Nick Skellett's budget speech 2008/09 (5th February)

1. We are fortunate in Surrey. We are fortunate to live in one of the most attractive, prosperous and safe counties in the country. We are fortunate to have some of the best standards of education in the country. And we are also fortunate to have a County Council whose Members had the foresight and vision to take the action needed to maintain high standards of services, despite the many difficulties facing us.

1.1 We know that the demand for our care services is going to increase year on year. We know that the cost of purchasing services is going to rise every year. And we also know that the level of funding from the Government is going to reduce in real terms every year. That is why we have taken the actions we have over the last few years and why we will continue to take the action necessary to provide sustainable services.

1.2 This budget has not been an easy one to construct and there are still some tough decisions, but our robust planning and firm actions have left us in a better position to face the new challenges.

1.3 Some Members still criticise the BDR. I will just remind you that without the BDR we would have a black hole in the budget of over £40m. That means we would have had to cut front line services by £40m. I don’t know which services I would have cut. I would be interested to hear from those Members who opposed the BDR what they would have done.

1.4 The £40 m we saved in the BDR is ongoing. It is built into the base for next year’s budget, meaning we can focus on our service priorities –

  • Increasing the number of vulnerable adults able to live independently
  • Improving our highways and maintaining our roads
  • Ensuring that looked after children grow up better equipped for life, in particular through education
  • Increasing waste minimisation and recycling.

2. REVENUE SUPPORT GRANT

2.1 We know that the Government is not going to do us any favours and we have planned accordingly. Our worst fears were that we would actually suffer a cash reduction in our revenue support grant. In the event, we were given a £2m increase. It’s better than nothing but, in the context of a net budget of £600m, it’s not very much - about one third of one percent. It’s even less generous when you consider that our landfill tax bill will increase by over £3m next year and there is reduction of £3m in capital grant– what they give with one hand they take away with another.

2.2 The Government has played with the grant formula again, meaning that on paper we should get over £70m less than we are in fact getting, a £30m deterioration when compared to the current year. We are dependent on the Government’s damping formula to avoid losing £70m. When I went to see John Healy, the Minster for Local Government, he interpreted this as a generous gesture and could not see the problem. I see it as a fairly predictable position if cumulatively, since 2003, £300m is removed in central support. I also see it as trying to sustain a system of local government finance that is clearly broken and that can only be maintained by a series of sticking plaster fixes.

2.3 The fact is that Surrey receives less funding than any other county council. Each person in Surrey gets £205 from the Government towards all local government services. The average person in England gets £595. If you lived in Manchester you would get £856.

2.4 The impact that the revenue grant system has on our ability to fund capital expenditure has been raised before. The Government expects us to fund much of our schools and roads capital spending by borrowing. They issue us so called supported borrowing. Supported borrowing means we can go out and borrow money from the Government or a bank. The Government builds a factor for the cost of that borrowing, interest costs and principle repayment, into the revenue grant formula, so in theory we should get an increase in our revenue grant that matches the cost. The problem is that the Government has changed other parts of the formula so it looks like we get £70m more than we should. All the time that this gap exists they will not add to our grant in respect of the borrowing. This means that the cost of our capital spending on schools and roads feeds directly through to the council tax, adding about 0.8% to the tax rise every year. The annual cost of servicing our debt is now around £40m a year – equivalent to 8% on the council tax.

2.5 I have made many representations about this and last year it appeared that we were having some success as the Government replaced some of the supported borrowing with cash grants – it was a step in the right direction. However, for 2008/09 the Government has done an about turn and reduced the cash grants.

2.6 We have to seriously ask ourselves if we can afford to continue to invest in our schools and roads if the Government persists with this ridiculous system of funding. The Government has to seriously ask itself if it can afford to see reduced spending on infrastructure in a county that makes such a huge contribution to the country’s economy. The £5000 net contribution that Surrey makes to the national purse for every man, woman and child could be in jeopardy. Our message continues to be that infrastructure investment is so important that programmes that have been agreed by government should be implemented in full by treating borrowing consents in the same way as PFI grants.

3. REPORTING CHANGES

3.1 Before I set out my detailed budget proposals I would like set out some changes I am proposing in our financial and service reporting. Since the BDR we have made a lot of progress in increasing the transparency and accuracy of reporting and in promoting managerial responsibility for budgets. This is working reasonably well but I am aware that sometimes it can be difficult for Members to relate the detailed budgets to the policies that they have agreed and sometimes areas of spend that are important to Members are lost in the detail. Therefore, I have asked officers to ensure that the medium term financial plan clearly identifies the budgets we have allocated to our key policy areas. That will enable us to monitor closely the spending against those key areas. I will also ask officers to amend the financial regulations so that Members can control budget movements to and from our key policy areas.

4. DETAILED PROPOSALS

4.1 I will now turn to my detailed proposals. Firstly, I would like to thank all Members who have contributed to the process of scrutiny through the select committees. We have involved the select committees in the process far more than in previous years and have worked hard to make more information available. I acknowledge that there are still improvements to be made but I believe that we have come a long way. I have taken the comments of select committees into account when making my proposals. I have also listened to the views of our stakeholders - Surrey businesses, taxpayers, the voluntary sector and our staff.

5. FAMILIES

5.1 ADULTS SOCIAL CARE

5.1.1 Other than schooling, which is funded through ring fenced grant, our biggest service is adults social care – we look after some 18,000 older people and younger vulnerable adults who have physical, sensory and learning disabilities. The number of people needing our services is growing every year. We all know that people are living longer so there are more old people requiring care – the number of people over 85 is increasing by 800 each year. An equal, if not greater, challenge is the number of younger adults needing our help, those who would previously not have survived to adulthood but thanks to improved medical care and techniques now have a much longer lifespan.

5.1.2 Next year there are almost 223 children who will reach the age of 18 and who are likely to require care due to learning, physical or sensory difficulties. The average cost of a package of care in the first year for each of these young adults is £11,200, which adds around £2.8m to the Council’s budget.

5.1.3 The increase in the number of people needing care has the knock on effect of driving up the unit costs of suitable care arrangements as demand outstrips supply.

5.1.4 The Executive and officers have spent a considerable amount of time over the past few months looking at these issues and deciding how they should be addressed. There is no alternative but to allocate significant extra resources, but at the same time we recognise that there has to be a step change in the way services are provided if we are to continue to provide support for all those who need it. That is why we have embarked on a process of change in the service as part of the County Transformation Programme. This will see those clients who are able having much greater control over their support. It will also continue our drive to help more people receive support in their own homes. This is not only more cost effective, it also provides a much better outcome for the client.

5.1.5 I propose increasing overall spending on adults social care by £16.3m next year. This will still need better market management and efficiency improvements if we are to meet the needs of vulnerable people in Surrey. Part of that is our medium term commitment on Helped to Live At Home (HTLAH) of £4.7m extra every year. It will mean that we can provide support for at least an extra 1000 people to live at home in 2008/09 on top of the 1000 we are on course to achieve this year. We will also care for an estimated extra 250 people with learning disabilities, 111 with sensory disabilities and 23 with mental health problems.

5.1.6 So we can carefully monitor the progress in helping more people to receive support in their own homes I propose that £3m of the £4.7m (HTLAH) increase injected into this area be held centrally, to be allocated when the targets are met on a quarterly basis.

5.1.7 As the largest and fastest growing part of our budget we have to ensure that we have full control and are getting value for money if we are to provide the care that is necessary and if we are to make further investments.

5.2. CHILDREN’S SERVICE

5.2.1 We are facing similar pressures in the children’s service. We need to budget for an extra 15 children requiring placements in 2008/09 at an average cost of £150,000 per year, a total cost of £2.2m. We are also facing cost increases for our existing looked after children. We are adopting similar measures as in adults care in order to keep cost increases as low as possible.

5.2.2 I propose increasing spending on children’s services by £9.1m. This includes a £1.5m increase to the staffing budget so the service can be staffed to full establishment and agency staff employed where crucial vacancies occur.

5.3. YOUTH SERVICE

5.3.1 In the coming year we will need to decide what kind of youth service we need, who will provide it and how much we can afford. During this period of decision I believe there is the need for a cushion so I propose next year to add £500k to their budget.

5.3.2 Before moving on to the Communities directorate I would like to propose we set aside £130k to provide resources next year to allow continuity of our self reliance initiatives. Of course, many such projects do receive local Member support and I hope that support continues as I am proposing to keep Members’ local allocations unchanged at £11,000 per councillor.

6. HIGHWAYS

6.1 2006/07 was a difficult year for our highways service but I am pleased to say that the actions we put in place are paying off, with our contractors now delivering better work and value for money. The highways stewards are proving a success and we are seeing real improvements on the ground. However, we are not complacent and will continue to work to improve the condition of our roads and footways. My proposals will increase the revenue budget in Highways by some £1.7m.

6.2 I have already explained the problem we have with capital investment in our roads. As you all know, the condition of our roads is the single largest issue raised by residents. Given the pressures on Council spending, it would have been an easy option to reduce capital investment, but I do not believe that it would be in the best interests of Surrey or make financial sense in the long term.

6.3 Therefore I propose that we invest £25m in highways roads in addition to the specific grant of over £4m from Government. We will be spending according to the Council’s priorities and not the Government’s and this will mean a greater emphasis on road maintenance and less on new schemes and integrated transport measures, but they will still feature in the capital programme as will new funding for flood prevention. This is in line with the wishes of the majority of our residents and detailed proposals will come before the Executive in March.

7. TRANSPORTATION

7.1 We have increased the level of support for local bus services above the rate of inflation for several years but the costs of provision continue to increase. Next year we also have to face the withdrawal of some Government rural bus grant and the end of some section 106 funding. I propose that we should make good this loss of support (£1m) and in addition fund basic inflation (£300k) for this budget. However, this means bus subsidies are now £10m a year, which is not much less than the cost of our library service. Members should review how we provide support for public transport, particularly in rural areas. Therefore, I have asked officers to instigate a fundamental review of the Council's policy on public transport.

8. LIBRARIES

8.1 The library service is important to many of our residents. I therefore propose to allocate the service £250,000 above basic inflation to be targeted towards library service and cultural improvements. Similar funding last year meant that we could increase library opening hours by 10%. We look forward to receiving proposals from the service on how to allocate this cash injection for 2008/09.

9. EFFICIENCIES

9.1 This Council can be very proud of its achievements with regard to efficiencies. I have already told you that the BDR saves £40m per year. We achieved our last Gershon three year efficiency target in two years. We are acknowledged as a leading council when it comes to efficiency.

9.2 At the start of this year's budget preparation I set services the target of identifying £18m of efficiency savings. I am pleased to report that services have identified savings totalling more than £30m for next year. I don't pretend that all of these efficiencies will be easy to achieve but we have a responsibility to do all we can to keep costs down. Importantly, these are genuine efficiency savings that will not have an adverse impact on front line services.

10. CAPITAL SPENDING

10.1 The Council currently has debts of around £450m, which costs around £40m a year to service - that’s equivalent to 8% council tax. It is quite normal for councils to borrow money to invest in capital assets, but we must be limited by what we can afford to pay. I believe that, as the Government has withdrawn revenue support for borrowing, we should be mindful of the overall debt burden and should seek in the medium term to stabilise the real terms burden of debt on our taxpayers. The Council currently repays around £20m per annum of debt so we can borrow that much without increasing our debt. Taking into account the overriding need to improve our highways infrastructure, and in the absence of adequate revenue support, on balance I consider it reasonable to borrow up to £25m each year without placing an undue burden on our taxpayers.

10.2 Schools receive direct support for capital expenditure from Government in the form of a cash grant. The Council also receives further small amounts of cash grant as well as a large amount of the so-called supported borrowing. Given the Government’s stance on revenue support for borrowing, unfortunately I do not consider it appropriate that taxpayers should bear the burden of capital expenditure in schools; this would mean borrowing some £45.3m over 3 years building up to a Council Tax burden of £4m a year.

10.3 Therefore I propose that no supported borrowing for schools should go ahead next year. The programme of works supported by specific grants will, of course, go ahead as normal and I believe the non ring-fenced grants suggested for education of some £8m should all go to schools.

10.4 I have also agreed that we set aside £300k to assess our strategies and the affordability of the Building Schools for the Future programme. Surrey is due to participate in this huge school rebuilding and refurbishment programme in 2011.

10.5 The Council also has a programme of works funded from its own resources. We have an ongoing programme of property rationalisation, which is generating a significant level of capital receipts. This means that we can afford a programme of around £10m a year over the next three years - up from around £7.5m this year. This will enable us to start making inroads into our maintenance backlog, refurbish many of our libraries and provide grants for adaptations to foster carers and to vulnerable people to help them stay in their own homes. The programme will also include a sum of £4m per annum towards maintenance of schools buildings. My full proposals are set out in the papers that have been circulated.

10.6 It has been brought to my attention that we could abandon the Future Income Fund which currently has some £6m in cash but which over the next year or so could build up to about £29m. That depends of course on getting contracts signed and receiving the anticipated receipts, but it is an issue which Members will have to decide in the coming year. Do we want to provide investments for the County Council to bring in future new revenue streams? Many authorities already have this advantage and our lack of Government support suggests it would be wise to consider the proposal carefully. Of course all these receipts could be spent on capital projects or reduce debt but it has taken us a long time to build a potential fund. Looking back, our prudence and caution in repaying C21B investments and not spending the revenue has paid off; at the present time we would find it difficult to fund purchases of waste recycling assets if we had not done so. So I suggest we look at these questions carefully but be prepared to be flexible if there are shortages in the predicted capital receipts programme.

10.7 In summary, to fund the proposals in my motion I anticipate a capital receipts programme with a target of £36m over 3 years, prudential borrowing of up to £25m each year, using the non ring-fenced grants other than those for education, the LTP grants and have added in the C21B reserve. All these will have to be reviewed regularly.

11. BUDGET RISKS

11.1 The budget I am proposing is not without risks - without an element of risk taking there would be no progress. Thanks to the prudent approach we have adopted to budget management, and in particular carefully scrutinising requests for the carry forward of under-spends, we have built up our general un-earmarked balances to over £19m. The level recommended by the S151 officer is around £15m. However, he also advises that if there are risks in the budget a higher level should be maintained unless a specific contingency sum is set aside within the budget. My proposals assume that savings can be made in the procurement of social care by keeping price increases below the rate of inflation. I am confident that we will make much progress but I do recognise that success cannot be guaranteed. However, I consider that the level of the general balance is sufficient to allow for this risk. The Section 151 officer in his report, which you have all received, agrees with this assessment.

12. COUNCIL TAX

12.1 The Council's main form of funding for its non schools budget is council tax; over 80% of our expenditure comes from that source. Nobody enjoys paying taxes and I will be the first to say that our council tax is higher than I would like. However, we have decisions to make in order to balance the needs of our service users, the good of the community at large and the interests of those paying tax.

12.2 There are those who say that the Council should be more efficient. I agree with them. That is why we are pursuing ever greater efficiency gains and looking for innovative ways to provide services. However, although I continue to demand more efficiencies from officers, I do not know of any council that has achieved more than Surrey in the last three years.

I am proposing a tax increase next year of 4.8%. This is more than I would like - 0% would have been better but in the present circumstances impossible if we want to retain good services.

12.3 In summary, despite the considerable pressures on our finances and our services, my proposals ensure that The Council can continue to provide the services that our residents need and deserve. We will be able to meet our obligations to the most vulnerable in our community, improve the quality of life for everyone in Surrey and build on the improvements we are making to the condition of our roads.

12.4 I am sorry that I cannot protect our residents from continued discrimination from Government but I believe that in the circumstances they have put us in I have proposed a fair budget for our citizens, making sound judgements on present risks and future uncertainties and balancing the needs of service users with those of the taxpayer. I ask for your support.