Financial efficiency plan

Cheltenham Borough Council is applying for a four-year funding settlement (2016/17 to 2019/20) from the Department for Communities and Local Government. The application requires the council to have published an efficiency plan. These pages satisfy that requirement. Cabinet agreed to the principle of the four year settlement on 11 October 2016.

Council corporate strategy

The council’s vision statement sets out its aspirational goals for the long-term future of Cheltenham:

“Our vision is of a Cheltenham that delivers the very best quality of life for its people. We believe that the key elements in achieving this vision are to protect and enhance the built heritage and green spaces that have shaped the unique character of the town; to create the conditions in which businesses can thrive, innovate and provide good quality jobs; to make the town a world-class cultural and learning centre which is outward-looking and welcoming to visitors; to build strong, safe and healthy communities for residents and their families; and to accept our responsibility to present and future generations to live within environmentally sustainable limits.”

Our corporate strategy for 2016-17 was agreed by full council on 4 April 2016.

The corporate strategy focuses our efforts on three high level outcomes covering the issues that matter most to our residents, businesses and visitors. We also have an internal “transformation” outcome covering commissioning, asset management, business improvement and financial management. The outcomes are:

  • Cheltenham's environmental quality and heritage is protected, maintained and enhanced
  • Sustain and grow Cheltenham’s economic and cultural vitality
  • People live in strong, safe and healthy communities
  • Our council can continue to facilitate the delivery of our outcomes for both Cheltenham and its residents.

Medium Term Financial Strategy

The council’s approved Medium Term Financial Strategy is available online.

The key points of the strategy are set out below:

  • Over the period 2016/17 to 2019/20, annual central government funding (Settlement Funding Assessment) will reduce by £2.263m (48%);
  • A review of the New Homes Bonus scheme is being carried out by central government.It is estimated that changes to the scheme will reduce funding by between £0.5m - £1.0m per annum by 2018/19;
  • Retained business rates income is expected to exceed the baseline funding level over the four year period;
  • The council is part of the Gloucestershire Business Rates Pool which will enable the council to minimise the levy payable to central government arising from business rates surpluses.However, due to the level of risk associated with the pool, an element of the additional income will be treated as a “windfall gain”;
  • A council tax freeze was implemented for the period 2010 through to 2015. The assumed future council tax increases are predicated on meeting the referendum limit - £5 per annum or up to 2%, whichever is higher;
  • The council is increasing its budget strategy support earmarked reserve through realignment of other earmarked reserves to provide funding for future years through to 2019/20 when there is a risk of the council needing to utilise reserves to achieve a balanced budget;
  • In order to maintain a sustainable long term financial position, the council will need to deliver savings of c.£3.189m during the period 2017/18 to 2019/20.

How the authority is addressing its financial position

During the period 2009/10 to 2016/17, the council’s core funding from central government has fallen by £5.7m per annum although it recognises that some of these reductions have been partly offset through New Homes Bonus. In addition to this the council has faced significant reductions in the level of investment income on cash balances as a result of low interest rate levels and increasing costs of the local government pension scheme, contributions rising annually have increased annual pension fund contributions by c. £1.8m per annum over the last 6 years.

The council has responded to these financial challenges by undertaking transformation change programmes which have delivered annual savings of c. £6.6m.

The council has been rewarded financially for the development of new homes in the district through the new homes bonus scheme and for growth in businesses in the district through the business rates retention scheme.  In order to maximise the financial benefit of retained business rates, the council has been part of the Gloucestershire Business Rates pool since 2013/14.

How the council is balancing its budget

Significant savings have been delivered through key transformational projects such as:

Project

Annual savings

Investing cash balances and the use of prudential borrowing in commercial property and other asset management initiatives

£792,000

Establishing an environmental services company together with Cotswold District Council (since its creation in April 2012, the company now has 7 shareholders)

£493,000

Creation of a wholly independent charitable leisure and cultural trust to provide leisure and cultural services

£835,000

Shared services for finance, internal audit, counter fraud, HR, ICT, legal and building control services as well as establishing the “2020” partnership shared services

£855,000

Internal transformation of services

£2,919,000

In addition to the transformational change projects, the council has also improved its use of technology across service areas to improve efficiency. Investment in ICT will facilitate “hot-desking” to free up office accommodation which will allow the council to move into its new offices (currently sub-let to the private sector) thus releasing a key development opportunity (the Municipal Offices) for economic regeneration in the Town Centre. Regular reviews of budgets are carried out to ensure that under-spends in service areas are taken as savings (or income targets are rebased to match demand for services), whilst ensuring there is no impact upon front-line services.

The council has risk assessed the level held in the general fund working balance which currently stands at £1.359m. The council also holds earmarked reserves totalling £7.479m. The earmarked reserves are held for specific purposes which include funding one-off costs to facilitate the next phase of transformational change – “The 2020 Partnership” and a budget strategy support reserve which was established to provide greater resilience and time for the council to embed its savings strategy and allow for slippage in savings delivery.

Transformation projects, savings and efficiencies

The council plans to save c.£4.9m over the period from 2016/17 to 2019/20 and are detailed within the approved Medium Term Financial Strategy. The council has deleted its chief executive post and already shares two of its statutory posts (chief financial officer and monitoring officer) with neighbouring councils. The council is working with Cotswold District Council, Forest of Dean District Council and West Oxfordshire District Council in a collaboration programme known as the “2020 Partnership”. View the business case for the programme.

An extract of the savings for Cheltenham Borough Council are shown below. A significant proportion of the shared service savings have already been made in 2016/17.

 

CBC
£000

Joint committee

 

Shared services

200

Other efficiency savings

299

Total joint committee savings

499

 

 

Company

 

Commercial approach

91

Company overhead

(25)

Total company savings

66

Total savings

565

For Cheltenham Borough Council, the programme will see the creation of a shared services local authority owned company established to deliver services on behalf of the councils. The aim is for local authority employees to be employed under the company model using a new, modern, fit for purpose set of terms and conditions. 

The programme plan is for the company to be incorporated by April 2017 and operational around autumn 2017. New employees will be offered a stakeholder pension scheme rather than the local government pension scheme, which over time is expected to deliver savings to the council. Alongside this approach, the council’s strategy for reducing the pension deficit is anticipated to be achieved by 2019/20. In addition a more commercial approach to service delivery is expected to deliver savings which has already been evidenced through the creation of our environmental services company, ‘Ubico’.

The overall programme is estimated to cost £10.1m to implement and has been partially funded by Transformation Challenge Award Grant of £3.8m.

Risk and uncertainties

The key financial risks to the council and the mitigating measures are set out below

  • New Homes Bonus - uncertainty over proposed changes to the scheme. The council expects to receive an allocation of £2.35m in 2017/18. The MTFS assumes that changes to the scheme will be implemented in 2018/19 and the budget has been reduced to £1.75m – a reduction of £0.6m.
  • Retained business rates – a revised rating list will come into effect from April 2017. While it is expected that the financial implications will be neutral to the council, businesses will appeal against their new valuations and 40% of the appeal costs will fall upon the council. The council will face in-year costs as a result of refunding successful appeals and reduced business rate income in future years as the business rate base is permanently reduced following successful appeals;
  • Retained business rates – appeals from the 2005 and 2010 lists still remain undetermined. The council has made provision for its estimate of successful appeals in the system. The actual costs could be higher than the provision and this will impact upon the value of retained business rates in future years.
  • The movement to 100% business rate retention, the reset of the business rates baseline and the outcome of the “Fair Funding Review” pose a significant risk to the longer term financial stability of the council. The council will respond to government consultation as it is published.
  • The council is part of the Gloucestershire Business Rates pool which offers both reward and risk. Each of the pool partner councils has made provision for appeal losses. Financial modelling indicates that the pool will provide a financial benefit. However, there are risks of unforeseen business rate appeals which would be borne by the councils due to the increased level of the safety net associated with the pool. The pool can be collapsed on an annual basis in the autumn of each financial year. Viability of the pool is reviewed each financial year.

Conclusion

Cheltenham Borough Council has an excellent track record of delivering efficiency savings through joint working with partner councils, delivering services through third parties such as Ubico Ltd (a local authority owned environmental services company) and The Cheltenham Trust (leisure and cultural services).  The council has been instrumental in the establishment of shared back-office services such as finance, HR, legal and ICT services across neighbouring authorities.

However, the medium-term financial stability of the council is uncertain due to the changes to the funding mechanisms for local government. The council is reacting to this uncertainty by implementing a “6-pronged” approach which draws on the direction of travel outlined by the cabinet and is detailed within the Medium Term Financial Strategy.

The certainty of a four-year funding settlement will greatly assist the council as the members and officers focus upon the challenging, innovative and exciting programmes that it is confident it will deliver.


Steve Jordan, leader of the council

Paul Jones, chief finance officer

13 October 2016