Special Budget Edition
At this time of year, putting together the council’s budget for the coming year dominates all other activity at the council, so this edition is entirely about the council’s budget for 2017/18, the financial challenges faced by Hastings Council, and what we intend to do to meet them.
The National Framework
Cuts to local authority funding have taken place year-on-year since Labour lost power in 2010. Initially, these were somewhat haphazard, inevitably favouring the wealthier councils at the expense of councils in poorer areas, who had been funded more generously by the Labour government. But cuts to local government funding aren’t anything new.
Traditionally, local government was funded through some sort of block grant (although it had different names under different governments). The formula used to calculate this grant was complicated, and forever changing. Predictably, the changes tended to favour Labour councils under a Labour government, and Tory councils under a Tory government. But until the late 1970s, this block grant was pretty much scaled to the amount collected locally through the rates – if a council raised more in rates, it got more in block grant.
The end of this system was first signalled by Anthony Crosland, Labour Secretary of State for the Environment (and incidentally born in St Leonards) in his ‘The Party is Over’ speech at Manchester Town Hall in 1975. After that, the free reign councils had to, in effect, determine their own levels of grant, was drawn in.
With the election of the Thatcher government in 1979, this all got a lot messier. Not only was block grant to councils curtailed, but the government also introduced rate capping, placing a maximum percentage increase councils could levy on their rates. This led to a rebellion by Labour councils, many of whom refused to set a rate at all. After a few weeks of stand-off, the battle was lost when Livingstone’s Greater London Council and Blunkett’s Sheffield City Council capitulated, and the fight was over. After that, the Thatcher government introduced many more powers to restrict the freedoms of local authorities, so such a battle could not happen again.
Thatcher’s government then introduced a new form of local taxation, replacing the system of domestic rates to fund local government that had been around for a hundred years.
They claimed that a system based on property values was unfair, and that everyone should have to pay the same amount to fund their local council. Business rates were retained as a way of funding local government from businesses, but councils were no longer to have any control over the level of business rates (this would be set by government). All rates collected would be passed to central government, which would re-allocate the money to councils as a new central grant.
This approach of extreme regressive taxation to replace domestic rates, called the Community Charge, was unpopular from the start, and gave a new campaign for the left in local government. This one proved to be much more successful, with tens of thousands of people refusing to pay what quickly (and universally) became known as the Poll Tax. The campaign led to, or was a strong contributing factor to, the downfall of Thatcher in 1990. John Major, who replaced her as Prime Minister, always referred to the tax as ‘The Poll Tax’, rather than the ‘Community Charge’.
Major’s government quickly abolished the Poll Tax and replaced it with the prosaically-named (John Major really was Mr. Prosaic) Council Tax. This was a sort of cross between the old domestic rates and the Poll Tax, with taxation again based on property values, but with discounts for single occupancy of property. It was introduced hurriedly and without much thought or imagination, based on a pretty inaccurate valuation of every domestic property in the country. However, cuts to council block grant continued, and Council Tax was designed to bring in no more money to councils than the Poll Tax had.
When the Labour Government under Tony Blair was elected, they did rebalance the block grant formula to help poorer areas, but no proper reform of local government finance was carried out throughout the following 13 years of Labour Government. What they did do was introduce a set of entirely new grants, mostly short term (ie a few years). While this did mean that a lot more money was made available to (largely more deprived) councils, it also meant that local government became hard to plan and unpredictable, because no-one knew what, if anything, was going to replace each new short-term funding stream. The Blair government also introduced the principle of competitive funding, where councils had to bid into funds to get money for particular projects or purposes. The Blair government also refused to undertake a revaluation of properties for Council Tax banding purposes, relying on the increasingly outdated 1992 valuations.
The system of capping of Council Tax increases, with central government restricting the increases councils could make, was retained by the Labour Government throughout its period of administration.
When the coalition government was elected on its programme of austerity in 2010, local government funding was slashed more viciously than ever before. All the additional grant funding introduced by the Labour Government (affecting councils in the most deprived areas the most) was abolished, although an interim ‘transitional grant’ was introduced for the councils that lost the most. Business rates were reformed, with councils retaining 50% of the rates locally, the rest collected by government and reallocated, as before. Councils still had no control over the level of business rates set locally.
Block Grant (now called revenue Support Grant, RSG) was cut year-on-year, and a new grant was introduced, which was ‘top-sliced’ from RSG (ie it was not new money, but taken out of the money already available to fund local government). This new grant was called New Homes Bonus (NHB). This paid a sum of money to councils for each new home built in the council’s area, based on the council tax band for each new home. The idea of this was to encourage much-needed house building, but inevitably favoured rural councils with more housing land (largely wealthier and Tory controlled) over urban councils with little vacant land (largely poorer and Labour controlled).
Council tax increases were restricted to 2% throughout much of this period, although the coalition did introduce a ‘Council Tax Freeze Grant’ to encourage councils not to put up Council Tax, which lasted a few years. More recently, county and unitary councils have been allowed to increase their Council Tax by an additional 3%, to fund adult social care. But still no revaluation of properties has taken place.
Some elements of government funding were separated out from RSG and ‘ring fenced’, ie could only be used for specific purposes. This is mainly Disabled Facilities Grant, which is used to provide adaptations that help elderly and disabled people remain in their own homes, and Discretionary Housing Payments, which are used to top up housing benefits in hardship cases, especially where households have been hit by the Bedroom Tax or benefit cap.
The government also announced their intention to make councils ‘self-sustaining’, and get rid of RSG altogether by 2021. Instead, councils would be allowed to retain 100% of the business rates collected, although this would be subject to ‘tariffs and top-ups’ (in other words, councils that collected more business rates wouldn’t keep all of it, it would be retained centrally and redistributed).
Which brings us pretty much up to date. So local government is now funded by:
• Revenue Support Grant (to disappear by 2021);
• Business Rates ;
• Council Tax (funds about 10% of council net spending);
• Fees and charges for services;
• Trading and commercial activities ;
• Bids to external funds, including EU and Lottery.
This means there is very little local democratic control over local government spending and taxation. We are also left with a system where a significant part of the money available to local government comes from bidding into competitive funds for defined purposes, a process which is cumbersome and wasteful, and means outcomes are driven by the funds available rather than true local priorities.
And the Council Tax system of local taxation is still based on property values determined 25 years ago, meaning that bizarrely, when a new home is built, its council tax valuation has to be decided based on what it would have been worth if it had been built in 1992.
Local government finance is in desperate need of real reform!
This year’s settlement
Nationally, the government has continued its cuts to RSG, with a four-year ‘deal’ done with local authorities, which at least gives a clear picture of at what rate RSG will diminish and disappear. But there is still no clarity at all about what the implications of 100% local retention of business rates by 2021 will mean, because the ‘tariffs and top-ups’ regime is still unknown – so councils don’t know if they’ll be able to keep all their business rates, have to give some of it to the government, or receive an additional top-up grant.
New Homes Bonus was suddenly and unexpectedly changed, to introduce a 0.4% threshold, which means NHB isn’t paid unless the number of new homes built in the year is greater than 0.4% of the total local housing stock. As ever, that hits more densely populated urban councils with less housing land the hardest. The period NHB is paid for each new home is also to be reduced from six to four years, and the government announced their intention to phase out the grant altogether.
Hastings Council Budget
Background and challenges
Big cuts to our grants continue, with a 50%+ cut in government grant 2010-2017. Our income from other sources is also volatile, with low interest rates on our investments, business rate appeals making it difficult to predict future incomes (and raising the potential for big repayments from revaluations, even though the council plays no part in the valuations), factory and shop rents unstable post-Brexit, and uncertainty in the housing market, affecting both planning fees and council tax income. There is also increased pressure on council services to poorer and more vulnerable people, particularly as support services elsewhere in the public sector are cut back – homelessness and rough sleeping are increasing, for example. Inflation is likely to be an issue again, with RPI at 2.2% and predicted to rise.
What we’ve achieved
It’s worth looking at what the council has achieved over the last year, despite the cuts. This includes:
• Played our part in the re-opening of Hastings Pier (CPO and grant funding);
• Restored White Rock Baths as The Source;
• Introduced the Selective Licensing Scheme;
• Restored Bottle Alley;
• Seafront improvements including new kiosks, palm trees and Pelham roundabout;
• Installed free seafront wi-fi;
• Established the Social Lettings Agency;
• Curated and ran the ROOT1066 International Cultural Festival;
• Built a new factory for BD Foods, generating income and creating 50 new jobs;
• Began a programme of property acquisition with the Dunelm retail park;
• Achieved FLAG 2 funding for the Hastings fishery;
• Major programme of transformational change;
• Launched new website with more services available online;
• Achieved major bathing water quality improvements and Blue Flag status;
• Grotbusted 50+ properties and issued CPOs on 60+ empty homes.
But with more and more cuts on the horizon can we keep it up?
The RSG settlement for Hastings for 2017/18 was reduced by 28.1% (down £797,000 to £2.038m). This was expected, although not exactly welcome. New Homes Bonus was down 27.3% (down £379,000 to £1.009m). This was completely unexpected, and due to the 0.4% threshold. The amount of NHB Hastings received based on new housing starts in 2016/17 was just £5,000. Wealden (the richest council area in East Sussex), by contrast, received £447,000. You can see my rant about this in my latest Hastings Observer column!
A further complication has been that the government changed the way business rates are calculated. This meant our business rates software no longer worked, and has to be reprogrammed by the supplier. This won’t be done until the end of January, so for the purposes of the consultation budget, finance officers had to calculate rates for every business property in the borough manually.
So this means a cut in grant funding of around £1.1m, from a total net budget of a bit over £15m. This gap has to be filled somehow – see below for how we’re going to do it.
Income generation is now the key driver to what the council does, and will be our only hope of closing the increasing gap in future years’ budgets. We will also have to increase fees and charges for discretionary services. This year, we agreed a 10% across-the-board increase for all our services, apart from those where the fees are set by statute, or for some particularly sensitive services. Increasing charges is never popular, especially when it’s well above inflation, but fees and charges for services now have to be used to make up the cuts in government funding.
Over the last year, the council has undertaken a number of new commercial income generating initiatives, which go some way towards balancing the budget. These include:
• Purchase of Muriel Matters House (formerly Aquila House, the council’s own offices), resulting in net savings of £170,000 in 16/17, £75,000 in 17/18;
• Renting part of the Town Hall to the Registrar, raising rental income and service charges of £89,000 in 16/17, £94k in17/18;
• Commercial property investments, including the BD Foods factory in Churchfields (built by the council), the Dunelm/Pets at Home retail park, and new kiosks on the seafront, generating a net income of £200,000.
We will be looking at more ways to raise income over the coming year, which will include:
• Commercial property investment;
• Housing acquisition and development (both housing and commercial property);
• Sustainable energy generation;
• Expanding seafront assets (beach huts and kiosks);
• New events in council-owned parks and open spaces;
• Bids to external competitive funds.
Council Tax will be increased by the maximum we’re allowed to raise it, which is 2.04% (£5 a year). This is for the Hastings Council part of the bill – East Sussex County Council, Sussex Police, and East Sussex Fire and Rescue Service will be deciding their own increases separately).
This will raise about £130,000 additional income – so equivalent to only about 11% of the central government grant cut.
We’ll also be removing council tax exemption for properties undergoing major repair work or structural alteration – this will raise an additional £17,000 a year.
A big contribution to the budget has been, and will continue to be, achieved through more efficient ways of working. This means analysing the way we do things through ‘business process mapping’ and doing it more efficiently, as well as investing in new software systems and putting more transactional services online. Inevitably, these service efficiencies mean job losses, but we’ll continue to redeploy redundant staff into vacant posts wherever possible. This ‘Digital by Design’ programme and related efficiencies has saved £155,000 over the current year, with £200,000 or more still to come.
Inevitably, with such a big budget gap to bridge, there will be some cuts to services. What we’re proposing this year in our consultation budget is:
• Closure of Harold Place toilets (£64,000);
• Closure of Ore Village Centre toilets (£14,000);
• Seasonal closures at Alexandra Park, Rock a Nore and Falaise Rd toilets (£2,000);
• Community Partnership Fund reduced by £42,000 fixed for 2 years.
Harold Place toilets are particularly expensive to run, and need around £100,000 in repairs to keep them open. There are several other public toilets within a radius of a couple of hundred metres (at Pelham Place and Priory Meadow, as well as in nearby shops). If the Harold Place toilets are closed, they’ll be quickly demolished or re-used (most likely the former), and the space used for some other purpose, ideally for income generation – possibly a café.
Reductions to the Community Partnership Fund have been programmed for several years, and fit with the council’s recently adopted process for commissioning voluntary sector services, rather than offering grants.
The job losses arising from these service reductions amount to about 9 full time equivalents, although most of these will be redeployed into existing vacancies. Actual redundancies will hopefully be no more than three or four FTEs.
Despite the overall cuts, there is some growth in the budget, to improve services. This includes:
• Cultural Regeneration Officer (£65,000, making an existing temporary post permanent);
• A one-off £20,000 to make the Coastal Currents festival self-sustaining);
• Two additional planners to meet increasing demand from the planning service (£67,000);
• Waste and street cleaning enhancements (£54,000).
The cultural regeneration post will help the council continue the work it did on the ROOT1066 Festival, which attracted 70,000 people to Hastings in audiences and allowed 4,000 local people to participate in events. If we can continue the progress we made to place Hastings on the map as an important and thriving cultural centre, this will boost the town’s image and continue to benefit the local economy.
There are also some growth items stemming from circumstances outside our control. These include:
• Homelessness (predicted £63,000 additional);
• Apprenticeship Levy (£35,000);
• Development Control (£67,000);
• Cliff stabilisation (17/18 only, £200,000).
The council also has a substantial capital programme, which was enhanced in the current year and will continue next year, largely for income generation purposes, or funded at least in part from external grants. It included, for 2016/17:
• BD Foods factory £1.4m
• Purchase of Muriel Matters House £4.2m
• Purchase of Dunelm retail park £7.3m
• Disabled Facility Grants £1.4m*
• ‘Public Realm’ improvements £50,000
• CPO Empty Properties £70,000
• Kiosk above Bottle Alley £79,000
• Pelham Arcade and upper road £165,000
And in 2017/18 will include:
• Pelham Arcade and upper road £327,000*
• Coastal Space £875,000*
• Country Park £161,000
• Disabled Facilities Grant £1.4m (tbc)
• Public Realm £50,000
• CPO Empty Properties £70,000
• Coastal Defence / Groynes £2.4m*
Items marked with an asterisk are partly or wholly externally funded, often via competitive grant schemes.
Hastings Council has been very successful at bidding into external competitive grant funds, particularly from the EU, although this will end post-Brexit. EU funded projects underway in Hastings at the moment, resulting from successful bids to EU funding streams by Hastings Council, have brought £2.2m into the town, £1m of which will be spent to enhance and support the local fishery. We’re hoping to get another major EU funded programme called Community Led Local Development, which develop projects to help the most deprived parts of town. This will bring in around £5m.
Other funding streams which we’ve submitted successful bids to include the Heritage Lottery Fund, Historic England, and the Coastal Communities Fund. We’ll continue to look at all possible funding streams and bid into them wherever we can, although this process is time consuming and expensive.
The local Clinical Commissioning Group also works closely with the council and provides a grant of just over £1m, which is used to tackle a range of health-related issues in a programme developed jointly between the council and the CCG. Mental health and problems of rough sleeping have been a key part of this.
So are we the Incredible Shrinking Council?
There is no doubt that Hastings Council has got much smaller since 2010. Back then, we had just shy of 600 employees. Now we have around 340. Inevitably, we’ve had to stop doing a lot of things we used to do. Much of the work we did with community support workers, working in the poorest communities, has gone, as have the employment and training initiatives the council used to run.
But recently, the number of council employees has started to rise again. This is because we’re doing new things. The Selective Licensing Scheme to improve private rented housing, and the Social Lettings Agency, to provide rented accommodation for homeless families, have meant taking on new staff, funded from fees and charges arising out of the schemes. That’s likely to be the way of the future – more jobs that are in effect ‘self-funded’, rather than funded out of mainstream budgets.
In February 2016, the council predicted budget deficits to emerge as follows:
£881k in 2016/17
£1.49m in 2017/18
£2.481m in 2018/19
£3.5m in 2019/20.
Now, that’s been revised to:
£500k in 2016/17
£606k in 2017/18
£1.7m in 2018/19
£2.1m in 2019/20.
These favourable amendments haven’t been caused by more government grant – we’ve received less grant than expected. It’s been entirely brought about through bigger savings from more efficient working than expected, and more income generated than expected.
The gap in next year’s budget, and this year’s budget, will however still have to be closed by using reserves. But those reserves were built up in earlier years, when there was more money around, precisely because we knew there were hard times ahead. What we now have to do is find a way to close that gap permanently, because the reserves won’t last forever. We can continue to make service efficiencies (we know there are more efficiency savings to come), but the major thrust has to be income generation, and behaving more entrepreneurially. In this way, we’ll raise the money we still desperately need in Hastings, to improve the local economy, provide more secure jobs, improve housing, and address inequalities. This is ‘entrepreneurial socialism’ – generating income to address social need.
So we remain an ambitious interventionist council. We aren’t going to give up on our programme to regenerate Hastings and improve the lives of all its people.
If you want to see the full detail of the draft budget, and comment on it, you can find here.
The final decisions on the 2017/18 budget will be made at a meeting of the full Council on 22nd February.