Archived decisions

Contact: Sheila Little, Education Finance Unit (01962 847545)

1. Summary

1.1 This report reviews the budget of the Education Service for 2003/04. It reflects the current pressures on the budget and identifies significant variations in the Inclusion (SEN) area, particularly statements in mainstream schools, out-county placements and education otherwise than at school (EOTAS). Although the figures are provisional they are based where possible on submissions for the compilation of the revised budget. Spending is currently estimated to exceed the cash limit by £2.4 million of which £2.1 million relates to Schools Block items and £0.3 million to LEA Block. Although a strategy is proposed to reduce this sum in 2003/04, including full use of both the general contingency (£247,000) and the balance of the home to school transport contingency (£130,000), it is unlikely to completely eliminate the overspend.

1.2 The report is structured as follows:

· Sections 2 and 3 set out the current year's position, with Section 4 giving a summary.

· Section 5 considers the Business Units' position.

· Section 6 outlines a proposed strategy including firm management led by the department's management team to minimise the potential overspend.

· Section 7 covers the schools' balances.

· Section 8 the Capital Programme funding.

· Section 9 the Growth and Redeployment Plans 2003/04.

· Section 10 shares the current known information on the 2004/05 Budget outlook.

2. Cash Limit 2003/04

2.1 The original budget for 2003/04 set by the County Council for the Education Service amounted to £628.8 million. This included provision for inflation of £19.1 million, based on an average of 2.9% for teachers' pay, 3.5% for other pay increases and 2.5% for prices.

2.2 The final accounts of the Education Service for 2002/03 showed a net underspending of £16,000 which resulted in 50% (£8,000) being returned by the Cabinet for use in 2003/04. In addition, as the Government has continued to allow unused Standards Fund to be carried forward, the equivalent County Council contribution (for centrally managed schemes) amounting to £1,335,000 needs to be brought forward, as does the underspending of £54,000 in 2002/03 on teachers' sickness and maternity cover scheme which is subject to a three year service level agreement with schools. These funds were earmarked during the final accounts process. The cash limit has been adjusted accordingly.

2.3 The cash limit for 2003/04 has also to be reduced by £508,000 reflecting a reversal of the adjustment in 2002/03 now that the correct apportionments have been made to individual schools for teachers' superannuation contributions and supply teacher national insurance costs.

2.4 Further adjustments to the cash limit for 2003/04 are required in respect of the revised level of business rates (-£326,000), transfers between services (-£243,000), virement to capital in respect of schemes for Youth (£40,000) and Early Years (£52,000) and expenditure financed by specific Government grants (£12.050 million).

2.5 The revised cash limit for 2003/04 amounts to £641.031 million and is summarised below:

	£'000	£'000
Original Budget 2003/04		628,753
Transfers between services (County Treasurers Services)		-243
Net variation in business rates		-326
50% of 2002/03 underspending brought forward		8
County Council contribution re: Standards Fund brought forward		1,335
Teachers' sickness and maternity cover - 2002/03 underspending brought forward		54
Pay accounting adjustments 2002/03		-508
Virement to capital		-92
Variation in expenditure financed by Government grant: Teachers' pay threshold payments Standards Fund School Standards Grant Other	3,200 8,575 286 -11
		12,050
Cash Limit 2003/04		641,031

3. Forecast Outturn 2003/04

3.1 The forecast outturn for 2003/04 based, where possible, on submissions for the compilation of the revised budget, has resulted in a projected overspending of £2.419 million against the cash limit. An analysis of the variations over divisions of service is set out in Appendix 1, and the major differences from the cash limit, identified at this stage, are discussed in the following paragraphs.

Home to School Transport

3.2 The latest forecast for home to school transport reflects a net overcommitment of £70,000 against the 2003/04 cash limit of £19.3 million. The predicted overspending results from the increased costs of Criminal Records Bureau checks, which have risen by 142% from £12 to £29 per check.

3.3 As part of the budget strategy for 2003/04 a special contingency of £200,000 was earmarked to cover financial pressures on the service in the current year. The latest forecast suggest that only part of this contingency is likely to be required in 2003/04, in which case the balance of £130,000 could be set against the overall predicted overspending of the Education Service.

Inclusion (SEN) £2,060,000

3.4 Pressure on the Inclusion (SEN) budgets continues to mount. Despite management action, net expenditure is expected to exceed the overall cash limit of £17.0 million by £2.1 million. This reflects an overall increase in pressure from parents, schools and independent organisations for more specialised and expensive SEN provision. The net overspending is made up as follows:

	£'000
Statements in mainstream schools Out-county placements Education otherwise than at school	775 920 365
	2,060

3.5 Expenditure on pupils with statements in mainstream schools is forecast to be £800,000 above the cash limit of £5.4 million. This situation results not only from the higher number of low incidence cases but also the increasing complexity of statements.

3.6 The cost of placing pupils with complex and extreme levels of need in out-county establishments is forecast to exceed the cash limit of £5.8 million by £920,000. This results from a combination of factors including SEN tribunal decisions, net movements of pupils into Hampshire from other LEAs and a general increase in charges considerably above inflation levels, with the average inflation running in excess of 13% in this area.

3.7 More detailed explanation, including examples, are attached in Appendix 2.

3.8 An increasing number of exclusions, from 152 in 2000/01 up to 233 in 2002/03, together with changes to the former pupil retention grant arrangements and the impact of full time education for excluded pupils, means that the provision of education otherwise than at school (EOTAS) continues to be volatile and difficult to predict. In addition, until appointments to the Behaviour Support Teams are completed, the provision by EOTAS of behaviour management support to schools, particularly at the primary level, will continue to have an adverse affect on this budget. Although the budget continues to be actively managed, at this stage, an overspending of £365,000 is forecast for 2003/04 against a cash limit of £5.2 million.

Other School Centrally-held Budgets £58,000

3.9 The remainder of the budgets held centrally on behalf of schools show a net overspending of £58,000. The major contributors to the overall position are variations on premature retirements, local management contingency, interest on school balances and staff suspended from duty.

Services to Schools and Support +£350,000

3.10 In total, support services expenditure is currently forecast to be £350,000 above the cash limit of £24.9 million. The major variations identified at this stage are summarised below:

	£'000
Behaviour Support Teams and Early Years Unit Time taken to establish full staffing for the new Behaviour Support Teams (including teachers, social workers and health services staff). In addition, recruitment delays in the Early Years Unit and other vacancies.	-150
IT2000: connecting remote issues The County Council's corporate IT strategy underlines the significant medium and longer term benefits to the end user and the council of linking the whole organisation through IT2000. Connecting remote youth, EOTAS and early years services sites has required investment which will, wherever possible, be funded by savings secured in other areas of each service's budget. However at this stage it would be prudent to identify a potential overspend whilst recognising that management action is being taken across all services to reduce the level of overspend. This action will also look at the ongoing cost position to limit the implications for the 2004/05 and subsequent years' budgets.	500

Other -£49,000

3.11 The only other significant variation identified to date relates to the Careers Service, where the County Council share of profits from the partnership with Vosper Thorneycroft Southern Careers is expected to be £49,000 more than the original budget.

4 Summary

4.1 In summary, the current forecast for 2003/04 is:

	£'000
Inclusion (SEN) (paras 3.4 to 3.8) Other school centrally-held budgets (para 3.9) Services to schools and support (para 3.10) Other (para 3.11)	2,060 58 350 -49
Forecast Net Overspending 2003/04	2,419

5 Business Units

5.1 Against their accumulated reserves at 31 March 2003 of £1,408,000 business units are, collectively, planning for an overall deficit for 2003/04 of £541,000. This reflects proposals for some units to use part of their accumulated balances to develop their services to schools and, in the case of EdICT, the delayed introduction of new systems has had a significant adverse affect on expected income. This is mainly due to the need to convert the school management system SIMS to a new format. The expectation is that the upfront investment cost will be recovered from schools through the trading arrangement. As a result the overall cumulative surplus of all business units at 31 March 2004 is forecast to reduce to £867,000. The summarised budgets of the individual business units are shown at Appendix 3.

5.2 The Units' Business Plans show that all the forecast balance is committed to business essential development and activity: Hampshire Music Service have earmarked up to £180,000 for the cost of accommodation changes and service delivery developments to meet new DfES requirements. Stubbington and Minstead Study Centres have medium term building refurbishments to meet the curriculum needs of pupils attending on a day and residential basis. Education Personnel and Financial Services staff are recruiting additional support all schools with the roll-out of SAP during 2004. HIAS continues to improve its financial position following the difficulties faced in the past and are implementing the Best Value outcomes on IT access and improved working conditions for staff. Governor Services continue to face costs associated with the replacement of the legacy mainframe IT system with an IT2000 compatible alternative, the reconstitution of all governing bodies and the implementation of the County Council's revised Governor Awards programme.

6 Proposed Strategy

6.1 The major factor contributing to the Service's shortfall against the cash limit are the overspendings in the Inclusion (SEN) areas. Management action to contain expenditure is being pursued but the demand-led nature of the various services means that it is unlikely to have a significant impact on reducing the forecast overspending in the current year.

6.2 Utilisation of the entire general contingency provision of £247,000 and the balance of the home to school transport contingency of £130,000 will assist in complying with the cash limit.

6.3 Firm management requiring all budget holders to curtail expenditure where possible to generate savings will also continue. In view of the potential impact on service delivery it is not proposed to impose a blanket vacancy freeze across the whole department. Managers will, however, be expected to scrutinise all vacancies that arise before allowing any appointments to proceed. This will apply across the whole department and be reviewed regularly by the Education Department Management Team.

6.4 Recent experience suggests that further underspends will be identified in the second half of the year but at the same time there is always the risk of further overspends on the demand-led budgets particularly Inclusion (SEN). In view of the size of the potential shortfall it may not be possible to generate sufficient savings to eliminate the overspend.

6.5 The figures will be refined during the compilation of the revised budget and, in the meantime, close monitoring and tight control will continue in an attempt to balance the budget. However, it must be recognised that the areas causing the overspend are likely to put pressure on available resources next year.

6.6 A further report will be presented at the December meeting.

7 Local Management of Schools

7.1 At 1 April 2003 schools' balances, in total, stood at £28.331 million.

7.2 There has been much national and local publicity surrounding the pressures on school budgets. At 1 April 2003 there were 54 schools in deficit and the experience of EFS staff working with schools suggests that a number of other schools are only able to balance their budget for this year by using up reserves and/or making cuts in staffing and resources areas.

7.3 The Government provided a one off opportunity during this financial year for schools in financial difficulty to transfer devolved capital funds to revenue. To date a total of £704,000 has been transferred by 29 schools to help relieve those pressures.

7.4 At this stage in the year it is difficult to predict with any certainty the level of school balances at 31 March 2004. It does seem clear from the evidence to hand that this figure will reduce during this year.

7.5 Based on returns from schools it is clear that balances brought forward have been earmarked on school specific priorities. The main ones being:

· building works £8.9 million,

· staffing £5.4 million,

· reserve for falling NOR £1.6 million,

· IT/refurbishment/other projects £3.7 million.

If all these funds are committed during 2003/04 then balances are likely to reduce by possibly £3 - 5 million to £23 to £25 million by 31 March 2004.

8 Capital

8.1 The Education Capital Programme for 2003/04 is summarised below, although in practice it is often supported by funding from Policy and Resources mainly in respect of repair and maintenance elements.

	£'000	£'000
Total Estimated Starts Value 2003/04
Major schemes over £500,000	22,004
Named schemes under £500,000	14,852
		36,856
Block Allocations
Devolved Capital	14,303
Disability Discrimination Act (adult and youth)	681
School Access Initiative	2,893
Furniture and Equipment	798
Contingency	1,008
Retained Capital Receipt	641
Expand Popular Schools	946
		21,270
		58,126

8.2 Regular progress/monitoring reports are presented to the Education Buildings Advisory Group (EBAG) covering all capital schemes. To date named schemes totalling £9.9 million are planned to start by the end of September 2003, whilst feasibility project appraisals for a further £14.0 million have also been approved. The calls on the contingency fund have been limited and it is estimated that all schemes can be funded within the currently available resources. The remaining schemes are currently being progressed and will be submitted to subsequent meetings of EBAG. The block allocations comprise numerous smaller schemes which, with the exception of devolved capital where schools determine their own priorities, are expected, largely, to be committed during 2003/04.

9 Growth and Redeployment Plans 2003/04

9.1 In approving the Budget for 2003/04 the Cabinet laid down a requirement for Executive Members to monitor the agreed plans for growth and redeployment at regular intervals throughout the year in order to demonstrate, through measurable outputs or outcomes, progress in linking budgets more closely with performance management.

9.2 This is the second such report for 2003/04 and Appendix 4 updates members on the growth elements. The monitoring and reporting framework for all growth items is being reviewed to sharpen the focus on measurable outcomes. At this stage therefore the update is a mix of progress reports, where additional staffing was approved, and outcome targets.

10 Budget Outlook 2004/05

10.1 Following the difficulties experienced nationally with the 2003/04 budget settlement by schools, the Secretary of State announced in July his intention to make changes to the budget process and funding mechanism for schools in 2004/05. This involves a minimum per pupil guarantee of funding for schools and earlier announcements of key information to ensure schools and LEAs can plan effectively. An announcement on the mechanism that will be used to deliver the minimum per pupil guarantee will be made later in October. At the same time details are expected of the reinstated Standards Fund money and how that will be distributed to schools and LEAs. Other earlier announcements anticipated are that the Local Government Finance settlement will be brought forward by two weeks to mid to late November and the School Teachers Review Body (STRB) has been asked by Government to make its recommendations on pay in early November (instead of early February as in previous years).

10.2 The link between the level of the minimum per pupil guarantee and the level of the Education Formula Spending Share floor will be critical for this authority and its schools. The 2004/05 budget pressures for the County Council have already been well rehearsed in consultation meetings around the County. For education and schools there is the additional pressure of the increasing move to universal provision for three year olds which was fully funded through the FSS formula in 2003/04. This advance funding in 2003/04 meant that the difference was made available for schools' budgets easing the extreme pressures being experienced.

10.3 One further element of the Secretary of State's announcement looks likely to have a significant impact on this service's budget and that is the prospects for central LEA spending on SEN and excluded pupils. Here the statement noted that "in 2004-05 and 2005-06, spending on such central items should rise no faster than spending on the Individual Schools Budget". With the significant pressures outlined earlier in this report on both these areas in 2003/04 carrying forward, it will be important to look for some flexibility from the Government in considering spending on vulnerable children.

Recommendation

That the forecast overspend and the management action being taken is endorsed; that the budget position be shared with members of the Schools Forum and that a further report be considered in December.

Section 100 D - Local Government Act 1972 - background papers

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

NB the list excludes:

1. Published works.

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

TITLE FILE

None

Appendix 1

Education Service

Revenue Expenditure 2003/04

Analysis of Cash Limited Expenditure over Services

Appendix 2

Background to the 2003/04 forecast outturn for the SEN primary, secondary and special statemented pupils budgets.

Summary

The £775,000 overspend on statemented pupils budgets, referred to in paragraph 3.4is made up as follows.

£

Primary 215,000 ( 6.6 %)

Secondary 241,000 ( 17.2 %)

Special 133,000 ( 27.8 %) Recoupment 186,000 (105.9%)

Out County 920,000 (12.5%)

Total 1.695,000 ( 14.6 %)

In the primary, secondary and special figures, only one element includes an allowance for growth during the remainder of 2003/04, specifically £30,000 for primary teaching and learning support hours. All other figures represent existing commitments. It is by no means certain they will stay at current levels, but, as always, stringent management action is being applied (see below).

Primary, Secondary, Special Pressures

The overspend arises due to the following.

· An increase in expenditure on hours of teaching and learning support assistance written into the SEN statements of pupils in primary and secondary mainstream. This is due to both an increase in the overall number of pupils receiving support, and an increase in the proportion of pupils with more complex needs such as autism and language impairment.

· An increase in expenditure within the secondary and special headings on college and other specially resourced placements. Pupils benefiting from these placements have difficulties sustaining normal school attendance and would otherwise not be in any educational provision, or, alternatively, might be placed in independent (out county) special schools

· An increase in net expenditure on inter-LEA recoupment for support to statemented pupils attending schools outside their home LEA. These costs are always liable to fluctuate from year to year.

· The following table illustrates growth over recent years, in real terms (i.e. adjusted for inflation), in expenditure on hours of teaching and learning support assistance for statemented SEN pupils in primary and secondary mainstream. This is sourced from SEN management information monitoring total hours allocated for statement support.

	Percentage increase in expenditure
	June 2002 to June 2003	June 2000 to June 2003
Primary	6.0 %	22.5 %
Secondary	8.8 %	37.2 %

· The increase in expenditure on college and other placements within the secondary and special budget headings (57.8% higher than the equivalent unadjusted expenditure in 2002/03) reflects an increasing and successful focus on ensuring that all our young people with SEN are able to be included in educational provision. As such, it is likely that expenditure in this area will also continue to grow.

Out County Pressures

The factors which contribute to the £920,000 overspend have been identified as follows.

£

6 additional pupils in Autumn 2003 compared to Autumn 2002 251,600

(including three pupils arising from SEN/Disability Tribunal

decisions and costs for one pupil related to on-going litigation)

Excess inflation on annual fees charged by schools 252,200

Changes from day to residential placements (2 pupils) 40,000

Two post-16 pupils due to attend local colleges but now 21,500

remaining in out county schools

Introduction of `banding' by schools, and movement of Hampshire 60,700

pupils to a higher banding

Estimated costs where, pupils have had placements agreed in principle, 94,000

but specific schools have not yet been finalised

Estimated cost of further placements likely to be agreed between 200,000

September and December

Total 920,000

· Substantial fee increases were anticipated, and an inflation allowance of 10% was included in the original budget. Hampshire, together with twelve other LEAs, contributed to a project managed by SCRIP (South Central Regional Inclusion Partnership) which was set up with the purpose of agreeing fee increases with out-county schools. In all instances, the actual increases exceeded the target largely due to staffing costs both for care staff and education staff.

· Initial soundings suggest that the situation may actually be worse in other LEAs who are experiencing a higher percentage overspend in their out-county budgets. A questionnaire has been sent to 18 neighbouring LEAs within the South Central (SCRIP) and South East Regional Inclusion Partnerships in order to produce comparative figures.

· The out-county budget has always been volatile in that additional costs relating to a small number of children can have a disproportionate effect on the outturn. (Autumn 2002 we had 214 pupils, at present we have 220). This has also been a contributory factor to the 2003/04 projected overspend.

· A new national contract between LEAs and most out-county schools comes into effect in April 2004. It is hoped that this will help to establish a more stable situation in relation to fee increases.

Management action

Expenditure on SEN is needs led and the legislative framework defines LEAs' responsibility for meeting those needs. Budget limitations are not a legitimate reason for being unable to do so.

Nonetheless, while ensuring that the most appropriate provision is made for the individual needs of pupils with SEN in Hampshire, it is also the aim of the SEN Service to make provision as cost effectively and cost efficiently as possible. Managers can point to previous success and continuing efforts in this respect. For example, in the last financial year, 2002/03, effective management achieved considerable savings in the out of county placements budget which then helped to avert an overspend on the primary and secondary budget heads.

Other action was taken in 2002/03 to redeploy savings from school reorganisations and reduced numbers on roll in special schools. These too were used to offset growth in expenditure elsewhere. Standards Funds have also been used to pay for SEN provision where appropriate.

In 2003/04, the scope for virement of funds between SEN budget heads has been severely curtailed by the increase in out county placement expenditure, a requirement to meet the cost of an increase in numbers in special schools, and other one-off costs. Unfortunately this has also been accompanied by a reduction in resources available for virement.

In conclusion, successful management action in previous years, both in achieving and redeploying savings, has kept SEN expenditure within budget. The limited scope for such action in 2003/04 combined with continued growth in demand has resulted in the current projected overspend.