Contact: Jon Pittam, ext 7400

1. Summary

1.1 There is a saving in service cash-limited budgets and other budgets totalling £3.8m, after transfers to earmarked reserves.

1.2 The following decisions are sought:

i. that the variations in service cash limited spending, as set out in Table 1 be approved

ii. that the accounts from 2003/04 be closed on the basis that:

· services other than Education to retain 50% of their underspendings

· Education's additional spending of £555,000 against the original cash limit be written off in 2003/04

iii. that adjustments and variations on other budgets as set out in Table 4 be approved

iv. that contributions to and from earmarked reserves be made as set out in Appendix 4 and the draft protocol set out in Annex 2 to the appendix be approved

v. that the report on the County Council's treasury management activities as set out in Appendix 5 be approved

vi. that the Prudential indicators set out in Appendix 6 be approved for submission to the County Council

vii. that the final accounts of the Hampshire Pension Fund as set out in Appendix 7 be approved and submitted to the County Council.

viii. that the final accounts of the County Council for 2003/04 be approved and submitted to the Council

ix. that progress in implementing financial management policies as set out in Appendix 8 be noted

x. That the following recommendations on the financing of capital expenditure be approved:

a) that capital payments for the year be financed as set out in Table 3 of Appendix 9

b) that the carry forward of capital schemes from 2003/04 to 2004/05 as set out in Annex 2 of Appendix 9 be noted

c) that it be determined that:

i. £10,864,000 of expenditure reimbursed by developers and outside agencies be capitalised

ii. £16,508,000 of capital receipts be used to finance capital expenditure in 2003/04

iii. £16,636,690 (including £2,304,445 reimbursed by other authorities in respect of deemed debt) be set aside as provision for credit liabilities from the revenue account to avoid new loans authorised by credit approvals

d) that services' capital programme cash limits for 2004/05 be increased by the sums shown in:

i. column 6 of Table 4 of annex 1 to Appendix 9 (to reflect the carry forward of capital schemes and of the balance of cash limits from 2003/04)

ii. column 3 of Table 7 of annex 4 to Appendix 9 (to reflect services' share of capital receipts)

2. Reason

2.1 To enable the Cabinet to review the 2003/04 final accounts, prior to their submission to the County Council for approval. Consideration of this report supports Aim 5 of the Corporate Strategy.

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: ........................ Date: ..............................

Councillor T K Thornber

Contact: Jon Pittam, ext 7400

1. Introduction

1.1 Service cash limited spending in 2003/04 was slightly below the revised budget, as predicted in the last monitoring report in April, with a net underspend of £1.6m (0.15%), as a result of all services containing spending within their revised budgets. The revised budget assumed an overspending of £1m on Education, so that compared with the original cash limit for 2003/04, the underspending is £0.6m (0.1%).

1.2 Education's outturn is £0.5m lower than assumed in the revised budget, as savings have been achieved to cover approximately half of the projected overspending.

1.3 Social Services have had to take management action to reduce budget pressures in 2003/04 and that action has been successful in containing spending within the cash limit and has resulted in an underspending of £0.8m in 2003/04.

1.4 An underspending on Policy and Resources services had been predicted mainly as a result of slippage in Community Planning grants, but in addition net spending on the Coroners Service has been lower than budgeted primarily because a higher proportion of activity occurred in the unitary cities.

1.5 Both Environment and Recreation and Heritage produced final outturns very close to their cash limits as projected.

1.6 Net savings of £2.8m have been achieved on other budgets:

· from higher than anticipated savings on interest on balances and from business rates

· partly offset by higher spending on winter maintenance of roads and an increase in the provision for part-time pension claims

· the Hampshire Fire and Rescue Authority's (HFRA) final levy is expected to be significantly lower than budgeted

· the call on the waste management contract contingency has been lower than estimated due to lower waste volumes than predicted in 2003/04

· insurance provision and reserve - a small saving has been achieved in the provision for future liabilities, but an additional contribution to the insurance reserve is proposed.

1.7 If Environment, Policy and Resources, Recreation and Heritage and Social Services retain 50% of their underspendings in accordance with the County Council's financial management policy, the effect will be to add £3.8m to balances at 31 March 2004. When the 2004/05 budget was approved it was agreed that the Education budget could be prepared on the basis that the projected £1m overspending in 2003/04 would not be carried forward in 2004/05. The final decision on write-off would however be taken at the year end taking into account the success of measures taken in the remainder of the year to reduce the scale of the overspending. In the light of Education's achievement of savings of £487,000 against the revised budget, it is proposed that the balance of the additional spending included in the revised budget (£555,000) be written-off rather than carried forward by Education.

1.8 Earmarked reserves at 31 March 2004 have increased by £4.8m, compared with those at 31 March 2003, reflecting a lower than planned use of reserves for capital financing purposes in 2003/04. School reserves are unchanged compared with 31 March 2003, at £28.3m.

1.9 Figures may still be subject to some further changes before the statement of accounts is prepared for approval by the County Council or by the Panel set up specifically for this purpose at the last meeting of the County Council.

2. Service cash limits

2.1 Variations in service spending against the cash limits reported in February, April and now are as follows:

Table 1:

	February 2004	April 2004 (monitoring report)	June 2004 outturn
	£'000	£'000	£'000
Education	1042	734	555
Environment	-*	-	-36
Policy and Resources	-	-131	-281
Recreation and Heritage	-	-	-32
Social Services	-	-	-784
	1042	603	-578

* after carry forward of a planned underspending of £411,000 to 2004/05

2.2 Variations compared with the 2003/04 outturn and from revised cash limits (as set out in Appendix 1) are as follows:

Table 2: 2003/04 outturn variations

2.3 This continues the trend of service outturns very close to budgets. Comparative figures for recent years are:

Table 3: Trends in Service Spending

	£m	%
1998/99	-0.5	-0.1
1999/00	0.5	0.1
2000/01	1.4	0.2
2001/02	0.2	0.03
2002/03	-0.2	-0.02
2003/04	-0.6	-0.05

Policy on carry forward of under and overspendings

2.4 As the County Council operates with a low level of balances, services are expected to carry forward overspendings to the following financial year. However, when the 2004/05 budget was set, it was agreed that the Education budget for 2004/05 be set on the basis that the projected overspending on special education needs in 2003/04 would not be carried forward to 2004/05. This took account of the passporting arrangements for the Schools Budget in 2004/05. A final decision on whether to write-off the overspending was deferred to the end of the financial year, taking into account the success of the action to contain the level of overspending. Savings of £487,000 against the projected overspending of £1,042,000 have been achieved in the Education final accounts for 2003/04 and it is proposed that the write-off of the balance of the overspending of £555,000 be approved rather than being carried forward within the Education service.

2.5 The County Council's policy allows for the carry forward of 100% of planned underspendings identified specifically at the time of, or prior, to service budgets being prepared in January. Environment carried forward an underspending of £411,000, primarily ring-fenced for higher waste disposal costs associated with vehicles, refrigerators and electrical goods.

2.6 The policy on the remaining (unplanned) underspendings is to return 50% to the service and consider the use of the balance for corporate purposes. Additional underspendings on services other than Education amount to £1,133,000 in 2003/04.

2.7 The arguments for the policy of allowing services to retain only 50% of unplanned underspending are:

· It gives the Cabinet some scope to write-off overspendings where they have arisen due to unforeseen circumstances and where the action required to contain spending within the cash limit would have had an unacceptable impact on services. In 2002/03 and 2003/04, the corporate retention of 50% of unplanned underspendings, has enabled overspendings to be written off on Environment and Education services respectively without any significant call on balances, while at the same time enabling services to obtain some benefit from the savings achieved in their outturn

· It provides an incentive for services to identify planned underspendings which can be used to fund one-off pressures in the following year's budget. These have amounted to £4.2m over the last four years. There would be little incentive to identify planned underspendings to assist the budget strategy if there was an expectation that 100% of unplanned underspendings would be carried forward at the year end

· A policy of allowing 100% carry forward of all underspendings would require a symmetrical approach to the carry forward of overspendings. This is a possible alternative policy, which local authorities are obliged to follow in relation to school budgets. To apply a `heads we lose, tails they win' policy of allowing underspendings to be carried forward and overspendings to be written off would require bigger balances, would weaken financial control and discourage realistic financial planning.

Education (-£487,000 compared with revised budget or £555,000 compared with original cash limit)

2.8 The Education revised budget was £1,042,000 above the cash limit mainly because of higher committed spending on budgets relating to special educational needs. As indicated in the previous monitoring report action has been taken to seek to achieve savings in other areas of the budget in order to reduce the scale of the overspending. Savings of £487,000 have been achieved, partly within the schools block from lower take up of Early Years places, but also within the LEA budget on home to school transport and support services, offset by higher spending on the Youth Service.

Environment (-£36,000)

2.9 A small underspending of £36,000 was achieved on Environment, confirming budget monitoring projections which indicated that spending was likely to be close to the cash limit.

Policy and Resources (-£281,000)

2.10 The previous budget monitoring report indicated that the savings of £117,000 required to bring the revised budget down to the cash limit were likely to be achieved and that further savings would be made mainly as a result of some slippage in community planning grants. A slightly higher underspending has arisen as a result of higher than anticipated savings on a number of budgets including coroners' and election expenses.

Recreation and Heritage (-£32,000)

2.11 Spending on Recreation and Heritage was also very close to the cash limit as predicted, with a small underspending of £32,000 being achieved with no major variations in the anticipated pattern of spending between services.

Social Services (-£784,000)

2.12 Social Services have been taking management action throughout most of the financial year to contain budget pressures. A potential overspend of £1.3m was predicted based on spending to the end of December 2003, though it was expected that further progress would be made prior to the end of the financial year in bringing spending more closely into line with the cash limit. In the event, an underspending of £784,000 has occurred as a result of holding back spending in some grant-related areas, generation of additional income and lower delayed discharge fines than forecast. These savings have more than offset an overspending on children's services.

Cash limit adjustments

2.13 Appendix 1 shows the adjustment made to cash limits since the original budget for 2003/04 and Appendix 2 analyses the main variations between the actual and the approved cash limit for each service.

3. Other budgets

3.1 The overall underspend on other budgets is £2.8m compared with the sum previously projected of £2.1m. A full analysis of the variations on other budgets is contained in Appendix 3.

Hampshire Fire and Rescue Authority (HFRA) levy (-£486,000)

3.2 The HFRA has yet to consider its final accounts for 2003/04 but the outturn is expected to be £408,000 lower than the revised levy for the year. HFRA issued a revised levy during the course of the year £784,000 higher than the original levy mainly because of the higher cost of the Firefighter's pay award in 2003/04. Overall therefore HFRA's final levy is expected to be £376,000 higher than the original levy. In addition at the time the revised budget was prepared the HFRA anticipated further additional spending of approximately £200,000 in 2003/04 as a result of above average levels of operational activity. Contingency provision was made in the County Council's revised budget for this potential further increase in the levy. The overall effect on the County Council is a saving of £486,000, as a result of its share of the saving against the revised levy (£325,000) and the contingency provision not required (£161,000).

3.3 HFRA's underspending arose from savings on operational budgets, additional income and lower lump sum pension payments, partly offset by an increased provision for uninsured claims. This of course is the last financial year in which adjustments are required for the Fire levy.

Business rates (-£1,277,000)

3.4 Business rates savings of £1.3m have been achieved as a result of successful valuation appeals in 2003/04, higher than anticipated as a result of school refunds received towards the end of the financial year.

Capital financing changes (-£27,000) and interest on balances

(-£2,346,000)

3.5 Capital financing costs are very close to the estimate as the average interest rate for the year at 5.01% was within 0.01% of the estimate. Interest on balances was predicted to be around £1m higher than budgeted but a larger underspending than anticipated has arisen following the final calculation of the interest attributable to the County Council in 2003/04, enhanced by the payment of interest on business rate refunds.

Winter maintenance (£1,261,000)

3.6 An overspending of £800,000 had been anticipated in the previous monitoring report as a result of the colder than average winter, including two periods of snowfall. The cost of the late February snowfall was higher than predicted and further salt runs were also necessary in March.

Waste management contract contingency (-£788,000)

3.7 Overall waste volumes were 1.4% lower in 2003/04 than in the previous year and as a result, despite some other increased costs, the call on the waste management contract contingency was £788,000 lower than budgeted.

Insurance (-£347,000 matched by a reserve contribution of £1,072,000)

3.8 The contribution to or from the insurance provision is based upon the value of claims paid in the year and the assessed value of outstanding liabilities for the year. As a result of more favourable trends in public and employer liability claims, despite the high levels of fire reinstatement costs, a reduction of £347,000 in the provision for insurance liabilities has arisen. However this masks the continued upward trend in the value of outstanding fire reinstatement of around £8.5m which is about £2m higher than at 31 March 2003. It is recommended that the saving of £347,000 in the insurance provision be matched by a corresponding transfer to the insurance reserve, increasing its level to £5.3m at 31 March 2004 and that consideration be given to a further reserve contribution in recognition of the increase in liabilities from fires at schools.

3.9 Despite the overspending of £555,000 on Education cash-limited expenditure, savings of £1,280,000 have been achieved on school business rates during the year, so that spending within the Schools Budget is £725,000 lower than assumed when the 2003/04 budget was set. A further transfer of £725,000 to the insurance reserve would therefore be consistent with the County Council's policy on passporting. Under the Fair Funding arrangements this would require a supplementary delegation to schools in 2004/05 of £725,000 to give effect to this proposal. Premium levels for both buildings and liabilities will need to be reviewed in conjunction with new service level agreements with schools in 2005/06 with the expectation that an increase in the overall level of premiums will be required both to cover the current short fall in the funding of Fire reinstatement and future claims expectations.

Part-time pensions (£250,000)

3.10 A provision of £1m was made in 2000/01 for the estimated cost of making backdated employers' pension contributions for part-time employees who have submitted claims seeking retrospective admission to the Local Government Pension Scheme. The claims resulted from a European Court ruling that previous restrictions on the admission of part-time employees were unlawful. The Government has now issued guidance on the implementation of the ruling and it is hoped that Hampshire claims will be resolved during 2004/05. The latest estimate of the backdated impact on employers' contributions is £1.25m and it is proposed to increase the provision accordingly.

Revenue contributions to capital

3.11 As explained in Appendix 9, 2003/04 has been another successful year in the implementation of the capital programme, with capital projects valued at £212.5m starting in the year (88% of the programme) and capital payments of £153.0m having been incurred. Nonetheless capital payments are £6.4m lower than forecast and mainly for this reason the requirement to use local resources to finance capital expenditure in 2003/04 is £7.3m lower than budgeted. The financing plan for 2003/04 required the use of £3.3m from the capital reserve but as a result of slippage of capital payments it is proposed to make a contribution of £4.0m to the capital reserve from planned revenue contributions which will not be required in 2003/04, in order to assist in matching the timing of capital payments and resources in 2004/05.

Revenue Support Grant

3.12 The accounts for 2003/04 have been closed on the basis of the grant allocated in the 2003/04 settlement and paid to the County Council during the year. There is a possibility however that grant could be subsequently reduced if the floor for 2003/04 is adjusted.

3.13 Under the current local government finance system, the level of revenue support grant payable to individual local authorities is fixed prior to the beginning of the financial year. However the Office of the Deputy Prime Minister has the power to issue a single report for each financial year amending the initial distribution of grant. This power has been used in the past where errors have been made by Government in determining the data used to distribute grant but as only a small number of authorities have been affected, the impact upon other local authorities has not been material.

3.14 However the Government has announced that it intends to issue amending reports for 2003/04 and 2004/05 following revisions made to the mid -2001 population data used in the 2003/04 settlement. This could be a more material amendment and raises wider issues about the updating of census data that are of particular concern to county councils. The Government's proposals are subject to consultation and a further report will be brought to the July meeting of the Cabinet.

Summary - other budgets

3.15 These variations can be summarised as follows:

Table 4: Summary of variations on other budgets

3.16 Assuming that 50% of service underspendings are retained by the relevant services and that the Education overspending is written off, the overall position is as follows:

Table 5: 2003/04 Outturn

4. Balances

4.1 The addition of £3,826,000 to general balances has the following impact:

Table 6: Balances

5. Earmarked reserves

5.1 Earmarked reserves have increased by £4.8m to £66.5m at 31 March 2004. Details of movements in reserves during 2003/04 and of the protocol for each of the main classes of reserves are set out in Appendix 4.

6. Treasury management

6.1 The County Council's treasury management policy requires an annual report to the Cabinet on the exercise of the treasury management function. Details are set out in Appendix 5.

7. Prudential indicators

7.1 The Prudential Code for Capital Finance in local authorities introduces a number of prudential indicators for which actual indicators for the year as well as budgeted indicators need to be set by the County Council. Appendix 6 summarises the relevant indicators for 2003/04 together with proposed revisions to future year indicators which result from the outturn for 2003/04 or from changes to the capital programme that have been approved since the capital programme was agreed in February. These revisions comply with the policies adopted when the Prudential Code was approved by the Cabinet in November.

8. Pension Fund accounts

8.1 The separate accounts for the Hampshire Pension Fund are also submitted for approval as Appendix 7.

9. Financial management policy

9.1 The County Council's financial management policy incorporates both the financial planning policies that underpin the County Council's: medium-term financial planning strategy and policies relating to the provision of financial services. Appendix 8 highlights the progress made in 2003/04 in implementing the policy.

10. Conclusions

10.1 Spending for the year is again very close but within the budget for the year, enabling an addition to be made to balances which will assist in dealing with the uncertainties and pressures already identified in 2005/06 and 2006/07. Executive members and budget holders as well as financial staff, deserve thanks for their efforts in balancing budgets and continuing to deliver excellent services in 2003/04.

10.2 The recommendations are contained in the decision sheet.

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

Summary of Appendices