Appendix 1

FINANCIAL MANAGEMENT STRATEGY 2012-2015

1. Introduction
1.1 The Council published an outline Financial Management Strategy as part of the
Budget report agreed by Council in February 2011. This set out an overview of the
approach to making the best use of financial resources to help achieve the Council’s
vision and ambitions for the Borough.

1.2 Since then, the economic climate has worsened and the effects of the global
recession have been felt right across central and local government, local
communities and businesses and service users. The context within which the Council
is operating continues to be extremely challenging. Fast paced and significant
economic changes nationally and internationally, coupled with national government’s
policy changes continue to have a considerable impact on Council activity. The
Council has had to respond more swiftly than ever before to these challenges with
greater emphasis on strategic financial planning.

1.3 It has been apparent for some time that the starkest impact on the Council would be
through a combination of substantially reduced funding together with an increased
demand for some services from those residents in need of additional support. The
2012/13 Provisional Local Government Financial Settlement (the Settlement) re-
affirmed the council’s Formula Grant allocation announced in 2011/12, a reduction of
7.4% over 2011/12 grant. As yet there is no firm indication of the likely quantum of
savings required for 2013/14 and 2014/15. As a direct consequence of the worsening
economic climate, the Council needs to be mindful that there may be savings
requirements significantly larger that initially modelled.

1.4 These pressures cannot be contained through “efficiency gains” alone. The Council
now needs to think clearly and creatively about what is affordable and how it is best
delivered.

1.5 An additional challenge has been set by the Council administration that has made a
commitment to residents that council tax will be kept as low as possible. In 2011/12
the Government announced a four year Council Tax Freeze Grant award to
authorities who did not increase council tax in that year, which the Council accepted.

1.6 The government has offered a second Council Tax freeze grant in 2012/13, but only
for one year and it is not built into the funding formula for the council. This adds to the
funding risk in the medium term from 2013/14 onwards. Accepting both grants means
that the Council will see a dramatic fall in income at the end of each freeze grant, the
“cliff edge” and will need a steeper increase in Council Tax, if income streams are to
be maintained after each Council Tax freeze period. This is likely to create some
tension between the financial strategy and manifesto pledges. In the medium to long
term Members would need to agree either a one off large increase or small stepped
increases to restore the Council Tax base lost as a result of accepting the council tax
freeze grants.

1.7 It was confirmed in the Localism Act 2011 that a maximum increase of 3.5% in
Council Tax for 2012/13 would be permitted, above which a referendum will be

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Appendix 1

triggered. This threshold can be used as an estimate of the likely position in future
years but it could be lower. This will create further constraints on the Councils ability
to act to raise Council Tax in order to support future service delivery.

1.8 These funding constraints have redrawn the boundaries within which all investment
and operational spend must be contained. This revision of the Council’s strategy
reflects the approach to meeting these new challenges.

Strategic Approach to Service and Financial Planning (SFP)

1.9 In view of the further significant budget cuts and the complex context within the
Council is working, an enhanced approach to service and financial planning has been
in place. This approach has striven to deliver a financial strategy which is focused
primarily on ensuring the delivery of the Council’s Corporate Plan and associated
outcomes, whilst attempting to mitigate and alleviate the impact on the most
vulnerable groups in the community where possible. It has done this by prioritising
the areas for reduction against the priorities of the organisation outlined in the
Corporate Plan, and using transformation as a tool to release further savings into the
medium term rather than applying flat targets.

1.10 As a result the Council has, since the 2010 Spending Review, identified revenue
savings across all of its activities amounting to £88.5m over the 4 years to 31 March
2015, which leaves a further forecast of £6.0m of savings to be found through future
Service and Financial Planning processes, focusing particularly on how the
transformation of services can be used to release these savings.

1.11 The Council is working towards becoming a co-operative council, which is an integral
part of the SFP process. The key principles to be considered in the current and future
budget proposals are set out below:

Cooperative Council - Key principles

• Principle 1: The council as a strong community leader.

• Principle 2: Providing services at the appropriate level personalised and community

based.

• Principle 3: Citizens and communities empowered to design and deliver services and
play an active role in their local community.

• Principle 4: Public services enabling residents to engage in civil society through

employment opportunities.

• Principle 5: A settlement between public services, the Council’s communities and the
citizen (this is what the Council provide, this is what you do for yourself) underpinned
by the Council’s desire for justice, fairness and responsibility.

• Principle 6: Taking responsibility for services – regardless of where they are

accessed or which agency provides them.

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Appendix 1

• Principle 7: Simple, joined up and easy access to services – location and transaction
i.e. "one place to do it all", "one form, one time to do it all" – providing visible value for
money

2. Summary of the Financial Management strategy

2.1 In this document the Council have set out:

2.1.1 The background financial context for the revised strategy (Section 3)

2.1.2 Outcome and risk frameworks (Section 3) including:

§ The broad focus of the Council’s partnership sustainable community

strategy
§ Cooperative Council Priorities and Outcomes
2.1.3 Financial Management strategies to manage the risks and achieve the specified
outcomes with additional detail on the Council’s Priority Focus strategies (Section 4)

2.1.4 Financial Management values and principles (Section 5)

2.1.5 Approaches, processes and tools in place to support the planning, delivery and
review cycles of both the Revenue and Capital elements of the strategy (Section 6)

2.1.6 A summary of the detailed work already underway to progress the Priority Focus
strategies and the associated governance (Section 7)

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Appendix 1

3. Context for the Financial Management strategy 2012- 2015

3.1 The context within which the Council is operating continues to be extremely
challenging. Fast paced and significant economic changes nationally and
internationally, coupled with national government’s policy changes continue to have a
considerable impact on Council activity. The Council has had to respond more swiftly
than ever before to these challenges with greater emphasis on strategic financial
planning.

3.2 The current financial envelope under which the Council is planning its medium term
strategy is to find savings of £94.5m during the four year Spending Review period –
2011/12 to 2014/15. Future annual Local Government Finance settlements will result
in a reassessment of the requirements

Spending Review 2010

3.3 The Coalition Government’s Spending Review 2010 (“SR2010”) announced in

Parliament on 20th October 2010 set the financial envelope for the 4 years from
2011/12 as well as setting out revised approaches to funding distribution. The
following key headline changes to Local Government funding were presented:

Local Government Finance Settlement 2012/13

3.4 The 2012/13 Provisional Local Government Financial Settlement (the Settlement) re-
affirmed the council’s Formula Grant allocation announced in the Settlement in
2011/12. It comprised reductions in formula grant averaging 7.4% for 2012/13 and
reductions in undamped formula grant of 18.4%, leaving the council increasingly
dependent on the floor damping mechanism. The Settlement made no allowance for
high-need low-tax base floor authorities such as Lambeth, leaving the council to fund
increasing demand.

3.5 These reductions translate into a challenging savings target for the Council of
£29.2m in 2012/13. While there is no indication as yet what the saving requirement
will be for the final two years of the spending review period the Council has a prudent
saving target of £12.5m and £15.7m for 2013/14.and 2014/15 respectively. There is
no reason to assume that any reduction in the overall savings target profiled for the 4
years of the SR period will be made through future settlements. As a direct
consequence, the Council needs to be mindful that there may be savings
requirements significantly larger that initially modelled.

3.6 The Government has offered a second council tax freeze grant for 2012/13 but only
for one year. This is covered in more detail in paragraph 1.6 of this document.

Housing Revenue Account (HRA) – Self Financing

3.7 Under the Localism Act 2011, the Government has abolished the current HRA
subsidy system and introduced a system of self financing from 1 April 2012. Under
the new system rental income will be retained locally and used to meet the costs of
service provision.

3.8 The introduction of HRA self-financing will result in the repayment of £164m of PWLB
loans by the CLG, reducing PWLB long term borrowing to £437m. The change will

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Appendix 1

necessitate the creation of separate HRA and GF loan pools. There will be a further
reduction of £22.6m as a result of the LATMOS Large Scale Voluntary Transfer. After
taking this into account the opening loans fund balances for 2012/13 will be £248m
for the HRA and £166m for the General Fund. Interest payable in both funds will be
based on interest rates applicable to loans in each pool, rather than a statutory
recharge to the HRA. This will increase the average cost of borrowing from 4.85% to
5.57% in the HRA.

3.9 The Council owns in excess of 25,000 dwellings. In undertaking planned

maintenance, major repairs and Decent Homes works, the expenditure must be met
from the Capital Investment Programme. The Council has insufficient internal
resources to finance these works, which means that the funds must be borrowed to
ensure investment in HRA assets is maintained.

3.10 A new 30 year HRA business plan has been produced to enable the impact of the
new funding regime to be modelled for Lambeth. Work is being finalised in 2011/12
with the impact of the new model being reflected in the HRA budget setting proposals
that will be presented to Cabinet in February 2012 for the financial year 2012/13.

Capital funding

3.11 The Council will be investing £469.3m in improvements to housing schools and
transport infrastructure from 2012/13 to 2014/15. In contrast to previous years a
smaller proportion of this funding now comes from central government. 33%
compared to 75% for the period 2007/08 to 2009/10.

3.12 This is largely due to the last Coalition Government’s Comprehensive Spending
Review where it was announced that the support for capital spending will be
significantly reduced over the Spending Review period (2011-2015).

3.13 Alongside this, the Coalition Government have moved to issuing capital grants
instead of supported borrowing for specific departmental capital programmes.
Furthermore the Localism Bill will ratify the implementation of the HRA self financing
system and herald the end of the old subsidy system.

3.14 This has required a change to the Council’s financing strategy.

• The capital financing strategy going forward will utilise accumulated balances to
internally finance HRA capital investment.
• Projects are only added to the main programme when there is a degree of certainty
regarding the financing, e.g. 100% grant funding confirmed by allocation letter. This
also applies to capital receipts generated by disposals
• The Pipeline has been successful in targeting investment on the Council’s priorities
Pupil Places, Highways and Roads, Decent Homes. (The pipeline currently holds 16
projects totalling £47.6m)
3.15 The Council’s capital programme (Appendix 9) has been constructed to deliver the
projects that the Council has already committed to along with its own priorities noted
above.

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Appendix 1

3.16 Apart from managing resources within the Governments deficit reduction policies for
the public sector there are a number of major financial changes planned to be
introduced that is likely to impact upon capital funding between now and 2014;

(a) Changes to Academy and Local Education Authority funding (April 2013).
(b) Adoption of the HRA Self financing regime from April 2012.
(c) The implementation of recommendations contained within the James Review
(d) Dwindling capital receipts (however this may be offset by the potential softening
of planning rules and extra incentives to council tenants to buy their own homes)
3.17 Some of these changes will require the Council to work differently than before and
the Council is already seeing the impact of this with the 30 year business plan for the
HRA for example. However the new capital governance arrangement means the
Council is in a good position to be able to respond to these changes.

Outcome and Risk frameworks

3.18 Lambeth’s Sustainable Community Strategy (2008–2020) sets out a long-term vision
for the borough with a shared partnership focus on worklessness and becoming a
cooperative borough.

3.19 The cooperative council Corporate Plan (figure 1) sets out Lambeth’s aspirations for
the next three years through the delivery of three key priorities (a caring borough, an
aspirational borough and a safe and secure borough). It describes the outcomes to
be delivered to meet these aspirations and outlines how the Council will transform its
ways of working to improve services and meet the financial challenges facing local
authorities by becoming a cooperative council and increasing the focus on
preventative and targeted services. The council’s outcomes framework is key. It
provides the ‘golden thread’ which delivers on the administration’s manifesto
commitments1 and drives all the work of the organisation, including its approach to
financial management.

1
The Council’s administration made the following five key manifesto commitments to residents on their re-election in
May 2010: To keep council tax low; To protect front-line services by ensuring better value for money and driving out
cost; To work more closely with communities and service users as a cooperative council to improve service quality for
everyone; To deliver rapid and sustainable improvement in the housing service and To protect the most vulnerable whilst
expanding opportunity for all

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Appendix 1

Figure 1 Corporate Plan

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Appendix 1

4. Financial management strategy

4.1 This strategy is the approach or course of action the Council is undertaking to
achieve the Council’s specified financial management outcomes. The strategies
will focus on how the Council responds to the key risks outlined in paragraph 4.4,
which shows the major financial challenges it is facing as a result of the general
impact of the economic climate, in particular the significant reduction in funding.

4.2 These strategies are as follows:

• Funding Strategies: Income

• Funding Strategies: Cash management
• Spend Strategies
• Asset Management Strategies
• Financial Planning, Forecasting and Reporting
• Governance Risk and Control
• Delivering Financial Strategy

4.3 The relationship between the Financial Management Strategy and the
cooperative council agenda has been made clear by the ‘Golden Thread’. The
Golden Thread provides clear linkages from the outcomes the council aims to
achieve for the borough through to council and departmental priorities and on to
individual performance review objectives. These links are clearly shown in the
plans produced through the service and financial planning process

4.4 The Golden Thread is exemplified below:

The cooperative council priority

The cooperative council outcome

Financial Management Strategy

Work Streams

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Appendix 1

4.5 Below are the Financial Management Outcomes and Key Risk Management Issues are outlined below. It is acknowledged that
the key risks identified, if they are not properly managed, could undermine the successful achievement of the priorities and
outcomes of the cooperative council and the financial management outcomes. As such actions to be taken to mitigate these
risks have been identified

FINANCIAL
‘GOLDEN THREAD’ MANAGEMENT
OUTCOME
The Council can make
optimal use of financial
resources to maximise
sustainable benefits for the
people of Lambeth
9
KEY RISK ISSUES
Likelihood of inadequate resources to meet
community needs and political aspirations
given:
• Confirmed government funding
settlement reductions
• Reduced external funding
opportunities
RISK MITIGATION
Funding Settlement:
• Both Officer & Members will lobby at all
levels to advance the council’s interest in
financial settlements & financing regimes
(initially, current HRA financing reforms).
Specific grants:
• The Council will place no reliance on
continued resourcing of services through
specific grants in the SFP. The Council
will explicitly reflect the implications on
service provision of any further significant
reductions in external funds available.
• The Council will record transfer
payments received from Central
Government for Housing Benefit and
schools as “in & out” transactions. The
Council will explicitly reflect the
immediate implications on service of any
further significant reductions in
passported funding
Fees and Charges:
• The Council will benchmark the key fees;
Charges and levies and seek to bring
them into line with levels set by
equivalent councils, having due regard to
the Council’s social and environmental
responsibilities.
The Council will set the pricing to reflect
the true cost of providing each service
rather than basing levels on historic
 Appendix 1

norms

FINANCIAL
‘GOLDEN THREAD’ MANAGEMENT
OUTCOME
The Council can make
optimal use of financial
resources to maximise
sustainable benefits for the
people of Lambeth
KEY RISK ISSUES
Likelihood of inadequate resources to meet
community needs and political aspirations
given:
• Investment environment and
reduced investment income will
detrimentally impact service
provision and result in reputational
damage
RISK MITIGATION
Debt:
• The Council will streamline the invoicing
and debt collection processes to simplify
the customer experience, reduce
transaction costs and improve collection
efficiency.
• The Council will invest in an extended
range of payment options available to
residents to help make it even easier to
pay.

• The Council will target those residents

identified as multiple debtors with poor
payment records both to support them
directly with financial or benefits advice
and to improve collection of the debt.

Payment:
• The Council will maintain the existing
payment terms at 30 days (SME 10 days)
in recognition of the impact the economic
downturn is having on the suppliers.

• The Council will capture additional

process efficiencies through more
streamlined ownership, increased
automation and encouraging efficient
behaviour is in the customers (such as
electronic invoicing and remittance
documentation.)

• The Council will redesign the payment

process for small value supplies (under
£500) which make up over 50% of the
invoice processing burden but represent
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Appendix 1

less than 1% of the total annual spend.

Treasury management:
• The Council will manage the cash
reserves and investments prudently to
continue to ensure the following
outcomes in order of priority:
§ Security of the
deposits/holdings
§ Liquidity (availability
of cash to meet the
cash flow needs)
§ Yield (of income
earned from the
investments)

• The Council will manage the cash

balances to meet the cash flow
requirements instead of increasing long
term borrowing

• The Council will optimise the strength of

the balance sheet, by utilising the
borrowing to fund Decent Homes and
other major works

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 Appendix 1

FINANCIAL
‘GOLDEN THREAD’ MANAGEMENT
OUTCOME
The Council can make
optimal use of financial
resources to maximise
sustainable benefits for the
people of Lambeth
KEY RISK ISSUES
Likelihood of inadequate resources to meet
community needs and political aspirations
given:
• Impact of economic downturn on
service demand and the Council’s
ability to honour Council’s contractual
obligations
• Risk of being unable to support
expenditure within the 3rd Sector.
RISK MITIGATION
Business delivery:
• Core business”: The Council will target its
resources to ensure high quality service
provision in all statutory, political and
community priority areas. The Council will
seek to establish alternative models for
resourcing non-statutory and lower
priority services to maintain a good
quality service provision to the Council’s
residents.
• Administrative support functions: The
Council will reconfigure the Council’s
support architecture to capitalise on new
technologies, streamline process
ownership and responsibilities and
capture further efficiencies through
innovative delivery models.
• Innovation: The Council will seek
innovative, alternative means of financing
service delivery including pooling of
partnership resources, funding vehicles,
joint procurement with other authorities /
public agencies and commercial /
entrepreneurial opportunities.

Staffing productivity:
• The Council will invest to capture
technology, process and working practice
efficiencies and hence improve
productivity and reduce staff
establishment requirement.
• The Council will benchmark job
descriptions, grades, allowances and post
numbers across equivalent functions and
comparator authorities, bringing terms
and conditions into line with market
norms to ensure retained staff are
incentivised to make the improvements in

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Appendix 1

productivity the Council need.

• The Council will develop principles and
mechanisms to share the risks and
rewards of productivity improvements
with staff teams and individuals.

Shared service provision:

• The Council will actively seek to capture
efficiency gains with the LSP partners
and other neighbouring authorities
through pooling resource capacity,
economies of scale and shared best
practice in service provision across the
partnership and the wider area.

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 Appendix 1

FINANCIAL
‘GOLDEN THREAD’ MANAGEMENT
OUTCOME
The Council can make
optimal use of financial
resources to maximise
sustainable benefits for the
people of Lambeth
KEY RISK ISSUES
Likelihood of inadequate resources to meet
community needs and political aspirations
given:
• Impact of economic downturn on
service demand and the Council’s
ability to honours contractual
obligations
• Risk of being unable to support
expenditure within the 3rd Sector
RISK MITIGATION
Contracts:
• The Council will aggressively challenge
the pricing of new or renewal contract
terms to derive an increase in value from
contracted spend.
• The Council will refocus the Council’s
contract management to increase value
obtained from existing contracts.
Spend with the 3rd Sector:

• The Council will invest in capacity

building in the 3rd Sector to help those
organisations bring additional funding
from alternative sources into the Borough
and to work with the Council in co-
operative service provision models.
• The Council will target
grant/commissioning funding to those 3rd
Sector organisations who complement
the Council’s own service provision by
working to provide residents with the non-
statutory or lower priority services which
the Council can no longer directly
resource.

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 Appendix 1

FINANCIAL
‘GOLDEN THREAD’ MANAGEMENT
OUTCOME
The Council can make
optimal use of financial
resources to maximise
sustainable benefits for the
people of Lambeth
KEY RISK ISSUES
Likelihood of inadequate resources to meet
community needs and political aspirations
given:
• Failure to maintain an appropriate
portfolio of assets and
infrastructure fit for purpose
through sustainable investment
limits opportunities to optimise their
use
• Lack of a detailed, cohesive
Finance strategy across the
organisation results in mis-direction
of resources away from priorities,
inconsistent decision-making and
reduced VFM.
RISK MITIGATION
Portfolio rationalisation:
• The Council will routinely bring together
accurate information on the value and
efficiency of assets to support decisions
on investment or disinvestment from the
asset portfolio.
Fit for purpose investment:
• The Council will prioritise investment in
retained assets to ensure they are fit for
purpose and their use can be optimised.
Full utilisation of assets for community
benefit:
• The Council will optimise the use of
council assets for community benefit
including full utilisation outside core
council hours, delivery of cross-agency
community-based services or asset
transfer of surplus assets.

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 Appendix 1

FINANCIAL
‘GOLDEN THREAD’ MANAGEMENT
OUTCOME
The Council can make
optimal use of financial
resources to maximise
sustainable benefits for the
people of Lambeth
KEY RISK ISSUES
Likelihood of inadequate resources to meet
community needs and political aspirations
given:
• Failure to maintain an appropriate
portfolio of assets and
infrastructure fit for purpose
through sustainable investment
limits opportunities to optimise their
use
• •
• Lack of a detailed, cohesive
Finance strategy across the
organisation results in mis-direction
of resources away from priorities,
inconsistent decision-making and
reduced VFM.
RISK MITIGATION
“Co-operative” ownership:
• The Council will develop principles and
mechanisms for co-operative ownership
of assets to enhance and simplify
community access and benefits
Funding of strategic projects:
The Council will explore innovative
funding solutions including special
purpose vehicles or commercial/social
enterprise developments to minimise the
public sector capital financing burden.
Sustainable investment:
• The Council will identify sustainable
revenue streams to support both
investment and the whole of life costs
associated with new and existing assets.

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 Appendix 1
FINANCIAL
‘GOLDEN THREAD’ MANAGEMENT
OUTCOME
The Council, its partners and
stakeholders can
understand the Council’s
medium-term financial
position within the context
of the wider, external
environment including
financial risks and future
pressures facing the
borough.
17
KEY RISK ISSUES
• Inadequate analysis of external
financial intelligence disadvantages
the organisation in its financial
planning process
• Lack of understanding of resources
available borough-wide (Total
Place) means opportunities for
innovative service resourcing are
lost
• Mis-statement of accounting entries
or in draft financial statements
means financial records do not
represent a true and fair depiction
of the financial activity of the
council. The organisation will fail to
meet statutory requirements and
accounting standards.
RISK MITIGATION
• Undertake periodic review of external
financial intelligence to identify and
highlight relevant risks and pressures
• Utilise a comparative data set to place the
council’s performance in context
• Model the financial impact of planned
activities including joint plans with
partners and other stakeholders in a 3
year MTFS model
• Operate a council-wide, consistent
process of compiling financial statements
to ensure accuracy, reliable supporting
evidence and year-on-year integrity
• Prepare external financial reports to IFRS
standards with transparency on
sustainability and joint partnership
financing
 Appendix 1
FINANCIAL
‘GOLDEN THREAD’ MANAGEMENT KEY RISK ISSUES
OUTCOME
The Council can manage its • The financial governance mechanisms
spending within affordable are inadequate to ensure that all
levels without undue decisions are in line with the overall
reliance on balances and financial strategy and ensure
reserves to fund ongoing transparency, probity and propriety in
commitments. stewardship of funds
• Inappropriate emphasis in financial
monitoring means significant financial
risks remain undetected until too late
to manage them pro-actively
• Inadequate balance sheet
management (provisions, reserves,
suspense, reconciliations) undermines
understanding of forecast position
18
RISK MITIGATION
• Operate comprehensive financial
governance arrangements to ensure
transparency, probity and propriety in the
stewardship of public monies (including
partnership funds) under the control of
the s151 Officer
• Operate strong financial controls to
manage the risk of errors, mis-
management, fraud or corruption arising
internally or across partnership working
• Systematically challenge and secure VFM
and Use of Resources standards
• Conduct regular in-year progress
monitoring of financial performance
(including partnerships) to give early
notice and manage identified risks,
deterioration or improvements in the
financial position
• Maintain a corporate capacity through
reserves, contingencies and insurance to
manage unforeseen risks and cost
pressures
• Maintain a strong Balance Sheet position,
supporting appropriate financial ratios
(such as liquidity, debtor and creditor
balances)
 Appendix 1
FINANCIAL
‘GOLDEN THREAD’ MANAGEMENT KEY RISK ISSUES
OUTCOME
The Council can manage its • Lack of alignment between the
spending within affordable Financial strategy and the Service
levels without undue strategy distorts decision making
reliance on balances and • Inadequate understanding of the
reserves to fund ongoing cost/activity drivers underpinning the
commitments. business undermines the
effectiveness of financial planning and
monitoring
• The structure of the finance function
does not allow provision of appropriate
support and consistent advice
throughout the organisation, leading to
errors and inconsistencies in financial
management
• Development of revised financial
management strategy with priority
focus response to key challenges
19
RISK MITIGATION
• Engage the local community in the financial
planning process to identify priorities
• Track and model the financial implications of
decisions and planned activities including
joint plans with partners and other
stakeholders in a 4 year MTFS model and
aligned capital programme
• Provide financial context & specialist
financial advice to Members
• Provide risk context & risk management
advice to Members
• Operate a standard methodology for
assessment of VFM/cost-effectiveness of
service interventions, reflecting
environmental and social costs/benefits,
contribution to partnership and/or council
priorities, financial implications and
performance trends
• Maintain a detailed, comparative
understanding of unit, transaction, marginal
& total costs for key services together with
linked activity drivers to identify scope for
efficiencies and sensitivity risks to plans and
projections
• Agree a Data Quality approach with partners
to produce reliable and relevant data
• Specify expected levels of financial
competence in staff and resources the
training and development opportunities
Contribute expert financial advice & technical
support to help officers manage the financial
aspects of effective service delivery
Appendix 1

5. Financial Management Values and Principles

5.1 There is a strong financial management culture at Lambeth which is built around
4 values:
• Ownership: all Officers and Members demonstrate a strong commitment
to effective financial management, whatever their day to day level of
involvement with financial matters.
• Responsibility: all Officers and Members take full responsibility for
financial management, each with a clear understanding of their respective
roles as set out in the Constitution, standing orders, financial policies and
procedures.
• Early notice: financial plans, monitoring and reports give sufficient time to
respond effectively to new opportunities or potential problems.
• No avoidable failure: honest identification and management of business
and financial risks underpins routine business-as-usual.

5.2 The following financial management principles are also integral to the Council’s
work:
• Value for money: “Every pound must be spent with care and without
waste” (Cllr Steve Reed, Leader of the Council). The Councils Value for
Money strategy sets out its approach to assessing, delivering and
demonstrating optimum value to residents from its services.
• Financial stability: The Council ensures the organisation can respond
flexibly to financial challenges by maintaining a minimum level of general
fund balances of £16m (approximately 5% of net revenue expenditure) in
line with the London Authority Treasurers benchmark. However, in order to
provide a strong foundation for continuous service improvement, manage
the risks to income targets and the reductions/uncertainties around
specific grants, the Council aims to hold £32m in balances (approximately
10% of net revenue expenditure).
• Financial discipline: In order to continue to “live within its means” the
Council operates rigorous financial controls and accurately records,
reports and forecasts its financial position to allow meaningful and regular
review.
• Financial innovation: For the first time in a generation there is a
considerable shortfall in public sector resources to deliver public sector
services. The gap can only be bridged by thinking creatively about what
actually constitutes “public sector services” and whether they are best
provided with public, private or 3rd sector resources.

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6. Planning and delivering the Financial Management strategy

6.1 The Financial Management Strategy sets out the approach to making the best
use of financial resources to help achieve the Council’s vision and ambitions for
the borough. It is the key link between the Council’s Corporate Plan (which sets
out the aims and ambitions of the Council) and the Medium Term Financial
Strategy which sets out the total cost of what the Council is planning to provide.
The council uses the financial planning process to turn the broad, strategic
objectives into achievable, annual operational plans.

6.2 Lambeth sets its Revenue and Capital Investment budgets over a 4 year
planning horizon in line with the Spending Review 2010, updating them through a
rigorous planning and review cycle each year. The Housing Revenue Account is
currently subject to a shorter 1 year planning and review cycle; however, the
potential impact of the significant changes to Housing Finance has recently been
modelled in a new 30 year HRA business plan.

6.3 The financial planning process is jointly owned by Cabinet and the Senior
Leadership Board (SLB) and fully scrutinised by Members on Scrutiny
Committees as well as the Opposition parties. However, responsibility for
provision of detailed information and support to the decision-making process is
shared by all council officers, co-ordinated primarily by the Finance Strategy
Board and the Corporate Finance division.

Revenue

6.4 The key financial planning tool is the 4 year Medium Term Financial Strategy
(MTFS) model which is used to explore the budgetary implications of:

• resources needs of continued core service provision

• projections of changes in service demand from demographic pressures,
Central Government initiatives or similar
• projected changes in Central Government funding
• decisions on resource reallocations to support agreed priorities (required
growth and proposed savings)
• changes in the macro economic environment that affect items like
pay/price inflation and asset values
• technical accounting adjustments (such as audit amendments and other
prior year adjustments)
6.5 This gives insight into any gap between resource needs and available funding
and underpins decisions on changes in local taxation levels needed.

6.6 The annual Service and Financial Planning (SFP) cycle allows the detail of
these various issues to be captured and reflected in the MTFS model so that a
balanced budget (planned revenue expenditure matched with available
resources) can be formally approved by Council each February.

6.7 In-year monitoring of the successful delivery of the strategy is undertaken by SLB
using a monthly Finance Monitor and Savings Delivery Tracker which tracks
the financial position, the correlating service activities and progress against

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Appendix 1

savings proposals. A snapshot is presented to Cabinet for the July and

November Finance Review, which allows an opportunity for corrective
reallocation of resources in-year if new opportunities or challenges have arisen

Capital

6.8 The Service and Financial Planning cycle captures the whole of life costs
associated with asset management and allocates resources in the MTFS and
the Capital Investment Programme:

• Planning: Service and Financial Planning cycle

• Acquisition / enhancement: Capital Investment Programme (CIP)
• Operation and maintenance: Medium Term Financial Strategy (MTFS)
• Disposal: informs allocation of resources in CIP and MTFS
6.9 This approach fully integrates revenue, capital and asset decisions in the SFP
cycle. It reflects a comprehensive and structured approach to the long term
management of assets as tools for the efficient and effective delivery of services.

6.10 Integrating asset management with financial planning in this manner helps the
authority to determine the level of asset ownership and investment that can be
sustained by the available resources.

6.11 The delivery of the capital investment programme is reported through the
Finance Monitor. Asset investments are rarely static and some re-scheduling
and re-programming will occur over the course of each year. In addition,
progress with the disposals programme will inform the level of funding available
for capital investment and debt management. The capital investment programme
is set in the Budget Report in February and updated in the July Finance Review
and the November Finance Review to capture these movements.

6.12 Capital investment proposals are prioritised by considering whether the

investment will enhance or acquire assets that increase the council’s ability to:

• Protect today (with the highest priority being to ensure that essential
operational infrastructure is fit for purpose), and
• Prepare for the future (with the highest priority being investment in
additional pupil places)
6.13 The evaluation and prioritisation of investment is filtered through the Capital
Investment Hierarchy, capital investment principles and associated rules.

Asset Management

6.14 The Council has a particular challenge managing the physical asset base in the
short-term with 3 key questions to be answered:

• Does it have the right assets both now and for the future?
• Is it getting the best possible value from them?
• What level of asset ownership can it afford to sustain?

6.15 The immediate priority focus has therefore been to look again at the asset base
and capital investment programme and identify:

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Appendix 1

• The essential current spend commitments (e.g. part-completed projects,

fit-for-purpose maintenance)
• The essential investment requirements to meet identified future needs
• The opportunities for rescheduling or de-prioritising planned spend and
for disinvestment of assets (through disposal/ transfer)
• The opportunities for generating additional value from assets (e.g. more
intensive use, partnership initiatives, increased community utilisation,
strategic funding solutions and income generating opportunities)
6.16 The Council will take the necessary strategic decisions around the size and
make-up of its retained asset portfolio and how best to balance investment
between current needs and future priorities to deliver maximum value. In the
medium-term the Council will then adopt the following strategies to optimise the
benefits from its assets.

6.17 The Capital Investment Hierarchy recognises that a minimum level of

investment is required in order to maintain the performance and safety of assets.
Without this investment the property assets that are used to deliver the services
that protect today would be at risk of closure on health and safety grounds and
the failure of ICT infrastructure that enables services would inhibit the operational
capability of the organisation

6.18 Transformational investment improves service efficiency and effectiveness by

enhancing existing assets or acquiring new ones. The increase in efficiency
should be financially quantifiable and so have a monetary payback.

6.19 Aspirational investment increases service capability and capacity by enhancing

existing assets or acquiring new ones. External funding is already targeted to
deliver service aspirations and should be supplemented by any remaining
corporate capital. This is illustrated in Figure 2 below.

Figure 2: Capital Investment Hierarchy

Service aspirations / Preparing for tomorrow

Transformational projects

Management of basic infrastructure / Protecting today

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Appendix 1

Principles and rules

6.20 The capital investment hierarchy is supported by a set of rules that reflect the
underlying principle that investment decisions need to be prudent, affordable and
sustainable. The principles and related rules are set out below.

Principle Associated rules

Asset investment Schemes within the Capital Investment
Programme enhance existing council assets or
acquire new council assets to deliver services

Cash is king Cash resources are used to fund the

programme
Cash balances are used to finance investment
instead of new external debt

Commercial basis Commercial contracts recover the full cost of

Prudent, affordable, sustainable investment decisions

services, enabling surplus revenue to be

reinvested in the assets used to deliver
services

Flexibility Operational buildings can easily be adapted to

deliver different services

Fully funded Expenditure plans within the Capital

Investment Programme must be fully funded

Gateways Funding for all projects of £0.5 million or more

is split into two tranches:
• outline business case
• implementation
Each tranche is approved separately to re-
validate assumptions about relative priority and
cost

Pipeline Projects to which the council has a policy

commitment but does not have sufficient
funding are included in the project pipeline

Revenue Revenue contributions to capital investment

create a sustainable source of funding for
continued investment

Sustainability Whole of life costs are incorporated in revenue

and capital budgets through the Service and
Financial Planning process

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Appendix 1

7. Taking forward the Priority Focus strategies

7.1 The Priority Focus strategies are already being taken forward through a variety of
approaches including cross-cutting reviews and projects, letting of new contracts
as well as an innovative change in Service and Financial Planning methodology
which has given increased emphasis to consideration of key financial drivers
which impact right across the organisation. The table below summarises these
approaches (a key to the abbreviations follows the table):

Strategy Approach Governance

FUNDING STRATEGIES: Income

Government • Sustained lobbying of Government Co-ordinated by

Funding departments by all senior staff & Cabinet EDF&R/
Settlement members DDCF(F&R)

Fees and • Fees and Charges review project and EDF&R

charges database
DDRBCS(F&R)
• Implementation of detailed Debt and
Income strategy

Specific Grants • Detailed consideration through SFP All EDs and DDRs
cycle of increased flexibilities from removal
of ring-fencing as well as implications of
reduced funding

FUNDING STRATEGIES: Cash management

Debt • Implementation of detailed Debt and EDF&R/

Income strategy DDRBCS(F&R)
• Excellent Cash management project
(I2S funded)
• 2011 Commissioning project

Payment • 2011 Commissioning project EDF&R/

• Oracle replacement project DDRBCS(F&R)
• Excellent Cash management project
(I2S funded)
• Customer Access project (I2S funded)

Treasury • Policy approach within Treasury EDF&R/

management Management function (within Corporate DDCF(F&R)
Finance)

SPEND STRATEGIES

Business delivery • Detailed consideration through SFP All EDs and DDRs
cycle of core business focus
EDHRE
• Support Service reconfiguration project
EDF&R/EDHRE/
• PPP financing projects including PFI, EDCYPS
commercial redevelopment, RDV and
ABDV, LEP

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Appendix 1

Strategy Approach Governance

Staffing • Office accommodation strategy EDF&R

productivity • Project Signal project (I2S funded)
• Oracle replacement project
• LEAN improvement programme (I2S CEO
funded)
• HR Review of “job families”

Spend with the • 3rd Sector funding review project EDACS

3rd Sector

Shared Services • Oracle replacement project EDF&R

Contracts • Contract savings negotiation plan and EDF&R

projects
• Contract management toolkit

ASSET MANAGEMENT STRATEGIES:

Portfolio • Service asset reviews to identify All DDRs

rationalisation surplus assets
EDHRE/EDF&R
• Aggressive disposal strategy to meet
£100m target over the Council’s years

Full utilisation • Service reviews to increase utilisation All DDRs

of operational buildings

Strategic projects • PPP financing projects including PFI, EDF&R/EDHRE/

commercial redevelopment, RDV and EDCYPS
ABDV, LEP

Fit for purpose • Comprehensive planned maintenance EDHRE

investment programme across the operational asset
portfolio

Co-operative • Asset transfer policy and due diligence DDR(F&R)/

ownership processes DDR(HRE)

Sustainable • Revenue streams identified to sustain DDR(F&R)

investment investment:
o Council Tax – programme wide
o PPRA – roads and pavements
• Whole of life costing used to evaluate
new investment decisions
FINANCIAL PLANNING, FORECASTING & REPORTING:
• F
MTFS All DDRs
Co-ordinated by
EDF&R/ DDCF(F&R

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Appendix 1

Strategy Approach Governance

• Budget setting in line with savings and
Budget Setting All DDRs
growth, agreed during the SFP process
Co-ordinated by
EDF&R/
DDCF(F&R)
• Budget monitor prepared in line
Financial Monitor All DDRs
departmental budgets
Co-ordinated by
EDF&R/
DDCF(F&R)
• Close of Accounts timetable;
Statement of All DDRs
Disclosure check list; audit deliverables
Accounts
Co-ordinated by
• Update on all accounting guidance
EDF&R/ DDCF(F&R
GOVERNANCE RISK AND CONTROL:
• Timely Internal audit review and
Governance All DDRs
reporting
Co-ordinated by
EDF&R/
DDCF(F&R)
• Regular review and update of risk
Risk All DDRs
register
Management
Co-ordinated by
• Robust systems to identify new risks
EDF&R/
DDCF(F&R)
DELIVERING FINANCIAL STRATEGY
SFP • Timetable and format of SFP process
All DDRs
Co-ordinated by
EDF&R/
DDCF(F&R)
• VFM reporting
Financial All DDRs
Effectiveness Co-ordinated by
EDF&R/
DDCF(F&R)
• Oracle Replacement Project
Activity Based All DDRs
Costing Co-ordinated by
EDF&R/
DDCF(F&R)

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Appendix 1

KEY TO ABBREVIATIONS AND ACRONYMS:

Abbreviation Title

CEO Chief Executive Officer

Communities and Local Government (previously

CLG known as Department for Communities and Lcoal
Government DCLG)
Divisional Director Corporate Finance (Finance and
DDCF(F&R)
Resources department)
Divisional Director, Revenues, Benefits and Customer
DDRBCS(F&R)
Services (Finance and Resources department)

DDRs Divisional Directors of Resources

Executive Director, Adult and Community Services

EDACS
department
Executive Director, Children and Young People’s
EDCYPS
Services department
Executive Director, Finance and Resources
EDF&R
department
Executive Director, Housing, Regeneration and
EDHRE
Environment department

EDs Executive Directors

General Fund
GF
A fund where all transactions outside the HRA are
recorded
Housing Revenue Account
HRA
a fund where all transactions relating to the council's
landlord function are recorded
International Financial Reporting Standards

IFRS is the set of accounting standards which must be

followed by most public and private sector
IFRS
organisations in the UK; it replaced UK GAAP
(Generally Accepted Accounting Practice). 2010/11
was the first year in which local authorities' accounts
had to be fully IFRS-compliant.

I2S funded Funded from the Invest to Save funds

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Appendix 1

Lambeth Alliance of Tenant Management

Organisations

LATMOS LATMOS is formed by tenants and leaseholders to

transfer the ownership and management of the
housing in three Lambeth estates to a landlord
independent from Lambeth council
Local Strategic Partnership

Lambeth First brings together local residents,

LSP communities, businesses, public sector, private sector
and voluntary groups with the long-term vision of
improving the quality of life for the people who live,
work, study and play in Lambeth.
Medium-Term Financial Strategy
MTFS
The overall financial plan for the organisation to
achieve its objectives over a period of 3-10 years
Public Works Loans Board

PWLB A statutory body whose funciton is to lend money from

the National Loans Fund to local authorities and other
prescribed bodies, and to collect repayments
Service and Financial Planning
SFP
The process by which the organisation develops its
budgets and MTFS
Value for Money

VfM is about achieving the right local balance between

VfM economy, efficiency and effectiveness, the 3Es -
spending less, spending well and spending wisely.

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