Overview

 

1.     This paper answers the four questions posed by the Finance Committee on the current and future budget proposals and draws on the approach the WLGA took in presenting the future challenges to the Finance Sub Group[1] on 8 July. The outlook now facing local authorities is very much different from those set out in the indicative allocations for 2014-15 that were published alongside the 2013-14 settlement.  Local authorities have been aware of the worsening impact on the Welsh Government Budget consequent on the Chancellor’s 2012 Autumn Statement and subsequent Budget in 2013.  However the warning to councils to expect reductions on the scale experienced in England is not wholly attributable to these changes.

  

2.     The challenges facing an average council in Wales with a potential revenue settlement scenario similar to that experienced in England are hugely significant.  Any cash cut to councils’ budgets will impact on job numbers and service levels, with the severity of the consequences increasing dramatically once the effects of inflation, pay awards and demographic growth are factored in.  The Minister for Local Government and Government Business wrote to Leaders on of 23 May to signal English-style reductions. Taking figures from the LGA and a number of other sources, this submission therefore considers the likely impact of a range of cash reductions to Aggregate External Finance in 2014-15 and 2015-16.

 

 

What, in your opinion, has been the impact of the Welsh Government’s 2013-14 budget?

 

 

3.     The UK Government is part-way through significant reductions to public expenditure as it tries to fill a hole in its finances.  Councils in Wales have not been immune from such reductions.  A recent report by Institute of Fiscal Studies[2] (IFS) commissioned by the WLGA showed that local budgets have experienced real terms reductions in spending power of 8.4% during the first half of the 2010 Spending Review.  At the same time they have seen increased pressure on budgets, particularly social care.

 

4.     The IFS identified that there have been real terms reductions in Education and Social Services despite being relatively protected but large real terms reductions of over 20% in areas such as regulation and safety, planning and development (including economic development), and non-HRA housing. Spending on leisure has reduced by 18% in real terms.

 

5.     Over the course of the 2010 Spending Review period, councils have received relatively stable settlements.  As the submission of the Society of Welsh Treasurers (SWT) to the Committee notes, councils have managed to absorb the pressures of rising demand and inflation in a number of ways including efficiency savings and the public sector pay freeze.  The settlement increase of 1.1% has helped maintain investment in frontline services.

 

Looking at the indicative budget allocations for 2014-15, do you have any concerns from a strategic, overarching perspective, or about any specific areas?

 

6.     Over the 2010 Spending Review period, local authorities in Wales have undoubtedly fared better than those in England.  In Scotland the approach has been somewhat similar to Wales with authorities receiving ‘cash-flat’ funding settlements over that same period.  In England no authority has been immune from service cuts and job losses no matter how innovative it has been in transforming services and driving transactional efficiency programmes.

7.     It is fair to say that local authorities in Wales were expecting to reach the end of the 2014-15 budget planning horizon with a similar level of funding.  At the time of the publication of the 2013-14 settlement, the Welsh Government published the indicative figures for 2014-15 which would have seen the settlement increase by around 0.5%. 

8.     Indeed one of the great advantages of the funding framework throughout the period stretching back to the early 2000s was a gradual improvement in medium term financial planning made possible by the publication of multiyear allocations.  Under that regime local authorities go beyond the annual budget planning horizon and look 3 years ahead, closely linking these with plans for workforce, assets and corporate and service change programmes.   Some authorities look further ahead. 

 

9.     As outside observers to the Welsh Government Budget setting process there are a number of overarching areas where we have concerns about the budget.  Firstly there are a number of areas where we have traditionally argued for a less centralised approach to funding.  Typically this has been around specific grants, an area upon which the Public Accounts Committee (PAC) touched upon in its Grants Management Report[3].  Specific grants have become such an anachronistic feature of local government finance in England and Scotland that they are all but abolished.  Although the level of pure waste is difficult to quantify, the PAC estimated that it is between 5% and 10% of the overall quantum.  In times of plenty this is questionable stewardship of public finances, but as we slip into prolonged austerity we have to seriously question whether this degree of centralised control is necessary.  All that needs to be done is to manage the outcomes.

 

10.  A further area of constraint is around the protection of certain services, notably education and social services.   While this has come with additional resource it has not been without its downsides - it has made it difficult to drive efficiency in the service areas that have been protected.   Providing local flexibility around protections (or if this cannot be done, incentivising efficiency measures, particularly in respect of school budgets) will assist in this greatly.

 

What expectations do you have of the 2014-15 draft budget proposals? How financially prepared is your organisation for the 2014-15 financial year, and how robust is your ability to plan for future years?

 

11.  While local government is aware of the deteriorating situation regarding the Welsh Government Budget, it is probably unprepared for the scale of reductions that is likely to be visited on local finances for 2014-15.  The clearest indication of Welsh Government intentions so far was given in a letter to the WLGA leadership in May.  This pulls no punches.  Local Government in Wales should expect to see reductions of the order of those experienced in England and goes on to state that councils should be making radical short-term decisions.  The WLGA estimates that the settlement will have reduced by 8% by 2015-16 based in comparable information from England.  In June, the WLGA called in all medium-term financial plans.  From those returned to us it was quite clear that most published plans were based on the optimistic indications published with the 2013-14 settlement.

 

12.  To be clear, the exact numbers will not be known until sometime around mid-October, less than six months before the start of the financial year. The extent to which sensible service and workforce planning can be achieved in such a short period has to be questioned.  Indeed the submission to the Committee by SWT demonstrates that seasoned finance practitioners are worried about the timeline for planning for such reductions.   

 

13.  By contrast English local authorities were given a clear indication of the global settlement figures in a consultation announced on the 25 July[4], giving English councils good early warning.  The Scottish Government are sticking with their plans for the last year of the Spending Review and have published plans for local government in 2015-16[5] with the publication of their draft budget on 11 September.

 

14.  The question the Finance Committee poses itself exposes a weakness in the approach to public sector financial planning.  Annual budgeting is not very strategic.  The approach the WLGA has taken to outlining the scale of the funding problem facing councils is to focus on the medium-term.  The example of Council Cymru, an “average” Welsh council, set out in the Annex I to this paper was presented to the Finance Sub Group. It demonstrates that with current constraints in place along with elements of council expenditure that are fixed (payments on interest and contributions to other organisations such as Fire authorities), budget reductions can only be found from £57.5 million of the overall budget of £260 million (just 22% of the overall budget).

 

15.  However councils are legally required to set a balanced budget.  Returning to our Council Cymru example, it may have to find recurrent savings of at least £12.8 million over the next two years, all from the £57.5 million controllable expenditure that is not subject to protection.  The worst case funding scenario would result in that expenditure is cut by £25.0 million by 2015-16.   

 

16.  Against that background, there are a number of short term options that Council Cymru may have open it:

 

Ø  Cut expenditure on cultural services by 75% over the two year period potentially closing art galleries and museums.

 

Ø  A 25% reduction in spend on planning in 2014-15.

 

Ø  Close down all sports and leisure facilities if they cannot be transferred to third sector or operated commercially (without subsidy) by mutual or arms-length organisations.

 

Ø  Reduce libraries expenditure by 50% over a two year period, keeping open half of those facilities that will act as hubs for welfare reform changes.

 

Ø  Reduce highways spend by a quarter in 2015-16.

 

Ø  Switch off up to 50% of street lights from midnight to 5am in 2014-15 and all from 2015-16.

 

Ø  Cut spend on economic development by a half in 2015-16.

 

Ø  Cutting general administration and back office budgets by a quarter in 2015-16.

 

17.  After taking account of cashable efficiency savings that can be identified from the Measurement Framework adopted by the Public Service Leadership Group, Council Cymru’s savings proposals will inevitably have a significant impact on Council jobs given that nearly 70% of its net budget is allocated to staff costs.  Even if Council Cymru implements all the proposals above it would still be facing a budget shortfall up to £6.6 million over the next two financial years.

 

18.  Many of these funding reductions will be visited on areas of preventative spend.  The weaknesses of the approach taken in England have been highlighted in a recent report of the House of Commons Public Accounts Committee[6] which sets out concerns about the financial viability of local authorities in England and highlights significant weaknesses in the approach taken in England.

 

19.  The Committee found that the UK government has failed to model the longer impact of cuts to local government budgets on other public service budgets such as NHS where bed-blocking is mentioned.  It questions whether in the future local authorities can deliver their statutory obligations and quotes the Audit Commission which has identified 9% of local authorities as having been in "high financial stress" in 2011-12, with 12% being at risk of not balancing their budgets in future years. 

 

20.  Evidently ‘English-style’ cuts lead to ‘English-style’ consequences as set out in Annex II.  In an attempt to avoid these, the WLGA has asked the Ministers to work in partnership with local government and the WLGA in a number of areas:

 

a.    Ensure a fair settlement for local government in Wales which protects core services.

b.    Ensure stability through freezing the RSG funding formula and other streams such as the Post-16 funding and Supporting People.

 

c.    Have a shared early understanding of the settlement or planning assumptions for both 2014-15 and 2015-16 so that councils can commence the kind of radical short term planning that is required.

 

d.    Ensure that all fees and charges are determined locally to be responsive to local needs including an urgent assessment of the sustainability of the cap on non-residential social services charges introduced as part of the First Steps initiative

 

21.  Councils in Wales are beginning to investigate alternative models of service delivery, especially for services like leisure, and a couple of examples are set out in Annex III.  These are important services especially in terms of the preventative agenda and the impact on long-term health.

 

What are your views on the Welsh Government’s approach to preventative spending and how is this represented in your resource allocation (if appropriate)?

 

22.  There is now a considerable body of work around preventative spend that focuses on early years, health and social care and the criminal justice system which demonstrates that the right intervention at an early enough stage in life can significantly diminish the need for more costly interventions from across the public sector in later life.  Much of this research has been undertaken in Scotland both by the Scottish Government and the Scottish Finance Committee[7].  Preventative spend is clearly defined as spend that prevents negative social outcomes and the consequential need for remedial public expenditure over the long-term.

 

23.  The Scottish Finance Committee found that that the focus of services must be changed from responding to social problems to preventing them and that organisations must work more closely together to tackle the root causes of demand for services.  Furthermore the Committee found that while preventative spend can deliver savings, it should not be seen as a way to save money but as an approach that will deliver wider benefits as a whole and can deliver both short and long term results.

 

24.  Much of the preventative agenda questions the current model of public sector delivery and requires a significant shift in thinking and approach from all involved in the public sector from policy makers to those delivering front-line services. The approach also requires “up-front” investment so that current remedial services can continue to serve those that have not benefitted from preventative services and therefore are still in need of additional support. Although, there are some that argue that in a zero-sum decision, money would be better spent if shifted to preventative areas, for example from tertiary education into early years and primary education[8].

 

25.  There are however a number of barriers to overcome, including:

 

Funding:

·           There is too much pressure on budget holders to tackle negative social outcomes here and now, despite recognition this will have limited success in the longer term. This results in difficulty in freeing up money to finance preventative spend that is currently tied up in acute care and hospital provision.

·           An increase in investment of preventative spend programmes is not cost-neutral and does not mean that existing “reactive budgets” can be immediately cut;

·           The public service body or sector that invests in the preventative spend may not be the same body that derives the benefits;

·           Budget restraints may make a concerted focus on preventative spend less likely.

 

Impact and Evaluation

·           Given the nature of preventative policies, there is a significant time-lag between their implementation and the ability to provide clear evidence of their impact. It may be difficult to prove that a specific intervention was responsible for an outcome;

·           The longer-term outcomes delivered by preventative spending measures may be difficult to evaluate.

 

Political and Financial Cycles

·           The political cycle every four years means that some preventative spend projects may come to a premature end as they need to run for longer time periods in order to deliver results;

·           The annual budget and funding cycles, sometimes with 2-3 year forward indications, do not provide enoughcertainty of investment for projects that need to be implemented consistently over a long time-frame

 

26.  It is possible to identify a number of Welsh Government policies that have a common preventative theme (although many sit under a range of portfolios) such as:

 

·         Team Around the Family

·         Families First – Action Plans in place in all local authorities

·         Integrated Family Support Services – Due to be rolled out on a regional basis in 14-15 with encouraging evaluation from the pilot area

·         Independent Living Grant  - works alongside the local authority-administered Disabled Facilities Grant

·         Tackling Poverty Action Plan – local authorities are key to delivering a number of significant elements in the plan.

·         Future Generations Bill

·         Social Services and Well-being Bill

·         Funding – Invest to Save and the Regional Collaboration Fund

27.  It is also clear that some Welsh councils, working with other public sector bodies,  are in the early phases of developing their own approaches to preventative spend or demand management.  For example Bridgend are developing a number of initiatives intended to bring longer term benefits around: advice and support for those with learning disabilities; family support services; and, whole system change for community health and social care.  These are set out at Annex IV.

 

28.  Often, such initiatives are initially funded through specific grant providing funding for relatively small pilot projects before being rolled out across the wider local government family. However, there are several examples where the level of investment seen in the pilot projects is not replicated in the wider roll out.

 

29.  Another issue that has arisen more recently, as public finance constraints mean that additional funding is more difficult to identify, is that preventative centred policies are identified as being cost-neutral. While this may be true in the longer term, there is an initial period where new services will need to be developed alongside those providing for existing need.

 

30.  However, there is no strategic approach across Wales.  Currently approaches to the preventative agenda are fragmented and exist in silos within services or sectors.  For the prevention strategy to work it must be underpinned by the whole public sector approach to reform which the Christie Commission[9] addressed in Scotland and which was backed by the Scottish Finance Committee.

 

31.  The evidence from Wales is that where good policies have been implemented by Welsh Government, they have required significant investment.  This is not cost neutral in the short term.  It is clear that where the idea of preventative spend has developed beyond a collection of individual policies into a more strategic approach by government, that this should be accompanied by a reallocation of resources to those areas. 

 

32.  Evidence points to early and preventative intervention not only being better for citizens but it also reduces the cost burden on the NHS. For this to be effective the WLGA has pressed Welsh Government to ensure any NHS protection guarantees or increases expenditure on Social Services, as has been done in England.

 

 

 

 

 

 

 

 

 

 

 

 

For further information please contact:

 

Jon Rae/Mari Thomas

 

Welsh Local Government Association

Local Government House

Drake walk

Cardiff

CF10 4LG

 

Tel:    029 2046 8600

ANNEX I

 

 

The Impact of further funding reductions on Council Cymru

 

A1.      Council Cymru is an average sized Welsh Council and it Medium Term Financial Plan is set out in Table 1 overleaf highlighting key income and expenditure assumptions.  The structure of the Council’s budget is the same as an aggregate analysis of net revenue expenditure, so around 40% of the budget is spent on education services.    

 

A2.      Social services accounts for around 25% of net revenue spend and it is assumed that it is protected at the same rate as education.  Around 12% of a Council’s budget cannot be controlled.  This includes capital charges (payments on interest and debt repayment) and contributions to other organisations such as Fire Authorities.  It also includes areas of the budget that are demand-led such as concessionary fares and the Council Tax Reduction (CTR) Scheme.  These are all assumed to be flat in cash terms over the next two financial years but have the potential to increase.  The cost of the CTR Scheme is highly sensitive to the level of the Council’s own council tax levels and caseload.  As the IFS have pointed out, take-up is around two thirds of eligibility. 

 

A3.      In addition councils have to plan for pay and price inflation (including residential care fees), increases in superannuation costs and auto-enrolment.  There are also demographic pressures relating to Older People and Looked After Children which cannot be met from within the protection assumed for Social Services. 

 

A4.      On the funding side, net revenue expenditure is financed from two sources: the main block grant and council tax.  Council tax is assumed to grow at 3.5%, close to the average in recent years, but under the new CTRS scheme a rise equivalent to this produces an immediate pressure of £0.4m as the Council has to fund the reduction scheme for increases.  The Welsh Government’s offer for Councils to fund half of the shortfall potentially produces a further recurrent pressure of £0.6 million.  

 

A5.      The table shows that if education and social care protections continue and Council Cymru’s revenue settlement is cut it will be facing a budget shortfall of £6.8 - £13.1 million in 2014-15 and a further £12.8-£25.0 million in 2015-16.

 

 

 

 

 

Table 1: Council Cymru’s Medium Term Financial Plan

 

2013-14

2014-15

2015-16

Net Revenue Expenditure(£m)

 

 

 

Education

106.4

107.4

108.0

Social Services

66.0

66.6

67.0

Fixed Budgets

30.1

30.1

30.1

Other

57.5

57.5

57.5

Pay Award 1% ( excludes schools)

 

1.1

2.2

Price Inflation (Specific Contracts, fuel,  utilities, business rate)

 

1.5

3.0

Demographic Pressures (Older People & Children in Care)

 

1.3

2.6

Employer Pensions Costs ( Triennial Valuation and Auto Enrolment - phased)

 

1.1

2.0

Total Expenditure

260.0

266.6

272.4

Funding (£m)

 

 

 

Council Tax @ 3.5%

52.0

53.8

55.7

AEF@ -1%

208.0

205.9

203.9

Total funding AEF @ -1%

260.0

259.7

259.6

AEF@ -2%

208.0

203.8

199.8

Total funding AEF @ -2%

260.0

257.6

255.5

AEF@ -3%

208.0

201.8

195.7

Total funding AEF @ -3%

260.0

255.6

251.4

AEF@ -4%

208.0

199.7

191.7

Total funding AEF @ -4%

260.0

253.5

247.4

 

 

 

 

Budget shortfall with AEF @- 1%

 

6.8

12.8

Budget shortfall with AEF @- 2%

 

8.9

16.9

Budget shortfall with AEF @- 3%

 

11.0

21.0

Budget shortfall with AEF @ -4%

 

13.1

25.0

 

 

A6.Council Cymru hopes to realise some savings from the offers coming from Public Services Leadership Group.  Cashable efficiency savings may come from the National Procurement Service.  Assuming that the business case stacks up, the maximum the Council potentially could save is £300,000 in each year, although previous experience would suggest £150,000 would be more realistic.  Savings are also expected from better asset management, although Council Cymru has already rationalised its administrative estate so there may be limited further opportunities.  Property-related savings are assumed at 10%.

 

 

 

 

 

 

Table 2: Cymru Council Medium Term Savings Plan

 

 

 

 

 

ANNEX II

 

English Style funding reductions = English Style Services?

 

 

Newcastle City Council passed a budget in March this year that identified £100 million cuts in expenditure to 2016. The lack of flexibility around the major services, particularly Social Services, capital financing and waste management sees the vast majority of the cuts being visited upon staff numbers – 1,300 jobs are due to be lost. The worst hit service areas are the Arts – where budgets are cut by 50% and Libraries – 10 libraries have been ear-marked for closure by 2016, the first already having closed on Saturday 29 June 2013, although five could be saved if community groups step forward to take them over. Bin collections are also to be reduced.

 

 

 

 

Sunderland City Council are also looking to find £100 million in savings by 2016, £37 million to be made during 2013, having already found £100 million made over the previous three years. It is likely that there will be further job losses over and above the 1,500 staff reductions implemented since December 2009. Again Library services are to be reviewed, three school bus services are to be cancelled and the council is planning to increase its income from fees and charges, particularly in parking and leisure facilities, which will be run on a greater commercial basis.

 

 

 

 

Oldham Council is labelling itself the “Co-operative Council”, but rather than outsource or transfer services to co-operatives or social enterprises, their aim is to devolve budgets and some staff to six defined districts that make up the borough. This approach does not however negate the need to find substantial savings over and above the £100 million they have already found over the last four years. New savings include introducing a new charging policy for social care customers, redesigning care management (including mental health), reducing the number of parks the council funds – including handing over land to local community groups on a long term lease, reducing the number of residential and nursing admissions and reducing the reliance on long term care and charging for bulky waste collections. 400 posts have already been lost with a further 300 posts threatened.

 

 

ANNEX III

Alternative models for delivering leisure services

 

In 2012 a number of councils decided to deliver their leisure services through a new delivery model after undertaking rigorous options appraisal. Set up costs can range from £100k to £250k when authorities look to move down any new commissioning route, which varies dependant upon how much external support is required and the size of the authority.

 

The following key drivers underpinned each local authority’s decision making to a greater and lesser extent.

·            Secure capital investment

·            Sustain facilities and services in the long term

·            Realise efficiency savings

·            No detriment to a service generally

·            Ensure social outcomes protected and enhanced

·            Operational improvements

 

The final delivery vehicle for each authority was different.  Key aspects of the Torfaen and Vale of Glamorgan experience are set out below.

 

Torfaen County Borough Council

·            Developed their own bespoke in-house Trust

·            Significant revenue savings

·            Model that allows the Trust and Council to develop and adapt

·            Can access prudential borrowing to improve facilities

·            Local Trust Board to drive improvement and innovation

Early success

·            Up to £1.6m ( projected) revenue savings from 2013 -2018

·            Broad cross party and public support

·            Staff and unions kept on board

·            Public have seen no reduction is service

·            Council role repositioned as an intelligent commissioning agent

 

Vale of Glamorgan Council

·            Partnership delivery with a private contractor

·            Significant revenue savings, original savings target exceeded by 50%

·            Substantial Capital investment

·           Potential to be the first L.A Leisure service to operate without a revenue subsidy

Early success

·            3m Capital investment

·            £1m revenue saving annually

·            No closures

·            Public have seen no reduction in service

·            Council role repositioned as an intelligent commissioning agent

·            Staff and unions kept on board

ANNEX IV

 

Bridgend County Borough Council Preventative Initiatives

 

 

Learning Disability Team Advice and Support Serviceprovides individuals with a mild / borderline learning disability with relatively low level support at regular intervals to ensure that their needs are met without “over-supporting” them. The individuals are generally quite independent but may have had little experience of being in control of their own lives and may have poor problem solving skills. A mutually agreed schedule of regular appointments with a social worker keeps the service user in control of the support that they receive and allows the social worker to liaise with other agencies as appropriate. These individuals are vulnerable but would not meet the higher level criteria for more intensive support. Simply restricting access to services and support for such individuals inevitably means that they would be re-referred at a later date, often with higher-level support needs.  These re-referrals often come from other agencies such as Housing, Police, CAB or other voluntary agencies, when the individual has incurred serious debt, is under threat of eviction or has been identified by Police as being at risk in some way.

The aim is that this support will in time be provided by the independent / voluntary sector through a Community Hub model which would also help the individual develop stronger social networks.

 

 

 

 

Intensive Family Support Service provides intensive, holistic support services to the whole family where there is substance misuse involved. Referrals to the service must come via Children’s Social Services and the service is provided by a highly skilled staff cohort who are all either qualified social workers or nurses. Interventions can include an Intensive Outreach Worker provided 16 weeks of intensive support with a family, visiting at least 3 times a week.  Often the majority of the work is completed with the parents, around substance misuse, reducing alcohol consumption, domestic abuse, healthy eating, managing on a budget, the importance of de-cluttering a home, unaddressed mental health issues, instilling rules and boundaries, and managing difficult relationships for instance counselling to improve self-esteem, anger management, bereavement and assertiveness. Support is also given to improve employment opportunities and to improve their parenting skills. As well as resulting a huge improvement in a family’s wellbeing, outcomes also include fewer Police callouts for domestic abuse, reduced neighbourhood nuisance due to improved behaviour from children and a reduction in truancy.

 

 

 

 

Integrated Community health and Social Care Servicesprovides an integrated approach to the delivery of services for frail people and people with complex conditions, in order to enable them to live as independently as possible at home, preventing unnecessary placement in long-term care or inappropriate hospital admissions. The service is provided through three main areas of integration:

 

Community Resource Team Services – these involve multi-professional responses comprising nurse led clinical early response services, therapy led enabling and rehabilitation services; and social work led complex long-term conditions and disabilities. There are not enough resources to provide these specialist services in each locality network but these teams can be mobilised to respond cross the three networks as required. Their aim is to intervene early, closer to home and ensure that people are supported to maximise their potential.

 

Integrated Referral Management Centre (IMRC)–