Contact: Jon Pittam, ext 7400

(With the concurrence of the Chairman under Section 100 (B) (4) (b) of the Local Government Act 1972, this matter was included on the agenda to enable provisional budget and capital programme guidelines to be set at this meeting)

1. Introduction

1.1 The Cabinet on 27 September 2004 agreed a budget planning strategy for 2005/06 to 2007/08 as the basis for the discussion of budget options between the Leader and Executive Members for the undertaking consultation with representative groups. The basis of the strategy was:

· schools budgets to be increased in line with the increase in the schools formula spending share but with no additional top up funded wholly by council tax payers

· base budget increases for other services but with no allowances for any new service developments or service spending pressures other than volume changes allowed for in the base budget

· all other pressures and additional priorities absorbed by cash efficiency savings of 1.25% in staffing and procurement budgets

· use of grant equalisation reserve balance pro rata to anticipated grant loss on a tapering basis over three years to smooth the impact of grant loss on council tax.

1.2 Budget forecasts were prepared on the basis of this strategy including alternative assumptions about the extent to which further growth in Social Services spending above the base budget might be required in order to secure acceptable service levels and about the scope and utilisation of efficiency savings, producing a range of council tax increases between 3%, 5% and 7%.

1.3 Consultation has taken place with representative groups which have focussed on the inconsistency between the Government's aspiration for low single figure council tax increases and the arithmetic of its own spending plans and the possible implications for services of alternative spending levels.

2. Provisional budget guidelines

2.1 The Government's announcement of the Revenue Support grant consultation for 2005/06 was due in mid-November allowing its implications to be assessed either to set firm budget guidelines or to explore specific options knowing their impact upon the council tax. Though a presentation on the main features of the grant settlement will be given at the meeting, there has been insufficient time to work up specific budget proposals in the context of the grant announcement. Following the presentation to the meeting it is recommended that the County Treasurer in consultation with the Leader be authorised to formulate the County Council's written response to the grant consultation.

2.2 Given the delay in the settlement until 2 December provisional guidelines are now recommended which will provide some parameters for service budget proposals to be prepared for policy review committee and executive member consideration in January. The Leader and the Cabinet can then determine a proposed budget at the February meeting of the Cabinet. The proposed guidelines are based on the budget planning strategy agreed in September and incorporate the options reflected in the budget forecasts. The guidelines are based on the following assumptions:

· for Education non-schools budgets, Environment, Policy and Resources and Recreation and Heritage services, the guidelines are at the level of the base budget, adjusted for inflation on the same assumptions made in previous budget forecasts - pay increases at 2.95% to reflect national agreements, prices at 2.5%, together with allowance for a 1.5% increase in the employers' contribution to the Local Government Pension Scheme

· for school budgets an increase which passports the increase in schools formula spending share

· for Social Services separate budget guidelines are proposed for services to children and to other client groups. Though no immediate change in officer and member responsibilities is proposed this will provide one of the building blocks to enable alternative more integrated models for the provision of children's services to be developed. It is recommended that both budgets should continue to be managed by the Director of Social Services reporting to the Executive Member for Social Care but that any transfer between the two blocks during the course of the year should also be subject to the approval of the Children's Services Board. It is proposed that the Executive member for Social Care should consider budget proposals at three levels based on full passporting, base budget only or mid way between the two.

· that preliminary guidelines should also be set for 2006/07 and 2007/08 on the same principles in order to provide services with a medium term financial planning framework within which to formulate 2005/06 budget proposals. The figures for 2006/07 and 2007/08 are expressed as cash increases on the previous year's budget and allowance has been made for the proposed introduction of a schools specific grant which is planned to be introduced from 2006/07.

2.3 The provisional guidelines are set out below and they will be subject to further adjustment both because of certain spending assumptions that still need to be reviewed and because of further changes in specific grant data, not all of which has been notified

2.4 Targets for exploring cashable efficiency savings based on 1.25% of gross expenditure on staffing and procurement costs, together with SAP benefit realisation targets were reported to the September meeting of the Cabinet totalling £9.1m. These are the anticipated share of Gershon efficiency savings expected over the SR2004 period, and part of a larger package of reductions totalling £15m which the Leader was considering to provide some budget flexibility. The 1.25% savings target was based on gross expenditure figures before the impact of specific grant and other income, so net revenue savings may be lower in aggregate. Some adjustments to the target will be required to reflect double-counting of savings where costs are recharged between services, reflect the impact on income and to take account of double-counting with existing benefit realisation savings, mainly from SAP. It is proposed that executive members be requested to identify how cashable efficiency savings of 1.25% could be achieved which could be used to fund inescapable spending pressures within the relevant services that cannot be absorbed within the base budget, to fund additional spending on new pressures or priorities or to reduce the overall level of spending and council tax. The Social Care Executive member will also have to meet separate savings targets set by Government for the Supporting People specific grant programme without the costs falling elsewhere within social care or on the council tax payer

2.5 Cash efficiency savings built in to the final budget determined in February will need to be specific and certain. Executive members and Chief Officers will need to develop firm plans and monitor achievement at quarterly intervals. Any savings targets which do not have firm plans will require larger balances to cover the risk of non achievement.

2.6 Executive members and Chief Officers are also asked to report back on other efficiency savings which do not result in cash savings, but avoid additional costs or provide more service for the same cost. The Gershon efficiency targets set by the Government over the three year forward budget period are 2.5% per annum, of which 50% is cashable. Therefore a further 1.25% of efficiency savings need to be identified for each service in addition to the 1.25% cashable savings targets already set.

2.7 The achievement of these savings will be monitored by the Audit Commission and be incorporated in its assessment of use of resources in its Comprehensive Performance Assessment. It is unlikely that excellent status could be retained unless there are firm plans for, and achievement of, efficiency savings. It is anticipated that the Office of the Deputy Prime Minister will require the production of an efficiency plan for 2005/06, but this is not sufficiently developed by central government to meet the budget timetable and at least for 2005/06 will be required after the start of the financial year.

2.8 At its September meeting the Cabinet also agreed to build value for money considerations more formally into its budget decisions to improve its priority setting and efficiency gains over the three year medium-term financial plan period. Value for money will similarly be a key feature of future Audit Commission appraisals for Comprehensive Performance Assessment.

2.9 In order to demonstrate the importance of value for money in the budget decision making process, any proposals for additional spending, however financed, need to be accompanied by a summary business case containing clear financial and performance data setting out how performance will be improved and value for money achieved, linked to the key aims of the corporate strategy.

2.10 It is also proposed, that as in previous years, budget submissions should include a summary on the annual review of fees and charges to ensure that any opportunities for increasing income have been considered.

2.11 When making its final decisions on the budget in February, Cabinet will wish to balance its targets for efficiency savings against

· business cases and performance improvement from additional spending proposals

· value for money

· capacity and starting point for each service taking account of previous year's budget growth, redeployment of resources, comparisons of relative spending position, and previous savings targets or benefit realisation plans.

2.12 The County Council is committed to achieving closer links between performance, financial and workforce planning and it is proposed that in this budget cycle that executive members report back on the workforce implications of their proposed budgets.

3. Budget consultation

3.1 When the strategy for budget consultation was reviewed at the September meeting of the Cabinet, a decision was taken to defer holding a community workshop until there was more clarity about the impact of funding options. The delay in the announcement of the grant settlement has the effect of shortening significantly the timescale for decision making and leaves less time for holding a community workshop or undertaking a telephone survey on the basis of specific budget options before the Cabinet need to agree a budget recommendation. Nevertheless it may still be appropriate to gauge public support for a specific option or a number of options.

3.2 The representative groups have been consulted in recent months: Local Strategic Partnerships; business groups; residents and council tax payers associations; the Schools Forum; voluntary organisations and the workforce. A separate information exchange has been conducted with Is It Fair at the request of the Leader.

3.3 The Cabinet will wish to consider what further budget consultation is practical or appropriate in January.

4. Capital programme

4.1 The programme for each year is to be prepared in two parts:

· schemes supported by Government approvals, whether in the form of capital grants or Government supported borrowing

· schemes within the guidelines set by the Cabinet for locally-resourced schemes. These can be supplemented as appropriate by services' own resources including virements from revenue and contributions from developers, schools or other external bodies. Approved unsupported borrowing in accordance with the policies approved by the Cabinet, either on a temporary or permanent basis, and service funded, can also be considered.

4.2 Details of capital grants and Government supported borrowing for 2005/06 and subsequent years are in the process of being announced by individual government departments. Service guidelines will be determined once the relevant Government announcements have been finalised. At this stage the opportunities for possible development of PFI projects can also be reviewed in the light of the Government's decisions on the availability of PFI credits and any new policy directions identified.

4.3 The provisional cash limits at 2005/06 outturn prices for locally-resourced schemes over the four years from 2005/06 to 2008/09 are as set out below:

4.4 The guidelines are based on the cash limits for the current programme, adjusted for virements to and from revenue, plus 2.5% for inflation in line with the non-pay inflation assumption in the revenue budget. The cashable efficiency savings relating to procurement referred to in paragraph 2.4 include 1.25% of the locally resourced capital programme and executive members are requested to review the implication of meeting this target.

4.5 Executive members may propose supplementing their capital guidelines from their services' own resources, including virement from their revenue budgets or by using their share of capital receipts obtained in 2003/04 as allocated by the Cabinet in June 2004 (if not already used for 2004/05 programme).

4.6 Executive members may also anticipate their share of capital receipts obtained in 2004/05 provided the receipt has actually been received and the share agreed.

4.7 Proposals for Executive members to retain more than the standard 25% share of capital receipts for `in and out' schemes should be put forward to the Executive member for Policy and Resources for consideration, in line with the current policy.

4.8 Within the guidelines, some flexibility between starts years in possible, provided the total four-year guideline for each service is not exceeded. Bunching of payments in any one year or front-loading must also be avoided.

Recommendation

The recommendations are set out on the attached 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.

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