Nick Skellett's budget speech 2009/10 (10th February)

Budgets are always about balance. We have to balance the needs of our residents as service users against the burden of council tax on them as tax payers. We also have to consider the needs of the users of our different services and strike a balance between them.

This year that balance is as critical as ever. On the one hand the economic situation has placed many families in real difficulties and I do not want to add to those difficulties by imposing a council tax increase. On the other hand it has been a difficult year for the Council and its services, and although Surrey is by no means unique in facing these difficulties, there are significant financial implications if we are to address the problems that have arisen.

I believe that the budget I am proposing today strikes the right balance. There are some difficult decisions to be made but we have to face up to the economic and practical realities of our situation. I will not make any proposals that are short term, unsustainable, or that will leave future council taxpayers with a burden of debt that will take a generation to repay - unlike some administrations I can think of. Surrey's prudent financial management over many years has left us in a position to meet the challenges facing us and we must not compromise that legacy.

One direct impact on the County Council of the financial crisis in the world economy has been the freezing of deposits in Icelandic banks. I made a statement to the County Council on 14 October about the situation and the Audit and Governance Committee has been monitoring the situation closely. There is still some uncertainty about the situation and the recoverability of the deposits. The Government has issued a regulation stating that Councils need not take account of any losses when setting their budgets for 2009/10. However, I believe that we should be more prudent than the approach suggested by Government. I have, therefore, identified an approach to deal with our best estimate of unrecoverable deposits, using the surplus that has accrued on our insurance fund, so that we can deal with the situation while maintaining good financial management and without imposing a burden on our tax payers.

We know that Surrey is relatively prosperous and that residents enjoy a good quality of life. We also know there are pockets of deprivation and that some are disadvantaged.

It is therefore essential that we continue to ensure that people who are more vulnerable or disadvantaged are well supported, so that their life chances are enhanced. We also want to continue to provide quality, value for money services that are accessible for all Surrey residents.

This is not necessarily about spending additional money, it is, however, about ensuring existing resources are used to address needs in an appropriate and fair way. The Council has made a commitment to improve our progress on equality and this autumn we aim to be successfully assessed against level 3 of the Equality Standard for Local Government.

Our approach to addressing inequality in Surrey is about providing a proportionate response and offering practical solutions that take into account the diverse needs of our service users. This approach means that equality is now more visible and integrated. We will need to evidence improvement as we go along, and CCMT and Members will hold directorates to account and scrutinise progress.

REVENUE SUPPORT GRANT

This is not the first budget statement I have delivered, and it is not the first in which I have said that the Government has not done us any favours in their grant allocations. As expected, we have received an increase in Formula Grant of just over £2m, which represents less than one third of one percent of our net budget. It is not even enough to meet the additional bill for landfill tax.

As I have explained, the Government's new grant formula actually allocates £70m less than we are given, and it is only through the damping mechanism that we retain the level of grant that we do. I also explained last year the impact this mechanism has on our ability to fund capital expenditure. The effect is to leave Surrey without Government support for a wide range of schools and roads capital projects, even though the Government considers them a priority and does give support to most other councils for such projects.

So again we have to seriously ask ourselves if we can afford to invest this so called supported borrowing in our schools and roads if the Government persists in 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 net contribution of £5bn to the exchequer, or £5000 for every man, woman and child in the county, could be jeopardised. In the current economic crisis its more important than ever that Surrey is able to continue to support the national economy.

CURRENT YEAR'S BUDGET

When we set the budget for the current year few could have foreseen the events that would unfold locally, nationally and internationally. It is a testament to our prudent approach to financial management that, despite all of the turbulence, I anticipate that our overall spending for the present year will be contained within the budget.

You will know from the regular reports to the Executive that the Children's service is forecast to overspend by almost £14m. There is an element of detail that I would like to explain as you will see that, once again, central Government is failing to fund its share of our expenditure in full, increasing the burden yet again on our council tax payers.

The Dedicated Schools Grant (DSG) is split into two parts. The largest element, £517m, is delegated to individual schools and private nursery providers. The remainder, £57m, is under the control of the Council and is called the centrally managed grant. The Government imposes strict controls on the proportion of the DSG, which can be spent centrally, and on the purposes for which it can be used. The centrally managed element has to meet the cost of essential provision for children with special education needs, including behavioral problems, that cannot be provided in Surrey schools. If expenditure on these functions cannot be contained within the centrally managed element, the overspend falls on the Council's general budget. That is exactly what has happened this year. Of the projected overspend on Children, Schools and Learning, £5.8m should be chargeable to DSG, but the Government’s failure to recognise the increasing demands means that our council tax payers have to foot the bill.

The remaining overspends on the service arise from the transport demands associated with Special Education Needs children and the dramatic increase in the number of children entering the care system – and this is mirrored in many other councils.

We have been working hard to identify compensating savings in other services in order to achieve a balanced outturn position. We have rescheduled some of our debt and achieved better returns on our investments than we anticipated, despite the fall in interest rates recently. Central budgets have come under special scrutiny and savings have been achieved in many areas without any impact on front line services.

DETAILED PROPOSALS

I will now turn to my detailed proposals for next year. Firstly, I would like to thank all Members who have contributed to the scrutiny process through the select committees. I would also like to thank the representatives of the trades unions, tax payers, voluntary sector and businesses, who took part in the consultation process and offered their views. I have listened to all of the comments made and have taken account of them while considering my proposals. The wide range of views received only emphasises the need to strike a balance between differing interests. I have also taken into account the results of our quarterly community surveys and the council tax survey reported to the Executive on 5 February and copied to all Members.

The decisions today will set the council tax and allocate extra cash to the directorates. Illustrative budgets have been prepared for each Head of Service but these allocations will be confirmed at service levels and activity levels as service plans and budgets are developed. Where we wish to be specific at the service level, this will be referred to in this statement and the budget recommendations.

CHILDREN, SCHOOLS AND FAMILIES

I have already talked about the current year overspend in this directorate. We have introduced new management arrangements in the service and we are beginning to see the service turn around. However, it takes time to produce results and the increase in the number of children entering the care system, or with special education needs, will continue to impact on the budget for some time. We were facing a very large increase in this budget of which almost £7m related to overspending on DSG. I propose two measures to reduce this impact. Firstly, I propose to capitalise £2.4m of the expenditure, which relates to major maintenance of schools. Secondly, the Schools Forum has agreed to allocate £2m of its delegated budget to the centrally managed element. I am very grateful to our schools for agreeing to this transfer, which shows the value of working in close partnership with our schools. These measures will reduce the Council’s contribution to the DSG overspend to £2.5m in 2009/10.

Overall, I propose increasing the budget for children and families by £11.3m, which includes £1m for next year only to deal with abnormal pressures being experienced at present. Praise is due to the directorate in identifying strategies and efficiencies which have saved £5m. I would like to extend that praise to all the other directorates which have contributed to the budget process and have worked hard to find meaningful efficiencies.

ADULTS

The Council has increased spending on adults’ social care by over 30% over the last four years. We now provide care for 20,672 adults, compared to 17,958 four years ago. We have made very significant advances towards caring for people in their own homes and are now moving towards self directed support for those who want it. However, demand continues to grow. There will be an additional 800 people aged over 85 in Surrey next year and 290 children will reach age 18, who are likely to need care due to learning, physical or sensory disabilities.

To meet these demands I propose increasing the budget for services to adults by £6.7m. Together with £6.7m of efficiency improvements, this is sufficient to both meet these demands, continue our investment in helping people live at home, and improve services for these vulnerable groups.

CUSTOMER AND COMMUNITIES

This directorate provides many services that are widely used and valued by all our residents. Overall, the directorate will receive an extra £0.7m in cash after adjusting for the transfer of the fire service from the Environment directorate.

Libraries & Cultural Services

We have made many improvements in the past few years, including self service, an array of initiatives to encourage younger readers, and library hours have been extended by over 10%. Our initiatives for the 2012 Games have been praised regionally, and our history service has been acclaimed nationally.

Fire Service

In response to corporate calls for efficiencies this service offered over £1m in savings and efficiencies. Some of this may be difficult to absorb without affecting the front line effectiveness, so I propose an overall £425,000 cash increase to the service and wish to thank them for their valued contributions in recent emergencies.

Customer Services

This service will receive a cash increase of £122,000, which, together with identified savings, will enable much needed improvements in the contact centre, and the Surrey Web to proceed.

Trading Standards

In difficult times the protection offered to residents and businesses by this nationally recognised service is highly valued and, given the increasing demands on this relatively small service, I propose adding £75,000 to its base budget.

ENVIRONMENT AND INFRASTRUCTURE

Overall, it is proposed to increase the base budget by £3.8m

Roads

The condition of our roads and footways is an issue of great concern to Members and is the subject of more correspondence than any other service. We have consistently recognised this as a priority in budget terms in recent years and this year we were able to add an extra £5m capital and revenue on a one-off basis to continue the improvement to the condition of our roads. We have also dramatically improved the efficiency of the gangs that fix potholes so that they now average 10 potholes a day, compared to five a year ago. The pressures from children’s and adults’ services, and higher energy costs, mean that, at this stage, we can only add £1.8m extra cash to the highways budget.

Even so, it still means we have been able to increase in cash terms the overall highways budget, not only against the base budget for 2008/09, but also against the adjusted July budget, which added an extra £800,000 in revenue. How the total is to be allocated across the various demands (roads, drainage, footways, safety fencing, signs, lines etc) will be debated carefully by the select committee and others as service plans are developed. We are also seeing real improvements in efficiency in our contracts, which should give us more for every pound we put in.

Transportation

Surrey`s bus subsidies are £3.5m above comparable authorities. I appreciate there is a detailed project being pursued, but at this budget I would like to give a political steer by proposing the budget is effectively cash frozen.

Environment & Regulation

I propose that this budget is increased in cash terms by £2m. Our programmes to encourage waste minimisation and investment in community recycling centres are paying off and we have seen reductions in waste volumes that will save us £1.7m next year.

POLICY AND PERFORMANCE

The Policy and Performance Directorate provides the policy lead for the Council as well as our communications service, support to the Council, its committees and Members, support for corporate projects, and it leads our response in emergencies. It provides performance feedback and manages the preparation of the Comprehensive Performance Assessment.

The work they have done in providing staff to support developments in the children and adults’ services has been invaluable, as has the service’s contribution in developing the Surrey Strategic Partnership and our Local Area Agreement.

However, given the pressures on front line services, as a support service it is felt costs will have to be kept to a minimum. Therefore, other than the costs of the Council elections in June, I propose imposing a half a million pounds cash reduction on the budget. Despite this reduction, I have sought not only to protect the budget for grants to the voluntary, community and faith sectors, but also to increase it to provide funding to help individuals suffering from the economic downturn by increasing funding for the Surrey Welfare Rights Unit by £35,000.

It was also felt appropriate, with elections in June and a new Council being returned, that within these overall savings the Members’ allocation could be reduced for the three month period April to June 2009, after which the full £11,000 per Member will return next year.

CORPORATE SERVICES

Corporate services provide support for all services, including the provision of property and information technology. Despite recent falls in costs, the energy bill for the Council’s premises is likely to increase by around £2m next year. I am pleased to be able to tell you that corporate services have not only been able to absorb this increase, they also plan to improve the procurement support to the organisation, in order to achieve further savings and strengthen the internal audit service in order to monitor compliance with statutory and local procedures and policies. All this will be achieved with a half a million pounds cash reduction in budget.

EFFICIENCIES

This Council has an excellent track record in achieving efficiencies. We have consistently beaten the Government’s 3% Gershon targets, which has enabled us to limit council tax increases at the same time as investing further in our essential services.

This year services have been asked to achieve a minimum of 3% savings, equivalent to absorbing inflationary pressures and achieving a cash standstill other than for areas where we need to enhance services. I am pleased to say that all services expect to overachieve beyond this target and have managed to absorb some further cost pressures. In all, £29.5m of efficiencies have been identified by services while preparing the budget, which means we can absorb inflationary pressures and redirect resources towards those services under greater pressure.

CAPITAL SPENDING

The Council approved a three-year capital programme last year. In all, capital spending over the three year period is expected to be £360m. The programme includes £106m to be spent on our schools and £96m to be spent on our roads. The programme also provides for £3.5m structural maintenance of our non-schools buildings each year, £9m for the acquisition of land for waste disposal projects, and over £1m for libraries’ refurbishment. See pages 69 and 71 of the report for full details of the programme. The programme is mainly funded through Government grants, borrowing and capital receipts. Although we are now in difficult times for generating increased capital receipts, we have a sufficient buffer to continue the current programme as planned, but any additional expenditure for basic needs in schools, or safety improvements in our building stock, would have to be funded by borrowing. I am proposing that we give ourselves the power to borrow a further £10m a year for the next three years so that if capital receipts, or other adjustments in the capital programme, are insufficient to fund new projects, the Council will be in a position to borrow as required during the year up to the limits we agree today.

BUDGET RISKS

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 taken over the past few years, and the actions we have taken in the current year to contain spending within budget, we forecast that we will have balances of around £20m. The minimum level recommended by the S151 officer is around £15m. However, he also recommends 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 across all services, most notably in the procurement of social care, and savings in the cost of home to school transport for children with special education needs. They also assume that the cost of the increasing number of children entering the care system can be contained. We are still not certain what the full financial impact of the transfer of funding for learning disability from the Primary Care Trust will be. I am confident that we will make much progress towards achieving these savings, but the targets are ambitious and I recognise that success cannot be guaranteed. However, I believe that the £5m margin within the balances is sufficient to cover our exposure to these risks. The S151 officer, in his report accompanying my recommendations, agrees with this assessment.

COUNCIL TAX

The Council’s main form of funding for its non schools budget is council tax, with 81% coming from that source. When considering the budget for next year I have been even more aware than usual that many taxpayers will struggle to pay any increase in tax. But as I said at the start of my statement, we have to strike a balance between the needs of our service users and the burden of tax on our taxpayers.

The proposals I have put forward will require a tax increase of 2.9%, which is below the current rate of inflation. Make no mistake, I would have preferred no increase at all, but we have to be realistic about the needs of our service users.

I believe that the budget I propose does strike the right balance, given the unprecedented economic situation and the difficulties facing the Council and I commend it to you.