A budget is an annual plan of what the council plans to spend or collect in income over the coming year. We also look at the medium-term outlook and this is referred to as Medium Term Resource Strategy (MTRS).
The budget is a reflection of service’s business plans, which sets out what services and outcomes they are delivering and why, taking into account the strategic priorities of the council, against a backdrop of ensuring value for money to the residents of Essex.
Local authorities are legally obliged to set a balanced budget. Just like residents we have a finite resource and must live within our means.
Budget setting
Budget setting is the process of estimating the financial resources required to deliver the business plans, and therefore outcomes and strategic priorities of the council. The budget is set for the coming financial year, and the following 3 years (MTRS).
When creating the budget, the council will consider any service and price changes, demand, legislative change, and other factors that could impact on the resources required. When building the budget, every pound invested in a service is justified and can demonstrate value for money.
Stages of creating the budget
The budget is created in two stages, called iterations.
Iteration 1 (June position) reviews the previous assumptions set out in the MTRS and takes a refreshed view of the current position, including the current macroeconomic backdrop. This will update assumptions around inflation, interest rates, funding streams and other factors that may have changed since the budget was agreed.
Iteration 2 (October position) builds upon the foundation set out at iteration 1, and refresh assumptions based on more accurate information. It additionally brings in new savings and proposals agreed by services to help close the budget gap.
These iterations form a draft budget which is compiled by Finance in consultation with budget holders.
Roles and responsibilities
If you are a budget holder, you are responsible for making sure the budget is robust and aligns to the business plan. An Executive Director will sign off on the overall budget requirement for their function, based on an understanding of the material drivers of change.
The Finance team will assess the expected funding streams. These funding streams alongside the draft budget (at both iterations) are presented to our Corporate Leadership Team (CLT) and Political Leadership Team (PLT) to ensure that key factors driving the budget requirements are understood and endorsed.
Monitoring
Budget holders are required to provide a robust monthly forecast of their expenditure. Once the budget for the year has been set, budget holders must remain within their budget, otherwise a recovery plan is required, as per Financial Regulations. A recovery plan sets out the overspend position and the remedial action that will be taken to bring the forecast in line with budget.
Public consultation on the proposed budget
A public consultation takes place (usually around November), to make sure the concerns and priorities of local residents are understood in order that they help shape how and where the finite resources of the council are deployed. Responses are considered prior to the budget being formally submitted for approval.
Presenting the final budget to Cabinet
The final budget is presented to Cabinet in January, alongside a recommendation for the proposed level of Council Tax. Cabinet then recommends whether that budget should be reported to Full Council for ratification in February.
If the process of budget setting is not robust it may result in the council over spending, which may require unplanned remedial action to reduce expenditure or to draw on reserves to fund the pressure. Alternatively, it could result in the council setting a budget that is too high which would not offer value for money to the taxpayers.