Contact: Jon Pittam, ext 7400

1. Summary

1.1 The accompanying report sets out the provisional revenue support grant (RSG) settlement and its implications for the 2002/03 budget strategy. The following decisions are sought:

2. Reason

2.1 The Leader and Cabinet are required to set budget guidelines as part of the preparation for final budget and council tax decisions for 2002/03 to be taken in February 2002.

3. Other options considered and rejected

3.1 Not applicable.

4. Conflicts of interest declared by the decision maker or a member or officer consulted

4.1 Not applicable.

5. Dispensation granted by the Standards Committee

5.1 Not applicable.

6. Reason(s) for the matter being dealt with if urgent

6.1 Not applicable.

Approved by: (signature) Date: (date of decision)

............................................ ........................................

Councillor T K Thornber

Contact: Jon Pittam, ext 7400

1. Introduction

1.1 The provisional revenue support grant (RSG) settlement was delayed, allowing very little time to analyse the technical and data changes and implications for the Council's 2002/03 budget. This report is therefore later than normal and provisional data may need subsequent adjustment.

1.2 The Treasurer will prepare a presentation for Cabinet at its meeting to simplify and supplement this report.

1.3 It is now necessary to set budget guidelines in the light of the provisional RSG settlement and to respond to the settlement by 10 January 2002.

1.4 As agreed by the Cabinet in October the next steps during January 2002 are for:

· service budgets to be prepared in consultation with executive members for consideration by policy review committees

· executive members to approve budgets within guidelines for submission to the Leader and Cabinet.

1.5 The Leader will propose a budget for agreement with the Cabinet at its meeting on 11 February 2002 for submission and approval by the County Council on 22 February 2002.

1.6 The budget strategy for 2002/03 was confirmed by the Cabinet in October. An overall increase of 5.6% in the County Council's standard spending assessment (SSA) was assumed based on the national position forecast in the Government's current spending plans (SR2000) for 2002/03.

1.7 Based on the budget strategy assumptions an increase in council tax of about 7% was predicted. However this did not take account of possible adverse changes in the settlement, either nationally or locally. It was also based on a tight budget strategy with no allowance for budget pressures or other changes which were identified in the October report. An overall council tax rise of between 8 and 9% was therefore suggested as the likely outcome.

2. Summary

2.1 The provisional RSG settlement produces very similar outcomes to the position projected in October. The County Council's overall SSA increase is 5.4%, the same as the national increase, but just below the 5.6% included in SR2000. The Government has kept to its existing spending plans and the difference is the result of adjustments to the base for function changes (transfer of funding for sixth form pupils in schools from SSA to the Learning and Skills Council (LSC) and various changes in Social Services).

2.2 However, the County Council's Education SSA increase of 5.4% is much lower than the average increase of 6.5% for county councils. The overall SSA increase of 5.4% is also below the average 6.2% rise for county councils, which have an increase above the national average, reflecting the priority in the Government's spending plans for Education and Social Services. Both the County Council's Education and overall SSA increases are the second lowest of all counties. It results from the below average number of sixth form pupils in schools and the adverse effects of the changes in the Education SSA sub blocks adopted by the Department for Education and Skills (DfES) in making the transfer to the LSC.

2.3 The other main concerns arising from the settlement are:

· the continued underfunding of Social Services by the Government, as it has stuck to its SR2000 plans without recognising the recent pressures over the last two years

· a further 15% increase in specific grants which are applied in a prescriptive manner, often for new priorities without recognising continuing pressures which remain to be funded locally.

2.4 The projected budget increase, applying the current tight definition of the budget strategy agreed for 2002/03, is 5.6% which is more than the SSA cash increase and would result in a council tax increase of 6.1%. This is lower than the projected increase of 7% at this budget level which was suggested in October. This results from building into the projection lower interest rates and assuming an increase in the council tax base based on very preliminary figures now available.

2.5 This is before making some allowance towards some, but not all, of the additional pressures previously identified:

· underfunding of Social Services

· pressures on the reduced Education SSA cash increase because of the disadvantageous sixth form pupil transfer

· pressures and demands on all other services

· staff recruitment and retention issues in addition to the pay inflation assumptions

· £4m financing gap in the existing capital programme and future pressures on it, particularly from the anticipated shortfall in borrowing approval for the Education capital programme

· change in RSG in 2003/04 where the Government has announced a new "fair" system with a possible threat to the area cost adjustment which currently recognises the higher cost of providing services in the south east.

2.6 Taking these factors into account:

· a 6 to 6.5% budget increase is forecast which would result in

· an 8 to 9% council tax increase.

2.7 This forecast appears to be in line with the majority of county councils, but at least a third are possibly considering increases of 10% or more. As this County Council has the second lowest increase in SSA of all counties, its council tax rise would otherwise be expected to be one of the highest.

2.8 This forecast provides some flexibility for final decisions in February, particularly for central provisions, reserves and contingencies towards the issues identified in paragraph 2.5.

2.9 As usual, some factors, particularly the national pay award for teachers in early February and final detail of council tax assumptions will not be known until much later in the budget cycle. Not all the detailed information of the provisional RSG settlement is available and will be subject to change with the final settlement. A decision is still awaited on the continuation or otherwise of the council tax benefit subsidy limitation scheme, and although any adjustment is assumed to be cost neutral, it may have an impact on the final council tax amount. Not all the details and conditions of specific grants are yet available, even where these have been announced. Capital approvals and other specific grants are still awaited - if the pattern of previous years is followed, some specific grants may not be announced even in time for budget decisions in February. The budget figures are also provisional and will be subject to some change.

2.10 For all these reasons final budget decisions cannot be made now, but revenue and capital guidelines should be set at this meeting in advance of the January cycle of policy review committee meetings and executive member approval and recommendation of service budgets. The guidelines are set out in the report based on the current budget strategy.

2.11 Both the budget and SSA for 2001/02 require amendment for changes in function to align with the Government's presentation of its SSA increases as follows:

2.12 Although the final budget and council tax figures are likely to be subject to amendment in February, the current projections can be summarised as follows:

2.13 The remainder of the report summarises:

· the provisional local government finance settlement for 2002/03

· suggests a possible response to the consultation on the provisional settlement

· forecasts the latest budget projection compared with the settlement

· suggests revenue budget guidelines for Executive members to prepare draft budgets for consideration by the Cabinet in February before recommending a final budget and precept to the County Council on 21 February 2002

· outlines capital programme limits for similar consideration by Executive members

· discusses the possible scope for further budget consultation exercises with the public to be undertaken during January and February 2002 which can be used to inform final decisions.

2.14 Further detail is contained in the following appendices:

Remainder of report and appendices to follow

3. Provisional RSG settlement for 2002/03

3.1 A full analysis of the settlement is set out in Appendix 1.

3.2 The national position can be summarised as follows:

· 7% increase in total standard spending (TSS)

· 15.3% increase in specific grants

· specific grants now amount to 15% of Government grant support (it was only 4.5% in 1997)

· headline increase of 5.4% in standard spending assessment (SSAs), compared with 5.7% quoted in SR2000; the difference is mainly due to the transfer of PFI credits from SSA into specific grants

· damping arrangements (floors and ceilings) continue

· there are no changes in SSA methodology

· data has been updated in SSAs, including the New Earnings Survey figures used for the area cost adjustment (ACA). It is understood that there was a mistake in the original data as submitted by the Office for National Statistics. This has resulted in less of a loss for London authorities and it appears that there has been no smoothing of ACA data over three years as feared in October. There is broadly no change from ACA data this year for the Council, which is a positive outcome compared with the usual pattern of a loss following a previous year of a gain from data changes.

3.3 The overall percentage changes are summarised below:

3.4 Points to note are:

· differences between total standard spending (TSS) and standard spending assessments (SSA) are represented by specific grants which are ring-fenced towards prescribed activities, often with conditions attached

· the County Council's SSA increase at 5.4% is the same as the overall national increase but much lower than the average increase of 6.2% for county councils

Education SSA

· this is mainly due to the adjustment for sixth form pupils where funding is transferred from SSAs to the Learning and Skills Council, because Hampshire has a below average number of pupils in school sixth forms

· the County Council in effect loses more than it was spending on sixth form pupils and as a consequence has a below average SSA cash increase in schools because of the assumptions made by the DfES about spending patterns within the sub-blocks of Education SSA. The underlying factor was the DfES's decision to reduce SSA based on an assumed level of current spending, rather than on the current (lower) post-16 SSA

· it also appears that the DfES has taken out more for post-16 than justified by pupil numbers at September 2001 - representations have already been made on this point

· finally the SSA increase does not take into account the incorporation of the £52m Education budget support grant paid in 2001/02 but discontinued in 2002/03 nor the full year effect of the transfer of early years inspection to OFSTED

· the Education SSA cash increase is only 5.4% compared with the average of 6.5% for county councils, but is as predicted in October

· this Council's Education SSA increase and as a result its overall SSA increase is the second lowest of all counties

Social Services SSA

· the Social Services cash increase of 6% is more than predicted in October, but in reality this is equivalent to an increase of just 5.3% because the adjustment for transfer of funding from SSA to the new National Care Standards Council has been presented misleadingly

· as previously reported, more has been removed for this transfer than was budgeted on inspection and registration services in 2001/02

Fire SSA

· this has increased by more than predicted and the national rise, but is still below the draft budget increase from the Hampshire Fire and Rescue Authority

Highway maintenance SSA

· only a 0.2% cash increase, below the national increase, mainly because of changes in the digital mapping of principal roads (from which Hampshire loses) but not for non-principal roads (from which Hampshire might have gained)

Environmental, protective and cultural services SSA

· the increase is much as predicted, but because the Council's budget is 70% over the SSA block for these services, this is equivalent to just 2.6% on the budget

Capital financing

· a larger increase than expected, but subject to further change as it is based on estimated credit approvals at this stage

Neighbourhood renewal fund

· a 50% uplift in Neighbourhood Renewal Fund which is targeted at deprived areas and will not benefit the County Council. Such targeted funds may feature more in the changes in the White Paper on the local government finance system and are unlikely to benefit the County Council

Specific grants

· an overall increase of 15%. There is a 26.7% increase in Education specific grants for the Standards Fund and grants direct to schools. There is an overall 12.5% increase for Social Services, mainly on preserved rights (residential care provided to clients before the introduction of community care in 1993, the cost of which is now being transferred from the social security budget to social services budgets) and children's services. These have conditions and liabilities attached to them and do not provide much leeway for Social Services.

National financing totals

3.5 Nationally council tax meets 22% and national non-domestic rates (business rates) about 28% of total standard spending. Government grants meet about 50% of spending with revenue support grant contributing a third and specific grants just under 18%. Standard council tax income is expected to increase by 5.6% if all councils spent at the settlement level.

Hampshire RSG

3.6 The County Council's revenue support grant for 2002/03 is summarised below:

3.7 Points to note are:

· grant support has increased by less than the SSA (5.2% compared with 5.4%)

· this means a slightly bigger burden falls on council tax income again next year (an overall increase of 5.9% for spending at SSA)

· business rates and council tax increase support the Government's spending plans

· about 34% of the Council's standard spending is now met by council tax compared with 27% nationally.

Consultation response on the provisional RSG settlement

3.8 The Secretary of State has requested that any representations by local authorities on the proposed settlement should be made in writing by 10 January 2002.

3.9 The County Council may wish to make a written response which might include:

· acknowledging the overall national increase in total standard spending of 7% and the priority still given to Education but pointing out that the County Council's SSA increase at 5.4% is much lower and that the total grant support increase of 5.2% is even lower. The Government should therefore acknowledge that the increase in its spending plans also results in council tax increases of two to three times the headline rate of inflation and that this is not sustainable in the long run

· expressing concern about yet more increases in funding allocated to specific grants; the creation of new specific grants; and the continued prescription of additional targets from the Secretary of State for Education and Skills; and conditions attached to grants for Social Services

· pointing out that yet again the Government is undermining stability and transparency in the Council's budget and council tax decisions by its year on year changes in functions transferred from and to local authorities

· deploring the lack of recognition in the provisional settlement for the continued underfunding of Social Services. These pressures cannot be met within the cash increase in the SSA for Social Services because of pay and price pressures and the consequences of the external function changes imposed by the Government

· indicating that this underfunding of Social Services is not sustainable in 2002/03 and extra resources are requested in the final settlement to avoid an even higher increase in local council tax

· expressing concern that the Government has made adjustments for the transfer of functions to the National Care Standards Council (NCSC) which are in excess of the Council's spending and at the same time increasing the new budget for NCSC by 70% at the expense of funding for local social services

· pointing out that Hampshire is particularly disadvantaged because of its relatively low proportion of sixth form pupils in schools by the approach chosen by the DfES to adjust Education sub-block control totals in making the transfer for these pupils to LSC

· requesting that the quantum for the transfer for sixth form pupils be adjusted downward to reflect the normal SSA convention of pupil numbers as at the September 2001 count rather than allowing for projected growth in pupil numbers to September 2002, otherwise Hampshire primary and secondary pupils will be paying for real-terms growth in school sixth forms elsewhere in the country

· expressing concern that the change to GIS data mapping measurement for highway maintenance results in no cash increase for the County Council and requesting that GIS measurement either be dropped or also applied to measurement of non-principal roads

· asking Government to recognise the large percentage increase in flood defence levies which can only be met by cuts in other services within the overall increase in SSA for EPCS in 2002/03. The grant settlement assumes a 2% reduction in flood levies nationally in 2002/03

· expressing concern once again that there is no explicit evidence of extra funds for the rising costs of waste management or recognition of the County Council's waste contract as there would be if it had been introduced later when PFI credits were available - in particular requesting the Government to give separate consideration to these issues in its new funding formula for 2003/04

· noting the allocation of additional grant under the floors and ceilings scheme to avoid the need to scale back the grant allocations of education and social services authorities that are between the floor and the ceiling

· confirming the County Council's view that ceilings may be unfair to authorities with genuinely exceptional increased spending needs

· encouraging the Government to abandon the council tax benefit subsidy limitation scheme as suggested in the White Paper without any detrimental effect on council tax levels in 2002/03.

4. History of financial statistics

4.1 The trends in SSA, grant, budgets and council taxes from 1993/94 to 2001/02 are set out in Appendix 2.

4.2 The first table in Appendix 2 shows that over that period the Council has gone from spending £36m (4%) below SSA to spending £42m (nearly 5% over SSA). The second table shows the variations in budgets against each SSA block.

4.3 The trends in RSG settlements since 1997/98 are summarised in the next table. This shows the considerable step up in both SSA and grant support from 2000/01 onwards compared with previous years. `Crude and universal' capping was not abandoned until the 1999/00 settlement.

5. Provisional base budget 2002/03

5.1 Each year a base budget is prepared which reflects the current financial policies of the County Council, in order to provide a starting point from which decisions on the County Council's priorities can be made. Appendix 3 shows the provisional results of that exercise, defines the parameters used and explains the main increases.

Costs absorbed or assimilated in the base budget definition

5.2 The definition of the base budget remains a tight one as set out in Appendix 3. This means budgets continue to absorb the costs of increments and Employment in Hampshire County Council. Any items funded on a one-off basis in 2001/02 by the use of reserves or savings brought forward from previous years are also assimilated. There is no direct base budget provision for changing demographic factors, except for pupil numbers, road lengths and waste volumes. Demands and pressures from legislative change are also excluded. The continuing costs of implementing the IT2000 strategy, which is being financed by a levy on what departments have historically spent on IT, rather than from budgets set aside for IT, will also continue to be absorbed.

5.3 Budgets are also required to absorb the cost of inflation in 2001/02 in excess of the assumptions made in the 2001/02 budget. This is assessed at £1.7m, mainly on non-pay costs.

5.4 Significant changes are made in the base budget for changes in function and funding arrangements including:

· sixth form education

· care leavers

· early years and Social Services inspection.

5.5 Increased spending financed by Government specific grants for Education and Social Services is also included in the base budget, to the extent that grants for 2002/03 have been announced.

5.6 The financial effect of these and other changes are shown in Appendix 3.

Inflation provision

5.7 Having adjusted the budget from 2001/02 for approved changes, updated to the November 2001 price base, provision then has to be made for future pay and price changes from November 2001 to 31 March 2002.

5.8 The headline rate of inflation is not an appropriate measure for the cost of change in local authority services which is predominantly driven by its own workforce pay awards and the cost of private sector brought-in or contracted services. Annual earnings are still increasing at over 4%. The teachers' pay award has averaged 3.8% over the last three years and a similar award is expected in February. The last major award was for firefighters at 3.9%. The trade unions representing local government staff have submitted a pay claim for a minimum of 6% with up to 19% at the lower end of the pay scale.

5.9 The problems of recruitment and retention, and the costs of purchasing care services, bus contracts, etc are particularly difficult in the high cost south-east labour market. South East Employers have recognised the difficulties of recruitment and retention as a very significant factor in service delivery. Acute issues are arising around teachers, social workers, other social care staff, IT, accountancy, planning, trading standards and lawyers.

5.10 There are also known increases in employers' contributions to both the teachers' and local government pension schemes, but these are balanced by anticipated reductions in employers' national insurance contribution rates and interest rates.

5.11 The assumptions made cover:

· 4% for teachers' pay

· 3% for other pay with a further 1% held in a central contingency

· 2.5% average prices

· a reduction in interest rates

· an increase in teachers' and local government employers' contribution to pension funds

· a reduction in national insurance contributions

· a contingency of £2.9m for the waste management contract to reflect the contract inflation, the increase in landfill tax, additional volumes and new infrastructure (this is £0.3m more than in 2001/02).

5.12 The pay contingency will be deployed against the possibility of higher national pay awards. It will provide some scope within the passported cash increases for Education and Social Services to take a further small step within the budget strategy to begin reducing the overall shortfall of about 10% in local government pay from the median. This contingency will also enable particular recruitment and retention issues to be dealt with. These decisions do not need to be made at this stage and can be reviewed before final decisions are taken in February.

5.13 These adjustments are added to the base budget and the detail is shown in Appendix 3.

Fire levy

5.14 In constructing the base budget, the Fire levy has been increased in line with the Fire base budget increase of 5.1%, although this is lower than the Authority's draft budget increase of 8%.

Flood protection precepts

5.15 These are predicted to increase by between 8 and 11% and a contingency of around £0.5m has been set aside to meet these costs, as compared with the Government's assumption of a 2% reduction.

Summary of service base budgets - provisional figures

5.16 These can be illustrated as follows, noting that at this stage that general inflation assumptions have been allocated provisionally, but that other contingencies, such as for waste, have been retained centrally until final budget decisions are determined.

Table 4 - provisional base budgets - services
	Nov 2001 prices £m	Outturn prices £m	Cash increase over 2001/02 %
Education	538.2	556.1	4.0
Environment	72.3	73.5	5.6
Policy and Resources	37.4	38.4	2.0
Recreation and Heritage	24.7	25.4	3.3
Social Services	194.4	198.7	3.3
	----------	----------	------
	867.0	892.1	3.9
	----------	----------	------

Summary of other provisional base budgets

5.17 Details are again in Appendix 3, but remaining budgets can be summarised as follows:

Scale 5 - Provisional base budgets - other services
	Outturn prices £m	Cash increase over 2001/02 %
Revenue contributions to capital	24.6	3.6
Capital financing	26.6	6.3
Fire	37.9	7.4
Specific grants	-108.3	-
Other, including central contingencies, flood protection, Magistrates' Courts, use of reserves,etc	25.5 ----- 6.3 -----	36.0 ------ 8.1 ------

Summary of overall provisional base budget

5.18 The overall budget at this stage is:

5.19 The overall increase in the provisional base budget is £37.4m, compared with the SSA cash increase of £44.6m, but is already at £898.4m in excess of the total SSA of £863.2m for 2002/03, even before consideration of passported cash amounts in SSA and other pressures.

6. Budget strategy

6.1 Budget options in excess of the provisional base budget can be considered depending upon the extent to which increases in Education and Social Services are passported to these services, and local decisions on other budget priorities and pressures. Those have to be balanced against the level of council tax increase acceptable and any use of balances or reserves.

6.2 There are still a number of uncertainties which suggest final decisions cannot be fixed now, which include:

· provisional budget figures, subject to change

· teachers' pay award

· final adjustments to the provisional RSG settlement for any data errors or decisions yet to be made

· any response to the concerns expressed in paragraph 3.9 following the consultation on the provisional settlement

· final details of council tax assumptions

· continuation or otherwise of the council tax benefit subsidy limitation scheme, and its impact upon the final council tax amount

· announcement of further specific grants for schools or the Standards Fund, implications of further devolvement of capital to schools and increases in delegated budgets for schools and the extent to which these match the Secretary of State's targets

· confirmation of rules and parameters for Social Services specific grants and changes in function

· final decisions on Fire and flood protection levies

· consideration of capital programme after borrowing approvals are available

· increases in budgets and council tax which emerge nationally.

6.3 For all these reasons final budget decisions cannot be made now, but revenue and capital guidelines should be set at this meeting in advance of the January cycle of policy review committee meetings and Executive member approval and recommendation of service budgets.

6.4 The initial provisional assessment of budget guidelines has been drawn up following meetings of Executive members and chief officers with the Leader, Chief Executive and County Treasurer. The guidelines proposed will need further scrutiny by policy review committees, Executive members, the Leader and Cabinet before final decisions are taken in February.

6.5 The priorities assumed for the 2002/03 budget strategy continuing those agreed for 2001/02, and which were agreed by Cabinet in October, were:

· the normal base budget roll forward using the three year revenue projection made when the 2001/02 budget was approved - this continues the current financial policies of the Council

· to provide sufficient for inflation - 4% for teachers' pay with 3% for other pay, plus a retention and recruitment contingency slightly above the anticipated national settlements in 2002, and 2.5% for all non-pay related items

· passporting of the Education and Social Services SSA cash increases

· expected commitments from the waste management contract

· to meet the increased Fire levy and land drainage precepts over which the County Council itself has no direct control as these are set by other authorities

· for all other services

- all pressures absorbed

- no growth

- but no cuts either

· no changes in revenue contributions to capital

· no withdrawal from balances to finance continuing spending

· balances set at the minimum prudent level (0.6% of budget).

6.6 Since October the strategy has been adjusted for reductions in interest rates and in national insurance contributions (implied in the Chancellor's recent budget) and taking account of the likely increase in the local council tax base.

Education cash increase

6.7 The effect of the school sixth form adjustments results in a much lower cash increase for Hampshire than other counties - if this adjustment had not been made there might have been about £2.0m more to passport. It is also possible that the assumed spending on sixth form pupils in 2001/02 used to adjust the SSA for 2001/02 in calculating the 5.4% Education SSA increase is overstated. If so, the effective increase in SSA will be lower.

6.8 However, a further £6.7m can be allocated within the budget strategy to passport the balance of the 5.4% Education SSA cash increase which is additional to the base budget compiled at cash or outturn prices. This should provide for "growth". But in practice, as in previous years, it will be required to absorb:

· the impact of the changes in standards fund requiring additional County Council contributions

· other pressures, particularly from increased home to school transport costs

· statutory requirement to move to full-time education provision for pupils not at school.

6.9 This appears to result in a standstill for the County Council's budget share, apart from the growth in schools which will be enabled by the specific priorities within the matched funding set aside for the Standards Fund.

6.10 However, in addition, schools will continue to receive direct grants and devolved capital from the Government. It is anticipated that this will take the overall cash increase for schools to about 8% - on top of an overall cash increase of 11.1% in 2001/02.

6.11 Schools' reserves increased to £24.9m at the end of March 2001. It remains to be seen if further additions or withdrawals will be made in 2001/02.

6.12 The Secretary of State has set additional targets which need to be attained:

· 87% delegation to schools

· 2.5% increase in the age-weighted pupil unit in schools' delegated budgets.

6.13 It should be possible to achieve both these targets relatively easily because of:

· decisions already made to delegate further services, including insurance

· the cash increase which is being passported to schools.

6.14 Nationally it has been announced that Education specific grants will increase by 26.7% in 2002/03. These are targeted at specific issues, for example to fund booster classes in English, mathematics and science for 14 year olds, but in 2002/03 there is more flexibility for schools on how the money can be spent. The increases include:

	%
Standards Fund	39.2
Direct to schools	20.5
Other grants	15.7

6.15 The County Council has received some but not all of the details of these specific grants, but more figures should be available in time for the final budget decisions in February.

6.16 All these factors are pertinent in making final budget decisions on Education and it is therefore recommended that the Education Executive member reports back to Cabinet

· on the achievement of the targets set by the Secretary of State

· the extent to which additional specific grants (Standards Fund, direct grants to schools, devolved capital to schools) support service levels at schools and for the service as a whole

· on the use of the passported cash increase for Education.

6.17 The overall Education SSA increase also covers central services, particularly the amount included as revenue contributions which underpins capital and revenue repairs to school buildings. Generally normal price rise inflation is applied. In 2001/02 this part of the cash increase was used to meet some of the costs of flood and storm damage to Education buildings and in particular to contribute to the cost of the temporary relocation of St Bede School. It is proposed to hold this amount in a central contingency, mainly to cover above average inflation on repair work in schools. A final decision can be made in February to ensure that there is no exceptional flood or storm damage over the winter.

Social Services cash increase

6.18 A further £2.9m can be passported to Social Services above its provisional base budget within the overall 5.3% SSA cash increase, as adjusted for the transfer of inspection services to the National Care Standards Council (NCSC). But this has to deal with reductions in previous specific grants for promoting independence.

6.19 A number of other uncertainties and pressures have to be met within this cash increase which is likely at best to represent a standstill budget, or possibly worse in terms of having to absorb further pressures - about £0.9m is the estimate for the current financial year.

6.20 It is anticipated that the County Council's share of specific grants will rise in line with the national increase of 12.5% on top of the passported SSA cash increase. There is a 19.2% increase in the specific grant for preserved rights which brings with it increased liabilities. Similarly an additional specific grant increase of 10.5% for children's services, whilst welcome, will need to meet certain conditions and requirements. The overall cash increase for Social Services will however be about 7.9% including specific grants, compared with the original budget for 2001/02.

6.21 It is therefore recommended that the Executive member for Social Care should report back to Cabinet on

· the extent to which specific grants are used to assist or improve service levels

· the impact of changes in function (NCSC, preserved rights, etc)

· the extent to which other pressures and demands can be absorbed within the adjusted 5.3% passported cash increase.

7. Budget guidelines

7.1 The additional passported cash increases add £10.4m to the base budget at cash prices taking it to £908.8m.

7.2 It is therefore possible within the budget strategy to set budget guidelines for service budgets to be prepared at this level:

7.3 The budget at this level can be summarised as follows, compared with the SSA for 2002/03:

7.4 However, this budget level is insufficient to meet other identified pressures or to provide some flexibility on final budget decisions in the light of the uncertainties set out in paragraph 6.2. It also does not take account of the indicative Fire budget and the consequent levy on the County Council. These pressures and other issues are considered in paragraph 9.

7.5 Budget guidelines also normally contain recommendations on seeking efficiency improvements and maximisation of income, and this would be consistent with the budget strategy.

Efficiency savings

7.6 As in 2001/02 and 2000/01, it is recommended that all Executive members should identify efficiency improvements achieved in absorbing pressures and costs within the budget guidelines. These might include:

· increments and Employment in Hampshire

· increased workloads from external changes

· absorbing other costs

· reducing sickness to meet lower targets.

7.7 It will also be necessary this year to meet the 2% efficiency improvement target under the local public service agreement. Final details of the performance measures required to construct this target are still awaited but should be available in February.

Annual review of charges and maximisation of income

7.8 Similarly it is recommended that in order to continue meeting the Audit Commission's recommended best practice, Executive members should also:

· report on the annual review of all income and on decisions taken to raise charges, stating the previous date those charges were revised

· identify opportunities for maximising existing income streams, bring into budget all income flows and create new sources of income.

8. Fire levy

8.1 The Hampshire Fire and Rescue Authority has notified a draft budget increase of 8%. This is equivalent to a further increase of just over £1m above the base budget for Fire. Its base budget increase is 5.1% coincidentally close to the 5.2% increase in the Fire SSA. This represents about 0.3% on the council tax increase.

8.2 This is on top of a 9.8% budget increase in 2001/02 - the Authority's budget had increased by 47% from 1997/98 to 2001/02 compared with an SSA increase of 28% and a national budget increase of 25%. This has taken its spending from 3.6% above SSA to 11.9% above in 2001/02.

8.3 The normal practice is for the Authority to set an indicative budget and to consult on that with the three constituent authorities. This year a meeting is also being held with the three Leaders.

8.4 The draft budget report of the Authority is set out in Appendix 4. It appears that the base budget increase of 5.1% is the minimum starting point and in any event consistent with the County Council's own budget strategy. A percentage limit was set by the Authority for its total growth at 8%, with no prescription on which growth items in the Appendix to its budget report should be included within that limit. This level was considered as about right because:

· it dealt with unavoidable costs, delivery of frontline services and the response to external pressures

· the full-year effect of growth of about 9% was more than the increase in the Fire SSA - and given the relatively neutral position on pensions in the draft budget - would suggest that the Authority could not be criticised on standards and performance for setting a budget at this level of increase in relation to Government spending plans

· the 2002/03 budget would rise to 15.0% above SSA at this level whereas other authorities spend about 10.9% above SSA

· the budget increase since 1997 would be nearly 55% compared with an increase in Fire SSA of an estimated 35%.

8.5 It was also agreed that:

· eight extra firefighters would be agreed for 2002/03 only - the additional eight proposed for 2003/04 would be subject to further review in the light of staffing at larger stations before that budget round

· the Authority should plan in advance for possible savings in 2003/04 given the continuing budget pressures and increases in the levy since 1997.

8.6 Increases in the Fire levy at this level over several years are not sustainable and the Cabinet may wish to request more information on the Authority's medium-term financial planning process in identifying external pressures and growth proposals, as well as identifying what scope there might be for efficiency savings.

8.7 There is a very small increase in pensions costs of just £175,000 estimated. This very much depends on the anticipated number of retirements. The County Council retains an estimated £1.4m at 31 March 2002 in the earmarked Fire levy reserve which was accumulated from previous years' underspendings on pensions. Given the volatility on pensions when only a few extra retirements could trigger a bill of £0.5m or more, it is suggested that no more withdrawals be made from the reserve in the 2002/03 budget. Neither would a withdrawal from the reserve support the permanent underlying increase in the Authority's indicative budget.

8.8 Subject to the Leader's meeting and the views of the Cabinet, it is recommended that:

· Hampshire Fire and Rescue Authority be asked to reconsider its proposed budget increase of 8% and attempt to bring its increase more in line with its base budget and the SSA cash increase of 5.2%

· strong concerns be expressed that 8% should be the maximum increase in the Fire levy.

9. Other pressures

9.1 The October report identified a number of additional pressures. Some of them have now been dealt with or resolved in the provisional grant settlement and revised budget forecasts, such as stability in the data used in the area cost adjustment, the effect of employers' contributions to pension schemes and making good the use of £1.5m funded from balances in 2001/02.

9.2 Pressures on service budgets were identified during the round of budget meetings which are not included in the budget guidelines, in particular

· the continuing Government underfunding of Social Services and possible difficulty of absorbing these pressures within the passported SSA increase

· the available resources within the Education passported SSA increase as a result of the disadvantageous adjustment for pupils in school sixth forms

· other pressures identified generally across services

· new initiatives or requirements for example legislation on rights of way and local strategic partnerships

· new service developments or initiatives which the Leader and Cabinet may wish to pursue.

9.3 No specific proposals have yet been made against any of these pressures and decisions can be made when Executive members have reported back on the preparation of budgets within guidelines. Around £1m has been provisionally earmarked for these purposes - subject to final Cabinet decisions on budget and council tax levels.

9.4 As described in paragraph 5.12, a small contingency of 0.5% to 1% has been included in the budget guidelines to provide some flexibility against national pay awards over 3% and for recruitment and retention difficulties. Other councils have reported significant pay increases of around 3 to 4% on their pay bills as a consequence of job evaluation following the single status agreement. There is also a need to provide transitional resources when job evaluation is completed. The higher the national pay awards, the lower the scope there is for narrowing the identified pay gap against the median. A further contingency or reserve of a minimum of £1m could be justified, again with final decisions taken in February.

9.5 There is a £4m gap in the resources available to finance the existing capital programme. It is anticipated that this can be managed by slippage over the next few years, provided that the existing capital guidelines are maintained, but there may be a need to inject some further one-off revenue contributions to balance the existing capital programme. The Education capital programme is under pressure because the DfES has removed about £2.5m per annum from its borrowing approval for "formula basic need". There are also a number of desired major special needs reorganisations which would cost more than the resources available or generated by capital receipts. There are a number of ways in which this gap might be bridged, including the possible use of the private finance initiative which is being reviewed. Additional resources might still be necessary, also bearing in mind that there is no direct locally financed contribution to the Education capital programme. There is though substantial locally financed support through capital repairs in the Policy and Resources capital programme. All these issues can be reviewed when the Cabinet considers the capital programme in February when details of Government capital approvals will be known. At this stage £1m has been provisionally set aside for a one-off injection into the capital programme.

9.6 The Government's White Paper on local government finance is expected to result in the end of SSAs and the introduction of a new "fair" system. The area cost adjustment which recognises the higher costs in the south-east will probably be again under threat and it is also likely that more resources will be targeted, rather than through a general grant, with even greater emphasis towards deprivation. None of the Council's services are likely to benefit from such changes, and the Council could be facing a very difficult year in 2003/04 if the RSG system is subject to significant change. There is a need for a reserve or an increase in balances to smooth the transition from one system to another and a sum of £2m is suggested.

9.7 Other issues remain which suggest caution, for example:

· investment required to meet the Government's targets for E-Government and improved performance with the local public service agreement

· outcome of Best Value reviews

· possible liabilities surrounding former landfill sites and the potential claim of £2m that remains on landfill tax

· other uncertainties that remain before final settlement.

10. Budget projections

10.1 Taking these considerations into account, a budget rise of between 6.2% and 6.6% might be the likely outcome which would result in a council tax rise of between 8 and 9%.

10.2 Preliminary information suggests that most counties are forecasting council tax rises of between 8 and 9%, with about a third of counties possibly considering rises of around 10% or more. Only two counties are apparently seeking reductions in services and costs to keep the council tax rise below 6%. Hampshire Police Authority is looking at options for council tax rises of between 14.5% and 30%.

10.3 In the case of counties, there are the inevitable pressures of the provisional settlement and the Government's spending plans coupled with the need to make good previous overspendings or underfunding of Social Services and the consequence of single status agreements.

10.4 This County Council's SSA increase is the second lowest of all counties - which would suggest one of the highest council tax rises rather than one towards the middle range if services are to be protected and no cuts are made.

10.5 Two different budget levels can therefore be illustrated, assuming spending of either about £5m or £8m above the budget guideline towards meeting the remaining pressures, reserves and contingencies identified in this report.

11. Reserves and Balances

11.1 Estimated earmarked reserves at 31 March 2002 are £21.8m. £16.2m of this is the anticipated balance remaining within schools' reserves which cannot be used except by schools. £2.8m remains within the on-street parking reserve and legislation means that this can only be used for this purpose. There is little scope to finance other spending from reserves if the balance of £1.4m left on the Fire reserve is held against future variations in pension costs.

11.2 Forecast balances, following the closure of the 2000/01 accounts in July 2001, are £6m at the end of March 2002. The minimum prudent level of balances would be £5.8m.

11.3 The Leader agreed that up to £0.2m may be required to offset the loss of income on Recreation and Heritage's budget during 2001 from the effects of closing various sites during the foot and mouth crisis. Balances are therefore set at their minimum prudent level.

12. Budget consultation

12.1 Wide and extensive budget consultations in support of the County Council's budget strategy are an essential ingredient in demonstrating to Government that the Hampshire community has been listened to in setting budget and council tax levels.

12.2 A question on council tax levels relative to the national spending plans and the County Council's budget forecast was included in the first questionnaire to the Citizens Panel. This sought responses to spending 1% above or 1% below 8% which was the then assumed level of council tax rise commensurate with the existing budget strategy.

12.3 The Panel's response on budget levels is summarised below:

Each year the Government allocates the County Council a sum of money. However this does not cover all our costs. About a third of our budget comes from the council tax paid by people who live in Hampshire.

When the Government works out how much to give the County Council, it will expect the Council to put up the council tax by at least 6%. However, a 6% rise will not meet existing spending plans. To keep services as they currently are, including priority to education and social services, we will need a council tax rise of about 8%.

Which of the three options below would you prefer the County Council to choose?

12.4 There is a majority in favour of a council tax rise of 8%, with 53% in favour of a rise above 7%. However, the results need to be treated with caution, as a substantial minority don't know enough to answer or wanted some other option.

12.5 The Panel was also asked where it would like to see spending increased or decreased by £2.7m (or by plus or minus 1% on the council tax). Again the results were inconclusive:

12.6 Initial budget consultation meetings have also been held with Hampshire MPs, the voluntary sector and business interests. All understand the implications of the Government's spending plans and the resulting council tax increase.

12.7 This will be followed by further consultation during January and February 2002 with

· partner organisations - headteachers, governors, parent teachers' organisations, care representatives, the voluntary sector and trades unions

· business interests

· residents' associations and council taxpayers.

12.8 The results of previous public opinion polls are also available and the Cabinet can consider other views received from Police, Fire, health, etc.

12.9 A MORI telephone survey was carried out for the first time in January 2001 before making the final decisions on the 2001/02 budget. This could be repeated if the Cabinet requires.

12.10 The Corporate Communications Team has also suggested that a community workshop could also be used as a research tool before final budget decisions. This would be a qualitative exercise to find out why people think in the way they do as opposed to what people think. It would be an extension of a focus group discussion for about a day, drawn from a cross section of the population in terms of demographic characteristics and geographical location. The workshop would be set to enable people to be better informed about the Council and its budget decisions and would enable people to make informed decisions on the trade-off of budget spending and council tax considerations and would perhaps reduce the number of people who feel unable to respond as shown in the recent Citizens Panel results and the previous telephone survey. The Cabinet will wish to consider the timing and appropriateness of such a workshop.

12.11 It is therefore recommended that the Leader should give further consideration to the use of a community workshop and/or a representative public telephone survey to consider budget priorities and possible levels of budget and council tax increases.

13. Capital programme

13.1 Decisions on the level of the capital programme are determined by the availability of capital financing resources primarily from government grant and credit approvals, revenue contributions to capital and capital receipts. Revenue contributions to capital have been retained at their current level in the projected budget for 2001/02.

13.2 The Government has not yet announced details of its new single capital pot or other borrowing local authority basic credit approvals for next year.

13.3 The Government is proposing to introduce a new allocation mechanism for capital approvals in 2002/03, known as the "single capital pot". Allocations will be largely formula based but will also take account of the Government's assessment of each local authority's needs, as reflected in an asset management plan. The County Council submitted its capital strategy in July and an asset management plan for this purpose earlier this year.

13.4 The asset management plan covers the three year period 2002/03 to 2004/05 and in order to link the County Council's capital programme decision making to the roll forward of the plan, it is proposed that executive members should now draw up capital programme proposals for the four year period, 2002/03 to 2005/06. This will enable decisions on the capital programme to be made at the February meeting of the Cabinet, when the resource position should be clearer. For that meeting, Executive members are asked to produce:

· locally resourced programmes within the guidelines of the current capital programme uplifted for inflation, including an allowance for the effect of the aggregates levy

· schemes supported by scheme or programme specific government grants and credit approvals in accordance with Government approvals for 2002/03 and anticipated approvals in the following three years.

13.5 The current programme of refurbishment of older persons' homes, being jointly financed by Policy and Resources and Social Services, comes to an end in 2002/03. In addition to the transfer of £0.5m per annum from capital repairs, Policy and Resources has provided further funding of £0.7m per annum from reductions in other programmes (such as defence heritage and coastal conservation). As there have been changes in service responsibilities since the original decisions were made, it is proposed to leave £0.7m per annum outside the service guidelines. The Cabinet in February can then assess relative priorities and the balance would provide scope to meet some of the pressures identified in discussions between the Leader and Executive members. Examples include capital resourcing for BOATS in Recreation and Heritage and the renewal and replacement of waste recycling centres within the Council's sustainable development strategy.

13.6 The resulting guidelines for the locally resourced capital programme are set out below:

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

Published works.

Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

None

Appendix 1

Provisional RSG settlement 2002/03

1 Total standard spending by service

1.1 Total standard spending (TSS) is the Government's view of the appropriate level of local authority revenue expenditure that it is prepared to support through grants. It is the sum of the SSA control totals and specific grants. The overall increase in TSS for 2002/03 is 7.0%, which is the same as the headline increase in 2001/02. The details are summarised in Table 1.

1.2 The percentage increases have been calculated from information provided by the Government about the adjustments required to the 2001/02 settlement totals to make them comparable with the 2002/03 figures after taking account of changes in function and specific grants announced since the 2001/02 settlement. Some of these adjustments may not be technically correct and tend to show the increases in funding in the best possible light. In the limited time available since the Government's announcement of the figures for 2002/03, it has not been possible to verify them or prepare fairer comparisons and so the Government's figures have been used throughout this report. The increase in funding available for budgets may not, in practice, be as high as some of the Government's figures imply.

1.3 The cash increase of 8.7% for Education is again above average but much of this increase is prescribed in the form of specific grants. These have been increased by 27% in 2002/03 and this follows a 48% increase in specific grants in 2001/02.

1.4 Social Services continues to be the Government's other main priority with an increase of 6.5%. But again an increasing proportion of the Social Services allocation is prescribed through specific grants, which have increased by 12.4%.

1.5 The increase in TSS of only 2.6% for Highway Maintenance is similar to the increases in the last two years for revenue maintenance. It was supplemented in 2001/02 by an additional allocation for capitalised highway maintenance. This capital addition continues in 2002/03.

1.6 EPCS services have received a similar increase to 2001/02 at 4.4% but, as in previous years, this is unlikely to be sufficient to meet inflation costs (assuming pay increases of 3 - 4%) and demand pressures, especially on waste management and flood defence.

1.7 The 14.1% increase for capital financing costs includes a 68% increase in the provision for private finance initiative (PFI) schemes.

2 Standard spending assessments (SSA)

2.1 After deducting specific grants from TSS, the national totals for SSAs for 2002/03 are summarised in Table 2. This also shows the County Council's SSA for 2002/03, which has increased by a slightly smaller percentage (5.4%) than the national average (5.6%).

2.2 2002/03 is the second year of the Government's three-year spending plan announced in July 2000. The national SSA control totals for 2002/03 for Fire and Highway Maintenance are unchanged from the July 2000 plans. The major changes to the remaining SSA blocks since then include:

· Education - a reduction of £1.356bn for the transfer of post-16 education to the Learning and Skills Council from April 2002

· Social services - a reduction of £87m to fund the new National Care Standards Council, as well as the delayed transfer from SSA to specific grant of funding for care leavers

· EPCS - an increase of £6m in 2002/03 to cover the costs in the current year from 1 January 2002 to 31 March 2002 of implementing regulations on the disposal of refrigerators. (The Government has not decided how costs in 2002/03 will be met)

· Capital financing - a transfer of £210m to specific grants to provide support for PFI schemes.

3 Hampshire County Council's SSA

3.1 Although the County Council's increase in total SSA of 5.4% is only slightly lower than the national increase for all authorities, excluding the Police SSA, of 5.6%, it is much lower than the average for county councils of 6.2%, as Table 3 shows.

3.2 The main reasons for Hampshire's SSA increase ranking 33 out of 34 counties (ie, second lowest) are its low increases for education and, to a lesser extent, highways maintenance.

Transfer of sixth forms in schools

3.3 Hampshire's relatively low SSA increase for education is a result of the Government's transfer of post-16 education to the Learning and Skills Council (LSC). Hampshire has very few sixth form students in its schools compared with most other local education authorities. The Government has subtracted more cash nationally from SSAs to give to the LSC than was available in the post-16 education SSA. To achieve this, they have had to take cash from the secondary and other education SSAs. This has altered the balance of funding between the parts of education and has disadvantaged councils spending a low proportion of their budget on post-16 students, such as Hampshire.

3.4 In addition, it is possible that allowance has been made for more post-16 pupils in schools than required by the September 2001 pupil count, which forms the basis of SSA calculations for 2002/03. This point was being pursued with the Department for Education and Skills before the announcement.

Highway maintenance

3.5 The Government has decided to use data on road lengths in the highway maintenance SSA derived from computer mapping (known as GIS), rather than councils' own measurements as in previous years. However, they have found that the GIS measures, though generally superior to council ones, are flawed for non-principal roads. For 2002/03, therefore, it has introduced GIS-based measures for principal roads only, whilst keeping the old measurements for non-principal roads. Compared with the national average, Hampshire has been over-estimating its principal road lengths according to the GIS data but underestimating its non-principal ones. Hampshire loses, therefore, from the measurement change on principal roads but would have gained from it on non-principal roads. The overall effect would have been neutral but, unfortunately, by introducing only half the new data the Government has given Hampshire the loss whilst withholding the balancing gain.

Technical issues

3.6 The Government has continued the freeze on methodology changes, introduced during its review of revenue grant distribution. (The road length change is viewed by the Government as a data change). As a result, the County Council's increase in SSA reflects the national uplift in control totals for each SSA, the impact of function changes and data revisions only.

3.7 The RSG announcement was delayed by five days and so it has not been possible at this stage to analyse in full the reasons for the change in SSA from the adjusted base. The main factors are the transfer of post-16 education and road lengths outlined in paragraphs 3.3 and 3.5. Data changes have had a very small effect. It had been expected that the annual update in the earnings data used in the area cost adjustment would cause a drop in Hampshire's SSA, following the large gain in 2001/02. But an error by the Office for National Statistics (ONS) was discovered at the last moment before the RSG announcement. It appears that the ONS originally omitted a complete earnings sector from its data. This has now been corrected, to the benefit of London and the South East, leaving Hampshire with only a marginal change in area cost adjustment compared with 2001/02.

SSA comparisons

3.8 Annex 1 shows the SSAs for 2002/03 for each county council, ranked by their size of increase over 2001/02. Hampshire has the second lowest increase primarily because of its Education SSA.

3.9 Annex 2 shows counties' SSAs per head of population. Eight counties have a lower SSA per head than Hampshire.

SSAs and budgets

3.10 The usual caution must be applied in using SSAs to determine local budget strategies. SSA is simply the Government's view of its planned level of spending to produce a standard level of service as a means of distributing grant. Most local authorities spend well above SSA - in spending 5.0% above SSA in 2001/02, Hampshire was close to the national average for all local authorities of 4.9%, and a little below the average for county councils of 5.6%.

3.11 The Government will emphasise the need to "passport" increases, especially for Education. But this ignores the impact on other services and the council tax. Nor does it relate to each authority's spending position relative to SSA in total, or its local priorities and pressures. Hypothecation of variations in spending to changes in SSA blocks or sub-blocks threatens to undermine the principles upon which a general grant, such as the revenue support grant, is based.

3.12 In considering the budget strategy, it is therefore necessary to look at the overall effect - especially in considering, for example, whether to passport the national or county council increases for education and social services, and the Secretary of State's comment that "there is no reason why we should this year see large increases in council tax". But the Government expects council tax payers to play their part in financing its higher spending plans and the 2002/03 settlement includes an increase in the council tax for standard spending (CTSS) of 5.2%.

4. Floors and ceilings

4.1 The Government has decided to continue to apply floors and ceilings to the increases in its grant support for local authorities. These were introduced for the first time in the 2001/02 settlement. The Government's proposals for 2002/03 will make sure that all authorities with education and social services responsibilities will receive at least 4% more grant in 2002/03 than in 2001/02, with a ceiling for increased grant of 7%. These limits are more generous than the 2001/02 settlement when the floor was set at 3.2% and the ceiling at 6.5%.

4.2 The cost of applying the floor to education and social services authorities in 2002/03 exceeds the reduction in grant paid to authorities subject to the ceiling by £41m. Unlike 2001/02, the Government has decided not to meet this shortfall by scaling back the grant allocated to the remaining authorities, such as Hampshire, that fall between the floor and the ceiling. Instead, it has added £41m extra grant to RSG for 2002/03. This is new money, additional to the Spending Review plans for 2002/03 announced in July 2000. It has been found from savings in other Department of Transport, Local Government and Region budgets.

4.3 A further change in the floors and ceilings scheme for 2002/03 allows all authorities to receive full grant support from the Government for any increase in their SSAs for debt charges.

4.4 Lancashire is the only county council amongst the 32 education and social services authorities that benefit from the floor. If the floor for grant increases were to be lifted from 4% to 4.85%, Hampshire would be the next county council in line to benefit. Portsmouth and Southampton are both beneficiaries from the floor - Portsmouth by £607,000 and Southampton by just £30,000. Eleven authorities suffer from the ceiling, including two counties, Hertfordshire (£2.7m) and Bedfordshire (only £652).

4.5 The scheme has been extended in 2002/03 to cover shire district councils, and police and metropolitan fire authorities. The districts' floor has been set at 2.3% for their grant increases, with the ceiling at 10%. At the time of writing, district councils are in discussion with the Government about possible flaws in the proposed scheme for districts which prevent it from working as the Government intended. The scheme is likely to change but, at present, the floor benefits 18 districts including three in Hampshire: Rushmoor by £117,000, Gosport by £53,000 and Basingstoke and Deane by £13,000. Only one district suffers from the ceiling nationally. The Government has decided not to fund the net cost of £1.826m. Instead, all districts between the floor and ceiling have had their grant entitlements scaled back, apart from six including Fareham and Hart that do not receive any RSG.

4.6 The floor for police and metropolitan fire authorities has been set at a grant increase of 2.3%, affecting 19 authorities, with a ceiling of 4% affecting one authority. The Government has added a further £5.55m of grant to meet part of the net cost. This leaves authorities between the floor and the ceiling, such as Hampshire Police, to meet the balance of £2.027m between them through scaled back grant entitlements.

4.7 The Local Government Association and the County Council have supported the concepts of floors for grant increases but have argued that no local authority should be subject to a ceiling on its grant entitlement. To remove the ceilings, the Government would have to find a further £31m of grant, in addition to the £47m it has already provided to ameliorate the effects of the scheme.

5. Financing of total standard spending

5.1 Table 4 shows how the Government plans to finance total standard spending (TSS) nationally.

5.2 The table illustrates how much of the Government's additional spending is being routed through specific grants. With an increase in TSS of 7.0%, the Government can afford to ask council tax payers to increase their contribution by only 5.6% largely because it has increased specific grants by 15.3%. But, in fact, general grant (business rates and RSG) has been increased by less than council tax payers' contribution (5.3% compared with 5.6%), which implies a small switch from national to local taxation.

6. Business rates

6.1 The income available for redistribution to local authorities from national non-domestic rates (NNDR) has been forecast by the Government to increase by 9.8%, following a reduction of 1.7% in 2001/02 and an increase of 13.1% in the previous year. This cycle of fluctuations reflects the Government's inability to forecast accurately the impact on the yield of appeals following the revaluation in April 2000.

6.2 The proposed poundage, or multiplier, for England for 2002/03 will be 43.7p, which is an increase of 1.6% over the 2001/02 poundage of 43.0p. The increase is based on the retail price index for September 2001.

6.3 Because the amount of income available from the NNDR has increased by 9.8%, the Government has been able to limit its increase in revenue support grant to only 1.8%. This includes the additional £41m (0.2%) to support the floors and ceilings mechanism.

7. Specific grants

7.1 The 15.3% increase in specific grants in 2002/03 follows a 21.4% increase in 2001/02 and a 22.1% increase in 2000/01. The Government's use of specific grants, instead of general grants such as RSG, reduces local authorities' freedom to allocate their resources according to local needs and priorities. The largest increases have been for Education and Social Services, as summarised in Table 5, which uses adjustments to 2001/02 figures provided by the Government.

8. Council tax

8.1 The income to be raised from the council tax is estimated to rise by 5.6%, assuming councils spend at SSA. However, because the total council tax base has increased, the national council tax for standard spending (CTSS) for Band D properties will increase by 5.2%, from £730.89 in 2001/02 to £768.63 for Band D properties.

9. Council tax benefit subsidy limitation

9.1 The Government made no reference to the council tax benefit subsidy limitation scheme (CTBSL) when it announced the RSG consultation figures for 2001/02 on 4 December. It is understood that the future of the scheme is under consideration and a further announcement will be made shortly. The scheme has been strongly opposed by the Local Government Association and most local authorities.

10. Capping

10.1 The Government retains its reserve powers to cap councils' budgets. Details of the process are summarised in Annex 4.

10.2 The Government has not used its powers to cap any councils in 2000/01 or 2001/02. No councils were formally "called in" to explain their spending decisions in 2001/02, although 15 were asked by the Secretary of State in the summer to provide a written explanation. The names of the 15 councils were not published, but are understood to include four county councils. They have not yet received a reply from the DTLR to their explanations, but the Secretary of State is expected to say something about capping when the Local Government White Paper is released before Christmas. It is anticipated that capping will not be invoked for the 15 councils.

11. Hampshire County Council's settlement

11.1 The financing of the County Council SSA for 2002/03 is shown in Table 6.

11.2 Table 6 shows that council tax now accounts for 33.9% of the County Council's income for spending at the level of the SSA. As Government support is fixed and has increased by 5.2% (less than the 5.4% increase in the SSA), a rise of 5.9% in council tax income would be required for the Government's planned level of spending increase.

12. Annexes

There are four annexes to this Appendix which show:

Annex 1 SSAs for county councils - ranked by size of increase

Annex 2 SSAs per head of population for county councils

Annex 3 SSAs for Hampshire local authorities

Annex 4 A summary of the Government's reserve capping powers.

i:\ . . . . \ian\docs\docs\rsg app2 dec2001a.doc 09 May 2002

Annex 4 to Appendix 1

The Government's Reserve Capping Powers

I

Appendix 3

Base Budget 2002/03

1. Definitions

1.1 The first stage in the construction of the budget for 2002/03 is the preparation of a base budget. The rules used this year are similar to those applied in 2001/02, which are summarised below.

1.2 The 2002/03 base budget is defined as the current year's budget adjusted for:

· allocations made for inflation in 2001/02, including the full year effect of the provision made for pay awards in 2001/02

· exclusion of expenditure included in the 2001/02 budget which was financed by the carry forward of planned underspendings from 2000/01, the one-off use of reserves on balances, or which was approved on a non-recurring basis

· the revenue effect of past capital programmes, subject to its inclusion in the approved capital programme

· the full year effect of council-approved policies included in the current year's original budget, which have been introduced part-way through the year

· changes in income volumes which are not the result of policy decisions

· correction of arithmetical errors in the current year's budget

· the following specific items:

Education	Variations arising directly from changes in the number of pupils in schools, pupils eligible for free meals and numbers of days in the school year
Environment	Routine highway and street lighting maintenance arising from variations in road length Variations in waste disposal volumes
Policy and Resources	Provision for County Council elections

2. Provisional base budget for Committees

2.1 The table overleaf gives the provisional result of the base budget exercise (significant movements are detailed below) for committees' cash-limited expenditure. The base budget includes a provision for future inflation based on the following assumptions:

· a teachers' pay award of 4%, pay awards of 3% for other groups, price increases at 2.5%, offset by increased income to match cost increases

· an increase in the employers' contribution to the teachers' pension scheme from 7.4% to 8.35% and to the local government pension scheme from 11.7% to 12.3%, from 1 April 2002

· a reduction in employers' national insurance contributions, as a result of the increase in the rebate for contracted out employees from 3% to 3.5%

· a saving of 0.1% in the main rate of national insurance to compensate for the introduction of the aggregates levy from 1 April 2002, with an equivalent increase in revenue contributions to capital.

2.2 The variation between the actual cost of inflation to November 2001 and the provision for inflation included in the 2001/02 budget is as follows:

	£m
Inflation on waste management contract and business rate increases allocated from central contingency	1.5
Full year effect of pay awards during 2001/02 at 3.5%	1.3
Actual cost of inflation between November 2000 and 2001, higher than provided for in 2001/02 budget	1.7
	---- 4.5 ----

2.3 `Other variations' are made up as follows:

			£m
	Reductions in Education and Social Services Committees' budgets to reflect changes in function and funding arrangements, relating to sixth form education (-£7.8m), care leavers (-£1.6m), early years (-£0.5m) and Social Services inspection (-£0.5m)		-10.4
	Increased spending financed by Government specific grants mainly on Education (£18.1m) and Social Services (£20.6m) - the majority of these grants are either the continuation of grants received in 2001/02 after the budget was set or the result of the transfer of funding responsibility from the Department of Works and Pensions for preserved rights cases and the ending of the residential allowance (£12.9m)		39.1
	Expenditure in 2001/02 financed by planned underspendings or the use of balances and earmarked reserves		-1.8
	Transfer from Education (-£6.7m) to Policy and Resources (£6.7m) of budgets delegated to schools but determined each by Policy and Resources		-
	Provision for additional waste volumes for which contingency provision made in 2001/02		1.0
	Absorption of excess cost of inflation in 2001/02		-1.7
	Adjustment for virement between capital and revenue		-0.1
	Allowable variations in the base budget:
		Pupil numbers	-0.7
		Changes in number of school days in the financial year	0.7
		Reduction in number of pupils eligible for free school meals	-0.1
		Revenue effect of implementation of the capital programme	0.3
		Increased share of cost arising from tapering arrangements with health authorities	0.2
		Deletion of provision for 2001 County Council elections	-0.5
			26.0

3. Summary provisional base budget

3.1 The following table summarises the other elements of the budget in addition to committees' cash limited expenditure, which forms the basis of the provisional base budget:

4. Adjusted budget for 2001/02

4.1 The adjusted 2001/02 budget as a base for calculating the expenditure increase in 2002/03 is as follows: