Contact: Ejner Knudsen, ext 7403

1 Introduction

1.1 This report presents an update on the revenue budget monitoring position reported to the Executive Member in September.

1.2 It provides details of recent changes to the revenue budget cash limit for the year and reports on the outcome of the most recent budget monitoring review carried out in consultation with budget holders within the department during September and early October.

1.3 It then goes on to give an assessment of actual expenditure to date, for each of the main budget headings, and provides a detailed summary showing the planned allocation of the highways maintenance budget. The report largely confirms the position previously reported in September in which a number of budget pressures were identified, some of which may not be easy to contain within the Environment services revenue budget cash limit.

2 Cash limit changes

2.1 The previous report in September made reference to a number of adjustments that had been made to the cash limit since the original budget for 2002/03 was approved in February. These variations had increased the overall revenue budget for the Environment services to £75.811 million. The following additional changes to the revenue budget cash limit have recently been agreed:

· A reduction of £88,000 has been made to the department's IT budget to reflect new internal charging arrangements for mainframe use, introduced during the current year. This technical adjustment has been designed to ensure that the prices departments pay for this service are on the same basis. The reduced budget allowance for this item of expenditure will have no effect on the actual standard of IT support service being received by the Environment department.

· An allocation of £189,000 from the central pay and recruitment contingency to cover costs in 2002/03 arising from the settlement of pay awards, in excess of the previous allocation of 3%, included in the original budget.

· An expected call of £480,000 on the central waste management contingency to reflect the additional costs arising during the second quarter of the year from the operation of the waste management contract.

· A revised assessment of the cost in 2002/03 of the Natural Resources Initiative. An increase of £77,000 to the cash limit is required, in respect of the pump-priming grant payable under the Public Sector Agreement (PSA) which is £2,000 lower than the figure provisionally identified in the previous budget monitoring report.

2.2 The above variations increase the 2002/03 revenue budget cash limit for the Environment services to £76.390 million.

3 Budget monitoring review

3.1 Appendix 1 provides a summary of the revenue budget, analysed across the main standard divisions of service, together with assessed expenditure to date.

3.2 As previously reported in September, the main areas of concern are the budgets for public transport support and the waste management services. Pressure on the highways management and support services has eased somewhat since the previous review, although additional savings from staff vacancies and other housekeeping efficiencies will still need to be identified during the remainder of the year, to offset higher expenditure on a number of items.

3.3 The following paragraphs provide further discussion of the main budget monitoring issues at the present time.

Highways maintenance

3.4 Appendix 2 sets out in detail the latest 2002/03 highways maintenance programme, showing variations between the programme previously reported to the Executive Member in September and the latest plan. This summary also includes details of works being funded from the 2002/03 capital budget for structural maintenance.

3.5 Highways maintenance reserves currently stand at £278,000, which will be required to meet additional demands on the network management budget during the remainder of the year.

Highways management and support services

3.6 In considering the position on this division of service, the previous budget monitoring report indicated that additional provision of £172,000 might be required to accommodate additional staff retention and recruitment payments together with higher costs associated with a recruitment drive. This latter initiative is designed to overcome the problems the department is experiencing in recruiting suitably qualified and experienced engineers.

3.7 Reference was also made to the need to absorb further anticipated costs pressures arising from the appointment of the new Director of Environment and the transitional costs associated with the moves towards establishing an Environment Department, together with the provision of additional office accommodation in Winchester. An overall sum of £141,000 has been included in the latest budget projection to cover the presently known costs associated with these items.

3.8 Despite the above pressures, the overall budget monitoring position on the highways management and support services budget has eased somewhat since the last review, reflecting accrued savings from a number of staff vacancies, lower estimates for a number of departmental running costs and higher external income. However, further overall savings of £153,000 will still need to be identified during the remainder of the year to fully offset the known cost pressures and to avoid an overspending on this division of service.

3.9 It is planned that these savings be achieved by prudent vacancy management and by seeking further housekeeping efficiencies wherever possible. Clearly the actual achievement of these savings will need to be monitored closely during the remaining months of the year. If any further cost pressures arise during the second half of the year, then this would add to the savings required to contain overall expenditure within the management and support services cash limit.

Network management blueprint

3.10 The latest estimate of the additional expenditure in 2002/03 of implementing the highways network management blueprint arrangements suggest that overall cost will be £250,000 in excess of the budget allowance. This estimate is £50,000 lower than the sum previously reported in September because a number of posts in the staffing structures of the new highways units have yet to be filled. As previously reported, any excess costs in 2002/03 arising from the highways network management blueprint will be accommodated within the overall budget for network management.

Public transport support

3.11 The latest budget review has confirmed the position on the bus subsidies budget previously reported to the Executive member in September. The projected overspending on this budget in 2002/03 is still estimated at £300,000 at the present time, although this figure could of course still vary depending upon the extent of any unplanned changes in the level of support between now and the year end.

3.12 The latest position on the bus subsidies budget will be brought to the attention of the Cabinet at the appropriate time in order that they may consider the extent of the additional support to bus services that can be provided this year from central balances.

Planning services

3.13 The current budget monitoring position shown in this report suggests that expenditure during 2002/03 on the planning services will be contained within the cash limit. Further budget monitoring reviews are planned to be carried out during November and December to confirm this position, the outcome of which will be reported to the Executive Member in January as part of the revised budget submission.

Waste management

Waste contract related budgets

3.14 Welcome news on waste volumes and slippage in the commissioning of the Chineham energy recovery incinerator (ERI) mean that the overall contract related budget provision, including the £3.0m central contingency, should be sufficient to cover expenditure in 2002/03, other than the additional costs relating to the storage and disposal of fridges outlined in paragraph 3.17.

3.15 Waste volumes for the first five months of the year were below budgeted expectations and a 16% increase in collected dry recyclables was achieved within the household volumes handled. Although civic amenity growth for the same period was higher than allowed for, the higher costs of disposal were offset by reduced contractor incentive payments.

3.16 The Chineham ERI is now due to be commissioned in January 2003. Earlier this year Hampshire Waste Services (HWS) indicated that the plant would begin operating in late November. The budget provision for 2002/03 has assumed a fourth quarter start date and therefore previous concerns, that the earlier timetable might cause the budget to be exceeded, are no longer relevant.

3.17 Since the preparation of the September report, monthly fridge numbers have increased, albeit broadly in line with expectations, due mainly to the warmer late summer, early autumn period. Storage and disposal costs this year are still expected to be in the order of £1,300,000, leaving an expected shortfall for the County Council of some £500,000 if, as expected, the authority's share of the £40 million which the Government has set aside for waste disposal authorities, equates to £800,000. The Cabinet would need 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

3.18 The main concern, again, within this area of the overall waste management budget is the likely level of expenditure on the disposal of abandoned vehicles. However, revised estimates from district councils have so far indicated that expected costs this year are likely to be close to the costs incurred in 2001/02. Part of the reason for this better than expected news is almost certainly related to the recent and very welcome upturn in scrap metal prices. Based on the returns from five of the 11 districts, the current over commitment against this heading is expected to be contained to some £120,000.

3.19 The generation of savings to help offset the expected abandoned vehicle overspend will be especially difficult to achieve. Minor savings may accrue from the administration heading due to higher staff turnover whilst delivery of the full facility maintenance programme will, to some degree, depend on external factors. It is also possible that the new three year HWRC contracts, which are due to commence in January, could be procured at a cost that is within the available budget provision. If this were the case, a minimal part year saving would result.

3.20 Even if some of the above savings are achieved, the final abandoned vehicle cost could well be higher than presently estimated. In view of the continued uncertainty, it would be prudent at this stage of the year to assume that a 2002/03 budget shortfall of some £120,000 will materialise. A further update will be communicated in January.

4 Conclusion

4.1 The report provides an update of the budget monitoring position previously reported to the Executive Member in September.

4.2 On the highways services, pressure on the management and support services budget has eased somewhat since the last budget monitoring review as there have been some further savings in staff salaries and departmental running expenses together with additional income. Nevertheless, further planned savings will need to be achieved during the second half of the year to offset known budget pressures and any further cost pressures that may arise during the second half of the year would add to this savings requirement.

4.3 The latest estimate of additional expenditure in 2002/03 from the implementation of the highways network management blueprint is £250,000, which is £50,000 lower than previously reported in September. Provision will be made within the overall revenue budget allowance for network management to cover this additional expenditure.

4.4 The estimated overspending on the budget for public transport bus subsidies support remains at around £300,000, although this is still subject to variation during the remainder of the year depending upon the extent of any future service changes. Similarly, the projection on the waste management service heading for the disposal of abandoned vehicles indicates excess expenditure of £120,000 beyond the approved budget. The Cabinet will be informed of the latest position on these two services.

4.5 On the waste contract related services, recent encouraging information on lower waste volumes has been received, together with confirmation that the introduction of the new energy recovery incinerator at Chineham will be in January 2003, rather than an earlier date. This should mean that the County Council's £3.0 million central contingency would be sufficient to cover inescapable higher waste management costs other than additional costs relating to the storage and disposal of fridges. The implications of this expected shortfall of £500,000 in respect of fridges would need to be considered by the Cabinet later in the year.

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