Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!
-
Upload
rene-boney -
Category
Documents
-
view
232 -
download
1
Transcript of Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!
![Page 1: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/1.jpg)
Local Government Finance Explained
![Page 2: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/2.jpg)
Welcome!
• Objectives
• Questions
• Jargon
• Don’t panic!
![Page 3: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/3.jpg)
Our Agenda
• The legal framework• Revenue funding• Capital funding• The budget setting process• The budget monitoring process
![Page 4: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/4.jpg)
What the law says
• The Council must have:– A Medium Term Financial Strategy– A balanced budget with adequate
reserves – Financial Regulations, usually as part
of the Council’s Constitution– A “Section 151” Officer
![Page 5: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/5.jpg)
The “Section 151” officer
• Section 151 of the Local Government Act 1972
• Ensures effective financial management
• Provides financial advice, procedures and systems
![Page 6: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/6.jpg)
The Auditors
Internal Audit• Tests internal control at the council• Detailed reports provided to
management• Work evaluated and considered by
the Audit Committee (or equivalent)
![Page 7: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/7.jpg)
The Auditors
External Audit• Currently provided via the Audit
Commission• Provides audit and value for money
opinions • The future of local government
external audit?
![Page 8: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/8.jpg)
The Housing Revenue Account
• The “landlord” function of providing council housing
• Only required if your authority owns housing stock
• “Ringfenced” and cannot be subsidised by the General Fund
![Page 9: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/9.jpg)
The General Fund
• All services apart from council housing
• Beware, non “landlord” housing duties will be part of the General Fund
• e.g. Housing Benefits, Support to Housing Associations etc
![Page 10: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/10.jpg)
Revenue v Capital
Revenue• The running costs of the council• Generally under one year life• e.g. Employee costs, transport &
premises running costs, supplies and services
![Page 11: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/11.jpg)
Revenue v Capital
Capital
• Creating and improving assets
• Over a one year life
• e.g. Buildings, infrastructure, vehicles, large items of equipment
![Page 12: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/12.jpg)
Revenue v Capital
• The council receives separate funding for revenue and capital
• Revenue funding may be used for capital purposes
• Capital funding cannot be used for revenue purposes
![Page 13: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/13.jpg)
HRA Funding
• The current system
–Housing Rents
–Service charges
–Housing Subsidy Grant
![Page 14: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/14.jpg)
HRA Funding
• The new system (subject to the Localism Bill)–Fully local funding of the HRA–No Housing Subsidy Grant–A one-off redistribution of debt
between councils
![Page 15: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/15.jpg)
Revenue funding - sources
• Council Tax• Formula Grant• Specific grants• Fees and charges• Investment interest• Use of reserves and balances
![Page 16: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/16.jpg)
Council Tax
• A tax on domestic properties• The level of tax depends on the
property value on 1 April 1991• The level of Council Tax must be
formally approved by full Council prior to the start of the financial year
![Page 17: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/17.jpg)
Controlling Council Tax Levels
• Council Tax “Capping”
• In 2011/12, a one-off grant equivalent of a 2.5% increase in Council Tax
• From 2012/13 - local referendum on “excessive” increases
![Page 18: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/18.jpg)
The New Homes Bonus
• New for 2011/12
• “Match funding” the increase in Council Tax base as a result of new homes
• Funding remains (and builds) for 6 financial years
![Page 19: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/19.jpg)
Formula Grant
• Government Spending Review 2010 determines overall amount
• The Local Authority “Settlement” informs each council of their individual grant allocation
![Page 20: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/20.jpg)
National Non Domestic Rates
• Nationally determined since 1990• Billing authorities send out bills and
collect the tax• Proceeds are “pooled” nationally• Redistributed back to councils via
the Formula Grant
![Page 21: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/21.jpg)
Specific Grants
• Money to reimburse all, or a proportion of, spending on defined services
• Can be subject to individual audit certification
• Many have been “rolled into” Formula Grant from 2011/12
![Page 22: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/22.jpg)
Fees and Charges
• Many individual services have specific legislation concerning charging
• The Local Government Act 2003 provides a power to charge for all discretionary services
• Income cannot exceed the cost under the LGA 2003
![Page 23: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/23.jpg)
Investment Interest
• Councils invest surplus funds to earn interest
• The Treasury Management Policy determines where the money is invested
• The balance between “risk” and “return” is key
![Page 24: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/24.jpg)
Use of Reserves and Balances
• Minimum level of reserves agreed by the council
• The Section 151 Officer reports on the adequacy of reserves
• Using reserves is fine, but once used, they are gone forever
![Page 25: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/25.jpg)
Capital funding
• Capital receipts• Borrowing• Capital grants• Contributions from private
developers• Revenue contributions
![Page 26: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/26.jpg)
Capital Receipts
• The proceeds of sales of assets
• 100% usable for general fund assets
• “Right to Buy” receipts currently “pooled” – 75% are returned to central government
![Page 27: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/27.jpg)
Borrowing
• The Prudential Code for Capital Finance (CIPFA)
• Councils can borrow if considered affordable and prudent
• Councils can borrow from the banking sector, but usually use the “Public Works Loans Board”
![Page 28: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/28.jpg)
Contributions from Developers
• Town and Country Planning Act Section 106
• The Community Infrastructure Levy
![Page 29: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/29.jpg)
The Financial Management Process
Medium Term Financial Strategy
Annual Budget
Revenue Capital
Capital Programme
Spending
![Page 30: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/30.jpg)
Roles and Responsibilities - Members
• Full Council debates and agrees the annual budget and the MTFS
• The Executive proposes the budget to full Council
![Page 31: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/31.jpg)
Roles and Responsibilities - Members
• Scrutiny reviews, influences and makes recommendations to improve service delivery and the budget etc.
• The Audit Committee monitors internal control and audit issues
![Page 32: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/32.jpg)
The Budget Timetable
April
September
December
February CONSULT?
![Page 33: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/33.jpg)
Budgeting for Front Line ServicesService expenditure
+Central recharges
=Total expenditure
-Income
=Net Expenditure
![Page 34: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/34.jpg)
Budgeting for Central ServicesService Expenditure
+Central recharges
=Total expenditure
-Recharges
=Net Expenditure (0)
![Page 35: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/35.jpg)
The Capital Programme
• Project based• “Prudential Indicators”• Has the MTFS picked up the
revenue implications?
![Page 36: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/36.jpg)
The Budget Monitoring Process
Approved Budget
Compare with actual spending
Take action
on “variances”
Impact on future years?
Service
Performance
![Page 37: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/37.jpg)
Roles and Responsibilities
• Delegated authority• Detailed monitoring and control by
“Budget Holders”• The finance department provides
budget monitoring information and support
![Page 38: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/38.jpg)
Roles and Responsibilities
• Executive members provide political overview of the budget monitoring process
• Scrutiny ensure budgets are being monitored thoroughly and review “problem areas”
![Page 39: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/39.jpg)
Linking Finance and Service Performance Information
• Over spend? - Unforeseen demand for a service?
• Under spend? - not achieving a service plan target
• Always consider both sides of the coin!
![Page 40: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/40.jpg)
Key Messages• Local government finance is complex!• Elected members approve the budget
and ensure that spending and income are monitored effectively
• Always consider financial information alongside service performance information
![Page 42: Local Government Finance Explained. Welcome! Objectives Questions Jargon Don’t panic!](https://reader035.fdocuments.net/reader035/viewer/2022062511/551b337f550346d41a8b4fc7/html5/thumbnails/42.jpg)
These training materials provide LG Futures view of current practice and contain general advice and comments only. You should seek further advice from your organisation’s finance professionals before acting upon any of the specific issues
covered within the materials or placing reliance upon them in any particular circumstances.
© 2011 LG Futures Ltd. All rights reserved