These accounts set out the financial results of Council activities for the year ended 31st March 2008.

The financial statements are split between the core financial statements and the supplementary financial statements within the accounts and their purposes are:

This statement provides accounting policies, which are consistent with the accounting concepts and relevant accounting standards. The approach taken ensures that the Council's accounts present fairly the financial position and transactions of the Council.

The net operating expenditure for 2007/08 amounted to £1,259.7 million (after departmental income and movements to and from reserves) and was financed by government revenue support grant of £90.1 million, redistributed non-domestic rates of £505 million and demands on the collection fund of £304.1 million. This left a deficit of £360.5 million mainly due to costs of pension liabilities and depreciation which are reversed through the SMGFB below.

The opening entry in this Statement is the outturn on the Income and Expenditure Account, which was a deficit of £360.5 million. The next line contains the total of all reconciling items to convert the I&E account figure into the sum required by statute and proper practice, and this amounts to net income of £359.8 million. The outcome is the decrease in the general fund balances for the year of £0.7 million.

The balance of the general fund reserve as at 31^st March 2008 was £28 million.

The statement reveals a decrease in net worth of £209.4 million and includes the surplus on revaluation of assets, gains recognised on the pension fund, and the deficit on the Statement of Movement on the General Fund Balance.

The balance sheet total is £2,860.5 million and represents the net worth of the Council.

The Fixed Assets have a net book value of £6,211.8 million. £2,482.0 million of this sum is for the Council's housing stock, which is calculated on the basis of Existing Use Value for Social Housing (EUV-SH).

The Cash Flow Statement shows the cash inflows and outflows arising from transactions with third parties for capital and revenue activities. The statement enables the full movements in cash to be identified. The overall outcome was a reduction in cash balances of £19.5 million.

The total reserve on the Housing Revenue Account increased from £3.1 million to £3.5 million as at 31 March 2008.

The total net income from council taxpayers in 2007/08 amounted to £263.3 million.

In addition, the Collection Fund also collects income from non-domestic ratepayers in Birmingham, which is then passed to the Government after deducting collection costs.

The total net income from non-domestic ratepayers in 2007/08 amounted to £339.5 million.

The surplus for the year on the fund was £1.6 million, and the final balance a surplus of £6.4 million.

Changes in Accounting Policies

The main change in accounting policies relates to compliance with the requirements of Financial Reporting Standards 25 and 26. These require significant additional disclosures and, in certain cases, restatement of the carrying value of certain assets and liabilities, for example where a loan has been advanced at less than commercial rates of interest.

2007/08 was the third year of the operation of the Landfill Allowances Trading Scheme. The Council has recognised the value of its allowances on the balance sheet. The Council did not trade any allowances in 2007/08.

A summary of the City Council's financial performance for the financial year 2007/2008

The City Council's revenue and capital budget is allocated between the Portfolio holders who make up the Executive Cabinet and Committees of the Council. Spending against these budgets is carefully monitored throughout the year and reported monthly to Cabinet. The table below gives a summary of revenue and capital expenditure by portfolio and committee.

General Fund Reserves and Balances

Balances at the end of 2007/08 stand at £28.0m.

Capital Expenditure

Total expenditure on capital schemes in 2007/08 was £584.7m (2006/07 £406.2m). This compared to the latest capital budget of £735.9 m. Full details are given in Note Seventeen to the Core Financial Statements.

Other Matters

Borrowing

The Council's authorised limit for external debt in 2007/08 was £2,320m. The maximum external debt during the year amounted to £1,965m.

Other resources available to fund capital expenditure include:

Capital receipts

Section 106 balances

Grants

Revenue balances

Provisions

The Council has carried a provision for the repayment of the debt of The NEC Ltd. when this matures in 2016. In August 2005 the Council purchased the bonds in exchange for a new issue of Council bonds with a longer maturity date and lower coupon. This has had the effect of reducing The NEC Ltd.'s finance costs while releasing the existing provision for use in funding refurbishment works on the exhibition halls at the NEC. The Council's balance sheet therefore shows both an asset and a liability in respect of this transaction. The bonds are shown at nominal value.

Pension Liability

There is currently a net shortfall on the fund and this will be reviewed periodically by the West Midland Pension Fund Actuary and steps will be taken to address the shortfall. The City Council's share of the shortfall is £1,138.5million at 31 March 2008. While the figure is substantial it should be remembered that:

Details of the pension liability and assets can be found in Note 6 to the Core Financial Statements.

The City Council's Responsibilities

The City Council is required to:

The Corporate Director of Resources' Responsibilities

The City Council's chief financial officer is the Corporate Director of Resources. He is responsible for the preparation of the City Council's Statement of Accounts. In preparing the statement, he has:

The Chief Financial Officer has also:

Certification of Accounts

I certify that the Statement of Accounts presents fairly the position of Birmingham City Council at 31st March 2008 and its income and expenditure for the year ended 31st March 2008.

. . . . . . . . . . . . . . . . . . . . . . . . . . . Paul Dransfield

Corporate Director of Resources

I confirm that these accounts were approved by the Council Business Management Committee on

24th June 2008. Signed on behalf of Birmingham City Council:

. . . . . . . . . . . . . . . . . . . . . . . . . . . Cllr Mike Whitby

Leader of the Council and Chairman of Council Business Management Committee which approved the accounts.

Birmingham City Council

Annual Good Governance Statement 2007/2008

1. Scope of responsibility

2. The purpose of the governance framework

3. The governance framework

The key elements of the systems and processes that comprise the authority's governance arrangements include the following arrangements:

The Council Plan is extensively consulted upon with stakeholders from the business and third sector as well as community representatives. The document is available on the Council's web-site and copies are circulated to stakeholders and held in libraries and neighbourhood offices.

4. Review of effectiveness

Birmingham City Council has responsibility for conducting, at least annually, a review of the effectiveness of its governance framework including the system of internal control. The review of effectiveness is informed by the work of the executive managers within the authority who have responsibility for the development and maintenance of the governance environment by the Assistant Director of Internal Audit and Risk Management's annual report, and also by comments made by the external auditors and other review agencies and inspectorates:

We have been advised on the implications of the result of the review of the effectiveness of the governance framework by the Audit Committee and officers and a plan to address weaknesses and ensure continuous improvement of the system is in place.

5. Significant governance issues

5.1 The Council is undertaking a major Business Transformation consisting of up to 9 inter-relating Programmes covering most areas of the Council's activities. Four of these are service related covering Adults Services, Housing Services, Children, Young People and Families Services and Environmental Services. The remaining five are city wide support activities. These are Corporate Services (finance and performance), Excellence in People Management, Working for the Future (Property), Customer First and Excellence in Information Management.

5.8.1 The Council has implemented the Single Status agreement which was made nationally between the National Joint Council (NJC) for Local Government and Signatory Trades Unions on 1 April 1997. The majority of City Council employees are now working to new contracts but there remain a number of appeals against the job evaluation process and a number of matters which are still subject to negotiation with Trades Unions.

5.8.2 In addition the Council has taken action to identify staff who may have grounds for a claim under the Equal Pay legislation and has agreed funding for, and a process by which, the City Council's obligations in relation to the equal pay challenge can be settled. Again the majority of payments in this respect have now been made but some matters remain outstanding.

5.8.3 The Council's arrangements for Devolution and Localisation of services to Constituencies were subject to an in-depth scrutiny which reported to Council in 2006. A detailed action plan arising from this was approved by Council in October 2006 and has been implemented. The Refreshed Vision, entitled Achieving Excellence with Communities, is now being implemented.

5.8.4 A transition plan for Connexions into the local authority was developed in 2006/2007. This identifies the process, timescales and milestones to be achieved for autumn 2008.

5.8.5 The Council continues to develop a PFI for Highways and is working closely with Central Government to ensure maximum benefit to the City through this arrangement.

5.8.6 The Council continues to develop and implement an extensive efficiency programme to improve services and respond to the challenges of the Gershon report and the need to identify significant on-going savings in both the current and future years.

5.9 We propose over the coming year to learn from the Audit Commission's follow-up audit of our National Pilot on Good Governance Action Plan of August 2007 which has been reported to the Standards and the Audit Committees, so as to ensure further positive steps are taken to further enhance the City's status as a well governed local authority. We are satisfied that these steps will address any need for improvements and we will monitor their implementation and operation as part of our next annual review.

Signed ……………………………… Signed …………………………..

Stephen Hughes Councillor Mike Whitby

Chief Executive Leader of the Council

(& Head of Paid Service)

Signed ……………………………….. Signed…………………………..

Paul Dransfield Mirza Ahmad

Corporate Director of Resources Acting Corporate Director of

(& Section 151 Officer) Governance (& Monitoring Officer)

The Statement of Accounts summaries the Council's transactions for the financial year 2007-08 and show its position as at 31 March 2008.

The City Council's Accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in Great Britain, published by the Chartered Institute of Public Finance and Accountancy (CIPFA) in 2007. The code has been developed by CIPFA in accordance with Accounting Standards Board guidance and approved as a Statement of Recommended Practice (SORP). As such it constitutes Proper accounting practices within the meaning of the Accounts and Audit Regulations 2003. This SORP introduced a number of important changes to the main accounting statements.

The Fixed Asset Restatement Account has been replaced by a Revaluation Reserve to which are credited all unrealised gains arising from the revaluation of fixed assets. These gains are included in the Statement of Total Recognised Gains and Losses but not in the Income and Expenditure Account. The reserve is debited with impairment losses up to the value of earlier revaluation gains and with depreciation on revalued amounts. The balance on the reserve is reconciled to the records of revaluations on individual assets. Unrealised gains and losses are written out of the reserve when an asset is disposed of. The opening balance on the Reserve at 1^st April 2007 was zero. Balances on the Fixed Asset Restatement Account and Capital Financing Account at 31^st March 2007 were transferred on 1^st April 2007 to a new account entitled the Capital Adjustment Account. This account will be debited with all those items charged to the Income and Expenditure Account but which, in accordance with statute, may not be taken into account in determining the General Fund balance.

The following policies have been adopted in compiling the accounts, where appropriate the estimating techniques will be given along with the policy adopted:

Support Services

In line with CIPFA guidance, the cost of corporate management is not charged to service departments. Corporate management includes such items as the costs of external audit, treasury management and Member services. Where support services are allocated, the bases vary between staff time spent, number of employees, usage, areas occupied and in accordance with Service Level Agreements (see also item on the Best Value Accounting Code of Practice).

In 2000 the Chartered Institute of Public Finance and Accountancy published their Best Value Accounting Code of Practice (BVACOP). Several substantial revisions to this Code have been published, the most recent in 2007. BVACOP sets out "proper practice" with regard to consistent financial reporting below the level shown in this statement of accounts. The Code covers a definition of Total Cost and a revised Service Expenditure Analysis (SEA). The Total Cost part of the code also covers the treatment of partnerships, trading accounts, Corporate and Democratic Core, Non Distributable costs and other overheads. The Income and Expenditure Account and note 1 on trading activities have been prepared in accordance with BVACOP. There is a significant change in the Service Expenditure Analysis for 2007-08 with the creation of a new category of Children's and Education Services SEA including Children's Social Care .The remaining part of the former Social Services SEA, the Adult Social Care services, will form the new Adult Social Care SEA. The prior year Income and Expenditure Account has been restated to reflect these changes.

The costs of overheads and support services are charged to the services that benefit from them in accordance with the BVACOP. The exceptions to this rule are as follows and are accounted for as separate lines on the Income and Expenditure account as Net Cost of Service:

The City Council accounts are kept on an accruals basis in accordance with the Accounting Code of Practice and objectives of financial reporting set out in FRS18.

Fees, charges and rents due from customers are accounted for as income at the date the council provides the relevant goods or service

Significant supplies are recorded as expenditure when consumed, stocks being carried in the balance sheet for transport parts and fuel for example.

Works are charged as expenditure when completed; for capital work-in-progress is carried on the balance sheet.

Interest payable on borrowing and receivable on investment is accounted for on the basis of effective interest rate for the relevant financial instrument rather than on cash flow.

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

Income and expenditure are accounted for in the year to which they relate by the creation of debtors and creditors.

Certain periodic payments, such as those to utilities, are not accrued for per FRS18. These are accounted for on a cash basis, but result in no material difference to the accounts.

The City Council has adopted a de-minimus level for accruals of £5,000. Debtors and Creditors below this level are not included in the accounting statements. This is intended to improve the efficiency of the final accounts process in order that earlier closedown deadlines can be achieved.

Asset Charges

Service revenue accounts, including the Housing Revenue Account, are debited with a depreciation charge on the assets employed in providing the services. These depreciation charges are not taken into account in determining the movement in the Council's balances and are included in the Reconciliation to the Movement in Balances as an adjusting item. This means that depreciation charges do not affect the level either of local taxation or of Council Housing rents.

The Council Tax is not required to bear the burden of these charges and the charges are effectively neutralised by the revenue provision in the Statement of Movement on General Fund Balance.

However, the Council Tax is required to meet the annual provision from revenue to contribute towards the reduction in the overall borrowing requirement (equal to at least 4% of the underlying amount measured by the capital financing requirement, excluding amounts attributable to the HRA, which is not subject to a minimum revenue provision). Birmingham has also made an additional voluntary contribution during 2007-08 as a prudent measure.

The City Council is required to set aside from revenue each year, a minimum amount for the redemption of debt. The Revenue Account is charged with the minimum revenue provision (MRP) which represents 4% of the Capital Financing Requirement, effectively the net sum of Long Term assets and Long Term liabilities derived from the opening balance sheet. This is a change from the previous calculation of MRP based on outstanding loans less reserved capital receipts. This change results from the introduction of prudential borrowing from April 1^st 2004 under the Local Government Act 2003 which repealed the provisions of Section Four of the Local Government and Housing Act 1989. Local authorities may also make a revenue provision in excess of the minimum and this is known as a Voluntary Revenue Provision (VRP). Formal restrictions on borrowing have been removed and replaced by provisions allowing the authority to borrow within “prudential” limits, effectively of what the Council can afford to service from revenue resources. The prudential limits are calculated by reference to balance sheet figures. The requirement for a Minimum Revenue Provision in the Housing Revenue Account has been removed. The Council has, however, elected to make a voluntary provision for HRA debt repayment of £2.2 million. These amounts are not charges to service revenue accounts which receive a depreciation charge as described in note (f) on Fixed Assets above. The difference between MRP and depreciation is appropriated to or from the Capital Adjustment Account (CAA) so that depreciation does not impact on the City Council's net revenue expenditure.

Deferred Charges represent capital expenditure that does not result in a tangible fixed asset, such as improvement grants. Expenditure of this nature is written off to the Revenue Account in the year it occurs, but does not affect the City Council's net operating expenditure as an offsetting appropriation is made from the Capital Adjustment Account. The expenditure for deferred charges does not impact on council tax due to a compensating reversal entry in the Statement of Movement on General Fund Balance.

a) Finance leases

The City Council has no finance leases in primary rental. All amounts paid are treated as interest, since the principal value of the asset is deemed to have been fully repaid during the primary period.

b) Operating leases

Rentals payable under operating leases are charged to the service revenue account making use of the asset on a straight-line basis over the term of the lease. The asset and future lease liability are not shown in the balance sheet.

The City Council participates in two pension schemes, one for teachers and one for all other employees. Both schemes provide members with defined benefits related to pay and service. The two schemes are as follows:

a) Teachers' Pension Scheme

Teachers may be members of the Teachers' Pension Scheme. This is a defined benefit scheme administered by Capita Teachers' Pensions on behalf of the Department for Children, Schools and Families. The employers' rate is set nationally by that department. Further information on this scheme may be obtained from the website at www.teacherspensions.co.uk . Although this is a defined benefit scheme, it is accounted for as a defined contribution scheme as the Council's share of the assets and liabilities cannot be separately identified. A liability is shown in the balance sheet arising from the award of added years to retired teachers.

b) Local Government Pension Scheme

Employees of the City Council, other than teachers, may be members of the Local Government Pension Scheme. This is a funded defined benefit scheme. The appropriate Fund is the West Midlands Pension Fund, which is administered by Wolverhampton City Council, from whom a copy of the annual report may be obtained. The fund's website may be visited at www.westmids-pensions.org.uk

Financial Reporting Standard 17 (FRS17) requires the recognition of the Council's share of the fund's assets and liabilities in its accounts, as well as requiring recognition in the Council's revenue account of the full costs of providing for future retirement benefits. In accordance with Government regulations, a Pensions Reserve has been set up and the Council's liabilities arising from its participation in the scheme have been written onto the balance sheet. The revenue account has been debited with the full cost of providing for future pension liabilities arising from in year service in accordance with FRS17. Appropriations equal to the difference between this amount and the actual employers' pension contribution are made from the Pensions Reserve so that the additional costs of providing for retirement benefits in accordance with FRS17 do not impact on levels of local taxation. Statutory provisions limit the Council to raising council tax to cover the amounts payable by the Council to the pension fund in the year. In the statement of Movement on General Fund Balance entries are made to remove the notional FRS17 charges and replace them with the cash paid to the pension fund.

The fund is subject to an actuarial valuation every three years, the last one being 31st March 2007. At this time the fund's assets were valued at 82% of the value of the liabilities.

Under FRS17 different assumptions are required for the discount rate used in the calculation of liabilities and the inclusion of retirement benefits. This results in a calculation of the value of the assets at 31.03.08 of £2,344.4 million which represented 68.75% of the value of liabilities. Liabilities are discounted to their value at current prices using a discount rate of 6.1%

The net liability on the pension fund calculated in accordance with FRS17 has increased during the year from £804.5 million to £1,138.5 million the change in net liability is due to seven components.

Current Service Costs

Past service costs

Interest costs

Expected return on assets

Gains and losses on settlements and curtailment

Actuarial gains and losses

Contributions paid by the employer to the pension fund.

Discretionary Benefits were granted during the year to employees in respect of early retirement. This generated a cost reported in Non distributable costs of £28.3 Million

Note 6 to the Core Financial Statements provide details of contributions made in respect of both pension schemes.

Financial liabilities are initially measured at fair value and carried at their amortised cost. Annual charges to the Income and Expenditure Account for interest are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument. For most borrowing this results in the amount presented in the Balance Sheet being the outstanding principal with the interest charges being taken to Income and Expenditure Account.

Interest Charges

Where loans are granted by the Council at less than commercial rates of interest the interest received is credited to the Income and Expenditure Account based on the rates applicable to commercial loans with an adjustment made to the carrying value of the loan on the Balance Sheet.

Interest on loans is charged to the Income and Expenditure Account based on the amount which is due and payable within the financial year. Where interest is charged in a stepped basis over the life of the loan, interest is debited on a constant basis using the Effective Interest Method.

The Council may repay loans ahead of maturity to take advantage of lower interest rates. Such premature redemption of borrowing may incur a premium payable to the lender. Prior to 2007-08 these premiums were taken to the balance sheet as a long term asset and written off to revenue over the term of the replacement loan. The SORP now requires premiums arising from loan redemptions deemed extinguishments to be written off immediately to the Income and Expenditure Account. For the purpose of calculating the movement in General Fund balances, the premium is amortised on the previous basis with the difference an adjusting item in the Statement of General Fund Balances. All premiums brought forward as at 1^st April 2007 have been written off to the Statement of Movement on General Fund Balances with a compensating appropriation from the capital Financial Instruments Adjustment Account.

Loans and receivables are initially measured at fair value and carried at their amortised cost. Annual credits to the Income and Expenditure Account for interest receivable are based on the carrying amount of the asset, multiplied by the effective rate of interest for the instrument. For most of the Loans that the Council has made the amount presented in the Balance Sheet is the outstanding principal receivable with the interest income being taken to Income and Expenditure Account.

However, the Council has made a number of loans to voluntary organisations at less than market rates (soft Loans). While the Council recognises that where these are material, adjustment is required to show the amortised value at less than amortised costs, the significance of these loans is immaterial and therefore have been retained at the amortised cost.

The Council is a participant in a Local Area Agreement (LAA) - a partnership with other public bodies involving the pooling of government grants to finance work towards jointly agreed objectives for local public services. The initial LAA began on 1st April 2006 and the partners have now signed a new agreement effective from 1st April 2008. Further details are given in Note 45.

Birmingham City Council has interests in two major operators The NEC, and Birmingham Airport. In theory these interests represent assets available for sale.

Assets of this nature are maintained in the Balance Sheet at fair value. The fair value in respect of these is considered under the SORP to be subject to independent appraisal, because the holding is of equity shares with no quoted market price.

Birmingham City Council believes that an independent valuation would only confirm that the assts should be held at cost, and therefore the financial statement reflects the cost of the holding.

This policy is in compliance with the SORP which clearly states that where the fair value cannot be measured reliably, the instrument should be carried at cost (less any impairment).

Government grants and third party contributions and donations are recognised as income at the date the authority satisfies the conditions of the grant, and there is a reasonable assurance that the expenditure for which the grant relates has been incurred. Revenue grants are matched in service revenue accounts to the related service expenditure. Revenue Support Grants to cover general expenditure are recorded at the foot of the Income and Expenditure Account after Net Operating Expenditure.

Revenue grants are matched with the expenditure to which they relate. Grants and contributions relating to fixed assets are credited to a government grants deferred account and released to the relevant service line in the Income and Expenditure Account in line with depreciation of the asset. This is one of the reconciling items included in the Statement of Reconciliation to the Movement in General Fund Balances.

Income and expenditure excludes any amounts related to VAT, as all VAT collected is payable to HM Revenues and Customs and all VAT paid is recoverable from it.

VAT is included in the accounts only to the extent that it is irrecoverable.

Intangible Fixed Assets

Expenditure on assets that does not have a physical substance but are controlled by the Council, such as software licences are capitalised and are assessed to bring benefit to the council of an estimated five years. The balance on intangible assets is therefore amortised to the relevant service revenue account over the five year economic life of the asset. The Council does not re-value these assets.

Tangible Fixed Assets

Tangible fixed assets are assets that have physical substance and are held for use on a continuing basis

a) Asset Categories

Fixed assets are categorised as follows:

Type Examples

Operational Council dwellings, other land and buildings, vehicles and equipment used to deliver services directly. Infrastructure assets such as Highways and Community assets such as Parks, museum exhibits.

Non operational Investment property, surplus assets held for disposal, assets under construction

Infrastructure Highways

Community Assets Parks, museum exhibits

b) Recognition of Fixed Assets

New assets are recognised in accordance with the provisions of Financial Reporting Standard 15.

Expenditure of a repairs and maintenance nature is charged to revenue as it is incurred. All capital expenditure on existing assets is added to the value of the asset. Where it is considered by the authority's valuer that the increase in value is less than the amount of expenditure the difference is charged to the relevant service revenue account as impairment with the book value of the asset written down accordingly. There would be an adjustment in the Statement of Movement on General Fund Balances to ensure no revenue impact.

c) Valuation Bases

Operational assets are included in the balance sheet at the lower of net current replacement cost or net realisable value in existing use (Existing Use Value - EUV). Short life operational assets, such as vehicles, plant and equipment, are included at historic cost less depreciation as a proxy for the current value required by the SORP. This is not considered to have a material effect on the accounts.

Non operational assets, including investment properties and assets that are surplus, are included on the balance sheet at market value (MV). Assets under construction are recorded at cost.

Infrastructure assets are included on the balance sheet at historical cost less depreciation.

Community Assets are assets which are held for the community in perpetuity, and in many cases, may not be sold or otherwise disposed of. Additionally there may be restrictive covenants regarding their use. Examples include parks, historic buildings and museum exhibits. These assets were valued at a nominal £1 at April 1^st 1994. Capital Expenditure on Community assets. Expenditure incurred after that date was written off to the Fixed Asset Restatement Account. With effect from 2007-08 these will be written off through the service expenditure line in the I&E account, but the impact will be neutralised by an entry in the Statement of Movement on General Fund Balance and the Capital Adjustment Account as a downward revaluation.

d) Revaluation Cycle

When an asset is included in the balance sheet at Market Value (MV) or Existing Use Value (EUV), it is formally re-valued at intervals of not more than five years, and the revised amount included in the balance sheet. Where an asset value has increased, the difference between the value and the amount at which that asset was included in the balance sheet immediately prior to the latest valuation is credited or debited to the Revaluation Reserve. Where an asset value has decreased, the difference between the value and the amount at which that asset was included in the balance sheet immediately prior to the latest valuation is debited to the Revaluation Reserve until the asset reaches its depreciated historic, with subsequent reductions being charged to the I&E account. The revenue impact being neutralised through the SMGFB. The City Council has a rolling programme in place to revalue approximately 20% of its property assets each year.

The entire housing portfolio was revalued in 2005/06 to meet the Government's requirements for Housing Resource Accounting. A desktop review is carried out in the years between quinquennial valuations.

e) Housing Stock Revaluation

The Beacon principle is used to value the Council's housing stock. The stock is valued on the basis of Existing Use Valuation (Social Housing). In accordance with the guidance, a sample of properties (BEACONS) are chosen to be representative of each type of property and valued as “beacons”. The full valuation is then obtained by extrapolating these beacon values across the whole housing stock. These beacon values have been reviewed to reflect movements in property market values: High rise flats and defective dwellings continued to be valued using a Discounted Cash Flow method, in the absence of appropriate market evidence. In 2007-08 this valuation was updated using a desk top methodology.

f) Disposals

Assets that are disposed of during the year generate an entry to the Income and Expenditure account equivalent to the carrying value of the asset as part of the process of recording the gain or loss on disposal and the removal from the balance sheet. Receipts for the sale of the asset are credited to the income and expenditure account and when match with the entry for carrying value result in the loss or gain on disposal. Only receipts in excess of £10,000 are recorded as capital receipts, and a proportion of receipts from the disposal of dwellings (75%) and housing land (50%)is payable to the government . The balance of the capital receipts are available in to meet capital expenditure or reduce the need to borrow. The receipts are appropriated to the Usable capital receipts reserve via the Statement of Movement on the General Fund Balance (SMGFB).

The written off value of the asset is not a charge on council tax as an adjustment is made from the SMGFB and the CAA.

g) Depreciation

Council Dwellings - The Housing Revenue Account (HRA) has been charged with an amount of depreciation equivalent to the Major Repairs Allowance received from central government. This amount has been calculated as that required to maintain the housing stock in its current condition and central government allows this to be used as a proxy for depreciation.

Other Land and Buildings -In line with the requirements of FRS15 freehold buildings are depreciated over their estimated useful life. Freehold land is not depreciated. Leasehold property is depreciated over the life of the lease. The anticipated residual lives used to calculate depreciation are reviewed and updated in accordance with the Council's rolling programme of condition surveys.

Vehicles, plant, furniture, and equipment - depreciation is applied on a straight-line basis over the useful life of the asset. The book value of these assets is not materially different to the current value which is the basis of valuation required by the SORP.

Infrastructure - infrastructure assets are depreciated on a straight-line basis over the following periods:

Type of expenditure Depreciation period

Expenditure incurred prior to 1/4/1994 25 years

Major schemes expenditure incurred after 1/4/1994 40 years

Street furniture acquired after 1/4/1994 10 years

Other expenditure incurred after 1/4/1994 20 years

Community Assets - community assets are not depreciated. This is due to the fact that these assets are held at a nominal value of £1.

Investment Properties - the depreciation provisions of FRS 15 do not apply to investment properties. These assets are, therefore, not depreciated. Investment properties are non operational and are generally let on full repairing leases and this renders depreciation inappropriate.

h) Impairment of Fixed Assets

In accordance with FRS 11 (Impairment of Fixed Assets), a review was carried out to identify any land and/or buildings whose current values had fallen below the carrying amount (the balance sheet value) as a result of, for example, obsolescence or physical damage. Assets so identified are considered to be impaired and show a clear consumption of economic benefit. The diminution in value is charged to the relevant service revenue account with a corresponding appropriation being made from the Capital Adjustment Account so that there is no impact on the Council's net revenue expenditure. In 2007/08, two assets were found to be impaired. The total impairment was £398,000.

The City Council follows FRS5 (Reporting the Substance of Transactions). Where the balance of risks and rewards of ownership of the PFI are borne by the PFI operator, the PFI payments are recorded as an operating expense.

Where the balance of risks and rewards of the PFI property are borne by the City Council, it is recognised as a fixed asset along with the liability to pay for it. The transaction is accounted for as a finance lease in accordance with SSAP21, with the exception that the assets are revalued in accordance with the Council's policy on fixed asset valuation. Payments made to the contractor are split between service payments, such as cleaning, and availability payments for making the asset available for use. Service payments are accounted for in the year in which the service was provided. Availability payments are split between interest and principal elements. Over the term of the lease the interest is charged to the Income and Expenditure Account and the liability to pay for the PFI property is written down by the principal element.

PFI credits are received from the government and the excess of credits above current levels of expenditure are held in the earmarked reserves.

The particular application of this policy is further explained in Note 14 to the Core statements.

Investments in listed and unlisted companies, established for the promotion of local authority activities, and in marketable securities are shown in the balance sheet at cost or nominal value. Investment income is credited to the revenue account when receivable.

Investment income is credited to the revenue account when receivable.

Stocks are included on the balance sheet at latest price. This valuation method does not comply with SSAP9 which requires stocks to be valued at the lower of cost or net realisable value. The effect of this is not considered material to the accounts. For trading activities, the amount recognised in the appropriate revenue accounts for contract work in progress is the payments received and receivable, less related costs.

The amount at which contract work in progress is included in the balance sheet is cost plus any attributable profit less any foreseeable losses.

Provisions are made for any known quantifiable liabilities arising from past events in accordance with Financial Reporting Standard 12. Provisions are created by charging the relevant service revenue accounts. When expenditure is incurred to which the provision relates, it is offset directly against the specific provision. Provision is made for doubtful debts, and known uncollectable debts are written off against this. The provisions are reviewed annually to assess whether any under or over provision requires adjustment to the provisions account.

Amounts set aside for specific purposes that do not meet the criteria for provisions laid down in FRS12 are treated as reserves. Expenditure funded from reserves is charged directly to service revenue accounts with a compensating appropriation being made from the reserve. Accounting standards do not permit direct reserve accounting.

Reserves are sums set aside to meet future policy purposes or to cover contingencies. The reserve is created by appropriating the sums from the Statement of Movement on General Fund Balance and scores against council tax in that year. When the expenditure is made the service revenue account will be charged but an entry will be made to appropriate the sum out of the previously created reserve into the Statement of Movement on General Fund Balance, which ensures that the council tax is burdened when the reserve is created and not when it is extinguished.

Details of reserves held at 31st March 2008 are shown in the notes supporting the Balance Sheet and the Statement of Total Recognised Gains and Losses.

The Revaluation Reserve represents a store of gains on revaluation of fixed assets not yet realised through sales.

The Capital Adjustment Account represents amounts set aside from revenue resources or capital receipts to finance expenditure on fixed assets. It also includes amounts set aside for debt redemption (the Minimum Revenue Provision) in accordance with statute, and the reserved portion of capital receipts. The opening balance on this account as 1^st April 2007 represented the final balances on the Fixed Asset Restatement Account and the Capital Financing Account.

The balances on these reserves are not, for the most part, backed by cash and do not constitute resources available to finance capital expenditure.

Contributions from developers (Section 106 monies)

Contributions from Developers (section 106 monies) are shown on the Balance Sheet as Capital Contributions Unapplied. Where these monies are invested externally they are shown under short term investments.

In 2005/06 the Landfill Allowances Trading Scheme was introduced. Under this scheme local authorities are given an allowance of tonnes of refuse that may be disposed of by landfill. Disposal in excess of this incurs a financial penalty payable to the Department for Rural Affairs (DEFRA). Alternatively allowances may be purchased from other local authorities. Authorities not planning to make full use of their allowances may sell them. The Council did not trade any allowances in 2007/08 but has recognised the value of allowances as an asset in accordance with accounting guidance issued by CIPFA.

Where a material post balance sheet event occurs, concerning conditions that did not apply at the balance sheet date, the nature of the event and its financial effect are disclosed in the accounts.

The City Council has material interests in a number of subsidiary and associated companies. In accordance with FRS2 (Accounting for Subsidiary Undertakings) consolidated financial statements have been prepared as an annex to the main accounts. The companies making up the NEC Group are regarded as subsidiaries and have been consolidated on a line by line basis while NEC Developments plc and Birmingham Technology (Property) Ltd are regarded as associates and have been consolidated on a net equity basis, where the Council's investment is recorded at cost and adjusted each year for its share of the companies' profit and unrealised gains or losses.

With effect from the 1^st April 2006, the City Council and Capita Business Services Ltd entered into a joint venture in the form of Service Birmingham Ltd. In order to comply with the disclosure requirements specified by FRS9, (Associates and Joint Ventures), Service Birmingham Ltd has been consolidated on a gross equity basis.

24 Business Improvement District

In accordance with the provisions of the Business Improvement District Regulations 2004 a ballot of local businesses within three areas, namely Broad Street, the city centre's principal retail area and Erdington Town Centre, has resulted in the creation of three distinct Business Improvement Districts. Business ratepayers in these areas pay a levy in addition to the National Non-Domestic Rate to fund a range of specified additional services which are provided by specific companies set up for the purpose.

In line with SORP guidance the Council has determined that it acts as agent to the BID authorities and therefore neither the proceeds of the levy nor the payment to the BID Company are shown in the Council's accounts. This is a change in accounting policy from 2006/07, when figures were included within the Income and Expenditure Account in respect of the Broad Street BID.

Core Financial

Statements

* Including PFI grant of £5.184 million

** NNDR income includes an amount of £2.0 million received from central government under the Local Authority Business Growth Incentive Scheme. (LABGI)

1. Trading Services

Income and Expenditure on the Major Trading Activities, adjusted for FRS17 (see Note 6) is set out below:

Details of Trading Undertakings

Highways and Sewers

Highways carries out highway functions including highway maintenance and structures, land drainage and new street works. (All of these functions are procured via in-house contracting and externally tendered contracts).

Property Services

Birmingham Property Services (BPS) is the largest in-house local authority Property Consultancy. BPS provide an integrated professional property service to the City Council, with a responsibility to manage and dispose of City-owned commercial land and property, including shops, offices, industrial units, warehouses, business parks and development sites.

Legal Services

The Legal Services Office of the Legal & Democratic Services Department is a highly successful trading organisation and is the largest in-house local authority legal department in the UK - and amongst the largest in Europe - providing high quality legal advice and representation services to meet the full requirements of the City Council, its Departments and the citizens of Birmingham.

Markets

Markets section manages the wholesale market and Birmingham's historic Bull Ring Markets - site of a market for more than 800 years. Within the complex are three retail markets which attract around 10 million customers each year.

Non-Schools Cleaning

Birmingham City Cleaning currently undertakes cleaning business worth approximately £3.5 million and covers some 322 locations employing a team of 336 full and part-time staff.

Catering

Catering and Domestic Management Services are provided to approximately 75 Social Services locations and catering in 5 Civic and Commercial Venues across the City.

Street Lighting

Street lighting is the lighting on all roads - main roads, side roads, residential roads, city centre squares, footpaths, tunnels and subways. The lights can vary in height from small side road ones to tall high masts at main junctions.

Vehicle Maintenance

The Fleet & Waste Management Division operates a service from several workshops around the City, carrying out major repairs and servicing for vehicles and items of plant and equipment. This service covers the entire City fleet, including holding the Operators (O) licence for heavy vehicles across all departments. A taxi MOT service is also provided.

Education Catering

Direct Services (Catering) has specialist knowledge of the education sector and has decades of experience working with school pupils in Birmingham. Armed with this comprehensive experience the service possesses an inherent understanding of school catering and its specialist requirements. The following services are available: Pre-school breakfast service ;Mid morning refreshments ;Mid-day meals service ;After school refreshment service; Subsidised & Free Milk schemes; Vending Service; Staff Room Pre Paid Service; 6th Form Pre Paid Service; Water Facilities; Tuck Shops.

Education Staff Agency

Education Staff Agency supply high quality temporary workers to both schools and education offices and other Birmingham City Council Directorates.

Trade Refuse

Birmingham City Council offers a competitive waste management service to businesses and industrial premises and provides Clinical Waste Removal Services, Graffiti Removal, Septic Tank and Cesspit emptying, Containers and Skips, Prepaid Sacks, Hire of Equipment and Special Collection.

Urban Design

Urban Design delivers professional, high quality construction-related design and maintenance services to the Council and external clients. Urban Design leads on sustainability of the built environment and whole life value construction procurement.

Grounds Maintenance

Grounds Maintenance are responsible for the maintenance of all of the City's parks, open spaces and golf courses as well as the floral displays that have helped to promote the City over the years. In addition, they look after all of the 'green' maintenance of council estates, highway verges, traffic islands, schools, residential care homes, cemeteries and crematoria, playing fields, allotments and children's outdoor playgrounds.

Education Cleaning

Education Cleaning provide cleaning services to all types of establishment, including primary and secondary schools, nursery schools, children's centres and Surestart units. It is this diversity of provision, on a daily basis, that helps to develop and maintain the highest levels of modern cleaning practice and technology.

Design & Print

Design and Print is the in-house provider of design, print and print finishing to Birmingham City Council Directorates/Divisions, schools and colleges plus other public sector customers.

Meals Direct Service

Meals Direct Service produces 2,000 individual meals in a day. The Meals Direct Service provides a home delivery service of frozen or hot meals to meet the needs of our customers.

Birmingham City Laboratories

BCL is approved to carry out specific United Kingdom Accreditation Service (UKAS) tests. Its specialist team of scientists and engineers are also able to undertake a wide range of on-site and laboratory inspection services, ranging from microscopic analysis of samples, through to full scale testing/appraisal of civil engineering structures.

Landscape Practice

The Landscape Practice Group is the provider of landscape architectural services for the City Council.

DSD Trading Community Day Nurseries

There are 852 places for Birmingham children in 23 Community Day Nurseries, managed and maintained by Children, Young People and Families. The nurseries are open 52 weeks of the year and cater for children from 6 weeks old. DSD provide all the catering and cleaning services at these units.

Others

This includes pest control, general works - sign shops DLO, gully emptying, other education catering, and outdoor educational centres.

2. Minimum Revenue Provision

The Local Government Act 2003 requires the City Council to charge to the revenue account a provision for the redemption of debt calculated as 4% of the Capital Financing Requirement. There is no longer a requirement to make a revenue provision in the Housing Revenue Account. The amount set aside in 2007/08 was £47.5 milllion. Service revenue accounts are charged with depreciation on the fixed assets to which the loan debt relates. Where this depreciation is more or less than MRP, a corresponding appropriation is made from or to the Capital Adjustment Account via the Statement of Movement on General Fund Balances. This is explained further in the Note on Accounting Policies.

3. Council Tax

Further details of this source of income are covered in the Collection Fund Statement and notes.

4. Publicity Expenditure

The Council is required by Section 5(1) of the Local Government Act 1986 to provide details of its spending on Publicity. During 2007/08 £8.7m was spent including £0.7m in respect of the National Exhibition Centre (2006/07 £0.6m).

5. Section 137 Expenditure

Section 137 of the Local Government Act 1972, as amended by the Local Government and Housing Act 1989 and The Local Government Act 2000 permits the Council to spend up to £3.80 per annum for each resident on grants and donations to voluntary and not for profit organisations. Total expenditure incurred in 2007/08 was £0.07 million (2006/07 £0.1 million) against a limit of £3.8 million (2006/07 £3.8 million).

6. Pensions

Employees of the City Council, other than teachers, may be members of the Local Government Pension Scheme (LGPS), which is a funded defined benefits scheme. The appropriate Fund is the West Midlands Pension Fund which is administered by Wolverhampton City Council. The Fund is subject to an actuarial valuation every three years. A valuation was undertaken as at 31^st March 2007, with the results implemented from 1^st April 2008.

Teachers may be members of the Teachers Pension Scheme (TPS). This is also a defined benefit scheme where all employers in England and Wales pay pension contributions to the scheme which is managed by the Department for Children, Schools and Families. The contributions are invested in a notional fund, which is valued at least every five years by the Government Actuary. Because the scheme is not valued on an individual employer basis the Council's share of the assets and liabilities of the scheme cannot be identified.

For Teachers, the City Council paid an employer's contribution of £45.6million (13.5% of pensionable pay) in 2007/08 to the Teachers' Pension Scheme. The equivalent figure for 2006/07 was £45.6 million (13.5% of pensionable pay). The teachers' pension scheme is administered by Capita Teachers' Pensions and is not the direct responsibility of the City Council. In addition, £6.0m (£6.0 million in 2006/07) was paid to retired teachers in respect of added year's benefits and, in certain cases, the employer share of teacher pension benefits. These figures include pension increases, where appropriate. A liability is shown on the balance sheet in respect of the Council's obligations to pay added years benefits.

Current service cost is charged directly to services. Past service and curtailment costs are shown as Non Distributed Costs.

Pensions Liability

Under FRS17 the City Council is required to disclose the assets and liabilities relating to the pensions accounts for past and current employees. The following information has been supplied by the actuaries (Mercer Human Resource Consulting) and covers both the LGPS and the TPS.

The City Council's share of the assets of the Local Government Pension Fund may

be analysed as follows:

The movements on the pensions reserve may be summarised as follows:

The balance on the Pensions Reserve is included on the Balance Sheet and the movement for the year included in the Statement of Total Recognised Gains and Losses.