We now have £977 less to spend per resident than we did 13 years ago, with our budget having reduced by 56% over the same period. As a result of this reduction, we have needed to change and adapt as an organisation, to best deliver services for our communities.
Despite the significant pressures we continue to face, we believe that the agreed budget gives us the best opportunity we have to focus our resources on what matters most to Gateshead residents and what will help our local communities.
Key points of the 2023-24 budget are:
- almost £13.1m of savings to help address our expected funding gap (after the use of planned reserves) of £55m over the next 5 years
- the use of over £25m of reserves
- an investment of £2m in environmental services
- investing £19m in social care
- an increase in Council Tax of 2.99% with an additional 2% adult social care government charge
We've had to take £179m out of our budget over the last 12 years, which means our budget for services has reduced by 56%. This has meant significant changes to many of our services.
The COVID-19 pandemic has undoubtedly had a major impact on our budget too, and the ongoing challenges we're facing in relation to rising costs are affecting us as a Council in the same way they're affecting you in your home. The pressures facing adult social care continue to grow and we also have more children in our care than ever before.
Like all councils, we've faced increasing pressure on much needed services and limited budgets for many years.
The way Councils are funded has changed during that time and the Government has tried to move from reliance on grant funding which was based on the needs of an area, to raising local income to fund services. However demand for services has increased, costs are increasing but funding is not increasing at the same rate. The large national budget deficit will also mean funding is likely to reduce more than we originally thought.
We have looked at ways to invest wisely and secure value for money in service delivery and contracts, however our estimates show that we must do more which will require very difficult decisions and possibly new ways of working and service delivery.
Since 2010 the money we have to spend per resident has decreased by nearly £900. We expect this to be reduced by a further £250 over the next five years. This means over £1150 less per person.
- almost 90% of properties in Gateshead are in Council Tax bands A to C
- it costs just under £700,000 to run our services every day
- 70% of our overall budget is spent on social care to support those who need us most
- 41% of our income comes from Council Tax
Every Council must have a balanced budget which means expenditure cannot be more than the council's income for the forthcoming financial year.
We must plan for the future and this strategy is our best estimate of likely income and additional costs over a rolling five year period. Due to reductions in funding and pressures to increase service expenditure through increased demand and inflation many councils find that their estimates show a funding or budget gap which is when estimated expenditure is higher than estimated future income. Action must be taken to implement plans to sort this as legally a balanced budget must be set each year.
Our current plan shows an estimated funding gap of £55 million over the next five years, an increase of £10 million on last year's estimates. This is mainly due to rising inflation, which is driving up the cost of delivering services, the cost of supplies as well as contracts. Like many households and businesses, we are also facing increased energy costs and rising salaries for our own staff and those who deliver services on our behalf such as care workers
We often get asked why we don't use our financial reserves to balance our budget. In short, we do, however, we need to retain a certain level of reserves for known risks, specific planned projects and for unknown risks or emergencies. Using all of our reserves would make us vulnerable to unexpected financial pressures, such as the recent dramatic increase in inflation, and does not provide a long-term solution to our budget challenges.
Reserves (like savings) are held by the Council for many important reasons and some of these are ringfenced for a specific reason and cannot be used to support the general budget. They can also only be used once so are not a sustainable way to fund services.
When compared to other local authorities we do not hold excessive amounts in reserves.
In March 2022:
- we held £8.5m in our general fund reserve for unforeseen expenditure - we must keep 3% of our net budget as a minimum level
- we held £84.6m earmarked reserves - set aside for specific purposes
- we will use £30m of reserves over the next 3 financial years
Our revenue and capital budget reports are agreed at Council in February each year. This sets out the Council Tax levels and the capital programme of activity for the coming year. By law, we must set a balanced budget by 11 March.
The revenue budget is the term used to describe the amount that a local council spends on its day-to-day running of services. This includes wages and salaries, property and transport, running costs, repairs and maintenance, utilities and payments to suppliers.
Gross budget is the total budgeted cost before any budgeted income is considered. The total gross revenue budget for running Council Services set in February 2022 was £485 million.
The net budget is the budgeted cost of the service after all the service specific income has been taken off such as trading income, service level agreements, fees and charges and service specific grants. The total net revenue budget for 2022/23 agreed in February was £254.3 million. This is what is costs to run Council services and must be funded through government grant, council tax and business rate income.
How our revenue budgets are funded
The three main sources of funding towards meeting the cost of our revenue budget are:
- Central Government grants- direct funding from the government
- Business Rates income - a tax on commercial properties
- Council Tax income- a tax on residential properties
Central Government grants
Grants broadly fall into two categories:
Specific ring fenced grants
We must spend these on particular services or activities as they are earmarked for a specific activity such as Public Health Grant. They can also be to pass through the Council such as funding for schools and housing benefit administration. These cannot be used to fund general council services as they have set conditions for the grants use.
Core funding includes grants that the Council can spend directly on the services for which they are responsible. The main grant is called the Revenue Support Grant (RSG). Core grant funding has significantly decreased over the last years as Government tried to move away from dependence on grants and encouraged local income and funding sources.
Cuts to grant funding are harder to manage for some Councils than for others because some councils such as Gateshead are more reliant on grant funding to fund local services. Areas of high need and deprivation are likely to have less income from council tax and business rates due to lower property values and more likely to experience higher demand for services.
Local funding (Business Rates)
Business rates are collected locally. We have very little control over the tax itself and how it is determined. How much each business pays depends on the rateable value of their premises, which is decided by the Valuation Office Agency. Rates are calculated based on a fixed property valuation, which is reviewed and updated every five years. There will be a revaluation update from 1 April 2023.
We keep 49% of the income we collect from business rates, 50% is sent to central government and the remaining 1% is sent to the Tyne and Wear Fire Service. We then receive a further 'top up' payment as Gateshead is deemed less able to generate business rates based on the local economic circumstances when compared to other local authorities across the country.
Local funding (Council Tax)
Council tax is the only tax collected and fully retained locally, although the total amount residents pay includes precept amounts for the Police and Crime Commissioner, Fire and Rescue Authority and Lamesley Parish, for those residents who live in the parish. The funding is collected and then paid over to them by the Council. Despite its local nature, local authorities are subject to controls on the tax set by central government giving council's little or no flexibility.
Despite changes to house prices since council tax bands were set in 1991, we cannot increase the highest rate of council tax on high value properties, or reduce it on the lowest value homes to keep pace with these changes. This means increasingly the wealthiest pay proportionately less, while the least wealthy pay proportionately more.
For the purpose of council tax each property is assigned to one of eight bands, A to H, based on their value in 1991. For properties built after 1991, value is assessed as if the property had existed in 1991. The band a property is placed in determines how much council tax will be paid relative to other properties in the same council area. For example, a Band A property will pay two thirds of the amount of council tax paid by a property in Band D, while a property in Band H will pay double.
It is important to understand that different local authorities have very different make up of dwellings in their area. For instance, Gateshead has almost 90% of chargeable dwellings in valuation Bands A to C, this compares to 65% across England.
Very different property values in different areas of the country mean that higher-value areas (in which a greater share of properties are in top bands) can set council tax lower to fund a given level of services. Combined with the regressive nature of the band structure and out-of-date valuations, this drives much lower effective council tax rates in the South of England than elsewhere in the country.
Other sources of local income
There are other sources of income that the Council can call upon, however these are much smaller in scale:
- Reserves - this is not technically an income stream but reserves can be used to finance one off spend. Like saving for a "rainy day" reserves can be used for emergencies or set aside to meet a particular known risk or one off activity. The Council maintains a general reserve at a minimum of 3% of the net revenue budget to cover any major unforeseen expenditure. Reserves can only be spent once and are not a substitute for sufficient income for day-to-day spending, they create some much-needed flexibility in constrained budgets and are planned to be utilised in this way over the next three financial years. The use and level of reserve balances are reviewed regularly. Some reserves are ringfenced meaning they are restricted to a specific purpose and cannot be used for any other area of spend.
- Capital Investment - we have access to borrowing from the Public Works Loan Board. This has enabled us to make capital investments that may create revenue returns, savings or regeneration of an area, however we must always balance return and risk when using public money in this manner.
- Fees and Charges - councils have power to put fees and charges on a range of services they provide such as planning and leisure centres. The income from fees and charges is included in the service budgets.
How our net revenue budget is funded
Capital spending is money spent on creating or improving assets where the benefits last more than 12 months. This often includes spending on things such as land and buildings or vehicles and equipment, which can be used over a long period. For example, if you purchase a house, this is your capital expenditure. This kind of spend is different to revenue spend, which covers day-to-day items to run services such as staffing and purchase of services, so it is budgeted for separately. Your daily outgoings such a purchasing food is the equivalent of revenue expenditure.
If we modernise a property, this is capital expenditure. If we unblock a drain, it is revenue expenditure. Capital expenditure is usually one-off in nature, it can be a significant amount and can span over a number of financial years.
The Council's five-year capital programme is informed by the availability of money identified within the Council's financial plan. The capital programme is reviewed and approved annually by Council. The planned investment agreed in February 2022 for the capital programme totalled £491 million.
Priority is given to schemes which support the achievement of the Council priorities, generate revenue savings or economic growth, maintain Council assets or are a statutory requirement.
How our Capital expenditure is funded
- Prudential Borrowing - This is the main source of available funding and allows the Council to borrow from the Public Works Loans Board (PWLB) or market loans to fund the capital programme. Borrowing must be affordable so we have to be sure that we can pay back any borrowing including the principal and interest.
- Government Grants - Grants can be made available to fund certain capital expenditure usually transport or school related. In most cases grant will part fund the project but will not provide ongoing revenue support.
- Capital Receipts - These are the proceeds from the sale of council land, buildings and council houses greater than £10,000.
- External Funding - Grants and other contributions may be awarded as part of annual settlements to support general capital expenditure, following applications for external funding to support specific schemes or through private sector contributions.
- Major Repairs Reserve (MRR) - This funds capital expenditure within the Housing Revenue Account and is ring-fenced for capital purposes.
How we know what is Capital and what is Revenue
There are strict rules that define whether expenditure is revenue or capital. There are links between the two as spending money on new assets, improving them or on regenerating an area for example can lead to cost savings or increased income in the revenue budget. This is always considered as part of the business case for new projects. Any cost of borrowing will have loan repayment and interest costs (like a mortgage) and the cost of borrowing is charged as a cost into the revenue budget.
Are all services funded from the same pot of money?
Every Council has a general fund which is where most services' spend and income is held however there are a few accounts we also run which are kept separate from main Council budgets.