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1 Introduction

1.1 This report sets out the proposed Policy and Resources revenue budget for 2003/04 and reports on the revised budget for 2002/03. The report is being submitted to the Policy Review Committee to enable comments to be made for the Executive Member's consideration, in approving a submission to the Cabinet covering:

· the base budget for 2003/04 (as set out in Appendices 1 and 4)

· the proposals for efficiency improvements and for savings of 1% or 1.5% (as set out in Appendix 2)

· proposals for additional spending on Policy and Resources services benefiting schools and Social Services to be accommodated within the proposed passported Government increases for those services amounting to £550,000

· comments from Chief Officers on budget pressures not accommodated within the base budget

· the annual review of income and charges (as set out in Appendix 3)

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

· the revised budget for 2002/03 (as set out in Appendices 4 and 6)

1.2 For this service, the provisional budget guideline is £42.053m, equivalent to the base budget. However in addition increased spending of £550,000 is proposed which can be accommodated within the passported increases for Education and Social Services.

1.3 This report sets out a proposed response in respect of Policy and Resources services approved by the Cabinet. The report:

· reviews the base budget which totals £42.053m

· identifies savings, including efficiency savings of 1% (£407,000) and a further 0.5% (£203,000)

· identifies £496,000 of pressures and costs absorbed

· reviews the charges made by this service.

2 Revised budget

2.1 The revised budget in detail totals £33.457m, £164,000 above the cash limit. In arriving at an updated cash limit, it is proposed that the contingency sum of £200,000 set aside on closure of the 2001/02 accounts for Enterprise and `E' Government costs be allocated to partially offset the additional Enterprise costs incurred by the County Treasurer and County Personnel and Training Officer. This represents the most pressing priority for additional funding in 2002/03. Given that the projected overspending is only 0.5% of the revised budget and that further savings opportunities may emerge over the remainder of the year, it is proposed to set a revised budget at the cash limit by identifying further savings that have still to be identified of £164,000. If these savings were not achieved in 2002/03's outturn it would be necessary to carry forward the overspending to 2003/04 though this would add to pressure on the budget.

2.2 The calculation of the cash limit is set out in Appendix 6. A detailed comparison of the revised budget against the cash limit is set out in Annex 1 to Appendix 6.

3 Base budget 2003/04

3.1 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 £42.053m.

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

3.3 Overall, the base budget includes a net increase in expenditure at constant prices of £6.7m. The main reasons for the increase are due to technical adjustments rather than underlying increases in spending amounting to £7.2m.

4 Passported increases in the schools block/social services

4.1 The provisional budget strategy agreed by the Cabinet allows for the passporting of the increases in the County Council's formula spending share (FSS) for Schools and Social Services, which amount to 5.9% and 7.3% respectively. Policy and Resources spending on Repair and Maintenance of buildings and on support services which are delegated to schools or benefit social services is chargeable against the relevant service FSS, as well as a proportion of revenue contributions to capital. Given the size of the increases in FSS, there is scope to accommodate some additional spending in excess of the corporate inflation assumptions on those central budgets chargeable to Schools and Social Services FSS

4.2 The new schools budget consultation arrangements with the Schools Forum and the requirement to notify the planned schools budget to the Secretary of State by 31 January mean that earlier decisions are required about central budgets affecting the schools block than in the past, and that the criteria are more restrictive because apart from revenue contributions to capital, the budgets concerned are only those subject to delegation to schools.

4.3 The major pressure affecting the Policy and Resources budget which can be dealt with through the passporting arrangements is the high level of inflation over the last twelve months on Repair and Maintenance of buildings, which is estimated at 7.6%, 5.1% above the 2.5% allowed in the inflation allocation. Increases of £400,000 chargeable to the schools block and £100,000 to the Social Services block would compensate for the majority of the inflation shortfall. In addition, increases estimated at £50,000 are proposed in the sums delegated to schools for Central Support Services, mainly for Treasurer's and Property Services, to take account of increased activity levels in schools and a shortfall in the inflation increase last applied last year as compared with corporate assumptions.

5 Savings and redeployment proposals

5.1 Cabinet requires all services, other than schools and social services, to identify savings, including efficiency savings, of 1% and a further 0.5%, and to identify pressures and costs absorbed. Cabinet also requires proposals for new growth to be met from savings.

5.2 Details of savings totalling £610,000 are set out in Appendix 2, together with cost increases absorbed of £496,000.

6 Chief Officer Controlled Budgets

Chief Executive

6.1 There are pressures to develop services in a number of areas, which cannot be accommodated within current resources levels, which are summarized in the following paragraphs.

6.2 Health Overview and Scrutiny, up to £150,000 - The County Council has resolved to exercise powers provided by the Health and Social Care Act 2001 to scrutinise and review, on behalf of the Community, health services within the County as part of its wider role in health improvement and in reducing health inequalities. This will assist with the achievement of aim one of the Corporate Strategy - `Maximising life opportunities' and will also link well to the development of a Community Strategy for Hampshire. To carry out the role properly will require additional staff with a knowledge and understanding of issues relating to health and social care

6.3 Regionalism, £35,000 - research is crucial to the debate on regional government. The Government have said that they will take into account any research amongst the residents which will inform their decision of whether to pursue regional government in that area. It will be necessary to maintain a flow of evidence from Hampshire as the first referendum takes place. Research will also inform the communications strategy directing the kind of information the authority will need to put out to ensure that the people of Hampshire are informed and aware of the issues involved.

6.4 Corporate Performance work including research, £35,000 - due to the number of external pressures and inspections e.g. CPA, Best Value etc. it has not been possible to move forward on developing the corporate performance management framework for the County Council. The need for further support in this area is currently being considered together with an examination of how the research and development unit in the Environment Group could link in to support in this area.

6.5 A proposal to appoint a research assistant within the Policy Unit is being considered. The post will primarily undertake research and provide support for the Leader of the Council, focusing on UK Government, European and other initiatives with a strategic impact on the County Council's operations. Under the terms of the Local Government and Housing Act 1989 the post will be non-political. The estimated cost is approximately £50,000, which will need to be funded by redeploying resources within the budget.

6.6 New Milton Information Centre - this is a one stop shop project with New Forest District Council and New Milton Town Council. This will be a model for the provision of information to the public about three tiers of government, plus the Citizens Advice Bureau, from one site. It will also be linked to the Hampshire Private Services Network which will enable information to be provided on behalf of partners across the County. The initial set up costs are £14,000 and running costs will be £33,000.

County Personnel and Training

6.7 Personnel and Training faces a huge financial challenge in 2003/04, if required to carry forward projected overspendings from 2002/03 in full. Despite savings from efficiency measures, expenditure could be up to £327,000 above the £1.861m cash limit. This represents a 18% overspending. This is the result of the impact of several corporate projects and major restructuring on the department, which are detailed below.

· a source of corporate funding of £100,000 agreed in principle by CMT for the Leadership Programme still has to be identified for 2003/04 but needs to be found as this programme is critical to the delivery of improved levels of performance in line with the County Council's commitment to continuous improvement.

· expenditure for the Pay and Benefits project is likely to be £50,000 higher than that allowed for in the cash limit. This is because input from consultants is higher than originally planned because of the difficulties in generating capacity within departments to undertake work.

· a deficit of £150,000 on Hampshire Training Solutions is anticipated in 2002/03. This deficit arose due to the costs, primarily arising from redundancies, of restructuring Hampshire Training Solutions and moving from its accommodation at Winton House.

· The Personnel Policy Unit is expected to overspend by £27,000 in 2002/03. This deficit arose due to the impact of secondments to the SAP implementation team not being fully funded by the Enterprise project and by the additional allocation proposed to deal with Enterprise costs affecting Central support services. Should this deficit be held against the 2003/04 cash limit the ability of the Personnel and Training Department to implement corporate projects and deliver strategic advice and guidance on issues such as employment law, health and safety and occupational health would be severely restricted.

6.8 Savings representing 1.5% of the cash limit (£30,000) will be delivered via the implementation of a vacancy management policy and increased income generation targets for the sale of training courses.

County Treasurer's Department

6.9 The Department faces severe short term budget pressures due to SAP implementation costs, which are currently predicted to lead to a £93,000 overspend in 2002/03 (and which would in turn increase pressure on 2003/04 if carried forward). In addition, there is continuing long term pressure due to the need to support an increasingly complex financial environment with resources stretched by efficiency savings requirements (eg absorption of £170,000 in increments due in 2003/04), which are difficult to achieve because of market pressure, whilst medium to long term savings opportunities are already spoken for as they are required to meet the benefit realisation targets under the SAP project.

6.10 Overall, then, the Department's budget faces severe - and possibly untenable - pressures in 2003/04 assessed at £400,000. Consequently, there is no scope for savings other than by reducing staff in the areas not directly covered by SAP savings requirements, ie consultancy and audit services. Accordingly, that is the action which would be required in order to save 1% or 1.5%. However, such reductions could be counterproductive in that they would reduce the Department's capacity to assist with corporate change to the benefit of all other Departments, and would affect District Audit's ability to rely on internal audit work which could in turn lead to additional external audit costs.

Property Business and Regulatory Services

6.11 As in previous years, the revised budget is presented at cash limit, despite pressures on some of the major budgets. One of the key pressures is on office accommodation where rent reviews on some of the leased properties have increased expenditure by some £100,000 - an amount considerably in excess of the total inflation allocation for the office accommodation budget.

6.12 Similarly, the inflation allocation for repair and maintenance, although enhanced by an allowance for passporting, is some £550,000 less than required to keep pace with actual inflation. This pressure largely is addressed in 2003/04 within the passporting proposals in paragraph 4.3.

6.13 Other areas of pressure include:

· County Farms loss of income arising from rent reductions in the agricultural sector

· Corporate estate, where security costs are significantly in excess of budgeted amounts, because of the need to maintain integrity of properties pending disposals to yield capital receipts.

· Regulatory Services, where national increases in resources in 2002/03 have not been translated into increased budgets locally. This means that work on 'Stop Now' Orders and enforcing animal feedstuff legislation and work relating to under-age alcohol sales has been at the expense of Fair Trading work. Further increases in resources are identified in the Environmental, Protective and Cultural Services FSS in 2003/04 as being earmarked for the implementation of this legislation. However, increases in FSS are insufficient to meet the impact of inflation on existing spending. Therefore the Government's argument that particular parts of the increase are intended for particular new initiatives has no effect unless the County Council is prepared to make cuts elsewhere or finance increased expenditure solely from the Council Tax.

Other budgets

6.14 There are pressures on other budgets which are outside Chief Officer control, such as Long Service awards where the current award of £125 on completion of 25 years service has not been increased for five years. An increase in the Coroners budget also needs to be considered to reflect the underlying level of activity which has resulted in overspendings in each of the last five years. There is some scope for redeployment of resources arising from potentially lower audit fees, due to the County Council's CPA achievement, the ending of the Dibden Bay inquiry and the reversal of the planned cut in Emergency Planning grant. Final decisions can be taken in the context of the Cabinet's recommendations to the County Council on the setting of final budget guidelines for services.

7 Review of charges

7.1 The service's 2003/04 revenue budget includes income of £5.8m 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 Register Office certificates charges.

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.

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 a cash limit of £11.682m for 2003/04. This amounts to an increase of 13.5% over 2002/03. The County Council's share of the budget is estimated at £1.589m, an increase of 13.3%. This includes nearly £400,000 allocated for specific expenditure, with details to follow later in January, and a projected carry forward of 2% from underspends in 2002/03 expected to amount to approximately £210,000.

9 Staffing statistics

9.1 The average number of staff in the base budget is 2,523. This compares with the original estimate for 2002/03 of 2,434 which is an increase of 89. The increases are in the County Treasurer's Department (+46) comprising additional staff for the FAB project, Enterprise training team and Social Services finance. IT Services (+36) mainly to support SAP and to meet increasing demand to replace legacy systems. Personnel and Training is 7 higher reflecting transfers of 28 from other departments, mainly from Social Services less a reduction of 21 in Hampshire Training Solutions. These are partially offset by a reduction of 20 in Hampshire Caterers, and by the transfer of three posts engaged on Defence Heritage and Tourism to Recreation and Heritage. Staffing numbers will reduce as a result of the refocusing of Hampshire Cleaning Services.

9.2 The proposals for savings (Appendix 2) include proposals which would reduce staffing numbers by six.

10 Business units

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

10.2 The Property Business and Regulatory Services' businesses have in recent years exceeded their financial targets. This year, performance is just ahead of target, despite the impact of the pay award which favoured the lower paid staff in the businesses. The anticipated surpluses for 2003/04, at £286,000 exceed the current year's level. This is despite one off costs associated with the refocusing of Hampshire Cleaning Services which will enable them to concentrate on the Winchester Headquarters contract.

10.3 After accumulating deficits of £957,000 in previous years as a result of making significant investment in IT2000, IT Services are budgeting for a break even position in 2002/03 and a surplus of £1m in 2003/04.

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

23 December 2002 : 2003/04 Budget

2. Policy and Resources budget file

Appendix 1

Policy and Resources

Revenue Budget 2003/04

Calculation of the Base Budget 2003/04 - Summary of Cash Limited Expenditure

The following table shows the progression from the original budget for 2002/03 which was prepared at outturn prices 2002/03 to the base budget 2003/04 at outturn prices 2003/04.

Annex 1 to Appendix 1

Policy and Resources

Calculation of Base Budget 2003/04

Parameters used in the compilation

Annex 2 to Appendix 1

Policy and Resources

Calculation of Base Budget 2003/04

Significant costs of inflation

Annex 3 to Appendix 1

Policy and Resources

Calculation of Base Budget 2003/04

Significant variations

Major variations between the repriced budget 2002/03 and the base budget for 2003/04 at November 2002 outturn prices contributing to the increase of £6.737m (19.8%) are set out below:

Annex 4 to Appendix 1

Policy and Resources

Base Budget 2002/03

Analysis of variations

please see attached

Appendix 2

Policy and Resources

Revenue Budget 2003/04

Proposals for efficiency improvements and for savings

Appendix 3

Policy and Resources

Revenue Budget 2003/04

Review of income

Appendix 4

Policy and Resources

Revenue Budget

please see attached

Appendix 5

Policy and Resources

Base Revenue Budget 2003/04

Business Units - Summarised Trading Accounts

Appendix 6

Policy and Resources

Revised Budget 2002/03

Calculation of the Cash Limit for the Revised Budget 2002/03

The following table shows the progression from the original budget for 2002/03 to the cash limit for the revised budget 2002/03. Both are at estimated outturn prices 2002/03.

Annex 1 to Appendix 6

Policy and Resources

Revised Budget 2002/03

Summary comparing the Revised Budget with the Cash Limit