HAMPSHIRE

COUNTY COUNCIL MEETING - 21 FEBRUARY 2002

REPORT OF THE CABINET

PART I

70. REVENUE BUDGET AND PRECEPT 2002/03

1. Summary

1.1. The Cabinet recommends a council tax increase of 7.9% for 2002/03. This is against a background of a possible rise of between 8% and 10% for the majority of County Councils with a few Councils anticipating even higher increases. Careful management of the County Council's expenditure has allowed the Cabinet to recommend a Band D council tax of £734 per year for a budget of £920.5m. The 7.9% increase, an extra £1 per week, is expected to be close to the lower quartile increase for County Councils, despite having the second lowest increase in standard spending assessment (SSA) amongst all county councils.

1.2. The emphasis on "passporting", or increasing Education and Social Services budgets in line with the Government's spending plans and SSA, inevitably results in both spending and council tax increases which are more than the rate of inflation. The Government has increased its general grant support for the County Council by 5.1%, slightly below its 5.4% increase in SSA. As grant support is fixed no matter what the Council budgets, any increase above 5.4% all falls on the income from council tax. It has been possible, however, to keep the council tax rise below the anticipated 8-9% because of a further unexpected increase this year in the surpluses on council tax collection accounts notified by the district councils and because the Government has abolished the council tax subsidy limitation scheme in its recent White Paper.

1.3. In summary, the proposed budget results in:

· a budget of £920.5m which is 6.9% more than the 2001/02 budget


· council tax of £734, which is 7.9% more than in 2001/02


· spending which is £57.3m or 6.6% above SSA compared with 5% in 2001/02

1.4. There are no cuts in the budgets proposed. There are priority increases over the base budget for Education and Social Services with small elements of growth across all services.

2. Budget Guidelines

2.1. As requested by Cabinet, Executive Members put forward service budgets in accordance with an agreed budget strategy and budget guidelines, set then at £908.8m. These would have allowed for (inter alia) a continuation of the current financial policies of the County Council, and inflation provision for pay awards based on 4% for the teachers' pay award, 3% for other awards, and 2.5% on average for other price changes and a contingency for recruitment and retention pressures; priority increases over the base budget for Education and Social Services; but with any growth in other services being dependent upon cash backed efficiency improvements.

3. Budget Proposals

3.1. Since preparation of the guidelines, details of the final Revenue Support Grant Settlement (RSG) have been announced, and despite a letter of representation signed by all three political group leaders about the provisional settlement which drew attention to the following, no substantive changes were made in the final settlement:

· the continued underfunding of Social Services


· the adjustment for the transfer of sixth forms in schools to the Learning and Skills Council and the unfairness of the way the Education SSA has been distributed


· the increase of liabilities flowing from Social Services specific grant and the size and distribution of these grants


· the inadequacy of the provision in the SSA for environmental, protective and cultural services.


In additional the teachers' pay award has been announced with an overall increase of 3.5% but with a total cost of around 4% in 2002/03 (because of the shortening of the main pay scale).

3.2. Following a review of Executive Members' spending proposals and taking account of these recent developments, the Cabinet proposes to increase spending above the budget guidelines by £11.7m (1.3%) thus bringing the total planned expenditure in 2002/03 to £920.5m.

3.3. The Cabinet again proposes the highest priority for Education and Social Care by passporting the SSA cash increase for these services. Education and Environment identified potential savings in 2001/02 and requested that these be carried forward in full (rather than 50% in line with policy for unplanned underspendings) to meet identified pressures in 2002/03 in addition to their budget guidelines. It is proposed that the request be agreed in order to ease pressures on resources otherwise required in excess of the budget guidelines. These savings amount to £651,000 in respect of Education and £642,000 for Environment. The priority increases for Education are £6.9m and for Social Care £2.9m plus £750,000 for central support for both services, in accordance with the agreed budget strategy to passport the SSA increases of 5.4% and 5.3% respectively. After inflation, additional resources of £7.4m are available for Education (including the £651,000 of redeployed savings). Increases include additional costs on home to school transport and special educational needs (£1.7m), new requirements for education otherwise than at school (£0.3m), County Council contribution to the Standards Fund (£2.7m) and Education Development Plan priorities (£1.2m). There is an extra £1.5m allocated to schools delegated budgets. There is also an addition for Education above budget guidelines of £380,000 for an additional behavioural intervention team and extra costs of the special education needs audit.

3.4. For Social Care, pressure on resources remains acute with no recognition in the RSG settlement to reflect the continued underfunding of the service. In common with other County Councils, transfers of functions have been made from non cash limited Government spending to cash limited Local Government budgets and this presents severe problems. Budget pressures which are unavoidable fall into three categories, namely further inflationary pressures due to market factors, known increases in demand, and the cost of implementing new legislative requirements. The efficiency improvements and the passported SSA cash increases are just sufficient to allow for these pressures other than the additional inflationary pressures, but at the most optimistic estimates of the levels of spend needed. After inflation, £4.4m is available within the £8.1m passported cash increase to meet pressures and changes. This has been used principally to continue services previously provided by using the "promoting independence" grant, which is now withdrawn (£2.7m), and on services for children with learning or physical disabilities moving into adulthood (£1.2m). In addition to the guidelines, the Cabinet proposes an extra sum of £1m to meet demand pressures, and a central contingency of £2.5m to meet price rises in the social care market.

3.5. For Environmental services, £892,000 of additional costs and pressures have been met by the carry forward of £642,000 savings identified in 2001/02 and redeployment of £250,000 within the base budget. Significant features within this total sum are the provision to meet higher transitional costs from the District Councils' Highways Agency Blueprint (£250,000), costs in connection with the Dibden Bay Inquiry, Structure Plan, Minerals and Waste Local Plan and other new projects (£200,000) and an additional sum of £100,000 to be added to the capital programme provision for the Hampshire Country Towns Initiative. The budget will result in a £400,000 shortfall if all the existing bus subsidy commitments are to be supported. These extra costs arise from very high prices from bus companies on retendering. The situation is being monitored and whilst some of the funding issue can be met from the action plan produced as a result of the Best Value Review of public transport, it would be prudent not to commit other new initiatives before ensuring that bus subsidies can be contained within the proposed budget on the basis that there is provision to meet any shortfall from balances if necessary. Another issue is that there is no provision made by Government for the storage and safe disposal of refrigerators as required by EEC Regulations. This is a significant problem. Additional growth above budget guidelines are further revenue contributions to capital for the Hampshire Country Towns initiative (£100,000), further funding for community transport initiatives (£100,000), a one-off review of school crossing patrols (£50,000) and £33,000 to reflect the additional landscape and countryside costs falling on the Planning budget following the management restructuring of Recreation and Heritage.

3.6. For Policy and Resources there has been no scope for meeting additional pressures in the budget guidelines and no redeployment of resources has been made. It is now proposed to make additions to the guidelines of £65,000 for continued funding of an existing post together with £30,000 for an additional post to support the development of the Community Strategy, extending the provision of computer lap tops to all Members together with the associated training and support (£65,000) and £95,000 to increase the frequency of publication of "Hampshire Now" from two to three editions a year in recognition of its initial success in improving communications with the public, including the dissemination of information required by legislation. It is also proposed to add £200,000 to the budget towards community development, including local strategic partnerships and sports bursaries for talented sportsmen and women from disadvantaged backgrounds.

3.7. For Recreation and Heritage, income from charges has been raised by 5% thereby generating an additional £43,000 which has been redeployed in the budget guidelines. Because there are uncertainties over the level of additional resources (if any) to be provided by the Government to support the implementation of the Countryside and Rights of Way Act, it is proposed to add £185,000 to enable the more immediate requirements of the legislation to be met. Growth beyond budget guidelines will add the substantial sum of £230,000 for the library service (to be used for staffing and fitting out of new libraries, for the development of electronic Government facilities for the public and for staff training) and to provide one-off support of £10,000 to Gosport Museum.

4. Hampshire Fire and Rescue Authority

4.1. The Hampshire Fire and Rescue Authority has increased its levy on the three constituent authorities by 8% despite earlier requests from the County Council to reconsider this level and attempt to bring the increase more in line with the 5.2% increase in the SSA for Fire. The levy now stands at £38.9m. This is on top of a substantial 9.8% cash increase in 2001/02, the Authority's budget having increased by 47% between 1997/98 and 2001/02 compared with a national increase of 25%. The Cabinet considers that increases at this level are not sustainable and proposes to repeat its earlier request to the Authority for a three year budget projection and proposals for efficiency measures in line with Best Value principles before starting its 2003/04 budget setting process.

5. Pay, Recruitment, Retention and Job Evaluation

5.1. The County Council has been experiencing difficulties in recruiting and retaining staff at all levels and across most services and the Cabinet proposes to maintain the strategy, developed last year, of reducing the gap that has developed between the Council's pay and national and local pay surveys, and to deal with the longer term implications for pay, recruitment and retention of all staff. It is proposed that this be done by including an addition above budget guidelines of £1.1m. This figure reflects (inter alia) an assumption that the national pay award for non-teaching staff may be 3.5% rather than 3% originally contained within the guidelines.

6. Balances

6.1. The original budget guidelines assumed the minimum prudent level (0.6%) for balances of £6.1m at 31 March 2002. It is now proposed to increase balances by £3.6m. A proportion of this may be required during 2002/03 to meet some potential events, but most will be required in advance of the changes expected in 2003/04, to avoid not only balances reducing below the prudent minimum level agreed, but also service reductions which may otherwise result. Among the external factors making an addition to balances necessary are potential liabilities of £2m arising from remedial works at landfill sites, a potential claim of £2m over the liability for VAT on inert material used to line landfill sites, £250,000 potential liability on VAT on mileage expenses and a possible £1.8m for the storage of refrigerators referred to earlier in this report. A known increase of £1m will occur in each of 2003/04 and 2004/05 for employers pension contributions which are necessary to meet actuarial valuations of the Pension Fund. In addition, Recreation and Heritage has yet to recover all the income loss incurred during the foot and mouth crisis. £0.2m has been provided for centrally in the revised budget and it has been assumed that Recreation and Heritage will recoup the balance of this sum by the end of the year. If this does not occur, the Cabinet recognises that another £0.2m may need to be written off. Similarly balances could also provide for any potential over-commitments from existing and future bus contract price rises in excess of price inflation assumptions.

6.2. Balances will also need to provide for what looks like a very uncertain situation in 2003/04, as a result of the proposed changes in the Government's funding system and projections of higher spending than the Government's spending plans for 2003/04 to sustain current policies.

7. Treasury Management Strategy

7.1. For 2002/03 the Cabinet recommends that long and short term interest rates be closely monitored. Long term fixed rate borrowing should be considered if long term rates stand at 5% or below. Long term fixed rate borrowing should be considered at higher rates than this if clear signs of a rising trend in rates should occur. The Cabinet considers that for the year ending 31 March 2003 an overall borrowing limit of £360m should be set and a short term borrowing limit of £240m. The proportion of interest payable at rates which can be varied by the lender or by external factors should be set at 10% of the interest payable for the year ending 31 March 2003. The Cabinet also proposes that the County Treasurer be authorised to carry out borrowing transactions within those limits.

8. Consultations

8.1. Consultations have taken place with business, council tax payers, the voluntary organisations and the workforce on the proposed budget, following an earlier consultation on budget plans with the Citizens' Panel. In general there has been support for the County Council's prudent management of its financial affairs, and notwithstanding a measure of concern about the ability of some taxpayers to meet increases year on year above the rate of inflation. There was, nonetheless, an understanding of the pressures facing the County Council, not least as a result of Government underfunding in key areas such as Social Services.

9. Conclusion

9.1. There are still some uncertainties in the budget. Additional flexibility on balances and contingencies is necessary given potential liabilities not specifically budgeted for at this stage, and changes in the Government's plans for new funding in 2003/04 - as yet to be revealed - which would be extremely serious for the County Council if there is any loss in the area cost adjustment.

RECOMMENDATIONS:

(i) That the revenue budget for 2002/03 as set out in the attached draft budget book, be approved.

(ii) That the total budget requirement for the general expenses of the County Council for the year beginning 1 April 2002 be £920.514m.

(iii) That the County Council's basic council tax for the year beginning 1 April 2002 be £734.67.

(iv) That the County Council's council tax for the year beginning 1 April 2002 for properties in each tax band be:


£
Band A 489.78
Band B 571.41
Band C 653.04
Band D 734.67
Band E 897.93
Band F 1,061.19
Band G 1,224.45
Band H 1,469.34

(v) That precepts be issued totalling £346,456,391.23 on the billing authorities in Hampshire, requiring the payment, in such instalments and on such dates set by them and previously notified to the County Council, in proportion to the tax base of each billing authority's area as determined by them and as set out below.

£
Basingstoke and Deane Borough Council 57,151.00
East Hampshire District Council 45,030.34
Eastleigh Borough Council 41,579.60
Fareham Borough Council 40,729.00
Gosport Borough Council 24,904.70
Hart District Council 34,923.80
Havant Borough Council 41,951.00
New Forest District Council 68,577.70
Rushmoor Borough Council 28,876.36
Test Valley Borough Council 43,627.00
Winchester City Council 44,230.47

(vi) That an overall borrowing limit of £360m be set for the year ending 31 March 2003.

(vii) That a short-term borrowing limit of £240m be set for the year ending 31 March 2003.

(viii) That the proportion of interest payable at rates which can be varied by the lender or by external factors be set at 10% of the interest payable for the year ending 31 March 2003.

(ix) That the County Treasurer be authorised to carry out borrowing transactions within the limits set out in recommendations (vi), (vii) and (viii) above.

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