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PART A

1. EXECUTIVE SUMMARY

Introduction

1.1 This report sets the scene for decisions on the 2003/04 revenue budget and council tax, based on the budget guidelines approved on 23 December 2002 and 6 January 2003.

1.2 Part A is the executive summary of the budget and is intended to be self-standing. More information can be found in Part B, the remainder of the report and Part C the appendices to the report (required for Council recommendations).

Summary of proposed budget

1.3 Budget guidelines were set within the agreed budget strategy, broadly providing for base budgets plus passported cash increases for schools and Social Services. The current budget proposals include £18m for other inescapable pressures and legislative requirements which results in:

· a budget of £1,032.1m, which is 8.2% more than the 2002/03 budget

· council tax of £844.56, which is 15% more than in 2002/03, or £2 per week per band D council tax payer

· spending which is £37.5m, or 3.8% above Formula Spending Share (FSS), compared with 6.0% above Standard Spending Assessment (SSA) in 2002/03.

1.4 A council tax increase of up to 15% has been projected because of the changes in the Government grant formula which has redistributed grant away from the south east to more urban areas in the north and midlands. Government grant has increased in cash terms by £22.9m (3.8%) in 2003/04, which is just above the minimum level to allow a 3.2% increase in per pupil funding in 2003/04.

1.5 It is anticipated that in real terms the Council will lose £48m in Government grant in 2003/04 and successive years. It is estimated that the grant loss in 2003/04, compared with what it would have been before the formula changes, is £21.0m. That is equivalent to 6% on the council tax. Without that grant loss the council tax rise would have been around 9%, more in line with the council tax increase required for the Government's planned level of spending increase.

1.6 As grant support is fixed, no matter what the Council budgets, any increase above 3.8% all falls on the income provided by council tax. There is no Government grant support towards a substantial part of its 5.7% increase in formula funding share for the Council, other than for the schools budget. The Cabinet has agreed that it would be damaging to reduce its budget for all its other services, but will continue to seek efficiency savings and maximise income from charging for services where this is possible.

1.7 Additional flexibility was available within the projected 15% council tax increase to set aside more resources for inescapable pressures and legislative requirements. These include sustaining roads and footway maintenance and improving performance on domiciliary social care for older people (where resources have otherwise been constrained by the inescapable pressures on services for children, adults and residential care for older people).

1.8 The additional flexibility allowed in December compared with the November projection arose from the higher floor (3.8% compared with 2.5% initially projected - although that just defers some of the grant loss for one year) and differences in the assumed national council tax. Since December increases in net tax base and a higher collection fund surplus have occurred. The proposed budget now takes into account: all the pick-ups from tax base and council tax calculations; and the use of redeployment opportunities and passported cash increases which were previously unallocated within the budget guidelines set for Executive Members to prepare their budget proposals. Changes to Government support and FSS in the grant settlement could still have an effect, probably only marginal, on the council tax increase.

1.9 Despite all these changes provisional information suggests that the Council's budget increase will be below the median for county councils. Although the council tax rise will be above the median, it will be below most other counties in the south and south east which have lost grant because of changes in area cost adjustment and from resource equalisation. The resultant council tax will probably be lower than average, despite the impact of grant loss in 2003/04, and having the second lowest increase in SSA in 2002/03.

Original budget guidelines

1.10 Executive Members have put forward service budgets constructed in accordance with the budget strategy and budget guidelines agreed in December 2002 which results in:

· a base budget of £996.8 m (an increase of 4.5%) which is the continuation of the current financial policies of the County Council

· priority increases over the base budget of passported cash increases in line with the Government's FSS increase of

- £9.6m for the Schools budget (5.9% FSS cash increase)

- £6.6m for Social Services (£1m above 6.8% FSS cash increase)

- £0.8m for the central share

· schools will also receive a 19% increase in the schools standard grant, paid direct to schools

· although there remains uncertainty about grant amounts Social Services will in addition utilise the £8.9m cash increase in specific grants for local pressures instead of being constrained by previous ring-fencing restrictions

· no cuts in services, but an overall efficiency improvement of £3.4m (0.4%)

· an annual review of income on all services with increases in most charges at least in line with inflation.

1.11 The budget guidelines were set at £1,013.2m, a 6.3% increase in spending over 2002/03. A council tax rise of up to 15% was projected which allowed for further budget flexibility subject to: final information on the grant floors for 2003/04 and 2004/05; council tax base and collection fund assumptions; final budget proposals; and use of balances and reserves.

1.12 It was agreed that the Council's priorities and the views of Executive Members on services in preparing their budgets within the proposed guidelines, could be taken into account when recommending the budget to the County Council at this meeting. The Council could still vary its spending and council tax decisions, and it cannot be subject to capping because of its excellent status in the Comprehensive Performance Assessment.

Final RSG settlement

1.13 Details of the final Revenue Support Grant (RSG) settlement are expected on 3 February 2003. Despite written representations (with no reply) and a meeting with the Minister as part of a south east counties delegation, no changes of substance other than the usual data corrections are expected.

Uncertainties

1.14 The teachers' pay award for 2003/04 has yet to be settled. Provision for an award of 3.5% has been made in the passported cash increase for schools, and further cover is available not only from a sum of £1.4m unallocated for staffing cost pressures in the schools budget but also from within the 19% increase in the Government's schools standard grant direct to schools. No further corporate provision is necessary.

1.15 Similarly the firefighters' pay award remains unsettled and any additional cost over 4% not met by modernisation savings may require extra provision in balances, if the Hampshire Fire and Rescue Authority (HFRA) subsequently require a supplementary estimate after setting its levy for 2003/04. The County Council, Portsmouth and Southampton City Councils have all asked the HFRA not to increase its levy beyond its base budget, and its current budget recommendations are broadly in line with this, subject of course to the uncertainty of the pay award.

1.16 Final flood protection precepts as well as the Fire levy are awaited.

Proposed budget

1.17 Details of the use of passported cash increases added to the base budget, the use of specific grants and redeployment of resources are set out in the main report, but summarised in the following paragraphs.

1.18 Use of the passported cash increase of £9.6m for the schools block is mainly to

· replace terminated standards fund grants and provide the LEA share for new standards fund grants devolved to schools.

· provide for recruitment and retention of staff and other staff cost pressures

1.19 Education propose to redeploy a further £1.3m of savings to meet other standard fund changes, ICT and other pressures in the LEA block.

1.20 Social Services will use its increase of £6.6m in the passported cash amount and an additional £8.9m from removing the ring fence on specific grants principally to meet additional capacity and price pressures on

· residential care for older people

· intermediate care for older people

· adoption and family support

· childrens' places in care

· transitional age cases for adult services

1.21 Policy and Resources will use its £0.8m central share of passported cash increase for Schools and Social Services to meet additional price inflation of £0.5m on repairs and maintenance of buildings, to provide for the new requirements on health scrutiny and to write off the accumulated overspend on Hampshire Training Solutions.

1.22 Environment will redeploy resources of £410,000 for the natural resources initiative and planning pressures. Policy and Resources will redeploy £161,000 towards some of its pressures. Recreation and Heritage will transfer £0.5m to capital for Library/Discovery Centre improvements and a further £1m to improve services and expand its user base

1.23 Redeployments therefore total £3.4m as shown below.

Table 1: Redeployment of resources in 2003/04 budget

	£'000
Education (LEA Block)	1,320
Environment	410
Policy and Resources	161
Recreation and Heritage	1,543
	------- 3,434 -------

1.24 It is now proposed to add £18.4m (1.9%) above the budget guidelines and set a budget at £1,032.1m which is a total 8.2% budget increase. This will result in a 15% council tax rise as projected. The principal reasons for this further budget increase are inescapable pressures and legislative requirements as summarised in the next table and reported in detail in the main report.

Table 2: Inescapable pressures and legislative requirements

	£m
care for older people to address delays in hospital discharges	3.5
home care for older people to meet performance targets	3.5
sustaining repairs of local roads and footways	3.5
other pressures across all services, including bus subsidies, refrigerators, Countryside and Right of Way Act , ICT and Enterprise project costs, HFRA levy etc	3.6
transfer to reserve for 2004/05 grant loss to avoid cuts in services and excessive council tax rise in 2004/05	4.3
	------- 18.4 -------

1.25 The proposed total budget requirement can be summarised as below:

Table 3: 2003/04 Budget Increase

	Total		Increase
	£m		%
2002/03 budget	920.5
Adjustment for function and specific grant changes	32.9
	-------- 953.4
Inflation	37.1		3.9
Base budget commitments	6.3		0.6
Base budget	-------- 996.8		-------- 4.5
Passporting for schools and FSS cash increase for social services	16.9		1.8
Budget Guidelines	-------- 1,013.7		-------- 6.3
Grant equalisation reserve	4.4		0.4
Inescapable and legislative pressures	14.0		1.5
2003/04 proposed budget	-------- 1,032.1--------		-------- 8.2 --------

Council Tax

1.26 The total budget requirement can be met as below:

Table 4: Precept - met by council tax payers

	Total		Increase
	£m		%
Budget requirement	1032.1		8.2
Government grant support	-628.0		3.8
Net surplus on collection funds	-2.9
Precept	-------- 401.2 --------
Tax Band D equivalent dwellings	475,062
Council tax per Band D	£844.56		15%

Risk Management

1.27 The principal risk in the budget remains the loss of grant in 2004/05 and 2005/06. A contribution to the new grant equalisation reserve is proposed which can be used to offset part of the expected grant loss in those years. In this respect the 2003/04 budget has to be a three year view because of the floor protection applied to grant loss in 2003/04. The alternative is either to plan service cuts for 2004/05 and 2005/06 or have a further excessive council tax rise in that year. The budget proposal aims to bring service stability back into 2004/05 despite the anticipated extra grant loss in that year.

Balances

1.28 Projected balances at 31 March 2004 are £7.9m, £1.7m more than the normal minimum prudent level of 0.6%. This increase provides flexibility against the uncertain cost of the firefighters' pay award and other risks. The increase over the previous budgeted minimum is due to the adjustment made with the 2001/02 final accounts to the Fire pensions reserve, and £0.4m from additional interest on revenue balances. These additional resources were added to balances because of the anticipated grant loss in 2003/04.

Earmarked reserves

1.29 Earmarked reserves at 31 March 2004 are estimated at £62.0m, £22.0m more than budgeted at 31 March 2003 but £6.8m lower than total earmarked reserves at 31 March 2002. The main variations are the use of the capital reserve since 31 March 2002, and the creation of the grant equalisation and bed-blocking reserves.

Budget Consultation

1.30 No further budget consultation has been carried out because of the fundamental changes caused by Government grant loss which were fully explained in the Hands off Hampshire campaign in projecting a 15% council tax rise. The Leader gave further consideration to the use of a community workshop and/or a representative public telephone survey and/or a letter inviting comments through the website. It was decided that there was insufficient time, given the lateness of the settlement and incomplete information, to carry out further surveys on the level of the council tax. Previous MORI surveys, use of the Citizen's Panel and the Hands off Hampshire campaign have provided enough consultation information on

· the priorities between services,

· areas where the public expect improvements in services, or for pressures or backlogs to be met

· together with a view on the balance between cutting services to offset the Government grant loss or to raise the council tax instead

Three year financial forecast

1.31 The budget report presents a very provisional forecast of budget and council tax rises in 2004/05 and 2005/06 compared with 2003/04. There are still many uncertainties, not least the level of the floor and potential further grant loss in 2004/05. Further changes in function or specific grants will affect this forecast. However this forecast forms a starting point for planning and public consultation on the budget strategy for 2004/05 and 2005/06.

Recommendations

1.32 The recommendations on the budget and council tax to Council are contained in the summary decision sheet which precedes Part A of this report.

Detailed report and appendices

1.33 Part B of the report follows and contains more information and appendices, which both support the recommendations.

PART B

DETAILED REPORT ON REVENUE BUDGET AND PRECEPT 2003/04

2. 2002/03 revised budget

2.1 There is no formal revised estimate review as budgets are monitored during the year and changes reported as they occur. All services are controlling estimates to their cash limits for 2002/03.

Education

2.2 An underspending of £1.3m is predicted on Education mainly from savings on home to school transport, centrally held budgets, youth service, training and curriculum development and contingencies. This is after a transfer to capital of £0.7m for Education's contribution to the rebuilding costs of St Bedes and £190,000 for education otherwise than at school. The Council's policy is to allow 100% of planned savings to be carried forward, and 50% of any unplanned savings accrued at year end. Although these savings have been notified in advance, they cannot all be described as planned as contingencies are not fully required. Nevertheless the carry forward will considerably aid budget pressures on Education in 2003/04 and it is therefore recommended that the underspending be carried forward and redeployed to meet budget pressures in 2003/04 (£867,000) and 2004/05 (£417,000).

Environment

2.3 Expenditure on Environment is expected to be contained within the cash limit other than £300,000 on bus subsidies, £90,000 on the disposal of abandoned vehicles and some £400,000 on the storage and disposal of fridges in excess of the funding made available. Nonetheless as a result of lower growth in waste volumes in 2002/03 it should be possible to contain the additional cost of fridges within the contingency allocation of £3m for the waste management contract. Subject to the overall final outturn on Environment, it is recommended that provision of £390,000 now be made against the extra balances set aside in the 2002/03 budget, and adjusted when the final accounts are reported to Cabinet.

Policy and Resources

2.4 A small net overspending of £14,000 is currently projected, but is expected to be managed down to the cash limit, although pressure remains on certain budget heads within the overall cash limit.

Recreation and Heritage

2.5 Expenditure is expected to be within the cash limit except for Milestones. Although management action is being taken it is unlikely to deal with what will become an accumulated deficit of £480,000 by 31 March 2003. Assuming that Basingstoke and Deane Borough Council agree to write off its 50% share, possibly subject to improved performance during 2003/04, it would be prudent to deal with this in balances against a contingency set aside to carry forward the total overspend of £324,000 at the end of March 2002.

Social Services

2.6 Increased demand across all services, with the main pressure on children and families and adults services, led to identified pressures of up to £3m at the last review. These pressures are being managed down as usual to the cash limit and the £2m set aside by Cabinet at its last meeting towards bed blocking will at least help in residential care for older people. An overspend at this year end remains a possibility which will need to be carried forward and set against the large increase proposed in the 2003/04 cash limit. It would not be appropriate to consider any further write off of overspend for Social Services given the 2003/04 outlook, the additional £2m set aside for 2002/03 and the large cash budget increases and write offs over the last few years.

Savings

2.7 Adjustments to balances are dealt with later in this report. The carry-forward of savings for Education needs to be approved as follows:

Table 5: Proposed savings from 2002/03 to be carried forward and used

to meet additional pressures in 2003/04 and 2004/05

	£'000
Education	1284

2.8 Savings of £3.2m are projected on non-cash-limited budgets, as follows:

Table 6: Savings on other budgets

2.9 It is proposed that the business rate savings be transferred to the invest to save reserve to fund revaluation appeal costs and the remainder be added to balances and then allocated to the proposed grant equalisation reserve to offset part of the likely grant loss in 2004/05 and 2005/06.

2.10 The overall variations in spending projected in 2002/03 are summarised in Appendix 1.

3. 2003/04 Local Government Finance Settlement

3.1 Representations on the provisional settlement were discussed by Cabinet on 6 January 2003 and a letter sent to the Minister, with a copy to Hampshire MP's. All Cabinet members received a copy of this letter. No reply has been received to date.

3.2 The Leader was part of a delegation of south east counties which met the Minister.

3.3 Details of the final settlement were made available on 3 February 2003. Major changes were not expected. But in the event further losses in area cost adjustment were made.

3.4 The bar charts and maps presented to the Cabinet at the last meeting demonstrated how grant has been moved away from south east counties to urban areas in the north and midlands.

3.5 Without the effect of floors (and ceilings) this County Council would have lost grant in cash terms in 2003/04 as the bar chart demonstrates.

3.6 The Government has neither exemplified nor provided sufficient information to enable grant loss to be calculated precisely, let alone publicly stated the grant loss from the formula changes and resource equalisation for each authority.

3.7 The provisional estimate of grant loss was about £40-45m which was between the mid case (£35m) and worst case (£80m) grant losses exemplified from the earlier consultation exercise. The actual loss is now £48m following changes in final grant settlement.

.

3.8 If there was no floor (ie 3.5% increase) the County Council's grant for 2003/04 would have been £4,170,000 (0.7%) lower than in 2002/03. But with the floor there is a cash increase of £22.9m (3.8%) in grant (3.5% for floor; 0.3% for capital finance).

3.9 It is true for the Minister to say that the Council has not had a cash grant loss in 2003/04, but it is misleading as it is not enough in real terms to cover inflation across all services let alone the Government's increase in formula spending share (FSS).

3.10 The floor protects the Council by £27.1m from the extent of the total formula grant loss in cash terms in 2003/04. That amount is needed to cover the DfES commitment to ensure that there is a 3.2% increase in per pupil funding. There is nothing left for other services.

Table 7: Cash grant increase in 2003/04

3.11 The assumed loss of grant in the long term can therefore be calculated as shown in Table 8, and is £48.0m.

Table 8: Total grant loss from formula changes

3.12 The loss of grant in 2003/04 is £20.9m as assessed next.

Table 9: Loss of grant in 2003/04

3.13 If the floor is removed in 2004/05 the Council will lose the remaining £27.1m protection received in 2003/04. The position in 2004/05 may therefore look something like the following:

Table 10: Grant position in 2004/05

3.14 A 2.5% floor in 2004/05 would result in an extra £12.7m protection grant, compared with the underlying FSS increase of £3.0m, so that the total cash grant will go up by £15.7m in 2004/05 compared with the actual cash grant received in 2003/04. As protection grant in 2003/04 is £27.1m, the level of grant protection would be reduced by £14.4m. The longer term grant loss on these assumptions can be summarised as follows:

Table 11: Summary of grant loss

3.15 On this basis the further grant loss expected in 2004/05 is £14.4m, leaving £12.7m to be lost in 2005/06.

4. 2003/04 budget guidelines

4.1 The budget guidelines consisted of 23 recommendations agreed by the Cabinet at the last meeting. These are not repeated in the report, but the budget proposals submitted for consideration are fully compliant with the guidelines. Additions over the guidelines which have emerged in response to the inescapable pressures and legislative requirements, not previously contained within the tight definition of the starting point for the budget, are within the agreed budget strategy.

5. 2003/04 base budget

5.1 The adjusted base budget is £996.8m, an increase of 4.5% as shown in Table 12. This represents the continuation of the current financial policies of the County Council.

5.2 Details of the construction of the base budget, for services and for other budgets are set out in Appendix 2. The details of significant variations in service spending are contained in Annexes 1-5 of Appendix 2 as reported to Policy Review Committees and submitted by Executive Members to Cabinet within the budget guidelines.

5.3 Inflation and other assumptions were set out in the last Cabinet report.

5.4 The total base budget figure reported in December was £995.3m. The current assessment is £996.8m and the difference is explained by:

· £1m added to base budget growth, but offset by an equivalent reduction in the extra cash increase in the passported amount for Social Services, in respect of the full year loss of income resulting from changes for non-residential care of older people.

· other changes totally £0.5m, primarily an increase in capital financing charges based on updated assumptions about the use of credit approvals in 2002/03

5.5 the overall inflation increase is 3.9% which allows:

· 4% for firefighters' pay in November 2002 and November 2003

· projected 3.5% for teachers pay in April 2003

· known 3.5% increase in other pay from April 2003

· 2.5% on average for price changes (but supplemented later in passported cash increases for additional costs for purchasing social care, repairs and maintenance of buildings and in other inescapable pressures such as contract price increases in bus subsidies)

· increase in employers' national insurance and pension contributions

5.6 The base budget is therefore as set out in Table 12

Table 12: 2003/04 Base budget

5.7 Inflation therefore adds just under 4% to the 2002/03 budget, and the base budget commitments mainly arise from the waste management contract costs, the full year effect of Fire budget growth in 2002/03 and the impact of additional credit approvals for capital financing of payments incurred in 2002/03.

5.8 The base budget can be summarised over services as follows:

Table 13: 2003/04 base budget

6. Budget variations

6.1 In addition to the base budget, budget guidelines provided for

· increases up to the Government's FSS cash increases for

- passporting to Schools (£9.6m, or 5.9%)

- Social Services (£6.6m, or 7.3%)

- central share of both increases in Policy and Resources (£0.8m)

· removal of the ring fence previously applied to £8.9m cash increase to specific grants for Social Services as well as existing grants (because of the excellent CPA status, but grants for schools still have ring fence constrictions)

· Executive Members to report back on inescapable budget pressures and legislative requirements that cannot be absorbed within the budget guideline cash limits for services, with proposals for redeployment of resources to offset these costs

6.2 Total redeployments of £3.4m have been made as shown in Table 1, and details are set out in Appendix 3.

6.3 Additional inescapable pressures and legislative requirements have also been identified which add a further £18.4m to the budget guidelines, but within the original 15% projected council tax increase. These were summarised in Table 2.

6.4 It is now possible to summarise all these changes

· from within the budget guidelines and

· as additions to budget guidelines

financed by

· use of passported cash increases

· redeployment of savings

· the overall flexibility retained in the budget forecast

in order to meet

· pressing inescapable pressures

· legislative requirements

on top of the base budget.

Table 14: Summary of inescapable pressures and legislative requirements

Efficiency improvements

6.5 No cuts in services have been made but an overall efficiency improvement of £3.4m (0.4%) is proposed. Details as shown in Appendix 4 and summarised below:

Table 15: Efficiency improvements

Annual review of income

6.6 Fees and charges have been raised at least in line with the non-pay inflation assumption, where there is scope to do so. Social Services has been constrained by the new Government guidelines on charging for non-residential services. This caused a £2m full year drop in income; of which 50% was offset by increased charges. This change has resulted in a substantial increase in the number of clients receiving free services and an estimated loss of income of around £1m per annum.

6.7 Details of income reviews and charges made are set out in Appendix 5 and in summary below:

Table 16: Summary of income from fees and charges

1% and 1.5% savings

6.8 The Education and Social Care Executive Members were asked to report back on the implications of 1% and 1.5% reductions in the passported cash amount for the Schools block and Social Services; other Executive Members were asked to identify the scope for further savings and reductions in services.

6.9 The scope of these are identified in detail in Appendix 12 but no savings have been included in the proposed budget, apart from the redeployment of resources of £3.4m summarised in Table 1.

Schools budget

6.10 The passported cash amount for schools, plus the schools standards grant results in an overall 6.1% increase, slightly above the increase in the FSS for schools.

Table 17: Schools budget

6.11 The proposed schools' budget has been agreed by the new Schools Forum and forwarded by the Education Executive Member to the Secretary of State by 31 January 2003 deadline.

6.12 Both the Education and Social Care Executive Members have reported back on the use of specific grants and the extent to which pressures can be absorbed.

7. Performance management

7.1 As part of the process of linking budgets more closely with performance management, proposals for additional spending should indicate measurable improvements in performance anticipated and any significant savings proposals should include a plan of how the proposal will be implemented.

7.2 This is a key feature of future assessment by District Audit and in updating the Comprehensive Performance Assessment. It is therefore necessary for all Executive Members to review their plans and monitor achievement against them during 2003/04 for all the proposed redeployment of resources set out in Table 14.

7.3 It is also recommended that business plans for the use of additional resources set aside for

· care for older people to address delays in hospital discharges (£3.5m)

· home care for older people to meet performance targets (£3.5m)

· sustaining repairs of local roads and footways (£3.5m)

be brought to the next Cabinet meeting and performance be tracked during 2003/04, with a performance review against outcomes before the amounts are rolled forward into the 2004/05 budget.

8. Fire

8.1 The Cabinet recommended that the Hampshire Fire and Rescue Authority should, in the light of its budget growth over the last two years and the uncertainty surrounding the settlement of the firefighters' pay award, be asked to

· prepare its budget on the roll forward of current policies only, with no additional cost from new growth items

8.2 The Authority meets on 5 February 2003 and its current budget proposal is broadly consistent with this Council's request (and the similar requests from Portsmouth and Southampton).

8.3 The Authority proposes to give the constituent authorities notice that levies may be increased during 2003/04 for the amount of:

· any underspend achieved by the Authority in 2002/03

· the extra cost of the firefighters' pay awards which exceed the budgeted assumptions of 4% in each of November 2002 and November 2003 (if that cost is not covered by transitional funding or savings realisable in 2003/04)

8.4 Each 1% in pay costs the Authority £250,000 in a full year. A pay award costing 11% in 2003/04 would require a further levy of about £1m from the County Council over current assumptions.

9. Risk management

9.1 The single biggest risk remains the anticipated grant loss in 2004/05 and 2005/06. This is why a three year view needs to be taken in setting the 2003/04 budget to provide stability in the Council's finances. Around £15m is expected to be lost in grant in 2004/05 (see paragraph 3.15) on top of the assessed grant loss of £20.9m in 2003/04, together with a further £12m in 2005/06.

9.2 It appears unlikely that the floor for 2004/05 will be announced with the final grant settlement for 2003/04. This does not help forward financial planning, but an assumption can be made that this could be 2.5% in line with the Government's inflation assumption.

9.3 Grant loss of £27m is equivalent to a council tax rise of nearly 8%. As the forward financial forecast (paragraph 14) shows, a council tax rise, before grant loss, of around 6-7% might be expected in 2004/05 and 2005/06. This is based on the continuation of the County Council's existing budget strategy of passporting schools and Social Services FSS increases and allowing for base budget growth, but no other new service development or pressures. Council tax increases averaging around 10% would therefore result in 2004/05 and 2005/06 if plans are not made now for council tax rises more in line with budget increases.

9.4 Grant loss could therefore be dealt with in 2004/05 by a combination of :

· making planned cuts in services of £27m either in schools budgets by restricting the budget increase to the passported increase, or in other services to enable above passported increases to schools budgets. This would produce cuts on a scale that the Council would not find acceptable in terms of maintaining services, or

· an additional council tax rise in each year taking the increase to 10% or more, or

· use of reserves and balances to make good the anticipated grant loss and continue service provision

9.5 The budget is prepared on the basis that the grant loss will be dealt over a three year period and reserves utilised to provide greater financial stability in 2004/05 and 2005/06 by taking the financial consequences of a substantial share of the grant loss in 2003/04 by the 15% council tax rise. This is dealt with further in paragraph 12.

9.6 When the budget for 2003/04 was prepared, potential liabilities of some £10m were identified. An additional contribution of £3.6m to balances was made to provide some protection against these liabilities, and also against what looked like at that time a very uncertain financial situation in 2003/04 from the proposed changes in the Government's funding system.

9.7 The extra contribution in 2002/03 has been used to meet additional liabilities on storage and disposal of fridges, bus subsidies, assistance to Recreation and Heritage for loss of income and deficit on Milestones, together with additional resources to assist Social Services on bed blocking. The balance of £2.2m has been transferred to a grant equalisation reserve.

9.8 Of the other risks identified last year

· £2m for remedial works at landfill sites has been covered by a supplementary credit approval for the most pressing works at Efford

· the £2m dispute with Customs and Excise and Hampshire Waste Service over the liability for VAT of inert material used to line landfill sites now seems to have receded

· the current planned pension increases from the last actuarial valuation and the financing gap in the capital programme have been dealt with

9.9 Unfortunately the concern about potential loss of grant in 2003/04 has been multiplied by far more than assessed a year ago. Decisions taken a year ago have however helped to provide some protection into 2003/04, both in balances and in meeting inescapable commitments.

9.10 Apart from grant loss, risks looking forward include

· teachers pay award being more than the 3.5% provided, but as set out in paragraph 1.14 other resources are available (at an opportunity cost) to cover this

· fire-fighters' pay award - for which about £1m might be needed (paragraph 8.4)

· usual variations in insurance claims, weather conditions

· potential legal claims

· further pressures even beyond those provided for in Social Services, especially on children's services, bed-blocking and capacity/pricing issues in residential care, together still with a potential risk of an overspend in 2002/03.

· uncertainty generated by a possible war in Iraq and its effect upon oil prices and interest rates

· collapse of the stock market which is increasing even further the risk of a much higher employers' contribution to the pension fund at the next actuarial valuation in March 2004 to take effect in 2005/06. The current rate of around double the employers' rate would need to be around treble - a full year cost increase of around £8m if conditions do not improve

· the Fire Authority becoming a precepting authority with a potential call on part of the Council's balances

9.11 Against this background balances and reserves remain under pressure and there is no scope to reduce these significantly during 2003/04 given the outlook for 2004/05 and 2005/06 and the risks inherent during 2003/04.

10. Proposed 2003/04 budget

10.1 Adding the inescapable pressures and commitments to the budget guidelines results in the total proposed budget, compared with 2002/03, as set out in Table 3.

10.2 Of the total budget growth of 8.2%

· 3.9% is the result of inflation (but assuming only 2.5% for price increases)

· 0.6% is from base budget commitments from 2002/03

· the base budget is therefore £996.8m, 4.5% more than 2002/03

· 1.8% from the extra passported cash increase for schools and Social Services over the base budget (contract price increases over 2.5% for social care and buildings maintenance are extra inflation pressures met from the passported increases)

· budget at the guidelines is therefore £1,013.7m, a 6.3% increase

· additional inescapable pressures and legislative requirements which were excluded from the tight budget guidelines definition produces a further £18.4m (1.9%) taking the budget to £1,032.1m

10.3 The council tax increase, after the adjustments for floor, assumed national council tax, tax base and surplus on collection funds would be 15%.

10.4 Adding the additional growth to the budget guidelines results in proposed cash limits for each service in 2003/04 as follows:

Table 18: Service budgets

	Total
	£'000
Education	618,736
Environment	81,846
Policy and Resources	44,615
Recreation and Heritage	27,431
Social Services	232,191
	----------
Service cash-limited budgets	1,004,819
	----------

10.5 Other budgets can be summarised as follows:

Table 19: Other budgets

	Total
	£'000
Fire levy	40,900
Mandatory student awards	1,689
Flood protection levies	5,429
Magistrates' Courts	10,944
Capital financing charges	29,741
Revenue contributions to capital	29,864
Specific grants	-110,222
Inflation, reserves and contingencies	18,941
Other budgets	--------- 27,286 ---------

10.6 Bringing all the budgets together, results in an overall budget requirement as follows:

Table 20: Budget requirement

	Total
	£'000
Service cash-limited budgets	1,004,819
Other budgets	27,286
	------------
	1,032,105
	------------

10.7 The 2003/04 budget requirement is £78.7m or 8.2% higher than the 2002/03 budget which can be summarised as follows:

Table 21: Increase in budget requirement

	Increase
	£m	%
Services
Education - Schools	29.9	6.3
- LEA	1.8	3.3
Environment	7.0	9.1
Policy and Resources	3.9	9.8
Recreation and Heritage	1.7	6.7
Social Services	20.5	11.6
	------	------
	64.8	7.6
Fire levy	2.0	5.0
Flood protection levies	0.4	7.4
Magistrates' Courts	0.1	9.9
Capital financing charges	2.9	10.4
Revenue contributions to capital	4.1	16.1
Inflation, and balances, contingencies, reserves	4.4	76.8
	------- 78.7 -------	------ 8.2 ------

10.8 The budget requirement will be met as follows:

Table 22: Precept

	Total	Increase
	£'000	£'000
Revenue support grant	295,397	24,848
National non-domestic rates	332,574	-108
Net surplus on collection funds	2,915	-845
Precept	401,219	54,763
	----------	--------
Budget requirement	1,032,105	78,658
	----------	--------

10.9 Based on a taxbase of 475,062 Band D equivalent dwellings (compared with 471,581 in 2002/03) this would result in a council tax of £844.56, 15% more than 2002/03.

10.10 The overall budget can be compared with FSS blocks as set out in table 23, accepting the usual warnings about the dangers of such comparisons, and the approximate allocation of central support services and revenue contributions to capital and contributions to reserves and balances, which have still to be finalised. Table 23 shows the comparison after resource equalisation and then before resource equalisation - which is the underlying position for the County Council's budget trends and the base recognised by the Government in fixing grant support.

Table 23: 2003/04 budget comparison with FSS

A: Uplifted (after resource equalisation)

	FSS	Budget	Variation
	£m	£m	£m	%
Education	580.1	589.4	9.3	1.6
Social Services	203.6	205.9	2.3	1.1
Fire	39.4	41.2	1.8	4.6
Highway maintenance	44.6	50.2	5.6	12.6
Environmental, protective and cultural services	85.1	113.8	28.7	33.7
Capital financing	41.8	31.6	-10.2	-24.4
	-------	-------	------	-----
Total	994.6	1,032.1	37.5	3.8
	-------	-------	------	-----

B: FSS unadjusted (resource equalisation stripped out)

	FSS	Budget	Variation
	£m	£m	£m	%
Education	580.1	589.4	9.3	1.6
Social Services	186.7	205.9	19.2	10.3
Fire	35.1	41.2	6.1	17.4
Highway maintenance	45.5	50.2	4.7	10.3
Environmental, protective and cultural services	61.4	113.8	52.4	85.3
Capital financing	42.4	31.6	-10.8	-25.5
Resource equalisation uplift	43.4	-	-43.4	-100.0
	-------	-------	------	-----
Total	994.6	1,032.1	37.5	3.8
	-------	-------	------	-----

10.11 The increase in cash budgets (including contribution to reserves) compared with FSS are as follows:

Table 24 - 2003/04 budget increase compared with FSS

10.12 The overall comparison between budget growth and FSS and grant support is illustrated in the next table.

Table 25: 2003/04 budget levels compared with grant & FSS

11. Balances

11.1 The 2002/03 budget forecast balances of £6.1m at 31 March 2004, assuming that the budgeted addition to balances of £3.6m would be used during 2002/03 and 2003/04.

11.2 Actual balances at 31 March 2002 were £8.4m which included an addition to balances of £0.8m on closing the 2001/02 accounts, together with the transfer from the Fire earmarked pensions reserve (£1.4m). It was anticipated that £3.5m would be added to balances by the budgeted contribution during 2003/04, and that £0.4m would be used to recover overspendings, write offs and contingencies during 2002/03, leaving projected balances of £11.5m at 31 March 2003.

11.3 Of this £11.5m it was anticipated that £5.4m would be withdrawn during 2003/04 because of the anticipated pressures and grant changes, leaving £6.1m as the projected balance for 31 March 2004, which is set at the Council's minimum prudent level of 0.6%.

11.4 The extra contribution of £3.6m to balances in 2002/03 can be used as set out as follows:

Table 26: Use of contribution to balances in 2002/03

·

·

11.5 The 2003/04 costs of bus subsidies has been met by a budget addition; abandoned cars by a base budget increase recognising additional Government grant support; and an increase in support for Milestones has been absorbed within Recreation and Heritage's budget cash limit.

11.6 The forecast use of balances from 1 April 2002 to 31 March 2004 can therefore be summarised as follows:

Table 27: Forecast use of balances by 31 March 2004

12. Earmarked reserves

12.1 The budget strategy in 2002/03 was in preparation for an uncertain grant settlement in 2003/04. In practice this was far worse than anticipated and prudent use of reserves and balances included in the 2002/03 budget helps protect the 2003/04 and future years financial standing of the Council.

12.2 The 2003/04 budget needs to be prepared to take account of the two or three year budget view to offset the impact of the loss of grant of £27m still expected in 2004/05 and 2005/06. The 2003/04 budget strategy is designed to make maximum use of reserves to enable this three year view to be taken, so that services are maintained without cuts and to avoid an excessive council tax rise of 13-15% in 2004/05.

12.3 Earmarked reserves at 31 March 2004 are estimated at £62.0m. This is £22.0m more than budgeted for at 31 March 2003, but £6.8m lower than actual earmarked reserves at 31 March 2002.

12.4 The principal earmarked reserve is the schools reserve, which is expected to be around £28.5m at 31 March 2004 compared with £30.9m at 31 March 2002. This represents the balances on schools' delegated budgets which are ring-fenced and carried forward for use in future years.

12.5 The main reduction of reserves will be the use of the capital reserve which is projected to reduce from £23.7m at 31 March 2002 to £6.8m at 31 March 2004 as it is used to finance the capital programme over that period. This equalises revenue contributions against other capital financing resources and capital payments over the four year capital programme.

12.6 The largest increase in reserves is the proposed creation of the grant equalisation reserve to sustain services and council tax increases in 2004/05 and 2005/06. It is proposed to set up a reserve of £13.1m by 31 March 2004 from the following sources:

Table 28: Grant equalisation reserve

12.7 This earmarked reserve will be used in 2004/05 and 2005/06 to offset in part the remaining anticipated loss of grant of £27m.

12.8 The insurance reserve is the next largest reserve and appears adequate to meet known and anticipated liabilities over the budget period, reducing slightly from £5m at 31 March 2002 to £4.6m at 31 March 2004, but is projected to fall to £2.5m by 31 March 2006 following reinstatement of fire damage at schools.

12.9 The risk management assessment determines the need, scale and scope for all earmarked reserves, both in the continuation of the 2002/03 budget strategy and for new reserves and liabilities as well as the reserves referred to in paragraphs 12.4-12.6 and 12.8. Earmarked reserves are maintained to provide for other future risks and liabilities as follows:

· carry forward of agreed savings from one year to the next

· trading units activities between years and to create cover against future deficits or investment decisions within their agreed business plans.

· the statutory ring-fencing of on street parking charges accrued principally in the two city areas before local government reorganisation, to be re-invested in new car parking facilities (this reserve is planned to be reduced by £3.3m for new investment during 2003/04)

· outcome of pay and benefits strategy, both in terms of pay, recruitment and retention costs as well as transitional costs resulting from job evaluation

· delayed hospital discharges - to meet performance targets and avoid bed blocking fines during 2003/04

12.10 The summary of reserves and estimated movements during 2003/04 are set out in Appendix 9.

13. Council tax 2003/04

13.1 The trends in FSS (SSA), budgets and council tax are as follows:

Table 29: Trends in council tax

	Government		County Council
	SSA/FSS	Grant	Budget	Council Tax
1998/99	2.7	-0.1	3.9	10.0
1999/00	3.9	2.8	5.2	9.4
2000/01	5.2	4.7	5.3	5.8
2001/02	5.8	5.6	5.9	5.5
2002/03	5.4	5.1	6.9	7.9
2003/04	5.7	3.8	8.2	15.0

13.2 Provisional information suggest that for county councils:

· south east counties will have the largest council tax increases, at around 16%, because of the loss of grant compared with an overall average of about 13% across all regions

· Hampshire County Council's budget increase will be below average, despite the additional inescapable pressures and legislative commitments

· but its council tax rise will be above average but below most of the south east counties losing grant

· and its actual level of council tax, despite the grant loss will remain lower than average

13.3 The increase in the Council's budget, beyond the transitional grant support increase of 3.8% for 2003/04, all falls on the council tax.

Table 30: Explanation of council tax increase

14. Forward financial forecast

14.1 It is necessary to produce a forward three year forecast, not only to illustrate the effect of further loss of grant, but also to provide some stability in financial planning taking the 2-3 year budget view and to identify the scope for the continued budget strategy of passporting the schools budget.

14.2 This forecast can only be very provisional and will change. Apart from the usual uncertainties, assumptions have to be made about the rate of grant loss in 2004/05 by forecasting both a floor for 2004/05 and the effect on this of maintaining the DfES commitment to passport real terms per pupil funding increases to schools.

14.3 The Government's published spending plans for 2004/05 form the base, together with the information made available about planned transfers of specific grant into formula grant. But there will inevitably be further changes both in specific grant (amounts, distribution) and in function.

14.4 However the grant formula will not change again for the remainder of the SR2002 period, although data changes will continue to work through.

14.5 The 2004/05 forecast is based on:

· the same inflation assumptions as in 2003/04

· allowance for base budget changes, in particular for the anticipated impact of new waste infrastructure, volumes and landfill tax increases

· continued passporting of the Education and Social Services FSS increases

· possible future function changes have been ignored in both the FSS and budget projection other than the proposed transfers already notified relating to Education and Social Services, which have been taken into account in forecasting the underlying increase in FSS.

· no other service developments have been allowed for, or any additional costs

· neutral assumption that Hampshire's FSS increase will match the national increases in both years and that the real terms guarantee to schools and general grant floor will be set at 2.5%

· spending is shown net of specific grants because information for future years is incomplete.

14.6 The main changes in spending are summarised in Appendix 8.

14.7 The financial forecast can be summarised as follows:

Table 31: 2004/05 - 2005/06 projection (outturn prices)

14.8 The main issues that emerge from the forecasts concern the implications of the withdrawal of the damping of £24.9m within the 2003/04 Education FSS during 2004/05 and 2005/06 and of the Government's plans to withdraw a number of existing Education and Social Services specific grants in 2004/05 and 2005/06 without increasing the FSS control totals.

14.9 It is anticipated that the Schools Block FSS increase in 2004/05 will be around £4m less than the amount required to underwrite inflation, while at the same time Standards Fund grants of up to £7m could be withdrawn. This emphasises the importance of taking action in 2003/04 to enable this position to be dealt with without either requiring substantial reduction in spending on services or further unacceptably high council tax increases.

14.10 The forecasts in Table 31 imply council tax increases of 6.3% in 2004/05 and 6.7% in 2005/06 on the basis of the restrictive assumptions set out in paragraph 14.5, so that allowing for some inescapable pressures on services other than Schools and Social Services, increases of around 7% are anticipated without providing any additional protection for schools budgets from projected grant losses in 2004/05 and 2005/06.

14.11 For Social Services, grant for children's services and preserved rights are due to be phased out in 2004/05 and 2005/06, so that the underlying FSS increases forecast at 6.5% and 5.3% respectively are significantly lower than the headline increases announced in 2004/05 and 2005/06. This leaves limited room for manoeuvre with the demand and market pressures facing social services.

15. Budget consultation

15.1 No additional budget consultation has been carried out this year. The reasons are given in paragraph 1.30

15.2 The usual round of consultation meetings with business, council tax payers and residents' associations, voluntary organisations and the workforce will be held before the Cabinet meeting, and their views reported before the recommendation made to full Council which will determine the budget and council tax at its meeting on 20 February 2003.

15.3 It is proposed to hold community workshops during summer 2003 to start the budget consultation process on services and council tax for 2004/05, when financial stability has been restored and further changes in the grant system will not occur (except for the continued anticipated grant loss from changes this year).

16. Treasury Management

16.1 The County Council is required to adopt a treasury management strategy for 2003/04 and this is set out in Appendix 11 for approval. The Appendix

· outlines a proposed strategy for the management of the Council's long-term debt portfolio in the light of forecast trends in long and short-term interest rates over the next year and beyond

· recommends limits on total external borrowing, temporary borrowing and the proportion of interest payable at rates variable by the lender, to be submitted for approval by the Council as required by section 45 of the Local Government and Housing Act 1989

· summarises the arrangements for the investment of the Council's surplus funds

16.2 A new code on treasury management also has to be complied with, so this too is set out in Appendix 11. It is recommended that the new code be adopted when financial regulations are next reviewed, and an updated treasury policy statement be approved by the Council.

17. Conclusions

17.1 There are still some uncertainties in the budget:

· final grant settlement, though significant changes are not expected

· teachers and firefighters pay award

· final levies for fire and flood protection

17.2 A two to three year budget view has been taken because of the continuing loss of grant into 2004/05 and 2005/06. Prudential financial use of reserves and balances should mitigate the effect of grant loss on services and council tax in 2004/05 and 2005/06.

17.3 The Cabinet has determined that the scale of cuts required to reduce the council tax rise to offset the grant loss of £20.9m in 2003/04 is impossible to achieve across all services. Therefore the grant loss and the cost of inescapable pressures and legislative commitments cannot be avoided in 2003/04 which results in a 15% council tax rise as projected. Having provided for financial stability in 2003/04, it should be possible to offset the worst effects of further grant loss in 2004/05 and 2005/06.

18. Recommendation

18.1 The recommendations are set out in the decision sheet summary which precedes Part A of the report.

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:

Published works.

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

TITLE FILE

None

19. PART C - APPENDICES

Changes in final settlement have only effected two pages of appendices which are attached

Appendix 1

Revised budget 2002/03

1 2002/03 cash limit

2 Comparison of revised budget with cash limit

3 Analysis of main variations

Appendix 2

Revenue Budget 2003/04

2003/04 Base Budget

22. Service base budgets (981.1m)

22.1 At the last meeting of the Cabinet, provisional service base budgets were reported, totalling £971.0m. The final calculation of the base budget totals £981.1m an increase of £10.1m. The major change is to allow for a net increase in expenditure financed by specific grant of £8.9m, as a result of additional Social Services grants allocated by the Department of Health. The base budget has also been increased by £1m for the effect of the recently introduced Government guidance on charging for non-residential services.

Inflation to November 2002 prices

22.2 In preparing the base budget at November 2002 prices, allowance has been made for the full year effect of pay awards in 2002/03 and for inflation on the waste management contract, but has been otherwise restricted to the allocations made in 2002/03. In total allowance of £45.1m, has been made for inflation between November 2001 and November 2002 made up as follows:

22.3 Actual inflation is estimated at £46.6m, or £20.6m, more than allowed for in the original 2002/03 budget. After allowing for the additional allocation of £19.1m in the base budget, the excess cost of £1.5m has been absorbed in the base budget.

22.4 The excess cost of £1.5m (0.5%) relates to non-pay budgets for which a general allowance of 2.5% was included in the 2002/03 budget in line with the Government's inflation target, together with a further allocation of £2.5m for Social Care contract increases.

Other variations

22.5 Variations other than inflation add £10.6m to the base budget and can be categorised as follows:

22.6 Details for each service of the most significant variations compared with the repriced budget for 2002/03 are set out in the annex to this appendix.

Allocation for future inflation

22.7 Included within service base budgets is a provision for future inflation, so that the budget is presented on a cash limited basis, based on the following assumptions agreed by the Cabinet in December:

Table 4
	£m
Pay awards at 3.5%	21.0
Non-pay at 2.5%	12.0
Allowance for income to increase in line with the average increase in expenditure	-8.4
An increase in the employers' contribution to the teachers' pension scheme from 13.1% to 13.5% and to the local government pension scheme from 12.3% to 12.9% from 1 April 2003	2.1
A 1% increase in employers' national insurance contributions from 1 April 2003	4.0
	30.7

22.8 Provision has been retained centrally for increases in business rates and for higher costs arising from the waste management contract.

23. Summary of service budgets

23.1 A summary of service budgets is set out below:

23.2 Staffing numbers in the base budget are forecast to be 278 higher than in the 2002/03 budget. More details on staff changes are set out in Appendix 7.

24. Hampshire Fire and Rescue Authority (HFRA) levy (£40.8m)

24.1 The HFRA meet on 5 February to approve a budget for 2003/04, having consulted with the constituent authorities on its draft budget including the possible inclusion of new growth of up 1%. The Cabinet resolved to request the HFRA in the light of its budget growth over the last two years and the uncertainty surrounding the settlement of the firefighters' pay award, as well as the County Council's difficult grant settlement, to prepare a budget at the base budget level, with no additional cost from new growth items.

24.2 The base budget includes provision of £2.2m (4.5%) for inflation. This assumes a 4% increase in firefighters' pay from November 2002 and a further 4% increase from November 2003. Allowance has been made for a 3.5% award for non-uniformed staff, a 1% increase in national insurance contributions, and increased non-pay costs of 2.5%. The base budget also allows for growth of £0.6m (1.3%), comprising the full year effect of previous years' approved growth (£0.4m) and increased operational leasing and capital financing costs (£0.2m). This growth is however largely offset by lower projected pension costs in 2003/04 of £0.5m (1.1%), producing an overall base budget increase of £2.3m (4.7%). The County Council's share of the increase is £1.8m.

25. Other expenditure outside service cash limits

25.1 It is the County Council's policy to exclude a number of headings from service budgetary control limits. These are items which are outside the direct control of services and the magnitude of which means that variations could unreasonably jeopardise service plans if substantial variations took place during the year. They do of course remain a prior charge on the Council's expenditure.

Education mandatory awards to students (£1.7m)

25.2 Spending on mandatory awards to students is now confined to disabled students, as the County Council ceased to be financially responsible for the funding of other new students from September 1999. As mandatory awards are 100% grant-aided changes in the level of spending have no impact upon the County Council's overall financial position.

Flood protection levies (£5.4m)

25.3 The Environment Agency has the statutory responsibility for flood defence and the costs incurred by local Flood Defence Committees are levied on County councils and unitary authorities pro rata to council taxbase. The County Council receives levies from the Southern, Thames and South Western regions. Provision has been made for levies in 2003/04 at 2002/03 levels. Actual levies for 2003/04 will be set shortly and a central provision for increased levies has been included in the inflation contingency.

Magistrates Courts (£10.9m)

25.4 Magistrates' Courts Committees receive 80% government grant, subject to a cash limit set by the Lord Chancellor's department. The County Council, Isle of Wight, Portsmouth and Southampton unitary councils finance the remaining 20% of the Hampshire and Isle of Wight Committees costs. The cash limit set by the Lord Chancellor has increased by 11.1% in 2003/04 and after adjusting for a planned carried forward of an underspending in 2002/03, the County Council's contribution net of specific grant is expected to increase by 9.9% in 2003/04.

26. Capital financing charges (£29.7m)

26.1 The system of accounting for capital assets means that capital financing charges do not feature in service budgets but are charged to a central asset management revenue account. The level of financing charges made to the central account is however a key factor in setting the Council's budget. The charges comprise loan repayments and interest of £31.5m, offset by interest on balances of £1.8m. The base budget has been prepared on the basis of current short-term interest rates linked to a base rate of 4%.

26.2 The estimate assumes a continuation of the policy of repaying debt at the minimum statutory level and of making no voluntary set aside of capital receipts to repay debt. The estimate is £3.0m higher than the original estimate for the current year for the following main reasons:

· debt outstanding at the end of 2002/03 is expected to be about £39.0m higher than the level assumed at 1 April 2002 in setting the 2002/03 budget. Additional repayments of principal and interest on this increased borrowing in 2003/04 are estimated at £3.6m

· though base rate has remained unchanged at 4% since November 2001, savings of £0.6m in interest costs have been achieved both in the actual cost of short-term borrowing and from new long-term borrowing at lower rates than assumed.

27. Revenue contributions to capital (£26.1m)

27.1 These contributions supplement Government borrowing approvals and grants and the use of capital receipts in financing the capital programme.

27.2 The base budget of £26.1m is £0.5m lower than the 2002/03 budget as a result of the following variations:

28. Specific grants (-£110.2m)

28.1 Specific grants are £9.3m lower than in the original 2002/03 budget, mainly as a result of the transfer of Education and Social Services specific grants into revenue support grant amounting to £23.5m. Specific grants comprise:

29. Provision for future inflation and contingencies (£4.9m)

29.1 Service budgets incorporate an allocation for general pay and price inflation based on provision of 3.5% for pay increases and 2.5% for price increases. The contingency provision of £4.9m in the base budget covers other items for which resources need to be earmarked in the budget, but where it would be premature to allocate the resources or where allocation decisions have still to be made. The provision is made up as follows:

30. Summary

30.1 In summary therefore the base budget for 2003/04 is £996.8m, made up as follows:

Annex 1

Education Service

Base Budget 2003/04

Significant Variations

Major variations between the repriced budget 2002/03 and the base budget for 2003/04 (at November 2002 prices) contributing to the decrease of £5,695,000 (-1.0%) out below:

Annex 2

Environment Service

Base Budget 2003/04

Significant variations

Major variations between the repriced budget 2002/03 and the base budget for 2003/04 at November 2002 prices contributing to the increase of £3,240,000 (4.2%) are set out below:

Annex 3

Policy and Resources

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 £6,785,000 (20.0%) are set out below:

Annex 4

Recreation and Heritage Services

Base Budget 2003/04

Significant variations

Major variations between the repriced budget 2002/03 and the base budget for 2003/04 at November 2002 prices contributing to the increase of £113,000 (0.4%) are set out below:

Annex 5

Social Services

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/decrease of £6,198.000 (2.9%) are set out below:

Appendix 3A

Education Service

Revenue Budget 2003/04

Proposals for New Growth and Redeployment of Resources - Schools Block

Appendix 3A

Education Service

Revenue Budget 2003/04

Proposals for New Growth and Redeployment of Resources - LEA Block

Appendix 3B

Environment Service

Revenue Budget 2003/04

Proposals for redeployment of resources

Appendix 3C

Policy and Resources Services

Revenue Budget 2003/04

Proposals for new growth and redeployment of resources

Appendix 3D

Recreation and Heritage Services

Revenue Budget 2003/04

Proposals for redeployment of resources

Appendix 3E

Social Services

Revenue Budget 2003/04

Proposals for new growth

Appendix 4

Proposals for efficiency improvements in 2003/04

As a result of absorbing cost increases