Lib Dems set out Council budget amendments

The Liberal Democrat group on the Isle of Wight Council have welcomed the Independent Group's efforts to prevent damaging cuts to front line services proposed by the ruling Conservative Group.

However, two particular concerns not covered by the Independent Group's proposals, have been addrwssed in an amendment to the Independent Group's proposals as set out below:

Liberal Democrat amendment to the Independent Group budget.

1. The Liberal Democrat Group welcomes and supports the Independent Group's efforts to prevent damaging cuts to front line services proposed by the ruling Group.. We endorse their concerns over apparent financial mismanagement in recent years, which has seen reserves fall from £34,659,000 in April 2007 down to £14,945,000 in March 2011, even though the Council received Government Revenue Support Grant settlements during those years which were well above the national average. Despite this relatively benign financial environment the budget has only been "balanced" over the last four years by withdrawal from reserves and a massive under-spend in capital investment for the future. Appendix 7 shows that 2010-11 has been no exception.

2. Appendix 11 shows that the likely impact of non-insurable risks in the coming years amounts to £12,200,000, against which a reserve of only £4,927,000 is held. This means that all of the so called "General Reserve" is actually required to cover these risks, and if the application for capitalisation of redundancy costs is unsuccessful, resulting in a further charge to reserves, then likely risks will exceed the reserves available.

In these circumstances the Group cannot support the Labour amendment, which entails taking a further £3,267,000 from already inadequate reserves.

3. We have two particular concerns which are not covered by the Independent Group's proposals, and this amendment seeks to address those.

a. Highways PFI

i. When it was first mooted back in 2002-03, the Highways PFI was financially attractive from the point of view of the Island, if not quite so attractive to the national taxpayer. By the time the expression of interest was submitted in 2006, with a planned start date of early 2009, the initial capital investment of over £160,000,000 and 25 year running costs were estimated to cost the Island taxpayer about £700,000 per annum more than the then available revenue budget of just over £6,000,000. (The so-called "affordability gap")

ii. Since then the project has been delayed by four years until 2013, and this has been accompanied by a number of other factors all of which tend to increase the affordability gap:

• A 20 to 30% drop in Government funding
• Less appetite for risk from potential partners following the credit crunch, leading to increased financing costs
• Four years of neglect during which time the network has deteriorated significantly, raising the level of initial investment required
• A very significant reduction in the annual revenue budget for roads compared to the 2006 assumptions
• Four extra years of price inflation, and higher inflation expectations in the future, particularly for oil based products.

iii. We have not been able to obtain a clear assessment of the affordability gap as it now stands, but we are concerned that it could be so large as to create an impossible financial situation for an incoming administration in 2013 and over the following 24 years, with massive additional service reductions.

iv. Set-up costs are budgeted at £3,100,000 over the next 2 years, and before committing this sum we suggest that an independent view of the affordability of the scheme needs to be obtained.

b. Road improvements

i. Whether the PFI goes ahead or not, the planned capital and revenue investment in the road network in the meantime is inadequate. It needs to be returned at least to the level it was at before this administration took over in 2005, and as a first step we suggest an increase in capital investment in carriageway improvements of £3,000,000 in 2011-12.

ii. The cost of the resultant debt charges would be met by a further reduction in communications, performance, policy and partnership, on the grounds that many of these functions are more effectively carried out as part of normal management responsibility, and in the case of communications, better served by delivery than propaganda.

4. Proposed Amendment:

That the following additions be made to the Independent Group amendment:

a. No further expenditure on the Highways PFI should be incurred until Full Council has an opportunity to consider an independent report on the likely financial implications beyond 2013

b. An additional capital budget of £3,000,000 for carriageway improvements is provided in 2011-12, the debt charges thereon to be financed from further reductions in the central communications and performance functions.