Hampshire County Council Item 9

19 February 2009

Revenue Budget and Precept 2009/10 and Provisional Budget 2010/11 - 2011/12 (Part A)

Capital Programme 2009/10 to 2011/12 (Part B)

Report of the Cabinet


With the concurrence of the Chairman under Section 100B (4)(b) of the Local Government Act 1972, this matter has been included on the agenda to ensure that timely decisions are taken with regard to the Revenue Budget and precept 2009/10 and the Capital Programme 2008/09-2010/11.

A. Revenue Budget and Precept 2009/10

1 Summary

The Cabinet recommends a council tax increase of 1.9% (£19.17 a year or £0.37 a week, for a band D property) and a proposed budget requirement for the general expenses of the County Council for the year beginning 1 April 2009 of £657,009,000. The recommended precept, met by council tax payers is £509,698,895.42, which results in a band D council tax of £1,018.17.

The proposed budget is within the budget guidelines approved by Cabinet on 22 December 2008 and takes account of the relevant Executive Members' consideration of those guidelines, together with the scrutiny arrangements undertaken through the Select Committees. The budget also includes proposals for some additional one-off and continuing spending in excess of the budget guidelines. The level of council tax and the budget being proposed follow consultation with key stakeholders and careful consideration of the levels of pay awards and price inflation that can be realistically assumed in 2009/10 and 2010/11.

2 Main features of the budget

 

£' 000

A326 - road safety improvements

450

Locality funding

285

Energy - electricity prices

1,317

Building Schools for the Future

500

Rural strategy

200

Economic prosperity and wellbeing

200

Community involvement

100

Safeguarding costs

100

Revenue contributions to capital

3,000

Proposed use

6,152

 

Allocation

£'000

Children's Services - safeguarding

1,200

Recreation and Heritage - final support for modernisation

250

Allocated to services

1,450

3 Contextual information

The Cabinet agreed a three year budget plan for 2008/09 to 2010/11 in February 2008. The key features of the plan are as follows:

4 2009/10 local government settlement

It is disappointing to report that there has been no change in the distribution of formula grant for 2009/10, despite the County Council's response to the provisional settlement. No attempt has been made by the Secretary of State for Communities and Local Government to answer any of the points raised by the County Council.
Formula grant for 2009/10 is £144.8m, a £2.5m (1.75%) floor grant increase over 2008/09. The increase for 2010/11 is £2.2m (1.5%). There are no base line adjustments or late changes as in previous years. As reported at the last Cabinet the figures for 2010/11 should now be treated with caution in the current economic climate. As announced in the Pre Budget Report substantial additional efficiency savings are now being sought in public spending which may be announced in the Budget in April 2009. This could result in the floor grant being reduced to zero. No grant figure is available for the new third year - 2011/12. The County Council has achieved £51m of efficiency savings over the four budget years up to 2007/08.

5 2010/11 to 2011/12 Provisional Budgets

The guidelines for 2010/11 and 2011/12 follow those provisionally set in February 2008 for 2010/11, and in October 2008 for 2011/12 and subsequently confirmed in December 2008. Priority has been given to Adult Services and Children's Services to reflect demographic and cost pressures. Other services remain at base budget level. Full year effects of savings and growth, variations in reserves and use of balances are built into the plan. No assumptions have been made about the level of the schools budget beyond 2010/11 for which there is currently no information available on Government grant.

The provisional budget requirements for 2010/11 and 2011/12 are estimated as follows;-

2010/11: £675,493m - an increase of 2.4%

2011/12: £699,491m - an increase of 3.6%

6 Service budgets

Revenue budget service cash limits for each service are as follows:-

 

2009/10

£'000

2010/11 £'000

(provisional)

2011/12 £'000

(provisional)

Schools budget

803,587

829,478

829,478

Adult Services

305,739

318,967

327,998

Children's Services

167,277

170,698

176,295

Environment

116,550

118,524

120,156

Policy and Resources

63,685

59,050

59,640

Recreation and heritage

35,448

36,078

37,048

 

1,492,286

1,532,795

1,550,615

7. Integrated planning, performance and risk management

The recommended budget recognises the priorities set in the corporate improvement plan and reflects the overall corporate strategy, particularly ensuring value for money, improving capacity and that resources follow priorities. The performance management framework provides for the overall integration of services, work force and financial planning.

The main areas of risk are:

8 Earmarked reserves - budgeted at 31 March 2010

The single largest budgeted reserve remains the Schools reserve which is about the same as the actual balance at 1 April 2008, as the budget assumes that schools spending matches their delegated budgets in 2008/09 and 2009/10. The reserve is only available to each relevant school. The invest to save/modernisation reserve (£3.6m) is to provide investment against business cases for further service improvements. It is anticipated that the corporate efficiency reviews may require some additional investment to secure longer term savings. There are £7.6m of surpluses within the County Council's various trading activities while the Insurance budget heading at 2008/09 outturn has increased to £7.7m.

The Equal Pay reserve of £38.4m is earmarked for potential settlement of outstanding claims through the employment appeals process. Interest on the balance will be added to the reserve, from which £0.8m will be taken in 2009/10 to finance the human resources and legal costs associated with managing equal pay claims.

The County Council will have remaining damping grant of £21m at 31 March 2010 but it is anticipated that the remainder of the grant damping will be lost over the next two spending review periods. It is planned to use £2.5m in 2009/10, £3.7m in 2010/11 and £4.5m in 2011/12 from the grant equalisation reserve to help cover the anticipated grant loss. The balance on the reserve will therefore be £22.4m at 31 March 2010 and £14.2m by 31 March 2012.

A new Local Authority Business growth incentive (LABGI) reserve of £1m is being set up for future allocation on longer term contributions towards economic prosperity, well being and regeneration and other capital investment projects. The Landfill allowances reserve of £6.1m is available to offset future council tax rises, bearing in mind past investment in waste infrastructure, and to finance future waste infrastructure costs.

The new corporate policy fund reserve of £1.5m proposed for 2009/10 has been secured by the SAP benefit realisation savings and it is proposed that the reserve will be increased by efficiency savings generated by the corporate efficiency review. This reserve will provide additional resources for future investment as public expenditure constraints tighten, and to provide in year flexibility towards new, emerging front-line service priorities.

Full details of each reserve from 31 March 2008 to 31 March 2012 are set out on Page A17 of the draft budget book.

9 Balances

Budgeted balances at 31 March 2009 were £15m. Balances were increased with the 2007/08 underspend, although some were set aside for additional spending during 2008/09 and later years. One off additions will add to balances at 31 March 2009, and the estimated level of balances at 31 March 2009 is therefore £29.0m. This includes the additional projected savings in 2008/09, not allocated to earmarked reserves but carried forward to support council tax reductions in 2009/10 and 2010/11. £7.6m will be drawn down in 2009/10 and 2010/11 towards the commitment for lower council taxes in these years.

10 Section 25 report, Local Government Act 2003

Section 25 of the Act requires the Chief Financial Officer (the County Treasurer) to report to the County Council when setting its council tax on the robustness of the estimates included in the budget and the adequacy of the financial reserves in the budget. The County Council is required to have regard to this report in approving the budget and council tax.

A detailed summary of the County Treasurer's opinion is outlined in Appendix 1 of this report. Whilst highlighting several matters that will be kept under review there is no known significant risk or liability which requires a provision, contingency or reserve not already allowed for in the budget report. Correspondingly, it is the County Treasurer's view that, provided that the County Council considers the factors laid out in Appendix 1 and accepts the budget recommendations, including the level of earmarked reserves and balances, a positive opinion can be given under Section 25 on the robustness of the estimates and level of reserves.

11 Treasury Management and Annual Investment Strategies, Prudential and Financial Health indicators

The County Council is required to adopt a treasury management strategy and an annual investment strategy for 2009/10 which covers management of the long-term debt portfolio relative to forecast trends in long and short term interest rates, arrangements for the investment of surplus cash funds during the year and which is fully compliant with the prudential code for financial management. A guideline annual target of up to £17m is proposed for 2009/10 to 2011/12 for new long-term fixed-rate borrowing, which can be exceeded if circumstances are appropriate. No Lender's Option/Borrower Option loans (LOBOs) were taken out in 2008/09 and although the situation will be kept under review, there is expected to be no commercial advantage in the County Council taking out further LOBO finance in 2009/10.

After having reached a peak of 5.75% in July 2007, a succession of interest rate cuts meant that, by February 2009, the Base Rate of 1.0% had fallen below the lowest recorded level of 2.0% since the Bank of England was formed in 1694. It is now envisaged that longer term interest rates will remain on a stable path over the next year. The strategy will be to take out long-term fixed-rate borrowing from the Public Works Loan Board (PWLB) of up to £17m in the period to March 2010 at a target rate of 4.2% or less, or prevailing rates if this target rate were to prove unattainable.

Inflationary concerns have all but dissipated with annual Consumer Price Index (CPI) inflation having fallen from its September 2008 peak of 5.2% to its current December 2008 level of 3.1%, with this figure expected to continue to fall further over the coming months. Unemployment, already at 6%, is expected to rise further and concern over the possibility of unemployment is expected to keep wage bargaining and wage inflation to a minimum. The revised expectations for both reduced wage and price inflation have allowed a prudent budget to be set with a lower than originally anticipated council tax rise.

RECOMMENDATIONS

That:
the Treasurer's report under Section 25 of the Local Government Act 2003 be taken into account when the Council determines its budget and precept for 2009/10 (Appendix 1)

a) the revenue budget for 2009/10 (as set out in the attached draft budget book) and the provisional budgets for 2010/11 and 2011/12 be approved

b) the total budget requirement for the general expenses of the County Council for the year beginning 1 April 2009 be £657,009,000

c) the County Council's band D council tax for the year beginning 1 April 2009 be increased by 1.9% to be £1,018.17

d) the County Council's council tax for the year beginning 1 April 2009 for properties in each tax band be:

e) precepts be issued totalling £509,698,895.42 on the billing authorities in Hampshire, requiring the payment, in such instalments and on such dates set by them and previously notified to the County Council, in proportion to the taxbase of each billing authority's area as determined by them and as set out below:

f) the annual investment strategy and policy for the level of minimum revenue provision (Appendix 2) be approved

g) the prudential and financial health indicators ( Appendix 3) be approved.

B. Capital Programme

1 Summary

The Cabinet has considered proposals put forward by Executive Members for the three years 2009/10 to 2011/12. The resultant draft capital programme is attached as a separate document. In drawing up their preferred programmes, Executive Members were requested to:

2 Contextual Information

The proposed capital programme reflects a reduction in the forecast level of capital receipts. Because of the downturn in the property market this will require the use of temporary prudential borrowing of £12.804m in 2009/10 and £5.525m in 2010/11. On current assumptions about the recovery of the property market and the flow of capital receipts, this temporary prudential borrowing will begin to be repaid in 2011/12 and will be fully repaid over the next ten years.

The need for temporary prudential borrowing is lower than would have been necessary if Cabinet had not agreed in December 2008 to spread the existing guidelines for the locally resourced capital programmes for 2009/10 and 2010/11 over the three-year period from 2009/10 to 2011/12, effectively a deferral of one-third or £25m.

The proposed programme complies with the requirements of the Prudential Code for Capital Finance in Local Authorities. The prudential indicators are included in Appendix 3 of this report .

The other main points of the report are:

3 Summary of capital programmes submitted

The total starts value of the three-year programme submitted by executive members is £427m, (£177.013m in 2009/10, 147.553m in 2010/11 and £102.202m in 2011/12).

4 Adult Services

The proposed programme for Adult Services is in line with the guidelines for the locally resourced programme. The programme for 2009/10 includes the final year of the additions agreed by Cabinet in July 2006 after a review of the Service's capital expenditure needs and the resources available. The 3 year programme, which totals £2.796 million, includes government capital grant in respect of Mental Health, Social Care Infrastructure and Extra Care Housing support.

5 Children's Services

The proposed programme for Children's Services of £189m over the next three years is supported principally by government capital grant including schools' devolved capital (£ 63.147m), the primary capital programme (£21.272m) and New Deal for Schools modernisation (£15.517m). The most significant element of borrowing allocation is for new pupil places (£18.693m).

As in previous years, the Government's New Deal for Schools (NDS) allocations have been divided between modernisation works (included in the Children's Services capital programme) and condition works (included in the Policy and Resources capital programme) using the 46% : 54% split agreed in July 2003.

The proposed amounts for NDS over the next 3 years, for both modernisation and condition works, are £13.809m (2009/10), 12.088m (2010/11) and 12.088m (2011/12). The amounts are before taking into account the County Council's decision not to take up in full the Government's borrowing allocations, amounting to £9.5m over the three year period for NDS.

The Executive Member for Children's Services also recommended carrying forward capital resources of £11.047m from the 2008/09 programme to 2009/10 and 2009/10. The schemes are listed below.

6 Environment

The proposed three year Environment programme, which includes schemes wholly or partly funded by developers' or other contributions, totals £149.944 million. Schemes dependent on outside contributions have only been included where there is reasonable confidence in the security of funding and programme dates.

It is proposed that £19.330m should be added to Environment's capital programme for 2008/09 for the cost of the architectural enhancement pass-through costs at the Chineham, Marchwood and Portsmouth Energy Recovery Facilities. The County Council is liable under the terms of the long-term waste disposal contract with Veolia Environmental Services Hampshire for the cost of architectural standards above a basic design.

Provision of £3.257m has been made in previous years in Environment's revenue account for annual payments pending the final settlement of the pass-through costs issue. This is now available to fund part of the lump sum, leaving £16.073m to be financed by prudential borrowing. Repayments will be made from the revenue budget over the remaining life of the contract. The saving to the revenue budget from making a lump sum payment to Veolia, financed by prudential borrowing, will be £0.8m a year.

7 Policy & Resources

The main corporate priority continues to be the maintenance of the core buildings in the County Council's built estate. The capital repairs programme and the proposed 2009/10 allocations are largely based on existing priorities.

Considerable progress has been made in the schools estate with the New Deal for Schools funding programme. The reduced programme for locally resourced capital repairs will require a reassessment of risk, however, and will slow progress on improving the Council's built estate.

Within the Policy and Resources capital programme it proposed to include carry forwards from 2008/09 to help smooth the reduction in the capital repairs programme; a £0.249m virement to revenue to support the project team developing the Hampshire Workstyle initiative; a £1.0m allocation for smart meters as part of the carbon reduction commitment, funded from the Dedicated Schools grant, and £1.037m being added to the 2009/10 programme to fund section 106 payments to Basingstoke and Deane Borough Council for the Merton Rise development. As a result of the downturn in the housing market it is the County Council, rather than the developer, that is funding these section 106 payments. The eventual sale proceeds will, however, be correspondingly higher than they would have been if the developers had been responsible for the payments.

8 Recreation and Heritage

The programme for 2009/10 includes a £1.313m project to provide education and visitor facilities for the Basing House History Park. Provision of £0.422m per annum has also been included in the programmes for 2009/10 and 2010/11 for the final two years of the Playbuilder programme to develop 20 to 25 play areas over three years. This started in 2008/09.

9 Private Finance Initiative (PFI)

No specific public finance initiative (PFI) schemes have been identified at this stage for inclusion in the 2009/10 to 2011/12 capital programme.

Work on the proposal to replace street lighting columns continues following a comprehensive tender process, with the intention of awarding a PFI contract in the second quarter of 2009. Work to replace street lighting infrastructure would then start in late 2009.  

10 Conclusions

Regular reports will be made on the implementation of the programme, including the progress of major projects, the level of capital expenditure and resources in 2009/10, including the progress on meeting the challenging targets for capital receipts. As part of a mid year review process reports will be brought forward for Members to consider on both the capital receipts targets in the longer term and Building Schools for the Future.

RECOMMENDATIONS

That:

(a) the capital programme for 2009/10 and the provisional programmes for 2010/11 and 2011/12 be approved as set out in the accompanying report and subject to the conditions set out in section B.3 of the County Council's Financial Procedures on the responsibilities for managing the capital programme and, where appropriate, to the approval of the Executive Member for Policy and Resources to proposals by executive members to retain more than a 25% share of capital receipts

(b) expenditure on preliminary design and planning work for major transport schemes be permitted when they have achieved a place in the County Council's Local Transport Plan, subject to the cost being met within existing Government allocations

(c) authority be given to incur expenditure on land purchases as follows:

T. K. THORNBER, C.B.E.,
Leader.

Section 25 report, Local Government Act 2003

RISK ASSESSMENT OF GENERAL BALANCES - 2009/10

£000

£000

 

%

£000

Comments

Cash- limited expenditure ( excluding schools)

Inflation

 

Inflation

Pay

300866

0.5

1504

Possible risk of national pay awards exceeding lower pay award assumption

Pay

292973

7893

Non pay expenditure

554732

12391

Income ( includes inf on specific grants)

-184464

-7042

Non pay

567123

1.0

5671

Allowing for potential for absorption within cash limit

Base budget

663241

13242

Growth in budget strategy

7900

 

Income

-191506

-1.25

2394

Risk of resistance reduced by lower inflation assumptions

Growth funded from redeployment

2866

 

Further growth proposed

1450

 

Balance of contingency allocation

555

 

Interest rates

22911

1.0

229

Short term interest rates may increase in 2009/10 above current level but majority of interest costs on long term fixed rate borrowing

Capital financing - principal

- interest

24398

22911

 

Flood Protection/LATS

247

 

RCCO

18292

 

Specific grants ( excluding schools)

-86626

 

Demand led budgets

260656

6.0

15639

Allowing for potential for absorption within cash limit

Reserve contributions

-11595

 

Insurance

liabilities

4237

33.0

1398

 

LEA contribution to schools budget

128

 

Achievement

of cashable

savings (say)

16478

25.0

4120

Higher risk assumed due to economic factors

BUDGET REQUIREMENT

657009

 

Demand sensitive budgets

   

Capital

receipts

4660

10.0

466

To reflect possible reduction in values rather than delay

Older people placements

110729

 

Physical/ sensory

19882

 

Winter maintenance

3230

20.0

646

Risk of adverse winter conditions borne from balances, but

lower risk within new contract

Learning disabilities

67982

 

Mental Health

6929

 

Home to School transport

22908

 

VAT - partial

Exemption (exc schools)

1500

5.0

75

Low risk with new policy options being considered beyond

current amnesty

Looked after children

23128

 

Bus subsidies

8112

 

Abandoned vehicles

31

       

32142

 

Coroners

955

260656

Insurance liabilities

 

4237

Less likelihood of worst cases coinciding

 

50

16071

 

Winter maintenance

 

3230

Business rates

 

3974

Proposed target balances

   

16071

 

Capital receipts

 

4660

ANNUAL INVESTMENT STRATEGY AND POLICY FOR THE LEVEL OF MINIMUM REVENUE PROVISION

1 Annual Investment Strategy

1.1 This proposed Annual Investment Strategy has been prepared in accordance with guidance issued under section 15(1)(a) of the Local Government Act 2003.

1.2 When investing its surplus funds, the Council's investment priority is to continue to maintain the security of capital and maintain policy flexibility through liquidity of its investments. The Council will aim to achieve the optimum return on its investments commensurate with the proper levels of security and liquidity.

2 Policy on Minimum Revenue Provision to repay debt

A. Summary of Prudential Indicators

2007/08 Actual

2008/09 Estimate

2009/10 Estimate

2010/11 Estimate

2011/12 Estimate

Prudential indicators for capital expenditure

Capital expenditure

£m

176.5

215.0

159.1

162.7

151.0

Capital financing requirement

£m

586.3

648.8

687.7

692.6

662.2

 

Prudential indicators for affordability

Ratio of financing costs to net revenue stream

%

5.35

5.40

6.40

6.72

6.56

Incremental impact of capital programme on council tax

£

n/a

n/a

11.55

5.16

4.98

 

Prudential indicators for prudence

Medium-term borrowing not to exceed capital financing requirement

County Treasurer will ensure this is not breached

Prudential indicators for external debt

Actual external debt

£m

404.3

n/a

n/a

n/a

n/a

Authorised limits

£m

590.0

620.0

690.0

700.0

670.0

Operational boundaries

£m

480.0

510.0

570.0

580.0

550.0

 

Prudential indicators for Treasury Management

Adoption of CIPFA Code of Practice

Agreed by the Cabinet in February 2003

Upper limits - fixed rates

£m

256.0

300.0

320.0

320.0

320.0

Upper limits - variable rates

£m

202.0

370.0

440.0

450.0

430.0

Maturity structure of fixed-rate debt

Upper limits

Under 12 months

%

2

1

10

10

10

12 to 24 months

%

2

3

10

10

10

24 months to 5 years

%

5

6

20

20

20

5 years to 10 years

%

16

14

30

30

30

10 years and beyond

%

75

76

90

90

90

Lower limits

           

Under 12 months

%

2

1

0

0

0

12 to 24 months

%

2

3

0

0

0

24 months to 5 years

%

5

6

0

0

0

5 years to 10 years

%

16

14

10

10

10

10 years and beyond

%

75

76

70

70

70

 

Total sums invested for more than 364 days

£m

Nil

Nil

Nil

Nil

Nil

B. Financial Health Indicators

2007/08 Actual

2008/09 Estimate

2009/10 Estimate

2010/11 Estimate

2011/12 Estimate

 

Variance from budget

Net service spending

%

-0.3

-0.5

+/-1

+/-1

+/-1

Overall spending met from formula grant, council tax and balances

%

-1.4

-1.4

+/-2

+/-2

+/-2

Balances as a % of budget requirement

%

3.9

4.5

3.7

2.8

2.5

 

Capital programme management

Carry forward of schemes

%

29.0

20.0

20.0

20.0

20.0

Actual capital expenditure compared with estimate

%

-6.3

+/-10.0

+/-10.0

+/-10.0

+/-10.0

Actual capital receipts and third party contributions compared with estimate

%

-0.2

-72.3

+/-10.0

+/-10.0

+/-10.0

 

Income collection

% of outstanding debt more than 12 months old

%

16.1

17.5

17.5

17.5

17.5

% of outstanding debt more than 6 months old

%

24.7

20.0

20.0

20.0

20.0

% of outstanding debt under 60 days old

%

63.2

60.0

60.0

60.0

60.0

% of debt written off to debt raised

%

0.2

<1.0

<1.0

<1.0

<1.0