Meeting documents

            Meeting: Overview and Scrutiny Committee (County Hall, Durham - Committee Room 2 - 28/01/2008 01:00:00 PM)

                  Item: A3 Budget Update

         

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Budget 2008/09 incorporating the Medium Term Financial Plan 2008/09 - 2010/11 Key Decision No. Corp/TR/04/07 Key Decision No. Corp/TR/05/07

Report of Stuart Crowe, County Treasurer [Cabinet Portfolio Member for Resources , Councillor John Lethbridge ]

Purpose and Structure of the Report

1 The purpose of the report is to provide information to enable Cabinet to make recommendations on the 2008/09 Budget incorporating the Medium Term Financial Plan, to the County Council meeting on 26th February 2008.

2 The report is divided into 11 sections
Section A

Background

1 A budget strategy over the medium term, based on the County Council’s priorities, has been the subject of consultation and discussion since the summer of last year.

2 Members agreed to consult on the “Your Council, Your Say” document and this consultation period came to an end on 30th November. This consultation document explored options involving investment of £6.9m and savings of £7.5m and was based around a council tax increase of 3.9%.

3 The Medium Term Financial Plan (MTFP) agreed for 2007/08 - 2009/10 and the consultation document set out for planning purposes a range of assumptions, including an increase of 5% of council tax in each of the years of the plan. More up-to-date financial information is now available and Cabinet Members have had an opportunity to reflect on the original options and to consider information from the responses to the consultation.

4 The budget consultation process has involved meetings with Trades Unions, NNDR, Scrutiny, Citizens’ Panel, Business Sector bodies, Voluntary Sector groups, the Schools’ Forum, Young Peoples’ groups and general public consultation. Final views from these consultation groups are expected in the next two - three weeks.

5 A provisional Grant Settlement was announced by the Government in December 2007 which incorporated information about new ‘Area Based Grants’.

6 The Final Grant Settlement setting out the Government’s support is still awaited.

Summary of Recommendations

7 Set out below is a summary of the recommendations contained in the following sections on which Cabinet’s views are sought.

SECTION B - Priorities

SECTION C - Consultation SECTION D - The Local Government Finance Settlement

SECTION E - Area Based Grants

That Members:

a) Agree to the passporting of Connexions, LEGI & SSC funding to the relevant LAA partners to achieve priority outcomes (Section E, paragraph 12, option b).
b) Agree to initially top slice £100,000 of the ABG (excluding Connexions, LEGI and SSC) to be available to the Partnership Board to help alleviate the financial pressures faced by the VCS Infrastructure Bodies with the balance of the grant being allocated across County Council Services as set out in Section E, paragraph 12, option d.

SECTION F - The Medium Term Financial Plan (MTFP)

2007/08 Revenue Budget Recommendations (Revised Budget)

That the following resolutions be recommended to the County Council:-

(a)	That the revised revenue budget for 2007/08 be approved;
(b)	That the County Treasurer be authorised to make any proper accounting transactions that would be in the interests of the County Council in relation to the accounts for 2007/08.

Revenue Budget Recommendations 2008/09
(Assuming an increase in council tax of 2.9%)

It is recommended for the year ended 31st March 2009; That in determining the budget requirement, the County Council:
a) Notes the Treasurer’s comments on the robustness of the estimates and the adequacy of reserves and the risks in the budget.
b) Reaffirms the current policy for Reserves .
c) Agrees to the fund the investments as set out in the Medium Term Financial Plan in Section F.

a) Agrees to the proposals for savings and the use of reserves as set out in Section F.
b) Agrees to the Schools Budget plans as detailed in Section J.
c) Determines accordingly a budget requirement of £348,415,268 which will result in a council tax at Band D of £1,024.38 (an increase of 2.9% over council tax for 2007/08).

SECTION G - Capital MTFP and Budget

Capital Budget Recommendations

That Members:

SECTION H - Prudential Code


SECTION I - Treasury Management

That the County Council approve the following:

a) that the Council sets an upper limit on its fixed interest rate exposures for 2008/09, 2009/10 and 2010/11 of 100% of its net outstanding principal sum.

b) that the Council sets an upper limit on its variable interest rate exposures for 2008/09, 2009/10 and 2010/11 of 50% of its net outstanding principal sums.

c)

Amount of projected borrowing that is fixed rate maturing in each period as a percentage of total borrowing that is fixed rate

Upper Limit %Lower Limit %

Under 12 months200

12 months and within 24 months200

24 month and within 5 years300

5 years and within 10 years500

10 years and above1000

d) There are no proposals for the Council to invest sums for periods longer than 364 days. (This is seen as prudent interest rate risk management.)

SECTION J -Dedicated Schools Grant (DSG)


SECTION I - Section 25 Report

It is recommended that:

a) Members have regard to this report when approving the budget and the level of council tax for 2008/09.

Section B - Priorities

1 We have carried out our annual review of priorities as part of the budget process and all investment and savings outlined in the subsequent sections reflect this analysis. Statement of Improvement Priorities
2 Our overall ambition as a Council is to continue to improve the well-being of the County’s residents and we will be taking action across all Council services to improve outcomes for local people.

3 The Council’s framework reflects the broad objectives that are included in the current Local Area Agreement, which are:
• Narrowing the deprivation gap.
• Improving access to services.
• Supporting sustainable service improvements.
• Improving public satisfaction with their local area and increasing the number of people who feel able to influence public services

4 Over the next three years the Council faces a number of important challenges as we move forward with the arrangements to establish a new unitary authority for County Durham and work closely with partners to develop new approaches to service delivery. During this period of transition we will continue to maintain a focus on the things that need to improve.

Challenges

5 The challenges facing the County are:
· Demographic change - providing services for older people and helping to keep them in their homes and be part of the local community;
· Community Development - improving community engagement and the capacity of individuals and community groups to fully participate in decisions that affect their lives;
· Crime and Fear of Crime - responding to public concerns about anti-social behaviour;
· Educational attainment and adult basic skills - improving the levels of attainment in schools, particularly secondary schools, and adult skills for the modern labour market;
· Economic vulnerability and lack of employment - addressing the need to diversify and strengthen the economy and the fact that too many people are without jobs;
· Environment - tackling waste management and the need for environmental improvements in towns and villages and increasing awareness of sustainability issues;
· Public health and adult care - meeting the needs of increasing numbers of people with learning disabilities and helping to tackle high levels of ill health, teenage pregnancy and obesity;

· Inequalities - supporting vulnerable adults and children and addressing the impact of inequality and social exclusion, including transportation and access to services and opportunities.

Priority Outcomes

6 We want to make a difference to people’s lives in the County. We will focus on preventative activities and early intervention in order to promote the wellbeing of all people in the County and ensure that services are provided to support and protect the most vulnerable children and adults.

7 We will set targets to improve outcomes for local people so that we have:

· Healthier communities
· Safer communities
· People enjoying, achieving and making a positive contribution
· Economic wellbeing
· Improved environment

We will also continue to ensure that we are:

· A well managed council

8 We have identified the priority outcomes where we want to see improvement and in support of these priorities the proposed areas for additional investment are:

· Vulnerable children and young people
· People with learning disabilities
· Older people to retain their independence
· The transport infrastructure and reducing the rate of decline in public transport.
· Building Schools for the Future

9 It is recommended that Members confirm the priorities for investment for 2008/09.



Section C - Consultation Responses

Introduction

1 Following the success of the 2007/08 budget consultation process, Durham County Council launched the ‘Your Council…Your Say’ document in November 2007. Once again, members of the public, interest groups, businesses and voluntary organisations were invited to comment on the proposed savings and investments for the 2008/09 budget summarised in the document as well as the priorities to be addressed in the budget and what level of Council Tax increase should be set. In addition the document was used to seek views about proposals for ‘one-off’ investments from Overview and Scrutiny Committee.

2 The aim of the document was to make the County Council’s decision-making process more responsive, open and transparent. It contained background information on the services provided by the Council, how the budget is developed and the results of the latest residents’ survey. The decisions made will impact on vital services which affect the quality of life of everyone living and working within the County. The Leader of the County Council and the Chief Executive especially welcomed feedback from children and young people, voluntary and community organisations and the County’s business sector.

3 In response to the consultation, 133 written responses were received from individuals along with comments from various organisations and feedback from meetings with the 17 young people from the Investing in Children’s Initiative, The Overview and Scrutiny Committee, The Citizen’s Panel and representatives from the voluntary and business sectors. Responses and feedback is to be made available in the Members’ Resource Centre.

Responses from DCC Website and correspondence

4 This year the consultation process asked respondents to identify themselves in the following age bands: under 25, 25 to 60 and over 60. They were also asked to comment on the following: § Improvement Priorities - are we focussing on the right areas
§ Additional Investment - have we chosen the right areas
§ Identify how important our key services are to the individual
§ Proposals for ‘one -off investments’ 5 The comments received have been summarised in Annex C1 which record the responses in order of ‘most frequently chosen’.

6 The Consultation exercise posed the question ‘Do you agree that we have chosen the right improvement priorities?’ Respondents were invited to choose ‘yes’ or ‘no’ for each priority. The most frequently chosen ‘yes’ was for the ‘Quality of the Environment’. Comments included:

§ encourage recycling initiatives
§ investing in walkways would improve general health, encourage visitors to the area as well as improving access for the disabled.
§ investing in transport systems would attract additional employment to the area
§ concerns were raised about the impact on communities if verge maintenance and winter maintenance budgets were reduced
§ investigate environmentally friendly ways to continue service provision e.g. installation of solar powered street lighting and use of timers 7 In response to ‘Whether we had chosen the right areas for additional investment’ each age group broadly supported the proposals and the initiatives which encourage older people to retain their independence scored marginally higher than other proposals. Comments on this question included:

§ investment in museums and art galleries should be encouraged and concerns regarding the proposed reduction to the DLI budget were stated
§ support for building new schools was expressed. 8 Respondents were asked to comment on how important each key service was to them as individuals. Each age group had different priorities, which are identified in Annex C1.

9 Responses in writing were also received and the key messages were:

§ There is particular support for the County Council’s priorities, especially the Quality of the Environment
§ Additional investment is supported for Older People to retain their independence and for transport infrastructure and reducing public transport decline.

10 In the main, responses supported a council tax increase of less than 3.9%.


Response from Overview and Scrutiny Committee

11 The response of Overview and Scrutiny Committee is included in Annex C2, and the following themes have emerged: § Achieving greater value for money
§ Council Tax increase below 4%
§ Concern over use of reserves in setting Council Tax
§ Support for ‘one-off ’investments
§ Welcome Invest to Save principle

Response from Investing in Children

12 The response from the consultation Investing in Children is contained in Annex C3. The general consensus appears to be that the young people do not support investment in organised youth clubs but wish to have access to unused buildings where they can play/practice their music and display their art work

Response from Other Consultees

13 The responses of the Voluntary/Community Sector, Derwentside District Council’s Scrutiny Panel for Learning and Economy, Business Sector and the Citizen’s Panel are included at Annexes C4, C5 and C6.

Summary

14 Final comments are still awaited from some of the consultees. Any received before the date of the Committee will be reported at the meeting.

15 The messages from the consultation groups are, perhaps understandably diverse. However, there is broad support for the priorities of the Council and proposals for investment. Concerns have been clearly expressed about a number of proposals for savings, particularly where services are undermined and particularly where savings involve reductions in services related to the environment.

16 The responses received during the consultation process should be considered by Members who will need to come to a view about how much weight to give them as decisions are made on investments, savings and council tax levels.

17 It is recommended that Members take into account the views of the consultees as they consider budget and MTFP proposals.

Responses from DCC Website - analysed by the age of respondents








Responses from DCC Website - analysed by the age of respondents (cont’d)

DURHAM COUNTY COUNCIL OVERVIEW AND SCRUTINY RESPONSE TO:- “Your Council, Your Say” - Budget Consultation for 2008/09 30 November 2007
Report of the Head of Overview and Scrutiny

1. Introduction

Durham County Council is the major provider of local government services in County Durham. It spends approximately £950 million annually, most of it provided through specific grants, including the Dedicated School Grant (which funds schools and some support to pupils), income and re-charges.
In developing the budget for consultation this year the strategy is to keep Council Tax increases as low as possible, whilst taking into account:

· County Council Priorities
· Demographic Changes and inflationary pressures
· Efficiency targets and other efficiency savings
· Government priorities and guidelines
· The impact of proposals on service users and Council Tax payers.

The County Council aims to achieve greater “value for money”, ensuring that wherever possible it improves services whilst keeping costs as low as possible.

The Durham County Council Budget consultation document,” Your Council Your Say” (launched on 1 November 2007) lists a range of spending and investment options totalling just under £7m.The report also details options for savings, efficiency gains, income and service reductions totalling just under £7.5m.Investment and savings options are preliminary at this stage and set within the context of the County Council’s improvement and investment priorities and service performance (see page 14 onwards) .

As a publicly accountable and democratically elected organisation, Durham County Council is once again consulting widely with local people in County Durham on its budget for 2008/09. .

The emphasis is to ensure that residents have an early opportunity to comment on the budget with suggestions for service areas where they think the County Council should cut back and where it should invest.

The feedback from the consultation process will influence and inform the decisions the County Council needs to make, recognising that those decisions will impact on vital services which affect the quality of life of everyone in the County.

2. Overview and Scrutiny Process in response to the budget consultation

2.1 Budget Briefings and Budget Working Groups

2.2 Analysis of Key Themes from Overview and Scrutiny discussions · Members welcome the approach taken with the budget this year in that the County Council aims to achieve greater “value for money”, ensuring that, wherever possible, it improves services whilst keeping costs as low as possible. · Members welcome the effort taken to meet the Council’s priorities within the resource envelope, whilst at the same time aiming to keep Council tax below 4.0%. · Members are disappointed with the outcome of the Governments Comprehensive Spending Review (CSR) in that it is likely to be the worst allocation of funding to local government for 10 years. Members await the final settlement figures later in the year. · Based on the outcome of CSR and other sources of funding members welcome the planning assumption for a 3.9% increase in Council Tax informed by rigorous financial planning that aims to make savings and deliver efficiencies, avoids cuts in our main front line services, makes the best use of grants and other sources of funding, whilst, reducing only those levels of service that have a minimal impact on the public, and which builds on the invest to save principle.

· However, Members have concerns about the use of other sources of funding in setting a Council Tax e.g. windfalls, Cabinet reserve and/or under spends, as these do not provide for a secure financial base in setting a budget because of their very nature. There was also a view expressed that use of the LABGI (Local Authority Business Growth Initiative) fund should be ring fenced for that purpose and not used to support the base budget. · Members accept the areas for improvement priority and areas identified in the report for additional investment (reference page 14 Your Council Your Say). However, Members note that areas of risk exist and that the County Council may need to spend more and invest in Equal Pay and Job Evaluation, Redundancies and Waste (page 12). · Members welcome the initial calculations of the base budget with suggestions for investment that potentially could yield savings of just under £7.5m next year. · Members are totally supportive of the additional “one off” investment proposals listed in the consultation document and would recommend they are funded from the budget for 2007/08. · Members recognise the tension between having to deliver on statutory responsibilities, the “must do’s” and the non statutory elements of council activity that will bear the brunt of income and service reductions. · Members welcome the fact that “Invest to Save” remains the fundamental principle that the County Council uses when considering savings, income and service reductions. Members are very sympathetic to the principle of “invest to invest” where managed savings delivered through specific projects e.g. the example of street lighting should be ploughed back into the respective service. Members note, however, that any such approach must be in line with the County Councils Corporate improvement priorities and therefore any surplus may need to go back to the centre so as to reinvest across the county council.

· Once again early engagement of members in the budget setting process is essential. Information must come to the overview and scrutiny members as soon as possible.

3. Adults and Community Services

3.1 Summarised spending and Investment options:

The total cost of this investment is £4.7m.

Overview and Scrutiny Recommendation: Members agree in principle to the investment proposals but note the consequences such investment may have on other directorates.

3.2 Summarised options for savings, efficiency gains, income and service reductions:

Overview and Scrutiny Recommendation: Members welcome the approach in moving from a culture of dependency to a culture of independence. Members will want to receive information on the effect on our performance in those areas that will be undermined because of efficiency savings as listed above.

4. Children and Young Peoples Services

4.1 Summarised spending and Investment options:

The total cost of this investment is £556 000.

It is suggested that all the proposals will improve performance.
Overview and Scrutiny Recommendation:

Members suggest that Family Learning be identified as an area of investment in the budget.

Members note that Family Learning is in line with the County Councils improvement priority of protecting and supporting vulnerable adults and its investment priority for vulnerable children and young people.

4.2 Summarised options for savings, efficiency gains, income and service reductions: The service has identified 24 areas for savings (pages 24 and 25). It is suggested that there will be little or no impact, as all the proposals maintain current performance. The total amount of savings proposed is approximately £2.2m. Overview and Scrutiny Recommendation: Members note the options for savings, efficiency gains, income and service reductions.

5. Environment Service Budget Working

5.1 Summarised spending and Investment options:

It is suggested that all the proposals will maintain current performance.

Overview and Scrutiny Recommendation:

Members agree in principle to the areas identified as investment proposals.

5.2 Summarised options for savings, efficiency gains, income and service reductions: The service has identified 23 areas for savings, efficiency gains, and income and service reductions (Pages 26 and 27). It is suggested that in 12 areas current performance will be maintained. In 11 areas performance will be undermined. The total amount of savings proposed is approximately £1.28m. Some Members have raised concerns about the impact that the following proposals will have on communities: · Community Highway Workers (£76,000) · Grass cutting on highway verges (£100,000) · Weed spraying (£85,000) · Lightning column replacement programme (£62,000) · Street lighting painting programme (£70,000) and · Winter maintenance (£200,000). Members note that the reduction in winter maintenance would involve the removal of three routes. Overview and Scrutiny Recommendation: Members agree that the following service areas should receive continued investment as these services impact on the community as a whole namely:- · Community Highway Workers (£76,000) · Grass cutting on highway verges (£100,000) · Weed spraying (£85,000) · Lightning column replacement programme (£62,000) · Street lighting painting programme (£70,000) · Winter maintenance (£200,000). Members will want to receive information on the effect on our performance in those areas that will be undermined because of efficiency savings as identified in Your council Your Say.

6. Central Services (Chief Executives Office, Treasurers and Corporate Services) Budget Working Group 20 September 2007 6.1 Summarised spending and Investment options:

6.2 Summarised options for savings, efficiency gains, income and service reductions:

b) Corporate Services:-
c) County Treasurer’s:-

Overview and Scrutiny Recommendation: Members specifically recommend not cutting the repairs and maintenance budget (point 96 Your Council Your Say - £100,000) as this budget continues to support essential work on our estate. Members request that the opportunities to operate the Printing and Design Service as an income generating venture with options to partner with the private sector be explored.

Contact: Feisal Jassat Tel: 0191 383 3506 feisal.jassat@durham.gov.uk

Present: Phil Barclay, Hilary Appleton, Liam Cairns, Tabatha Tilley, 1. Seventeen young people met with Hilary Appleton from the Treasurers and
2. Hilary presented the key points from the consultation document: 3. Phil explained inflation and reasons for tax increases. Cost depending on need e.g. more elderly / learning disabilities, then more money needed to cover those services.

4. The young people then discussed areas where they believed there was need for further investment.

· Things to do, places to go. The group noted that by far the most popular suggestion from the residents satisfaction survey (p7) was activities for teenagers. However, there didn’t seem to be anything spending plans on this.
· Transport. There was general agreement that an efficient and cheap public transport system would make a huge difference to young people, allowing them to escape the villages/towns in which they live, and access services not available locally.

Young people wanted the freedom to do what they want whilst feeling safe.

The group agreed to meet again, to consider whether they wanted to make a more detailed response to the budget, with some more specific proposals. Tabatha will facilitate this, before Christmas



TT/LC
13/11/07

(IiC/Liam/Mins/ Budget consultation/Notes from mtg 12th Nov 07 - Your council - Your Say) Comments from Voluntary/Community Sector
Key issues from group discussion:

· Need to make DCC website accessible for people who are blind.
· Support for people with sensory impairments to access DCC services.
· Insufficient services for people who are deaf (quote from group member 40% of deaf community suffer from mental health issues). Prioritisation Group 1 - below are the identified group priorities from the summarised spending and investment options. (Section 4.1 of DCC budget consultation)

Title	Recommended Caveat
University Allowances.
Ageing population - additional capacity
Improving day services.
Supporting older people (over 65) who care for people with learning disabilities.
Criminal Records Bureau checks.
Supporting people with learning disabilities.
“Supporting people” loss of income
Transport for looked after children to contact visits and school.
National minimum fostering allowance.
Reduction in grants
Inflation in highways and civil engineering costs
Supporting people with learning disabilities leaving school.
Learning disabilities - external care pressures.
Building schools for the future.
Landfill Tax	Need to encourage more recycling,
Minerals and waste development framework.
Public transport inflation.	Funding needs to be utilised and managed more effectively to develop community transport initiatives.
Direct payments

Section D - The Local Government Finance Settlement for 2008/09

1 For the first time, by the Minister of State for Local Government (John Healey) announced a three-year finance settlement which incorporated the Government’s decisions following the review of the formula grant distribution system and the consultation carried out over the summer.

2 Members may need to have regard to the Minister’s statement that the Government expects to see average council tax increases in England in 2008/09 substantially below 5%.

3 The key elements of the provisional three-year settlement are:

§ Formula Grant 2008/09 £161.966m - This is a cash increase of £21.348m over 2007/08 or 15.2%. When 2007/08 has been adjusted to reflect changes in specific grants this results in an increase of £11.592m or 7.7%. This is the figure that will be used by Communities and Local Government (CLG).

§ The average increase in formula grant for Counties without Fire responsibilities is 5.6%.

§ The County Council's contribution towards the floor to support other Shire Counties is £15.386m.

§ Formula Grant 2009/10 £169.529m - This is a cash increase of £7.563m over 2008/09 or 4.7%. When 2008/09 has been adjusted to reflect changes in specific grants this shows an increase of £7.724m or 4.8%. § The average increase in formula grant for Counties without Fire responsibilities is 4.2%.

§ The County Council's contribution towards the floor to support other Shire Counties is £12.926m.

§ Formula Grant 2010/11 £176.343m - This is a cash increase of £6.814m over 2007/08 or 4.0%. When 2009/10 has been adjusted to reflect changes in specific grants this shows an increase of £6.875m or 4.1%.

§ The average increase in formula grant for Counties without Fire responsibilities is 4.1%.

§ The County Council's contribution towards the floor to support other Shire Counties is £10.775m. § A number of specific grants have transferred to within Revenue Support Grant (RSG) from 2008/09 including:
o Children’s Services
o Delayed Discharges
o Access and Systems Capacity
o Waste Performance and Efficiency

§ The settlement provides details of the new Area Based Grant (ABG) mentioned in the 2007 Comprehensive Spending Review which combines a number of former specific and special grants. The County Council’s allocation of ABG for 2008/09 is £27.380m, compared to funding received in 2007/08 of £21.819m. A guidance note on the treatment of ABG is awaited, but it is understood that it will be treated as a general grant. A separate section on ABG is included in this report. § There is a new ring-fenced grant for social care reform of £82m nationally for 2008/09. The County Council will receive £0.966m.

§ From 2009/10 Supporting People grant will be included in ABG.

4 The Settlement is particularly difficult for Shire Districts. In County Durham only 3 of the District Councils will receive formula grant increases marginally above the 1% grant floor for 2008/09 and only 2 districts will receive grant increases above the 0.5% grant floor for 2009/10 and 2010/11.

5 Dedicated Schools Grant (DSG) - Most schools funding will come in the form of the ring-fenced DSG. Indicative allocations are:

§ 2008/09 - £279.428m, a year-on-year increase of 3.0%. The minimum increase in an authority’s per pupil DSG will be 3.9% in cash terms. § 2009/10 - £281.144m, a year-on-year increase of 2.1%. The minimum increase in an authority’s per pupil DSG will be 3.3% in cash terms. § 2010/11 - £290.645m, a year-on-year increase of 3.4%. The minimum increase in an authority’s per pupil DSG will be 4.1% in cash terms.

§ DSG is allocated predominantly on the basis of pupil numbers, however the falling pupil numbers in the County leads to a best estimate of £273.546m for 2008/09, almost £2m less than the indicative allocation. Representations are being made to the Department for Children, Schools and Families (DCSF) on this issue.

6 I submitted a response to the Government’s consultation paper on behalf of the County Council and a copy is attached an annex to this section.

7 It is recommended that Members note the Settlement and my response.

CLG

CT

0191 383 3675

0191 383 4499

Stuart.crowe@durham.gov.uk

Stuart Crowe

Mrs Nikki Hinde

Zone 5/J2, Eland House

Bressenden Place,

London

SW1E 5DU

Dear Mrs Hinde

LOCAL AUTHORITY FINANCE (ENGLAND)
REVENUE SUPPORT GRANT FOR 2008-09, 2009-10 AND 2010-11 AND RELATED MATTERS

The opportunity to respond on behalf of Durham County Council to the consultation covering the three year finance settlement for Local Government is welcomed.

Durham County Council is the largest local authority in the North East of England with a population of approximately half a million inhabitants, and its operations have a significant impact on the economic well-being of the area. During 2004 the Council was awarded “Excellent” status under the Comprehensive Performance Assessment procedures. Under the revised CPA assessment in 2005, the Authority was awarded “4 stars”, which were retained in the 2006 assessment.

For 2008-09 the County Council looks set to receive an increase in Formula Grant of 7.7%, against the adjusted 2007-08 figure. The County Council acknowledges this to be an improved settlement on 2007-08, which provided a 5% increase in Formula Grant, but is concerned that for 2009-10 and 2010-11, the grant increases at 4.8% and 4.1% respectively, show a deterioration of this position.

The County Council shares the concerns of many within the local government community that the Four Block Model is not transparent, and hence it is difficult to understand the judgemental decisions made by ministers.

Based on the analysis of change in grant produced by the Department for Communities and Local Government (DCLG), for 2008-09 the main contributor to the increase in grant for the County Council is the change in control totals.

Continued/…

Page 2 of 3
Further analysis provided by the Society of County Treasurers shows that for Children’s Services and Adults’ Services blocks, the Relative Needs Formulae

(RNF) control totals have increased by 8.2% and 15% respectively. This compares to a national increase in RNF control totals of 5.8%. Whilst this leads to more grant being allocated to authorities with responsibilities for children’s services and adults’ personal social services it does not address the issue of inadequate funding. Work done by the Local Government Association has identified spending pressures in adult social care and waste (particularly landfill tax) which are in excess of the increases in Formula Grant proposed for the three year settlement period. The County Council requests that the cost pressures faced by authorities are recognised through an increased grant quantum.

The removal of the specific formula floor in the Children’s Social Care and Social Services for Younger Adults sub blocks has also contributed to the improved grant increase. The County Council has always contended that if the Government’s intention was to fully implement the Four Block model for grant distribution, it was necessary to discontinue the use of specific sub-block formula floors. In addition it has always maintained that damping at sub block level was inconsistent, and was an additional complication to the system which made the grant distribution arrangements less transparent. This change in the approach to grant distribution is therefore welcomed.

The minimum grant increase, that Government appreciates all authorities need, continues to be met by redirecting funds from authorities set to receive a grant increase above the grant floor. In 2008-09, 2009-10 and 2010-11 respectively, the proposals are that the County Council should forfeit £15.4m, £12.9m and £10.8m of the Formula Grant that the system indicates should be awarded as Durham County Council’s share of overall Formula Grant, based on relative needs and ability to raise funds locally. This equates to the County Council having 57%, 62.6% and 61% of grant increases for 2008-09, 2009-10 and 2010-11 respectively taken away to fund the grant floor. Whilst the County Council supports the use of the grant floor as a damping mechanism, to protect those authorities which stand to lose significantly from formula changes, it continues to believe that additional resources should be provided to pay for the grant floor.

The County Council welcomes the increased recognition given by Government within the grant distribution system to both, the relative needs, and relative resource blocks in assessing authorities’ grants.

At a general level, the County Council supports further research into the development of an improved mechanism for allocating grant, which demonstrates greater objectivity and is less reliant on unsupported judgemental decisions.

Page 3 of 3

Whilst the County Council welcomes the idea of the ‘flexibility’ associated with Area Based Grant (ABG), the funding includes many former specific grants. With ABG, there is no longer ring fencing attached to these funding streams. However, local authorities are still expected to achieve targets and standards of service provision around areas formerly funded by these specific grants. The conflict between the assumption of additional flexibility, through the non ring fencing of the grant, and the current commitments to the continuation of service provision and achievements of targets (often set by Government), are causing ‘tensions’ between the partners of the Local Area Agreement.

Clarity is also sought around the grant status of ABG. In the Local Government Finance Settlement details of ABG are included under ‘Specific and Special Grants’, which conflicts with information released in CSR07 and ‘the Development of the New LAA Framework - Operational Guidance’ released in November, where ABG is described as a general grant. In budget preparation, specific grants are netted off from expenditure when calculating the Budget Requirement, whereas general grants are not. No guidance has yet been received from DCLG around this issue. This obviously has implications for calculating the year on year increase in the Budget Requirement, and it is important that guidance on this issue is received in the next few days.

To conclude, I should like to thank you for giving the Council the opportunity to comment on the consultation papers, and would appreciate it if you would take the comments into consideration on this important issue.

Yours sincerely


Stuart Crowe
County Treasurer

Section E - Area Based Grants

1 Government has significantly increased local authorities’ flexibility over the use of their mainstream resources, during the forthcoming CSR period. This has been achieved by transferring a number of previously ringfenced grants into the new Area Based Grant (ABG) and transferring some into Revenue Support Grant (RSG), both of which are non-ringfenced general grants. This move minimises the barriers to local authorities for using their mainstream resources to support Local Area Agreement (LAA) priorities where they wish to do so.

2 Local authorites are free to use their non-ringfenced ABG as they see fit to support the delivery of local, regional and national priorities in their areas, including the achievement of LAA targets.

3 Government Departments are however issuing circulars for many of the funding streams indicating the purpose of the funding.

4 ABG will be paid direct from Central Government to the district councils as well as the County Council from April 2008. Included in the County Council’s ABG allocation are Connexions Grant, Local Enterprise Growth Initiative Grant (LEGI) and the Safer Stronger Communities Grant (SSC). LEGI and SSC grants were previously passported fully to LAA partners via the LAA grant. Prior to inclusion in ABG from April 08 Connexions grant was allocated to Connexions from DCSF.

Local Area Agreement

5 The County Durham LAA is an agreement between LAA partners in County Durham and Central Government. Its aim is to improve services and increase economic prosperity for local people and make a difference across the County, particularly in the most deprived areas. Priorities are agreed between all the main public sector agencies working in the area and with Central Government.

6 The new LAAs from April 2008 are to include ‘up to 35’ indicators drawn from the new national indicator set of 198 indicators. In addition to the ‘up to 35’, there are also 16 statutory education and early years indicators. Additional local indicators can be included in the County Durham LAA. These targets should help drive improvements to local services and the local economy, ensuring stronger ownership of the LAA by all partners.

7 The Community and Voluntary Sector contribute towards the achievement of LAA targets. A report was presented to the Partnership Board in December which outlined the financial pressures facing the sector in the forthcoming years. It is estimated that there will be a shortfall of approximately £750,000 in funding available to the VCS Infrastructure Bodies (e.g. CVS and One Voice) in 2008/09. The Partnership Board are eager to assist with alleviating these financial pressures where they are able to do so via funds available for the LAA.

Relationship of ABG with LAA grant

8 In 2005/06 the LAA grant was introduced by Government, and a number of specific grant funding streams were pooled and allocated as a single grant to upper tier authorities for the purposes of supporting the achievement of LAA targets.

9 Unlike LAA grant, which was allocated for the purposes of supporting the achievement of LAA targets, ABG will be a non-ringfenced general grant. ABG builds on the successes of LAA grant by increasing local flexibility over the use of resources, and further reducing onerous reporting requirements. LAA partners will still be responsible for working towards delivering against the National Indicator Set and their LAA targets. These changes provide an opportunity during 2008/09 for organisations to fully examine and challenge existing projects and use of resources against the priorities and outcomes agreed by LAA partners.

Funding streams and allocations

10 Annex E1 summarises the individual grant funding streams included in the ABG and what they are intended to support.

11 Annex E2 details the 3 year ABG allocations payable to the County Council.

Options for ABG

12 There are a number of options which can be considered for managing the use of ABG, these include:

a) Passport the whole of the ABG to the Partnership Board (LAA) for the Board to allocate the grant to partners to address LAA priorities/targets across the county.
b) Passport LEGI, SSC Further debate relating to SSC is required due to a change in policy. and Connexions allocations to partners with an expectation that during 2008/09 there will be further examination of funding requirements to achieve priority outcomes.
c) Retain the whole of the ABG (excluding Connexions, LEGI & SSC) for allocation across County Council services.
d) Seek to initially top slice £100,000 of the ABG (excluding Connexions, LEGI & SSC) to be available to the Partnership Board to help alleviate the financial pressures faced by the VCS Infrastructure Bodies. The balance of the grant will be allocated to the various funding streams across County Council services with an expectation that during 2008/09 there will be further examination of funding requirements as delivery plans are agreed to achieve priority outcomes.

Recommendations

13 Members are recommended to:

a) Agree to the passporting of Connexions, LEGI & SSC funding to the relevant LAA partners to achieve priority outcomes (option b above).
b) Agree to initially top slice £100,000 of the ABG (excluding Connexions, LEGI and SSC) to be available to the Partnership Board to help alleviate the financial pressures faced by the VCS Infrastructure Bodies with the balance of the grant being allocated across County Council Services as set out in option d.

2008/09 Area Based Grant - Adult and Community Services funding streams

Adult Social Care Workforce - £1,084,609 07/08 (£1,554,786 08/09) - The main purpose of this funding is to support workforce development in adult social care workforce in the statutory, private and voluntary sectors.

Carers Grant - £2,054,000 07/08 (£2,488,594 08/09) -The main purpose of the grant is to:
· Enhance provision of community care and children’s services to allow carers to take a break from caring by simulating greater diversity of provision
· stimulate a greater awareness by authorities of the need for services in their area to be more responsive to the needs of carers; and
· provide carers with services other than breaks, in keeping with the 2001 Carers and Disabled Persons Act. 20% of the grant is intended for children’s services to support families of disabled children and young carers. The remaining 80% is intended for adult services

Learning Disability Development Fund - 2007/08 £488,000 (£543,736 08/09) - This funding was created to support local implementation of the agenda set out in the learning disability white paper, Valuing People (2001), and until 2007/08 has been allocated to PCTs for local learning disability partnership boards to determine its allocation. In recognition of the lead role of local authorities on learning disabilities, the funding will be provided directly to local authorities in delivering the key outcomes for people with learning disabilities. This funding is also linked to Partnership arrangements, the LDDF annual expenditure plans are approved by the Learning Disability Partnership.

Local Involvement Networks - £10,000 07/08 (£255,755 08/09) - The County Council have a new statutory responsibility and have a duty to make contractual arrangements for the involvement of people in the commissioning provision and scrutiny of health services and social care services - i.e. to establish local involvement networks (LINks).

Mental Capacity Act and Independent Mental Capacity Advocacy (IMCA) Service Allocation: £178,000 07/08 - (£283,763 08/09) The purpose of this funding is to:
· Allocate resources for training - a large number of staff are to be trained , not just ACS staff, we are also responsible for implementation Networks to co-ordinate the awareness raising and training of all statutory voluntary and independent sector staff in our geographical area. This includes all relevant staff in housing, other local authority departments and NHS staff in our local area.
· Allocate resources for commissioning the advocacy service - to facilitate the creation of a new statutory service (IMCA), its purpose being to help vulnerable people who lack capacity who are facing important decisions made by the NHS and Local Authorities about serious medical treatment and changes of residence. Authorities have a duty under the Act to instruct and consult the IMCA in decisions involving people who have no family or friends. The Mental Capacity Act requires the commissioning of the IMCA service by the CSSR’s . The service needs to be independent of both CSSRs and local health providers.
· Allocate resources for increased social care costs - extra resources available to meet demand of additional meetings, assessments , case conferences etc required under the Act.
· To provide an opportunity to maintain and extend the work of existing local Mental Capacity Act implementation networks. These networks will be most effective if they work closely with representatives of care homes, hospitals and PCTs.’

Mental Health £1,426,000 07/08 (£1,734,220 08/09) - Resources provided by this funding stream are designed to assist local authorities in developments to support implementation of Mental Health National Service Framework standards and other Mental Health service developments. Such investments will augment existing Mental Health expenditure.

Preserved Rights - £2,098,000 07/08 (£1,967,197 08/09) - Section 50(1) of the Health and Social Care Act 2001, which came into effect on 8 April 2002, sets out that local authorities are responsible for providing residential accommodation to persons ordinarily resident in their area who were previously in relevant accommodation with Preserved Rights to higher rates of Income Support. The Preserved Rights Grant is paid to local authorities to help them discharge these responsibilities. Preserved Rights resources are allocated to individual local authorities pro rata to the numbers of former Preserved Rights residents which each authority indicated that they supported in September 2002, multiplied by the area cost adjustment. Allocations are estimated separately for older and for younger residents.

Supporting People Admin - £420,406 07/08 (£399,386 08/09) - This grant is used to support a team of 9 staff to the sum of £323,469 in 07/08 and with the remainder of the grant spent on premises, transport and supplies and services.

2008/09 Area Based Grant - Children and Young People’s Service funding streams

14-19 flexible funding pot comprised of £247,828 for 2007/08 (£143,565 08/09) and was used to build and sustain the administrative and logistical capacity needed for local areas to begin the roll out of specialised diplomas from 2008. The fund also ensured that the necessary systems to support choice, diversity and collaboration were in place, including; delivering area prospectuses, developing common timetables, and dealing with the logistical challenges arising from collaboration. Approximately 47% of the grant was used to fund staff.

Care Matters White Paper - new fund (£256,551 08/09). There has been no guidance forthcoming from the DCSF at present. However, the Care Matters White Paper relates to children in care and improving their outcomes. This focuses on a number of areas; Corporate Parenting: getting it right, Family and parenting support, Care placements: A better experience for everyone, Delivering a First Class Education, Promoting Health and Well Being, Making the transition to adulthood.

Carers Grant - £2,054,000 07/08 (£2,488,594 08/09) -

Childrens element of this £327,600 07/08 (£358,919 08/09) - To enhance provision of community care and children’s services to allow carers to take a break from caring by stimulating greater diversity of provision. To stimulate a greater awareness by authorities of the need for services in their area to be more responsive to the needs of carers and to provide carers with services other than breaks, in keeping with the 2001 Carers and Disabled Persons Act. It is used on services for carers through Service Level Contracts, respite, holiday playschemes. An additional £55,600 was received in 2007/8 for emergency respite care, the additional funding is being used to develop SLAs with DISC and Barnardos to support young carers.

Child and Adolescent Mental Health Services grant comprised of £713,000 for 2007/08 (£809,325 08/09) and was used to improve CAMH services, in accordance with the local needs and priorities set out in the CAMHS Development Strategy. £51,130 is used for foster care and psychological services (SLA). The grant funds three social work staff. DCC retain £174k in 2007/08 as agreed by the CAMHS partnership. A balance of £539k is passed to the PCT who administer the finance for the CAMHS Strategy.

Child Death Review Process - new fund £62,792 08/09. There has been no guidance forthcoming from the DCSF at present.

The Children’s Fund comprised of £1,492,457 for 2007/08 (£1,492,457 08/09) and has the following specific objectives; to achieve improved educational performance among 5-13-year-olds; to ensure fewer young people aged 10-13 commit crime and fewer children aged 5-13 are victims of crime; to reduce child health inequalities; to ensure children, young people and their families feel the services are accessible; to develop services which are experienced as effective; to involve families in building the community's capacity to sustain the programme and thereby create pathways out of poverty.

The Children’s Fund pays for 17 permanent CDYES staff and 10 temporary CDYES staff (temporary staff are contracted to 31 March 2008). It also contributes £28,955 towards management/infrastructure to CDYES and £37,371 towards premises costs. A permanent Principal Accountancy Assistant is also sourced through the Children’s Fund (CYPS) as is a re-grading from PO12 to PO14 for the Children’s Fund Manager, to manage the strategic direction of the fund (£2,240 with on-costs). £2,000 is also contributed to Connexions for the use of accommodation. Non-staff funding of £858,929 is also distributed across the districts.

The Children’s Social Care Workforce Grant - (£158,601 08/09) the element from HRDS comprised of £157,950 for 2007/08 and was spent on training and development of social care staff. Approximately 61% was allocated for staff training and HR development. Agreed CYPS share of the grant following the split of Adults/Childrens Services.

The element which was formerly NTS comprised of £341,441 and was used to support workforce planning and the National Minimum Dataset. Approximately 61% was allocated for staff training and HR development. Agreed CYPS share of the grant following the split of Adults/Childrens Services.

Choice Advisors grant consisted of £50,018 for 2007/08 (£54,975 08/09) was used to set up a Choice Advice Service to advise and assist parents of children in their area who are in the process of deciding which secondary school they wish to send their children to (a specific duty on LAs placed by the Education and Inspections Bill 2006). The grant funds two Choice Advisors.

Connexions - £4,945,728 07/08 (£4,956,762 08/09)- Funding is used to assist young people in finding suitable employment, or education, training to prepare for employment, both on leaving compulsory learning, and those post school who leave post 16 learning; to support curriculum and staff development in careers work to help schools meet their statutory requirements; to provide services which will encourage, enable or assist effective participation by young people in education or training and to carry out Section 140 Assessments. In addition to this Connexions operate a client caseload information system; liaise with DWP on Benefits and provide young people with information about sources of financial support including Education Maintenance Allowances and ‘Care to Learn’ Staffing is 164 individuals employed using Connexions grant funding, which equates to 145.7 FTE.

Education Health Partnerships grant consisted of £170,875 for 2007/08 (£170,875 08/09) and was used to enable local healthy schools programmes to complete their local healthy schools Headline Plans, to be signed off by Directors of Public Health and Children's Services. In line with National Targets it is anticipated that at least 75% of Schools engaged with the Programme will have achieved Healthy School status by December 2009. Approximately one third of the grant funds employees. The rest is used for supplies and services and is devolved to schools and paid to County Durham PCT.

Extended Rights to Free Transport grant comprised of £31,612 for 2007/08 (£259,455 08/09) and was used to meet the additional expenditure pressure on LA's resulting from extended rights to free travel arrangements for children aged 8 -10, from low income families, to have travel arrangements made where they live more than 2 miles from their nearest qualifying school. The grant funds two part-time staff.

Extended Schools Start Up Costs grant comprised of £653,530 07/08 (£905,339 08/09) and was used to support schools, by providing access to a core set of extended services, in raising standards of pupil motivation, aspiration, achievement and behaviour and contributing to a wide range of other Government targets including childcare, children's services, community cohesion, neighbourhood renewal, adult learning, combating child poverty, health inequalities and crime reduction. The funding should support schools to develop sustainable extended services and to overcome barriers that may prevent them from developing extended services. All of the funding is devolved to schools.

Positive Activities for Young People (PAYP) is a grant of £479,031 07/08 (£479,031 08/09) and is delivered by County Durham Youth Engagement Service (CDYES) as lead delivery agent (LDA) in partnership with: Connexions County Durham, DCC Education in the Community and Durham Constabulary. PAYP is a targeted youth crime prevention programme. It works with young people aged between 8 - 19 years who are most at risk of committing crime or anti social behaviour and those young people at risk of social exclusion. PAYP is a year - round programme , providing participating young people a range of diversionary /developmental activity during all school holiday periods, delivered across the county through the COSIP (coordination of social inclusion programmes) partnership structure and also forms part of the comprehensive Youth Crime Prevention Strategy.

PAYP is delivered across the County under 4 strands. 1. Key workers who work with an identified case load. 2. Activity budget. 3 Behaviour Improvement Plan (BIP) 4. U/Project targets year 11 school leavers at risk of being NEET. (refer to attached delivery plan for information) PAYP is monitored using the national PAYP MIS system which records young people detail and participation, activity type, number of hours of engagement and specific outcomes.

Primary Strategy Central Co-ordination of £302,498 07/08 (£295,219 08/09) is used for the central co-ordinator of the Primary School Strategy and the employment of Primary Consultants and the delivery of training courses with the objective of supporting the delivery of the Primary National Strategy and to raise educational attainment at Foundation stage

School Development Grant (LA element) of £944,766 07/08 (£944,766 08/09) is used to address the shortfall in provision on safeguarding and attainment; specialist and targeted services aimed at improved attainment through Joint Therapies, study support, school support staff training and specialist training and as an additional resource to increase capacity to address Child Protection issues.

School Improvement Partners grant comprised of £78,890 for 2007/08 (£284,950 08/09) and is used to assist in meeting the cost of deploying School Improvement Partners in secondary schools. The grant contributes to employee costs of staff undertaking SIP activities in secondary schools.

School Intervention Grant comprised of £193,100 07/08 (£193,100 08/09) was used to provide support to foster new and constructive support arrangements between strong and weak schools or other partners. The grant contributes to employee costs of advisory staff supporting schools. Approximately 37% is devolved to schools for non-staff expenditure.

School Travel Advisors for £80,000 07/08 (£80,000 08/09) is used to for the development of Travel Plans in all schools in the County. This is in line with Government's target of all schools having a Travel Plan by March 2010. The project entails School Travel Plan Advisors working with schools to assist them to produce a School Travel Plan and to develop initiatives and measures to promote sustainable travel. Also includes the development and promotion of events such as Walk to School Week and International Walk to School Month.

Secondary National Strategy - Behaviour & Attendance - £125,800 07/08 (£125,800 08/09) - This is aimed at improving behaviour and attendance strategies in secondary schools. The links to LAA priorities are seen as protecting young people from crime and anti social behaviour and improving attainment levels. (DfES Standards Fund Guidance December 2006 prescribes Local Authorities must continue to employ National Strategy and Behaviour and Attendance Consultants).

Secondary National Strategy - Central Co-ordinator - £273,945 07/08 (£276,048 08/09)- This was part of the Standards Fund Grant (112 and 113) that have a 50/50 matching requirement and the County Council will be effectively doubling the spend on the activity during 2007/08. They are aspects of national school improvement strategies driven by DfES and allow the Authority to target under performing schools and individual pupils to level up attainment in literacy and numeracy. The grant funds Subject Specialist Consultants who spend most of their time working in schools. The school implementation priorities in the CYPS plan are linked to this investment and for the purpose of LAA priorities the connection may be improving attainment levels and reducing the gaps between different groups; increasing levels of participation in learning opportunities and reducing the effects of poverty. (DfES Standards Fund Guidance December 2006 prescribes Local Authorities must continue to employ National Strategy and Behaviour and Attendance Consultants).

Sustainable Travel General Duty - £43,383 07/08 (£43,383 08/09). The purpose of the grant is to meet the additional expenditure pressure on LA’s that will result from the general duty in Section 76 of the Education and Inspections Act 2006 to assess the travel and transport needs of all pupils and promote sustainable means of travel to school. The intention is to remove the lack of affordable transport as a barrier to choice of school.

Teenage Pregnancy grant comprised of £362,000 for 2007/08 (£362,000 08/09) and was used to support the implementation of local teenage pregnancy strategies. The Tackling Teenage Pregnancy Board determines how the grant is spent and DCC makes the payments on behalf of the Board. DCC do not directly employ any staff funded from the grant, but other partners will.

2008/09 Area Based Grant - Environment funding stream

Aggregate Levy Sustainability Fund comprised of £100,000 07/08 (£107,000 08/09) used by the County Council to provide environmental improvement schemes to compensate local communities for the local effects of aggregate extraction. Schemes across the County in 2007 are provided in Dipton, Esh Winning, Leadgate, Wearhead, Shotton Colliery, Aycliffe Village and West Auckland.

Detrunking - £499,548 for 2007/08 (£512,037 08/09) and is used for Routine Highway Maintenance of the A167 and covers maintenance work on carriageways and footways such as patching, gully emptying, grass cutting, weed spraying, road marking, winter maintenance etc. as well as bridge maintenance, traffic signal maintenance and street lighting energy. The grant does not directly fund any staff. The A167 has, since detrunking, been included as part of this Authority's road network for performance measurement including such PIs as BV223 and BV187 on carriageway and footway condition respectively.

Road Safety Grant - £757,857 07/08 (£741,238 08/09) - The way in which funding is being used and the specific projects being delivered is as per the Road Safety Specific Grant - Programme. The primary outcome is to assist in delivering our Best Value and LTP targets in relation to casualty reduction, through the Casualty Reduction Strategy, Drive/ Rider Training and Child Pedestrian Training Scheme. However, some other targets are being supported such School Travel Planning, Mode Share and Cycle Training. A large proportion of the funding is being used to recruit/retain staff to both deliver training and to offer services directly to the public, including, Driver Training Coordinator, Pedestrian Training Coordinators, Pedestrian Trainers (part time), Cycle Trainers (part time), Speed Assistants. The allocations have been determined in accordance with each of the partners of ‘the Durham and Darlington Casualty Reduction Forum’ road safety needs (using the existing LTP road safety formula based upon the number of casualties over the 94-98 period), and a qualitative assessment of the road safety elements of the local authorities’ first round LTP Delivery Report and second round LTP submission. As this is now part of LTP then a performance element will be built into future year’s allocations.

Rural Bus Subsidy £1,012,980 for 2007/08 (£1,038,487 08/09) is used to support rural bus services and is used alongside core revenue funding to secure local bus service provision across the county. No staff are directly employed however, the funding does support employment both for bus drivers/staff and for people across the county accessing employment by public transport. The services help to deliver accessibility targets to ensure people have access to jobs, education, health and food shopping. It also helps towards meeting targets on bus patronage as part of the governments shared priority for public transport services.

Section F - Revenue MTFP and Budget

Introduction

This Section deals with the revised revenue budget for 2007/08 and the MTFP for 2008/09 - 2010/11, including detailed proposals for the budget and precept for 2008/09.

Revised revenue budget 2007/08

1 During the year the revenue budget is monitored and reports outlining spending against budget are regularly considered. Individual service estimates are revised as pressures and opportunities for savings are identified. Virement is exercised by Chief Officers in accordance with the constitution of the Council. Significant savings are however, reported to Cabinet.

2 Chief Officers have forecast the outturn position for their services and these estimates form the basis on which the revised budget has been prepared. The latest forecasts suggest that there is a projected under-spend of £5.57m against original budget. This is based on:

§ £3.5m additional investment income because of higher than anticipated cash balances due to the unspent provision for pay increases, Equal Pay, capital programme and general under-spendings, combined with higher than forecast interest rates. § £2.0m under spend in Adult and Community Services where access to free nursing care and increased contributions from healthcare partners have contributed to the under spend (£1.8m). Savings from staff vacancies and general office expenses (£0.6m) and unspent grant that will be carried forward into next year (£0.4m) have been offset by increased purchase of home care to keep people in their own homes and re-profiling of budget savings. § £0.8m under spend in Environment mainly relating to reduced energy costs, which is partially offset by additional spending on footpath improvements, which was agreed by Cabinet at Quarter 2. § Services are currently being charged £1.3m less than budgeted for insurance charges. However this sum is required to be transferred to the Insurance Reserve at the year-end and is not available for general use and has no impact on the County Council. § A shortfall of £1.1m in Children and Young People’s Service in relation DSG, which will reduce available general reserves but will be recovered from the 2008/09 DSG budget. § A shortfall of £0.57m in Corporate Services due to lower than anticipated fee income from capital projects. § £0.4m over spend within the Local Authority managed area in Children and Young People’s Service where transport costs and the cost of agency placements are the main factors.
3 It is unlikely that Equal Pay will be resolved during this financial year and will utilise all the resources set aside for it. It is assumed that contingencies of £1.9m will be spent by the year-end. If these items are not spent the under spend will increase by £17.4m. However, budget provision will need to be made in 2008/09.

4 Of the £5.57m under spend, £1.1m needs to be earmarked for Overview and Scrutiny proposals.

5 Service Direct plans to spend £0.75m from their own reserves to finance capital schemes.

6 Subsequent to the Quarter 3 budget monitoring report , Members have agreed additional expenditure to cover the following items:

§ Environment Projects £1.0m
§ Refurbishment of Care Homes £0.6m

Revised 2007/08 Revenue Budget Recommendations

7 That the following resolutions be recommended to the County Council:-

(a)	That the revised revenue budget for 2007/08, summarised above be approved;
(b)	That the County Treasurer be authorised to make any proper accounting transactions that would be in the interests of the County Council in relation to the accounts for 2007/08.

Basis of the Preparation of the MTFP 2008/09 - 2010/11

Base Budget

Introduction

1 The County Council is expecting Parliamentary Consent for the replacement of the current Council and the 7 District Councils with a new ‘Unitary Council’ from April 2009. It is also expected that in May 2008 elections will be held so that a transitional authority of 126 Members can be established. This new elected body will undertake the detailed financial planning for the new unitary authority for 2009/10 and 2010/11. The approach in this report is to project spending at a high level into 2009/10 and 2010/11 on the basis of on-going County Services. When the new Council begins to meet, after May this year, it will need to turn its attention to producing a more detailed Medium Term Plan bringing together the work of the 8 existing councils and taking into account the proposals set out by the County Council in its submission to Government to create one unitary council for County Durham.

2 The Base budget has been reviewed and uplifted for the following items:

	2008/9	2009/10	2010/11
	%	%	%
Price inflation	2.0	2.3	2.3
Salary and cost inflation	2.5	2.5	2.5
Pensions contributions increase	5.0	4.5	4.5

Resources

3 The details of the provisional local government settlement are outlined in Section C. The settlement is for a three-year period. On that basis we have forecast, as part of our MTFP, increases in grant of 4.8% for 2009/10 and 4.1%for 2010/11.

4 Specific Government Grants have been budgeted at a net nil impact on this budget assuming that all grants received in year will be spent in year. When the Budget Book is produced this impact will be shown gross to reveal the full impact on income and costs.

5 The Dedicated Schools Grant (DSG) is a specific grant and must be spent entirely on schools related expenditure. This report excludes the impact of this grant from the figures but in the final Budget Book it will be treated in the way described in paragraph 4.

6 Area Based Grants, with the exception of the ‘top slice’ referred to in Section E have been incorporated into general grant and appropriate expenditure included in services.

7 The Collection Fund (the excess Council Tax collected by the Districts over that which they had budgeted to collect) has a surplus of £1.917m in 2008/09 and is assumed to have a surplus of £1.0m thereafter.

8 Reserves levels have been reviewed in accordance with the Reserves Policy agreed by the County Council in February 2006. I need to give assurance that the estimates made in the MTFP are robust and that the Reserves are adequate.

9 Council Tax increases of 5% have been used in our Medium Term Planning arrangements. This report is based on a 2.9% increase levied in 2008/09 and that 5% continues to be the planning assumption for subsequent years. Members will need to review these assumptions noting that each 1% change in Council Tax is worth around £1.5m.

Investment

10 The investment proposals are detailed in Annex F1 and summarised below:

Service	2008/09	2009/10	2010/11
Adult & Community Services	4,700
Children & Young People’s Services	1,796
Environment	2,160
Chief Executives	0
Corporate Services	0
County Treasurers	0
Service Direct	0
TOTAL	8,656	6,624	11,500

11 The significant investments in 2008/09 are:

Adults and Community Services:

· Supporting People with Learning Disabilities

· Reduction in Grants

· Day Service Improvement

Children and Young Peoples Service

· Direct Payments

· Transport for Looked After Children

· University Allowances

· National Minimum Fostering Allowance

· Youth Service

· Community Centres

12 Major investments in 2008/09 and 2009/10 are likely to be in Adult and Community Services and in Environment Service (relating to Waste).

Savings

13 The savings proposals are detailed in Annex F2 and summarised below:

Service	2008/09	2009/10	2010/11
Adult & Community Services	6,609	370
Children & Young People’s Services	2,206	1,083
Environment	512	251
Chief Executives	128	33
Corporate Services	243	91
County Treasurers	445	175
Service Direct	0	0
Other	0	0
Total per Annex D2	6,143	2,003
Savings not yet identified
TOTAL	6,143

14 Savings are detailed in Annex F2

15 Detailed proposals for the majority of savings for 2009/10 and 2010/11 have yet to be identified. Services will be asked to review options and bring back proposals to Members following the May 2008 elections.

MTFP Summary

16 The above assumptions and information above lead us to a MTFP summary as outline below:

	Analysis of available resources £000s	2008/09	2009/10	2009/10	Calculation
A	Government grant increase	21,348	7,563	6,814
B	Area Based Grants	27,380	17,193	-375
C	Council Tax increase (2.9% 2008/09, 5% thereafter) including changes to council tax base	6,496	7,856	8,257
D	Changes in Reserves	2,064	-760	-1818
E	Surplus on Collection Fund	58	-917	0
F	Total increase in available resources	57,346	31,025	12,878	A+B+C+D+E
	Impact of spending and savings
G	Increases in base budget	-18,796	-14,963	-14,180
H	Grants into base budget	-37,149	-17,193	375
I	Net resources available	2,513	-214	-927	F+G+H
J	Possible savings	6,143	2,003	0
K	Total amount available for investment	8,656	1,789	-927	I+J
L	Investment options	-8,656	-6,624	-11,500
M	Surplus / Deficit (-)	0	-5,752	-12,427	K+L

Financial Reserves

17 The current strategy for the Council is based on the premise that for the period of the Medium Term Financial Plan general reserves will stay broadly within the reserves policy.

18 Reserves are held as:-

· A working balance to help cushion the impact of uneven cash flows and avoid unnecessary temporary borrowing - this forms part of general reserves.
· A contingency to cushion the impact of unexpected events or emergencies - this also forms part of general reserves.
· A means of building up funds, often referred to as earmarked reserves, to meet known or predicted liabilities.

19 However, it would be inefficient to build up excessive reserves. The current policy is that the County Council will:

· Set aside sufficient sums in earmarked reserves as it considers prudent to do so.
· Aim to maintain, broadly, general reserves of around 4.5% of the budget requirement or about £16m.

20 In accordance with the Council’s policy on reserves, with the exception of those held by schools over which the County Council has no control, each reserve has been reviewed.

Council Tax

22 If Members accept all the proposals for investment and for savings identified above and detailed in Annexes F1 and F2, respectively, a council tax increase of 2.9% is possible. However, Members may take a view that a different level of council tax increase is appropriate.

23 The final Local Government Finance Settlement is still awaited. It is possible Cabinet may need to make a recommendation to Council before the announcement of the final settlement. If the settlement is better than assumed then Members will have more flexibility in their final decisions. However, if the final settlement is worse than projected then further savings will need to be found, the level of council tax revisited or investment proposals scaled back.

Value for Money

24 It is important that the Council delivers value for money as it spends public funds. Across the Authority various mechanisms are used to test value for money and within each Service report in the Budget Book a section on value for money will be found.

Risk

25 The Council is paying increasing attention to the risk management process across the Authority.

26 In our budget setting process a number of specific risks have been identified which we believe can be managed using contingencies and reserves, but Members should be aware of these items when considering the budget and changes they may wish to make.

	Description
Equal Pay/ Job Evaluation	Costs may be higher than anticipated
Inflation	Only 2.0% provided in 2008/09 - costs may be greater.
Waste	Volumes may be higher than anticipated and the contract for Waste Disposal is under review.
Property	The Government’s Building Schools for the Future initiative may require further investment in both revenue and capital before precise costs and plans are determined. Further ‘waves’ are planned.
LGR	There may be additional costs over and above those which have been forecast. There may be staffing issues to address.

Council Tax Options

27 Taking into account all the revenue resources of the Council, the base spend and the increased spending and savings proposals in previous paragraphs it is possible to construct a budget which would allow a Council Tax increase of substantially below 5% as the Government expects.

28 Planning assumptions for 2009/10 and 2010/11 are currently based on 5%, but the new authority will be able to reflect again on these.

29 Members are asked to decide upon levels of investment in service pressures, savings and the Council Tax increase which will be recommended to the County Council and to authorise consequential amendments to the remainder of the report.

County Council Precept

30 The calculation of the precept takes the County Council's budget requirement, incorporating estimated levies from other bodies, and deducts from it contributions from Government in respect of Revenue Support Grant and redistributed non-domestic rates. Allowance also has to be made for the County Council's share of surpluses and deficits on District Councils' collection funds.

31 The following paragraphs contain the detailed calculations for the County Council’s precept and basic council tax based on a 2.9% increase. The figures will be varied, if necessary, in the Report presented to the County Council and incorporated into the Budget Book following your recommendations.

32 Assuming a budget requirement of £348,415,268 the calculation is shown in the following table:

	£	£
County Council's Budget Requirement		348,415,268
Less:
Formula Grant	161,966,000
Area Based Grants	27,380,479
Estimated overall net surplus on Collection Funds at 31st March 2007	1,917,127	191,263,606
Amount required from precept	157,151,662

Council Tax Base

33 The 'council tax bases' of the District Councils are used to calculate the proportion of the County Council's total precept to be levied on each District Council. The tax base is the estimated full year equivalent number of chargeable 'Band D' dwellings with two or more liable adults and in respect of which tax will be received. The 'council tax bases' as determined by each District and notified to the County Council are set out in the table below:

District Council	Council Tax Base	Precept £
Chester-le-Street	17,086.65	17,503,222.51
Derwentside	27,309.00	27,974,793.40
Durham City	26,374.59	27,017,602.48
Easington	26,997.10	27,655,289.28
Sedgefield	26,614.00	27,262,849.30
Teesdale	9,001.97	9,221,438.02
Wear Valley	20,028.18	20,516,467.01
Total	153,411.49	157,151,662.00

Calculation of Basic Council Tax
34 The Basic Council Tax for the County Council is calculated by dividing the precept by the aggregate of tax bases as shown below:

Precept
Aggregate Council Tax Base	=	Basic Council Tax (At Band D)
£157,151,662 153,411.49	=	£1,024.38

Precept Instalments

35 Following discussions with the Chief Financial Officers of each District Council, the following dates for the payment of the precept in ten equal instalments have been agreed:

2nd May 2008	8th October 2008
4th June 2008	10th November 2008
7th July 2008	15th December 2008
6th August 2008	14th January 2009
8th September 2008	12th February 2009

Summarised spending and investment proposals - Key to abbreviations

To help to assess the impact of each of the budget proposals, we have considered what effect they would have on the Council’s improvement and investment priorities and our service performance.

This is shown in the tables below where the following abbreviations are used:

Improvement Priority

VA	Protecting and supporting vulnerable adults
EC	Promoting economic wellbeing
QE	Quality of the Environment
EA	Improving educational attainment
IH	Improving health
VC	Protecting and supporting vulnerable children

Areas for Additional Investment

VCVulnerable children and young people

PLD	People with learning disabilities
OP	Older people to retain their independence
TI	Transport infrastructure and reducing the rate of decline in public transport
BSF	Building Schools for the Future

Impact

IImproves performance

M	Maintains current performance
U	Undermines performance

Major Capital - Asset Management Plan Proposals - top 3 schemes

Catchgate Children’s Home

AMP Priority 1 Score : Investment 54 Estimate £870,000
(exc site value)
Investment priority: Vulnerable children and young people

Funding is required to replace an existing children’s home at Catchgate with a new purpose-built facility elsewhere in the County. The current home has suffered from disruption and vandalism in part due to the existing location and poor relationship in the area. A brief of requirements for a replacement facility has been produced and costed. Purchase of a site, should this be necessary, would cost up to £250,000 more. There are major risks to the service and service delivery if this replacement/relocation does not proceed.

Revenue Implications: Yes

Travellers Sites

AMP Priority 2 Score : Improvement 65 Estimate £5.8m
Improvement priority: Protecting and supporting vulnerable children - focus on children and young people staying safe and reducing the incidence of children at risk

This bid is to fund a programme of complete upgrading of the 6 Gypsy and Traveller Sites owned by the Authority. £1.078m was also approved by members for this purpose for 2007/08. The investment is required to bring the sites up to modern standards (comparable with those set out in the CLG Consultation document “Draft Guidance on the design of sites for Gypsies and Travellers”, May 2007) and address existing health and safety problems. In the absence of this funding provision the Authority would need to expend in the region of £750,000 in basic repair across all the sites.

Revenue Implications: Yes

Killhope Museum

AMP Priority 3 Score : Improvement 36 Estimate £400,000
Improvement priority: Improving educational attainment/achievement - focus on achievement at Key Stage 4 (GCSE), attainment of children in care at KS4 and narrowing the gap between boys and girls

Funding is required to replace the existing visitor centre and will comprise a contribution to the total estimated project cost of £4.3m. The balance of funding will be sought from a variety of sources including Single Programme, Heritage Lottery, ERDF and Friends of Killhope.

Revenue Implications: Yes

Summary - Major Capital

Section H - Prudential Code

Background

1 The framework of the prudential capital finance system, which came into effect from 1 April 2004, is contained in the Local Government Act 2003. Under the Act, Government borrowing controls based on “credit approvals” were abolished with effect from 1 April 2004. The Council is now free to borrow and take out leases without Government consent, provided these commitments can be afforded. The Prudential Code is designed to guide the Council’s decision on what it can afford. The Local Authorities (Capital Finance and Accounting) (England) Regulations 2003 specifies the Prudential Code for Capital Finance in Local Authorities, issued by CIPFA, as the code of practice to which local authorities must have regard when setting and reviewing their affordable borrowing limit.

2 The key objectives of the Prudential Code are to ensure that within a clear framework the capital investment plans of the Council are affordable, prudent and sustainable. A further key objective is to ensure that treasury management decisions are taken in accordance with good professional practice and in a manner that supports prudence, affordability and sustainability.

3 To demonstrate that the above objectives have been fulfilled, the Prudential Code sets out the indicators that must be used, and the factors that must be taken into account. The Code does not include limits, these are for the Council to set.

4 Previously, credit approvals from Central Government set the limit of a local authority’s long-term borrowing and attracted Revenue Support Grant (RSG) towards the financing costs of loans (interest and repayment of principal). Under the new system, unless, exceptionally, a national limit is imposed, the Council is free to make its own borrowing decisions according to what it can afford. Central Government support for borrowing through RSG continues to be given on the basis of a named amount of capital expenditure which borrowing will support. The Council will take the totality of Central Government support into account in setting its prudential limits.

Prudential Indicators 5 The estimates of capital expenditure to be incurred for the current and future years contained in Section G of this report and are as follows:

Capital Expenditure

2007/08 Estimate £0002008/09 Estimate £0002009/10 Estimate £0002010/11 Estimate £000

98,931108,24066,31349,230

6 Estimates of the end of year Capital Financing Requirement for the Council for the current and future years and the actual Capital Financing Requirement at 31 March 2007 are:

Capital Financing Requirement

2007/08 Estimate £0002008/09 Estimate £0002009/10 Estimate £0002010/11 Estimate £000

235,662268,704275,197278,938

7 The Capital Financing Requirement measures the Council’s underlying need to borrow for a capital purpose. In accordance with best professional practice, the County Council does not associate borrowing with particular items or types of expenditure. The Council has an integrated treasury management strategy and has adopted the CIPFA Code of Practice for Treasury Management in the Public Services. The Council’s treasury management strategy and annual plan for 2008/09 is shown in Section I. The County Council has, at any point in time, a number of cash flows both positive and negative, and manages its treasury position in terms of its borrowings and investments in accordance with its approved treasury management strategy. In day-to-day cash management, no distinction can be made between revenue cash and capital cash. External borrowing arises as a consequence of all the financial transactions of the Council and not simply those arising from capital spending. In contrast, the Capital Financing Requirement reflects the Council’s underlying need to borrow for a capital purpose.

8 CIPFA’s Prudential Code for Capital Finance includes the following as a key indicator of prudence:

9 There are no difficulties envisaged for the current or future years in meeting this requirement. This view takes into account current commitments, existing plans, and the proposals contained in this budget report.

10 Estimates of the ratio of financing costs to net revenue stream for the current and future years, and the actual figures for 2006/07 are:

Ratio of Financing Costs to Net Revenue Stream

2006/07 Actual 07/08 Estimate 08/09 Estimate 09/10 Estimate 10/11 Estimate %

4.234.284.565.365.69

External Debt

11 In respect of external debt, the Council has set the following Authorised Limits for its total external debt gross of investments for the next three financial years. These limits separately identify borrowing from other long-term liabilities such as finance leases.

Authorised Limit for External Debt

2008/09 Estimate £0002009/10 Estimate £0002010/11 Estimate £000

Borrowing237,000270,000287,000

Long-term liabilities---

Total237,000270,0002870,000

12 The Authorised Limits are consistent with the Council’s current commitments, existing plans and the proposals in this budget report for capital expenditure and financing, and with its approved treasury management policy statement and practices. They are based on the estimate of most likely, prudent but not worst-case scenario, with the addition of sufficient headroom over and above this to allow for operational management. An assessment of risk has been taken into account, as have plans for capital expenditure, estimates of the Capital Financing Requirement and estimates of cash flow requirements.

13 The Operational Boundary for external debt is based on the same estimates as the Authorised Limit but reflects directly the County Treasurer’s estimate of the most likely, prudent but not worst-case scenario, without the additional headroom included within the Authorised Limit. The Operational Boundary represents a key management tool for in year monitoring by the County Treasurer. Within the Operational Boundary, figures for borrowing and other long-term liabilities are separately identified.

Operational Boundary for External Debt

2008/09 Estimate £0002009/10 Estimate £0002010/11 Estimate £000

Borrowing228,000264,000282,000

Long-term liabilities---

Total228,000264,000282,000

14 The Council’s actual external debt at 31 March 2007 was £177m, comprising £177m borrowing and no other long-term liabilities. It should be noted that actual external borrowing differs from the Authorised Limit and Operational Boundary, since actual external debt reflects the position at one point in time.

Council Tax

15 The Prudential Indicators have been calculated using a 2.9% Council Tax increase in 2008/09 and assuming a 5% increase during years 2009/10 and 2010/11.

16 £7.4m of the capital programme in 2008/09 may be financed by short-term unsupported borrowing, to be repaid in 2009/10 by capital receipts. The incremental impact on the Council Tax (Band D) of this borrowing is £4.05 in 2009/10.

Summary

17 The County Council has set the following limits for external debt in 2008/09:

(i)	Authorised Limit of £237m
(ii)	Operational Boundary of £228m

Section I -Treasury Management 2008/09

1 The CIPFA Code of Practice for Treasury Management in the Public Services makes the following key recommendations:

2 The County Council has formally adopted the key recommendations of the CIPFA Code of Practice for Treasury Management in the Public Services and has created and maintains, as the cornerstone for effective treasury management:

§ a treasury management policy statement stating the policies and objectives of its treasury management activities. This is attached as Annex I1. § suitable treasury management practices (TMPs), setting out the manner in which the County Council will seek to achieve those policies and objectives, and prescribing how it will manage and control those activities. These are attached as Annex I2.

3 Reports will be presented to members of the Council on its treasury management policies, practices and activities, including an annual strategy and plan in advance of the year, and an annual report after its close, in the form prescribed in the TMPs. The annual strategy for 2008/09 is shown in Annex I3 and performance for 2007/08 is shown in Annex I4. The County Council delegates responsibility for the implementation and monitoring of its treasury management policies and practices to the Cabinet and for the execution and administration of treasury management decisions to the County Treasurer, who will act in accordance with the Policy Statement, Treasury Management Practices and CIPFA’s Standard of Professional Practice on Treasury Management.

Treasury Management Indicators

4 The County Council has set an upper limit on its fixed interest rate exposures for 2008/09, 2009/10 and 2010/11 of 100% of its net outstanding principal sum.

5 The County Council has further set an upper limit on its variable interest rate exposures for 2008/09, 2009/10 and 2010/11 of 50% of its net outstanding principal sums.

6 The County Council’s upper and lower limits for the maturity structure of its borrowings are as follows:

Amount of projected borrowing that is fixed rate maturing in each period as a percentage of total borrowing that is fixed rate

Upper Limit %Lower Limit %

Under 12 months 200

12 months and within 24 months 200

24 month and within 5 years 300

5 years and within 10 years 500

10 years and above1000

7 The Council does not intend to invest sums for periods longer than 364 days. This is seen as prudent interest rate risk management.

Annex I1: Treasury Management Policy Statement

1 Durham County Council defines its treasury management activities as:

“The management of the organisation’s cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks”.

2 Durham County Council regards the successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured. Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications for the organisation.

3 Durham County Council acknowledges that effective treasury management will provide support towards the achievement of its business and service objectives. It is therefore committed to the principles of achieving best value in treasury management, and to employing suitable performance measurement techniques, within the context of effective risk management.

Annex I2:Treasury Management Practices

1 TMP1 - TREASURY RISK MANAGEMENT 1.1 The County Treasurer shall: · Design, implement and monitor all arrangements for the identification, management and control of the treasury management risks shown below · Report at least annually on the adequacy/ suitability thereof, and · Report, as a matter of urgency, the circumstances of any actual or likely difficulty in achieving the Council's objectives in this respect, all in accordance with the procedures set out in TMP6 Reporting requirements and management information arrangements 1.2 Liquidity The County Council will ensure it has adequate but not excessive cash resources, borrowing arrangements, overdraft or standby facilities to enable the Council at all times to have the level of funds available which are necessary for the achievement of its service objectives. 1.3 Interest Rates The County Council will manage its exposure to fluctuations in interest rates with a view to containment of its net interest costs, or securing its interest revenues, in accordance with the amounts provided in the Revenue Estimates in accordance with TMP6 Reporting requirement and management information arrangements. 1.4 Credit and Counterparties The County Council regards a prime objective of its treasury management activities to be the security of the principal sums invested. A formal counterparty list will be maintained and the named organisations and limits will reflect a prudent attitude towards organisations with which funds may be deposited, and will limit the Council's investment activities to the instruments, methods and techniques referred to in TMP4 Approved Instruments, methods and techniques. 1.5 Rescheduling & Refinancing of Debt The County Council will ensure that all borrowing, private financing and partnership arrangements will be negotiated, structured and documented, and the maturity profile of debt will be managed with a view to obtaining terms for renewal or refinancing, if required, which are competitive and as favourable to the organisation as can reasonably be achieved in the light of market conditions prevailing at the time. Relationships with counterparties in these transactions will be managed in such a manner as to secure this objective, and will avoid over-reliance on any one source of funding if this might jeopardise achievement of the above. 1.6 Legal and Regulatory The County Council will ensure that all of its treasury management activities comply with its statutory powers and regulatory requirements. The Council will demonstrate such compliance, if required to do so, to all parties with whom it deals in such activities. In framing its credit and counterparty policy under TMP1.4 Credit and Counterparties, the Council will ensure that there is evidence of counterparties' powers, authority and compliance in respect of the transactions they may effect with the organisation, particularly with regard to duty of care and fees charged. The Council will seek to minimise the impact of future legislative or regulatory changes on its treasury management activities so far as it is reasonably able to do so. 1.7 Fraud, Error and Corruption, and Contingency Management The County Council will seek to ensure that it has identified the circumstances which may expose the Council to the risk of loss through fraud, corruption or other eventualities in its treasury management dealings. Accordingly, it will design and implement suitable systems and procedures, and will maintain effective contingency management arrangements to counter such risks. 1.8 Market Risk The County Council will seek to ensure that its stated treasury management policies and objectives will not be compromised by adverse market fluctuations in the value of the principal sums invested. 2 TMP2 - BEST VALUE AND PERFORMANCE MEASUREMENT 2.1 The County Council will actively work to promote best value in its treasury management activities. The treasury management function will be the subject of regular reviews to identify scope for improvement. 3 TMP3 - DECISION-MAKING AND ANALYSIS 3.1 The County Council will maintain full records of its treasury management decisions, and of the processes and practices applied in reaching those decisions to demonstrate that reasonable steps have been taken to ensure that all issues relevant to those decisions were taken into account. 4 TMP4 - APPROVED INSTRUMENTS, METHODS AND TECHNIQUES 4.1 The County Council will undertake its treasury management activities by employing only those instruments, methods and techniques detailed in the Treasury Management Strategy that is shown in Annex J3. 5 TMP5 - ORGANISATION, CLARITY AND SEGREGATION OF RESPONSIBILITIES, AND DEALING ARRANGEMENTS 5.1 The County Council’s treasury management activities will be properly structured in a clear and open fashion and a rigorous discipline of segregation of duties will be enforced to ensure effective control and monitoring of its treasury management activities, for the reduction of the risk of fraud or error, and for the pursuit of optimum performance. 5.2 The principle on which this will be based is a clear distinction between those charged with setting treasury management policies and those charged with implementing and controlling these policies, particularly with regard to the execution and transmission of funds, the recording and administering of treasury management decisions, and the audit and review of the treasury management function. 5.3 If and when the County Council intends, as a result of lack of resources or other circumstances, to depart from these principles, the County Treasurer will ensure that the reasons are properly reported in accordance with TMP6 Reporting requirements and management information arrangements, and the implications properly considered and evaluated. 5.4 The County Treasurer will ensure that there are clear written statements of the responsibilities for each post engaged in treasury management, and the arrangements for absence cover. 5.5 The County Treasurer will ensure there is proper documentation for all deals and transactions, and that procedures exist for the effective transmission of funds. 5.6 The County Treasurer will fulfil all delegated responsibilities in respect of treasury management in accordance with Durham County Council's Treasury Management Policy Statement, Treasury Management Practices and the CIPFA Standard of Professional Practice on Treasury Management. 6 TMP6 - REPORTING REQUIREMENTS AND MANAGEMENT INFORMATION ARRANGEMENTS 6.1 Regular reports will be prepared for consideration by Cabinet on: · the implementation of its treasury management policies · the effects of decisions taken and the transactions executed in pursuit of those policies · the implications of changes resulting from regulatory, economic, market or other factors affecting its treasury management activities; and the performance of the treasury management function 6.2 As a minimum, Cabinet will receive: · an Annual Report on the strategy and plan to be pursued in the forthcoming year · an Annual Report on the performance of the treasury management function in the previous year and on any circumstances of non-compliance with the organisation's Treasury Management Policy Statement and Treasury Management Practices 7 TMP7 - BUDGETING, ACCOUNTING AND AUDIT ARRANGEMENTS 7.1 The Council will account for its treasury management activities in accordance with appropriate accounting practices and standards, and with statutory and regulatory requirements. 7.2 The Council will ensure that its auditors, and those charged with regulatory review, have access to all information and papers supporting the activities of the treasury management function as are necessary for the proper fulfilment of their roles, and that such information and papers demonstrate compliance with external and internal policies and approved practices. 8 TMP8 - CASH AND CASH FLOW MANAGEMENT 8.1 All County Council monies shall be aggregated for treasury management purposes and will be under the control of the County Treasurer. Cash flow projections will be prepared on a regular and timely basis, and the County Treasurer will ensure that these are adequate for the purposes of monitoring compliance with TMP1.2 Liquidity. 9 TMP 9 - MONEY LAUNDERING 9.1 Procedures will be enforced for verifying and recording the identity of counterparties and reporting suspicions and will ensure that staff involved in this area are properly trained. 10 TMP 10 - STAFF TRAINING AND QUALIFICATIONS 10.1 The Council will seek to appoint individuals to the treasury management function who are both capable and experienced and will provide training for staff to enable them to acquire and maintain an appropriate level of expertise, knowledge and skills. The County Treasurer will recommend and implement the necessary arrangements. 11 TMP 11 - USE OF EXTERNAL SERVICE PROVIDERS 11.1 When external service providers are employed by the County Council, the County Treasurer will ensure that this is done for reasons which have been submitted to a full evaluation of the costs and benefits. The terms of their appointment and the methods by which service providers' value will be assessed will be properly agreed and documented, and subjected to regular review. 11.2 Where feasible and necessary, a spread of service providers will be used to avoid over-reliance on one or a small number of companies. Where services are subject to formal tender or re-tender arrangements, Council Standing Orders and Financial Regulations plus legislative requirements will always be observed. The monitoring of such arrangements rests with the County Treasurer. 12 TMP 12 - CORPORATE GOVERNANCE 12.1 Durham County Council is committed to the pursuit of proper corporate governance throughout its businesses and services, and to establishing the principles and practices by which this can be achieved. Accordingly, the treasury management function and its activities will be undertaken with openness and transparency, honesty, integrity and accountability. 12.2 The Council has adopted and implemented the key recommendations of the Code of Practice on Treasury Management in the Public Services. This, together with other arrangements that the County Treasurer will put in place, is considered vital to the achievement of proper corporate governance in treasury management, and the County Treasurer will monitor and, if and when necessary, report upon the effectiveness of these arrangements. Annex I3: Treasury Management Strategy 2008/09

The CIPFA Code of Practice for Treasury Management in the Public Services recommends that the County Council draw up an annual Treasury Management Strategy before the start of each financial year, which it may vary at any time.

In implementing this strategy, the County Council will give priority to security and liquidity, rather than yield. However the County Council will aim to achieve the highest rate of interest consistent with the proper levels of security and liquidity. In order to achieve this, the strategy deals with the use of specified investments, non-specified investments and the liquidity of investments.

The strategy also covers the County Council’s approach to borrowing and the use of external managers.

The main areas of the strategy are as follows:

1 Specified Investments

Specified Investments are defined as those satisfying the following conditions:

a) Denominated in sterling
b) To be repaid or redeemed within 12 months of the date on which the investment was made
c) Do not involve the acquisition of share capital or loan capital in any body corporate
d) Are made with the UK Government, local authorities, parish councils, community councils, or with a body or in an investment scheme which has been awarded a high credit rating by a credit agency

The County Council will invest surplus money in specified investments, by means only of short-term deposits with the institutions set out below for the amounts, on the terms and conditions and for the periods which the County Treasurer considers most suitable for the County Council. In making investment and repayment arrangements the County Treasurer shall take all responsible action to ensure the security of the sum invested and interest due. In doing so, the County Treasurer will have regard to guidance issued by CIPFA and the Department for Communities and Local Government (CLG).

(i) UK Government;
(ii) UK Local Authorities;
(iii) UK clearing banks and other banks or licensed deposit takers which are 100% owned by a clearing bank;
(iv) Major building societies (provided that the County Treasurer is satisfied as to financial standing);
(v) Former major building societies acquiring or having acquired ‘bank’ or ‘public limited company’ status;
(vi) Non-UK banks incorporated in the UK or European Economic Area (EEA) entitled to accept deposits through a branch in the UK, as regulated by the Financial Services Authority (FSA) (provided that the County Treasurer is satisfied as to financial standing);
(vii) Money Market Funds.

2 Non-specified Investments

Non-specified investments are those not meeting the definition in Section 1 above. It is proposed that during 2008/09 the County Council will not invest in non-specified investments, including those to be repaid or redeemed more than 12 months from the date on which the investment was made.

3 Liquidity of Investments

In normal circumstances:

a) The maximum period for which funds may prudently be committed is 364 days.
b) The minimum amount to be held during the financial year in investments other than long-term investments is to be 100% of the County Council’s overall investments.

4 Short-Term Borrowing

Money may be borrowed to meet the short-term requirements of the County Council for the amounts, from the sources, on the terms and conditions and for the periods which are considered the most suitable for the County Council.

5 Medium and Long-Term Borrowing (Capital Financing)

Money may be borrowed from the Public Works Loan Board or from other appropriate sources using any appropriate loan instruments permitted by statute, to meet the County Council’s requirements, for the amounts, on the terms and for the periods which are considered the most suitable for the County Council.

6 External Managers (other than those relating to the Pension Fund)

The County Council may, upon the recommendations of the County Treasurer, appoint one or more external managers to manage the short-term investment of surplus County Council money. Any such managers appointed are to be bound by this Treasury Management Policy Statement.

Section J - THE DEDICATED SCHOOLS GRANT (DSG) - PROVISIONAL BUDGET PLAN 2008/2009 TO 2010/2011

DCC Schools Forum has a role to play in determining the annual distribution of DSG. They are for the first time obliged to produce a three-year plan in line with DCSF aims for stability in schools’ budgets.

This section shows the proposed distribution of the DSG for the three-year period 2008/09 to 2010/11 as considered by the Schools Forum in December 2007, these are shown in detail at Annex J1

The final value of DSG is linked to pupil numbers and they will not be finalised until mid-February. The value of teachers’ pay award is slightly higher than provided for in the December 2007 plan, therefore there will need to be some re-distribution of resource. The Schools Forum will consider final budget distribution options on 26th February 2008.

Members are recommended to approve the outline budget plan shown in Annex J2 and note the priorities for distribution of DSG.
PAPERS CONSIDERED BY DCC SCHOOLS FORUM - 17 December 2007
1 Each year since the DSG was created; the Schools Forum has considered a range of options for budget growth and savings. The current planning process is the first time that an outline budget covering a 3 year period (2008/2009 to 2010/2011) has been necessary. 2 The spreadsheet attached sets out the level of increase to DSG that can be expected. It is evident that this is much lower than in previous years and DCSF has made it clear there is a 1% ‘efficiency’ expectation in the settlement for schools. This assumes better procurement decisions and use of resources. (At the time of preparing this paper, no response had been received by DCSF to the Forum letter about the value of DSG announced for Durham. The cash increase from 2007/2008 to 2008/2009 looks to be down to £6.09m (2.27%). DCSF announced 3%. Only 7 out of 150 Local Authorities have a lower DSG increase. The average increase is over 4%. Those Local Authorities that have traditionally spent less on education are receiving an uplift.)

3 Forum members will see from the level of savings associated with falling pupil rolls each year, that this is having a significant impact on the funds being made available to County Durham.

4 In determining the best distribution of funds, 2009/2010 looks like being the most difficult, but there are some “one off” costs in 2008/2009 that improve the position.

5 When setting out budget plans, it is of note that a DCSF priority is personalisation. Durham’s recent DSG allocation from DCSF suggests that £3m should be targeted in this way for 2008/2009, £1.89m in 2009/2010 and £3.46m in 2010/2011. It is hard to see how this would be possible when there are so many other funding pressures.

6 The other area of particular DCSF interest is the distribution of funds to those schools with the highest levels of deprivation. Plans will be analysed to see if there is extra funding earmarked and what impact this is expected to have on performance and “narrowing the gap” between pupils.

7 The Schools Forum has been informed previously that the way the Central Expenditure Limit (CEL) (i.e. the amount of DSG managed by the LA rather than schools) is to be calculated, has been refined for 2008/2009. It is to be based on the principle that % increases in LA budgets should not be higher than school budgets each year. Initial calculations suggest that the Local Authority is likely to be about £400,000 above the limit, as a direct result of 2 issues shown on the attached spreadsheet:-

8 The SEN cost is a one year budget issue to correct the budget, as the income from other LA’s goes direct to those mainstream schools who are employing extra SEN support staff. The BSF cost will be delegated to schools, in due course, as per the budget plan agreed by the Schools Forum earlier in the year, and as such is therefore not “real” Local Authority spend. (It will be held in school contingencies until required.)

9 In such circumstances the Schools Forum will be asked to agree to the CEL being exceeded, for the first time in Durham, for 2008/2009, however it is expected that the CEL will be less of an issue in 2009/2010 and 2010/2011. This is not an uncommon situation, as 20 County Authorities exceeded the CEL in 2007/2008.

10 A separate spreadsheet is attached setting out the expectations from the BSF Funding Plan agreed by the Schools Forum on the 21 May 2007. There is a balance of funds available for the next 3 years. Since the Schools Forum has previously supported the utilisation of closure/amalgamation savings to improve school buildings, it is suggested that these funds be used to fund the ongoing programme of ventilation projects for school kitchens.

11 Members of the DCC Schools Forum are requested to comment on the budget plans outlined on the attached spreadsheet and to note the background issues referred to in this covering note, particularly the CEL for 2008/2009.
To view any tables contained in this report, please refer to PDF attachment or hard copies held in Corporate Services or the Record Office.

Budget 2008/09 incorporating the Medium Term Financial Plan 2008/09 - 2010/11 Key Decision No. Corp/TR/04/07 Key Decision No. Corp/TR/05/07

Report of Stuart Crowe, County Treasurer [Cabinet Portfolio Member for Resources , Councillor John Lethbridge ]

Section G - Capital Budget 2008/09 to 2010/11

Current position

1 The Capital Budget is based on the capital budget in the 2007/08 Budget Book, updated for:

· latest grant and Supported Capital Expenditure-Revenue (SCE-R) allocations (e.g. Modernisation, Local Transport Plan - LTP).
· schemes approved in year (e.g. additional funding for Enterprise Resource Planning (ERP) systems, Corporate Contact Centre)
· revisions such as slippage from 2006/07
· rephasing to/from 2008/09 (where the budget has been revised in 2007/08)
2 A summary of the current capital programme showing that there is a temporary funding shortfall in 2008/09 of £7.4m is attached at Annex G1. Approval for £15m unsupported borrowing has been granted by the Council but £22.4m has been used in 2008/09. This has been balanced by unsupported borrowing for 1 year. In subsequent years this position is recovered by capital receipts in the following year. This is a timing issue due to the following:

· There is now no unsupported borrowing budgeted for Durham Johnston replacement, and the sale of current Durham Johnston site has been revised from 2008/09 to 2009/10.
· The proceeds of the sale of a site at Newton Aycliffe are to be spread over 2008/09 (£3.2m) and 2010/11 (£2.2m) rather than in one year. 3 Member approval is sought for this short-term unsupported borrowing to balance the budget. Resources Available for New Schemes

4 Based on expected capital receipts, existing borrowing approval and capital grants, there is a limited amount of resources available over the 3-year budget period.

5 There is unallocated LPSA grant of £3.5m available in 2008/09 for addition to the capital programme’s resources. Any further new schemes will therefore require increased unsupported borrowing.

6 The County Council’s Asset Management Planning Group considers service submissions for capital proposals. Attached, as Annex G2 is the top three schemes identified through this process.

7 The Council is facing significant change in 2009 and inevitably capital schemes take time to develop. In 2009 the new Council will have the combined reserves of all the 8 authorities involved in the re-organisation. During 2008/09 plans will need to be made to determine the needs of the new Council and how best to make use of the combined assets.

8 Given the changing democratic landscape in Durham, it is recommended that £3.5m be allocated in the budget process to the capital programme but that detailed decisions are taken in the coming months.

Transport capital funding

9 The local transport capital settlement for the remaining three years of the LTP2 plan period (to March 2011) has been received from Government Office - North East (GONE). In the past, “indicative only” allocations for future years had been announced whereas with this year’s announcement, the Department for Transport (DfT) have released definite figures for future years, thereby lending more certainty to the planning process for transport improvement in the county.

10 The capital settlement is awarded in two blocks - one for integrated transport improvements and one to meet the maintenance costs of the highway network. The amounts that the County Council is to receive for each of the next 3 years are shown in the following table:

Block	2008/09 £m	2009/10 £m	2010/11 £m
Integrated transport	5.317	5.365	5.396
Highways maintenance	9.246	9.942	10.762

11 The integrated transport block is allocated as two-thirds SCE-R and one-third grant. Highways maintenance is allocated as SCE-R.

12 Details of the proposed apportionment of the amount allocated for 2008/09 are set out at Annex G3. Indicative apportionments for the remaining 2 years will be set out in the full capital Summary in the budget book.

13 Although the funding is not specifically ring-fenced for Transport Capital purposes the County Council has in previous years earmarked the whole of the allocation for this purpose and Members are recommended to again endorse this decision.

14 In addition to the LTP Capital Settlement, funding has also been made available by the DfT as Specific Road Safety Grant. Furthermore, Direct Capital Grant is provided for 2008/09 only in the sum of £1,652,000 for capitalised maintenance on the former Trunk Road A167. These grants are set out in the following table:

Funding	2008/09 £	2009/10 £	2010/11 £
Specific Road Safety Grant (Capital)	164,922	153,783	151,385
Direct Capital Grant - Capitalised maintenance of A167	1,652,000	-	-

15 It is recommended that Members:
a)
OVERVIEW AND SCRUTINY RESPONSE TO:-

“Your Council, Your Say” -
Budget Consultation for 2008/09

Additional Information:

At the special OSC meeting this week (Monday 28 January), convened to look at the Budget 2008/09 incorporating the MTFP 08/09 - 10/11, OS members asked that Cabinet also consider the following issues as part of the OS response to the Budget:

§ Youth Services (500K),
§ Environment (500K),
§ Community Centres (350K),
 budget.pdf