Business rates - Salford City Council

Transcript Business rates - Salford City Council

Finance and Budget Scrutiny Select Committee

Introduction to local government finance

Agenda

• Revenue vs capital • The Council budget – The balancing act – Why budget?

– Key activities – Approaches to budget setting [FBSSC only] – Budget variances • Retention of business rates • Treasury management [FBSSC only] – Treasury management – Counterparty risk – Controls and governance • Recommended reading

Revenue vs capital

• Revenue funded by: • Council tax • Central government grants • Business rates • Fees and charges • Capital funded by: • Capital receipts • Grants • Borrowing • Contributions from the revenue budget

The balancing act

RSG Grants Business rates Council tax Rents Fees and charges

Income Expenditure

Employees Premises Transport Supplies and services Capital financing

Why do we need to budget?

• Planning • Monitoring • Controlling • Measuring performance

Key activities

• Previous year o closure of accounts o audit of accounts • Current year o budget monitoring & control o o budget updates updating forecast outturn • Next year o provisional/final grant settlements o o o o o public consultation detailed estimates considering saving/efficiency proposals finalising formal budget proposal medium term financial strategy

Approaches to budget setting

• Incremental budgeting + Simple, focuses on changes - Historic, inconsistent with effective planning • Zero-based budgeting (ZBB) + Justifies activities, prioritises resources - Resource intensive • Other o Activity-based budgeting (ABB) o Planning, programming budgeting systems (PPBS) o Rolling budgets

Monitoring budgets

Variances can occur due to:

• Delays in processing payments/income • Uneven spending patterns • Incorrect profiling of budgets • Mis-codings • Centrally managed budgets e.g. repairs and maintenance • Activity/demand changes • Incorrect budget assumptions • Poor management of resources

New developments: business rates

• Position up to 2012/13 – Collected business rates as an agent for the government – Rates set centrally – Business rates redistributed by govt according to perceived need – Redistribution NOT connected to amount collected – SCC net gainer • From 2013/14 – 49% retention by collecting authorities – System of tariffs and top-ups to set equitable starting position – System of levies and safety nets to protect big losers – Rates still set centrally – Benefit: authorities will keep 49% of any incremental increases in rates collected

Business rates: illustration

120 100 80 60 40 20 0 yr1 old yr2 old yr1 new yr2 new govt top-up redist'd/retained

Treasury management (TM)

• "The management of the organisation's cash flows, its banking, money market and capital market transactions and loan management; the effective control of risks associated with those activities; and the pursuit of optimum performance consistent with those risks.“ • Management of RISKS – Counterparty (creditworthiness) – Liquidity – Interest rate • Predicting the future… • Security of principal always more important than yield or liquidity

TM counterparty risk

• (for investments) • Institutions on Sector’s weekly credit list (creditworthiness) – Credit ratings (Moody’s, Fitch, S&P) – Modified by Sector’s expertise – Recommend durations, not £ limits • Local authorities and government bodies • EU only with Aaa sovereign rating • Aaa-rated money market funds (MMFs) • Our annual investment policy defines individual limits (£10m)

TM controls & governance

• Treasury management strategy statement – Treasury management strategy – Annual investment strategy – MRP (minimum revenue provision) policy • Treasury management practices (TMPs) • London Code • Legislation/regulation • Prudential code/prudential indicators – Annual change in capital financing requirement – Ratio of financing costs to net revenue stream – Borrowing limits – Maturity limits – Fixed/variable interest rate exposure – etc • The role of this committee