Contact: Nick Gibbins, ext 7544

1 Summary

1.1 This report seeks Cabinet approval for Target 13 of the Local Public Service Agreement (LPSA). The following decisions are sought:

· To approve the basket of performance indicators for the cost effectiveness indicator

· To approve a cost effectiveness target of 8%.

2 Reason

2.1 When the LPSA was signed in January 2002, the Government had not finalised negotiations on the definition of the cost effectiveness target. Now that a definition has been agreed, the Council need to finalise this outstanding target.

3 Other options considered and rejected

3.1 None

4 Conflicts of interest declared by the decision maker or a member or officer consulted

4.1 Not applicable.

5 Dispensation granted by the Standards Committee

5.1 Not applicable.

6 Reason(s) for the matter being dealt with if urgent

6.1 Not applicable.

Approved by: (signature) Date: (date of decision)

Councillor T K Thornber

Contact: Nick Gibbins, ext 7544

1 Introduction

1.1 The Office of the Deputy Prime Minister (ODPM) has issued guidance for concluding the Local Public Service Agreement (LPSA) target for cost effectiveness. Lengthy discussions have taken place between the ODPM, the pilot authorities and the Local Government Association which failed to identify a fully satisfactory measure. An interim measure has therefore been agreed as the basis for negotiating the cost effectiveness indicator in the first round of LPSAs.

1.2 The proposed cost effectiveness indicator is defined as:

Change in cost effectiveness = Change in index of performance

Change in index of cost

The aim of the indicator is to demonstrate the ability to improve delivery of outcomes at a faster rate than increases in spending. It assesses the performance of individual authorities over the period of their LPSA.

1.3 Performance reward grant of up to £22m will be payable to the County Council at the end of the LPSA period in March 2005 if performance targets are achieved. The grant is divided equally between the 13 targets covered by the LPSA, including the cost effectiveness target, and so grant of £1.7m is dependent on the County Council's performance against the cost effectiveness target.

2 Performance

2.1 Performance is expressed as an index number derived from a basket of performance indicators. The basket of performance measures should be `relevant to the Council's policies and priorities', while at the same time covering the breadth of the Council's activities. The proposed basket also has to meet the following ODPM criteria:

· the basket must contain between 25 and 45 indicators

· at least 75% of the measures selected should be based on nationally defined performance measures that are currently in use or have been defined in the past, for example, best value performance indicators or PAF performance indicators (Social Services)

· indicators should not be cost or spending based

· Education indicators should account for between 25% and 50% of the weighted basket, and Social Services indicators for between 15% and 30%

· corporate health indicators should account for no more than 10% of the basket

· no single non-education indicator should have a weight of more than 5%

· no indicator relating to Education services should have a weight of more than 7.5% of the weighted total for the basket.

2.2 When weighting service groups within the basket, consideration also needs to be given to the scale and impact of the activity within the Council (measured by size of budgets).

2.3 As reported in the last LPSA monitoring report to the Cabinet in May 2003, the initial proposal to base the performance measure purely on the other indicators contained within the LPSA did not fit the ODPM's criteria and further work was needed to develop a performance measure which satisfied the criteria.

2.4 The basket of indicators shown in Appendix 1 meets the ODPM criteria. All the indicators included within it are either based on indicators contained within the PSA or form part of the basket of 44 indicators used by Hampshire County Council to benchmark performance with other local authorities. Cabinet is asked to endorse this basket of indicators.

3 Cost

3.1 The cost index is based on a broad definition of the resources used by the Council to deliver performance each year and is common to all councils. It is based on the change in the County Council's spending, net of specific grants, adjusted for the change in the Gross Domestic Product deflator.

4 Cost effectiveness indicator target

4.1 There are two options for councils to choose from when setting the overall cost effectiveness target. As a baseline, the ODPM expect the index of performance to increase by a minimum of 6% more than the index for cost over the period of the LPSA. Councils can choose whether to set their cost effectiveness target at 7.5%, with a 60% threshold (Option A) for partial payment of reward grant, or 8% with no threshold (Option B).

4.2 Thus under Option A, grant would become payable only if performance had reached the minimum threshold of 60% of the difference between 6% and 7.5%, ie at 6.9%. (These percentages are the increase in the index of performance above the index for cost). If performance is better than 6.9%, the grant payable would be higher on a sliding scale until the maximum grant is payable when performance reaches 7.5%.

4.3 Under Option B, there is no threshold and so grant is partially payable at 6%. It then increases on a sliding scale with performance until the full grant is payable if the performance level is 8%. This means that performance under Option B has to be higher than under Option A to earn the maximum grant (8% instead of 7.5%), but grant does become partially payable at a lower level of performance level (6% instead of 6.9%).

4.4 The choice of option is an assessment of the County Council's probable performance against the target, as set out in the table below:

	Option A	Option B	Preferred Option
Performance below 106	No grant	No grant	-
Performance between 106 and 106.9	No grant	Grant of up to 45% of total	Option B
Performance between 106.9 and 108	60% to 100% of grant	45% to 100% of grant	Option A
108 and above	100% of grant	100% of grant	Either

4.5 To be eligible for the full performance reward grant on this target it will be necessary to increase performance over the period of the agreement by either 7.5% or 8% more than the increase in the cost index. As mentioned in the last monitoring report, initial projections of the increase in costs over the LPSA period, together with the 7.5% or 8% target, will mean that an overall increase in performance of over 20% will be required to earn the full reward grant. This is a very challenging target particularly for the education indicators which make up half of the overall basket.

4.6 Given the challenging nature of the target, it would be sensible to chose the option under which reward grant is paid out on the achievement of a lower improvement in performance. Cabinet are therefore asked to endorse Option B as this offers the County Council a better chance of receiving some reward grant towards this target.

Recommendation

To approve the basket of indicators in Appendix 1 and an overall cost effectiveness target of 8% (Option B).

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.

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