Contact: Jon Pittam, ext 7400 and Andrew Smith, ext 7826

1 Summary

1.1 The following decisions are sought:

1 That the Leader and Cabinet recommend to County Council that:

(i) the scheme to replace the John Hunt of Everest Community School in Basingstoke be added to the Education capital programme for 2005/06 at a cost of £25.429m, to be funded from contributions from developers and Basingstoke and Deane Borough Council and from the sale of the existing school site, together with the use of unsupported borrowing in 2004/05 and 2005/06 totalling £4.3m (paragraph 5.2 of the main report)

(ii) the scheme to provide infrastructure for the development of land at North Popley be added to the Policy and Resources capital programme for 2004/05 at a cost of £13.5m to be funded from the provision in the capital programme for 2005/06 of £10.2m for North Popley and Manydown, with the balance of £3.3m met from unsupported borrowing in 2005/06 and 2006/07 (paragraph 5.4)

(iii) the provision of £5m for the County Council's share of the acquisition of land at Manydown be reinstated in the capital programme when it is next reviewed provided that development of the Manydown site has not been excluded from the Basingstoke and Deane Local Plan, to be funded from the capital receipts for the development of North Popley (paragraph 5.6)

(iv) the provision of £2.8m currently in the Recreation and Heritage capital programme for the Winchester Cultural Centre be increased to £6.6m, funded from the sale proceeds for the library buildings in Alton and North Walls, Winchester and a contribution of from Winchester City Council, with any increase in costs above £6.6m to be met from Recreation and Heritage's existing resources (section 6)

(v) the scheme for a replacement day centre for older people in the Hythe and Dibden area be added to the Social Services capital programme for 2005/06 at a cost of £0.75m, with the funding to be met from Social Services' capital resources currently unallocated (£0.375m) and corporate resources (£0.375m) (section 9)

(vi) the scheme to reorganise special education in east Hampshire be added to the Education capital programme for 2005/06 at a cost of £7.1m, to be funded from the allocation of £5m received from the Government's targeted capital fund, and from capital receipts, capital repairs and other existing resources totalling £1.725m, with the balance of £0.375m to be funded from corporate resources (section 12)

(vii) the provision in the Environment capital programme for 2005/06 to 2007/08 be increased from £0.316m per annum to £1.0m per annum, to be funded from Environment's share of capital receipts, including the disposal of highways land at Town Centre West, Basingstoke, and the Government's proposed Waste Management Performance Reward Grant (section 14)

(viii) the revised prudential indicators set out in Appendix 3 be approved.

2 That further feasibility work on the future of Ashburton Court, Winchester be funded from the existing provision in the capital programme for Advance Fees (section 7).

3 That essential fire detection and suppression systems be installed in the central IT suite in Elizabeth II Court, Winchester at a cost of £0.15m, to be funded from within existing capital and revenue maintenance budgets (section 8)

4 That the remainder of the report be noted.

2 Reason

2.1 In recommending the capital programme for 2004/05 to 2007/08 to the County Council in February 2004, Cabinet agreed that the programme should be reviewed again later in 2004, to include:

· the prospects for capital receipts in 2004/05 and later years

· the need for investment in infrastructure in development land to maintain the flow of capital receipts

· the possible use of borrowing that is not supported by Government grants

· potential private finance initiative (PFI) schemes.

2.2 In developing further the County Council's capital investment plans, this report supports all the Aims of the Council's 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 and Andrew Smith, ext 7826

1 Summary

1.1 This report sets out the Leader's proposals for revising the capital programme for 2004/05 to 2007/08 in the light of an increase of £3m in forecast capital receipts in 2005/06 and the outcome of a number of feasibility studies.

1.2 The proposals include a temporary increase in the County Council's use of unsupported borrowing by a total of £7.6m between 2004/05 and 2006/07 to allow the replacement of John Hunt of Everest Community School and investment in infrastructure for development land at North Popley to proceed. This increase in unsupported borrowing will be repaid in 2006/07 and 2007/08 when capital receipts are available from the development of North Popley.

2 Background

2.1 In recommending the capital programme for 2004/05 to 2007/08 to County Council in February 2004, Cabinet proposed that it should review the programme again later in 2004. A number of outstanding issues were identified in February, including:

· the prospects for capital receipts in 2004/05 and subsequent years

· the possible use of borrowing that is not supported by Government grants - "unsupported borrowing"

· more detailed proposals for the use of the private finance initiative (PFI)

· the funding of the South Hampshire Rapid Transit scheme

· the funding of the nursing care accommodation scheme, including the timing of the use of unsupported borrowing

· the development and funding of the Winchester Cultural Centre

· the re-development of Ashburton Court in Winchester and the use of the sites adjacent to the Records Office

· possible additional investment in household waste recycling centres

· the need for investment in infrastructure to develop land in North Popley to maintain the stream of capital receipts, including the relocation of John Hunt of Everest Community School

· the need to meet the County Council's obligations to participate in the development of land at Manydown in Basingstoke, and its timing.

2.2 This report updates the position on these and other issues including:

· a replacement day centre for older people serving the Hythe and Dibden area

· the reorganisation of special needs education in east Hampshire

· essential fire detection and suppression systems for the central IT suite in Winchester.

2.3 Preliminary planning and feasibility work has been completed on a number of these schemes which now require decisions before further development work can take place.

2.4 The Director of Property, Business and Regulatory Services will report separately on procurement and staffing issues.

3 Current position

3.1 The capital programme for 2004/05 to 2007/08 approved in February 2004, together with works in progress, was estimated to result in capital payments of £732m over the four-year period. Resources had been identified to finance all but £1.5m of these payments. The County Council approved the capital programme on the basis that a further resources of £1.5m would be identified to meet this shortfall. Although this amount is relatively small compared with the size of the overall capital programme, the Audit Commission has commented on the need for the County Council to plan for eliminating the shortfall at the earliest opportunity.

3.2 The report to this meeting on the Final Accounts for 2003/04 confirms that there are no major issues that will affect the future affordability of the capital programme arising from the outturn for capital payments and resources in 2003/04.

4 Capital receipts

4.1 The review of capital receipts in June 2003 enabled the County Council to add the discovery centre projects to the capital programme and to provide for the infrastructure costs for the development of land at North Popley. The estimates of capital receipts underpinning the capital programme subsequently approved in February 2004 were based on these June 2003 forecasts uplifted for inflation.

4.2 A detailed revised forecast of capital receipts over the two-year period of 2004/05 and 2005/06 has been now made which suggests a further £3m will be available in 2005/06. This will provide funding to allow more projects to proceed from planning to implementation. Recommendations for the use of these receipts are made throughout the report and summarised in section 17.

4.3 The revised forecasts for capital receipts are:

	Estimate as at	Latest Estimate
	Feb 2004
	£m	£m
2004/5	12.0	12.0
2005/6	6.3	9.3
	-------	-------
	18.3	21.3
Increase		3.0

4.4 Forecasts of capital receipts in the years after 2005/06 depend on progress in developing the County Council's land at North Popley. The capital programme approved in February 2004 assumed that capital receipts will be £6.3m per annum from 2006/07 onwards.

4.5 Apart from the increase of £3m mentioned above, for which spending proposals are included in this report, there are no additional resources available from capital receipts that could be used to add further schemes to the capital programme or to allow reductions in revenue contributions to the capital programme over the current four-year programme.

4.6 For reinvestment or "in/out" projects, the latest forecasts of capital receipts are:

	£m
2004/05	10.7
2005/06	15.0 to 20.0*
* the actual total will depend on the exact timing of the disposal of the first
phase of the existing John Hunt of Everest Community School site.

4.7 The overall total for capital receipts, including reinvestment projects, in the two-year period from 2004/05 to 2005/06 is now forecast to be at least £47m.

5 North Popley and the replacement of John Hunt of Everest Community School

5.1 The project appraisal for the replacement of John Hunt of Everest Community School has been considered by the Executive Member for Education and was approved by the Executive Member for Policy and Resources on 10 June 2004. The estimated cost of the scheme is £25.4m, of which some 85% will be funded from capital receipts, development contributions and community contributions from Basingstoke and Deane Borough Council.

5.2 This leaves a shortfall of £4.3m (about 15%) which it is proposed should be met in the short term from unsupported borrowing, to be repaid from the future flows of capital receipts from the development of the land at North Popley. This contribution of £4.3m to the cost of the John Hunt School is, in effect, an addition to the Education capital programme from corporate resources.

5.3 The shortfall of £4.3m is by itself less than the estimated maintenance liability of retaining the school. In addition to providing new education and community facilities and regenerating the local area, the relocation of the school will act as a catalyst to allow the significant development and release of County Council land with an estimated value of up to £60m. These capital receipts will become available towards the end of 2006 or in early 2007 and will continue until 2010.

5.4 A further significant issue for the County Council is to approve the required infrastructure to facilitate the school development (and the land disposals) and enable the release of land at North Popley as part of a wider marketing strategy. Experience from previous development areas at Segensworth, Chineham and elsewhere has shown that returns are maximised if the County Council invests in advance in infrastructure for the sites. The estimated cost of the infrastructure for North Popley is £13.5m. In anticipation of this expenditure on infrastructure, the capital programme approved in February 2004 included provision of £5.2m in the starts programme for 2005/06.

5.5 The next major source of capital receipts after Popley could be land at Manydown, to the west of Basingstoke, which was jointly acquired by the County Council and Basingstoke and Deane Borough Council in 1996. Under the terms of the agreement with the Borough Council, the County Council chose not to pay its 50% share of the acquisition cost at the time. To be able to take part fully in the development of the land, the County Council will need to make a payment at some stage for its 50% share, amounting to approximately £5m. Provision for this £5m is currently included in the capital programme for 2005/06.

5.6 It is recommended that this payment should not be made until the development of Manydown is confirmed in the adopted Basingstoke and Deane Local Plan. It is not clear when this will be as it depends on the completion of further local plan enquiries but it is not anticipated within the next two to three years. In the meantime, it is recommended that the £5m provision should be made available for the infrastructure costs at Popley, giving a total of £10.2m from existing resources. This leaves some £3.3m to be found from temporary unsupported borrowing or capital receipts, depending on the final timing of the disposals. The Manydown provision of £5m would be restored to the capital programme from the future flows of receipts for the North Popley development.

6 Winchester Cultural Centre, Jewry Street, Winchester

6.1 The existing capital programme includes provision of £2.8m for the proposed Cultural Centre in Jewry Street, Winchester. In addition, a capital receipt will be available from the sale of the redundant building at North Walls (the location of the existing reference library and headquarters buildings). Recent discussions with Winchester City Council have confirmed that they will also contribute towards the project.

6.2 Part of the original provision for the Winchester library project - some £1.4m - was used to build the new Alton library. The construction of this library is nearing completion and in due course the redundant site in Alton will be marketed for housing development. It is proposed that the proceeds should be returned to the Winchester project.

6.3 These sources of funding - the provision in the existing capital programme of £2.8m, the capital receipts from the sales of North Walls and Alton library and the contribution from Winchester City Council - give a total cash limit for the Winchester Cultural Centre of £6.6m.

6.4 A project appraisal for the scheme will be prepared in the Autumn when the exact levels of the repairs and IT infrastructure can be defined, including all major repair items. It is anticipated that major services infrastructure and sprinkler systems will be required. The cost of the project is currently estimated to be £7.3m when the refurbishment of the existing central library building in Jewry Street is taken into account. However, it is recommended that the scheme is cash limited to £6.6m unless the capital receipts for North Walls or Alton were to increase or contributions to the cost be made from Recreation and Heritage's existing resources including from the sale of other assets. The Recreation and Heritage capital programme has already benefited from £4m from corporate resources for the discovery centre programme, in addition to the existing provision for the Winchester project. The Director of Property, Business and Regulatory Services will report further when the Design Project Appraisal is finalised and the works to the existing buildings defined and specified.

6.5 As the capital receipt from the sale of North Walls will not be available until the end of the development at Jewry Street, it will be necessary to use unsupported borrowing to bridge the gap temporarily. The amount and timing of the unsupported borrowing and its repayment will be identified in the project appraisal in the Autumn.

7 Ashburton Court offices, Winchester

7.1 Major inspections of the structure of the Ashburton Court office building in Winchester have taken place over the last ten years. Minor structural elements have caused problems. Many of the components of the building are like many buildings of its type and are coming to the end of their life. The building comprises about 9,000 square metres of accommodation with four floors of car parking. It costs about £1m per year to maintain and houses over 500 staff. More detailed work has taken place recently which suggests that, having monitored the situation and delayed any major expenditure, the County Council needs to consider either:

(i) repairing the building and/or replacing the accommodation (in Winchester or elsewhere); or

(ii) remodelling and refurbishing the building with the opportunity to increase the volume of accommodation on the site.

7.2 Different options have been considered with regard to the future of Ashburton Court and initial analysis indicates that the front runner is the remodelling/refurbishment option, particularly given the long lease held by Winchester City Council of two decks of car parking. Detailed feasibility work suggests that the remodelling and refurbishment option would be most cost effective exploiting the connections which exist with the other buildings in Winchester (virtually all of which are in the freehold ownership of the County Council).

7.3 Structural advice from consultants suggests that leaving intact the car parking (but repairing the structure as necessary) would be cost effective and in effect modernising the accommodation and remodelling the building, involving a reduction to its height.

7.4 Further work on the options is required and a detailed feasibility study for Ashburton Court and the sites adjacent to the Record Office, including costs and benefits, will be brought to a future meeting of the Cabinet. In the meantime, the cost of further feasibility work will be met from the provision in Policy and Resources capital programme for Advance Fees of £0.647m in 2004/05 plus £0.231m carried forward from 2003/04.

7.5 The proposals set out earlier in this report for the development of North Popley at a cost of £13.5m will release capital receipts of up to £60m over the period to 2010/11. Part of those receipts will have to be used to repay the proposed unsupported borrowing for the John Hunt scheme of £4.3m. In addition, around £5.5m per annum of the North Popley receipts have already been assumed in estimating the resources available to support the existing capital programme from 2006/07 onwards. As a result, about £35m of the North Popley receipts of £60m has already been used, leaving only £25m or so available to support the wider capital programme over the next six or seven years, including any proposals for Ashburton Court. It will be important for the contribution to the cost of the Ashburton Court project to leave resources from the North Popley development for other priorities.

7.6 The overall funding package for the Ashburton Court scheme would need to include contributions from the existing provision for capital repairs over a period to reflect the removal of future maintenance liabilities and for the reduction of revenue costs for leased offices.

8 Central IT suite in Winchester

8.1 The existing central IT suite in Elizabeth II Court, Winchester, is coming to the end of its life as many elements of the infrastructure become obsolete or beyond economic repair. The future development of Ashburton Court is inextricably linked to the development of a new central IT suite in Winchester, or redevelopment of the existing suite. Ideally both projects should be considered together. The computer suite has no secondary power supply and, in many regards, it is inadequate in its current location in the basement of Elizabeth II Court.

8.2 A recent review of the Engineering Services has indicated that as a priority and, notwithstanding any decision on the future of the IT suite, a new fire detection system and the installation for the first time of a fire suppression system would be important measures to protect the central IT infrastructure of the County Council. The cost is estimated to be some £150,000 and it is recommended that this project is funded from within the existing capital and revenue maintenance budgets, and not as an addition to the capital programme.

9 Replacement day centre for older people serving Hythe and Dibden

9.1 During the review of the programme in June 2003, the Cabinet agreed that the Director of Property, Business and Regulatory Services should discuss with New Forest District Council an offer of a site for a replacement day centre for older people serving the Hythe and Dibden area, at no cost to the County Council. The existing facility run by Age Concern is at the end of its life.

9.2 A formal submission has now been received from the District Council. The Director of Social Services has been consulted and he too would support the opportunities that would come from a modern replacement centre and from other potential users of the facility. While the County Council would have to find the principal share of the funding at some £0.75m, it would avoid the need to pay development value for a site. Discussions with New Forest District Council have demonstrated that a new facility would have a major community benefit and could be produced at a cost lower than would otherwise be the case.

9.3 It is suggested that the County Council's contribution of £0.75m could be funded from:

· Social Services' existing capital programme, including the £0.5m currently held unallocated pending the completion of the service's revenue outturn for 2003/04 - say £0.375m

· corporate resources - say £0.375m.

9.4 The County Council's contribution to the project of £0.75m would be subject to suitable terms and conditions being agreed with regard to the transfer of the land and that any capital expenditure beyond the County Council's contribution is funded by other parties. Discussions with New Forest District Council indicated that the opportunity to develop some forms of affordable housing adjacent to the new day centre could also be considered as part of the development proposals.

10 Nursing care accommodation

10.1 The Cabinet recently received a presentation on the implementation of the major nursing care project to provide 500 new nursing care beds. During the discussion it was noted that, while significant progress had been made with six schemes now being implemented for some 300 beds, the County Council's decision to implement its sprinkler policy had resulted in significant additional costs to this project of up to £1.4m. However, it has been possible to fund the cost of the sprinklers for the first six schemes within the financial envelope, principally through the procurement routes which have been taken.

10.2 With no shortage of construction work in the South East, and with tender price inflation in the industry running well in excess of general inflation levels, it may not be possible in the later stages of the programme to contain this cost within the overall £60m financial envelope. A decision on this aspect of the project will not be known until the Autumn when the financial and construction planning has taken place for the remaining phases of the project. No action is required now but it may be necessary to consider at a future stage how any increased costs because of the sprinkler policy decision can be accommodated.

10.3 At this stage, the latest profile of payments on the scheme, together with the flow of contributions from the Health Service and the use of unsupported borrowing (£7.0m in 2004/05, £9.5m in 2005/06 and £3.5m in 2006/07), are all unchanged from those assumed when the capital programme was approved in February 2004.

11 Education capital programme

11.1 The report to Cabinet in February 2004 on the programme for 2004/05 to 2007/08 noted that Education had carried forward schemes costing £7.1m to 2005/06 without the resources to fund them. Education expected to meet this shortfall eventually from additional capital receipts and developer contributions, together with the balance of the service's capital cash limit for 2003/04.

11.2 The shortfall has now been reduced to £4.0m, after taking account of the final balance of resources carried forward from 2003/04 of £1.6m and Education's share of capital receipts in 2003/04 of £1.5m. Efforts will continue to maximise further capital receipts and developer contributions to meet the remaining £4.0m.

12 Education - reorganisation of special needs provision in east Hampshire

12.1 The County Council was successful in 2003/04 in securing £5m from the Government's targeted capital fund for the re-organisation of special education in east Hampshire. The total estimated cost of the scheme is in the order of £7.1m. It is estimated that, in addition to the targeted capital fund allocation of £5m, there will be capital receipts from the sale of potentially redundant land, capital repair and maintenance contributions over the life of the project, together with other existing resources.

12.2 This leaves an estimated £0.375m to be found, which it is suggested could be met by a contribution from corporate resources. The design and costs will be reviewed when the contractor is appointed later this year. The proposed enabling works will also be reviewed this summer.

13 South Hampshire Rapid Transit (SHRT)

13.1 The Government is still considering its response to the funding shortfall on the SHRT scheme. The timing of a final decision is uncertain but could be in July 2004 or possibly in the Autumn. A further report on the funding position for both revenue and capital costs will be made to Cabinet when the outcome is known.

14 Household waste recycling centres

14.1 The Executive Member for Environment asked the Cabinet in February 2004 to consider adding up to £1m to the capital programme for 2004/05 for a new household waste recycling centre (HWRC) at either Fawley, Fleet or North West Basingstoke. A decision was deferred by Cabinet until later in 2004 when a report on the business case for increased investment in HWRCs had been completed.

14.2 A paper has now been prepared by the Director of Environment (attached as Appendix 1) which proposes that the existing provision in the capital programme for HWRCs should be increased from £0.316m per annum to £1m per annum for seven years from 2005/06. This would enable the full programme of relocations, improvements and new sites to be completed. The justification for this level of investment in HWRCs is summarised in Appendix 1.

14.3 Funding is already in place for the first part of this programme, covering the period from 2004 to 2006, as summarised in the following table.

14.4 The second part of the programme covers the seven years from 2005/06 to 2011/12 and would provide better HWRC facilities for a further 13 areas of the County at an estimated cost of around £6.7m.

14.5 Environment's existing capital programme provision for HWRCs of £0.316m per annum would provide £2.212m towards the cost of the draft programme of £6.7m, assuming it continues at that level for the next seven years. This leaves around £4.5m to be found. Two possible sources have been identified:

· the Government's proposed Waste Management Performance Reward Grant which is likely to be available for a half-year in 2005/06 and then continue indefinitely from 2006/07. The County Council could receive up to £0.8m per annum, depending on performance

· Environment's share of capital receipts, including the windfall sale of highways land at Town Centre West in Basingstoke. This sale is expected to be completed in 2005/06 and Environment's share is likely to be around £0.75m.

14.6 Funding from these sources would be sufficient to increase the investment in HWRCs to £1m per annum over the life of the current four-year capital programme (2004/05 to 2007/08), possibly leaving a small surplus depending on the actual level of the Performance Reward Grant. The funding position can be reviewed in February each year, including the County Council's success in attracting the Grant, when the new four-year programme is approved.

15 Private Finance Initiative

15.1 No further private finance initiative (PFI) schemes have been identified since the Cabinet approved the capital programme in February 2004. PFI is likely to be an important component of the South Hampshire Rapid Transit scheme if the Government confirms its financial support.

16 Summary of proposals

16.1 The proposed changes to the capital programme set out in this report are summarised in the following table.

17 Use of the additional capital receipts

17.1 Suggestions for the use of the additional corporate resources available from the increase in capital receipts of £3m identified in paragraph 4.2 are summarised in Table 3. The Cabinet's recommendations for changes to the capital programme will be reported to the County Council on 30 September 2004.

18 Unsupported borrowing

18.1 If the suggestions in this report are agreed, the County Council's use of unsupported borrowing will increase as the following table shows. `Unsupported borrowing' does not attract Government revenue grants towards the loan charges. Instead, the loan repayments and interest charges have to be financed by the County Council from its own resources.

18.2 The repayment and interest costs of these additional loans will be financed as follows:

18.3 The small temporary increase in the County Council's use of unsupported borrowing as a result of the John Hunt and North Popley proposals can be accommodated within the prudential framework approved by the Cabinet in November 2003 but will require amendment of the County Council's prudential limits under the Local Government Act 2003.

19 Prudential indicators

19.1 The proposals set out in this report, if agreed by Cabinet, will add named schemes costing over £50m to the County Council's capital programme. Whilst part of this addition will be met from existing provision in the programme, these changes are sufficiently significant to warrant a revision of the County Council's prudential indicators under the new framework for local authority capital finance. Cabinet agreed changes at the last meeting to the prudential indicators in the light of the final accounts for 2003/04, affecting those for capital expenditure, capital financing requirement and affordability. The further effects of the proposed changes to the programme are summarised in Appendices 2 and 3.

20 Capital Strategy

20.1 The suggested changes to the capital programme outlined in this report are consistent with the priorities established in the Council's capital strategy. An updated version of the Capital Strategy is included elsewhere on this Agenda for Cabinet's approval.

21 Recommendations

21.1 The recommendations are contained in the decision sheet summary which precedes this main report.

Section 100 D - Local Government Act 1972 - background papers

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

NB the list excludes:

1. Published works.

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

TITLE FILE

None

i:\ . . . . \ian\docs\cap prog review Cabinet 26Jul04.doc 15 July 2004

Appendix 1

Household Waste Recycling Centres - Business Case for Increased Investment

1 Summary

1.1 The County Council is responsible for 24 of the 26 household waste recycling centres (HWRCs) located in Hampshire (see Annex 1). The network contributes almost 50% of the present Project Integra recycling achievement. Five of the sites operate under temporary planning consents, at least five are too small to be properly effective and a number of the remaining sites either need improving or have associated highways related problems. Additionally, the internal policy to provide a service within a five mile radius of main population centres is not achieved in at least four areas of the county: North and South-West Basingstoke, Fawley and Fleet.

1.2 In 2002/03 a locally resourced annual capital budget of £300,000 was established for HWRCs. A new site, including land purchase, can cost in excess of £1m. Improvements/expansions are cheaper but nevertheless can run to £0.5m depending upon the scope/scale of the project. The present budget (which for 2002/03 to 2004/05 and possibly beyond is earmarked for the relocation of the Winchester site from Garnier Road to Bar End) is clearly inadequate to meet the demands set out above.

1.3 This paper details the business case for increasing the annual capital budget for HWRC improvements/relocations, at least until the end of the decade. It advocates the need to twin-track investment to both existing and new sites in order to increase domestic recycling rates in Hampshire, to enable the network to reach its full potential, and to respond to public and political pressure to bridge service gaps. In turn, the investment should lead to/result in avoided annual costs exceeding £1m by 2009/10 (see Annex 2).

1.4 Options for increasing the present £300,000 budget range from:

(i) a modest increase to £0.5m per year. This would enable existing sites to be improved over a shorter time period, but would not enable new sites to be developed;

(ii) a larger increase to say £0.75m per year which would enable a new sites programme to be accommodated, albeit progress would be slow; or

(iii) a more significant increase to £1m per year which would enable the new sites in the service gap areas to be progressed and completed alongside the necessary improvements to the existing network, over the next six to seven years.

2 Reasons to Justify a Funding Increase

2.1 There are a whole host of reasons why it is necessary to increase HWRC capital funding. These include:

(i) Statutory recycling targets - the performance of the HWRC network is critical to the County Council and Project Integra's chances of successfully achieving stretching recycling targets (40% for 2005/06).

(ii) Position within Project Integra - the set up, constitution and operations within Integra need to change if optimum recycling performance is to be achieved. The County Council will push hard for change, but needs to demonstrate its own commitment to maximising recycling.

(iii) Changes in district collection arrangements - a number of districts have introduced or are introducing green waste kerbside collection rounds including a modest charge. At the same time, bans are being introduced on green waste being placed in residual waste bins. Early evidence suggests that this practice is actually adding to the use and congestion of the HWRC sites as the public seek to recycle their green waste whilst avoiding the charge for the kerbside service.

(iv) Good business sense - landfill avoidance/reduction is a key strategy aim given the impending rise in landfill tax from £15 per tonne to £35 per tonne by the end of the decade. Optimising performance across the existing network would result in avoided costs in excess of £1m per year by 2009/10.

(v) Public pressure - despite strong customer satisfaction with recycling facilities (last MORI survey) the need to satisfy demand for recycling and provide alternatives to landfill is greater than ever. The public are demanding better sites and more of them. Issues related to size, highways congestion (for users and non-users) and inequities in the service, ie location gaps, are consistently being raised either directly or through Council Leaders or Members - Annex 3 details a range of current concerns. Additionally, public satisfaction with HWRCs is formally measured every 2 years as part of the BVPI process.

(vi) Waste growth - against a background of waste growth which has seen a 14.4% increase in HWRC waste since 2000/01, a number of the sites are at their limit in terms of demand/throughput. The public's increasing desire to use the sites, especially at weekends means that improvements and expansions are becoming increasingly necessary.

(vii) Legislation - directives such as those related to electrical products (WEEE) and hazardous substances (ROHS) will require additional waste streams to be separated at source, ie at the HWRCs. As well as helping to comply with the legislative intent, cost savings and environmental benefits will be achieved if the sites can better cater for the separate capture of these resource streams.

(viii) Delivery of the HNRI and MRS "agendas" - integrating commercial, industrial and agricultural waste with domestic waste to secure obvious synergies in terms of processes and markets will not be possible (or will be severely compromised) if the HWRC network is not able to achieve higher recycling rates and cater for small and medium businesses/commercial waste.

3 Optimising Present Performance

3.1 In 2003/04 232,500 tonnes of waste (materials) were handled by the HWRC network. Some 120,900 tonnes, or 52%, of this material was recycled/re-used. This included 31,800 tonnes of soil and rubble or bric-a-brac, which are not permitted to be included in Best Value Performance Indicator (BVPI) calculations.

3.2 The remaining 89,100 tonnes that were recycled, constituted 48% of the total Integra recycling performance for the period. Annex 1 shows individual site performance levels, with the overall site recycling average, 44%.

3.3 The best performing sites, three of which are achieving almost 60% recycling, will improve further when it is possible to introduce wood recycling bins into the network. Wood recycling has only been introduced at one or two sites to date, largely due to site size constraints and end market issues.

3.4 Between 6% and 10% of the waste otherwise currently regarded as residual (ie landfilled) is wood. The introduction of wood recycling bins coupled with an annual incentive scheme for increased recycling achievement should allow performance levels at the best sites to surpass 65% and move towards 70%.

3.5 Notwithstanding the obvious benefit of introducing wood recycling, there is a very real need to improve the average recycling performance across the network towards 60%, ie the better performing HWRCs. Improving the average performance (excluding wood) to 55% from the present 44%, would reduce annual landfill disposal by some 25,000 tonnes. At current landfill tax rates, this would equate to a reduction in annual disposal costs of £0.5m. By 2009/10, the avoided annual disposal cost increases to over £1m (see Annex 2) on the assumption that landfill tax reaches £35 per tonne as already indicated by Government.

3.6 Clearly, if recycling performance is to improve to the optimum levels, and resulting annual disposal cost savings are to be realised, a number of sites in the existing network need to be improved or expanded to allow additional recycling bins to be catered for as well as room for the associated servicing requirements. Larger sites will also allow compaction options to be more easily implemented. This will benefit both the servicing contractor and the County Council.

4 Service Gaps (New Sites)

4.1 As outlined in the summary, there are at least four locations within the county that are less than adequately served by HWRCs, ie there are main centres of population not served by an HWRC within a five mile radius. These include North and South-West Basingstoke, Fawley and Fleet. Furthermore, other existing sites mask overall service deficiencies, eg the Casbrook HWRC in Bunny Lane, near Timsbury. This site is small and is not well located, yet it notionally serves the residents of Romsey and other centres of population within the Test Valley.

4.2 Investment in the new sites to minimise service deficiencies would, as a minimum, help to further increase recycling performance and would better satisfy public demand for centres to be appropriately located. The current network really is at breaking point in specific areas and this will not be put right by modest improvement schemes. Traffic-related problems from users spending more time on the sites (separating materials and buying re-use items) and queues from persistent peak time demand are real causes for concern. Additionally, traffic queues present problems for servicing of the sites.

4.3 A direct consequence of the HWRC service gaps is a higher weight per head of waste collected by those district/borough councils whose geographical areas are less well served with HWRCs. This increased weight per head will entirely (or largely) be waste that is not easily nor currently recyclable at the kerbside, eg soil/rubble, small bric-a-brac, glass, green waste, batteries, textiles, wood, etc.

4.4 Waste (weight) per head is a BVPI for the collection authorities. The four worst authorities in Hampshire are Test Valley, Hart, Basingstoke and Winchester. An analysis of HWRC capture, in kilograms per head, for the same four areas shows a range between 60 and 73 kilograms. This compares to an overall HWRC average (excluding the City Councils) of 124 kilograms per head.

4.5 The evidence strongly suggests that if new HWRCs were provided in the four/five areas, waste that is collected at the kerbside and is currently landfilled would reduce. Clearly it would not disappear, but there is every reason to be confident that it would be redirected to the new HWRCs, allowing 50% to 60% of it to be recycled/re-used.

4.6 It is estimated that the introduction of four new sites could realise disposal savings of between £286,000 and £437,000 per year. This, however, needs to be set against like-for-like costs of operating the new sites, including end disposal costs and site management fees. The pay back period would therefore be very lengthy, although this has to be set against the very real environmental (estimated 3% increase in overall recycling performance) and social (need) benefits alluded to in paragraph 4.2 of this Appendix.

4.7 Based on the analysis, (see Annex 4) the order of priority for the new sites appears to be:

(i) South-West Basingstoke (if it is accepted that West Berkshire's operation at Paices Hill near Newbury is sufficient to satisfy demand for the service in the north of the county). This new HWRC has the potential to serve a high proportion of Basingstoke residents.

(ii) Test Valley, given that a new site between Romsey and North Baddesley would be capable of serving parts of Chandler's Ford, eg Valley Park, as well.

(iii) Fleet, in order to reduce the strain on the site at Farnborough which causes major disruption to the traffic network, and provide a site for an area of the county that has experienced significant recent population growth.

(iv) Fawley - placed last only because the New Forest has three other sites, eg Somerley, Efford and Marchwood, and there is scope to dramatically improve the Marchwood site such that it could adequately cater for the demands of Fawley residents.

5 Proposed Programme

5.1 In order to optimise existing HWRC performance and tackle the service gaps identified, it is will be necessary to significantly increase capital funding and twin-track investment to both current and new sites.

5.2 £1.25m of the funding secured from DEFRA, as part of the £5m award under round 3 of the national waste recycling and minimisation programme, is earmarked for HWRC improvements over the next two years. Although options are yet to be finalised, it is probable that the funding will enable three existing sites to be substantively improved. These might be Basingstoke, Gosport and Hartley Wintney.

5.3 Additionally, Hampshire Waste Services Limited are considering the potential for a waste transfer station at the Havant lorry park site (owned by the County Council) which would also include, at their cost, the redevelopment of the Havant HWRC, which will allow for commercial waste to be handled as well. The Havant HWRC is presently the busiest site in the network and it has one of the poorest recycling achievements.

5.4 Further to the above site improvements, a number of other sites will need to be expanded or even relocated over the next five or so years if recycling performance is to be optimised. These include, in no particular order, Eastleigh, Hedge End, Casbrook (subject to whether or not a new site is developed in the Test Valley), Andover, Waterlooville (as part of the MDA), Marchwood, Fair Oak, Netley and Aldershot. The estimated cost of improving or relocating these sites is £3m (see Annex 5).

5.5 No provision has been made in the programme for either Efford or Somerley. Both have temporary consents. Current thinking is geared to the submission of further temporary planning applications which would allow the sites to remain in use well into the next decade. Should these applications be unsuccessful, cost implications will result, especially as both the sites are well-used and contribute significantly in terms of recycling performance.

5.6 The cost of a new site, to bridge a service gap, is at least £1m including land purchase. If, on a continuing basis, eg on the back of the existing site improvements and present day circumstances, the case for the new sites continues to be sound, then £4m will be required to enable the four service gap projects to be completed.

5.7 In summary, the programme detailed in Annex 5 points to a funding need of £6-£7m over the next six to seven years.

6 Funding Options

6.1 If the need for the full programme of increased HWRC investment is accepted, an annual budget of circa £1m will be required to the end of the decade and beyond. This would mean topping up the existing locally-resourced programme budget by £700,000 per year. Although there are different ways in which this can be achieved, the commitment, in the first instance, will need to be met from corporate resources, pending the later receipt/s of external income. The possibility of other income/capital receipts is briefly examined in the following paragraphs.

6.2 DEFRA Waste Recycling and Minimisation Grant - the £5m awarded to the Project Integra partnership under round 3 of the scheme represented the end of this source of funding. Round 3 resources cover the financial years 2004/05 and 2005/06. The current DEFRA funding programme is to be replaced by a new Performance Reward Grant (PRG). As highlighted earlier, £1.25m of the £5m award is earmarked for HWRC improvements.

6.3 Performance Reward Grant - funding will commence in 2005/06 (based on a half year) and continue, indefinitely, from 2006/07. The PRG, which is not ring-fenced for waste management, covers funds for both pump-priming new initiatives and for rewarding good recycling performance. Based on the consultation process that has just been completed, it would appear that the County Council might expect to receive annual support of up to £800,000 as a good, absolute, performing authority. However, a proportion of the award depends on relative performance so this cannot be predicted with any certainty. Clearly part, or all, of this sum could be used to support the HWRC improvement programme if the Cabinet is minded to allow the Environment Department, and in particular Waste Management, to benefit from the funding.

6.4 Landfill Permits - the Government scheme to ensure national compliance with the EU landfill directive in 2010 was delayed this year and question marks remain as to whether it will be introduced from 2005, 2006 or even at all. If the scheme is implemented, as designed, the County Council will have spare permits to trade with other local authorities who still rely too heavily on landfill. The permits, in theory, ought to have a financial value of anything around £50 per tonne or more. However, given the level of uncertainty with this trading scheme, it would not be prudent to rely too heavily on this as a source of income until things become significantly clearer.

6.5 Public Service Agreement - the County Council stands to gain a proportional share of £20m depending upon the success or otherwise of the 13 individual PSA targets agreed by departments. The Environment Department has four targets, including the diversion of 40,000 tonnes of commercial and industrial waste from landfill. If the revenue earned from Government exceeds the unsupported borrowing costs associated with the PSA proposal, the Cabinet might elect to reward directly those departments that enabled the Government funding to be secured. Any allocation to the Environment Department could be used as one off support to the HWRC capital programme.

6.6 Sale of Surplus Environment Department Land - this possible income source has not been evaluated. However, the County Treasurer is working towards a complete property database for the County Council. It is possible that this work will identify surplus assets that can be disposed of.

7 Conclusions

7.1 The HWRC network has a number of associated problems, including sites that are too small, have only temporary planning consents or are inappropriately located vis-à-vis centres of population (see Section 1 of this Appendix).

7.2 Further, there is a whole host of reasons why funding should be increased to support substantive improvements to the network (see Section 2).

7.3 Optimising performance by 2009/10 will result in lower disposal costs of more than £1m per year. This figure has the potential to increase further if wood recycling is successfully introduced and average performance levels reach 60% or beyond (see Section 3).

7.4 The introduction of new sites, to bridge service gaps, will have a positive effect on collected waste volumes and overall Hampshire recycling performance. More importantly, perhaps, the new sites will significantly reduce growing public and political pressure for a more equitable HWRC service network (see Section 4).

7.5 It is estimated that the required new sites could realise disposal savings of between £286,000 and £437,000 per annum by the end of the decade, although like-for-like costs are estimated for actually operating the new sites (see Section 4).

7.6 The consequences of increasing the HWRC programme only to cater for a faster existing sites improvement programme, ie to the exclusion of new site provision, will be political rather than financial e.g. whilst there are no immediate financial gains to be realised from introducing new sites to the network, public frustrations in the service gap areas will eradicated (see Section 4).

7.7 An early draft programme of relocations, improvements and new sites has been prepared for the coming seven years or so. The programme would require an annual investment of £1m (see Section 5).

7.8 External funding support from the waste performance reward grant to PSA to possible landfill (permits) allowance income might well be forthcoming to help ease the burden on the local tax payer, if it is agreed to support an annual £1m capital programme (see Section 6).

Annex 1 to Appendix 1

HWRC Performance - (consistent with BVPI definitions) April - March 2003/04

Annex 2 to Appendix 1

HWRC Performance Improvements - Financial Analysis

Annex 3 to Appendix 1

HWRC - CURRENT CONCERNS

1 - Havant Members/Officers re Location and Performance of Havant

2 - Rushmoor Leader re Traffic Congestion at Farnborough

3 - Test Valley Deputy Leader re Location and Size of Casbrook

4 - Gosport Members/Officers re Vandalism and Performance of Gosport

5 - Councillor Rice re Plans for Efford post End of Planning Consent in 2008

6 - Councillor House re Eastleigh's desire for Hedge End Site to be Relocated

7 - Councillor House re Eastleigh's desire for Eastleigh Site to be Relocated

8 - Councillor Price re Portsmouth City Council/Hampshire County Council plans after Paulsgrove closes

9 - Councillor Dunsden re Lack of Service at Fawley

10 - Basingstoke Members/Officers re Insufficient Service in/around Basingstoke

11 - Various Members re inadequacy of Waterlooville and timing/plan for MDA

12 - HWS re Servicing/Operational difficulties, e.g. cannot easily introduce compaction and peak time demand for use severely hinders servicing efficiency

13 - Public (Users) re Traffic Congestion, need for Hazardous Receptacles

14 - Public (Non-users) re Traffic Congestion, impact on Amenity

Annex 5 to Appendix 1

HWRC Draft Development Programme - 2004/05 to 2011/12

NB

Exact timetable (2005/06 onwards) subject to finalisation and constant review. New projects will take some time to develop, gain planning consent and complete. Each year's capital programme will therefore be spent on a combination of the most pressing priorities related to new and existing sites.

Plans do not allow for potential costs (if any) related to Efford and Somerley. Both have temporary permissions ending 2008 and 2009 respectively (see report)

Appendix 2

Prudential Indicators - effects of proposed changes to the capital programme