(With the concurrence of the Chairman under Section 100(B)(4)(b) of the Local Government Act 1972, this matter was included on the agenda to ensure that timely decisions are taken with regard to the Revenue Budget and precept 2004/05 and the Capital Programme 2004/05 - 2007/08)

A. REVENUE BUDGET AND PRECEPT 2004/05

1. Summary


1.1. The Cabinet recommends a council tax increase of 4.7% (which is equivalent to the 7% supported during consultation after adjusting for the effect of the additional Government grant of £7.5m to relieve some of the burden on council tax payers). The budget and council tax increases meet the statements of the Minister of State for Local and Regional Government that:-


· "the Government believe next year local authorities must aim to deliver council tax increases in low single figures"


· "it is now vital that Councils meet the expectations of their tax payers and budget prudently to improve services at a reasonable cost".


1.2. The Minister appears to have written to all those authorities with Education and Social Services responsibilities which were reporting possible council tax rises of over 5% to warn that the Government would not hesitate to use capping powers if that proved necessary. The County Council has not been written to in this way. Under the current capping regulations it will not be possible for the Government to cap a large number of County Councils. In practice if a large proportion of Councils have council tax rises say of between 5%-7% they may not be capped in 2004/05 but instead be nominated for capping in 2005/06. The figure of 4.7% compares with the likely all-Counties average of 5.4%.


1.3. In summary the recommended budget proposes:-


· a budget of £1,052,275,000 which is 5.9% more than the 2003/04 budget


· a council tax of £840.15, which in cash terms is actually 0.5% less for the County Council's portion of the tax bill than in 2003/04, per Band D council tax payer, because from the coming financial year onwards Hampshire Fire and Rescue Authority is setting its own precept


· spending which is £44.1m or 4.4% above Formula Spending Share (FSS) compared with 3.8% above FSS in 2003/04.


1.4. There are no cuts in the budget proposed. The central focus is to protect services and deliver a council tax increase in low single figures in accordance with Government wishes. For the first time as far as historical records go the Government grant increases by more than either FSS or the Council's budget. There is a slight easing in pressure therefore and accordingly the budget is presented as a respite budget, in advance of future grant loss of £19m on Education and £7.5m from the one-off extra grant in 2004/05 to keep council tax rises in low single figures..


2. Budget Guidelines


2.1. As requested by Cabinet, Executive Members have put forward service budgets in accordance with an agreed budget strategy.


3. Budget Proposals


3.1. Following a review of Executive Members' specific proposals, the Cabinet proposes total planned expenditure of £1,052,275,000.


3.2. In respect of Education, there will be a full passporting of the Schools Budget to meet the 4% per pupil minimum guarantee for each individual school which provides for growth of 2.2% more than the base budget for schools, including £2.2m new resources to be allocated through the fair funding formula for schools in deprived areas. In order to achieve this it is proposed not to take account of the anticipated 2003/04 overspend on special educational needs by adding £1m from balances to the 2004/05 Schools Budget, because of the Government's restrictions on central spending in the Schools Budget.


3.3. There will be a total increase of £22.4m (8.5%) for Social Services which is £14.3m (5.4%) more than its base budget, including additional non ring-fenced specific grants, which has been used to meet continuing and new pressures on services with the biggest percentage increase being on children and families.


3.4. Policy and Resources' base budget has been reduced by the first part-year savings of £450,000 from the SAP benefits realisation. In addition procurement savings of up to £250,000 will be achieved by reducing the relevant non-schools budgets across all services, and savings of £100,000 on recruitment advertising are also planned in 2004/05. Policy and Resources' proportional share of the extra cash increase for schools and social services has been allocated to cover additional inflationary costs and loss of grant for repairs and maintenance of schools (£0.6m), and to enhance occupational health services, extra office accommodation costs, development of electronic modern records capacity and for additional pressures on central services in support of social services (£0.5m).


3.5. Environment's proposals include redeployment from capital to revenue of £1.8m to meet new pressures and growth affecting transport policy, and continuing the £3.5m sum set aside in the 2003/04 budget for one year only, subject to review, to improve the condition of, and maintenance of, local roads and pavements.


3.6. Recreation and Heritage has redeployed £400,000 to the countryside services to meet the obligations of the Countryside and Rights of Way Act and to provide greater access to the benefits of countryside recreation, and £515,000 towards the library and information service reorganisation.


3.7. In addition, extra resources of £4.9m on a continuing basis, and £4.7m on a one-off basis, are available as described below:

	One-off £m	Continuing £m
Flexibility in budget guidelines		2.0
Base budget calculation		0.1
Extra grant in final settlement		1.0
Higher net tax base than forecast		0.7
Extra collection fund surplus	0.9
Additional council tax income from reduced empty property discounts	0.2
Additional income from reduced second homes discount		1.1
Targeted recycling grant	0.3
Surplus balances	3.3
	4.7	4.9

The proposed allocation of these additional resources is split between one -off investment and contingency budget additions on the one hand, and sums allocated to service cash limits and held centrally in contingency for the Leader to allocate against business plans and performance improvement targets, on the other. Included in the proposals are the addition of £1m to the Schools Budget to cover central schools costs because of the Government's restriction on central spending increases; £0.8m on personnel and training restructuring and pay and benefits transitional investment costs (one-off items); £1m towards the development of accredited community support officers, and community safety and regeneration projects in deprived areas of the County; £0.9m for affordable housing schemes; and £0.5m towards increased public transport subsidy.

4. Performance Management


4.1. As part of the process of linking budgets more closely with performance management, proposals for additional spending need to indicate measurable improvements in performance anticipated and any significant savings proposals should include a plan of how each proposal would be implemented. All Executive Members are required to review their plans and monitor achievement against them during 2004/05 for all proposed growth and redeployment proposals.


5. Risk Management


5.1. The principal risk in the budget remains the continued uncertainty around future grant loss and the budget contains detailed plans for the use of the grant equalisation reserve which was set up in 2003/04 to offset the expected grant loss, which remains at £26.5m from 2005/06 onwards.


6. Balances


6.1. Projected balances at 31 March 2005 are £7.2m, £0.9m more than the normal minimum prudent level of 0.6% of the budget. This increase provides flexibility to cover potential overspends in 2003/04, uncertainties or risks in 2004/05 or to carry forward to assist the 2005/06 budget.


7. Earmarked Reserves


7.1. Earmarked reserves at 31 March 2005 are estimated at £56.8m as compared with the current estimated balance at 1 April 2004 of £52.8m. The principal reserves estimated at 1 April 2004 are the schools reserve (£26.6m) and the grant equalisation reserve (£13.1m).


8. Treasury Management Strategy


8.1. For 2004/05, the Cabinet recommends that long and short term rates be closely monitored. Long term fixed rate borrowing should be considered if long term rates stand at 5% or below, or at a higher rate if clear signs of a rising trend in rates should occur. Guideline targets of £27m and £14m are proposed for 2004/05 for long term fixed rate borrowing and lenders' option/borrowers' option loans respectively, which can be exceeded if circumstances are appropriate.


9. Consultations


9.1. In the early part of the current financial year, the Cabinet refined and enhanced its consultation arrangements with business, council tax payers, the voluntary organisations and the work force on the proposed budget and for the first time held a community workshop facilitated by MORI. There was broad support for the prudent management of the County Council's financial affairs and the need to maintain service levels, and accordingly support for the 7% level of increase.


10. Section 25 Report, Local Government Act 2003


10.1. The Local Government Act 2003 comprises a series of duties and powers that give statutory support to important aspects of good financial practice. Section 25 of the Act requires the Chief Financial Officer (the County Treasurer) to report to the County Council when setting its council tax on the robustness of the estimates included in the budget and the adequacy of the financial reserves in the budget. The County Treasurer's report on this issue is set out in some detail in Appendix 1, but in summary it is suggested that if the County Council considers the detailed practice outlined and accepts the budget recommendations, including the level of earmarked reserves, a positive opinion can be given under Section 25 on the robustness of the estimates and level of reserves.


11. Conclusion


11.1. As mentioned previously the budget is presented as a respite, which has sought to keep the increase to a minimum without jeopardising service provision, but also providing scope for a prudent investment of £4.9m in new services on a continuing basis.


RECOMMENDATIONS

(i) That the Treasurer's report under Section 25 of the Local Government Act 2003 (Appendix 1) be taken into account when the Council determines its budget and precept for 2004/05


(ii) That the revenue budget for 2004/05 (as set out in the attached draft budget book) be approved


(iii) That the total budget requirement for the general expenses of the County Council for the year beginning 1 April 2004 be £1,052,275,000


(iv) That the County Council's Band D council tax for the year beginning 1 April 2004 be £840.15


(v) That the County Council's council tax for the year beginning 1 April 2004 for properties in each tax band be:

£
Band A 560.10
Band B 653.45
Band C 746.80
Band D 840.15
Band E 1026.85
Band F 1213.55
Band G 1400.25
Band H 1680.30


(vi) That precepts be issued totalling £402,457,953.46 on the billing authorities in Hampshire, requiring the payment, in such instalments and on such dates set by them and previously notified to the County Council, in proportion to the tax base of each billing authority's area as determined by them and as set out below:


Basingstoke and Deane Borough Council 58,048.10
East Hampshire District Council 45,830.43
Eastleigh Borough Council 41,762.61
Fareham Borough Council 41,241.00
Gosport Borough Council 25,766.30
Hart District Council 35,678.00
Havant Borough Council 41,997.00
New Forest District Council 70,293.80
Rushmoor Borough Council 29,127.09
Test Valley Borough Council 44,349.00
Winchester City Council 44,937.74


(vii) That the revised Treasury Management Policy Statement (Appendix 2) be approved


(viii) That the prudential indicators (Appendix 3) be approved.


B. CAPITAL PROGRAMME 2004/05 - 2007/08

1 The Cabinet has considered proposals put forward by Executive Members for the four years 2004/05 to 2007/08. The resultant draft capital programme is attached as a separate document. In drawing up their preferred programmes, Executive Members were requested to:


· prepare for proposals for a locally resourced four-year capital programme within the current programme limits, adjusted for inflation, and to consider the integration of revenue and capital programmes within the guidelines set for the new Prudential Code on Capital;


· submit, in addition, capital schemes supported by Government allocations, including grants and supported borrowing approvals for 2004/05 and those expected to be supported in 2005/06, 2006/07 and 2007/08;


· submit possible capital projects which might be suitable for private finance initiative (PFI) revenue support from 2004/05 to 2007/08, subject to further reports on the outline business case for each scheme from the Government support available.


2 The total starts value of the four year programme is (round figures) £650m. The main elements are £513m for schemes supported by Government approvals, £132m for the four-year locally resourced programmes and £5m for land acquisition.


3 The proposed Education programme for the next four years totals £132m which includes £3.7m carried forward from 2003/04, Government-supported borrowing approvals for the New Deal for Schools Modernisation of £43.4m and a further £60.3m by way of capital allocations direct to schools. The provisions included in the proposed programme are estimates, pending the Government's announcements on further allocations from its Targeted Capital Fund and for voluntary aided schools, and its next spending review announcement in the Summer. The Government support for overall Government investment in Education for 2004/05 exceeds £53m including the allocations for condition. This is a little lower than the £57m allocated by the Government for 2003/04. There will continue to be a funding shortfall within the overall Education Capital Programme and pressure will be maintained to make sure that developer contributions and capital receipts are secured as quickly as possible to ameliorate this. It is also anticipated that there will be a significant balance of resources available from the 2003/04 programme which will be available in 2004/05.


4 With regard to Environment, the Government's local transport capital settlement for 2004/05 includes an allocation of borrowing approvals of £31.2m, an increase of 13.1% compared with the equivalent figure for 2003/04. This includes significant boosting for investment in local transport schemes. The total proposed four year programme is £129.5m. The Government has now approved the full bid of £25.1m funding for the A3 Corridor Bus Priority Scheme. The Fareham-Gosport-Portsmouth section of the South Hampshire Rapid Transit (SHRT) scheme has been included in the proposed programme for 2004/05. The Government has indicated that it will support 75% of the public sector cost of the scheme (the County Council's share after allowing for Portsmouth City Council's share and external contributions has been retained at £119m at 2003/04 prices). The funding position for the scheme will become more clear as the procurement negotiations are finalised and the Executive Member for Environment will report back to Cabinet as appropriate. The proposed four year programme includes three other major schemes, for which bids for Government support will be made in future local transport plan submissions. These are the Chickenhall Lane Link Road, Eastleigh; an enhancement scheme in Totton Town Centre; and Stubbington By-Pass. The Chickenhall Lane scheme remains the top priority because of the employment opportunities it will provide, together with potential associated improvements in Eastleigh. There are also plans to improve household waste recycling centres.


5 The allocation of the Policy and Resources capital programme between schemes is broadly similar to the existing programme. The maintenance of the core buildings in the County Council's built estate, through the capital programme, continues to be the main corporate priority.


6 With regard to Recreation and Heritage, the Council will recall that £4.8m was allocated to develop discovery centres and the Winchester Cultural Centre, including £1m in each year from 2003/04 to 2006/07. It is now proposed that the £1m allocations in 2003/04 and 2004/05 are used for the Gosport Discovery Centre, which is expected to start in 2003/04. The programme also includes contributions of £180,000 to the new accommodation block at Calshot Activity Centre in each of the two years 2004/05 and 2005/06, the total cost of the project being estimated at £1.2m. The Activity Centre will contribute £360,000 from accumulated revenue provisions and the balance is proposed to be met by unsupported borrowing to be repaid over 10 years from the Centre's income. The remainder of the programme is made up of specific schemes, which in many instances have already been approved by the Executive Member, and allocations to areas of activity that will support a variety of relatively small scale projects.


7 The capital programme for Social Services is also in line with the guidelines. Schemes supported by Government grant in 2004/05 and 2005/06 to improve information management and for IT for looked-after children, have been added to the programme. The £60m scheme to provide 500 new nursing beds to maintain capacity in the nursing home market is expected to start before the end of 2003/04. Funding of £40m will be provided by the Strategic Health Authority. However, a bid to Government for borrowing approval or some other form of support for the remaining £20m has been unsuccessful. Likewise, partnership options with the private sector have proved not to be viable. As a result it is now proposed to fund the £20m from the County Council's own resources in particular by using unsupported borrowing under the Prudential Code, with the financing costs met from within the revenue budget cash limit for Social Services.


8 No specific PFI schemes have been identified by Executive Members for the programme in addition to the SHRT scheme, although there are a number of areas for further investigation. There is also a range of other issues affecting the County Council's capital programme, the full position on which will not become clear for some time and it is proposed that a further report be made to the Leader and Cabinet later in 2004/05, when the Council's overall capital strategy could also be reviewed. The particular issues that could be covered include


· proposals for the use of unsupported borrowing;


· the funding of the South Hampshire Rapid Transit Scheme as previously referred to;


· the final detailed funding of the nursing homes scheme as previously referred to;


· the redevelopment of the site adjacent to the Records Office, and Ashburton Court in Winchester;


· the prospects for future capital receipts;


· the need for investment in infrastructure to develop land in North Popley to maintain the stream of capital receipts, and the County Council's obligations to participate in the development of land at Manydown in Basingstoke.


9 With regard to payments and resources, resources in 2003/04, 2004/05 and 2005/06, will match the forecast level of payments in those years with the use of the balance available in the capital reserve. By 2006/07 however, payments are forecast to exceed resources by £1.5m which can be managed within an overall capital programme of £650m with payments running at over £150m per annum. Resources are then expected to be sufficient to cover payments from 2007/08 onwards. Payments and resources will be closely monitored and regular reports brought to the Cabinet.

RECOMMENDATIONS:

(i) That the scheme to provide nursing care accommodation at a cost of £60m be added to the Social Services Capital Programme for 2003/04, to be met by Department of Health contributions of £40m and up to £20m of County Council unsupported borrowing.


(ii) That the costs of principal and interest resulting from the £20m of unsupported borrowing for the nursing care accommodation scheme be met from within the revenue budget cash limit for Social Services.


(iii) That the capital programme for 2004/05 be approved as set out in the draft capital programme and subject to the conditions set out in section B.3 of the County Council's Financial Procedures.


(iv) That the capital programmes for 2005/06 to 2007/08 be approved as set out in the draft capital programme for the purpose of undertaking design work (including the preparation of feasibility and design project appraisals).


(v) That expenditure on preliminary design and planning work for major transport schemes be permitted when they have achieved a place in the County Council's Local Transport Plan, subject to the cost being met within existing Government allocations.


(vi) That authority be given to incur expenditure on land purchases as follows:


(a) up to the sum specified in respect of sites still required for the schemes included in the capital programme for the period 2004/05 to 2007/08 provided that the relevant scheme has been the subject of a feasibility or design project appraisal approved by the relevant Executive Member;


(b) up to the amount included in the 2004/05 programme in respect of advance and advantageous land purchases as approved by the Executive Member for Policy and Resources.


(vii) That the carrying out of feasibility studies for potential "in/out" schemes be approved, the cost to be met from within approved revenue budgets.


(viii) That the Executive Member for Policy and Resources be authorised to approve requests from Executive Members to undertake any design work associated with potential "in/out" schemes, provided that such costs as may fall on the County Council are met from within the relevant Executive Member's capital programme limits.

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.

Letters from Government departments on the capital allocations for 2004/05 and subsequent years.

5bR80204