A. REVENUE BUDGET AND PRECEPT 2003/04

1. Summary

1.1. The Cabinet recommends a council tax increase of 15% for 2003/04. This is against a background of the County Council losing an estimated £48m over the coming years as a result of the Government's decision to redistribute funding from Councils in the South East to urban Councils in the North and the Midlands. The 15% increase is expected to be above the median for County Councils overall, but below most other counties in the South and South East which have similarly lost grant from changes in area cost adjustment and from resource equalisation.

1.2. The emphasis on "passporting", or increasing Education and Social Services budgets in line with the Government's spending plans and Formula Spending Share (FSS), inevitably results in spending in these areas which is more than the rate of inflation. The Government has increased its general grant support for the County Council by 3.8%, but that does not cover the 5.9% it expects to go to schools alone. As grant support is fixed no matter what the County Council budgets, any increase above 3.8% all falls on the income from council tax.

1.3. In summary, the proposed budget proposes:-

· a budget of £1,032, 105,000 which is 8.2% more than the 2002/03 budget


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


· spending which is £37.5m or 3.8% above FSS compared with 6.6% above Standard Spending Assessment (SSA) in 2002/03

1.4. There are no cuts in the budget proposed, which is presented as a budget for recovery having regard to the impact of the Government decisions referred to in 1.1. Its central focus is protecting services and avoiding excessive council tax rises in subsequent years. It also meets inescapable pressures and legislative requirements.

2. Budget Guidelines

2.1. As requested by Cabinet, Executive Members have put forward service budgets in accordance with an agreed budget strategy and budget guidelines, set then at £1,013.2m. These have allowed for (inter alia)

· a continuation of the current financial policies of the County Council


· priority increases over the base budget passported cash increases in line with the Government's 5.9% FSS increase of £9.6m for the schools budget, a cash increase of £6.6m for Social Services (£1m above the 6.8% FSS increase) and £0.8m for the central share of these amounts


· a 23% increase in the schools standard grant


· a utilisation by Social Services of 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.

3. Budget Proposals

3.1. Since preparation of the guidelines, details of the final Revenue Support Grant (RSG) Settlement have been announced, and despite written representations and a meeting with the Minister as part of the South East Counties delegation, the only change of substance has been one to the further detriment of the County Council, namely a further loss of £3.8m in FSS, taking the overall amount of loss up to the £48m referred to in paragraph 1.1. The main reason for this grant loss is further amendment to the Area Cost Adjustment (ACA) for data changes and, uniquely for all Hampshire authorities, to provide a gain in grant for the Isle of Wight. Hampshire and the Isle of Wight have been pooled and treated as a single labour market for ACA purposes. Other Hampshire authorities have also been adversely effected. The rationale for this is because of the small New Earnings Survey sample size for the Isle of Wight, a reliable ACA factor cannot be derived for the Isle of Wight alone. This is not an unreasonable argument, but the conclusion drawn from this that Hampshire and Isle of Wight should be treated as if they were adjoining London Boroughs or Metropolitan Districts is irrational. All-party representations to Central Government have been made on the principle of the change and the lack of consultation and lateness of the notification.

3.2. Following a review of Executive Members' specific proposals and taking account of the recent developments, the Cabinet proposes increasing spending by £18.4m (1.9%) above the budget guidelines thus bringing the total planned expenditure to £1,032,105,000. The principal reasons for this further budget increase are inescapable pressures and legislative requirements including significant sums for older people's residential care to avoid delays in hospital discharges and consequent bed blocking fines imposed by the Government (£3.5m), for home care for older people to meet performance targets (£3.5m), for other pressures such as bus subsidy, disposal of refrigerators and compliance with the Countryside and Rights of Way Act (£3.6m), and a transfer to reserve of £4.3m for 2004/05 grant loss to avoid cuts in services and excessive council tax rises in 2004/05.

3.3. The Cabinet again proposes the highest priority for Education and Social Care. Use of the passported cash increase of £9.6m for the Schools Block is mainly to replace terminated standards fund grants and provide the local education authority share for new standards fund grants devolved to schools, and for recruitment and retention of staff and other staff cost pressures. In addition, Education has identified savings in 2002/03 which, although notified in advance, cannot all be described as planned because contingencies are not fully required. Nevertheless the carry forward will considerably aid budget pressures on Education in 2003/04 and the Cabinet has agreed that the underspending be carried forward and redeployed to meet other standard fund changes, ICT and other pressures in the Local Education Authority block.

3.4. Social Services will use its increase of £6.6m 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

· children's places in care

· transitional age cases for adult services

3.5. Policy and Resources will use its £0.8m central share of the 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. 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. Redeployments including the Education and Social Care ones referred to in paragraph 3.4 therefore total £3.4m.

4. Teachers' Pay Award

4.1. The teachers' pay award has very recently been settled at 2.9%. Sufficient provision for this was made in the passported cash increase for schools and other sources, and no further corporate provision is necessary. The Executive Member for Education is giving consideration as to how the saving against the 3.5% allowance made for the award, should be allocated in school budget shares.

5. Fire Levy

5.1. The Hampshire Fire and Rescue Authority has agreed its budget and levy for 2003/04. This is just £120,000 above its roll forward budget level as requested by the County Council and the two Cities having regard to budget growth over recent years, full year growth in 2003/04 from the 2002/03 budget, and uncertainty over the firefighters' pay award.

6. Balances

6.1. 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.

7. Earmarked reserves

7.1. Earmarked reserves at 31 March 2004 are estimated at £62m, £22m 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 delayed hospital discharge reserves.

8. Treasury Management Strategy

8.1. For 2003/04, the Cabinet recommends that long and short term interest rates be monitored closely. Long term fixed-rate borrowing should be considered if long term-rates stand at 5% or below or at a higher rate if clear signs of a rising trend in rates should occur. The Cabinet considers that for the year ending 31 March 2004 an overall borrowing limit of £360m should be set and a short term borrowing limit of £240m. The proportion of interest payable at rates which can be varied by the lender or by external factors should be set at 10% of the interest payable for the year ending 31 March 2004. The Cabinet also proposes that the County Treasurer be authorised to carry out borrowing transactions within those limits and a new code on treasury management be complied with.

9. Consultations

9.1. The "Hands Off" Hampshire Campaign explained fully the changes caused by Government grant loss. Other consultation information has been provided by MORI surveys and the use of the Citizens' Panel. The usual consultations have taken place recently with business, council tax payers, the voluntary organisations and the workforce on the proposed budget. Although the level of the proposed increase of 15% has raised concerns especially for those on fixed incomes and affected by increased taxation in April, there appears to be a clear understanding of the unprecedented pressures facing the County Council, as a result of the Government's recent decisions. Both business and council tax payers representatives have supported the prudent management of the County Council's financial affairs and the need to maintain service levels despite the unwelcome effect on council tax payers in Hampshire of the Government's decision to redistribute grant to the North and Midlands.

10. Conclusion

10.1. The budget takes a longer term view as it is known that the County Council will lose further grant in coming years. There are still many uncertainties, however, not least the level of the floor and further potential grant loss in 2004/05. Further changes in function or specific grants would affect the position.

RECOMMENDATIONS:

(i) That the revenue budget for 2003/04 as set out in the attached draft budget book be approved.

(ii) That the total budget requirement for the general expenses of the County Council for the year beginning 1 April 2003 be £1,032,105,000.

(iii) That the County Council's basic council tax for the year beginning 1 April 2003 be £844.56.

(iv) That the County Council's council tax for the year beginning 1 April 2003 for properties in each tax band be:
£
Band A 563.04
Band B 656.88
Band C 750.72
Band D 844.56
Band E 1,032.24
Band F 1,219.92
Band G 1,407.60
Band H 1,689.12

(v) That precepts be issued totalling £401,218,649.87 on the billing authorities in Hampshire, requiring the payment, in such instalments and on such dates set by them and previously notified to the County Council, in proportion to the tax base of each billing authority's area as determined by them and as set out below:-
£
Basingstoke and Deane Borough Council 57,541.90
East Hampshire District Council 45,153.49
Eastleigh Borough Council 41,664.81
Fareham Borough Council 41,076.00
Gosport Borough Council 25,462.70
Hart District Council 35,252.00
Havant Borough Council 41,925.00
New Forest District Council 69,483.70
Rushmoor Borough Council 29,074.34
Test Valley Borough Council 44,019.00
Winchester City Council 44,409.40

(vi) That an overall borrowing limit of £360m be set for the year ending 31 March 2004.

(vii) That a short-term borrowing limit of £240m be set for the year ending 31 March 2004.

(viii) That the proportion of interest payable at rates which can be varied by the lender or by external factors be set at 10% of the interest payable for the year ending 31 March 2004.

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

B CAPITAL PROGRAMME 2003/04 - 2006/07

1. The Cabinet has considered proposals put forward by Executive Members for the four years 2003/04 to 2006/07. The resultant draft capital programme is attached as a separate document. In drawing up their preferred programmes, Executive Members were requested to

_ prepare proposals for a locally resourced four-year capital programme within the current programme limits, adjusted for inflation


_ submit, in addition, capital schemes supported by Government grants and scheme-specific borrowing approvals for 2003/04, and those expected to be supported in 2004/05, 2005/06 and 2006/07


_ submit possible capital programme projects which might be suitable for private finance initiative (PFI) revenue support from 2004/05 to 2006/07.

2. The total starts value of the four year programme is £503.5m. The main elements are £376.2m for schemes supported by Government approvals, £123.5m for the four year locally resourced programmes and £3.8m for land acquisitions.

3. The proposed Education programme for the next four years totals £119.4m including £5.75m carried forward from 2002/03, Government general borrowing approvals for the New Deal for Schools (NDS) Modernisation of £38m, and a further £43m by way of devolved capital allocations direct to schools. As the Government is not expected to announce its direct allocation to schools and the NDS Modernisation programmes for 2004/05 and 2005/06 until March, the programme assumes that 2003/04 levels will continue. The Government's formula-based support for capital spending on Education for 2003/04 is £55m, an increase of nearly 24% above £44m allocated in 2002/03. Nonetheless the Education Capital Programme is under continuing pressure because of high levels of inflation in building costs, the level of basic need projects requiring significant furniture and equipment allocations for which specific provision is not made in Government allocations, and investment in schemes in advance of in/out capital receipts from the disposal of sites leading to cash flow difficulties within the Education Programme. There are sufficient resources available to the Executive Member for Education to fund all the schemes which need to be started in 2003/04. Several ways of reducing the underfunding referred to have been identified including (inter alia) use of capital receipts from Education sites currently being sold and possible sales of excess land at school sites with development potential.

4. With regard to Environment, the Government's Local Transport Capital settlement for 2003/04 includes an allocation of borrowing approvals of £27.5m, an increase of 16.1% compared with the equivalent figure for 2002/03. This includes a £13.2m (25%) increase for highway maintenance. The Government has allocated a scheme-specific borrowing approval of £1.1m, matched by a grant of a similar amount for advance works in 2003/04 for the South Hampshire Rapid Transit (SHRT) scheme. The Fareham-Gosport-Portsmouth section of the scheme has been included in the proposed programme for 2004/05. The Government has indicated that it will support 75% of the public sector cost of the scheme (the County Council's share after allowing for Portsmouth City Council's 30% share and external contributions is £119m at 2003/04 prices). However the precise details of how the scheme will be financed will depend on the outcome of the procurement process currently in progress. The Executive Member for Environment will report back in detail to Cabinet before the scheme is committed on how the capital and revenue costs will be financed. The proposed four year programme includes one other major scheme, Chickenhall Lane Link, Eastleigh at an estimated cost of £30m started in 2006/07. This scheme has not yet been accepted for Government support and the funding for any design and other preparatory work will be found, in the meantime, from within the overall transport allocation.

5. The allocation of the Policy and Resources capital programme between schemes is broadly similar to the existing programme. The maintenance of the core buildings and the County Council's built estate, through the capital repairs programme, continues to be the main corporate priority.

6. With regard to Recreation and Heritage, the Cabinet has agreed to the request of the Executive Member that the guidelines for the capital programmes for 2003/04 and 2004/05 be increased by £0.5m by virement from his revenue budget. The increase will be used to reverse the decline in the physical condition of some buildings and property, to restructure and remodel facilities to make them more attractive and user-friendly, and to enable services to be delivered in new ways to meet user expectations.

7. The capital programme for Social Care is in line with the guidelines set in December 2002. Schemes supported by Government grant in 2003/04, 2004/05 and 2005/06 to improve information management and for IT for looked-after children have been added to the programme. The £60m scheme to provide 500 new nursing beds to maintain capacity in the nursing home market is being progressed with the Health Service. Funding of £40m will be provided by the Strategic Health Authority with £20m being met from Government grant and a similar amount from the Authority's capital programme. A bid for borrowing approval for the remaining £20m has been made to the Government and a decision is awaited. Regular reports are made to the Cabinet on this crucially important issue which has the potential to free-up some of the monies earmarked to meet fines for bed-blocking.

8. The Government has again top-sliced 5% of the resources, the "single capital pot", in order to create a discretionary pool to be allocated to Councils at the discretion of Ministers. All of the County Council's plans scored sufficiently highly for it to be awarded the maximum amount of borrowing approval from the discretionary pool, namely £2.4m. Proposed allocations include contributions towards

_ a proposed scheme to extend Romsey Library (£350,000)


_ the redevelopment of the Bar End Depot Site in Winchester (£400,000)


_ the possible purchase of land for additional primary school places (£1m)


_ Trosnant Early Years Centre, Havant (£132,000)


_ the funding of external costs in developing PFI schemes (£59,000)


_ providing support for developments in Recreation and Heritage (£450,000).

9. Feedback on the County Council's Capital Strategy and Corporate Asset Management Plan (AMP) from the Government Office for the South East (GOSE) has been extremely positive. The County Council meets all the primary and secondary assessment criteria in respect of the corporate AMP which contributed to its Comprehensive Performance Assessment rating of "Excellent". As a result the County Council will not be required to submit the Capital Strategy and Corporate AMP to the Government each year although it anticipated that both documents will still be required as evidence to support updated inspection and audit for the Comprehensive Performance Assessment.

10. There are a number of other issues affecting the County Council's Capital Programme that are currently being investigated and these will be reported, depending on progress, to Cabinet in May 2003 when the County Council's overall capital strategy could be reviewed. These could include:

_ more detailed proposals for the use of PFI following initial identification of possible schemes


_ use of the schools balances loan scheme and other measures to fund the Education capital programme


_ the transfer of any resources to Recreation and Heritage


_ the funding of the South Hampshire Rapid Transit scheme


_ the funding of the nursing homes scheme


_ the prospects for capital receipts in 2004/05 and subsequent years


_ the need for investment in infrastructure to develop land in Popley to maintain the stream of capital receipts, and the need to meet the County Council's obligations to participate in the development of land at Manydown in Basingstoke.

11. With regard to payments and resources, resources in 2002/03 and 2003/04 will match the forecast level of capital payments in those years with the use of the balance available in the capital reserve. By 2004/05, however, there will be a small shortfall of resources of £0.2m, but as this is minimal in the context of annual payments running at an average of more than £140m per annum over the next five years, no immediate action is required to eliminate it. Payments and resources will be closely monitored and regular reports brought to the Cabinet.

RECOMMENDATIONS:

(i) That the capital programme for 2003/04 be approved as set out in the attached draft capital programme of the accompanying report and subject to the conditions set out in section B.3 of the County Council's Financial Procedures.

(ii) That the capital programmes for 2004/05 to 2006/07 be approved as set out in the attached draft capital programme for the purpose of undertaking design work (including the preparation of feasibility and design project appraisals)

(iii) That expenditure on preliminary design and planning work for major transport schemes be permitted when they have achieved a place in the County Council's Local Transport Plan, subject to the cost being met within existing credit approvals.

(iv) That authority be given to incur expenditure on land purchases as follows:

(a) up to the sum specified in respect of sites still required for the schemes included in the capital programme for the period 2003/04 to 2006/07 provided that the relevant scheme has been the subject of a feasibility or design project appraisal approved by the relevant Executive Member;


(b) up to the amount included in the 2003/04 programme in respect of advance and advantageous land purchases.

(v) That the carrying out of feasibility studies for potential "in/out" schemes be approved, the cost to be met from within approved revenue budgets.

(vi) That the Executive Member for Policy and Resources be authorised to approve requests from Executive Members to undertake any design work associated with potential in/out schemes, provided that such costs as may fall on the County Council are met from within the relevant Executive Member's capital programme limits

T.K. THORNBER CBE

Leader

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.

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

Letters from Government departments on the single capital pot and other capital allocations.

5nR95203