Contact: Jon Pittam, ext 7400

1. Summary

1.1 This report

· presents the key findings from the MORI community workshop

· identifies progress and plans on the other budget consultation exercises

· updates budget planning for 2004/05 and 2005/06 since the last report on 23 June 2003

1.2 The following decisions are sought

· to receive the feedback from the MORI workshop

· to note the current budget projections

· to receive further reports on budget strategy and the results of other consultative exercises in preparation for setting budget guidelines for 2004/05 in December 2003.

2. Reason

2.1 To continue the process of consultation and budget planning for 2004/05 and 2005/06

3. Other options considered and rejected

3.1 Not applicable.

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 for the matter being dealt with if urgent

6.1 Not applicable.

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

Councillor T K Thornber

Contact: Jon Pittam, ext 7400

1. Introduction

1.1 This report is the latest in the series considering the scope for budget consultation and the basis of the budget options used.

1.2 The options and response to these will be considered by Cabinet in setting its budget guidelines for 2004/05 at its December 2003 meeting.

1.3 The projections reported in June have been updated for the latest changes which now form the basis for the current round of consultation. Further information is required before the budget strategy and guidelines can be refined in any more detail. This is now not likely to be until after the provisional revenue support grant settlement is received in mid November 2003.

1.4 The usual round of meetings will be arranged between the Leader and Executive Members during October to identify the implications of these budget options on services, to identify possible budget pressures and compensatory savings.

2. Budget consultation - MORI community workshop

2.1 The results of the community workshop in July are set out in Appendix 1, as summarised by MORI.

2.2 It provided some useful guidance but at this stage it is difficult to draw firm conclusions upon the balance between budget priorities and increases across services with possible levels of council tax rise. There were no firm budget options and this is best left to a later stage of consultation in January or February 2004 when budget guidelines have been set and the Leader and Cabinet have the extra information required to determine the final spending options around the council tax rises of 5%, 7% and 9% being consulted upon.

2.3 The outcome seemed to be a preference for an increase of around 6% to 7%, but it did vary between age ranges and the final impact upon maintaining services at least at existing levels.

2.4 However as the MORI report shows these agreements are conditional

· upon clear evidence that the Council is putting the Council's case to Government

· that the increase was unavoidable given the changes to the Government's grant policy

· that the reasons for the increase were clearly communicated to residents

· that there was a limit to the increase residents would accept

Communications Strategy

2.5 From this stems a need to have a clear communication strategy on the budget. This can start with the general message that the Council is looking at options of 5%, 7% or 9% which will have different impacts upon services, with the middle 6% to 7% option being broadly standstill. In doing so the Council is attempting to absorb the second phase of Government grant loss which is expected to be up to £14m (with a further loss of £13m in 2005/06). A certain prognosis cannot be given until after the provisional revenue support grant announcement in mid November.

Other consultation meetings

2.6 Meetings have been arranged with

· Hampshire Strategic Partnership, 2 September 2003

· business representatives, 4 September 2003

· Schools Forum, 15 September 2003

· voluntary sector, 5 September 2003

2.7 Preliminary feedback from these meetings will be given at this meeting, but initial views suggest a council tax rise of around 6% to 7% to maintain existing services appears to be a majority view, although all consultation exercises request the minimum possible tax rise.

2.8 Hampshire MP's will be consulted and asked for support at their regular meeting in December with the Cabinet.

2.9 Cabinet may wish to consider a second round of meetings with these consultees late January/early February 2004 when the options and implications are firmer, together with the usual consultation at that time with the workforce.

3. Change since the June projections

3.1 The Secretary of State for Education gave a statement on schools funding for the period 2004 to 2006 on 17 July 2003.

3.2 The key elements of the statement were

· provisional local government finance settlement would be announced in the middle of November

(this is about two weeks earlier than usual, but the commitment to provide an earlier notification of floors and ceilings before this appears to have been quietly dropped)

· an earlier announcement on Standards Fund distribution, before the announcement of the provisional settlement

(even if these details were known by mid November it would be a great improvement on past practice)

· to bring forward the date for the notification of the proposed schools budget to the Secretary of State from the end of January to the end of December 2003

(this leaves very little time to determine the budget strategy for schools)

· to provide a guarantee at the level of the individual school so that every school will receive at least a minimum increase in its funding per pupil, implemented through Fair Funding Regulations, placing every LEA under a direct obligation to provide for such a minimum guarantee

· the minimum percentage increase for 2004/05 (and provisionally for 2005/06) will be provided by the time of the provisional settlement in November after the completion of this analysis of `costs in the system, in particular teachers pay'

· (to assist this) the School Teacher's Review Body has been asked to report in early November `so that LEA's and schools will have much earlier certainty about the level of pay cost pressures for the next two years'

(the Secretary of State has submitted evidence to make a case for a two and a half year settlement on the basis of current targets for inflation)

3.3 In order to deliver the minimum guarantee the Secretary of State has to ensure that each Local Education Authority (LEA) has the necessary resources within its Schools Budget, by

· setting a minimum increase in Schools Formula Spending Share (SFSS) to cover the school level guarantee and provide the headroom necessary to enable the local Fair Funding formula to work

· providing sufficient central Government support to `passport' in full the increase in SFSS into the Schools Budget

(but if there is no increase in the overall amount of Government grant, as seems likely, this commitment can only be met at the expense of reduced, or in Hampshire's case possibly no, grant support for increased spending on other services)

3.4 The Government will also provide additional resources for other local services, including Children's Social Services `over and above' those announced in the last Spending Review - the details will be `announced in the autumn'

(these details - and the extent of the new obligations, including the impact of the Green Paper `Every Child Matters' announced on 8 September 2003, will need to be fed into the budget and council tax options at a later stage)

3.5 The Secretary of State will exercise his reserve power (`barring wholly exceptional circumstances') to require every LEA to `passport' the full increase in its SFSS into a matching increase in the Schools Budget.

(because of the grant formula changes for the grant loss from 2003/04 continuing in to later years, the increase for Hampshire schools will be much lower than the national increase in SFSS)

3.6 In response to the concerns expressed by schools and the media during the summer, the Secretary of State also announced that he would `reverse the reductions previously announced for Standards Fund support to schools in 2004/05 and 2005/06'.

(this adds £400m nationally in each of the next two years, over and above existing plans - made available from the Secretary of State's `end year flexibility, and other redirection of existing resources'. This makes the County Council and its schools about £7m better off than assumed in June - but no allowance had been made in the council tax options to replace this lost Standards Fund. The previous assumption was that this would have to be found within the passported schools increase, or by additional savings elsewhere or by a council tax rise towards the top end (7% to 9%) of the options consulted on. It does not recompense the Council or its schools for the loss of Standards Fund grant in 2003/04).

3.7 The Secretary of State is discussing with `our education partners' how the guarantee will work in detail and he will consult further. The County Education Officer (as President of ConFed) and the County Treasurer (as adviser to the LEA on Education Finance) and the Assistant County Treasurer (as convenor to the Service Working Group on Education in support of the lead adviser's role) are all members of the weekly `partners' meeting with the Department for Education and Skills (DfES) and the Office of the Deputy Prime Minster (ODPM) on these issues.

3.8 The Cabinet may wish to express regret about this enhanced level of prescription over schools budgets but recognise that the outcome is better than it might have been, with the Secretary of State accepting that mistakes had been made in 2003/04 which were not due to LEA's holding-back resources for schools.

3.9 The projections used in June have been updated to take account of further exemplifications issued by the ODPM which revise the assumptions made about increases in Formula Spending Share (FSS) control totals between the Schools Budget and the LEA and for Social Services and Capital Financing. It also now seems prudent to assume a minimum increase of 3.5% in the education damping and general floor grant assumptions instead of 2.5% previously assumed, given the Secretary of State's announcement on schools funding.

4. Uncertainties

4.1 There still remain a large number of uncertainties which will not be resolved until the grant settlement in mid November. It would be premature to develop the budget strategy or budget guidelines further before then.

4.2 The key information still required is

· the level of the grant floor and the speed at which the transitional grant protection (£27m in total) is unwound over the next few years. Most of this, (£25m) relates to Education damping. It had been assumed that £14m would be lost in 2003/04 and £13m in 2005/06. The minimum guarantee for schools might spread this out over a longer period, but the grant will still be lost. In other words by the time the transitional protection is removed the County Council will still have £48m less grant than it would have had before the formula changes in 2003/04

· the level of the required passported schools increase and the overall minimum level of grant support. The projections have been revised up for both from 2.5% to 3.5%

4.3 Other uncertainties are set out in the following paragraphs.

4.4 Changes to specific grants are not known - especially on Social Services, where the £8m Children's Services grant may be transferred. Standards Fund in total has been clarified (although distributional changes may still occur)

4.5 Further changes in function may occur in 2004/05. It is assumed that the Hampshire Fire and Rescue Authority (HRFA) will precept from 1 April 2004 but the impact upon the calculation of floors and ceilings for the County Council and HFRA is not yet known. Agreement on a share of balances will be required.

4.6 Similarly it is assumed that the prudential code for capital will be introduced at the same time, but no allowance has been made for an increase in unsupported borrowing. A draft response to consultation on the regulations for the new capital finance system will be presented to the next Cabinet meeting.

4.7 The Government has already announced that the current system of Environment Agency levies on local authorities for flood defence is to be replaced by direct Government funding, though whether from 1 April 2004 or 2005 is uncertain. The skewing of the Environmental, Protective and Cultural Services (EPCS) FSS control total increases in favour of flood defence in ODPM exemplifications is therefore, though predictable, a matter of concern. The overall increase in the EPCS control total is only 2.4% , but after increasing the flood defence element by 14.1%, the increase for the other county level services is 2.1%. The Government has not provided realistically for flood protection levies in successive Revenue Support Grant (RSG) settlements. But now that it appears that flood defence is about to become a direct government financial responsibility it looks like sufficient resources will be earmarked for flood defence to cover the current level of levies and/or to provide for further increases in 2004/05. This is at the expense of increasing the under-funding of waste management and other EPCS services and will therefore maintain the burden on the council tax payer.

4.8 It is too early to determine the potential impact of the Green Paper `Every Child Matters' and the practical budget consequences of bringing Children's Services together as Children's Trusts.

4.9 Final determination of the control totals for each service and the impact of grant loss on lower FSS increases for the County Council are not known.

4.10 Final decisions have not been made about the split of the assumed national council tax (ANCT) between tiers of authority (shire counties, police authorities etc). This previously had a technical basis which could be forecast, but for which ministerial judgement was substituted in 2003/04.

4.11 It is also unclear whether the Government will further uplift the FSS control totals to reflect actual local authority spending patterns in 2003/04. The effect would be to redistribute grant away from relatively low need high taxbase authorities (such as Hampshire) to high need low taxbase authorities.

4.12 No allowance has been made in the budget guidelines for any `new' distributional changes in 2004/05 and 2005/06. The main scope for distribution changes, other than the unwinding of floors and ceilings, is from data changes. The main possible area for data changes is to apply the 2001 census data in place of 1991 data in the Social Services formula. As this also involves changing the underlying regressions to reflect the changes in data relationships, this may be caught by the methodology freeze. As there is concern from urban authorities about the census data generally and new census data would generally be beneficial to county councils, it seems unlikely that the 1991 census data will be updated for the 2004/05 settlement. If it is, it will increase the Social Services FSS but without an increase in the floor grant. So the County Council would not be able to passport the increase without the cost all falling on the council tax and this might not be affordable within these council tax ranges.

4.13 In addition to all these uncertainties, decisions have still to be made on the budget increases and use of the reserves and balances, together with the final determination of pay awards, surplus on collection funds and changes in council tax base.

5. Revised projections for 2004/05

5.1 The following assumptions are now made in the current projection

· requirement to increase schools budgets by a minimum of 3.5% (2.5% assumed previously), but no loss in schools standards fund

· 5.8% cash increase for Social Services in line with the expected increase in FSS (before any data or specific grant changes). This assumption can be revisited as it will be more than the limited base budget increase for other services

· base budget increase for all other services, including the contractual commitments on the waste management contract

· 3.5% for pay and 2.5% for non pay costs on all services (included within the cash increase for schools and social services and the base budget for other services)

· total recurring contribution to the grant equalisation reserve will be taken out of the budget proportionally to grant loss in each year (previously assumed that £8m would be applied over two years against the grant loss of £27m to come)

5.2 The revised base projections can be summarised as follows:

Table 1: 2004/05 - Base position

	Total	Increase %	(Previous forecast) %
FSS	£1,032.8m	3.8	(3.5)
Budget	£1,078.5m	4.5	(4.1)
Council tax	£901	6.7	(6.3)

5.3 The revised FSS increase is higher than previously projected because of revised assumptions about changes in FSS control totals and because of higher damping grant of 3.5% instead of 2.5%. Budgeted spending will also increase to reflect the change in the assumed Schools Budget (FSS).

5.4 Grant support at the floor will also increase sufficiently to match the increase in the Schools Budget so that the net result is an increase in the council tax as a base position from 6.3% to 6.7%.

6. Consultation options, 5%, 7% or 9%

6.1 The assumption about variations against the base forecast in the 5%, 7% or 9% council tax options have therefore now being overtaken by events. The major change is the position on the Schools Budget. Assuming a continuation of Standards Fund grants and the LEA share at their current level and a 3.5% minimum increase in SFSS per pupil, the base projection produces an increase in the Schools Budget sufficient to maintain a standstill position. The imperative therefore at a 5% council tax increase to find additional resources for schools above the base position is no longer required.

6.2 The consultation options now result in the following council tax ranges:

Table 2: 2004/05 consultation options - council tax
	Council tax increase %	Council tax (Band D) £	Increase per week £
Base position	6.7	901	1.10
Options	5.0 7.0 9.0	887 904 921	0.82 1.14 1.47

6.3 Given the uncertainties the base position of 6.7% can be taken as equivalent to 7%.

6.4 6.7% is the minimum increase possible to provide a roll forward at the base budget and for the cash increases in the Schools Budget and for Social Services within the budget strategy, but no more. It assumes the usual level of efficiency savings and maximisation of increases in income.

6.5 No provision has been made in this forecast for any new pressures above base budgets (or in a cash increase over 5.8% for Social Services).

6.6 Similarly no allowance has been made at this stage for any additional resources required to meet:

· local public service agreement performance targets

· community strategy

· pay and benefits review

· four shorter term priorities set by Cabinet to improve services for:

- crime and deprivation, and young people

- education and skills development

- older people

- transportation (mobility and accessibility) and economic housing

· maintenance of the excellent comprehensive performance assessment

· unsupported borrowing costs from the introduction of the new prudential code for capital

6.7 It is therefore a very tight definition especially when set against comparable figures for the 2002/03 and 2003/04 budget (assuming for illustration a 7% council tax rise).

Table 3: Percentage variations in Government support and County Council budgets and council tax.

6.8 It is worth noting that the budget and council tax increases are 56% and 47% of these in 2003/04 respectively, yet the grant increase is much closer to that in 2003/04 as the floor takes longer to unwind.

6.9 The base projection assumes a council tax rise of 6.7% and after allowing for a reduction of £2.5m in the contribution to the grant equalisation reserve, the variation in spending to generate 5%, 7% or 9% council tax increases are as follows:

Table 4: Variations in spending from base position

Option %	Spending variation £m
5	-4.7
7	3.4
9	11.4

6.10 If 6% became the preferred target reductions of £0.6m from the base position (6.7%) would be required.

6.11 It is assumed that the 5% option is the minimum increase possible, but that would require substantial savings of £4.7m below the base position, with all other pressures or new proposals matched by compensating full year permanent reductions elsewhere. It would not be possible to reduce the schools budget below this minimum (assumed) 3.5% increase because of the Secretary of State's declared intention to require full passporting at this level. Savings would then fall on the remaining 42% of the County Council's budget (including Social Services).

6.12 Savings of £25m would be required outside schools budgets to have a nil council tax rise. That would not be possible given the Government's and the County Council's spending plans and statutory requirements.

6.13 At 5%

· there would be no requirement to increase schools budgets

· as Social Services on the current budget strategy would receive a 5.8% cash increase (equivalent to the projected FSS increase for Social Services), which is £5.5m over the base budget position (in recognition of extra demands and pressures), it would be reasonable to assume that only 50% of this growth would be made available (saving £2.7m from the base projection)

· this leaves £2m to be found across other services, equivalent to a 1.1% cut.

6.14 At 7%

· there would be some scope for an increase above 3.5% for Education and Schools. For example £2.5m growth above standstill would provide about £4,800 per school to meet additional pressures, including costs of recruitment and retention and workforce reform

· no further increases for Social Services as priority already given with the "passported" 5.8% cash increase in the base position

· about £0.9m for pressures across all other services

· an overall budget increase of 5.1%, or about 0.5% more than the base position.

6.15 At 9%

· Scope for a total additional budget increase of £11.4m (1.2%) across all services to meet additional pressures, and demands including those not currently met as set out in paragraphs 6.5 to 6.8.

6.16 These options can be summarised as follows:

6.17 These options of course remain illustrative until budget guidelines are determined, as measured from the current base projection for a 6.7% council tax rise. Any combination can be chosen from Table 5, depending upon the priority given to different services (with the exception of the Schools Budget) and the level of council tax rise determined acceptable given spending pressures, actual grant loss and consideration of the views expressed during the budget consultation exercises.

7. Further consideration of budget options and priorities

7.1 Meetings have been, or are being arranged, between the Leader, Executive members and Policy Review chairmen for each service with the relevant chief officer and the Chief Executive and County Treasurer. These will review the budget issues for each service during October and November based on the corporate strategy and the existing budget strategy underpinning the base projection of a 6.7% council tax rise set out in this report.

7.2 The scope of these meetings will need to be expanded this year to include consideration of:

· performance improvements achieved against the business plans for the additional resources which were allocated in 2003/04, especially those subject to review before roll forward into 2004/05 (examples being the one-off addition for local roads and pavement maintenance and assistance with delayed discharges for hospitals)

· budget pressures and compensating savings options where identifiable over a three year period 2004/05 to 2006/07 rather than just for 2004/05

· the locally resourced capital programme over the same three-year period because of the introduction of the new prudential code for capital and the need to integrate decision making on revenue and capital priorities

· the links between the budget proposals and the key themes in the corporate strategy, so that they are more explicitly demonstrated in the decision-making process

· the improvements in performance and outcomes expected from any proposals for additional spending above the base projection, and the impact of these proposals in priority terms relative to the targets in the local public service agreement, development of the four short-term priorities set by Cabinet and the development of the evolving community strategy

· options for savings required to achieve the 5% to 6.7% council tax option range, and options for savings to offset any potential growth above the base position.

7.3 All these considerations are necessary to provide the `golden thread' on service improvement within the comprehensive performance assessment process, to shape priorities and any redeployment of resources, and to meet the required standards expected from the Audit Commission's scrutiny of the Council's financial planning and management processes.

7.4 Further guidance will be provided for executive members and chief officers on this proposed framework for the preparation of the briefing papers in advance of the meetings. The framework is designed to illustrate the potential options, not to make final decisions in advance of the grant settlement.

7.5 This process will enable pressures, priorities and required savings to be determined at the Cabinet meeting in December. This meeting will as usual set initial budget guidelines and more precise spending options for budget consultation at the 5%, 7% and 9% council tax rise levels, after the announcement of the provisional settlement in mid November.

7.6 These remain early projections. Because of the uncertainties identified in this report, and the decisions still to be made, the figures will change.

8. Local Government Bill

8.1 The Cabinet received a report on the contents of the Local Government Bill and the implications for future financial processes at its meeting on 23 December 2002. It was agreed that further reports on consultation and enactment of different parts of the Bill would be made as they come into effect.

8.2 The Bill covers:

· new capital finance system

· new duties for financial administration

· retention of part of business rate income locally to provide incentives to local authorities to encourage business expansion

· council tax - revaluation, tax bands and 50% discount on second homes

· precepting status for Combined Fire Authorities.

8.3 The Local Government Bill completed its report stage in the House of Lords on 17 July 2003. The Lords Third Reading and Commons Consideration of Lords Amendments will take place in early September, leading to Royal Assent shortly after. The council tax clauses, other than clause 84 relating to combined fire authorities as preceptors, will come into force two months after Royal Assent. Clause 84 will be brought into force by commencement order and it is intended this will be done so as to allow the new arrangements to take effect for 2004/05.

8.4 Because the Bill has not yet completed its passage through the Lords and could still be amended ODPM did not circulate draft regulations for comment during the summer as originally intended. However ODPM does aim to consult immediately after the Third Reading so that it can make the necessary statutory instruments as soon as the new powers come into effect. It is still be intention that the provisions should come into force from 1 April 2004 and local authorities are expected to proceed on this basis.

8.5 It is anticipated that further reports on the issues identified in paragraph 8.2 above will be made to Cabinet when consultation papers or regulations become available.

9. Changes in 2005/06

9.1 The Government intends to abolish the existing local Magistrates' Courts Committees and bring together the administration of magistrates' courts and the higher courts into a single executive agency of the Lord Chancellor's department.

9.2 The Lord Chancellor's department has requested county councils to separate funding, estates and services for magistrates to manage the transition by
1 April 2005. This will affect planning for that year.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

Published works.

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

TITLE FILE

None