shows the movement in the year on the different reserves held by the Council, analysed into “usable reserves” (i.e. those that can be applied to fund expenditure or reduce loc

Statement of Accounts 2010/11

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Tunbridge Wells Borough Council

Statement of Accounts for 2010/11


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Contents

Contents Pages

Explanatory Foreword 3

Statement of Responsibilities 10

Independent Auditor’s Report 11

Core Financial Statements:

• Movement in Reserves Statement 13

• Comprehensive Income and Expenditure Statement 14

• Statement of Total Recognised Gains and Losses 15

• Cash Flow Statement 16

Notes to the Core Financial Statements 17

Collection Fund Statement and Notes 51


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Explanatory Foreword Explanatory Foreword

1 Layout of the Statement of Accounts

This Statement of Accounts consists of the following:

• The Statement of Responsibilities, setting out the general responsibilities of both the Borough Council, and of the Head of Finance and Governance, in making proper financial arrangements and in maintaining financial records.

• The Independent Auditor’s report

• The core accounting statements:

o The Movement in Reserves Statement shows the movement in the year on the different reserves held by the Council, analysed into “usable reserves” (i.e. those that can be applied to fund expenditure or reduce local taxation) and other reserves. The Surplus (or Deficit) on the Provision of Services line shows the true economic cost of providing the Council’s services, more details of which are shown in the Comprehensive Income and Expenditure Account. These are different from the statutory amounts required to be charged to the General Fund Balance for tax setting purposes (see Note 4 for details). The line entitled “Net Increase / Decrease before Transfers to Earmarked Reserves” shows the statutory General Fund Balance before any discretionary transfers to or from earmarked reserves undertaken by the Council.

o The Comprehensive Income and Expenditure Statement shows the accounting cost in the year of providing services in accordance with generally accepted accounting practices, rather than the amount to be funded from taxation. Councils raise taxation to cover expenditure in accordance with regulations, and this may be different from the accounting cost. The taxation position is shown in the Movement in Reserves Statement.

o The Balance Sheet shows the value as at the Balance Sheet date of the assets and liabilities recognised by the Council. The net assets of the Council (assets less liabilities) are matched by the reserves held by the Council. Reserves are reported in two categories. The first grouping is of usable reserves, i.e. those reserves that the Council may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use (such as the Capital Receipts Reserve being restricted to fund capital expenditure or to repay debt). The second grouping includes reserves that hold unrealised gains or losses (for example the Revaluation Reserve), where amounts would only become available to provide services if the assets are sold; and reserves that hold timing differences shown in the Movement in Reserves Statement line “Adjustments between accounting basis and funding basis under regulations”.

o The Cash Flow Statement shows the changes in cash and cash equivalents of the Council during the reporting period. The statement shows how the Council generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the Council are funded by way of taxation and grant income or from the recipients of the services provided by the Council. Investing activities represent the amount to which cash outflows have been made for resources which are intended to contribute towards the Council’s future service delivery. Cash flows arising from financing activity are useful in predicting claims on future cash flows by providers of capital (i.e. borrowing) to the Council.

o Notes to the core financial statements, giving further detailed information.

o The Collection Fund Statement, together with notes to this account.

The accounting statements and notes are normally rounded to the nearest thousand pounds, the main exceptions being Note 12.4 (risk management for financial instruments), where amounts are in millions, and note 22.1 (remuneration of senior management), where amounts are shown to the nearest pound. The headings in the tables indicate the level of rounding used.

2 Tunbridge Wells Borough Council 2010-11 Performance

The Council produces an Annual Performance Report which sits alongside the Strategic Compass and outlines the key achievements of the last year and aspirations for the year to come. Below is a summary of this report:

• The financial year 2010/11 has proved to be challenging, but the Council has responded well to what is a changing political and economic climate. Applications for housing and council tax benefit have risen by around 25% as a result of the economic downturn, but we have continued to deliver those services with minimum additional cost and have halved the time it takes to process housing and council tax benefits in the last three years. The Gateway allows us to join up our services with over 30 other agencies, which means that we can deal with enquiries quickly and effectively.

• Residents of the borough said that low crime rates and feeling safe are important, so we set up the Community Safety Unit (CSU), bringing together officers from different agencies including Kent Police,


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Tunbridge Wells Borough Council and Kent County Council to combat crime and anti-social behaviour jointly. Crime levels have remained one of the lowest in Kent.

• Residents rated good shopping facilities, thriving businesses and low unemployment as important. We worked in partnership with Business Link and Enterprise First, to provide advice and guidance to new businesses starting up in the borough. We supported Paddock Wood, Cranbrook and Hawkhurst to secure external funding to improve their economies. The Tunbridge Wells Farmers Market has been shortlisted in the top seven ‘FARMA’ Certified markets in the country.

• Residents felt that activities for young people are important, so we launched the new ‘Street Cruiser’ youth bus in partnership with Kent Youth Service. This was fully funded by a grant from Kent County Council which was applied for by young people. The Street Cruiser is a ‘mobile youth club’, which can be taken to different locations across the borough.

• Residents said that they would not want us to withdraw funding for community organisations such as the Citizens Advice Bureau and Trinity Theatre, so we have continued our funding support for these organisations. During 2010/11 we donated a total of £402,000 in community grants to 23 voluntary and community organisations working in the borough.

• Residents said that events, theatre and the arts are important to them. We have continued to support a lively culture and arts scene in Tunbridge Wells. The Assembly Hall Theatre attracts 170,000 visits a year, whilst our busy exhibitions and events programme attracts more than 60,000 visitors to the Museum & Art Gallery. We also helped to fund ‘Applause’ rural touring and a range of arts activities.

• Residents said the inspection of food premises and entertainment venues to maintain safety standards is important so we are putting in place the National Food Hygiene Rating Scheme to publicise the hygiene standards in food establishments.

• We have also encouraged good health by working closely with GPs, leisure providers and others to offer healthy living information, advice and activities – we have helped over 200 people this year to make long-lasting changes such as stopping smoking, losing weight or becoming more physically active, enabling them to enjoy a healthier and longer life.

• Residents said that planning is important. Over the last year, we received over 1,700 planning applications and decided more than 95% of those within eight weeks, after notifying over 10,000 neighbours.

• The role of residents is important too. We have provided services, including the collection of plastic bottles and cans, to help residents to recycle and compost 48% of their household waste. Together we have achieved the highest rate in Kent.

• We work closely with the local community, and the Cranbrook Conservation Area Appraisal was adopted in mid 2010 after the active participation of the local community groups. The restoration of the Colonnade at Hawkhurst was completed following a partnership including the local community, the Borough Council and other public bodies. We also carried out a community governance review to look at whether Rusthall should become a parish as a result of a request from the community of Rusthall. The new Rusthall Parish Council was created in March 2011.

• We pride ourselves on good customer service. We will not keep customers waiting. 99% of telephone calls are now answered within 10 seconds. We established a severe weather text alert service to provide live information with regards to refuse and recycling collections and council office opening hours during the period of snow.

• Under the Strategic Compass Community quadrant lie the Council’s four key priorities:

1. A Prosperous Tunbridge Wells

2. A Healthy Tunbridge Wells

3. A Green Tunbridge Wells

4. A Confident Tunbridge Wells

• We clearly cannot deliver our priorities in isolation. Whilst the Annual Performance Report reflects on our achievements for the year, it should be seen as a key document of a wider partnership approach to ensure Tunbridge Wells is prosperous, green, healthy and confident. The Report is therefore supported by the broader Sustainable Community Strategy and the Strategic Compass.

• Progress against these priorities and the key objectives set out in the Strategic Compass 2011-2012 will be monitored closely as part of quarterly performance reports to Cabinet.

Overall 2010/11 has been a challenging but successful period for the Council. The Council has continued to respond exceptionally well to the impacts of the downturn and early financial planning has put the Council’s medium-term financial position on a sound footing.


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3 Net Revenue Outturn figures for 2010/11

The table below sets out the net expenditure for the year compared to budgets.

Introduction

Revised Budget Outturn Variance

£000 £000 £000

Chief Executive Chief Executive 732 737 5

Head Policy & Partnerships 2,225 2,173 (52)

2,957 2,910 (47)

Change & Communities Director 172 160 (12)

Finance & Governance (5,947) (5,499) 448 Housing & Wellbeing 2,257 2,861 604 Customer Access Transformation & Delivery 3,522 3,439 (83)

4 961 957

Regeneration & Sustainability Director 176 184 8

Environment & Street Scene 7,398 6,535 (863) Economic Development (3,208) (2,585) 623 Planning 2,348 1,880 (468)

6,714 6,014 (700)

Cost of Services 9,675 9,885 210 Accounting adjustments 6,724 6,724 - Parish Council Precepts 1,600 1,600 - Interest payable - 282 282 Interest receivable (924) (1,105) (181) Interest receivable (Financial instruments adjust.) - 12 12 Capital expenditure from revenue 80 80 - Transfer to / (from) earmarked reserves (1,070) (1,129) (59)

Net Expenditure 16,085 16,349 264

Redistributed business rates (6,108) (6,108) - General government grants (910) (931) (21) Council Tax from Collection Fund (8,097) (8,097) -

Balance transferred from General Fund 970 1,213 243

(1) The Directorate of Change and Communities overspent by £957,000 compared to the revised Budget for 2010/11. The main variances were:

Commentary

• £372,000 restatement of the 2009/10 Housing Benefit claim to the Department of Work and Pensions.

The claim over-recovered benefits paid and this was repaid in 2010/11. • Court Cost income was £136,000 lower than budget. This was due to overambitious budgeting rather

than any change in policy or performance, and is still £24,000 more than achieved in 2009/10. • £81,000 net additional costs for Concessionary Fares. Many more senior residents applied for permits

and were travelling than anticipated, although the increase was partially mitigated by the snow over the Christmas period when usage reduced considerably. The Council had absolutely no control over the take-up and usage of these passes, but from 1st April 2011 responsibility passed to Kent County Council, removing the Council’s exposure to this risk.

• £78,000 under achievement of budgeted vacant posts. The budget assumed a £480,000 negative expenditure for approved posts vacant due to attrition and recruitment timing differences. Only £402,000 was actually achieved.

• £63,000 additional Legal costs due to the new Mid-Kent Partnership taking longer to embed than anticipated.


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(2) The Directorate of Regeneration and Sustainability was underspent by £700,000 compared to the revised Budget for 2010/11. The main variances were:

• £373,000 due to a reduction in parking and net penalty charge notice income. The number of pay and display ticket sales declined overall by 4% compared with this time last year and 6% for season tickets. There were a number of Civil Enforcement Officer vacancies throughout the year which have now been filled. This should have a positive impact on income in 2011/12.

• £296,000 Land Charges income over budget. There is an outstanding Court case surrounding charging for land searches that had caused the Council to be cautious about recognising this income, hence the low budget of just £20,000. The case was not settled in the financial year and the income has been realised.

• £165,000 compensation payment for inadequate building work carried out at the Sports centre in previous years, but repaired in 2009/10.

• £113,000 received in additional recycling credits. The price per ton has improved by 3% but the tonnage of recycling has also increased.

• £184,000 reduced grounds maintenance costs, due mainly to the new maintenance contract in place for parks and the cemetery.

• £81,000 in reduced Business Rates, after revaluations at the Crescent Road car park, the Town Hall and the Depot, and refunds for the public conveniences now transferred to the parishes.

• £106,000 received from unbudgeted Second Homes Grants from Kent County Council. These grants were allocated against specific pieces of work or events and therefore reduce the costs in the Directorate.

(3) Total net interest received was £113,000 less than budget. Net interest payable on the unbudgeted £20,000,000

loan from the Public Works Loan Board received on the 19th July 2010 was £151,000. There was also £182,000 less income received from investment interest. However, this was partially offset by a reduction of £44,000 in the provision for interest on Section 106 developer contributions should the funds not be spent within the contractual time period. There was also an additional £175,000 in interest received from a successful claim for the reimbursement of VAT on sports education courses provided at the Tunbridge Wells Sports Centre prior to 1994.

(4) The transfers to/from the General Fund are £203,000 over budget. This is comprised of £170,000 Net Expenditure on Services over budget as described above, £113,000 interest receivable below budget less some small increases in grants and transfers from Earmarked reserves above budget.

The figures in the Comprehensive Income and Expenditure Statement are based on a national standard analysis of services, whereas the budget, as shown above, is analysed and monitored according to the internal structure of the Council. Much of the variance in that Statement between years is due to accounting adjustments, such as for pension liabilities or asset impairments, which do not impact on the General Fund balance or the call on Council Tax. The table below shows the movements in the General Fund for 2009/10 and 2010/11, using the national standard service groupings, but excluding the accounting adjustments and also the recharges of support services.

Comparison to 2009/10

2009/10 2010/11 Net Change

£000 £000 £000

Central services to the public (222) 9 231 Cultural, environmental, regulatory and planning services 9,428 7,919 (1,509) Highways and transport services (1,901) (1,669) 232 Other housing services 596 1,424 828 Corporate and democratic core 1,089 1,056 (33) Non distributed costs 1,418 1,740 322 Support Services 5,662 6,130 468 Cost Of Services 16,070 16,609 539

Parish Council Precepts 1,444 1,600 156

Interest payable 83 282 199 Interest receivable & trans. to Fin. Instruments a/c (1,183) (1,093) 90 Capital expenditure financed from revenue 718 80 (638) Transfer to (from) earmarked reserves (1,656) (1,129) 527 Total expenditure 15,476 16,349 873

Non-ringfenced government grants (1,618) (931) 687

Council Tax receivable (7,841) (8,097) (256) NNDR redistribution (5,655) (6,108) (453) Net Expenditure 362 1,213 851


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Transfer to (from) General Fund (362) (1,213) (851)

4 Capital Programme and Outturn

The Council originally approved a capital programme of £7,733,000. Throughout the year additional projects were approved and added to the programme, whereas some existing projects have been re-scheduled for completion in 2011/12. The net result was an outturn for 2010/11 of £1,967,000.

In July 2010, the £20,000,000 loan was approved for property investment opportunities in the capital programme, but reduced by £1,000,000 when this was repaid in January 2011 as per the terms of the loan. This £19,000,000 is the significant increase in the additional approvals seen below.

Gross Expenditure

£000

Original Approval 7,733

Additional Approvals/Deletions 18,862

Re-schedule to 2010/11 (24,628)

Outturn 2010/11 1,967

No material assets were acquired or disposed of during 2010/11.

5 Liability for Pension Costs

The Council’s liability for future pension costs, as shown in the balance sheet and in Note 15 to the accounts, has reduced by around half, from £52m to £26m. About £15m of this reflects more favourable (to the Council) assumptions about life expectancy and rates of inflation, while the change for pensions increases, being based on the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI), accounts for a further £8m, and £3.4m reflected better returns on assets.. Annual fluctuations in the accounting figure for the liability do not directly impact on contributions payable, which are based on longer-term projections of liabilities and on returns on investments held by the Pension Fund. The same factors that affect the annual figures, however, also impact on planned contributions, and, like most other councils in Kent, the Council has been able to reduce its contributions for 2011/12.

6 Material and Unusual Charges in the accounts

As explained in paragraph 5 above, a significant part of the reduction in the liability for future pension costs arose because of the change from the RPI to the CPI as a means of inflation-proofing local authority pensions. This reduction, amounting to £8,217,000, appears as a negative “past service cost” in the “Non-Distributed Costs” line of the Comprehensive Income and Expenditure Statement. This credit in the Comprehensive Income and Expenditure Account has the effect of reducing the negative balance of the Pensions Reserve, rather than increasing the General Fund.

7 Changes to Accounting Policies: International Financial Reporting Standards

For the first time this Statement of Accounts, in common with those for all other local authorities, is compiled in line with International Financial Reporting Standards (IFRS). This brings local authority accounting in line with the rest of the public sector, which adopted IFRS in its published accounts from 2009/10. IFRS requires entities to re-state the previous financial year’s results in line with IFRS, and as if they had always produced their accounts under IFRS. The balance sheets as at the start and end of 2009/10 have therefore been re-stated in this set of accounts, together with all of the accounting statements and notes for the year.

Changes to accounting policies do not in themselves add or deduct from the overall resources, but they do enable the Council to show more clearly what resources are available. The table below shows how the changes in accounting policies have affected the Council’s overall reserves, as shown in the previously published and re-stated balance sheets. Most of the individual figures in this table are comparatively insignificant, but the material changes are discussed in more detail in Note 1 to the accounting statements.

1 April 2009

31 March 2010 Usable Unusable Total

Usable Unusable Total

£000 £000 £000

£000 £000 £000

25,845 41,229 67,074 Published 2009/10 accounts 23,383 22,719 46,102 - 4,879 4,879 Government Grants Deferred - 2,015 2,015

386 - 386 Capital grants & contributions 493 - 493


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1 April 2009

31 March 2010 Usable Unusable Total

Usable Unusable Total

£000 £000 £000

£000 £000 £000

219 - 219 Grants received in advance 171 - 171 - 23 23 Deferred capital receipts - 23 23 - (300) (300) Leased asset - (106) (106)

20 (20) - Capital Financing Requirement 20 (20) - - (21) (21) Intangible assets - (35) (35)

-

26,470 45,790 72,260 Restated reserve balances 24,067 24,596 48,663

8 Borrowing

During 2010/11 the Council investigated the possibility of purchasing properties within Tunbridge Wells for the purposes of investment and possible future use by the Council. To put itself in a position to bid for and complete the purchase it borrowed £20m from the Public Works Loan Board. In the event the Council decided not to proceed with such purchases during the year, and this amount has not been used to finance capital expenditure. The proceeds from borrowing have been put into planned investments, the result of which was a loss during 2010/11, but is expected to show a surplus over the period of the loan.

The Council is making repayments of this loan of £2m each year, and is able to do this by ensuring that the right level of its corresponding investments expire in time to make the repayment. The Council now has the choice of repaying the money early, or spending it on further planned property purchases.

9 Funds set aside to meet capital expenditure plans

The Council has set its budget for 2011/12 in line with its Medium Term Financial Strategy. This sets out to align its plans and commitments for services with the anticipated restrictions on government grants and a policy to increase Council Tax by 2.5% year on year unless government grants are provided to offset any further Council Tax freeze, as was the case in 2011/12.

The Council has also approved various capital schemes, totaling £28,683,000, up to the year 2014/15. The table below sets out how this will be funded.

2011/12 2012/13 2013/14 2014/15 Total

£000's £000's £000's £000's £000's

Reserves and capital receipts 5,527 555 555 555 7,192 Borrowing 19,000 - - - 19,000 Government grants 444 444 444 444 1,776 External contributions 715 - - - 715

-

Total approved programme 25,686 999 999 999 28,683

The funds approved for 2012/13 onwards are likely to be the minimum requirement. Any additional funding required will go through the Council’s normal approval process.

10 Material events after reporting date

The Council has reviewed the accounts and does not consider there to be any materials events after the reporting date.

11 Impact of current economic climate

Before the start of the year the Council anticipated significant challenges associated with the fragile state of the global economy and their likely impact on issues ranging from fuel prices, employment and national debt. The conclusion was that “public finances into the future will be severely constrained in an attempt to reduce the burden of debt”.

The Council tried to place itself on the front foot by taking early action to reduce its costs and the projected budgetary shortfall. In particular, the Council undertook a wide-ranging and significant restructure which will save over £1m each year and oversaw a move away from national pay bargaining towards local arrangements. As a result of the restructure and other savings, the Council’s 10 year budget projection would have showed a surplus, but was adjusted to indicate projected deficits over the next four years, taking into account a probable reduction of 30 per cent to Revenue Support Grant. In December 2010, the coalition government’s Comprehensive Spending Review reduced the Council’s formula grant by 26% for the next two years.


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The budget for 2010/11 took the expected economic climate into consideration, and the only significant additional effect that was partly related to these conditions during the year was the shortfall of over £300,000 in income from parking and penalty charges.

Economic conditions also impacted on the Council’s overall reserve balances in three ways:

• As noted above in paragraph 5, the Council’s net liability for future pension costs was reduced by £15m because of reductions in anticipated life expectancies and in reductions in expected future rises in salaries.

• The pension net liability was also reduced by £2.5m because returns on assets were better than expected.

• Revaluations in property assets resulted in a net increase of £707,000 (see note 9.2 to the accounts), of which £700,000 is accounted for by an increase in the value of the Royal Victoria Place shopping centre during the financial year.

Despite the positive work that has been undertaken to improve the Council’s performance, service delivery and budgetary position, considerable challenges remain. The budget projection model covers ten years to reflect the Council’s longest term contracts and includes a risk review of the major budget variables. Despite the harsh economic outlook and the onslaught of cuts, the actions over the past two years have prepared the Council for this situation and the Medium Term Financial Strategy remains on track with manageable budget projections provided inflation meets the forecasts of the Bank of England.

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Statement of Responsibilities

Statement of Responsibilities for the Statement of Accounts

The Borough Council’s Responsibilities The Council is required to:

• Make arrangements for the proper administration of its financial affairs and to ensure that one of its officers has the responsibility for the administration of those affairs. In this Council, that officer is the Head of Finance and Governance.

• Manage its affairs to secure economic, efficient and effective use of resources and to safeguard its assets.

• Approve the Statement of Accounts

The Responsibilities of the Head of Finance and Governance The Head of Finance and Governance is responsible for the preparation of the Council’s statement of accounts in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Council Accounting in the United Kingdom (‘the Code’).

In preparing this statement of accounts, the Finance Director has:

• selected suitable accounting policies and then applied them

• made judgements and estimates that were reasonable and prudent

• complied with the local Council Code

The Head of Finance and Governance has also:

• kept proper accounting records which were up to date

• taken reasonable steps for the prevention and detection of fraud and other irregularities

L.M. Colyer CPFA

Head of Finance and Governance (s151 Officer)

20 September 2011

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Governance Stateme

Independent Auditor’s Report

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TUNBRIDGE WELLS BOROUGH COUNCIL

Opinion on the Authority accounting statements

I have audited the accounting statements of Tunbridge Wells Borough Council for the year ended 31 March 2011 under the Audit Commission Act 1998. The accounting statements comprise the Movement in Reserves Statement, the Comprehensive Income and Expenditure Statement, the Balance Sheet, the Cash Flow Statement, the Collection Fund and the related notes. These accounting statements have been prepared under the accounting policies set out in the Statement of Accounting Policies.

This report is made solely to the members of Tunbridge Wells Borough Council in accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 48 of the Statement of Responsibilities of Auditors and Audited Bodies published by the Audit Commission in March 2010.

Respective responsibilities of the Head of Finance and Governance and auditor

As explained more fully in the Statement of Responsibilities for the Statement of Accounts the Head of Finance and Governance is responsible for the preparation of the Authority’s Statement of Accounts in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom. My responsibility is to audit the accounting statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require me to comply with the Auditing Practice’s Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the accounting statements sufficient to give reasonable assurance that the accounting statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Authority’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authority; and the overall presentation of the accounting statements. I read all the information in the explanatory foreword to identify material inconsistencies with the audited accounting statements. If I become aware of any apparent material misstatements or inconsistencies I consider the implications for my report.

Opinion on accounting statements

In my opinion the accounting statements:

• give a true and fair view of the state of Tunbridge Wells Borough Council’s affairs as at 31 March 2011 and of its income and expenditure for the year then ended; and

• have been properly prepared in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom.

Opinion on other matters

In my opinion, the information given in the explanatory foreword for the financial year for which the accounting statements are prepared is consistent with the accounting statements.

Matters on which I report by exception

I have nothing to report in respect of the governance statement on which I report to you if, in my opinion, the governance statement does not reflect compliance with ‘Delivering Good Governance in Local Government: a Framework’ published by CIPFA/SOLACE in June 2007.

Conclusion on Authority’s arrangements for securing economy, efficiency and effectiveness in the use of resources

Authority’s responsibilities

The Authority is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance, and to review regularly the adequacy and effectiveness of these arrangements.

Auditor’s responsibilities

I am required under Section 5 of the Audit Commission Act 1998 to satisfy myself that the Authority has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice issued by the Audit Commission requires me to report to you my conclusion relating to proper arrangements, having regard to relevant criteria specified by the Audit Commission.

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I report if significant matters have come to my attention which prevent me from concluding that the Authority has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources. I am not required to consider, nor have I considered, whether all aspects of the Authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively.

Basis of conclusion

I have undertaken my audit in accordance with the Code of Audit Practice, having regard to the guidance on the specified criteria, published by the Audit Commission in October 2010, as to whether the Authority has proper arrangements for:

• securing financial resilience; and

• challenging how it secures economy, efficiency and effectiveness.

The Audit Commission has determined these two criteria as those necessary for me to consider under the Code of Audit Practice in satisfying myself whether the Authority put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2011.

I planned my work in accordance with the Code of Audit Practice. Based on my risk assessment, I undertook such work as I considered necessary to form a view on whether, in all significant respects, the Authority had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

Conclusion

On the basis of my work, having regard to the guidance on the specified criteria published by the Audit Commission in October 2010, I am satisfied that, in all significant respects, Tunbridge Wells Borough Council put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2011.

Certificate

I certify that I have completed the audit of the accounts of Tunbridge Wells Borough Council in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission.

Andy Mack

Officer of the Audit Commission

Audit Commission, Millbank Tower, Millbank, London SW1P 4HQ

22 September 2011

Report

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Movement in Reserves Statement

Gen

eral

Fu

nd

Earm

arke

d R

eser

ves

Cap

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Gra

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&

Con

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s.

Cap

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Rec

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Tota

l Usa

ble

Res

erve

s

Unu

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e R

eser

ves

Tota

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eser

ves

£000 £000 £000 £000 £000 £000 £000

Balance at 31 March 2009 16,974 6,618 386 2,492 26,470 45,790 72,260

Movement in Reserves in 2009/10

Surplus or (deficit) on provision of services (accounting basis) (1,043) - - - (1,043) - (1,043)

Other Comprehensive Expenditure and Income - - - - - (22,554) (22,554)

Total Comprehensive Expenditure and Income (1,043) - - - (1,043) (22,554) (23,597)

Adjustments between accounting and funding basis under regulation (974) - 107 (493) (1,360) 1,360 -

Net Increase / (Decrease) before Transfers to Earmarked Reserves (2,017) - 107 (493) (2,403) (21,194) (23,597)

Transfers to / from Earmarked Reserves 1,655 (1,655) - - - - - Increase / Decrease in Year (362) (1,655) 107 (493) (2,403) (21,194) (23,597)

Balance at 31 March 2010 16,612 4,963 493 1,999 24,067 24,596 48,663

Movement in Reserves in 2010/11

Surplus or (deficit) on provision of services (accounting basis) 3,738 - - - 3,738 - 3,738

Other Comprehensive Expenditure and Income - - - - - 18,433 18,433

Total Comprehensive Expenditure and Income 3,738 - - - 3,738 18,433 22,171

Adjustments between accounting and funding basis under regulation (6,080) - (29) 1 (6,108) 6,108 -

Net Increase / (Decrease) before Transfers to Earmarked Reserves (2,342) - (29) 1 (2,370) 24,541 22,171

Transfers to / from Earmarked Reserves 1,129 (1,129) - - - - - Increase / Decrease in Year (1,213) (1,129) (29) 1 (2,370) 24,541 22,171

Balance at 31 March 2011 15,399 3,834 464 2,000 21,697 49,137 70,834

Details of Comprehensive Income and Expenditure are given in the Comprehensive Income and Expenditure Statement. The purpose of each reserve is set out in the accounting policy Note 2.17. A further analysis of adjustments between accounting and funding bases are given in Note 4, and further information on earmarked reserves and unusable reserves in Note 5.

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Balance

Comprehensive Income and Expenditure Account

2009/10 Note 2010/11 Expend. Income Net Expend. Income Net

£000 £000 £000 £000 £000 £000

8,231 (7,779) 452 Central services to the public 9,153 (8,021) 1,132

18,414 (8,315) 10,099 Cultural, environmental, regulatory and planning services 20,879 (8,330) 12,549

4,309 (5,580) (1,271) Highways and transport services 4,342 (5,611) (1,269) 31,932 (30,515) 1,417 Other housing services 33,465 (31,292) 2,173 3,045 (46) 2,999 Corporate and democratic core 3,095 (58) 3,037

- - - Exceptional item related to pension liability (see below) (8,217) - (8,217)

188 (9) 179 Non distributed costs 480 - 480

66,119 (52,244) 13,875 Cost Of Services 63,197 (53,312) 9,885

237 (317) (80)

(Gain) / Loss on disposal of non-current assets - (387) (387)

1,444 - 1,444 Parish Council Precepts 1,600 - 1,600

1,681 (317) 1,364 Other Operating Expenditure 1,600 (387) 1,213

83 - 83 12.2 Interest payable 282 - 282

- (1,159) (1,159) 12.2 Interest income - (1,105) (1,105)

4,534 (2,332) 2,202 15 Pensions interest cost and expected return on assets 5,068 (3,615) 1,453

4,617 (3,491) 1,126

Financing and Investment Income and Expenditure 5,350 (4,720) 630

- (1,618) (1,618) 6 Non-ringfenced government grants - (931) (931) - (248) (248) Capital grants and contributions - (283) (283) - (7,801) (7,801) Council Tax receivable - (8,144) (8,144) - (5,655) (5,655) NNDR redistribution - (6,108) (6,108)

- (15,322) (15,322)

Taxation and Non-Specific Grant Income - (15,466) (15,466)

1,043 (Surplus) or Deficit on Provision of Services (3,738)

1,109 9.2 (Surplus) or deficit on revaluation of property plant and equipment (57)

21,445 15 Actuarial (gains) / losses on pension assets / liabilities (18,376)

22,554 Other Comprehensive Income and Expenditure (18,433)

23,597 Total Comprehensive Income and Expenditure (22,171)

The Exceptional Item of £8,217,000 (which would otherwise have been reported under Non-Distributed Costs) represents the gain to the Council from the change from the Retail Prices Index to the Consumer Prices Index as the reference for future increases in pensions, as explained in paragraphs 5-6 of the Explanatory Foreword.

15

16

The Balance Sheet

31 March 2009 31 March 2010 Note 31 March 2011 £000

£000

£000

74,364

75,064

9 Property, Plant & Equipment 73,957

858

991

10 Intangible Assets 996 5,000

10,000

12 Long Term Investments 5,000

543

628

13 Long Term Debtors 575

80,765

86,683

Long Term Assets

80,528

20,945

8,356

12 Short Term Investments 34,448 27

37

Stock 38

3,457

6,970

13 Short Term Debtors 3,714 2,172

3,403

Cash and Cash Equivalents 2,886

-

87

11 Assets held for sale -

26,601

18,853

Current Assets

41,086

-

-

Short Term Borrowing (2,090)

11 Assets held for sale 87

(4,048)

(3,552)

14 Short Term Creditors (4,235) (306)

(224)

Capital grants receipts in advance (303)

(4,354)

(3,776)

Current Liabilities

(6,541)

-

-

12 Long Term Borrowing (17,000) (325)

(462)

14 Long Term Creditors (109)

(198)

(198)

Provisions - (29,770)

(51,821)

15 Long Term Pension Liability (26,360)

(459)

(616)

Capital grants receipts in advance (770)

(30,752)

(53,097)

Long Term Liabilities

(44,239)

72,260

48,663

Net Assets

70,834

26,470

24,067 5 Usable reserves

21,697

45,790

24,596 5 Unusable Reserves

49,137

72,260

48,663

Total Reserves

70,834

17

Cash Flow Statement

The Cash Flow Statement

2009/10 2010/11 £000 £000 £000 £000

(1,891) Taxation (1,988)

(38,953) Grants (42,296) (5,655) National Non-Domestic Rates redistribution (6,108)

(12,485) Sale of goods and rendering of services (12,541) (1,949) Interest received (1,016) (1,550) Other receipts from operating activities (1,950)

(62,483) Cash inflows generated from operating activities (65,899)

13,867 Employees 13,488 28,659 Housing Benefit paid out 30,347 1,652 Precepts paid 1,810

18,547 Cash paid to suppliers of goods and services 17,299 21 Interest paid 243

1,757 Other payments for operating activities 3,116

64,503 Cash outflows generated from operating activities 66,303

2,020 Net cashflows from operating activities 404

1,177 Purchase of property, etc. and intangible assets 607

114,900 Purchase of short-term and long-term investments 218,100

(317) Proceeds from sale of property etc (387)

(121,900) Proceeds from sale of short-term and long-term investments (197,100)

(322) Grants and contributions to non-current assets (516)

(6,462) Net cashflows from investing activities 20,704

- Cash receipts from short-term and long-term borrowing (20,000)

- Repayments of short-term and long-term borrowing: 1,000

492 Changes in Council tax balances held for preceptors (384)

2,719 Changes in NNDR balances held for central government (1,207)

3,211 Net cashflows from financing activities (20,591)

(1,231) Net (increase) / decrease in cash and cash equivalents 517

The figure for taxation income is net of £6,166.000 council tax benefit (£5,883,000 in 2009/10). Details of grant and contribution income are shown in Note 6, and the movements in cash balances are shown below.

1 April 2009 2009/10 31 March

2010 2010/11 31 March

2011

£000

£000 £000 £000

Cash and bank balances (28) (269) (297) (417) (714)

Money held in interest-bearing call accounts 2,200 1,500 3,700 (100) 3,600

Total cash and cash equivalents 2,172 1,231 3,403 (517) 2,886

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Notes to the Core Financial Statements

1 Changes to Accounting Policies and to previous years’ figures

1.1

For the first time this Statement of Accounts has been prepared in accordance with International Financial Reporting Standards (IFRS). This has required the Council to re-state the balance sheets as at 1 April 2009 and 31 March 2010 in line with IFRS, and to adjust all of the main accounting statements and the notes accordingly. The changes to the balance sheet are summarised in the tables below:

Summary of Changes

Balance Sheet at 1 April 2009 Published Grants Deferred

Capital grants

etc Grants in advance Leases Other

adjust. Restated

£000 £000 £000 £000 £000 £000 £000

Long Term Assets 81,286 - - - (300) (221) 80,765 Current Assets 26,485 - - - - 116 26,601 Current Liabilities (4,356) - (521) 219 - 304 (4,354) Long Term Liabilities (36,341) 4,879 907 - - (197) (30,752)

Net Assets 67,074 4,879 386 219 (300) 2 72,260

Usable Reserves 25,845 - 386 219 - 20 26,470 Unusable Reserves 41,229 4,879 - - (300) (18) 45,790

Total Reserves 67,074 4,879 386 219 (300) 2 72,260

Balance Sheet at 1 April 2010 Published Grants Deferred

Capital grants


adjust. Restated

£000 £000 £000 £000 £000 £000 £000

Long Term Assets 86,912 - - - (108) (121) 86,683 Current Assets 19,128 - - - - (275) 18,853 Current Liabilities (5,243) - 715 171 - 581 (3,776) Long Term Liabilities (54,695) 2,015 (221) - - (196) (53,097)

Net Assets 46,102 2,015 494 171 (108) (11) 48,663

Usable Reserves 23,383 - 494 171 - 19 24,067 Unusable Reserves 22,719 2,015 - - (108) (30) 24,596

Total Reserves 46,102 2,015 494 171 (108) (11) 48,663

The table below summarises the changes in the Comprehensive Income and Expenditure Statement, which replaces two statements: the Income and Expenditure Statement and the Statement of Recognised Gains and Losses.

Comprehensive I&E Published Grants

Deferred Capital grants


adjust. Restated

£000 £000 £000 £000 £000 £000 £000

Cost of Services 11,002 3,004 - 48 (192) 13 13,875 Other Operating Expenditure 1,364 - - - - - 1,364 Financing Income and Exp. 1,126 - - - - - 1,126 Taxation and non-spec. grants (15,074) - (248) - - - (15,322)

Surplus / Deficit on Services (1,582) 3,004 (248) 48 (192) 13 1,043

Revaluations 1,109 - - - - - 1,109 Actuarial gains/losses 21,445 - - - - - 21,445

Total Comprehensive I&E 20,972 3,004 (248) 48 (192) 13 23,597

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The figures in the Cash Flow Statement are also changed, because in the published 2009/10 accounts a total of £2,200,000 held in bank call accounts was treated as an investment, whereas in the restated accounts it constitutes a cash balance. Other changes in the restated Cash Flow Statement result from differences in the lines specified and their contents, rather than from changes to the standards themselves, as in the other main statements.

Where changes to the accounting policies have resulted in material differences between the amounts reported in the Balance Sheet as at 1 April 2009 and 1 April 2010, and in Comprehensive Income and Expenditure Statement, they are explained below.

Various items on the balance sheet and in the Comprehensive Income and Expenditure Statement have been adjusted for non-material changes to accounting policies, and, for the Intangible Assets balances, to move to a more accurate accounting estimate of useful lives.

1.2

Under previous accounting rules grants and contributions previously used to finance capital expenditure were held in the Government Grants Deferred Account, and released over a number of years through the Income and Expenditure Statement to the Capital Adjustment Account (an unusable reserve). This arrangement has been discontinued, and the entire balance on the Government Grants Deferred Account transferred to the Capital Adjustment Account. The following changes have therefore been made to the balance sheet:

Government grants and contributions used to finance capital expenditure

Balance 1 April 2009 Balance 1 April 2010

2009/10

Published Adjustment 2009/10 Published Adjustment

£000 £000 £000 £000

Government grants deferred (4,879) 4,879 (2,015) 2,015 Capital adjustment account (59,967) (4,879) (65,024) (2,015)

-

-

There is also an impact on the Comprehensive Income and Expenditure Statement, with the removal of the annual credits to net service expenditure lines as shown below:

2009/10 Published Adjustment

£000 £000

Central services to the public 408 30 Cultural, environmental, regulatory and planning services 7,719 2,792 Highways and transport services (1,192) (75) Other housing services 1,081 68 Corporate and democratic core 2,818 178 Non distributed costs 168 11

3,004

There is no change to the General Fund Balance, as under the previous practice a transfer was made from the General Fund to the Capital Adjustment Account to reverse the impact, and this reversal has now been discontinued.

1.3

The Council places money in interest-bearing call accounts as part of its overall cash management policy. The Council included the balance at 1 April 2009 as short term investments, but changed its policy during 2009/10 to count the balance as part of cash. This change of policy was not sufficient, under the previous code of practice, to justify a prior year adjustment, but an adjustment has now been made, as shown below:

Cash held in call accounts

Balance 1 April 2009 Balance 1 April 2010

2009/10

Published Adjustment 2009/10 Published Adjustment

£000 £000 £000 £000

Short term investments 23,145 (2,200) 8,357 - Cash and cash equivalents 56 2,200 3,764 -

-

-

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No change was required as at 1 April 2010.

2 Accounting Policies, Critical Judgements and Estimation Techniques

2.1

The Statement of Accounts summarises the Council’s transactions for the 2010/11 financial year and its position at the end of 31 March 2011, the close of the financial year. The Council is required to prepare an annual Statement of Accounts by the Accounts and Audit Regulations 2003, which specify that the Statement is prepared in accordance with proper accounting practices. These primarily comprise the Code of Practice on Local Authority Accounting in the United Kingdom 2010/11, and the Best Value Accounting Code of Practice 2010/11, supported by International Financial Reporting Standards. The accounting convention adopted is historical cost, modified by the revaluation of certain categories of non-current assets.

General Principles

2.2

We account for activity in the year that it takes place, not simply when cash payments are made or received. In particular:

Accruals of Expenditure and Income

• Revenue from the sale of goods is recognised when the Council transfers the significant risks and rewards of ownership to the purchase, and it is probable that the economic benefits or service potential associated with the transaction will flow to the Council.

• Revenue from the provision of services is recognised when the Council can measure reliably the percentage of completion of the transaction and it is probable that economic benefits or service potential associated with the transaction will flow to the Council.

• Supplies are recorded as expenditure when they are consumed – where there is a gap between the date supplies are received and their consumption, and where the amounts are significant, they are carried as stocks on the Balance Sheet.

• Expenses in relation to services received (including services provided by employees) are recorded as expenditure when the services are received, rather than when the payments are made.

• Interest payable on borrowings and receivable on investments is accounted for on the basis of the effective interest rate for the relevant financial instrument rather than the cash flows fixed or determined by the contract.

• Where income and expenditure have been recognised but cash has not been received or paid, a debtor or creditor for the relevant amount is recorded in the Balance Sheet. Where it is doubtful that debts will be settled, the balance of debtors is written down and a charge made to revenue for the income that might not be collected.

The Council collects income from payers of Non-Domestic Rates on behalf of the Government. As this is categorised as an agency service, the Council does not account for the income or the payment over of business rates within its Income and Expenditure Account, and includes a single creditor or debtor in its balance sheet, representing the net amount of Non-Domestic Rate debtors, adjustments for doubtful debts, income in advance, and amounts due to or from the Government.

Similarly the Council collects income from Council Tax payers, but only part relates to this Council, the balance being on behalf of other major precepting authorities. The amounts of debtors, adjustments for doubtful debts, and income in advance that relate to the precepting authorities are shown as a single net creditor in the balance sheet. The element of the Collection Fund due to preceptors is split between payments due to be made in the following financial year, which are held as Short Term Creditors, and any other amounts, due in succeeding financial years, which are shown as Long Term Creditors. In the event of a deficit, the amounts would be split between Short Term and Long Term Debtors.

2.3

Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are investments that mature three months or less from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.

Cash and Cash Equivalents

Cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and which form an integral part of the Council’s cash management.

2.4

Services including support services are debited with the following amounts to record the cost of holding non-current assets during the year:

Charges to Revenue for Non-Current Assets

• Depreciation attributable to the assets used by the relevant service;

• Revaluation and impairment losses on assets used by the service, where there are no accumulated gains in the Revaluation Reserve against which the losses can be written off;

• The annual write-down of intangible fixed assets attributable to the service.

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The Council is not required to raise Council Tax to fund these charges, and they are therefore reversed through an appropriation from the Capital Adjustment Account to the General Fund.

2.5

A contingent asset is a possible asset that arises from a past event and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Council. Typically a contingent asset is related to a legal action by the authority, whose outcome is uncertain when the balance sheet is compiled.

Contingent Assets

Contingent assets are not recognised in the balance sheet, but their existence is recorded in a note to the accounting statements.

2.6

A contingent liability is a possible obligation that arises from a past event and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Council. Typically a contingent liability is related to a legal action against the authority, whose outcome is uncertain when the balance sheet is compiled.

Contingent Liabilities

Contingent liabilities are not recognised in the balance sheet, but their existence is recorded in a note to the accounting statements.

2.7 Employee Benefits

Accounting standards require that accruals for expenditure are made for short-term compensated absences, covering entitlements for annual leave, flexi-time and time in lieu. The Council has determined that the net value of the accumulated leave, etc in previous years is immaterial, and therefore makes no adjustment for these amounts. At the end of each financial year an assessment is made to ensure that the amounts involved remain immaterial.

Benefits Payable during Employment

Termination benefits include lump sum payments to departing employees, enhancements to retirement benefits, and salaries paid to the end of a notice period, but when the employee ceases to provide services to the Council. We accrue for such payments at the point when a decision is made to terminate employment, rather than when the benefits fall due for payment. These payments are charged to the appropriate service line in the Comprehensive Income and Expenditure Statement.

Termination Benefits

The majority of employees of the Council are members of the Local Government Pension Scheme, administered by Kent County Council for local authorities within Kent. This scheme provides defined benefits to members (retirement lump sums and pensions), earned as employees work for the Council. We therefore account for this scheme as a defined benefit plan.

Post-Employment Benefits

• The liabilities of the Kent County Council pension scheme attributable to this Council are included in the Balance Sheet on an actuarial basis using the projected unit method – i.e. an assessment of the future payments that will be made in relation to retirement benefits earned to date by employees, based on assumptions about mortality rates, employee turnover rates, etc, and projections of earnings for current employees.

• Liabilities are discounted to their value at current prices, using a discount rate of 5.5% (based on the indicative rate of return on the Iboxx Sterling Corporates Index, AA over 15 years).

• We include the assets of the Kent County Council Pension Fund attributable to this Council in the Balance Sheet at their fair value:

o quoted securities – current bid price

o unquoted securities – professional estimate

o unitised securities – current bid price

o property – market value

• The change in the net pensions liability is analysed into the following components:

o current service cost – the increase in liabilities as a result of years of service earned this year, allocated in the Comprehensive Income and Expenditure Statement to the service for which the employees worked.

o interest cost – the expected increase in the present value of liabilities during the year as they move one year closer to being paid, debited to the Financing and Investment Income and Expenditure section of the Comprehensive Income and Expenditure Statement.

22

o contributions by scheme participants, which reduce plan liabilities, but correspondingly increase plan assets, and are therefore not reflected in the Comprehensive Income and Expenditure Statement

o actuarial gains and losses – changes in the net pensions liability that arise because events have not coincided with assumptions made at the last actuarial valuation or because the actuaries have updated their assumptions

o benefits paid, which reduce plan assets, but correspondingly reduce its liabilities, and are therefore not reflected in the Comprehensive Income and Expenditure Statement

o past service cost – the increase in liabilities arising from current year decisions whose effect relates to years of service earned in earlier years – debited to the Non-Distributed Costs line in the Comprehensive Income and Expenditure Statement

o curtailments, which are normally linked to an event giving rise to a post employment benefit - debited to the Non-Distributed Costs line in the Comprehensive Income and Expenditure Statement

o expected return on assets – the annual investment return on the fund assets attributable to the Council, based on an average of the expected long-term return, credited to the Financing and Investment Income and Expenditure section of the Comprehensive Income and Expenditure Statement.

o contributions paid to the Kent County Council Pension Fund – the employer’s contributions to the pension fund for the financial year, not accounted for as an expense.

Statutory provisions require the Council to charge the General Fund balance with the amount payable by the Council to the pension fund in the year, not the amount calculated according to the relevant accounting standards. This means that there are appropriations to and from the Pensions Reserve to remove the notional debits and credits for retirement benefits and replace them with debits for the cash paid to the pension fund and the amounts payable to the fund but unpaid at the year-end. The negative balance that arises on the Pensions Reserve thereby measures the beneficial impact to the General Fund of being required to account for retirement benefits on the basis of contributions paid rather than as benefits are earned by the employee.

2.8

Events after the Balance Sheet Date are those events, both favourable and unfavourable, that occur between the end of the financial year and the date when the Statement of Accounts is authorised for issue. There are potentially two types of events:

Events after the Balance Sheet date

• If they provide evidence of conditions that existed at the end of the reporting period, the Statement of Accounts is amended to reflect these events;

• If they are indicative of conditions that arose after the reporting period, the Statement of Accounts is not amended. If, however, an event would have a material effect, a disclosure is made in the notes to the accounts, outlining the event and its estimated financial effect.

Any event taking place after the accounts are authorised for issue is not reflected in the Statement of Accounts.

2.9 Exceptional items and prior period adjustments

Where items of income and expense are material, their nature and amount is disclosed separately on the face of the Comprehensive Income and Expenditure Account and also in the notes to the accounts.

Exceptional Items

Prior period adjustments may arise as a result of a change in accounting policies or to correct a material error. Changes to accounting policies are only made when required by proper accounting practices or the change provides more reliable or relevant information about the effect of transactions, other events and conditions on the Council’s financial position or financial performance. When a change is made, it is applied retrospectively (unless stated otherwise), by adjusting opening balances and comparative amounts for the prior period as if the new policy had always applied.

Prior period adjustments

Material errors discovered in prior period figures are corrected retrospectively by amending opening balances and comparative figures for the prior period.

Changes in accounting estimates are accounted for prospectively, i.e. in the current and future years affected by the change, and do not give rise to a prior period adjustment.

Changes in accounting estimates

2.10 Financial instruments

The term “financial asset” covers cash, equity instruments, and beneficial contractual rights to receive or exchange cash or liabilities. All of the Council’s investments come within the category of “loans and receivables”. These are financial assets

Financial Assets

23

that have fixed or determinable payments, and are not quoted in an active market. The Council’s balance sheet includes four groups of financial assets:

• Trade debtors are recorded as invoices issued to individuals or other entities, for which immediate payment is required. The balance awaiting collection (“Trade accounts receivable”) is included in the balance sheet under “short term debtors”.

• Cash held in current or call accounts, together with investments for periods of less than one month, is included in the balance sheet under “cash and cash equivalents”.

• Investments receivable within periods of three months and one year are included in the balance sheet as “short term investments”.

• Investments taken out for periods of longer than one year are included in the balance sheet as “long term investments”.

Trade debtors are regularly assessed for possible non-payment, and an adjustment is made for possible impairment to the gross balance.

Loans and receivables are recognised on the Balance Sheet when the Council becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value. They are subsequently measured at their amortised cost. Annual credits to the Comprehensive Income and Expenditure Statement for interest receivable are based on the carrying amount of the asset multiplied by the effective rate of interest for the instrument. For the Council’s short-term investments this means that the amount presented in the Balance Sheet is the outstanding principal and interest, and interest credited to the Comprehensive Income and Expenditure Statement is the amount receivable for the year according to the loan instrument. The position is the same for long term investments, except that outstanding interest receivable within the next year is included under “short-term investments”.

The term “financial liability” covers contractual obligations to deliver or exchange financial assets to another entity. The Council’s financial liabilities consist of loans taken out with the Public Works Loan Board, which come within the category of “loans and receivables”.

Financial Liabilities

These financial liabilities are initially measured at fair value and carried at their amortised cost. Annual charges to the Comprehensive Income and Expenditure Account for interest payable are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument. This Council’s borrowing bears a single rate of interest payable throughout the life of the loan, meaning that the effective rate of the interest is the same as the original repayable rate. The amount presented in the Balance Sheet under “long term borrowing” is therefore the outstanding principal repayable. As the accrued interest is payable within one year of the balance sheet date, it is included under “short term borrowing”.

The Council’s policy is to capitalise the cost of borrowing (comprising interest) where such cost is directly attributable to the acquisition, construction of production of an asset. This includes all interest costs incurred between initially incurring expenditure undertaking activities relating to such an asset, and the substantial completion of work enabling the asset to be brought into use. At the end of 2010/11 the council had not yet financed any capital investment from loan, and had not, therefore, needed to apply this policy in practice. With the exception of capitalised borrowing costs, interest charged to the Comprehensive Income and Expenditure Account is the amount payable for the year in the loan agreement.

2.11

Whether paid on account, by instalments or in arrears, we recognise government grants and third party contributions and donations as due to the Council when there is reasonable assurance that the Council will comply with the conditions attached to the payments, and that the grants and contributions will be received.

Government grants and other contributions

Amounts recognised as due to the Council are not credited to the Comprehensive Income and Expenditure Statement until conditions attached to the grant or contribution have been satisfied. Conditions are stipulations that specify that the future economic benefits or service potential embodied in the asset acquired using the grant or contribution are required to be consumed by the recipient as specified, or future economic benefits or service potential must be returned to the transferor.

Monies advanced as grants and contributions for which conditions have not been satisfied are carried in the Balance Sheet as capital grants received in advance (either current or long-term). When conditions are satisfied the grant or contribution is credited to the Comprehensive Income and Expenditure Statement.

Grants and contributions towards specific services for revenue purposes are credited against the appropriate line in the Cost of Services, but if grants and contributions are not related to specific services they are credited as Taxation and Non-Specific Grant Income, along with all grants and contributions receivable towards investment in Property Plant and Equipment, Investment Properties or Intangible Assets. As these capital grants and contributions are not legally a credit to the General Fund, an equivalent appropriation is made from the General Fund into the Capital Grants and Contributions Reserve, which is set aside for the financing of capital investment.

2.12 Intangible assets

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Expenditure on non-monetary assets that do not have physical substance but are controlled by the Council as a result of past events (e.g. software licences) is capitalised when it is expected that future economic benefits or service potential will flow from the intangible asset to the Council.

Internally generated assets (not including websites intended to promote or advertise the Council’s goods and services) are capitalised where it is demonstrable that the project is technically feasible and is intended to be completed, with adequate resources being available, and that the Council will be able to generate future economic benefits or service potential by being able to sell or use the asset. Expenditure is capitalised where it can be measured reliably as attributable to the asset, and is restricted to that incurred in the development phase, not, therefore, including research expenditure.

Intangible assets are measured initially at cost. The depreciable amount of an intangible asset is written down over its useful life, as estimated by the Head of Customer Access, Transformation & Delivery, to the appropriate line in the Comprehensive Income and Expenditure Statement. No intangible assets are recorded with indefinite lives. An asset is tested for impairment whenever there is an indication that the asset might be impaired, and any losses are posted to the appropriate line in the Income and Expenditure Statement.

The calculated amounts for amortisation and impairment are charged to the Cost of Services in the Comprehensive Income and Expenditure Account, but they are not legal charges against the General Fund. A transfer is therefore made from the Capital Adjustment Account to the General Fund to reverse the impact.

2.13 Leasing

A lease is an agreement whereby the lessor conveys to the lessee, in return for a payment or a number of payments, the right to use an asset (property, plant and equipment, investment properties, non-current assets available for sale or intangible assets) for an agreed period of time. A finance lease is a lease that transfers substantially all of the risks and rewards incidental to ownership to the lessee. Any lease that does not come within the definition of a finance lease is accounted for as an operating lease.

Definition of a lease

The Council has a number of leasing agreements, acting both as lessee (paying for the use of assets) and as lessor (receiving money for the use of assets owned by others).

The Council may also enter into an agreement which, while not itself a lease, nevertheless contains a right to use an asset in the same way as a lease. Such agreements are treated as either finance leases or operating leases as set out below (the Council has no such arrangements).

The Council reviews all of its leases to determine how they stand against various criteria which distinguish between finance and operating leases. In undertaking this review, however, the Council operates a de minimis level, so that all leases with a term of less than 10 years, or for assets valued at less than £10,000 are treated within the accounts as an operating lease.

Where the council uses or occupies an asset held under a finance lease, the asset is recognised as such in the appropriate line in the balance sheet, subject to the de minimis limit noted in 2.13 above. The value recognised is the fair value, or (if lower) the present value of the minimum lease payments. This value is offset on the balance sheet by a creditor or long term liability for the leasing charge.

Finance leases – Council acting as lessee

As these assets are included as part of the Council’s property plant and equipment balance, they are subsequently accounted for, in relation to disposal, depreciation, impairment, etc, as set out below in 2.15.

Minimum lease payments are apportioned between interest payable as the finance charge and the reduction of the outstanding liability. The finance charge is calculated to produce a constant periodic rate of interest on the remaining balance of the liability.

Lease payments for operating leases are recognised as an expense on a straight-line basis over the lease term, unless they can be otherwise apportioned in line with benefits received.

Operating leases – Council acting as a lessee

Where the council acts as lessor for an asset held under a finance lease, the relevant asset is written out of the balance sheet as a disposal, and accounted for in line with Accounting Policy 2.15 below. At the start of the lease a receivable (long term debtor or short term debtor) is recognised as at an amount equal to the net investment in the lease. The lease payment receivable is apportioned between the repayment of principle and interest, the interest being calculated to produce a constant periodic rate of interest on the remaining balance of the liability.

Finance leases – Council acting as lessor

Income from operating leases is recognised on a straight-line basis over the lease term, unless they can be otherwise apportioned in line with the benefits provided.

Operating leases – Council acting as a lessor

2.14 Overheads and Support Services

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The costs of overheads and support services are charged to those services that benefit from the supply or service in accordance with the costing principles of the CIPFA Best Value Accounting Code of Practice 2010/11 (BVACOP). The total absorption costing principle is used – the full cost of overheads and support services are shared between users in proportion to the benefits received, with the exception of:

• Corporate and Democratic Core – costs relating to the Council’s status as a multi-functional, democratic organisation,

• Non Distributed Costs – the cost of discretionary benefits awarded to employees retiring early, and any depreciation and impairment losses chargeable on non-operational properties.

These two cost categories are defined in BVACOP and accounted for as separate headings in the Income and Expenditure Account, as part of the Cost of Services.

2.15 Property plant and equipment

Property plant and equipment consists of assets that have physical substance and are held for use in the provision of services, for rental to others, or for administrative purposes, and that are expected to be used during more than one financial year. They exclude assets which are held purely for investment purposes (Investment properties) and assets which the Council is actively seeking to sell (Assets available for sale). Property plant and equipment consists of the following categories:

Definition and Categories

• Land and buildings – properties owned by the Council, other than those in another category shown below, or Investment Properties.

• Vehicles, plant and equipment – individual items or groupings of items which are purchased from capital resources.

• Infrastructure – for this Council, this category includes only footway lighting.

• Community assets – properties such as parks, which are used for the community as a whole, with no determinable market value in their present use, and which are not likely to be sold.

• Surplus assets – individual properties which the Council has determined to be surplus to operational requirements, but which are not actively being marketed.

• Assets under construction – capital expenditure on an asset before it is brought into use.

Expenditure on the acquisition, creation or enhancement of property plant and equipment is capitalised on an accruals basis, provided that it is probable that the future economic benefits or service potential associated with the item will flow to the Council and the cost of the item can be measured reliably. Expenditure that secures but does not add to an asset’s potential to deliver future economic benefits or service potential (e.g. repairs and maintenance) is charged to the Comprehensive Income and Expenditure Account as an expense when it is incurred. Land and Buildings assets valued at less than £25,000 are not included on the balance sheet, provided that the total excluded has no material impact.

Recognition

Assets are initially measured at cost, comprising all expenditure that is directly attributable to bringing the asset into working condition for its intended use. Assets are then carried in the Balance Sheet using the following measurement bases:

Measurement

• Land and buildings – fair value, usually based on the market value for the existing use (EUV). Some specialised properties, where the valuer cannot identify a market for the asset, are instead valued on the basis of depreciated replacement cost (DRC).

• Vehicles, plant and equipment – fair value, for which depreciated historic cost is normally used as a proxy.

• Infrastructure – depreciated historic cost

• Community Assets – historic cost, depreciated where appropriate.

• Surplus assets - fair value, based on the market value for the existing use (EUV).

• Assets under construction – historic cost

We revalue assets included in the Balance Sheet at current value when there have been material changes in the value, but as a minimum every five years. Increases in valuations are matched by credits to the Revaluation Reserve to recognise unrealised gains. Gains are credited to the Income and Expenditure Account where they arise from the reversal of an impairment loss previously charged to a service revenue account. Reductions in value are charged to the

Revaluation

26

Revaluation Reserve, up to the amount held for that asset in the Revaluation Reserve, or otherwise to the Comprehensive Income and Expenditure Statement.

The Revaluation Reserve contains revaluation gains recognised since 1 April 2007 only, the date of its formal implementation. Gains arising before that date have been consolidated into the Capital Adjustment Account.

The values of each category of assets and of material individual assets that are not being depreciated are reviewed at the end of each financial year for evidence of reductions in value. Where impairment is identified as part of this review or as a result of a valuation exercise, it is written off against any revaluation gains attributable to the relevant asset in the Revaluation Reserve, with any excess charged to the relevant service revenue account.

Impairment

Where an impairment loss is reversed subsequently, the reversal is credited to the relevant service line(s) in the Comprehensive Income and Expenditure Statement, up to the amount of the original loss, adjusted for depreciation that would have been charged if the loss had not been recognised.

When it becomes probable that the carrying amount of an asset will be recovered principally through a sale transaction rather than through its continued use, it is reclassified as an Asset Held for Sale. The asset is revalued immediately before its reclassification and then carried at the lower of this amount and fair value less costs to sell. Where there is a subsequent decrease to fair value less costs to sell, the loss is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement. Gains to fair value are recognised only up to the amount of any losses previously recognised in the Surplus or Deficit on Provision of Services. Depreciation is not charged on Assets Held for Sale.

Disposals

If assets no longer meet the criteria to be classified as Assets Held for Sale, they are reclassified back to property plant and equipment and valued at the lower of their carrying amount before they were classified as held for sale, adjusted for depreciation or revaluations that would have been recognised had they not been classified as Held for Sale, and their recoverable amount at the date of the decision not to sell.

When an asset is disposed of or decommissioned, the carrying amount of the asset in the Balance Sheet is written off to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Account. An equivalent transfer is made to the General Fund to the Capital Adjustment Account to eliminate impact on the General Fund, and any revaluation gains accumulated for the asset in the Revaluation Reserve are also transferred to the Capital Adjustment Account.

Amounts received for a disposal in excess of £10,000 are categorised as capital receipts. These are credited to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Account, but an equivalent appropriation is made from the General Fund to the Capital Receipts Reserve .There is a legal requirement that sale proceeds held in this reserve can only be used to reduce debt or to finance capital expenditure.

In some cases the receipt of income from asset disposals is delayed until a future financial year. In such cases a credit is made to the unusable Deferred Capital Receipts Reserve, matched by a long-term or short term debtor. When the income is received, the debtor is written down and a transfer is made from the Deferred Capital Receipts Reserve to the Capital Receipts Reserve.

Depreciation is provided for on all assets with a determinable finite life by allocating the value of the asset in the Balance Sheet over the periods expected to benefit from their use. Depreciation is based on the opening net book value, as adjusted by gains or losses arising from revaluations at 1 April each year.

Depreciation

Depreciation is calculated on the following bases:

• Land – not subject to depreciation

• Buildings – straight-line allocation over the life of the property as estimated by the valuer

• Vehicles, plant and equipment – a percentage of the value of each class of assets in the Balance Sheet:

ICT equipment 5 years

Litter bins 5 years

Wheeled bins 15 years

Play area equipment 10 years

Other equipment Normally 5 years

• Infrastructure –footway lighting is depreciated on a straight-line basis over a period of 30 years.

• Community assets – not subject to depreciation

• Surplus assets - straight-line allocation over the life of the property as estimated by the valuer

27

• Assets under construction – not subject to depreciation

Where new assets are acquired or brought into use, depreciation is charged from the start of the following year. Depreciation is charged for the full final year when assets are sold.

Where an asset has major components with different estimated useful lives, these are depreciated separately.

Depreciation is charged to the Cost of Services in the Comprehensive Income and Expenditure Account, but a not a legal charge against the General Fund. A transfer is therefore made from the Capital Adjustment Account to the General Fund to reverse the impact.

Revaluation gains are also depreciated, with an amount equal to the difference between current value depreciation charged on assets and the depreciation that would have been chargeable based on their historical cost being transferred each year from the Revaluation Reserve to the Capital Adjustment Account.

2.16

The Council recognises provisions to represent liabilities of uncertain timings or amounts. Provisions in the balance sheet represent cases where:

Provisions

• The Council has a present obligation as a result of a past event;

• It is probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation;

• A reliable estimate can be made of the amount of the obligation.

2.17

The Council maintains two groups of reserves, usable and unusable.

Reserves

Usable reserves comprise the following:

• Capital Receipts Reserve

•

: proceeds from the sales of Property, Plant and Equipment are initially credited to the Income and Expenditure Account, but legally can only be used to finance capital expenditure, and so are transferred to the Capital Receipts Reserve and afterwards used for this specific purpose.

Capital Grants and Contributions Reserve

•

: similarly the Council receives grants and contributions towards capital expenditure, and these are also credited to the Income and Expenditure Account and immediately transferred into the Capital Grants and Contributions Reserve until required to finance capital investment.

Collection Fund Adjustment Account

•

: the net amount of the Council’s share of Council tax collectable for the year is credited to the Income and Expenditure Account, but only the amount previously estimated and formally notified can be added to the General Fund. The difference between the two amounts is credited or debited to the Collection Fund Adjustment Account, and cannot be used until the following financial year.

Earmarked reserves

•

: the Council may set aside earmarked reserves to cover specific projects or contingencies. These are transferred from the General Fund, and amounts are withdrawn as required to finance such expenditure. The expenditure itself is charged to the appropriate line in the Comprehensive Income and Expenditure Statement. There are no legal restrictions on the use of earmarked reserves, and unspent balances can be taken back to the General Fund in the same way.

General Fund

Unusable Reserves consist of those which cannot be used to finance capital or revenue expenditure:

: this represents all other usable reserves, without legal restrictions on spending, which arise from annual surpluses or deficits.

• Deferred Capital Receipts

•

: in some cases (particularly former housing stock disposed of, where the purchaser financed the transaction through a mortgage from the council) an asset is disposed of, but the income cannot be collected immediately. The council maintains records for a long term debtor, offset by a balance in the Deferred Capital Receipts Account. When the income is received the debtor is written down and a transfer is made between this account and the Capital Receipts Reserve.

Revaluation Reserve

o revalued downwards or impaired and the gains are lost

: this consists of accumulated gains on individual items of Property, Plant and Equipment. The Reserve contains only gains accumulated since 1 April 2007, the date that the Reserve was created. Accumulated gains before that date are consolidated into the balance on the Capital Adjustment Account. The balance is reduced when assets with accumulated gains are:

o used in the provision of services and the gains are consumed through depreciation, or

o disposed of and the gains are realised.

• Capital Adjustment Account: receives credits when capital is financed from revenue resources or other usable reserves, and receives debits to offset depreciation and other charges relating to capital which are not

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chargeable against the General Fund. The Account is credited with the amounts set aside by the Council as finance for the costs of acquisition, construction and enhancement. The account contains revaluation gains accumulated on Property Plant and Equipment before 1 April 2007, the date on which the Revaluation Reserve was created to hold such gains.

• Pensions Reserve

•

: this is a statutory reserve to offset the Pension Liability assessed on an accounting and actuarial basis, and to ensure that variations in this liability do not affect the General Fund.

Financial Instruments Adjustment Account

•

: this represents the difference between the accounting and legislative charges for finance costs.

Collection Fund Adjustment Account

2.18

: this represents the differences arising from the recognition of council tax income in the Comprehensive Income and Expenditure Statement as it falls due from council tax payers, compared with the statutory arrangements for paying across amounts from the Collection Fund to the General Fund.

Expenditure incurred during the year that may be capitalised under statutory provisions but does not result in the creation of a non-current asset, is charged as expenditure to the relevant service revenue account in the year. Where the Council has determined to meet the cost of this expenditure from existing capital resources or by borrowing, a transfer to the Capital Adjustment Account then reverses out the amounts charged, so there is no impact on the level of Council Tax.

Revenue Expenditure financed from capital under statute

2.19

Where the values are significant to an operation, stocks are included in the Balance Sheet at the lower of cost and net realisable value.

Stocks

2.20

VAT is included as an expense only to the extent that it is not recoverable from Her Majesty’s Revenue and Customs (HMRC). VAT receivable is excluded from income, except in the unusual circumstance where VAT was charged to customers in a previous financial year, but where the Council was able to challenge successfully the legality of the charge. In these circumstances recovered VAT is credited to the appropriate line in the Comprehensive Income and Expenditure Statement.

Value Added Tax (VAT)

2.21

The 2011/12 accounting Code of practice includes one significant change, requiring the Council to bring on to its balance sheet the value of “Heritage Assets” which comprises “those assets that are intended to be preserved for future generations because of their cultural, environmental or historical associations”. For this Council this includes museum collections, works of art and civic regalia. Heritage Assets are included within Community Assets as a grouping of Property, Plant and Equipment. These assets were valued at £2,555,000 at 1 April 2010, and were revalued by £79,000 to £2,634,000 at 31 March 2011. The 2010/11 accounts will be restated to include these amounts when the 2011/12 accounts are prepared.

Accounting policies issued but not yet adopted

Currently all Community Assets are held on the basis of historic costs (arising from 1994). The 2011/12 Code of Practice allows (but does not require) Community Assets to be revalued in the same way as for some other classes of Property Plant and Equipment. As explained above, valuations are undertaken on the basis of either Existing Use Value (EUV) or Depreciated Replacement Cost (DRC). Neither of these methods is considered appropriate to apply to this Council’s Community Assets, which consist of parks and open spaces, and it is therefore planned to continue to hold these assets at historic costs.

2.22

As noted above in paragraph 2.7, accounting standards normally require that the value of employee benefits such as outstanding annual leave is taken into account as a liability at the end of the financial year. The Council has evaluated the amount concerned for 1 April 2009, 31 March 2010 and 31 March 2011, and in all cases it has determined that the amount is not material, and therefore, as allowed by the accounting standards, not made any adjustment to its accounts for these amounts. Under legislation such accruals would be matched by appropriations to or from an adjustment account (an unusable reserve), so there would be no impact on the call on Council Tax or on the General Fund balance.

Critical Judgements in Applying Accounting Policies

Under the accounting Code of Practice some legal agreements, such as waste collection contracts, may be regarded as containing a lease for the use of assets operated by the contractors. Such leases, in turn, may be judged to be either finance leases or operating leases, as set out in accounting policy 2.13 above. The Council has examined its service contracts, particularly the Waste Collection contract, and has determined that, in the circumstances in which the contract was negotiated and is operated, it does not contain such a lease.

2.23

The Statement of Accounts contains estimated figures that are based on assumptions made by the Council about the future or that are otherwise uncertain. Estimates are made, taking into account historical experience, current trends and other relevant factors. However, because balances cannot be determined with certainty, actual results could be materially different from the assumptions and estimates.

Assumptions made about the future, and other major sources of estimating uncertainty

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For this Council the only balance with a material degree of uncertainty is the liability for future pension costs, which stood at about £26m at 31 March 2011. The estimate of this liability depends on a number of complex judgements relating to the discount rate used, the rate at which salaries are projected to increase, changes to retirement ages, mortality rates and expected returns on pension fund assets. A firm of consulting actuaries, Barnett Waddingham, is engaged to provide the Council with expert advice about the assumptions to be applied. For example, a 0.1% increase in the discount rate would result in a decrease in the pension liability of £1,824,000, while an increase of 1 year in life expectancies for pensioners would increase the liability by £3,149,000. All these assumptions are listed in Note 15.6 below, and are re-assessed every year. Changes in any one assumption would be affected by changes in others, so that the effect of a number of changes would be a complex calculation.

In 2010/11 the actuaries advised that the net pensions liability had reduced by £6,658,000 as a result of estimates being corrected in the light of experience, and had also reduced by £11,718,000 through the updating of assumptions.

Valuations of property depend on various assumptions, as set out in detail in Note 9.4 below.

3 Events after the Balance Sheet Date

This draft Statement of Accounts was certified as a true and fair statement of the financial position, and authorised for issue on 22 September 2011.

4 Adjustments between Accounting and Funding Basis under Regulations

This note details the adjustments that are made to the comprehensive income and expenditure recognised by the Council in the year according to proper accounting practice to the resources that are specified by statutory provisions as being available to the Council to meet future capital and revenue expenditure.

Gen

eral

Fu

nd

Earm

arke

d R

eser

ves

Cap

ital

Gra

nts

&

Con

trib

s.

Cap

ital

Rec

eipt

s

Tota

l Usa

ble

Res

erve

s

Unu

sabl

e R

eser

ves

Tota

l R

eser

ves

£000 £000 £000 £000 £000 £000 £000 2009/10 Reversal of items debited or credited to Comprehensive Income and Expenditure Statement: Write down Intangible Assets 110 - - - 110 (110) - Depreciation of Property Plant and Equipment 2,395 - - - 2,395 (2,395) - Impairment to Property Plant and Equipment (3,599) - - - (3,599) 3,599 - Revenue Expenditure financed from Capital under Statute 496 - - - 496 (496) -

Gain or (Loss) on sale of non-current assets (80) - - 317 237 (237) - Difference between accounting and statutory finance costs 24 - - - 24 (24) -

Difference between accounting and statutory credit for Council Tax 40 - - - 40 (40) -

Difference between accounting and statutory pension costs 606 - - - 606 (606) -

Insertion of items not debited or credited to Comprehensive Income and Expenditure Statement: Capital expenditure from revenue (718) - - - (718) 718 - Capital grants and contributions in Comprehensive I&E Account (248) - 248 - - - -

Financing of capital expenditure directly from reserves: Financing from capital grants and contributions reserve - - (141) - (141) 141 -

Financing from capital receipts reserve - - - (810) (810) 810 -

Total to Movement in Reserves Statement (974) - 107 (493) (1,360) 1,360 -

2010/11 Reversal of items debited or credited to Comprehensive Income and Expenditure Statement: Write down Intangible Assets 118 - - - 118 (118) - Depreciation of Property Plant and Equipment 2,289 - - - 2,289 (2,289) - Impairment to Property Plant and Equipment (665) - - - (665) 665 - Revenue Expenditure financed from Capital under Statute 214 - - - 214 (214) -

Gain or (Loss) on sale of non-current assets (387) - - 406 19 (19) -

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Gen

eral

Fu

nd

Earm

arke

d R

eser

ves

Cap

ital

Gra

nts

&

Con

trib

s.

Cap

ital

Rec

eipt

s

Tota

l Usa

ble

Res

erve

s

Unu

sabl

e R

eser

ves

Tota

l R

eser

ves

£000 £000 £000 £000 £000 £000 £000 Difference between accounting and statutory finance costs (13) - - - (13) 13 -

Difference between accounting and statutory credit for Council Tax (47) - - - (47) 47 -

Difference between accounting and statutory pension costs (7,226) - - - (7,226) 7,226 -

Insertion of items not debited or credited to Comprehensive Income and Expenditure Statement: Capital expenditure from revenue (80) - - - (80) 80 - Capital grants and contributions in Comprehensive I&E Account (283) - 283 - - - -

Financing of capital expenditure directly from reserves: Financing from capital grants and contributions reserve - - (312) - (312) 312 -

Financing from capital receipts reserve - - - (405) (405) 405 -

Total to Movement in Reserves Statement (6,080) - (29) 1 (6,108) 6,108 -

5 Reserves

5.1

Note 2.17 sets out the purpose and use of the various usable and unusable reserves maintained by the Council, and the Movement in Reserves Statement shows detail of the annual movements. The Movement in Reserves Statement shows only a summary of the movements in unusable reserves, and a detailed analysis is shown below.

Unusable Reserves

Def

erre

d C

apita

l R

ecei

pts

Rev

alua

tion

Res

erve

Pens

ion

Res

erve

Cap

ital

Adj

ustm

ent

Acc

ount

Fina

ncia

l In

stru

men

ts

Adj

ustm

ent

Col

lect

ion

Fund

A

djus

tmen

t

Tota

l Unu

sabl

e R

eser

ves

£000 £000 £000 £000 £000 £000 £000

Balance at 31 March 2009 24 10,717 (29,550) 64,504 - 95 45,790

Gain or (Loss) on revaluation of assets - (1,109) - - - - (1,109)

Actuarial gains / (losses) on pension assets / liabilities - - (21,445) - - - (21,445)

Total Other Comprehensive Expenditure and Income - (1,109) (21,445) - - - (22,554)

Reversal of items debited or credited to Comprehensive Income and Expenditure Statement: Write down Intangible Assets - - - (110) - - (110) Depreciation of Property Plant and Equipment - - - (2,395) - - (2,395) Impairment to Property Plant and Equipment - - - 3,599 - - 3,599 Revenue Expenditure financed from Capital under Statute - - - (496) - - (496)

Gain or (Loss) on sale of non-current assets - (237) - - - - (237) Difference between accounting and statutory finance costs - - - - (24) - (24)

Difference between accounting and statutory credit for Council Tax - - - - - (40) (40)

Difference between accounting and statutory pension costs - - (606) - - - (606)

Insertion of items not debited or credited to Comprehensive Income and Expenditure Statement: Capital expenditure financed from revenue - - - 718 - - 718 Financing of capital expenditure directly from reserves:

31

Def

erre

d C

apita

l R

ecei

pts

Rev

alua

tion

Res

erve

Pens

ion

Res

erve

Cap

ital

Adj

ustm

ent

Acc

ount

Fina

ncia

l In

stru

men

ts

Adj

ustm

ent

Col

lect

ion

Fund

A

djus

tmen

t

Tota

l Unu

sabl

e R

eser

ves

£000 £000 £000 £000 £000 £000 £000

Capital expenditure financed from grants and contributions - - - 141 - - 141

Capital expenditure financed from capital receipts - - - 810 - - 810 Other Adjustment: Adjustment for depreciation on revalued non-current assets - (106) - 106 - - -

Adjustments between accounting and funding basis under regulation - (343) (606) 2,373 (24) (40) 1,360

Increase /( Decrease) in Year - (1,452) (22,051) 2,373 (24) (40) (21,194)

Balance at 31 March 2010 24 9,265 (51,601) 66,877 (24) 55 24,596

Gain or (Loss) on revaluation of assets - 57 - - - - 57

Actuarial gains / (losses) on pension assets / liabilities - - 18,376 - - - 18,376

Total Other Comprehensive Expenditure and Income - 57 18,376 - - - 18,433

Reversal of items debited or credited to Comprehensive Income and Expenditure Statement: Write down Intangible Assets - - - (118) - - (118) Depreciation of Property Plant and Equipment - - - (2,289) - - (2,289) Impairment to Property Plant and Equipment - - - 665 - - 665 Revenue Expenditure financed from Capital under Statute - - - (214) - - (214)

Gain or (Loss) on sale of non-current assets (19) - - - - - (19) Difference between accounting and statutory finance costs - - - - 13 - 13

Difference between accounting and statutory credit for Council Tax - - - - - 47 47

Difference between accounting and statutory pension costs - - 7,226 - - - 7,226

Insertion of items not debited or credited to Comprehensive Income and Expenditure Statement: Capital expenditure financed from revenue - - - 80 - - 80 Financing of capital expenditure directly from reserves: Capital expenditure financed from grants and contributions - - - 312 - - 312

Capital expenditure financed from capital receipts - - - 405 - - 405 Other Adjustment: - - - - - - - Adjustment for depreciation on revalued non-current assets - (100) - 100 - - -

Adjustments between accounting and funding basis under regulation (19) (100) 7,226 (1,059) 13 47 6,108

Increase / (Decrease) in Year (19) (43) 25,602 (1,059) 13 47 24,541

Balance at 31 March 2011 5 9,222 (25,999) 65,818 (11) 102 49,137

5.2 Earmarked Reserves

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The table below shows the balances for earmarked reserves, and the transfers made to or from the General Fund.

1/4/2009 Inc. Exp. 1/4/10 Inc. Exp. 31/3/11

£000 £000 £000 £000 £000 £000 £000

Capital and Revenue Initiatives 3,998 36 (1,618) 2,416 - (404) 2,012

Planned Maintenance 206 - (96) 110 - (110) - Dunorlan Park 65 - (65) - - - - Torrington Car Park 249 - - 249 - - 249 On-Street Parking 17 - - 17 - - 17 Local Development Framework 16 64 (80) - 225 - 225 General Reserve 371 - (371) - - - - LABGI 289 - (289) - - - - Section 106 contribution interest 160 - (60) 100 - (60) 40 Maintenance of graves 32 - - 32 - - 32 Maintenance of Garden of Remembrance 23 1 (7) 17 - - 17 Strategic Plan 669 322 (481) 510 - (307) 203 Second Homes 35 - (35) - - - - Performance Reward 270 40 - 310 - (78) 232 RVP Car Park Maintenance - 600 - 600 - (261) 339 Restructure Phase 1 - 200 (72) 128 - (128) - Restructure Phase 2 - 300 (47) 253 - (253) - Carbon Reduction - 50 - 50 - - 50 Government Grants 218 171 (218) 171 89 (182) 78 2012 Reserve - - - - 170 - 170 Invest to Save - - - - 400 (246) 154 Cultural Reserve - - - - 16 - 16

Total 6,618 1,784 (3,439) 4,963 900 (2,029) 3,834

The reasons for maintaining these earmarked reserves are shown below:

• Capital & Revenue Initiatives Reserve – the reserve is used to support future capital and revenue schemes in accordance with the Council’s Corporate and Financial Plan

• Planned Maintenance – to provide for deferred expenditure on revenue planned maintenance

• Dunorlan Park – a reserve from an insurance claim to be used for improvements to the park

• Torrington Car Park – a reserve to refurbish the car park

• On Street Parking Reserve – the ring-fenced parking surplus that is used to fund highways and transport schemes in the borough. As there was no surplus in 2010/11 the balance remained unchanged.

• Local Development Framework – a reserve for costs associated with the Local Development Framework due to a re-phasing of timeframes and costs

• General Reserve – this is used to finance particular revenue projects which are accommodated within the revenue budget and are committed by the end of the financial year, but where the expenditure is delayed until the following year

• LABGI – a reserve for Local Authority Business Growth Incentive Scheme government grant which is used for economic development projects. This reserve was closed at the start of 2009/10 and the balance transferred to the Strategic Plan reserve

• Section 106 Contributions – these are developers’ contributions to be used to finance capital projects: normally they would have to be repaid with interest if they cannot be used for the specified purpose within a given time. Sufficient money is retained within this reserve to pay interest on unapplied contributions. This reserve was previously classified as a provision, but has been moved following a review of accounting principles

• Maintenance of graves and garden of remembrance – where money is donated for these purposes it is retained in these reserves until it can be spent. These reserves were previously classified as provisions, but have been moved following a review of accounting principles

• Strategic Plan reserve – where the Council obtains more money from investment income than it has budgeted for, it places the excess into this reserve, which is then used to finance various strategic projects

33

• Second Homes – additional money receivable from Council Tax on second homes and payable as part of the precept to Kent County Council is then distributed to district councils and used to fund particular projects

• Performance Reward – money received as a result of reaching targets under the Local Area Agreement has been set aside to fund individual projects, 50% of which is reserved for capital schemes

• Restructure Phase 1 – to fund one-off costs relating to the senior management review phase of the Council’s restructuring programme

• Restructure Phase 2 – to fund one-off costs of subsequent phases of the Council’s restructuring programme

• Carbon Reduction Reserve – to enable the Council to purchase initial and subsequent allowances under the Carbon Reduction Commitment scheme, a mandatory ‘cap and trade’ scheme starting in April 2010

• Government Grants – contains the equivalent amount of grants provided by the Government during the financial year that cannot be used until after 31 March 2011

• The Invest to Save Reserve was created essentially to cover the redundancy costs of the Revenues and Benefits restructure but the remainder will be used for other initiatives as and when they arise.

• The 2012 reserve has been established to set aside funds for events associated with the Queen’s Golden Jubilee and the Olympics.

• Cultural - to support grant applications and encourage fund-raising, thereby providing an enhanced pot of money to undertake key cultural projects in the Borough.

6 Grants and Contributions

The table below outlines Government grants and other external contributions accounted for within the Comprehensive Income and Expenditure Statement and the Cash Flow Statement.

2009/10 2010/11 Grants Contribs. Total Grants Contribs. Total

£000 £000 £000 £000 £000 £000

(35,230) - (35,230) DWP benefits grants (36,216) - (36,216) (1,022) - (1,022) Benefits administration grants (968) - (968)

(835) - (835) Grants towards revenue expenditure financed

from capital under statute (1,052) - (1,052) (336) - (336) Concessionary fares grant (442) - (442)

- (1,336) (1,336) Contributions from other local authorities and

health sector - (1,430) (1,430)

- (111) (111) Contributions to revenue expenditure financed

from capital under statute - (118) (118) (367) (234) (601) Other grants and contributions (392) (447) (839)

(37,790) (1,681) (39,471) Total within Cost of Services (39,070) (1,995) (41,065)

(1,305) - (1,305) Revenue Support Grant (887) - (887) (40) - (40) LAA Performance Reward Grant - - -

(164) - (164) Housing and Planning Delivery Grant - - - (23) - (23) Area Based Grant (36) - (36) (69) - (69) Local Authority Business Growth Grant - - - (17) - (17) Habitats Grant (8) - (8)

(172) (76) (248) Grants and contributions towards capital

expenditure - (283) (283)

(1,790) (76) (1,866) Total within Taxation and non-specific grant income (931) (283) (1,214)

(39,580) (1,757) (41,337)

Total within Comprehensive Income and Expenditure Statement (40,001) (2,278) (42,279)

454 58 512 Adjust for variation in accruals (2,295) 45 (2,250)

(39,126) (1,699) (40,825) Total within Cash Flow Statement (42,296) (2,233) (44,529)

34

The Council has also received contributions under Section 106 of the Town and Country Planning Act 1990, which enables developers to make contributions in connection with the granting of planning permission. Where these contributions are to be used towards capital investment, and if the agreements contain a condition specifying a date by which the contribution must be used for a specific purpose, this income is held on the balance sheet under the heading “capital grants receipts in advance”. Balances under “current liabilities” represent those expected to be used to finance capital in the next financial year, and other balances are held under “long term liabilities”.

7 Amounts reported for resource allocation decisions

Paragraph 3 of the Foreword to the Statement of Accounts compares net expenditure to the annual budget, analysed between the directorates into which the Council is organised. The table below breaks these totals down further into different types of income and expenditure, and reconciles the total to the Cost of Services and the Surplus or Deficit on the Provision of Services as shown in the Comprehensive Income and Expenditure Statement.

The Cost of Services in this table is the same figure as shown in the Comprehensive Income and Expenditure Account. It should be noted that the figures in the tables below (unlike the corresponding figures in the Comprehensive Income and Expenditure Account) are shown without any adjustments for the allocation of support services.

Chi

ef E

xecu

tive

Cha

nge

&

Com

mun

s.

Reg

en. a

nd

Sust

ain.

Cos

t of

Serv

ices

Cor

pora

te It

ems

Tota

l

£000 £000 £000 £000 £000 £000

Fees, Charges and other service income (157) (2,820) (9,271) (12,247) - (12,247) Interest and Investment Income - - - - (1,105) (1,105) Income from council tax - - - - (8,144) (8,144) Government grants and contributions (256) (38,681) (2,128) (41,065) (7,322) (48,387)

Total Income (413) (41,501) (11,399) (53,312) (16,571) (69,883)

Employees 1,821 (1,192) 7,101 7,730 1,453 9,183 Other service expenses 1,460 42,749 8,134 52,342 - 52,342 Depreciation, etc 42 905 2,178 3,125 - 3,125 Interest payments - - - - 282 282 Precepts and levies - - - - 1,600 1,600 Gain or loss on disposal of fixed assets - - - - (387) (387)

Total operating expenses 3,323 42,462 17,413 63,197 2,948 66,145

(Surplus) or Deficit on provision of services 2,910 961 6,014 9,885 (13,623) (3,738)

The figure for employees under the directorate of Change and Communities is negative for 2010/11 only, because of the negative “past service cost” of £8,217,000, relating to the change in indexation for future pension rises – see paragraphs 5 and 6 of the Explanatory Foreword.

The table below shows the corresponding figures for 2009/10.

Chi

ef

Exec

utiv

e

Cha

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&

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Reg

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nd

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Cos

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Serv

ices

Cor

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Item

s

Tota

l

£000 £000 £000 £000 £000 £000

Fees, Charges and other service income (279) (2,750) (9,745) (12,774) - (12,774) Interest and Investment Income - - - - (1,160) (1,160) Income from council tax - - - - (7,801) (7,801) Government grants and contributions (279) (37,499) (1,693) (39,471) (7,521) (46,992)

Total Income (558) (40,249) (11,438) (52,245) (16,482) (68,727)

35

Employees 1,799 5,957 6,442 14,198 2,203 16,401 Other service expenses 1,368 41,028 9,179 51,575 - 51,575 Depreciation, etc 31 615 (298) 348 - 348 Interest payments - - - - 83 83 Precepts and levies - - - - 1,443 1,443 Gain or loss on disposal of fixed assets - - - - (80) (80)

Total operating expenses 3,198 47,600 15,323 66,121 3,649 69,770

Surplus or Deficit on provision of services 2,640 7,351 3,885 13,876 (12,833) 1,043

8 Summary of capital expenditure and financing

Capital expenditure was incurred and financed as follows:

2009/10 2010/11 £000 £000 £000 £000

301 Opening Capital Financing Requirement 262

842

Property Plant and Equipment 460

243

Intangible Assets 123 87

Assets held for sale -

1,442

Revenue Expenditure Funded from Capital under Statute (REFFCUS) 1,384

2,614 Total capital investment 1,967

Financed by: (810)

Capital Receipts (405)

(141)

Government Grants and other contributions (312) (946)

Grants and contributions towards REFFCUS (1,170)

(718)

Revenue financing (80)

(2,615) Total financing (1,967)

(38) Movement in Long Term Debtors within CFR (13)

262 Closing Capital Financing Requirement 249

The Capital Financing Requirement (CFR) is the measure, taken from the Balance Sheet, of the capital expenditure incurred historically by the Council, which has yet to be financed at the end of the financial year. This Council’s CFR is represented entirely by past capital expenditure on assistance to housing associations and a bowls club, which is being reimbursed annually by repayments of mortgages. As this balance is reduced by these repayments the Council does not otherwise need to set aside money from the General Fund to reduce the CFR. The Council has borrowed money for capital purposes during 2010/11, but, as the above table shows, all capital investment for the year has been financed from other resources, so this borrowing has not increased the Council’s CFR.

The CFR is made up of the following balance sheet totals:

1 April 2009 1 April 2010

31 March 2011 £000 £000

£000

74,364 75,064 Property plant and equipment 73,957 858 991 Intangible assets 996 300 262 Long term debtors financed from capital 249

- 87 Assets available for sale 87 (10,717) (9,265) Revaluation reserve (9,222) (64,504) (66,877) Capital adjustment account (65,818)

301 262 Total 249

36

9 Property Plant and Equipment

9.1

The following table shows the net carrying amounts of the categories of Property Plant and Equipment, as at 31 March 2011, split between the gross carrying amount and the accumulated depreciation and impairment.

Analysis of carrying amounts

Land

& B

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ings

Vehi

cles

, Pla

nt &

Eq

uipm

ent

Infr

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Com

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Surp

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Und

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£000 £000 £000 £000 £000 £000 £000 Balance at 1 April 2009: Gross carrying amount 125,698 4,449 753 4,526 638 255 136,319 Cumulative depreciation & impairment (59,187) (1,970) (321) (179) (298) - (61,955)

Total 66,511 2,479 432 4,347 340 255 74,364

Balance at 1 April 2010: Gross carrying amount 124,510 4,721 753 4,990 608 70 135,652 Cumulative depreciation & impairment (57,198) (2,597) (346) (179) (268) - (60,588)

Total 67,312 2,124 407 4,811 340 70 75,064

Balance at 31 March 2011: Gross carrying amount 69,212 3,837 772 5,019 355 199 79,394 Cumulative depreciation & impairment (2,829) (2,051) (371) (180) (6) - (5,437)

Total 66,383 1,786 401 4,839 349 199 73,957

Note 2 (Accounting Policies) sets out the methods for measuring the gross carrying amounts, and of calculating depreciation and impairment.

9.2

The table below shows the movements in the different categories for the year:

Reconciliation of opening and closing balances

Land

&

Bui

ldin

gs

Vehi

cles

, Pla

nt

& E

quip

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t

Infr

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ity

Surp

lus

Ass

ets

Und

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£000 £000 £000 £000 £000 £000 £000

Movements 2009/10: Balance at 1 April 2009 66,511 2,479 432 4,347 340 255 74,364 Additions 243 273 - 304 - 22 842 Revaluations (1,316) - - - (30) - (1,346) Impairment losses (689) - - - - - (689) Impairment loss reversals 4,258 - - - 30 - 4,288 Depreciation (1,742) (628) (25) - - - (2,395) Disposals - - - - - - - Reclassifications 47 - - 160 - (207) -

Balance at 31 March 2010 67,312 2,124 407 4,811 340 70 75,064

Movements 2010/11 Balance at 1 April 2009 67,312 2,124 407 4,811 340 70 75,064 Additions 47 237 19 24 - 133 460 Revaluations 42 - - - 15 - 57 Impairment losses (432) - - - - - (432) Impairment loss reversals 1,097 - - - - - 1,097

37

Land

&

Bui

ldin

gs

Vehi

cles

, Pla

nt

& E

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t

Infr

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Com

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ity

Surp

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Und

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£000 £000 £000 £000 £000 £000 £000

Depreciation (1,683) (575) (25) - (6) - (2,289) Disposals - - - - - - - Reclassifications - - - 4 - (4) -

Balance at 31 March 2011 66,383 1,786 401 4,839 349 199 73,957

9.3

The great majority of impairment adjustments result from revaluations carried out by the valuers (see below). Most assets had been subject to downward valuations in previous years, and therefore, in the absence of a previous balance in the Revaluation Reserve, to an impairment charge.

Impairments

9.4

Two of the categories shown in the tables above (land and buildings and surplus assets) are subject to valuations. The Royal Victoria Place shopping centre is valued as at 31 March each year by Caxtons Commercial Ltd. All other properties in these categories were valued as at 1 April 2009 by Capita Symonds Ltd (formerly NB Real Estate), and are subsequently revalued at 5-year intervals (20% as at 1 April each year). The valuers employed by both firms are members of the Royal Institute of Chartered Surveyors. For the majority of assets the basis of valuation for fair value is market value in its existing use (EUV). For a minority of specialised properties the valuers are unable to identify market evidence of such a value, and these assets are instead measured on the basis of depreciated replacement cost (DRC).

Valuation of property

The significant assumptions applied in estimating the fair value are:

• A continuation of the existing use;

• Mains services for built properties are connected to the properties and drainage is to the public sewer;

• There is no environmental contamination;

• Buildings being marketed for sale or let have an Energy Performance Certificate in place, which has not revealed any shortcomings impacting on the value;

• Freehold interests are not subject to easements, restrictive covenants, encumbrances, leases or licences that would adversely affect their sale;

• Accuracy and completeness of information provided by Council officers.

The table below analyses the gross carrying cost at 31 March for these two categories of assets according to the year of valuation. The total shown for valuations in 2010/11 includes £15,500,000 for the Royal Victoria Place, which was valued at 31 March, while all other assets were valued at the preceding 1 April. In the comparative figures for 2009/10 the valuations during 2009/10 included £14,800,000 for Royal Victoria Place, valued at 31 March 2010.

31 March 2010

31 March 2011 Land &

Buildings Surplus Assets

Land & Buildings

Surplus Assets

£000 £000

£000 £000

67,312 340 Net Book Value at 31 March 66,368 349

Adjust for changes since last valuation:

(243) - Additions (290) - 15 - Impairments 15 -

1,742 - Depreciation 2,828 6 68,826 340 Total valuations 68,921 355

Valuation in financial year: - - 2010/11 32,187 355

68,826 340 2009/10 36,734 - 68,826 340 Total valuations 68,921 355

38

9.5

The revaluations as at 1 April 2010, outlined in paragraph 9.4 above, resulted in increases in life expectancies for 13 properties and reductions for 4 properties. The net impact of these changes was a reduction of £61,000 in depreciation for the year, compared to the amount that would have been charged had the life expectancies remained unchanged.

Changes to accounting estimates

9.6

At 31 March 2011 the Council was contractually committed to the payment of £9,000 under its capital programme, compared to £10,000 at 31 March 2010.

Capital commitments

10 Intangible Assets

As set out in the accounting policies (Note 2.12 above), the Council accounts for its software as intangible assets. The annual movements in the balance sheet figures for intangible assets are shown below:

2009/10

2010/11 Gross Amortised Impaired Net Total

Gross Amortised Impaired Net Total

£000 £000 £000 £000

£000 £000 £000 £000

996 (138) - 858 Balance 1 April 1,239 (248) - 991

Written down for the year:

- (17) - (17)

Cultural, environmental, regulatory and planning services - (17) - (17)

- (93) - (93) Support Services - (101) - (101) - (110) - (110)

- (118) - (118)

243 - - 243 Added during year 123 - - 123

- - - - Impairments - - - -

1,239 (248) - 991 Balance at 31 March 1,362 (366) - 996

The write down for intangible assets is either charged directly to the lines comprising the “Cost of Services” heading in the Comprehensive Income and Expenditure Account or to the same lines through the overall support services recharges.

11 Assets held for sale

The balance sheet total for this heading at the start and end of the financial year relates to one property purchased in March 2010, solely in order to make it habitable and then to sell it. In the event it was not possible to dispose of the asset during 2010/11, but was still being marketed at 31 March 2011.

12 Financial Instruments

12.1

As noted under the heading of “Accounting Policies (Note 2.10 above), all of the Council’s investments come within the category of “loans and receivables”. These are financial assets that have fixed or determinable payments, and are not quoted in an active market.

Year-end balances compared to fair values

31 March 2010 31 March 2011 Book Value Fair Value Book Value Fair Value

£000 £000 £000 £000

10,284 10,727 Investments over one year 5,083 5,220 (284) - Less interest due within one year (83) -

10,000 10,727 Long term investments 5,000 5,220

8,072 8,120 Investments less than one year 34,365 34,557

284 - Add accrued interest on long term investments

83 -

39

31 March 2010 31 March 2011 Book Value Fair Value Book Value Fair Value

£000 £000 £000 £000

8,356 8,120 Short term investments 34,448 34,557

851 851 Trade accounts receivable 454 454

851 851 Short Term Debtors 454 454

3,700 3,703 Cash in bank call accounts 3,600 3,600

3,700 3,703 Cash and Cash Equivalents 3,600 3,600

22,908 23,401 Total Financial Assets 43,502 43,831

- - Borrowing over one year 17,000 16,218

- - Long Term Borrowing 17,000 16,218

- - Borrowing less than one year 2,000 1,908

Add accrued interest 90 90

- - Short Term Borrowing 2,090 1,998

- - Total Financial Liabilities 19,090 18,216

12.2

The table below sets out the interest receivable and payable for the year related to financial assets and liabilities, reconciled to the amounts included in the Comprehensive Income and Expenditure Statement:

Interest Receivable

2009/10

2010/11 £000

£000

Interest receivable (904) Interest from loans and receivables (895)

(262) Interest on backdated VAT claim (175) 24 Prior year adjustment on soft loans (12)

(18) Other interest receivable (23)

(1,160) Total Interest receivable (1,105)

Interest payable - Interest on long term borrowing 327

- Less capitalised interest - 83 Interest on Section 106 contributions (45)

83 Total Interest payable 282

12.3

The fair values valuations have been provided by the Council’s Treasury Management advisor, Sector. This uses the Net Present Value (NPV) approach, which provides an estimate of the value of payments in the future in today's terms. This is a widely accepted valuation technique commonly used by the private sector. The discount rate used in the NPV calculation should be equal to the current rate in relation to the same instrument from a comparable lender. This will be the rate applicable in the market on the date of valuation, for an instrument with the same duration i.e. equal to the outstanding period from valuation date to maturity. The structure and terms of the comparable instrument should be the same, although for complex structures it is sometimes difficult to obtain the rate for an instrument with identical features in

Valuation Techniques for Fair Value

40

an active market. In such cases, Sector has used the prevailing rate of a similar instrument with a published market rate, as the discount factor.

The purpose of the fair value disclosure is primarily to provide a comparison with the carrying value in the Balance Sheet. Since this will include accrued interest as at the Balance Sheet date, the calculations also include accrued interest in the fair value calculation. This figure is calculated up to and including the valuation date.

The rates quoted in this valuation were obtained by Sector from the market on 31st March, using bid prices where applicable.

12.4

The Council’s activities expose it to a variety of financial risks:

Risk Management

• credit risk – the possibility that other parties might fail to pay amounts due to the authority

• liquidity risk – the possibility that the authority might not have funds available to meet its commitments to make payments

• market risk – the possibility that financial loss might arise for the authority as a result of changes in such measures as interest rates and stock market movements.

The Council’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the resources available to fund services. Risk management is carried out by the Accountancy Section, under policies approved by the Council in the annual Treasury Management Policy and Strategy. The Council provides written principles for overall risk management, as well as written policies covering specific areas, such as interest rate risk, credit risk, and the investment of surplus cash.

Credit risk arises from deposits with banks and financial institutions. The risk is minimised through the Treasury Management Policy and Strategy, which specifies that deposits are not made with financial institutions unless they meet identified criteria, as assessed by its main agency, Fitch. It also reviews ratings from the other agencies, Moodys and Standard and Poors. The Policy and Strategy also imposes a maximum sum to be invested with a financial institution within each category, and the maximum period for a deposit. The credit criteria in respect of financial assets held by the Council are as detailed below:

Credit risk

Fitch Rating

Max

imum

Inve

stm

ent

Max

imum

Dur

atio

n

Long

Ter

m

Shor

t Ter

m

Indi

vidu

al R

atin

g

Supp

ort R

atin

g

Private Sector 1st tier institutions AA F1+ B 2 £20m 5 years

2nd tier institutions AA- F1+ B 2 £20m 3 years 3rd tier institutions A+ F1 B 2 £3m 1 year 4th tier institutions A F1 B 3 £3m 1 year Money market funds

£5m 5 years

Nationalised banks AA- F1+ F 1 £5m 1 year

The Policy & Strategy also specifies that the Council can invest with other UK Local Authorities and the Government’s Debt Management Office as detailed below:

Maximum Investment

Maximum Duration

Public Sector Unitary Councils £5m 5 years

County Councils £5m 5 years Police Authorities £5m 5 years Government’s DMO account £30m 5 years

41

The Council’s maximum exposure to credit risk in relation to its investments in private sector financial institutions, amounting to £42.6m at 31 March 2011, cannot be assessed generally, as the risk of any institution failing to make interest payments or to repay the principal sum, will be specific to each individual institution. Recent experience indicates that it is rare for such entities to be able to meet their commitments. A risk of irrecoverability applies to all of the Council’s deposits, but there was no evidence at 31 March 2011 that this was likely to crystallise. There has been no experience of default by any of the institutions holding the Council’s financial instruments, other than for trade accounts receivable (see Note 13 below).

The Council has a comprehensive cash flow management system that seeks to ensure that cash is available as needed. If unexpected movements happen, the authority has ready access to borrowings from the money markets and the Public Works Loans Board. There is no significant risk that it will be unable to raise finance to meet its commitments under financial instruments.

Liquidity risk

The maturity analysis of financial liabilities is as follows:

31 March 2010 31 March 2011

Less than one year - £2m Between 1 and 2 years - £2m Between 2 and 5 years - £6m More than five years - £9m Total Financial Liabilities - £19m

Interest rate risk

Market risk

The Council is exposed to risk in terms of its exposure to interest rate movements on its investments. Reductions in interest rates would reduce the interest income credited to the Income and Expenditure Account, while increases in interest rates would increase the income. The Council is minimising its exposure to this risk, however, by reducing the budget for anticipated interest income on an annual basis. Any excess income is used for one-off projects, rather than to meet recurring revenue budgets.

The treasury management team has an active strategy for assessing interest rate exposure that feeds into the setting of the annual budget and which is used to update the budget quarterly during the year. This allows any adverse changes to be accommodated.

According to this assessment strategy, at 31 March 2011, if interest rates had been 1% higher with all other variables held constant, the financial effect would have been to increase investment income by £443,000.

During 2010/11 the Council borrowed £20m from the Public Works Loan Board (PWLB), at a fixed interest rate of 2.38%, although this borrowing was not eventually required during the year to finance capital investment. If the interest at which this money was borrowed had been 1% lower with all other variables held constant, the financial effect would have been to decrease interest payable by £138,000.

Price risk

The Council does not generally invest in equity shares, and is not therefore exposed to losses arising from movements in the prices of the shares.

Foreign exchange risk

The Council has no financial assets or liabilities denominated in foreign currency, and therefore has no exposure to any losses arising from movements in exchange rates.

13 Debtors

13.1

The table below analyses the balance sheet figures between different types of debt.

Groupings of Debt

31 March 2009

31 March 2010

31 March 2011

£000 £000

£000

533 851 Trade accounts receivable 454 623 717 Other trade debtors 686

1,477 4,717 Related parties (central government) 1,663 165 131 Prepayments 262

42

31 March 2009

31 March 2010

31 March 2011

£000 £000

£000

659 554 Other debtors 649

3,457 6,970 Total Short Term Debtors 3,714

543 628 Long Term Debtors (all "other debtors") 575 4,000 7,598 Total Debtors 4,289

13.2

As explained in Note 2.10 above, the grouping of “Trade accounts receivable” comes within the definition of Financial Instruments. Invoices are sent to individuals and other entities, where money cannot be obtained in advance of the service being rendered, and where payment is required on the receipt of the invoice.

Trade Accounts Receivable

The Council gives priority to collecting this debt, taking action through collection agencies or legal processes where appropriate, but has to make a prudent provision for impairment for doubtful debts, based on previous experience of default and on assessment of individual outstanding balances. The table below shows the age profile of this debt.

31 March 2010

£000

31 March 2011

£000

Less than 3 months 783 409

3 to 6 months 10 11

6 to 12 months 15 12

More than 1 year 43 22

Total Debt 851 454

The Council has made a provision for impairment of £10,000 for doubtful debts in this category, compared to £46,000 as at 31 March 2010. The Council has also made doubtful debt provisions of £1,118,000 at 31 March 2011, compared to £1,129,000 at 31 March 2011, covering debts for Housing Benefit overpayments, this Council’s share of Council tax debts, rents and Penalty Charge Notices for parking. The approach to assessing this impairment provision is similar to those for trade debtors, as outlined above, although such debts do not fall within the definition of financial instruments.

13.3

The table below analyses the balance sheet total for short-term debtors into different groups of debtor. Long-term debtors all come within the “all other bodies” grouping.

Groupings of Debtor

31 March 2009

31 March 2010

31 March 2011

£000 £000

£000

1,497 4,717 Central government 1,663 381 495 Other local authorities 605

- 11 Public corporations - 1,579 1,747 All other bodies 1,446

3,457 6,970 Total Short Term Debtors 3,714

543 628 Long Term Debtors (other bodies) 575 4,000 7,598 Total Debtors 4,289

14 Liabilities

The table below analyses short-term creditors between different types of creditor.

31 March 2009

31 March 2010

31 March 2011

£000 £000

£000

(53) (301) Central government (742)

43

(1,147) (326) Other local authorities (1,165) (2,848) (2,925) All other bodies (2,328)

(4,048) (3,552) Total Short Term Creditors (4,235)

(229) (386) Other local authorities (54) (96) (76) All other bodies (55)

(325) (462) Total Long Term Creditors (109)

(4,373) (4,014) Total Creditors (4,344)

15 Post Employment Benefits

15.1

As part of the terms and conditions of employment of its employees, the Council makes contributions towards the cost of post-employment benefits. Although these will not actually be payable until employees retire, the Council has a commitment to make the payments, and this needs to be disclosed at the time that employees earn their future entitlement.

Participation in defined liability pension plan

The Council participates in the Local Government Pension Scheme, and therefore in the Kent Pension Scheme, which is administered by Kent County Council. The Council also has liabilities for discretionary payments for added years, etc. These are charged directly to the accounts of the Council, as they are not a charge upon the Pension Fund.

Under the Local Government Pension Scheme retirement benefits are based on the employee’s final salary, and are increased each year in line with the Consumer Price Index.

The accounting policy for this pension plan, including the recognition of actuarial gains and losses, is set out under Note 2 (Accounting Policies).

15.2

The table below shows separately the movements in the obligations and assets relating to the accounting group:

Annual movement in plan obligations and assets

2009/10 2010/11 Liabilities Assets Net Liabilities Assets Net

£000 £000 £000 £000 £000 £000 (66,730) 36,960 (29,770) Asset / Liability at 1 April (101,253) 49,432 (51,821)

(935) - (935) Current Service Cost (2,092) - (2,092) (4,534) - (4,534) Interest Cost (5,068) - (5,068)

- 2,332 2,332 Expected Return on Assets - 3,615 3,615 (604) 604 - Contributions by scheme participants (590) 590 -

- Actuarial gains and losses - -

- 10,487 10,487

Difference between expected and actual returns - 3,358 3,358

- - - Movement in actuarial assumptions for liabilities - - -

(31,932) - (31,932) Change in financial assumptions 15,018 - 15,018 3,601 (3,601) - Benefits paid 2,526 (2,526) -

- - - Past Service Cost 8,217 - 8,217 (119) - (119) Curtailments (417) - (417)

- - - Settlements - - - - 2,650 2,650 Contributions by employer - 2,830 2,830

(101,253) 49,432 (51,821) Asset / Liability at 31 March (83,659) 57,299 (26,360)

15.3

We recognise the cost of retirement benefits in the Comprehensive Income and Expenditure Account when they are earned by employees, rather than when the benefits are eventually paid as pensions. However the charge we are required to make against Council Tax is based on the contributions payable in the year. To adjust for this statutory requirement, the estimated cost of retirement benefits arising during the year is included in the Income and Expenditure Account, but the net effect is removed, as shown in the Movement in Reserves Statement. The following transactions have been made in the Comprehensive Income and Expenditure Statement (the charges to Support Services are included within the overall support service recharge to the other services):

Transactions relating to post-employment benefits

44

2009/10

2010/11 £000

£000

Current Service Cost

80 Central services to the public 183 426 Cultural, environmental, regulatory and planning services 940 49 Highways and transport services 102 60 Other housing services 122 11 Corporate and democratic core 57

- Non distributed costs - 309 Support services 688 935 Total Current Service Cost 2,092

Past Service Cost

- Exceptional Item (change in indexation) (8,217) - Total Past Service Cost (8,217)

Curtailments

119 Non distributed costs 417 119 Total Curtailments 417

1,054 Cost of Services (5,708)

4,534 Interest Cost 5,068

(2,332) Expected Return on Assets (3,615)

2,202 Financing and Investment Income and Expenditure 1,453

3,256 Surplus or Deficit on Provision of Services (4,255)

21,445 Actuarial Gains and Losses (18,376)

21,445 Other Comprehensive Income and Expenditure (18,376)

24,701 Total Comprehensive Income and Expenditure (22,631)

15.4

The cumulative amount of actuarial loss since 2004/05 recognised in this statement is £15,867,000. The equivalent figure for 2009/10 was £34,243,000.

Cumulative Actuarial Gains and Losses

15.5

The plan’s assets consist of the following categories, by proportion of the total assets held:

Plan Assets

2010

2011

74% Equities 76% 1% Gilts 1%

14% Bonds 12% 7% Property 9% 4% Cash 2%

The expected return on scheme assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the Balance Sheet date. Expected returns on equity investments reflect long term real rates of return experienced in the respective markets.

The actual return on scheme assets in the year was a gain of £3,625,000, compared with a gain of £12,819,000 in 2009/10.

45

15.6

Liabilities have been assessed on an actuarial basis using the projected unit method, an estimate of the pensions that will be payable in future years dependent on assumptions on mortality rates, salary levels, etc. The liabilities have been assessed by Barnett Waddingham, an independent firm of actuaries, being based on the latest full valuation of the scheme as at 31 March 2007. The main assumptions used in their calculations are:

Actuarial Assumptions

2009/10

2010/11

Long term expected rate of return on scheme assets:

7.5% Equity Investments 7.4% 4.5% Gilts 4.4% 5.5% Bonds 5.5% 5.5% Property 5.4% 3.0% Cash 3.0%

Mortality assumptions:

Longevity at 65 for current pensioners:

21.5 Men 19.8 24.4 Women 23.9

Longevity at 65 for future pensioners:

22.6 Men 21.9 25.5 Women 25.8

3.9% Rate of inflation 2.7% 5.4% Rate of increase in salaries 5.0% 3.9% Rate of increase in pensions 2.7% 5.5% Rate for discounting scheme liabilities 5.5%

50.0% Take-up of option to convert annual pension into retirement lump sum 50.0%

15.7

The table below shows the liability for the current year compared to the previous four financial years:

Comparison to Previous Years

2006/07 2007/08 2008/09 2009/10 2010/11

£000 £000 £000 £000 £000

Present value of liabilities (77,900) (69,040) (66,730) (101,253) (83,659) Fair value of assets 50,150 46,590 36,960 49,432 57,299

Surplus / (Deficit) in the scheme (27,750) (22,450) (29,770) (51,821) (26,360)

The table below shows the experience adjustments arising over the past five years, on plan liabilities as a percentage of plan liabilities at the balance sheet date, and on plan assets as a percentage of plan assets at the balance sheet date:

2006/07 2007/08 2008/09 2009/10 2010/11

Differences between the expected

and actual return on assets 0.70% -15.40% -33.60% 21.10% 4.50% Experience gains and losses on liabilities 5.90% 17.80% 8.90% -31.50% 18.00%

15.8

The estimated contribution for 2011/12 is £2,346,000 compared with the actual contribution of £2,830,000 for 2010/11.

Annual Contributions to fund

16 Termination Benefits

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In 2010/11 the Council incurred a cost of £764,000 on severance payments to 37 former members of staff. Most of this expenditure related to planned reductions in staffing levels, £572,000 being funded from the Phase 2 Restructuring Reserve set up in 2009/10, and £154,000 from the Invest to Save Reserve (see Note 5.2). None of these payments were made to the senior officers listed in Note 22.1.

The restructure achieved the targeted savings of over £1 million over the previous establishment. It was implemented in 2 phases over an 18 month period with savings exceeding the one-off severance costs from the second year of full implementation.

This total expenditure of £764,000 for 2010/11 compares with £149,000 relating to 9 former members of staff payable for 2009/10.

17 Contingent Liabilities and Assets

17.1

Note 23.4 below sets out details of the Council’s relationship with the regeneration company (TWRC Ltd), and explains that the reserves of a group containing the Council and its share in the company would be £189,000 lower than those of the Council by itself. This amount is a contingent liability for the Council, because as an investor it is severally liable for its share of the liabilities of the company.

Contingent Liabilities

The Government has issued an interpretation of the law relating to local land search fees, indicating that council are not legally able to charge for this service. Councils are challenging this view, and the position is not yet settled. The Council’s potential total liability for searches dating from 2005/06 to 2010/11, is £189,000.

Municipal Mutual Insurance Company (MMI) was the main local authority insurer for many years up until 1992 when the company failed and went into "run-off". The Scheme of Arrangement was approved in 1994 with the aim of meeting all claims and achieving a solvent run-off. For a number of years the Administration and Creditors Committee reported that a solvent run off was likely to be achieved and sought to sell the business to another insurer to bring the arrangement to a conclusion. Unfortunately a sale has never been achieved and more recently claims have emerged where courts have ruled in favour of others rather than MMI. This has increased the risk that a solvent run-off will not be achieved. If that were to be the case, councils and other policy holders would be liable to clawback of monies paid out to settle claims. As at 31 March 2011 the estimated amount liable to clawback from the council stands at up to £104,000.

17.2

Following the case of Fleming v HMRC it has been possible for VAT registered bodies to reclaim tax paid in relation to various activities going back over a number of years. The Council has an outstanding claim for VAT collected for car parking charges, and also for compound interest on these amounts.

Contingent Assets

The council is preparing a claim for negligence against a company responsible for a major construction contract. The amount to be claimed has not yet been fully quantified.

18 Leasing

18.1

The Council built the TN2 centre on land owned by the YMCA, and occupies the premises on a 30 year lease, signed in 2006. As the length of the lease is in line with the life expectancy of the building, the building element of this agreement is treated as a finance lease. The rent payable is a peppercorn, so there are no lease commitments.

Finance leases – Council acting as lessee

The net book value of the TN2 building was £567,000 at 1 April 2009, £672,000 at 1 April 2010 and £644,000 at 31 March 2011.

The Council has sub-let accommodation within the centre back to the YMCA, also on a peppercorn rent, and to Kent County Council, for use as a library, for £12,000 per annum, under a sub-lease expiring on 16 March 2036.

18.2

The Council makes payments under operating leases for the following:

Operating leases – Council acting as lessee

• Various photocopiers and printers

• The Housing Leasing scheme, under which the Council obtained the use of various properties which are used for temporary accommodation

• The Tourist Information Centre

• Various car parks

The table below analyses future minimum lease payments and the equivalent present values between leases expiring during the periods shown below:

The table below shows the future minimum lease payments under non-cancellable leases:

31 March 2010

31 March 2011

47

£000

£000

Leases expiring:

18 Within one year 17 118 Between two and five years 43 27 Later than five years 10

163 Total 70

The following table shows the total payments recognised as an expense during the financial year.

31 March 2010

31 March 2011

£000

£000

126 Minimum lease payments 109 - Contingent rents - - Sublease payments -

126

109

18.3

The Council has not leased out any property under finance leases.

Finance leases – Council acting as lessor

18.4

The Council leases out various properties that it does not directly occupy, for purposes such as housing, leisure and economic development, including the ground rent received for the Royal Victoria Place shopping centre.

Operating leases – Council acting as lessor

The future minimum lease payments receivable under non-cancellable leases are:

31 March 2010

31 March 2011 £000

£000

Leases expiring:

(5) Within one year (5) (300) Between two and five years (254)

(85,331) Later than five years (84,385)

(85,636) Total (84,644)

The minimum lease payments receivable as shown in the above table do not include rents that are contingent upon events taking place after the start of the lease, such as adjustments following rent reviews. In 2010/11 the Council received £60,000 in contingent rents, compared to £25,000 in 2009/10.

19 Agency Income and Expenditure

The Council is responsible for the Collection of National Non-Domestic Rates, which it collects and passes on to the Government. It also collects Council Tax on behalf of Kent County Council, Kent Police Authority and Kent Fire and Rescue Service, as well as itself. While the element of Council Tax collected for this Council is accounted for in the Income and Expenditure Account, the remainder of the tax collection activity is excluded from this account and is accounted for as an agency service.

All amounts collected and paid over under these agency activities are excluded from the main accounting statements and the notes, other than the Cash Flow Statement, where the changes during the year are included in the “financing activities” heading.

The totals collected on this basis are shown below:

2009/10

2010/11 £000 £000

£000 £000

Council Tax collection: 46,150

Kent County Council 47,207

6,055

Kent Police Authority 6,248 2,974

Kent Fire and Rescue Service 3,061

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2009/10

2010/11 £000 £000

£000 £000

55,179 Total agency council tax collection

56,516

44,308 NNDR collected for the Government

41,438

99,487 Total agency income

97,954

20 External Audit Costs

The Council incurred the costs set out below in relation to the audit of the Statement of Accounts, certification of statutory inspections and grant claims, and to non-audit services provided by the Audit Commission, the Council’s external auditors.

2009/10 2010/11 £000 £000

139 External Audit Services 117 39 Grant Claims 37

1 Other 1 179 Total 155

21 Members Allowances

The total amount of members’ allowances paid in 2010/11 was £370,000, compared to £333,000 in 2009/10.

The Council produces a statement, in accordance with the Local Authorities Members’ Allowance (England) Regulations 2003, giving details of the allowances paid. The statement may be seen on the Council’s website or copies can be obtained by writing to the Democratic Services Manager, Town Hall, Royal Tunbridge Wells, Kent TN1 1RS. Telephone 01892 554179 or e-mail [email protected].

22 Officers Remuneration

22.1

The tables below set out in more detail the remuneration of the senior staff of the Council. Where appropriate the pay of the officers concerned is also included in the remuneration band table set out in 22.2 below.

Remuneration of Senior Management

Salary Severance Benefits Pension Contribs.

Total Remun.

£ £ £ £ £ 2010/11 Chief Executive 112,316 - - 15,211 127,527 Director of Change & Communities 55,165 - 3,553 7,855 66,573

Director of Regeneration & Sustainability 93,397 - - 12,616 106,013

Head of Finance and Governance 70,785 - - 9,073 79,858

Head of Legal (Monitoring Officer) 60,495 - - 8,045 68,540

392,158 - 3,553 52,800 448,511

2009/10 Chief Executive 115,644 - 367 15,845 131,856 Director of Change & Business Support 74,468 - 1,836 10,409 86,713

Director of Planning and Development 57,054 - - 7,703 64,757

Head of Finance and Governance 46,708 26,000 - 6,207 78,915

Head of Legal (Monitoring Officer) 46,233 - - 6,125 52,358

mailto:[email protected]�

49

Salary Severance Benefits Pension Contribs.

Total Remun.

£ £ £ £ £ 2010/11 340,107 26,000 2,203 46,289 414,599

It should be noted that:

• No bonuses were payable to any of these officers.

• The figures for the Chief Executive include fees payable for the role of Returning Officer for electoral purposes. The amounts fluctuate between years, depending on what elections fall due during the financial year. The amount paid in 2010/11 was £8,375 (£4,681 for borough elections and £3,694 for other elections) compared to £9,530 in 2009/10 (all of which was for County and European elections).

• The Director of Change and Communities took up his post in February 2010, but until August 2010 was employed on a part-time basis only, and was paid through Maidstone Borough Council. The table above only includes payments from August 2010.

• The Director of Change and Business Support undertook the role of Monitoring Officer between July 2008 and June 2009.

22.2

The table below shows the number of employees in the year whose remuneration was greater than £50,000. For this purpose remuneration means amounts paid to or receivable by an employee, and includes sums due by way of expenses allowance (so far as these sums are chargeable to United Kingdom income tax), and the estimated money value of any other benefits received by an employee otherwise than in cash. The table displays two columns for each year: the first column, in line with the Accounts and Audit Regulations, compares amounts paid to individuals including severance pay. As this can vary considerably between years a second column is also included which excludes severance pay completely.

Remuneration Bands

The table below shows total remuneration paid to individual employees for the year, whereas the detailed tables above in 21.1 show remuneration against the relevant senior post. In some cases a particular post was held by more than one employee during the course of the year, and conversely an employee held more than one post.

2009/10

2010/11 Inc. Severance Exc. Severance Remuneration Band Inc. Severance Exc. Severance

1 2 £50,000 - £54,999 7 7 5 5 £55,000 - £59,999 5 3 1 1 £60,000 - £64,999 4 1 2 3 £65,000 - £69,999 4 3 - - £70,000 - £74,999 1 1 - - £75,000 - £79,999 1 - 2 1 £80,000 - £84,999 1 1 - - £85,000 - £89,999 - - 1 1 £90,000 - £94,999 1 1 1 1 £95,000 - £99,999 - - - - £100,000 - £104,999 - - - - £105,999 - £109,999 - - 1 - £110,000 - £114,999 1 1 - - £115,000 - £119,999 - - - - £120,000 - £124,999 1 -

14 14 Total 26 18

23 Related Parties

23.1

The term “related party” covers relationships between the Council and body or individual where one of the parties can exercise significant influence over the policies and decisions of the other.

Definition

23.2 Central Government

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The central government provides much of the Council’s funding and determines its statutory framework. Details of transactions with central government are shown in the Comprehensive Income and Expenditure Statement, the Cash Flow Statement, and notes 6 (grants and contributions), 13 (debtors) and 14 (liabilities).

23.3

The Council participates in the Kent Pension Scheme, making annual contributions to the Kent Pension Fund as set out in Note 15. Although the scheme is administered by Kent County Council, the pension fund is a separate entity, and Kent County Council is not in itself a related party.

Kent Pension Scheme

23.4

This company (originally called the Tunbridge Wells Regeneration Company) was created on 23 September 2008, with the aims of:

TWRC Limited

• Delivering regeneration and development projects in the Tunbridge Wells area with a view to securing the economic, social and environmental well being of the area;

• Increasing the land value in the Tunbridge Wells area,

• Establishing a long term capital programme;

• Reviewing the masterplan and submitting proposals to the Council.

The following members of the Council served as directors of the company during 2010/11: Councillors Davies (to 9 June 2010), Hall (to 1 February 2011), Jukes (to 13 October 2010), Mayhew (from 9 June 2010) and Ward (from 23 February 2011). Two officers of the Council also served as directors: William Benson (Chief Executive) and Jonathan MacDonald (Director of Regeneration and Sustainability). None of these councillors or officers received payment for their duties as directors.

On 4 December 2008 the Council took a 50% holding in the company. The remaining 50% is held by John Laing plc. Up until 31 March 2011 the company had incurred £377,000 in costs (£113,000 to 31 March 2010 and £264,000 in 2010/11).

The nature of the Council’s relationship with the company would necessitate the production of group accounts covering the Council itself and its 50% holding in the company, which would be treated as an associate. Group accounts have not, however, been produced for 2010/11, as the amount involved is immaterial, and the expenditure covers only preliminary costs, with no trading activities having been undertaken. If group accounts had been produced they would show that the reserves of the group at 31 March 2011 were approximately £189,000 lower than the reserves of the Council by itself, reflecting the Council’s share of the costs incurred to date.

23.5

All members and senior officers are required to complete an annual return, disclosing the details of any interest of themselves and their close family members, which might have an impact on their activities on behalf of the Council. There were no returns for either 2009/10 or 2010/11 that revealed any such interests. Members also disclose such interests in the Register of Members’ Interests, which is held at the Town Hall, Tunbridge Wells, and is open to public inspection.

Members and senior officers

Details of payments to members and officers are shown in notes 21 and 22 respectively.

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The Collection Fund

The Collection Fund is an agent’s statement that reflects the Council’s statutory obligation for billing authorities to maintain a separate Collection Fund. The statement shows the transactions of the billing authority in relation to the collection from taxpayers and the distribution to local authorities and the Government of council tax and non-domestic rates.

2009/10

2010/11 £000

Note £000 £000

Income 57,228 Income from Council Tax

58,902 5,883 Transfers from General Fund: Council Tax Benefits

6,166

44,308 Income from Business Rates 1 41,438 107,419

106,506

Expenditure

Precepts:

46,022 Kent County Council 3 46,936 6,038 Kent Police Authority 3 6,212 2,962 Kent Fire and Rescue Service 3 3,044 7,790 Tunbridge Wells Borough Council 3 8,098

Business Rates:

44,123 Payments to national pool

41,255 185 Costs of Collection

184

Bad and Doubtful Debts: 107 Write Offs

113 25 Allowance for impairment

294

502 Contribution towards previous year's surplus 3 - 107,754

106,136

335 (Increase) / Reduction in fund balance

(370)

(777) Balance of fund at 1 April

(442)

335 (Increase) / Reduction in fund balance

- (442) Balance of fund at 31 March

(812)

Notes to the Collection Fund

1 Non-Domestic Rates

Under the arrangements for uniform business rates, the Council collects non-domestic rates for its area which are based on local rateable values multiplied by a uniform rate. The total amount, less certain reliefs and other deductions, is paid into a central pool (the NNDR pool) managed by Central Government, which in turn pays back to authorities their share of the pool based on a standard amount per head of resident population.

The total non domestic rateable value at 31 March 2011 was £127.937m (£104.157m as at 31 March 2010). The national non-domestic multiplier for the year was 41.4p (48.5p for 2009/10). Revaluation takes place every 5 years to maintain fairness by ensuring that rateable values reflect changes in the property market. The most recent revaluation came into effect on 1 April 2010. At revaluation, the multipliers are revised so that the overall national business rates bill only changes in line with inflation. This is the reason why the rateable value has increased considerably but the multiplier has decreased.

2 Council Tax Base

52

The Council Tax base i.e. the number of chargeable dwellings in each valuation band (adjusted where discounts apply) converted to an equivalent number of band D dwellings, was calculated as follows:

2009/10 2010/11

Estimated No. Of

Properties Multiplier

Band D Equivalent Dwellings

Estimated No. Of

Properties Multiplier

Band D Equivalent Dwellings

A 2,531.60 6/9 1,687.73 2,560.35 6/9 1,706.51

B 4,196.80 7/9 3,264.18 4,102.20 7/9 3,190.60

C 11,599.45 8/9 10,310.62 11,489.20 8/9 10,212.62

D 8,480.00 9/9 8,480.00 8,542.95 9/9 8,542.95

E 5,855.25 11/9 7,156.42 5,850.25 11/9 7,150.31

F 4,129.25 13/9 5,964.47 4,136.65 13/9 5,975.16

G 4,568.85 15/9 7,614.75 4,579.95 15/9 7,633.25

H 409.60 18/9 819.20 418.35 18/9 836.70

TOTAL BAND D EQUIVALENTS 45,297.37 41,679.90 45,248.10

COLLECTION RATE 0.990 0.990

TAX BASE 44,844.4 44,795.62

3 Precepting Authorities

The demands on the fund by precepting authorities were as follows:

2009/10

2010/11

Precept for year

Adjust for previous

year Total

Precept for year

Adjust for previous

year Total

£000 £000 £000 £000 £000 £000

46,022 379 46,401 Kent County Council 46,936 - 46,936 6,038 48 6,086 Kent Police Authority 6,212 - 6,212 2,962 24 2,986 Kent Fire and Rescue Service 3,044 - 3,044 7,790 51 7,841 Tunbridge Wells Borough Council 8,097 - 8,097

62,812 502 63,314 Total 64,289 - 64,289

Documents

shows the movement in the year on the different reserves held by the Council, analysed into “usable reserves” (i.e. those that can be applied to fund expenditure or reduce loc