An apparently simple picture….
Last Wednesday, Elmbridge Borough Council agreed its budgets for the financial year beginning on April 1st. The Council provides a wide range of services, ranging from housing the homeless, provision of playgrounds, through to waste collection and recycling. It also has a commercial investment property portfolio valued at just under £100 million, that generates a net income after all costs of over £1 million. It employs around 400 staff, and its annual gross expenditure is just over £40 million.
Fees and charges on services cover around £20 million of overall costs. The balance – about £19 million- comes from central Government in the shape of retained Business Rates, just under £4 million, or from Council tax, just under £15 million. If Business Rates receipts and Council Tax do not cover net expenditure, then Elmbridge has to find the difference from reserves.
Central Government sets a limit on the Business Rates receipts authorities are allowed to keep – next year, in Elmbridge’s case, it is expected to be less than £4 million out of total receipts from businesses operating in the Borough of around £64 m. There is also a limit on how much a local authority can increase Council Tax without having a special referendum – the limit for next year for Elmbridge is 2% or £5 for a Band D property, whichever is the higher. Like most of Surrey’s Boroughs and Districts, Elmbridge has opted to go for the £5 increase, which amounts to 2.26%.
Elmbridge’s portion of your Council Tax bill is only 11%. Surrey Police, who are putting up their part of the Council Tax bill by £10 (3.8%) for a B and D property, again, the maximum allowed without a Referendum, account for 14% of your bill. Surrey County Council, which takes the other 75% of your Council Tax payments is putting up its charge by just under 4%, which amounts to £57.96 for a Band D property. The outcome is that total Council Tax payable in Elmbridge on a Band D property will increase to £2008.33, an increase of 3.8%.
For Elmbridge, the combination of a 2.26% increase in Council Tax and an even lower increase in the Business Rate “baseline” means that next year it will need to drawdown on revenue reserves by just under £1 million. It is fortunate therefore that the Council has been able, over a number of years, to build the reserves up to around £18 million, which means that a £1 million drawdown in the coming year is not going to cause any problems, so long as it does not become a continuing reliance on reserves to cover ongoing expenditure.
And the difficulties….
The tricky part of the process is that many estimates have to be made of how much our services will be used, how many successful appeals there will be against Business Rates valuations, how many Planning Applications will come in, what voids there will be in the property portfolio and so on. All these variables can have a material impact on costs or income.
Inevitably there is a tendency to be cautious and prudent in setting these various estimates, although this can result in the early estimates turning out to have been overly pessimistic. Variances between forecast and outcome tend to show up in the amount by which reserves increase or diminish. As an example, in the Budget papers for the financial year 2018/19, which were finalised in late January 2018, the estimate for earmarked revenue reserves at the end of March 2019 was just over £15million. 12 months later, with two months still to run in financial year 2018/19, in the Budget papers for 2019/20, the revised estimate for earmarked revenue reserves as at the end of March 2019, had risen to almost £18million, an increase of just under £3 million.
Later in 2019, the Audited Annual Accounts for Elmbridge Borough Council for the financial year 2018/19 showed that earmarked revenue reserves as at the end of March 2019 actually stood at £21,209,000 as at the end of March 2019, an increase of £6,199,000 on the original estimate made 14 months earlier.
It is impossible to foretell how many of the variables that impact on the Council’s finances will work out over the next few months. These include a review of the Business Rates system, a Fair Funding review, which will look at how revenues are distributed amongst different authorities, and a review of the New Homes Bonus Scheme, which may possibly result in an entirely new system of housing incentives.
With all the uncertainties, we feel it is best to be prudent in the way that we address the apparent reliance on reserves to deliver a balanced budget for 2020/21, while we make sure that we do not become reliant on the continued use of reserves for on-going expenditure.
Portfolio Holder for Resources