Contact: Ejner Knudsen, ext 7403 email: [email protected]

1. Introduction

1.1 This report presents the first budget monitoring review for 2004/05 for the Environment services. It reflects the outcome of the first comprehensive budget monitoring exercise for the year, which was carried out in consultation with Environment department budget holders during the summer.

1.2 The report provides an update of the revenue budget cash limit for the year, taking into account recent budget changes, and gives an assessment of actual expenditure to date against each of the main budget headings. It also provides a detailed summary of the highways maintenance budget. The report then goes on to highlight significant issues within each of the individual service headings that will affect the management of the budget during the course of the year.

2. Corporate strategy

2.1 Monitoring of the Environment revenue budget supports all of the aims of the corporate strategy by focusing financial resources in these areas:

1. Maximising life opportunities

2. Stewardship of the environment

3. Achieving economic prosperity

4. Building strong and safe communities

5. Improving services

6. Developing councillors and staff

3. 2003/04 underspending of £36,000

3.1 During 2003/04 there was an underspending of £36,000 on the Environment services' cash limited budgets, being mainly due to savings on management and support services and waste management. A sum of £18,000 has been returned to the Environment revenue budget, which is in line with the County Council's policy that enables services to carry forward 50% of any net unplanned underspendings to the following year. The Cabinet decides what use should be made of the remaining 50% of the underspending.

3.2 The carry forward of the £18,000 underspending to the 2004/05 budget is in addition to earlier planned savings of £100,000 for IT systems and e-Government developments and £311,000 for waste management disposal of abandoned vehicles, which were carried forward in January when the 2004/04 budget was prepared.

3.3 It is proposed that the underspending of £18,000 be added to the budget for departmental management and support services, to assist in managing the pressures on this division of service during 2004/05.

4. 2004/05 cash limit changes

4.1 The cash limit budget for the Environment services, agreed by the County Council in February, was £88.106 million. A number of adjustments have been made to the cash limit, which are reflected in the latest forecast outturn shown in Appendix 1:

· The carry forward of £18,000, being this service's 50% share of the 2003/04 revenue underspending, referred to above

· An increase of £40,000, compared to the provisional sum included in the 2004/05 budget for rural bus services, following confirmation by the Government of the actual amount of Rural Bus Subsidy grant for this year (£1,375,000)

· Similarly, an increase of £10,000 following confirmation by the Government of the actual amount of the special grant awarded to cover expenditure on routine highways maintenance activities following the de-trunking of part of the A339 in Hampshire (£418,000)

· An increase of £500,000 for public transport following agreement by the Cabinet to the release of growth monies included in the 2004/05 budget. This sum was originally set aside in a central contingency pending a subsequent report to the Executive Member - Environment regarding the planned use of this additional funding

· An increase of £94,000 for routine highways maintenance from the additional income from the reduction in the council tax discount on second homes in Fareham. This sum was also held in the central contingency, pending a report to the Executive Member - Environment on the planned use of this sum

· An allocation of £22,000 for public transport from the central contingency provision for short-term Cabinet priorities to address youth crime and deprivation. This allocation would help to fund a twelve month pilot project to enable young people in the Andover town area to access leisure facilities in the centre of Basingstoke and the West Ham Leisure Park on Friday and Saturday evenings

· An increase of £640,000 for the estimated call on the central waste management contingency, to reflect additional expenditure arising from the operation of the waste management contract during the first quarter of the year

· A transfer of £52,000 from the budget for highways routine maintenance to management and support services. This is a technical adjustment to reflect higher fees payable to district councils from the management and support services budget, for the administration of highways maintenance environmental works, the funding for this having been originally included within the construction of the 2004/05 highways maintenance programme.

4.2 The adjusted cash limit is therefore £89.430 million, taking into account the above variations. Appendix 1 provides an analysis of the budget over the main service headings, together with details of assessed expenditure to 31 July 2004.

5. Budget monitoring review

5.1 As in previous reviews, the budget monitoring process has involved meetings between finance section staff and those departmental offices with budget management responsibilities to consider trends in expenditure and income in order to arrive at an updated forecast outturn for each service heading. The outcome of this process was reported to departmental management during July and August.

5.2 Details of the main issues arising from the budget monitoring review are discussed in the following paragraphs.

Highways maintenance

5.3 The 2004/05 revenue budget cash limit for routine highways maintenance, after taking into account the adjustments outlined above in paragraph 4, is £21.284 million.

5.4 Appendix 2 sets out in detail the 2004/05 highways maintenance programme, showing the original programme approved in April, together with the latest amended plan. For completeness, this statement also includes details of highways structural maintenance works being funded from the capital programme.

5.5 Overall revenue budget works allocations to date total £20.476 million, leaving reserves of £808,000 to meet demands later in the year. Although this sum will provide some flexibility to manage any additional demands, it may not be sufficient to fully cover the impact of price increases on the various highways maintenance contracts. For example, additional expenditure of approximately £400,000 is already being projected on street lighting energy, based on expenditure trends during the first months of the year, reflecting higher prices within the new energy supply contract. Although the new contract is for the provision of 100% "green" electricity, the increase in expenditure reflects general increases in the overall market for electricity supply.

5.6 A detailed review of the impact of inflation on highways maintenance, including further re-pricing of budget allocations covering works being carried out through the highways term maintenance and other contracts, will be carried out during the next budget monitoring review in the autumn. Revisions to the programme, both revenue and capital funded, may need to be considered at that stage, to absorb any excess inflation arising from annual contract re-pricings and to accommodate any other budget pressures that may have emerged.

Management and support services

5.7 The overall budget for the management and support services is £22.033 million, which mainly represents the running costs of the Environment department together with the remaining agency arrangements with the district councils. For presentational purposes, the management and support services cash limited budget is allocated between highways and transportation and planning services in the appendices, in line with the requirements of the relevant accounting codes of practice. However, in effect, this expenditure is being managed and controlled as one combined departmental budget.

5.8 As in previous years, the management and support services cash limit assumes that turnover savings from staff vacancies, together with other housekeeping efficiencies, will be achieved during the year in order that overall departmental expenditure can be contained within the cash limit. For 2004/05 the general savings target is £634,000, equivalent to 2.9% of the budget, which is broadly equivalent to the savings target that was set and achieved during 2003/04. In addition, the department's Design and Implementation branch are required to find additional specific savings of £50,000 from administration, to help fund various redeployment proposals agreed in the construction of the 2004/05 budget.

5.9 The initial budget monitoring review for 2004/05, covering the first quarter of the financial year, has identified actual savings from staff vacancies of £142,000, being 20.8% of the total requirement. This is somewhat lower than the savings of £196,000 identified at a similar stage during the 2003/04 financial year. Clearly, the achievement of the full savings of £684,000, including the specific savings of £50,000 in the Design and Implementation Branch, will need to be monitored closely during the remainder of the year. Although savings may be expected to continue to occur naturally from staff vacancies and turnover, specific management action may also need to be taken to fully achieve the required savings that are necessary to balance the budget.

5.10 Other variations identified during the budget monitoring review include the need for additional expenditure of £310,000 on temporary staff and consultants within the highways units, to help implement the higher structural maintenance programme. This additional expenditure will be met from the additional design and supervision fee allowance arising from the higher structural maintenance programme.

Public transport

5.11 The 2004/05 budget for public transport support is £5.991 million, including the additional sum of £500,000 recently released from the central contingency by the Cabinet. This additional sum has been allocated in accordance with the budget proposals agreed in January to provide additional general funding for past and future increases in the cost of bus subsidies, the retention of Cango services following the ending of Bus Challenge funding and for the continuation of rural transport partnership and community transport schemes. In addition, a sum of £1.375 million has now been confirmed by the Government for rural bus services in 2004/05, to be funded from Rural Bus Subsidy grant.

5.12 Since the beginning of the financial year, bus service contracts have been re-tendered in the Winchester and Romsey areas, at an additional cost of £117,000 in 2004/05. An allowance has also been made against the budget for the annual re-pricing of continuing contracts covering the period until the end of the financial year. At the end of the first quarter of 2004/05, the levels of commitments against the bus subsidies budget stood at £5.573 million, leaving £50,000 unallocated within this budget to meet any further cost increases arising from contract variations or de-registrations of commercial services during the remainder of the year.

Waste management

5.13 As in previous years, it is necessary to divide the waste management revenue budget into two separate categories for budget monitoring purposes:

· The waste contract related services, including trade waste income and recycling credits

· The other non-contract related waste management services covering facility maintenance, administration, promotions and developments, disposal of abandoned vehicles and provision for household waste recycling centre (HWRC) management.

Waste contract related services

5.14 The 2004/05 budget for the waste contract related services was based on expenditure commitments at the time of its preparation in November 2003. No allowance has been included for growth in waste volumes beyond predicted 2003/04 levels, future price increases, increases in landfill tax or other contract cost pressures. As these factors are principally demand led, and subject to long term contractual obligations, there is very little scope within the management of the budget to vary expenditure. These pressures are therefore covered by an annual amount set aside within the County Council's central provision for inflation and other contingencies.

5.15 The County Council's 2004/05 budget includes a sum of £3.850 million, to cover these inescapable service pressures. Periodic allocations will be made from this contingency to the waste management cash limit, based on a quarterly assessment of cost increases on the contract and related budgets.

5.16 Waste volume levels during the first three months of the year were slightly higher than expected. Although household waste growth levels of 1.7% during the period were below budgeted expectations, this has been more than offset by civic amenity growth of 10.8% compared to 2003/04. Overall, waste volumes were 4.1% higher during the first quarter of 2004/05 than in the corresponding period last year.

5.17 The overall call on the £3.850 million central contingency for the first quarter of the year has been assessed at £640,000, leaving just over £3.2 million to cover higher waste contract costs during the remainder of the year. Although it is currently estimated that waste management costs will be contained within the overall budget provision, there are as usual a number of factors that could have a material influence of the final outturn position.

5.18 One such factor which may influence the final year end outcome will be the timing of the introduction of the Marchwood and Portsmouth energy recovery incinerators (ERI). The budget provision allows for their introduction from the beginning of October 2004 and January 2005 respectively, although it is currently anticipated that the Portsmouth facility will not be operational until February 2005.

Other waste management services

5.19 The main concern within this area of the budget over the past few years has been the increasing cost of disposing of abandoned vehicles, particularly with the introduction of the End of Life Vehicles (ELV) directive. This was expected to add further pressure to the budget as this classifies abandoned vehicles as hazardous waste, requiring stricter dismantling and de-manufacturing, culminating in higher handling costs and likely increases in the number of vehicles being abandoned.

5.20 The 2004/05 budget for the disposal of abandoned vehicles has been set at £859,000, including the sum of £311,000 which was carried forward from the 2003/04 budget as a planned underspending when the 2004/05 budget was prepared in January. The underspending of £311,000 has been ringfenced by the Cabinet for the cost of disposal of abandoned vehicles, refrigerators and other electrical or battery components in 2004/05, so is not available to cover wider spending pressures on other service areas.

5.21 At the present time there remains a great deal of uncertainty regarding the likely levels of expenditure on the disposal of abandoned vehicles. The implementation of the ELV directive has been delayed in the past and although parts of the directive are now being introduced, the phased implementation is not yet complete and the expected higher expenditure on the disposal of abandoned vehicles has yet to fully materialise.

6. Conclusion

6.1 A number of adjustments have been made to the 2004/05 cash limit, increasing the overall revenue budget by £1,324,000 to £89.430 million. This includes the allocation by the Cabinet of £500,000 for public transport and the first quarter's call of £640,000 for the waste management contract from the central contingency.

6.2 On the highways maintenance revenue budget, estimated higher expenditure of approximately £400,000 on the street lighting energy supply contract will need to be accommodated by reviewing the allocation of the overall highways maintenance programme.

6.3 Savings of £142,000 on management and support services have so far been identified against the total departmental savings requirement of £684,000. Specific management action may need to be considered to fully achieve the required savings that are necessary to balance the budget.

6.4 Higher costs of £117,000 on public transport bus subsidies from contract re-tendering in the Winchester and Romsey areas can be accommodated from within the available bus subsidies budget. A sum of £50,000 remains uncommitted to meet any further pressures on bus subsidies during the remainder of the year.

6.5 On the waste management services there remains uncertainty regarding the likely levels of expenditure on the disposal of abandoned vehicles, arising from the phased introduction of the ELV directive.

Recommendation

1 That the report be noted.

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

Environment Departmental Management Team : 3 August 2004 - Revenue Budget Monitoring 2004/05

Appendix 1

Environment
Revenue budget 2004/05 - monitoring statement
Analysis of variations

Appendix 2

Environment
Summary showing detailed allocation of highways maintenance budget
Revenue budget 2004/05

Capital maintenance programme 2004/05