Cllr Tatler on the 'perfect storm' facing Brent Council finances

 Cllr Tatler made no bones about it at Brent Scrutiny last night: Brent Council is facing a 'perfect storm' regarding its finances:

 

 

As already reported by Wembley Matters the combination of increased homelessness (150 families a week seeking help from Brent Council), inflation, rising interest rates, rising private sector rents and reduced private sector rental properties as a result of landlords exiting the market; combined has led to a £13m overspend by the Council.

The Resources and Public Realm Scrutiny Committee delved deeper into the repercussions and possible mitigations last night.  

One focus was the 600 plus empty properties that could easily house the 500 families and single people (858 people in all) currently in expensive bed and breakfast accommodation.  The challenge was how to contact the owners so that the Council could lease the property.  Some councillors there were more than 600 empty properties and asked how the  Council collected the figures. A councillor asked if this coudl be checked against the most recent census. In response Cllr Tatler said that the Council could reactivate the campaign to ask residents to report empty properties.

Contact Empty Property Team

Opening hours: Monday to Friday from 9am to 5pm

Phone: 020 8937 2384 option 1 then option 4

Email: empty.property@brent.gov.uk

 

There are also 600 empty council properties on the South Kilburn estate in blocks that are due to be knocked down. However, officers said many are not habitable and were needed for decanting.

There was a need to look at buying new properties and building on existing council land.  There was a corporate exercise across the Council to ensure it is not missing out on potential subsidies but subsidies were also reducing:

Extract from Officers' Report

The loss of subsidy cost is forecast to rise to £8.6m in 2023/24 (from £3.7m in 2022/23) as rents increase but the Local Housing Allowance  remains unchanged at its current level. Benefits paid to those living in Temporary Accomodation  is limited to 90% of the 2011 LHA rates which, particularly since the pandemic, is significantly less than rents being charged by most private sector landlords today. A percentage of the Housing Benefits subsidy received from DWP when compared to the total amount paid to residents is forecast to reduce by 14% when compared to the average over the last three years (67% versus a 81% average). 

Councillors also asked about loss of Business Rates with commercial properties left empty. Could the Council charge double if left empty for more than 2 years as with empty homes? They were told that was not currently within the Council's powers. Cllr Tatler said that 90% of Brent businesses are SMEs (small and medium enterprises) who had been badly hit and thus no longer viable. Chair Cllr Conneely agreed with Cllr Malloy that she would rather be asking profit-making businesses to pay more than hard-pressed residents.

Cllr Malloy said that he knew of a commercial property in South Kilburn where the big property company owner had smashed all the toilets so they they could claim the property was unusable and therefore not pay business rates. This resulted in an interesting exchange with Brent Council leader Muhammed Butt:

 

 

 Questioned about the possible use of reserves to help meet the deficit the Head of Finance said that Brent's reserves around the mid-way point for London Councils. Much was earmarked for projects and it was prudent to have reserves available for unexpected events such as a pandemic. However, there was a case for a review of use of reserves that were not earmarked. Cllr Tatler pointed out that if reserves were spent they would have to be rebuilt in subsequent years. More information on the status of reserves will be included in the Budget report in February.

 

The Head of Finance noted the cross-party  'Eastbourne letter' to the government published on Wembley Matters LINK from 119 council leaders about temporary accommodation costs. It was signed byu Muhammed Butt.

 

Recommendations:

 

1. Council to lobby government on business rates.

2. Council to have a clearer plan on effective collection of business rates.

3. Council to investigate use of census data to help identify empty properties.

4. Council to work on ways of turning empty properties into usable properties.

Information requests:

Detailed information of subsidy loss.

Data on voids.

List of empty properties if data legislation allows.

 

Cuts of £30m in Brent budget likely 2019-21

The Finance Report going before Cabinet this afternoon LINK looks towards the 2020 cliff edge when local government no longer gets a direct central government grant.

 The report looks at the cost pressures above and quotes the Audit Commission: 

“The current trajectory for local government is towards a narrow core offer increasingly centred on social care. This is the default outcome of sustained increases in demand for social care and of tightening resources”

The report notes that currently one third of the Council budget goes towards social care but that the government is publishing a green paper on social care funding and integration with the NHS in the autumn. The implications of this for the council budget are unclear and thus not included in the report.

Brent Council has made £164,000,000 'savings' since 2010 and the forecast is that another £30m will need to be cut from the budget between 2019-20 and 2020-21, £29m from general services and £1.3m from the Housing Revenue Account (HRA).

The report notes that because of uncertainties over government policy this figure only has +/-20% accuracy. More accurate figures will not be known for a year.

The officers' assume a council tax rise of 4% annually, 2% general cash funding and 2% for adult social care but note that last year a rise of 5% was allowed. CIPFA suggest that the 2018-19 council tax rise may be the biggest for 14 years.

In addition the council may also make further increases in the cost of non-statutory services provided to the public and continue to seek other  revenue raising opportunities such as selling advertising space on its buildings.

However the main source of funding in the future will be council tax and business rates.  Brent is estimated to receive £7m from the pilot 100% Business Rate Retention Pool in 2018-19 but the rate will be 75% through the Fair Funding Review and 25% in specific grants in 2020-21.

One option that Brent Council has been following is to seek to increase its council tax and business rate base - more people paying into the pot and this is particularly evident through the new housing approved in specific areas of the borough. If the new occupants are young and without children this results in increased income without much additional strain on services.

The council estimates the council tax base to increase by 2.5% a year which will be reviewed and refined as part of the financial planning process. They claim that it is harder to forecast the business rate base because of the impact of appeals (which can take a considerable time to be resolved by the VOA) and because it is more directly impacted by broader changes in the economy. They are currently working to a figure of 2% in 2019-20 but have not anything beyond that due to the forecasting difficulties.

In terms of the private student accommodation springing up around the borough, that yields little, because property is exempt if everyone living there fulls into one of several categories including full-time college or university students and 18 or 19 year-olds in full time education.

Schools to face £1.8m business rate bill for solar panels

Research by Jenny Jones, a Green Party member of the House of Lords, suggests that schools could face a business rates bill totalling £1.8 million if the Valuation Office Agency goes ahead with plans to remove the exemption for small non-domestic installations.

Of the 74 education authorities in England and Wales that responded to FOI requests, they were responsible for 821 schools with almost 14,000 kW of solar power capacity installed. Scaling that up to all 174 education authorities suggests a total business rates bill in the region of £1,800,000 per year.
 
Jenny Jones, the Green Party’s voice in the Lords said:

It's utterly absurd to penalise schools for investing in solar panels. Schools obviously face bigger financial challenges than this, but the business rate charges will stop any plans for more solar panels. Schools I have visited see them as a triple investment - in their energy costs, their pupils' education, and their future.

My research shows there is huge scope for schools to install more solar panels. While some schools have installed panels on most of their buildings, many currently have few or none at all. The Government should ditch these plans to charge rates on small solar installations and support more schools to join the clean energy revolution.

Brent Council's Financial Position Briefing Note

Further to my coverage LINK LINK on the Revenue Support Grant (RSG) freeze and the associated Efficiency Plan, this is the briefing note sent to Labour councillors and opposition leads by the Labour leadership. You will see that the 'minimal controversy' position is based on a 4% Council Tax rise in 2017-18 and 2018-19.

Briefing note

Summary financial position

August 2016

1.     Brent council is in a good financial position.  Compared to previous years, the decisions required to balance the budget for the next two years may be less difficult than previously.  New savings of £16.4m over 2017/18 and 2018/19 are required.  It is recommended that all of the proposals required to achieve this are agreed at the February 2017 budget meeting.

2.     Council tax can now be increased by up to 4% each year.  The previous financial incentives to freeze council tax have been withdrawn.  Each 1% increase in council tax yields an extra £1m in income so approximately half of the savings target could be met through council tax rises. 

3.     Officers propose to publish draft budget proposals in October.  It is anticipated that proposals more than sufficient to balance the budget could be published, provided that council tax increases of 4% in 2017/18 and 2018/19 were to be agreed.  This would enable meaningful choices to be made through the ensuing consultation process.  Most, though not all, of these proposals would reflect efficiencies in service delivery, minimising the amount of controversial proposals.  If council tax increases were not to be agreed then more challenging decisions about services would have to be confronted.

4.     It will be necessary to look at charges for services as part of the civic enterprise strategy and the planned work on parking policy and therefore potentially charging must also be considered.  Officers are not suggesting that the entire budget for 2017/18 and 2018/19 can be balanced with council tax rises and no other contentious decisions about services.  However, the quantity and scale of such decisions could be minimised.

5.     To achieve this the council must ensure that there are no structural overspends in its current budget.  Significant service pressures will need to be managed down by the end of the financial year if this budget strategy is to be delivered.  Significant savings for 2017/18 and 2018/19, agreed as part of the budget set in February 2016, will also need to be delivered.  Some, such as from procurement (£8m) and civic enterprise (£2.5m), may be managerially challenging, as we have not targeted savings of this scale in this way before.

6.     More widely, the Chancellor has indicated that economic policy will be “reset” in the autumn statement.  It is not clear what the implications of this may be for local government, or the wider economy, and updates will be provided as more information becomes available.

7.     Business rates devolution, we presume, will go ahead as planned.  DCLG is currently consulting on some of the details of this so it is not possible to provide a comprehensive update.  However, it is important to stress that the national tax take from business rates is already greater than the DCLG settlement payments to local government.  This gap will get larger by 2020 as local government grants fall.

8.     Business rates devolution will mean that local authorities receive more income than they do now.  Whitehall will therefore devolve more services to local government and require us to pay for them.  This could be cost neutral, with the cost of the services devolved being equal to the extra income received.  However, in practice this may lead to cost pressures.

9.     The choice of which services are devolved is critical.  Local government would want these to be those that could be integrated effectively with existing services, leading to improved outcomes and financial efficiencies.  This devolution could also be different in different parts of the country, especially as the business rates take in London is disproportionately high.

10.  Further updates will be brought as the position becomes clearer.

The funding crisis facing Brent Council

The current round of Brent Connects forums (this week there is one for Wembley on Tuesday (see side bar for details) will hear a presentation about the Borough plan.  That plan will incorporate a worsening financial situation for the borough over the next 4 years which seems unlikely to be mitigated by any change of government.

This is the budget cycle for the 2015-16 budget:

The Council Tax Base shows a slight increase due to increased population and more properties being built in the borough. Additionally more people are paying Council Tax after the Council Tax Support changes. However Central Government funding of local authorities continues to reduce. New Social Care legislation which caps the amount people pay and a reduction in parking charges revenue also affect the picture.

The overall impact is a reduction in funding of £50 by 2018-19:

It is also likely that changes in education funding nationally will see a decrease in London, and of course Brent, after 2015 with some envisaging school budget cuts of 12%.

The report LINK going to the Cabinet tomorrow contains the usual structures on legality:

-->

A local authority must budget so as to give a reasonable degree of certainty as to the maintenance of its services. In particular, local authorities are required by the Local Government Finance Act 1992 to calculate as part of their overall budget what amounts are appropriate for contingencies and reserves. The Council must ensure sufficient flexibility to avoid going into deficit at any point during the financial year. The Chief Financial Officer is required to report on the robustness of the proposed financial reserves.

Under the Brent Member Code of Conduct members are required when reaching decisions to have regard to relevant advice from the Chief Finance Officer and the Monitoring Officer. If the Council should fail to set a budget at all or fail to set a lawful budget, contrary to the advice of these two officers there may be a breach of the Code by individual members if it can be demonstrated that they have not had proper regard to the advice given.

This is the source of the claim, likely to be heard at Brent Connects, that the Council has no alternative but to administer Coalition cuts.

Localised business rates a potentially damaging gimmick

The Green Party has dismissed the Coalition government’s plan to “localise business rates” as a superficial gimmick – with potentially damaging effects for local government, small business and the environment.

The new plans are an example of false localisation, designed instead as a mechanism to further squeeze council budgets and services. While the proposals are portrayed as localism, both business rates and the valuations on which rates are based will be set by central government.

The proposals go further to state that any business rate growth achieved by local authorities below a centrally set growth target – adjusting for inflation – will be kept centrally. Local authorities are actually set to lose out to the treasury – if the treasury’s own targets are not met – placing further strain on the provision of already slashed services.

Jason Kitcat, Green Party Councillor and cabinet member on Brighton and Hove City Council, said: “It's absurd to even call the proposals ‘localisation’ when the key variable – the level of tax – will remain out of council control and the growth target will be set nationally for all of England.

“Small innovative businesses, such as new media and sustainability, attract little or no business rates because they are run from home or modest offices. To benefit most under the new scheme, local authorities need to favour large projects like new airports or large shopping centres. This makes a mockery of the Coalition’s pledge to support small business and will further choke an already stalling recovery.

“Business rates need to be set locally so regional authorities can adjust strategies to optimise local talent. Without this, both the local economy and the environment will suffer from corporate cherry picking”