Contact: Anne Hibbert, ext 7533, [email protected]

1 Introduction

1.1 This report sets out the proposed Policy and Resources revenue budget for 2004/05 and reports on the revised budget for 2003/04. This report has been prepared in consultation with the Executive Member for review by the Policy and Review Committee, before the budget is considered formally by the Executive Member. It will be reported to the Leader and Cabinet on 12 February 2004 to make final recommendations to County Council on 25 February 2004.

1.2 The Policy and Resources revenue budget for 2004/05 includes financial resources for those central services that support all other County Council services and as such contributes to all of the corporate strategy aims:

· Maximising life opportunities

· Stewardship of the environment

· Achieving economic prosperity

· Building strong and safe communities

· Improving services

· Developing councillors and staff.

1 Budget strategy

1.1 The Cabinet has confirmed its budget strategy that:

· Schools budget increase will be fully passported, matched by Government grant, as constrained by the Secretary of State's reserve power to require this outcome

· Social Services will have a cash increase in line with the rise in Social Services Formula Spending Share (FSS)

· Schools and Social Services will be required to meet all cost pressures, demands, contingency, new pressures and priorities within these cash limited resources

· Extra contingency provision will be made to match the commitments on waste management from new infrastructure costs, increases in volumes and effect of landfill tax on the private sector contract

· All other services have a base budget increase only and have to meet all costs and other pressures within this limit, including the redeployment of existing resources to higher priorities as necessary.

1.2 In arriving at the base budget it is assumed that:

· Income will be maximised in line with inflation

· Efficiency savings will be achieved to absorb costs not budgeted for (for example increments).

2 Budget guidelines

2.1 These are based on an overall budget increase of 5.4% against a grant increase of 5.9% resulting in a projected council tax rise of 4.7%. This is in line with public preference put forward during the budget consultation process, adjusted for the additional Government grant announced on 11 December 2003 designed to reduce council tax increases in 2004/05.

2.2 The budget guidelines were set by the Cabinet on 15 December 2003. For Policy and Resources, the provisional budget guideline for 2004/05 is £38.469m plus passported Government increases of £456,000.

2.3 This report sets out the Policy and Resources Executive Member's responses to the guidelines. The report:

· Reviews the revised budget for 2003/04 (as set out in Appendices 1 and 2)

· Reviews the 2004/05 base budget which totals £38.469m (as set out in Appendix 3)

· Identifies proposals for additional spending on Policy and Resources services chargeable to the schools block and supporting Social Services to be accommodated within passported Government increases for those services amounting to £1,078,000 (as set out in Appendix 4)

· Identifies £605,000 of pressures and costs absorbed (as set out in Appendix 5)

· Identifies efficiency savings of £450,000 from SAP benefit realisation which are being redeployed into the funding of the current capital programme (as set out in Appendix 5)

· Reviews the charges made by this service (as set out in Appendix 6)

3 Revised Budget

3.1 The cash limit for the revised budget is £38.654m. The calculation is shown in Appendix 1.

3.2 A summary comparing the revised budget with the cash limit is set out in Appendix 2. This shows a very similar position to that reported to the Executive Member for Policy and Resources in the December 2003 budget monitoring report. The projected overspend of £117,000 represents 0.3% of the cash limit and may be offset by savings emerging prior to the year end, including a further unquantified reduction in the audit fee that is expected as a result of the removal of ringfencing from many of our specific grants.

4 Base Budget 2004/05

4.1 A base budget has been prepared which contains the current financial policies of the Council, in order to provide a starting point from which decisions can be made. The base budget for Policy and Resources is £38.469m at outturn prices plus £456,000 of passported Government increases.

4.2 Appendix 3 shows the make up of the base budget.

4.3 Overall, the base budget includes a net reduction in expenditure at constant prices of £764,000. The main variations are:

· SAP benefits realisation -£450,000

· reductions to offset excess inflation -£483,000

4.4 The SAP benefit realisation plan assumes initial savings of £250,000 for finance and £200,000 for IT Services in 2004/05. These savings reduce the Policy and Resources cash limit and are required to be used as revenue contributions to capital to commence the reinstatement of the capital resources amounting to £8m which were temporarily employed to assist in funding the capital cost of the Enterprise project.

4.5 Potential procurement savings of up to £400,000 in employing agency staff from the new corporate contract will be reflected by reducing non-schools staffing budgets proportionate to previous agency staff spending levels. The savings will be built into the budget once the allocation basis has been agreed by the Corporate Procurement Network. Potential SAP benefit realisation savings of up to £850,000 now exceed the previous target of £700,000 in 2004/05. Benefits realisation on Personnel and Training are scheduled to begin from 2005/06.

4.6 The actual cost of inflation in 2003/04 exceeded the provision for inflation originally included in the 2003/04 budget by £483,000. This principally relates to higher repairs and maintenance costs. This additional cost needs to be absorbed within the base budget for 2004/05, although the proposals for the passporting of the central share of the increase in the schools block deal with the main impact.

5 Passported increases in the schools block and support for social services

Schools block

5.1 The full amount of Government grant to be passported to the schools block is £24.5m of which £592,000 is attributable to revenue contributions to capital in respect of schools' capital repairs and Policy and Resources services to delegated schools. The calculation of the £592,000 allows for the impact of changes in the base budget, and is after allowing an increase for inflation based on corporate assumptions, although £195,000 of the increase relates to maintaining existing funding levels for aided schools.

5.2 The uses to which Policy and Resources share of any increase in the schools passported Formula Funding Share (FSS) increase can be applied are limited under the new funding regime - basically enabling additional budgets to be delegated to schools for repair and maintenance of buildings or central support services or enabling additional capital spending on schools to be incurred financed by revenue contributions to capital. In practice even this flexibility has been eroded by the Department for Education and Skills (DFES) decision to introduce regulations this year limiting `central expenditure' chargeable to the schools block, designed to control spending within the schools block which is not delegated to schools, including revenue contributions to capital.

5.3 It is proposed to allocate the £592,000 as follows:

Social Services

5.4 The proportionate share of the Social Services FSS increase attributable to Policy and Resources support for Social Services is £486,000 after allowing for the impact of change in the base budget for 2004/05.

5.5 There are a number of budget pressures that have been identified that are linked to the increased requirements of supporting Social Services:

6 Redeployment proposals, efficiency improvements and cost pressures

6.1 The Cabinet requires all services to consider and report on:

· efficiency improvements achieved in absorbing pressures and costs within the budget guidelines

· the redeployment of any resources required to offset any new spending priorities, or inescapable budget pressures, or legislative requirements which otherwise cannot be met within their budget guidelines

· the annual review of charges and the maximisation of income.

6.2 Appendix 5 details efficiency savings of £450,000 relating to SAP benefit realisation. This is made up of £250,000 finance savings and £200,000 IT Services savings. Most of the finance savings will be achieved by reductions in staff numbers following innovation of business processes. Turnover is such that these reductions should be managed by redeployment of staff affected to other vacancies.

6.3 Appendix 5 also details cost pressures absorbed of £605,000 relating to salary increments.

7 Chief Officer Controlled Budgets

Chief Executive

7.1 Budget Pressures - As in previous years the budget pressures faced by the department are a combination of a number of factors:

· increases brought about by new areas of responsibility

· the need to secure permanent funding for activities that have been funded initially on a one-off basis

· growth in existing workloads

· increases in costs which are not funded as part of the budget process.

7.2 In the last Queen's speech the government outlined proposals for a Civil Contingencies Bill which will make emergency planning a statutory function. In addition it is likely to extend the current role of emergency planning into new areas e.g. full formal risk assessments of potential emergencies, a duty to prevent emergencies and promoting business continuity. The team is currently stretched, and is increasingly being called out to deal with emergencies such as fires involving gas cylinders in populated areas. The work clearly links to corporate aims 2 and 4 i.e. protecting the environment and building strong and safe communities. To meet the new demands Emergency Planning is likely to need additional resources at a potential cost of up to £100,000, but this is dependent on the enactment of the Civil Contingencies Bill and on Government decisions about the future funding of emergency planning.

7.3 A new area of activity which is becoming increasingly important to the local economy is the need to promote the development of Broadband networks across Hampshire targeted at businesses and local communities. Also in order to pump prime various economic projects e.g. Local Food Centres it would be useful to have some provision in the capital programme. Both of these initiatives are in support of the Council's aim of leading the development of a strong and sustainable economy in Hampshire and a recommendation is included in the report on the capital programme to create a programme for economic development projects.

7.4 Non-recurring funding was secured for 2003/04 for a corporate stand at the New Forest Show. This was a great success and provided a good opportunity to promote the County Council and its corporate aims. To continue this policy, whether at the New Forest or other County shows would require annual funding of £35,000.

7.5 The volume of work associated with claims handling continues to increase. In 2000/01 it was agreed that the cost of claims handling should be charged to the insurance fund. Since then there has been no growth in the amount charged to the fund even though the amount of work has increased. Indications are that it will be necessary to charge an additional £90,000 in 2004/05 if the current level of work is sustained. The increase is due to a number of factors e.g. changes in the nature of claims which take longer to defend, new types of claims and the increased promotion of no win no fee.

7.6 Other areas of work which will need to be monitored closely and may require additional resources are Community Planning, the need to ensure that service delivery is responsive to local need and delivered close to the community and the new area of Health Scrutiny. These are currently being accommodated within existing resources but any significant growth in the work could cause problems.

County Personnel and Training

7.7 2004/05 will be a year of significant change for Personnel and Training. The department is seizing the opportunity presented via investment in new SAP technology to reorganise the department and further improve the efficiency and effectiveness of the service. This will create areas of shared expertise by bringing staff together in service centres, rather than deploying them in particular departments. Members will recall the successful restructuring of training provision via the creation of Hampshire Learning Centre in 2002/03.

7.8 While plans are at an advanced stage, the Corporate Management Team and Members have not yet had the opportunity to scrutinise and approve detailed proposals. Therefore, the forward budget reflects existing structures and costs, which will be subject to alteration once approval has been granted.

7.9 It is hoped that these plans will enable the achievement of SAP realisation benefits in three areas, being a reduction in the overall cost of the human resources administration, better departmental management of absence resulting in decreased sickness levels and the consolidation of recruitment activity bringing decreased advertising costs. Reorganising the department altogether at the same time, rather than in a piecemeal fashion, will maximise savings opportunities and minimise disruption to services and staff. However, it is acknowledged that the reorganisation of Personnel and Training will not instantly activate these savings and that some slippage or reduction in the targets may be required and that some transitional costs will be incurred in moving from the old to the new structure.

7.10 In addition, Personnel and Training manages the delivery of corporate policy and strategy, including initiatives such as the Leadership project and the Pay and Benefits project. The Leadership project will receive £75,000 funding carried over from 2002/03 in order that funding better matches the anticipated flow of managers starting the programme. The intended start date of 1 April 2004 for the Pay and Benefits will not be met. Corporate funding for staffing and consultancy beyond that date will therefore be required in order for the project to be delivered to a revised timescale. Funds to reconfigure payroll systems to revised pay structures, and train management and staff in new performance development review processes upon the completion of the project will be required.

7.11 In respect of the occupational health unit, growth of £40,000 in 2003/04 and of £120,000 in 2004/05 is proposed in order to improve the quality of the service and deliver savings across the council equating to around £1.25 million. It is anticipated that these savings would be in addition to those achieved under SAP realisation plans. A corporate contribution of £80,000 in 2004/05 is referred to in paragraph 6.5, with the balance of the cost to be met by departmental contributions in 2003/04 and 2004/05.

7.12 Investment in the County Council's health and safety infrastructure is also required. Members may be aware of the Accident and Incident Reporting System (AIRS). This system resides on the County Council mainframe and needs to be replaced before the mainframe is switched off in April 2005. An evaluation of the capabilities of both a SAP and other solutions will be undertaken and funding of around £100,000 will need to be identified before a decision is taken.

County Treasurer

7.13 After increasing in recent years to incorporate finance staff formerly in the Environment, Education and Social Services departments and the new function of financial assessment and benefit visits to Social Services clients, the County Treasurer's 2004/05 budget incorporates a cash limit reduction of £250,000. This represents the first phase of savings resulting from the implementation of the County's new finance and related systems (SAP), so enabling the capital costs to be repaid. The eventual savings target for the finance function is £1.2m per year. Most of these savings will be achieved by reductions in staff numbers linked to assessment of business processes.

7.14 In addition, staffing reductions are required to reflect the full independence of the Probation Service (which will run its own financial systems from 2004/05) and the ending of payroll contract work - amounting together to a £100,000 reduction in income. Recruitment and retention continues to be difficult, with a 20% turnover of qualified accountants last year. Additional personnel costs of £25,000 have to be absorbed, and the need to introduce and absorb some targeted market supplements of £50,000. However, the associated high turnover levels do have the advantage of making it easier to achieve the savings required without redundancies.

7.15 On top of these budget pressures, the department is having to deal with new work requirements, including:

· Successively earlier closure of accounts requirements

· Work engendered by Comprehensive Performance Appraisal, Public Service Agreements and increased requirements to demonstrate medium term planning

· Increasing consultation requirements, both with the public and in response to the deluge of Government reviews and proposed initiatives, especially on funding, accounting and pensions issues

· More and more separated streams of funding and joint working requirements - both of which increase finance workloads, especially in Social Services, Education and Environment

· More audit work associated with corporate governance

· Changes to the benefits system leading to increased assessment work.

Property Business and Regulatory Services

7.16 The revised budget for 2003/04 is at the cash limit. A budget pressure of £70,000 represents the security costs associated with properties pending disposal as part of the capital receipts programme. The cash limit has been increased anticipating that capital receipts will be used to fund these security costs, thus balancing the budget. This pressure is likely to continue into 2004/05 and further costs may need to be funded in a similar manner.

7.17 Other pressures affecting 2004/05 and beyond include:

· rent reviews at leased offices in the course of the year, which are likely to add some £40,000 in excess of the allowance for inflation to the cost of offices in the year

· the requirement to agree funding mechanisms for the two new offices (Athelstan House & Regency House) which it has been agreed to acquire in Winchester.

The proposals in paragraph 6.5 provide some additional funding within the budget guidelines for these two items.

· the actual cost of inflation on revenue repair and maintenance will exceed the allocation by some £500,000. The majority of this affects school budgets and is dealt with in the schools passporting proposals outlined in paragraph 6.3

· costs associated with complying with:

o Disability Discrimination Act - estimated at an additional £200,000 p.a.

o Asbestos regulations coming into effect in May 2004 - estimated at £250,000 p.a.

· The need to replace remaining mainframe IT systems by April 2005. PBRS manages property systems of corporate significance which will need to be replaced by SAP systems or other solutions compatible with IT2000. The costs of this will be at least £250,000, for which a funding solution is required.

Other budgets

7.18 Grants to voluntary organisations - there is no increase in the base budget other than inflation. Any new grants would therefore need to be financed by reviewing existing priorities.

7.19 Enterprise - Following completion of the initial development phase and the successful trial of devolved functionality, the roll-out to users commenced in September 2003 and is planned to be completed by December 2004. From April 2004 it is anticipated that the funding of the Enterprise project team will be integrated within the IT Services trading account.

7.20 E-Government - the budget guidelines report to Cabinet in December 2003 highlighted the need to identify additional funding for e-Government to ensure targets are met for 2005. An immediate priority is to introduce a business warehouse solution to improve the speed and graphical presentation of corporate reports and the coordination of performance indicator information. Funding of around £0.5m is required to maintain progress in meeting the e-Government targets for 2005.

8 Review of charges

8.1 The service's 2004/05 revenue budget includes income of £ 6.342m from fees and charges. Details of the material headings are included in Appendix 6.

8.2 There are some mandatory and national charges which the County Council is not able to vary. The main example of this is Register Office charges.

8.3 Discretionary charges are reviewed annually except when they are subject to agreements which cover longer periods when the review takes place at the end of the period of the agreement. Examples of charges not subject to annual review are agricultural lettings and most commercial lease rentals.

8.4 Charges for support services are reviewed annually and are set to recover the full cost. Other discretionary charges are set to recover the full cost except where charges are governed by market forces and are only expected to make a contribution towards the cost of the service. No new changes are proposed.

9 Magistrates' Courts Committee

9.1 The Department for Constitutional Affairs (DCA) has not yet confirmed the cash limit for 2004/05. Allowing for a proposed 2% carry forward of £220,000 from 2003/04, the cash limit is expected to be approximately £11.789m. This amounts to a 2.2% increase compared with 2003/04. The year on year increase would have been greater but for the correction of a formula calculation error resulting in the 2003/04 cash limit being overstated by £257,000.

9.2 The DCA has still to finalise its funding decisions as there may be additional monies which may be ring fenced, while some of the previous ring fenced monies may become part of the base budget grant. Adjusting by £724,000 for the contributions from Portsmouth, Southampton and the Isle of Wight leaves Hampshire County Council with gross costs, net of contribution from other local authorities of £11.065m, an increase of 2.5% compared with 2003/04. The replacement of local authority standard spending assessment (SSA) funding with formula spending share (FSS) has caused a change in the proportion of each authority's contribution, slightly increasing the Hampshire County Council gross cost in relation to the cash limit. 80% grant is payable on approved expenditure and is expected to be 3.7% higher than the 2003/04.

10 Staffing statistics

10.1 The average number of staff in the base budget for 2004/05 is 2,720. This compares with the adjusted original estimate for 2003/04 of 2,659 which is an increase of 61.

10.2 Hampshire Caterers' staff have increased by 141 due to a new tender to provide schools catering for West Berkshire County Council. This has been offset by a decrease in Hampshire Cleaners (-151) following a decision to concentrate on the Winchester headquarters buildings. Non headquarters cleaning staff were transferred to the HQ team or left during 2003/04.

10.3 Personnel and Training staff have increased by 37, over a number of areas within this department. The Social Services Learning and Development Team of 13 staff are still included in the Personnel and Training Department but are expected to transfer to Social Services in the future. The 24 additional staff comprise increases in Education Personnel Unit (+9), posts in Environment and PBRS devolved units (+5), Social Services Personnel (+4), Hampshire Learning Centre (+4) and Hampshire Support Line Counsellors (+2). These increases are funded either by increased charges to devolved personnel units, from additional income or reflect the change in employment status of the Support Line Counsellors.

10.4 Treasurer's have had a transfer of staff from the Environment Exchequer Services and Education department in 2003/04.

10.5 The proposals for growth (Appendix 4) include proposals which would increase staffing numbers by 2.5 for the enhancement of occupational health services.

11 Business units

11.1 The trading accounts of the business units are summarised in Appendix 8.

11.2 As in recent years, the financial performance of the Property, Business and Regulatory businesses is likely to exceed the targets for 2003/04, which were surpluses of £283,000. The targets for 2004/05, agreed as part of the business planning process are slightly lower at £264,000. The main reason for this is a one-off technical reduction in HC3S' surplus, which is mainly due to a reduced number of trading days in the year, with a consequent impact on income. This is partially offset by the fact that Hampshire Cleaning Services, following its refocusing, is set to come out of deficit and to break even.

11.3 IT Services - the trading account for 2004/05 incorporates the income and expenditure relating to the Enterprise project. The trading account is planned to break-even by the end of 2004/05 after achieving savings of £200,000 from SAP benefit realisation.

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

Cabinet, 15 December 2003 : 2004/05 Budget

Appendix 1

Policy and Resources

Revised Budget 2003/04

Calculation of the Cash Limit for the Revised Budget 2003/04

The following table shows the progression from the original budget for 2003/04 to the cash limit for the revised budget 2003/04. Both are at estimated outturn prices 2003/04.

Appendix 2

Policy and Resources

Revised Budget 2003/04

Summary comparing the Revised Budget with the Cash Limit

Appendix 3

Policy and Resources

Revenue Budget 2004/05

Calculation of the Base Budget 2004/05 - Summary of Cash Limited Expenditure

The following table shows the progression from the original budget for 2003/04 which was prepared at outturn prices 2003/04 to the base budget 2004/05 at outturn prices 2004/05.

Annex 1 to Appendix 3

Policy and Resources

Calculation of Base Budget 2004/05

Parameters used in the compilation

Annex 2 to Appendix 3

(on pink paper)

Policy and Resources

Calculation of Base Budget 2004/05

Significant costs of inflation

Annex 3 to Appendix 3

Policy and Resources

Calculation of Base Budget 2004/05

Significant variations

Major variations between the repriced budget 2003/04 and the base budget for 2004/05 at November 2003 prices contributing to the decrease of £764,000 (-2%) are set out below:

Annex 4 to Appendix 3

(on blue paper)

Appendix 4

Policy and Resources

Revenue Budget 2004/05

Proposals for growth

Appendix 5

Policy and Resources

Revenue Budget 2004/05

Proposals for redeployment of resources, efficiency savings and cost pressures absorbed

Appendix 6

Policy and Resources

Revenue Budget 2004/05

Review of income

Appendix 7

Policy and Resources

Revenue Budget

Reconciliation of the original 2003/04 budget on the following pages with the 2003/04 budget in the published budget book.

Appendix 8

Policy and Resources

Base Revenue Budget 2004/05

Business Units - Summarised Trading Accounts