Contact: Ejner Knudsen, ext 7403

1 Introduction

1.1 This report presents the first budget monitoring review for 2002/03 for the Environment services. It reflects the outcome of the first comprehensive budget monitoring exercise that was carried out in consultation with budget holders within the County Surveyor's and County Planning departments during the summer.

1.1 The report provides an update of the revenue budget cash limit for the year, taking into account recent budget changes. It also gives an assessment of actual expenditure to date against each of the main budget headings and a detailed summary showing the allocation of the highways maintenance budget. The report then considers a number of potential pressures identified during the monitoring review, for which no provision currently exists within the budget, but which must be contained within the cash limit.

2 Cash limit changes

2.1 The cash limit for the Environment services, set in the original budget for 2002/03 in February, was £75.152 million. Since that date a number of adjustments to the cash limit have been approved:

· An adjustment of £100,000 between the revenue budget for highways maintenance and the capital programme provision for structural maintenance, to compensate for the impact on work volumes of price differentials, following the introduction of the new highways term maintenance contract on 1 May 2002.

· An increase of £79,000 to the cash limit for the Natural Resources Initiative, reflecting the allocation of pump priming finance under the Government's Public Service Agreement (PSA) initiative.

· A sum of £18,000 carried forward from the revenue budget underspending during 2001/02, which has been allocated to the highway management and support services' budget to help meet the cost in 2002/03 of implementing the highways network management blueprint arrangements

· An expected call of £462,000 on the central waste management contingency to reflect the implementation of the waste management contract during the first quarter of the year.

2.2 The above variations increase the 2002/03 revenue budget for the Environment services to £75.811 million.

3 Budget monitoring review

3.1 As in previous reviews, this process has involved meetings between finance section staff and those departmental staff with budget management responsibilities under the departments' scheme of delegation to budget holders. The outcome of this process has been reported to departmental management during July.

3.2 The main areas for concern, at the present time, are the budgets for highways management and support services, public transport support and the waste management services. Further details are provided in the following paragraphs.

3.3 Appendix 1 provides a summary of the revenue budget, analysed across the main divisions of service, together with details of assessed expenditure to date. The forecast outturn for the year includes those budget pressures which may require future policy decisions to be taken if projected additional expenditure is to be accommodated within the budget cash limit.

Highways maintenance

3.4 The 2002/03 cash limit for routine highways maintenance, being funded from the revenue budget, is £18.883 million. Approved allocations to date total £18.638 million, leaving an unallocated sum of £245,000 in reserve which is available to meet any unforeseen demands.

3.5 Appendix 2 sets out in detail the 2002/03 highways maintenance programme, showing the original programme approved in April together with the latest plan. This summary also includes details of works being undertaken from the capital budget, totalling £20.012 million, for the structural maintenance of roads and bridges.

Highways management and support services

3.6 The outcome of this year's initial budget monitoring review of the highways management and support services shows a new pressure of £172,000 on this division of service:

· Staff retention payments - it has been agreed that provision should be made for these payments, estimated at £82,000 during 2002/03, to attempt to retain key staff within the Intelligent Transport Systems (ITS) and Implementation sections.

· Recruitment drive - this is a major departmental initiative to attempt to overcome the problems the department is experiencing in recruiting suitably qualified and experienced engineers. Additional expenditure of £90,000 has been allocated for the recruitment drive in 2002/03, which is essential to attract staff and which is expected to provide better value for money than current advertising campaigns. These costs should be offset by staff vacancies and other housekeeping savings during the remainder of the year.

3.7 The budget does not provide for the restructuring of the Environment Grouping, including the recent appointment of a Director of Environment and future moves towards establishing an Environment Department. In addition it will be necessary to absorb additional expenditure that is expected to arise from the provision of additional office accommodation in Winchester.

Network management blueprint

3.8 It is currently anticipated that the additional cost in 2002/03 of implementing the highways network management blueprint arrangements will be in the order of £300,000 in excess of the allowance included in the budget. This excess will need to be absorbed within the overall budget provision for network management. The updated estimate reflects higher than expected office set-up costs and rentals, together with earlier phasing-in of the arrangements in Basingstoke and New Forest. However, this estimate is in line with previous expectations in the best value review that the implementation of the blueprint may result in additional expenditure in the short term, although in the longer term the new arrangements provide opportunities for savings from more efficient service delivery including partnering with the term maintenance contractor.

Public transport support

3.9 The overall 2002/03 revenue budget for public transport support is £4.795 million, excluding expenditure to be funded from rural bus subsidy grant (an additional £1.307 million).

3.10 Within the budget a sum of £4.257 million has been provided to meet net expenditure on bus subsidies during 2002/03, although it was acknowledged when the budget was set in January that this sum was likely to be around £400,000 lower than the anticipated cost of supporting bus service contracts during the following year.

3.11 In subsequent months there have been a number of changes to the cost of providing bus services, including price variations arising from re-tendering in the Havant and New Forest contract areas and the implementation of a number of housekeeping efficiencies aimed at providing better value for money. Following these changes it was estimated, at the beginning of the financial year, that the over-commitment on the bus subsidies budget in 2002/03 would be £301,000.

3.12 Since April there have been a number of additional minor variations on the bus subsidies budget, although the estimated overspending against the budget remains at around the £300,000 level. It is likely that this position will vary during the remainder of the year depending upon the extent of any future contract re-tenderings or other changes in the level of support. Later in the year the Cabinet will be asked to decide on the extent of the additional support to bus services that can be provided this year from central balances.

Waste management

3.13 The waste management budget is sub-divided into two separate categories for budget monitoring purposes:

· The waste contract related budgets, including trade waste income and recycling credits.

· The other waste management services, covering facility management, administration, promotions and developments, disposal of abandoned vehicles and provision for household waste recycling centre (HWRC) management.

Waste contract related budgets

3.14 The original 2002/03 budget for the waste contract related budgets of £27.699 million was based on expenditure commitments when it was prepared during November 2001. No allowance was included in the departmental budget for growth in waste volumes beyond 2001/02 levels, future price increases, increases in landfill tax or any other contract cost pressures. As these factors are principally demand led and subject to long term contractual obligations, there is little scope, within the overall management of the budget, to vary expenditure. These variations are therefore covered by an amount set aside within the Council's central provision for inflation and other contingencies. The County Council budget for 2002/03 includes a sum of £3.0 million to cover these inescapable cost pressures.

3.15 Periodic allocations are made from the contingency, and added to the waste management cash limit, based on a quarterly assessment of cost variations on the contract and related budgets. As mentioned in paragraph 2.1 above, the overall call on the contingency for the first quarter was £462,000, leaving a sum of just over £2.5 million to cover waste management costs during the remainder of the year.

3.16 However, the waste management contract and related budgets are under considerable pressure this year. There are any number of factors, most of which will impact to some degree or other before the end of the year, which could have a material influence on the final outturn position. At this stage, it is uncertain whether the overall budget allowance, including the central contingency of £3.0 million, will be sufficient.

3.17 Waste volume levels during the first three months of the year were lower than expected partly because of decisions taken by Eastleigh Borough Council and Hart District Council to externalise their trade waste operations. Although this might be seen as welcome news in terms of lower landfill disposal costs, the losses in trade waste income are unfortunately greater than the disposal savings from the reduced activity. Underlying household waste levels during the first quarter were below budgeted expectations, although within the total there was a significant increase (15.7%) in collected dry recyclables. Civic amenity growth for the same period was also within the tonnage allowance.

3.18 A major influence on the final year end outcome will be the timing of the new Chineham energy recovery incinerator (ERI). The budget assumption allows for its introduction from the beginning of January 2003, although the County Council has been advised that this facility could be ready for commissioning towards the end of November 2002. If this date is accurate, an additional cost pressure in excess of £200,000 would result, but this would avoid the landfilling of waste and associated landfill tax.

3.19 A further budget pressure of the same magnitude already exists from the ability of Hampshire Waste Services (HWS) to honour Phase 3 recycling capacity, reserved for the north of the county. When the budget for the year was being produced, HWS informed the County Council that the additional 16,000 tonnes of processing capacity, that they were obliged to make available with the introduction of the ERI plant, was likely to be delayed. However, in the event, they have actually managed to provide this service earlier than anticipated and this had enabled an expansion in districts' collections of recyclables to be accommodated, albeit at an additional cost.

3.20 In addition to the above issues, the contract related budget allowance is also under pressure from a number of other sources. The loss of the trade waste round in Eastleigh and an error in the year end submission from Hart will require up to £50,000 this year. Clinical waste disposal costs during the first quarter were also greater than anticipated due to higher charges and volumes. Further road improvements in relation to the Marchwood ERI site will also need to be accommodated.

3.21 Against this background of service pressures, it is likely that a positive outcome to claims negotiations may help to mitigate the impact on the budget. Indeed, if final settlements are especially favourable and waste volumes remain within the allowance for the year, the final position on the waste management contract related budgets may ultimately depend on the timing of the introduction of the Chineham ERI plant. Should this be delayed for any reason to December, or even to the start of next year, then the overall financial provision on the contract related budgets may just about be sufficient.

Fridges

3.22 The current waste contract related budget and the central contingency provision make no provision for the costs of the storage and disposal of redundant fridges. The Government has recently announced that a sum of £40 million will be made available to waste disposal authorities (WDAs), by way of a specific grant, to "cover" the costs associated with dealing with fridges up to the end of 2002/03.

3.23 At this point in time the method of allocation of this sum between WDAs has yet to be decided, but if this mirrors the allocation of the £6 million support made available to WDAs to cover the costs of storage during the last quarter of 2001/02, then the County Council should receive grant of approximately £800,000.

3.24 However, the estimated costs of storing and disposing of fridges during 2002/03 is expected to be between £1.250 million and £1.300 million, assuming average monthly numbers are maintained. This cost estimate is based on the existing European export price that WDAs have agreed. It is strongly believed that the contract that has been entered into represents best value and is amongst the lowest across the WDA network. Nevertheless, the County Council could be faced with an additional budget pressure of up to £0.5 million arising from the storage and disposal of fridges this year. The position can be further reviewed during the year as details of the allocation become available. Representations will also continue to be made to the Government. The Cabinet will be able to consider the implications of unfunded costs later in the year against the additional balances set aside for this and other external uncertainties.

Other waste management budgets

3.25 The budget for the other waste management services is subject to normal County Council management arrangements which require services' expenditure to be controlled within cash limits set at the beginning of the year. The 2002/03 cash limit for these services is £1.972 million.

3.26 As in 2001/02, the main concern within this sector of the waste management budget is the likely level of expenditure on the disposal of abandoned vehicles. Estimates for expenditure being incurred by the district councils on behalf of the County Council on this activity suggest that the budget for 2002/03 of £156,000 is likely to be exceeded by some £150,000. This reflects continuing increases in the number of vehicles being abandoned, together with a depressed market for scrap metal and higher standards of regulation. The outlook for this budget, which has experienced significant year-on-year cost increases over the past five years, is not good given the imminent introduction of the End of Vehicle Life (EVL) directive, the exact timing of which is still unknown.

3.27 This directive will impose much stricter regulations on the ways in which abandoned vehicles are dealt with. Higher recycling of parts will result from improved methods of dismantling and reclamation of materials. However, it is likely that the process costs for each vehicle could double and, furthermore, it is expected that abandoned vehicle numbers will further increase as last owners seek to avoid the end-of-life processing costs of £100, or perhaps greater, per vehicle.

3.28 As previously reported, audits of the district councils' claims and administration arrangements for abandoned vehicles were carried out earlier this year. Although anomalies and inconsistencies in service delivery were identified, which are now being corrected by way of a revised service level agreement, the impact on costs to be incurred by the County Council was largely immaterial.

3.29 The generation of sufficient savings within the waste management cash limit, to offset the expected overspending on the budget for the disposal of abandoned vehicles is impossible to achieve. The administration budget is fully committed and whilst the facilities' maintenance programme could in theory be reduced and limited to essential works only, most of the projects planned for this year already fall into this category, because of delays in previous years' works programmes. The only other heading where savings might be possible is promotions and developments. However, most of this budget is also already committed and reductions in expenditure would need to be weighed against the likely negative impact on waste volumes or reduced recycling.

3.30 This issue is being considered with the Natural Resources Initiative to see if a different approach to the problem can generate better recovery of materials, other social benefits and reduce costs.

3.31 New three year HWRC contracts, which are due to commence in January 2003, are currently at the tender evaluation stage. At the time of writing this report, the outcome of this process is not yet known, so it is not currently possible to quantify the cost of the new contracts. Given that this is a competitive process, it is possible that the overall cost of the new contracts will be within the current budget provision, in which case any savings could be used to help to offset the excess cost of abandoned vehicles' disposal. An update will be provided to the Executive Member once the evaluation has been completed and the budgetary impact will be included in the next budget monitoring report which is scheduled for November.

Planning services

3.32 The current 2002/03 budget for the planning services is £4.534 million. The latest budget monitoring review of this budget suggests that most of the budget has been allocated to budget holders and that expenditure commitments are being progressed in accordance with the budget plan.

3.33 Current indications are that service pressures in 2002/03 on the planning budget should be contained within the overall budget limit. However, it would still be necessary to provide some additional funding from within the cash limit for the Dibden Bay inquiry, to cover additional expenditure on land access issues and other incidental expenses, and for higher spending on staff recruitment and other non-staff advertising.

4 Conclusion

4.1 The report provides details of the adjusted 2002/03 cash limit and a summary of assessed expenditure to 31 July 2002. An initial projected outturn for the year is shown which takes account of the budget pressures outlined in paragraph 3 above.

4.2 The highways management and support services are once again under pressure. Budget pressures totalling £172,000 have been identified from staff retention payments and a recruitment drive. In addition it will be necessary to absorb additional expenditure arising from extra office accommodation as well as any costs arising from staffing changes in connection with the establishment of the new Environment Department.

4.3 The latest estimate of additional expenditure in 2002/03 from the implementation the highways network management blueprint is of the order of £300,000 in excess of the allowance in the budget. It will be necessary to make provision to cover this additional expenditure from within the overall budget allowance for network management.

4.4 The estimated overspending on public transport bus subsidies support stands at around £300,000, although this position could vary during the remainder of the year depending upon any future service changes. It will be necessary for the Cabinet to confirm the extent of additional support to bus subsidies that can be provided from central balances.

4.5 The waste contract related budgets are also under pressure due to a number of factors. This may result in expenditure beyond the total level of budget provision, including the £3.0 million central contingency sum provided in the budget to cover inescapable cost pressures. In addition, the County Council could be faced with an additional budget pressure of up to £0.5 million, arising from the storage and disposal of fridges this year, which can be considered by the Cabinet later in the year, as necessary.

4.6 On the non-contract related waste management budgets, the main concern is the likely level of expenditure on the disposal of abandoned vehicles. It is likely that the 2002/03 budget for this activity will be exceeded by some £150,000. There is little scope to absorb this excess expenditure from within the waste management cash limit and this may be another issue for Cabinet consideration later in the year.

4.7 A further monitoring review of the 2002/03 budget is planned to be carried out during September and a further report on the situation will be brought to the Executive Member's meeting in November. At that stage it would be necessary for the Executive Member to take decisions on any revisions to the budget to enable expenditure to be contained within the cash limit and for the Cabinet to confirm the level of additional support to public transport bus subsidy support and whether to provide any extra resources for the waste management services.

Recommendation

1 That the latest revenue budget monitoring position for the Environment services be noted.

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

Appendix 1

Environment

Revenue Budget 2002/03 - Monitoring Statement

Analysis of Variations

Appendix 2

Environment

Summary showing detailed allocation of Highways Maintenance budget

Revenue Budget 2002/03

Capital Maintenance Programme 2002/03