Contact: Graham Hart, ext 7533

1 Summary

1.1 This report sets out the proposed Policy and Resources revenue budget for 2002/03 and reports on the revised budget for 2001/02. The Policy and Resources Executive Member is recommended to:

i) approve for submission to the cabinet:

· the base budget for 2002/03 (as set out in Appendix 1 and Annexes 1 to 4)

· the efficiency improvements (as set out in Appendix 2)

· the proposals to increase charges (as set out in Appendix 3)

· the budget for 2002/03 and the revised budget for 2001/02 (as set out in Appendix 4)

· the summarized trading accounts for business units (as set out in Appendix 5)

ii) determine and/or to refer to the Cabinet for further consideration the budget proposals arising from the comments made by Chief Officers in paragraph 5 of the report.

1.2 Prior to the Executive Member considering the budget this report is being presented to the Policy and Resources Review Committee to provide the Committee with the opportunity to comment to the Executive Member on the proposals.

2 Introduction

2.1 At its meeting on 17 December the Cabinet set provisional budget guidelines which would result in an overall budget increase of 5.5% and an estimated council tax rise of 6.1%. The provisional guidelines are at the level of the base budget together with passporting of additional sums for Education and Social Services.

2.2 Other identified central pressures were not allowed for in the provisional guidelines because of a number of uncertainties effecting the budget. The Cabinet will take account of these pressure at their meeting on 11 February 2002 when considering the final budget to be recommended to the County Council. Taking these considerations into account a budget increase of between 6.2% and 6.6% might be the likely outcome. This would result in a council tax rise of between 8% and 9%.

2.3 The Cabinet resolved that when making budget recommendations to the County Council they will include:

· agreement of the base budget

· confirming the passporting of SSA percentage increases to Education and Social Services

· considering executive members' responses to the budget guidelines

· considering the results of budget consultation with partners (headteachers, governors, parent teachers' organisations, the voluntary sector, trades unions); business interests; residents' associations and council tax payers

· considering the outcome from any further public opinion polling and any comments received from other organisations such as Police, Fire and health authorities

· determining spending and council tax decisions within the flexibility available within the provisional projections and subject to the final revenue support grant settlement and the update of budget and council tax figures.

2.4 For this service, the provisional budget guideline is £38.482m including a provision of £1.02m for future inflation.

2.5 This report sets out the Policy and Resources' executive member's responses to the guidelines. The report:

· reviews the base budget which totals £38.482m

· identifies efficiency improvements arising from costs absorbed of £325,000

· reviews the charges made by this service.

3 Revised budget

3.1 The revised budgets for all services have been set at their approved cash limits. In total they amount to £32.268m. Management action is being taken where there are pressures and these are referred to in the comments of Chief Officers in paragraph 5.

3.2 The calculation of the cash limit is set out in Appendix 6.

4 Base budget 2002/03

4.1 A base budget has been prepared which contains the current financial policies of the Council, in order to provide a starting point from which decisions can be made. The base budget for this service is £38.482m.

4.2 Appendix 1 shows the make up of the base budget.

4.3 Overall, the base budget includes a net increase in expenditure at constant prices of £5.6m mainly because of the transfer of £6.7m from the Education budget to enable Policy and Resources to determine the budget delegated to schools for repair of maintenance of buildings, property and legal services in 2002/03. The other major change arises from the deletion of the provision made in the 2001/02 budget for the costs of the 2001 County Council elections, and from the absorption of the excess cost of non-pay inflation.

5 Chief Officer comments

5.1 This section of the report contains comments from each of the Chief Officers on their budget pressures and service development priorities. It is unlikely however that pressures and priorities can be fully accommodated by providing additional resources within the proposed budget strategy. Other pressures will have to be accommodated within existing resources.

5.2 The Policy and Resources budget guideline has been set at the level of the base budget but the provisional budget strategy acknowledged that if cuts in services were to be avoided, that the Cabinet in February might have to give consideration to the funding of some additional spending in excess of the guidelines. This is reflected in two aspects of the budget strategy as far as Policy and Resources services are concerned.

· A sum of £1m was earmarked provisionally across all County Council services for pressures, new initiatives and legislative requirements and other new service developments which the Leader and Cabinet might wish to pursue.

· £0.75m from within the passported SSA increases for Education and Social Services was earmarked for spending on central services in excess of the inflation assumption in the base budget. This reflects the extent to which spending on Education and Social Services fall outside the cash limits for those services and is either included in the Policy and Resources cash limit or in the case of revenue contributions to capital, is entirely outside service cash limits. A decision on the allocation of this sum which has been allowed for in the budget guidelines, in support of Education and Social Services will be taken by the Cabinet in February.

Chief Executive's Department

5.3 Most of the budget pressures in the Chief Executive's Department relate to new areas of work for the Department such as Community Planning or significant growth in existing areas which can no longer be accommodated within existing resources e.g. Education Appeals. The base budget allows for the redeployment of the £190,000 originally approved for the central Best Value team, for the consolidation of the performance management and quality assurance function in the Policy unit. Within the current budget guidelines, there is currently no specific provision for the following:

5.4 Community Strategy - currently there is one post involved in developing Community Plans and Local Strategic Partnerships. Initially funding for one year was provided however it is already clear that a significant amount of work is being generated in developing partnership working. Funding is required to continue the existing post currently filled by two people job sharing and also for an additional post to cope with the volume of work in liaising with District Councils (£95,000).

5.5 Economic Development and Tourism - permanent funding is needed if two existing posts, originally funded from Konver grants, are to continue, costing £60,000 - a Project Manager with responsibility for business development and external funding and a Tourism Officer focussed on rural tourism and the countryside which following the foot and mouth crisis and September 11 require special support.

5.6 Education Appeals - between 1997/98 and 2000/01 the number of appeals has increased from 80 to 194. A pool of external clerks has been recruited to run appeals as they can be called upon as needed. Given the growth in appeals there is a need to increase the pool of clerks the estimated cost of which is £30,000.

5.7 Hampshire Now - to build on the success to date, the next step would be to consider increasing the frequency from two to three editions each year. This would enable us to be more season specific and to include information such as performance indicators which currently we have to pay to publicise. Hampshire Now has played a significant part in improving the Council's overall satisfaction rating by over 5 points by providing better access to information about what the County does and the services it provides. Those feeling well informed has risen by eight points and the District Auditor has commented that in part our high satisfaction score ` reflects the authority's success at communicating with the public'.

5.7 Members IT - the provision for Members IT needs to be increased to provide the equipment, software and support that Members need. This is key to the efficient operation of the new Constitution and an important element of the County Council's approach to e-government. Cost £65,000.

5.8 In addition the Government has not yet notified local authorities of the level of grant for Emergency Planning. If the level of grant reduces substantially from that allocated in 2001/02 it will have serious consequences for the provision of Emergency Planning.

County Personnel and Training Officer

5.9 Hampshire Training Solutions - The recovery plan for Hampshire Training Solutions (HTS) identified that 2002/03 would be a break-even year. Significant progress, based on the recommendations in the recovery plan, has been made to reduce costs. However, estimates based on anticipated levels of training delivery next year indicate an estimated deficit of £135,000 to be met from the Personnel and Training budget . Three major current initiatives, each of which have yet to be agreed, will have a major impact on the ability of HTS to break-even. These are;

· A set of reports on the future of training in Hampshire County Council, which are due to be presented to Chief Officers Management Team (CMT) in February.

· A review of social care training.

· A report by Property Services on possible locations for Hampshire Training Solutions following the decision in the recovery plan to vacate the site at Winton House.

5.10 Until these decisions are made any estimate of the budget for HTS is difficult to make. Substantial changes could result in long term savings but significant short term costs if staff are no longer needed to deliver internal training.

5.11 Devolved Personnel Units - It is anticipated that all pressures will be absorbed within service level agreements (SLAs) with host departments in respect of the provision of devolved personnel units for 2002/03, although there are some difficulties arising in accommodating departmental demand for services within the resources available. This is particularly true for the Education Personnel Unit but applies across all teams. The most significant change will be within the Social Services unit, where a number of staff are transferring to Personnel from the Social Services department (SSD). Resulting increased costs will be met by Social Services Department via the SLA.

5.12 Pay and Benefits - The costs and funding of the Pay and Benefits Project are accounted for within the Personnel and Training department budget. This is a major project which is at the leading edge of work on reward in local government. The degree of innovation involved and the partnership with the trade unions makes it difficult to assess the absolute contribution needed by consultants in developing this work. Related to this the need for departments to implement key stages of the project within required timetables may result in the need for additional resources to be deployed.

5.13 Implementation of SAP - The HR phase of SAP is involving a substantial resource from the Personnel and Training department including the commitment on a near full time basis of senior managers. Experience from the payroll implementation phase of the project suggests that the work associated with implementation may be substantially greater than originally anticipated and this could have an impact on the budget with a need for extra staff, overtime etc. - which would in turn increase the payback in savings expected from Personnel.

5.14 Corporate Training Budgets - This budget is also managed within the Personnel and Training Department and as indicated in paragraph 5.12 is currently subject to a fundamental review and possible re-designation. This will be containable within the existing budget providing funding is made available within departmental budgets to support the projects agreed by CMT.

5.15 Employee Support Line - The Employee Support Line - The Employee Support Line (ESL) has recently lost a major contract worth £31,000 with Portsmouth City Council for the delivery of counselling services. While it was never the intention of ESL to provide a service to external public organisations, such contracts have enable ESL to improve service quality without increasing charges to County Council. A review of the structure of ESL is taking place in order that an alternative balance of services and funding can be established. This may mean that charges to Hampshire County Council departments may need to be increased, or standards of service decreased. Since the inception of ESL in 1992 these charges have increased by inflation only, despite major advances in the level and quality of service. Changes to employment legislation also mean that the current status of counsellors needs to be reviewed.

5.16 Other Budgets - A small collection of other budgets is held within the Personnel and Training department, such as Trade Union secondments and long service awards. It is not anticipated that any significant pressures will be present on these budgets in 2002/03. The trade union budget is supporting two inter-union secondments, one for Best Value, the other for the Job Evaluation and Pay Project. Both are time-limited but are likely to be needed for a further year or more.

5.17 Best Value Review and changes in Business Processes - The best value review of the Personnel and Training department will be completed this year. This coupled with changes in business processes resulting from the Human Resources Business case and the implementation of SAP, is likely to result in substantial change in the delivery of the HR service impacting upon service delivery location, staffing structure and budgets.

County Treasurer's Department

5.18 The Treasurer's Department faces pressures due to the need to absorb the costs of increments and also the loss of income resulting from the ending of audit contract work for Probation and Health authorities. This requires some vacancy management, though this will not be straightforward given the ongoing demands of the Enterprise Project (to replace the Council's finance and related systems), which has required considerable use of overtime and temporary staff in the current year in order to sort out teething problems. Accordingly, it will be necessary to increase charges by 2.9%, equivalent to the average inflation provision across the department's services.

5.19 The demand for training in the use of Enterprise related systems, particularly in schools and social services establishments is likely to be greater than assumed in the costing of the Enterprise project. Additional resources for Enterprise training in 2002/03 will need to be identified.

5.20 Other pressures arising from continuing changes in function and from implementing the financial changes in the White Paper, such as earlier completion of the accounts and a new funding system, will squeeze staff resources further.

Director of Property, Business and Regulatory Services

5.21 The revised budget for the Property and Regulatory Services is presented at cash limit despite pressures in a number of key areas. The most significant of these is repair and maintenance, which represents some 40% of the Department's service revenue budgets. Inflation is substantially in excess of the 2.5% allocation included in the budget: the cash value of the shortfall is £200,000 in this year alone and this shortfall is reflected in the base budget for 2002/03. As a consequence, budgets have continued to be managed very vigorously, with most other planned maintenance work having been stopped in order to accommodate engineering maintenance which is unavoidable and essential to keep buildings safe and operational. It is intended to address this problem in 2002-03 through the continuation of a central contingency: however, this is unlikely to address the cumulative shortfall built up in recent years. A further uncertainty is that the Government intend to transfer to local authorities the responsibility for funding revenue repairs in Voluntary aided schools from 1 April 2002. Additional resources will be made available by specific grant but the basis of allocation has still to be confirmed.

5.22 The other major pressures are:

· County Farms where downturn in the agricultural economy has had an adverse effect on rental income.

· Hilliers Arboretum where income levels have increased, but not sufficiently to meet the additional income target.

· Corporate Property: the pressure on this budget arises from high security costs associated with safeguarding properties pending their sale to produce a capital receipt.

· New legal requirements affecting Regulatory Services for which specific additional resources have been added to the County Council's Environmental Protective and Cultural Services (EPCS) SSA by means of transfers from central government budgets. The County Council has a new power (a Stop Now Order) enabling enforcement action to be taken in cases of breaches of civil law, relating to matters such as consumer credit and misleading advertising. To make effective use of these orders is likely to require two additional posts and the County Council's SSA has been increased by approximately £40,000. £50,000 has also been added to the County Council's SSA for the enforcement of new Animal Feedstuff regulations. (But there is still only an effective overall increase of 2.6% in the SSA for EPCS - the fact that part of the increase derives from these transfers further adds to the impact on the Council tax of sustaining existing EPCS services).

5.23 One of the other major issues facing the Department is the difficulty in recruiting staff. This has had a short-term beneficial impact financially. As a consequence, the relative merits of incurring high priority one-off spending and of aiming to carry any unused resources forward to 2002/03 are being assessed, and will be given urgent attention before the end of the financial year.

Other Budgets

5.25 Support for the voluntary sector is continued in the budgets for grants to Councils of Community Service, other organisations and the budget for general grants. Contributions towards projects for the Jubilee are being met from the general grants budget in both 2001/02 and 2002/03. To help meet these and other pressures in 2001/02 the general grants budget was increased by £150,000 on a one off basis in 2001/02. In 2002/03 the budget will remain under pressure at the base budget level of £300,000.

6 Efficiency improvements

6.1 The Cabinet requested all services to identify efficiency improvements achieved in absorbing pressures and costs within the budget guidelines.

6.2 Details of efficiency improvements from absorbing cost increases within existing budgets totalling £325,000 are set out in Appendix 2. In addition to these specific quantifiable examples of costs which have been absorbed, central support service budgets face a general pressure to absorb increased service demands as a result of the growth in direct service budgets, particularly in Education and Social Services.

6.3 Best Value reviews of financial management and catering services have also been completed during the course of the year and improvement plans for these reviews and for the legal services review completed last year are being implemented within existing resources.

7 Review of charges

7.1 The service's 2002/03 revenue budget includes income of £5.9m from fees and charges. Details of the material headings are included in Appendix 3.

7.2 There are some mandatory and national charges which the County Council is not able to vary. The main example of this is the charges for Register Office certificates.

7.3 Discretionary charges are reviewed annually except when they are subject to agreements which cover longer periods when the review takes place at the end of the period of the agreement. Examples of charges not subject to annual review are agricultural lettings and most commercial lease rentals, though some farm rents have been abated in 2001/02 due to exceptional circumstances.

7.4 Charges for support services are reviewed annually and are set to recover the full cost. Other discretionary charges are set to recover the full cost except where charges are governed by market forces and are only expected to make a contribution towards the cost of the service.

8 Magistrates Courts Committee

8.1 The Lord Chancellor's Department has set an initial cash limit of £10.407m for 2002/03 and is considering bids for a further £205,000. In total these amount to an increase of 9.5% over 2001/02.. The County Council's share of the budget at this level is £1.446m an increase of 10.1% compared with 2001/02. The County Council's contribution is marginally higher because of changes in the data used to calculate the share of the four local authorities contributing to the Magistrates' Courts Committee.

9 Capital charges

9.1 Capital charges for 2002/03 for the use of assets amount to £9.965m, an increase of £910,000. The main reason for the increase is a charge of £1.084m for the new Southampton Magistrates Courts building. The balance reflects charges for other new assets and revaluation of existing assets less reductions from the disposal of surplus land and property.

9.2 Capital charges are made to services in order to show the full cost of providing services. They impact on the charges set by services and trading units but they do not affect the County Council's total gross expenditure as they are reversed in the asset management accounts in the Policy and Resources budget and accounts.

10 Staffing statistics

10.1 The average number of staff in the base budget is 2,447. This compares with the original estimate for 2001/02 of 2,323 which is an increase of 124. The major increases are in the County Treasurer's Department (+104) and in the Personnel and Training Department (+44) due principally to the transfer to those departments of finance staff and personnel staff from Social Services. These are partially offset by a reduction of 30 in Hampshire Caterers reflecting the current level of contracts operated by the unit and use of agency staff.

11 Business units

11.1 The trading accounts of the business units are summarised in Appendix 5.

11.2 The forecast for the current year shows that, although most businesses within the Business Services Group are matching or bettering their financial targets, the actual overall position is below those targets. This is because of the trading position of Hampshire Cleaning Services: it is recognised that action will be required in 2002 to resolve this situation and an action plan is being drawn up and implemented.

11.3 The businesses' financial position for 2002/03 is healthy. Other major issues for the businesses include:

· County Supplies extending its role within corporate procurement.

· the resolution of Hampshire Printing Services' accommodation issue.

· Job Evaluation which could have a major impact on businesses, particularly Hampshire Caterers.

· the need adequately to resource the internal courier service which is provided by Hampshire Transport Management.

11.4 IT Services - the rollout of IT2000 will be substantially completed during 2001/02, but as a result of more replacement of equipment than assumed and growth in demand, the projected deficit at the end of the roll out period will be about £0.5m higher than originally forecast, at £1.5m. With the completion of the initial investment in IT2000, a surplus of £1.0m is estimated in 2002/03 and the accumulated deficit will be fully recovered in 2003/04.

12 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:

1. Published works.

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

TITLE FILE

1. Cabinet

17 December 2001: 2002/03 Budget

2. Policy and Resources budget file

Appendix 1

Policy and Resources

Revenue Budget 2002/03

Calculation of the Base Budget 2002/03 - Summary of Cash Limited Expenditure

The following table shows the progression from the original budget for 2001/02 which was prepared at outturn prices 2001/02 to the base budget 2002/03 at outturn prices 2002/03.

Annex 1 to Appendix 1

Policy and Resources

Calculation of Base Budget 2002/03

Parameters used in the compilation

Annex 2 to Appendix 1

Policy and Resources

Calculation of Base Budget 2002/03

Significant costs of inflation

Annex 3 to Appendix 1

Policy and Resources

Calculation of Base Budget 2002/03

Significant variations

Major variations between the repriced budget 2001/02 and the base budget for 2002/03 at November 2001 outturn prices contributing to the increase of £5.618m (17.6%) are set out below:

Appendix 2

Policy and Resources

Revenue Budget 2002/03

Proposals for efficiency improvements

Appendix 3

Policy and Resources

Revenue Budget 2002/03

Review of income

Appendix 4

Policy and Resources

Reconciliation of the original 2001/02 budget on the following pages with the 2001/02 budget in the budget book.

Appendix 5

Policy and Resources

Business Units - Summarised Trading Accounts

The trading units in this statement operate under Financial Regulation 20. This statement summarises their trading positions and shows the movement in their reserve accounts.

Appendix 6

Policy and Resources

Revised Budget 2001/02

Calculation of the Cash Limit for the Revised Budget 2001/02

The following table shows the progression from the original budget for 2001/02 to the cash limit for the revised budget 2001/02. Both are at estimated outturn prices 2001/02.