Appendix 9

Medium Term Financial Plan 2008/09 - 2009/10

1 Introduction

1.1 This appendix reviews the provisional budgets for 2008/09 and 2009/10, based on guidelines set by the Cabinet in September 2006, and incorporating growth and redeployment proposals included in the service budgets presented to executive members in January. The financial plan for 2008/09 and 2009/10 has been prepared within the framework of the county Council's medium term financial management policies, which are summarised in Annex 2.

2 Guidelines for the medium term financial plan

2.1 The guidelines agreed provisionally by the Cabinet in September 2006 and confirmed in December 2006, following public consultation are based on the following assumptions:

Spending

· Inflation based on 2% for pay in line with Government policy, and assuming an average of 2.5% for non-pay inflation. No allowance has been made for any further increase in the employer's contribution to the Local Government pension scheme beyond the level in 2007/08 based on the outcome of the April 2004 actuarial review. Short-term interest rates averaging 5.5% have been allowed for in each year.

· Other variations falling within the current definition of the base budget - allowance for the full-year effect of mid-year pay increases, exclusion of non-recurring expenditure in the previous year's budget, revenue effect of approved capital schemes, cash-limiting of allowance for inflation based on decisions in the previous budget, and allowance for specific volume changes which directly and unavoidably affect the volume of spending.

· Additional resources allocated to Adult Services of £6.5m in 2008/09 and £6.7m in 2009/10 above the cost of inflation, sufficient with no increase in specific grant to enable overall spending to increase by 4.3%. These increases were partly funded by reductions of £1.125m and £1.150m respectively in other services.

· The priority attached to supporting the safety and security of vulnerable members of the community is also reflected in additional allocations of £1.2m per annum to children's social care, a continuation of the additional provision in the Government's spending plans for 2007/08

· Further Pay and Benefits benefit realisation savings of £0.5m were included in the 2008/09 budget, targeted at Adult Services in view of the expected substantial increase in pay costs within the service.

· Capital financing costs have been forecast on the basis of the proposed restrictions on the take-up of supported borrowing in each of the four years of the 2007/08 to 2010/11 programme with a view to limiting the increase in the capital financing requirement relating to supported borrowing to 2.5% per annum. The need to continue this policy while the County Council's grant is determined by the floor criteria is dependent upon whether the Government introduce capital grant or change the basis for calculating floor grant increases in the 2007 Spending Review in order to encourage local authorities to implement Government supported capital programmes.

· The first call on SAP realisation savings has been to replace the capital financing resources temporarily redeployed to fund part of the investment in SAP. This process should be completed by 2009/10.

Resources

· In view of the anticipated reduced rate of growth of public spending in the period 2008/09 to 2010/11 and the County Council's position as an authority well below the grant floor, nil increases in formula grant are assumed in 2008/09 and 2009/10.

· The council tax base is assumed to increase by 0.5% per annum. An increased rate of collection fund surplus payable to the County Council at £1.5m per annum has been allowed for in the plan.

· In view of the pressures on the Council's budget in seeking to deliver the priorities in the corporate business plan and the intention of the Government to redistribute grant away from the County Council, the plan assumes that the County Council will continue to increase the council tax at a rate close to the anticipated capping level. This has been assumed to remain at 5% and increases in council tax of 4.9% in both 2008/09 and 2009/10 are projected.

· Apart from making allowance for any known changes in specific grants beyond the current spending review period, it has also been assumed that there will be no increased specific grants in 2008/09 and 2009/10. The national planned increase in Dedicated Schools Grant in 2008/09 and 2009/10 is unlikely to be known until after the Spending Review announcement in the summer and no assumption about increased grant to schools has been made in the plan. On the assumption that schools are likely to continue to receive more generous Government funding increases than other County Council services receive through the formula grant, the plan makes no allowance for the County Council to exercise its power to contribute to schools budgets, beyond the existing contribution of £208,000 per annum to reflect services transferred from the LEA block to the schools block, since the revised schools funding mechanism was introduced in 2006/07.

3 Summary of the 2008/09 and 2009/10 budgets

3.1 A summary of the provisional budget for 2008/09 and 2009/10 analyzed over services and main divisions of service is attached in Annex 1. The provisional budget requirements represent an increase of £23.1m in 2008/09 (3.9%) and £27.2m in 2009/10 (4.4%). The lower rate of increase in 2008/09 consistent with a Council tax increase of 4.9% is the result of the forecast reduction of £2.7m in the Council tax collection fund surplus compared with 2007/08.

3.2 Based on the assumptions outlined in paragraph 2 above, including the scope to redeploy SAP savings within the budget from 2009/10, contingencies of £4.6m in 2008/09 and £5.2m in 2009/10 are available within the provisional budget. However the assumptions on which the plan has been prepared involved a significant degree of risk to the achievement of the priorities within the corporate business plan associated with inflation levels, ability to manage demographic and legislative pressures, the achievement of targeted levels of capital receipts, the impact of not taking up supported borrowing in full, the level of Government grant and the acceptability of continued Council tax increases at above the rate of inflation. These assumptions will need to be reviewed once the outcome of the Spending Review is known in the summer. Table 1 and 2 below summarize the increases in the provisional budget.

Table 1

Explanation of Spending Increase

	2008/09		2009/10
	£m	%	£m	%
Inflation	11.5	1.9	12.0	1.9
Reduced contribution to balances from lower forecast collection fund surplus	-2.7	-0.5	-	-
Base budget growth
Waste management contact (including inflation)	2.6	0.5	2.1	0.3
Capital financing	0.3	0.1	2.2	0.4
Other changes	0.5	0.1	1.0	0.2
Redeployment of SAP savings	-0.3	-0.1	-2.1	-0.3
Proposed increases above inflation
Adult Services	6.5	1.1	6.7	1.1
Children's Social Care	1.2	0.2	1.2	0.2
Redistribution of service guidelines	-1.1	-0.2	-1.1	-0.2
Contingency provision	4.6	0.8	5.2	0.8
	23.1	3.9	27.2	4.4

Table 2

Service Analysis of Increased Spending