Contact: Jon Pittam, ext 7400

1. Summary

1.1 This is the first budget monitoring report for 2003/04, reviewing the implications of the reports on service budgets submitted to Executive members and the latest assumptions on non cash limited budgets. The following decisions are sought:

· to approve the business case as set out in Appendix 1 for the allocation of £3.5m to Social Services in 2003/04 to help address delays in hospital discharges, subject to agreement by the Leader at his Executive decision meeting on staged release of this contingency in line with commitments and improved performance

· to approve a net addition of up to £32,000 to the Policy and Resources cash limit for members' support costs, after allowing for the reduction in the SEERA subscription, to be funded from savings against the inflation allocation

· to note the potential addition to balances of £1.65m, to be used for potential budget pressures in 2003/04 or for one off investment to provide budget support in 2003/04 or 2004/05, or to carry-forward to support the 2004/05 budget.

2. Reason

2.1 Budget monitoring reports are submitted regularly to the Cabinet, to review whether any action is required to deal with variations between planned and actual spending or with any related performance issues.

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 (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: Jon Pittam, ext 7400

1. Introduction

1.1 This report contains an initial review of the budget monitoring position in 2003/04.

2. Service cash-limited expenditure

Education

2.1 Spending commitments on centrally managed special education needs (SEN) budgets, falling within the Schools block have been running significantly ahead of the budget in the early stages of the financial year. The report submitted to the Education Executive member on 14 October 2003, projected an overspending estimated at £2.4m mainly on SEN budgets, as a result of higher spending on SEN statements in mainstream schools, out county placements and on Education otherwise than at school. Budget pressures in this area are not new and reflect increased pressure from parents, schools and independent organisations for more specialised and expensive SEN provision, reinforced by SEN tribunal decisions.

2.2 Nonetheless the scale of the predicted additional spending is unexpected, and although the County Education Officer is pursuing management action to contain SEN spending, given the limited scope to manage demand pressures, action is being taken on a wider scale including the scrutiny of all vacancies. Other possible options to offset the overspending are also being reviewed, including the use of any unutilised general or school transport contingency and the one-off use of Education business unit reserves. The implications of having to accommodate additional SEN spending from within the increase in the Schools FSS in 2004/05 while meeting the minimum guaranteed increase in delegated schools funding, is also of concern.

Environment

2.3 No major issues were identified in the initial Environment monitoring report and good progress has been made in achieving the savings in technical and support services costs required to achieve the redeployment proposals in the budget. The call on the waste management contract contingency of £3.7m was £0.5m for the first quarter but it is too early to predict the outturn with any certainty.

Policy and Resources

2.4 The initial monitoring report highlighted the potential impact of the new regulations relating to members' pensions, allowing members to join the Local Government Pension scheme. The recommendation of the Independent Review Panel and the Standards Committee that basic and special responsibility allowances should become pensionable was approved by the County Council in September. The new regulations were introduced after the budget was set so that no allowance was made within the Policy and Resources Committee budget for the cost of employer contributions. Depending upon the numbers of eligible members choosing to join the scheme, the estimated cost is up to £127,000 in 2003/04. As indicated in paragraph 3 anticipated savings within the inflation contingency may be sufficient to add £127,000 to the Policy and Resources budget.

2.5 Though the monitoring report highlighted a number of other areas where stringent budget monitoring will be required, no major issues requiring corrective action were identified. However there are continuing pressures which may require additional one-off investment to ensure that the e-government targets are met and to provide corporate resources for other e-government initiatives. This might include the development of a business warehouse to integrate reporting of financial and non financial information and for best value performance indicators. A separate report will be made to the Executive Member on these issues.

Recreation and Heritage

2.6 Budget pressures in 2003/04 are mainly associated with the transitional costs of the libraries and countryside reviews, challenging income targets included in the budget and uncertainty about the achievement of the long-term recovery plan for the Milestones Museum. Management action is being taken in each of these areas and it is anticipated that spending will be contained within the overall budget.

Social Services

2.7 Social Services' initial monitoring report for the period to 31 July 2003, showed a potential overspend of £2.3m in 2003/04 if no corrective action was taken. The main pressures estimated at £2.2m relate to services for children and families. A projected overspend is fairly typical in the early part of the financial year as the projections tend to under-estimate the impact of continuing management action. At an equivalent stage in 2002/03, the projected overspend was £3.6m. Continued management action that prioritises and maximises cost efficient service provision is required.

2.8 Formal approval to a business case for the allocation of the £3.5m included in the budget to help address delays in hospital discharges has yet to be given by the Cabinet, although Social Services has assumed that an allocation will be agreed (if not agreed the underlying pressure will increase to £5.8m). Appendix 1 contains a business case for the allocation of this sum for approval by the Cabinet, subject to agreement by the Leader at his Executive decision meetings to the staged release of the contingency in line with the commitments made and the improved performance in reducing the number of delayed discharges. Subject to the agreement of this allocation, spending on older people's services is predicted to be in line with the cash limit and significant progress has been made between March and July in reducing the number of delayed discharges which are the responsibility of Social Services.

3. Non cash-limited budgets

Hampshire Fire and Rescue Authority (HFRA)

3.1 Two main factors need to be considered in assessing the likely impact of the HFRA's activities on the financial position of the County Council - the cost of the phased pay increase to firefighters agreed earlier in the year, the second stage of which is a 7% increase in November 2003, and the transition to becoming a precepting authority at 1 April 2004.

3.2 Although HFRA may receive some transitional grant towards the cost of the award and some offsetting savings may be achievable from the modernisation proposals, a supplementary levy may be required increasing the County Council's HFRA levy by around £500,000 because of the combined impact of additional pay, special responsibility allowances and other cost pressures. However, not all the details of the pay settlement are known yet. The Cabinet agreed at its last meeting to meet with the other contributing councils and the Authority to discuss the Authority's request to retain all of underspending from 2002/03 and to consider the transfer of balances when it becomes a precepting authority from 1 April 2004. The result of those discussions is set out in Appendix 2.

Business rates

3.3 The latest Education monitoring report indicates that savings of £0.3m on business rates are forecast in 2003/04, £0.2m was included in the contingency for inflation for all services based on the poundage increase of 1.7% in 2003/04. This reflects the success achieved by the Estates Practice in achieving reductions against the values included in the 2000 revaluation of business rates, after repaying the Invest to Save reserve which provided for extra valuation staff.

Flood Protection levies

3.4 Flood Protection levies for 2003/04 were finalised too late to be incorporated in the budget on an actual basis. A sum of £500,000 was included in the inflation contingency based upon anticipated increases in the four levies that impact upon the County Council. The three year plan for the Hampshire area agreed in 2002/03 included a 14% increase in the levy in 2003/04. However an actual increase of 7% was finally approved. A saving of £200,000 has resulted.

SEERA subscription

3.5 The 2003/04 Revenue Support Grant settlement included a specific reduction in the Environmental, Protective and Cultural Services FSS to reflect the Government's proposal to provide direct funding for the regional planning functions funded via the subscription to regional assemblies in 2002/03. As the scale of the reduction in the subscription was unclear when the budget was set no equivalent reduction was included in the original budget. Subsequently a reduction of £95,000 in the SEERA subscription was notified (from £143,000 to £48,000), and it is proposed to reduce the Policy and Resources cash limit accordingly.

Interest rates

3.6 At the time the budget was prepared, base rate had stood at 4% since November 2001 and most forecasters expected interest rates to move upwards during 2003/04. The inflation contingency included provision of £1.2m to cover a rise in interest rates to an average level of 5% in 2003/04.

3.7 Subsequently as global economic growth has been more sluggish than anticipated, two further interest rate reductions have taken place to a level of 3.5% from July 2003. Though, following the recent restatement of some key UK economic indicators, the markets are now anticipating an upward movement in short-term interest rates, it is most unlikely that interest rates in 2003/04 will be as high as assumed in the budget, and a saving of around £1.5m in capital financing costs can be anticipated as a result of lower interest rates.

4. Conclusions

4.1 In summary, the latest projection of non-cash limited budgets produces forecast savings of £2.3m as follows:

4.2 Adjusting for an anticipated increase of up to £500,000 (but without commitment at this stage) in the HFRA levy to cover the firefighters 2003 pay increase and an addition to Policy and Resources cash limit of £127,000 for members support, the net addition to balances is forecast at £1.65m.

4.3 The addition to balances remains critical to the County Council's budget strategy. The monitoring of service budgets indicates that even at an early stage in the financial year there are pressures affecting in particular the Education and Social Services budgets which may not be containable within cash limits in 2003/04, although it is assumed that both will take action to remain within cash limits. It may be necessary to provide for some one off investment in 2003/04. Otherwise the carry forward of additional balances will help on a one-off basis in 2004/05. This may be a difficult year in balancing service pressures against the Cabinet's aim to have a much lower council tax rise than in 2003/04.

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

Appendix 1

Release of the £3.5m contingency for delayed transfers of care

1. Purpose of Report

1.1 This report outlines the business case for the release of the £3.5m contingency for delayed discharges for hospitals.

2. Current Performance

2.1 Social Services has invested heavily to reduce delayed transfers of care from acute hospital beds.

2.2 For the week ending 30 March 2003 the total number of delays reported for Hampshire was 225, however only 116 of these were `Social Care Waits'. For the week ending 7 September 2003 the figures were 160 and 51 respectively. These much lower figures reflect the impact of the additional investment by the County Council and further improvements are anticipated by 1 January 2004.

2.3 However, because of throughput issues (i.e. reducing the Sitrep figures by one, may involve between one and five moves) the projected cost of halving the social care waits will have cost Hampshire (current spend plus commitment basis) £4,021,596 or approximately £60,000 for each reported reduction. Following this theoretically indicated that to clear the Sitrep list at current rates would cost Hampshire in excess of £8m, assuming capacity in the private sector.

2.4 The most common reason for delay is nursing home placement. Although this is being addressed in the future by Hampshire's County Nursing Home Strategy, there is an interim time lag before this additional capacity will be operational. Therefore the next twelve to eighteen months will be very difficult in respect of capacity.

2.5 Securing available care is essential to continue to reduce delayed transfers. New capacity does not become available at short notice, so it is important to maintain purchasing activity, and ensure the baseline of delayed transfers is as low as possible. The current spending and activity level have been based on the assumption that the £3.5 million contingency is available on an ongoing basis this year.

3. Reimbursement

3.1 Councils with Social Service responsibilities will need to make reimbursement payments for eligible and appropriate cases following notification from 5 January 2004. The implementation of shadow systems have been put in place from 1 October 2003 to provide a 3 month lead-in period.

3.2 The release of the contingency funds for delayed transfers of care is needed to minimise the risks of being subject to financial penalties and contribute towards the local public service agreement target:

"To provide high quality pre-admission and rehabilitation care to older people to help them live as independently as possible, by reducing preventable hospitalisation and ensuring year on year reductions in delays in moving people over 75 on from hospital"

3.3 This will be achieved through:

· continued attention to improving delayed discharge performance through activity and service developments to ensure necessary capacity is available, with £3m spend on additional care packages/placements.

· establishment of the necessary business process arrangements, including improvement of staffing resources in acute hospital settings, to meet the requirements of the prescribed reimbursement regime with the remaining £0.5m.

3.4 The current expected cost associated with a delayed transfer following the introduction of the reimbursement legislation in January 2004, is £100 per person per day. The estimated full year cost therefore of the activity level of delays of the 65 as at 3 August 2003 would be over £2.2 million.

3.5 The delayed transfer grant allocation that is proposed to offset these costs is £1.2 million for Hampshire, the highest allocation nationally in 2003/04, to cover 1 October to 31 March. This grant is expected to rise to about £2 million in 2004/05.

3.6 Comparing current discharge processes with the `ideal' (reimbursement) discharge process is underway at present. A review of the operational demands of the proposed regime has shown that there will be a need for additional staff at hospital sites to augment existing hospital arrangements for carrying out service user assessments and to prevent hospital admissions or delayed hospital discharges. This will include Saturday working as this falls within the notification period covered in the Bill.

3.7 The workforce plan (2003/04) details the requirements and the associated costs of these posts of approximately £600,000 full year effect. This will be allocated to recruit up to 21 full time equivalent qualified social worker/care managers. The estimated costs in 2003/04 are approximately £400,000 with over half of the posts already filled at the time of writing.

4. Conclusion

4.1 To safeguard its principles in respect of service users, corporate priorities and also its current performance status, it is one of Social Services imperatives to continue to invest in reducing the number of delays.

Appendix 2

Constituent Authority Consultation Meeting on Hampshire Fire and Rescue Authority Matters

1. A meeting was held between Fire and constituent authority representatives on 14 October, in order to discuss two main issues:

· pressures on the Authority's 2003/04 budget and the need for a supplementary levy; and

· the level of contribution by constituent authorities to the opening balances of the Authority in its precepting form from 1 April 2004.

2. The members in attendance were Councillors Thornber (Hampshire County Council) and Horne (in his HFRA capacity, though he is also a Portsmouth City Council member). Karen Ward (Southampton City Council officer) attended on behalf of Councillor Vinson. Other officers present were Malcolm Eastwood and David Howells (Fire and Rescue Service), Jon Pittam (in his role as County Treasurer) and Paul Carey-Kent (in his role as Deputy Treasurer to the Fire Authority).

3. The following approaches were agreed:

· the whole of the Authority's 2002/03 underspending (£655,000) will be repaid to the constituent authorities pro rata to their tax bases in accordance with usual arrangements. This repayment will be actioned forthwith

· the Fire Authority will determine, at its meeting in December, the extent of any supplementary levy required to fund pressures which have arisen as a result of items either not known about or not quantifiable at the time of setting the 2003/04 budget. This may have to be a best estimate based on information at the time, as the full implementation costs of the firefighters' pay award may still not be known at that time. The main area in which additional costs are expected to be confirmed is pay: £432,000 of additional cost is already known of for 2003/04, but this cost is likely to increase substantially primarily due to the implementation of special responsibility allowances which could add up to 5% to the pay bill. Other new pressures have arisen associated with the modernisation and precepting agendas, quantified at £125,000 at this stage. Constituent authorities expressed the view that whilst the impact of additional pay increases was fully accepted as a basis for a supplementary levy, they would expect some attempt to manage other pressures by reprioritising within the fire budget.

· although there is no logical relationship between the 2002/03 underspend and the need for any supplementary levy, it was acknowledged that the return of the underspends should assist constituent authorities in funding any supplementary levy.

· constituent authorities agreed to contribute £615,000 (pro rata to tax bases) towards building up balances for the Authority, this being on the basis of un-earmarked reserves - deemed to be at 1.2% of expenditure - as applied to the Authority's budget of £51.3m in 2003/04

· the Authority should make an assessment in January 2004 of its likely outturn budget position. In the light of that, constituent authorities will then take a view on what will be the appropriate policy for handling any under or overspends at the year end, eg it might be judged appropriate to agree in advance that adjustments should be made so that any such amount is added to/taken from the balances of the newly-precepting Fire Authority.