. These are summarised in paragraph 3.8.

2 Summary of service budgets

2.1 A summary of service budgets is set out below:

2.2 Workforce numbers in the base budget are forecast to be 288 higher than in the 2006/07 budget including 211 additional staff in schools, nursing homes and children's centres. The growth and redeployment proposals in Appendix 4 however are expected to reduce workforce numbers by 336, resulting in an overall reduction of 48 posts. More details of changes in the workforce and in related workforce budgets are included in Appendix 8.

3 Expenditure outside cash limits

3.1 There are a number of budget headings excluded form service budgetary control limits, as spending is either outside the direct control of services or decisions on spending are made corporately.

Flood Protection Levies (£0.4m)

3.2 Since 2004/05, the main source of funding for flood defence costs incurred by regional flood defence committees is direct from central government. However, subject to the approval of the majority of local authority representatives regional flood defence committees retain the power to levy supplementary levies on local authorities. Levies have yet to be set for 2007/08 and the base budget has been set on the basis of levies for 2006/07, with an allowance included in the central contingency for potential increases in 2007/08.

Capital financing charges (£42.0m)

3.3 The system of accounting for capital assets means that capital financing charges do not feature in service budgets but are charged to a central asset management account. The level of financing charges made to the central account is a key factor in setting the Council's budget. The charges comprise loan repayments and interest of £48.9m, offset by interest on balances of £6.9m. The base budget has been prepared on the basis of current short-term interest rates linked to a base rate of 5.25%.

3.4 The estimate assumes the continuation of the policy of repaying debt at the minimum statutory level and of making no voluntary set aside of capital receipts to repay debt, other than in circumstances where unsupported borrowing has been incurred on a temporary basis in advance of the availability of a capital receipt. The estimate is £4.3m higher than the original estimate for the current year for the following main reasons:

· The capital financing requirement at the end of 2006/07 is expected to be about £35m higher than the level assumed at 1 April 2006 in setting the 2006/07 budget. Additional repayments of principal and interest on this increased borrowing in 2007/08 are estimated at £3.4m. Three main factors account for most of the increase:

a) supported borrowing of £41.9m in 2006/07 exceeded repayment of existing debt by £21.6m, adding £2.1m to capital financing costs.

b) Additional temporary prudential borrowing on school rationalisation projects and on new schools generating developer contributions is expected to increase capital financing costs by £0.3m, for which funding has been earmarked in the Children's Services capital programme.

c) Further general unsupported borrowing of £4.9m in 2006/07 is forecast as a result of slippage in the completion of land disposals in addition to £1.8m in 2005/06 adding a further £0.6m to capital financing costs in 2007/08.

· Base rate has increased from 4.5% to 5.25% since the 2006/07 budget was set, adding £0.8m to capital financing costs.

Revenue contributions to capital (£29.0m)

3.5 Revenue contributions to capital supplement Government supported borrowing, grants and the use of capital receipts in financing the capital programme. £10.4m of the revenue contributions in the base budget are financed by the Dedicated Schools grant.

3.6 The base budget in £4.9m higher than the 2006/07 budget for the following reasons:

Table 6

Specific grants (-£794.3m)

3.7 Specific grants have increased by £29.1m compared with the 2006/07 budget for the reasons set out in Table 7.

Provision for inflation and contingencies (£12.2m)

3.8 Service budgets incorporate allocations for general pay and price inflation and for increased employer's pension contributions. The inflation contingency provision of £12.2m in the base budget covers other items for which resources have been earmarked but where it would be premature to allocate the resources at this stage, or where allocation decisions have still to be made. The provision is made up as follows:

Table 8

Landfill allowance trading scheme (£1.4m)

3.9 Forecast income of £1.4m from the sale of landfill allowances to other authorities has been included in the base budget. The Cabinet has agreed a policy of earmarking 60% of the value of sales income to offset the corporate impact of costs arising from the waste management contract and the remaining 40%, subject to approval of an appropriate business case, for investment designed to reduce future dependency on landfill. The forecast income has been transferred to an earmarked reserve.

4 Summary

4.1 In summary therefore the base budget for 2007/08 is £586.5m, made up as follows: