Contact: Ejner Knudsen , ext 7403, e-mail: [email protected]

1 Introduction

1.1 This report sets out the proposed Environment revenue budget for 2005/06 and reports on the revised budget for 2004/05. This report has been prepared in consultation with the Executive Member for review by the Policy Review Committee, before the budget is considered formally by the Executive Member. It will be reported to the Leader and Cabinet on 11 February 2005 to make final recommendations to County Council on 23 February 2005.

1.2 The Environment revenue budget for 2005/06 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

1 Budget strategy

1.1 The Cabinet has set a provisional budget strategy based on the following guidelines:

· 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 an allowance of 1.5% increase in the employers' contribution to the Local Government Pension Scheme.

· Schools formula spending share increase will be fully passported, matched by Government grant, as constrained by the Secretary of States' reserve power to require this outcome. Schools will be required to meet all cost pressures, demands, contingency, new pressures and priorities within these cash limited resources.

· The Social Care Executive Member is required to prepare separate budget proposals for children's services and other client groups. Options will be considered based on full, part and no passporting of the increase in formula spending share. The Executive Member will ensure that separate efficiency savings targets set by Government for Supporting People be achieved without additional cross subsidy elsewhere within older people and other adults, or additional council tax support.

· All services (other than schools) are required to identify cashable efficiency savings of at least 1.25% (including the firm plans already made for SAP benefit realisation savings) on the basis that these savings could be used in final decisions to absorb pressures within the service or elsewhere, or to reduce the council tax (or any combination of these).

· Extra contingency provision will be made to match the commitments on waste management from new infrastructure costs, increases in volumes and effect of landfill tax on the private sector contract.

1.2 In arriving at the base budget Executive Members are required to ensure that:

· Income will be maximised in line with inflation

· Any proposals for spending above the budget guideline are matched by efficiency savings or redeployment of resources.

· All 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, and its links to the key aims of the Corporate Strategy

· Staffing implications of proposed budgets are consistent with the service's workforce plan.

Preliminary guidelines have also been set for 2006/07 and 2007/08 in order to provide services with a medium term financial planning framework within which to formulate 2005/06 budget proposals.
1.3

2 Budget guidelines

2.1 The budget guidelines were considered by the Cabinet on 13 December 2004. For this service, the provisional budget guideline for 2005/06 is £93.4m.

2.2 This report sets out the Environment Executive Member's responses to the guidelines. The report:

· Reviews the revised budget for 2004/05 (as set out in Appendices 1, 2 and 3).

· Reviews the 2005/06 base budget which totals £93.4m (as set out in Appendices 4 and 5).

· Identifies £1,963,000 of pressures and costs to be absorbed (as set out in Appendix 6).

· Identifies efficiency savings of £1,963,000, being 2.1% of the base budget (as set out in Appendix 7).

3 Revised Budget 2004/05

3.1 The most recent budget monitoring report for 2004/05, was presented to the Executive Member - Environment on 9 November 2004 and was also circulated to members of the Environment Policy Review Committee, for information. It provided an update on the current year's budget, including changes to the 2004/05 cash limit following the allocation of an additional sum from the central contingency to cover staff pay awards, and also reviewed the latest budget monitoring position across the various service headings, based on the assessed expenditure position at the end of September.

3.2 Although the overall budget monitoring appeared to be satisfactory for that stage of the financial year, the report indicated that a number of issues had been identified which would need to be addressed in constructing the revised budget later in the year. This included a review of the highways maintenance programme, to absorb a number of pressures including the cost of higher street lighting energy, and the need for further savings on management and support services to restrict forecast expenditure to the cash limit.

3.3 The report also drew attention to uncertainty on the waste management budget for the disposal of abandoned vehicles, where expenditure was expected to be significantly lower than the budget provision, resulting from delays in implementing the End of Life Vehicles (ELV) directive and the positive impact of improvements in the market for scrap metal, which was reducing the numbers of abandoned vehicles requiring disposal.

3.4 A further budget monitoring exercise has now been completed within the Environment department during November. The review has taken into account progress in implementing spending plans and recent information on trends in expenditure and income, in order to arrive at a revised budget for 2004/05. The main issues arising from the budget monitoring review are discussed in the following paragraphs.

Cash limit changes

3.5 The previous budget monitoring reports in September and November have made reference to a number of changes to the cash limit, since the approval of the 2004/05 original budget of £88.106 million during February 2004. These adjustments had increased the Environment services' revenue budget cash limit to £89.695 million, as reported in November.

3.6 The following additional changes to the 2004/05 cash limit have recently been made:

· An increase of £866,000 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 second quarter of the year.

· An increase of £4,000 reflecting an additional inflation allocation to cover increased costs of business rates.

· Additional inflation allocation of £18,000 from the central contingency to cover additional pay costs on IT services charges.

· A budget transfer of £460,000 to Policy and Resources in connection with the implementation of the Human Resources department reorganisation.

· Other minor budget transfers amounting to an overall reduction of £10,000, relating to levies for records management and the best value review of the voluntary sector.

· Although not a change to the overall cash limit, a further transfer of £31,000 from the budget for routine highways maintenance to management and support services. This reflects a revised assessment of fees payable to district councils for the administration of highways maintenance environmental works, the funding for this activity having been originally included within the preparation of the 2004/05 highways maintenance programme. This amount is in addition to the sum of £52,000 transferred earlier in the year.

3.7 The adjusted 2004/05 cash limit is £90.113 million, taking into account the above variations. A full summary of all of the changes to the 2004/05 cash limit since the beginning of the year is provided in Appendix 1.

Highways maintenance

3.8 The 2004/05 revenue budget cash limit for routine highways maintenance, after taking into account the £31,000 adjustment relating to the administration of environmental maintenance works, outlined in paragraph 4.6, is £21.253 million.

3.9 As mentioned in the previous budget monitoring report in November, a review of the overall highways maintenance programme has now been completed. Adjustments to the programme have been made to cover the re-pricing of allocations for works being carried out through the highways term maintenance and other contracts, together with a further increase to cover the additional expenditure of approximately £350,000 which is being projected on street lighting energy. It has also been necessary to provide additional funding for technical surveys and some other routine maintenance activities, to meet operational requirements within the overall cash limit, and for repairs to the infrastructure of the Micheldever depot, as discussed in paragraphs 4.27 to 4.30 below.

3.10 A revised budget of £21.823 million is proposed for routine highways maintenance, which is £570,000 higher than the cash limit. Proposals to fund this increase are discussed later in the report. This increase would be sufficient to cover the pressures identified above and leave funds in reserve to help meet any emergencies that might arise on the routine highways maintenance budget during the remainder of the year, for example, contributions towards the cost of flood or storm damage repairs. If not required for these purposes, these funds could be re-allocated later in the year to fund additional patching works, which would need to be carried out in advance of the 2005/06 surface dressing programme.

3.11 Appendix 3 sets out details of the revised 2004/05 highways maintenance programme, showing variations against the earlier forecast in the previous budget monitoring report. For completeness, this statement also includes details of the highways structural maintenance works being funded from allocations within the capital programme.

School crossing patrols

3.12 A revised budget of £912,000 is proposed for school crossing patrols, which is £50,000 below the cash limit for this service. The latest forecast outturn includes a projected underspending of £80,000 on the employment of school crossing patrol officers, reflecting continuing difficulties with the recruitment and retention of these staff. The revised budget makes allowance for the utilisation of part of the underspending on staff salaries to enhance site improvements and for a further recruitment campaign. However, a sum of £50,000 is available for redistribution from this budget, to meet spending pressures on other parts of Environment services.

Management and support services

3.13 The 2004/05 budget for management and support services assumes that incidental savings from staff turnover and vacancies, together with other housekeeping efficiencies, will be achieved during the year in order that overall departmental expenditure may be contained within the cash limit. The 2004/05 savings requirement is £684,000, equivalent to 3.1% of the budget.

3.14 The previous budget monitoring report during November, covering the first five months of the financial year, identified actual savings from staff vacancies and other economies of £386,000. The latest review, covering the period to the end of October, has identified further savings of £48,000, making £434,000 in total. Although the achievement of the full savings will need to be monitored carefully during the remainder of the year, projections suggest that the overall savings target will be met in full.

3.15 A further pressure of £300,000 has recently been identified on the management and support services to cover additional expenditure on staff and consultancy work that will be required during the remaining part of this year, in relation to the submission to the Government of revised proposals for the South Hampshire Rapid Transit scheme, which would provide enhanced public transport services between Fareham, Gosport and Portsmouth. Additional provision of £300,000 will need to be included in the 2004/05 revised budget for management and support services as this expenditure cannot be accommodated from within the existing departmental allocation.

Planning and development services

3.16 Members may recall that a decision was taken in preparing the 2004/05 revenue budget to cease offering historic buildings grants, in order to release resources of £210,000 for redeployment to higher priority service areas. The grants budget had reduced from a high point of £750,000 during the late 1980s and was also reduced in 1996 following local government re-organisation and in subsequent years.

3.17 However, grant awards made during 2003/04 and earlier years, which are valid for a three year period, are still being paid to the owners of historic buildings from resources set aside in those earlier years. An exercise has recently been completed to review time expired grant offers that have not been taken up from these earlier years. Savings of £127,000 have been identified and are available for redistribution to meet other spending pressures.

Waste management

Waste contract related services

3.18 The current 2004/05 cash limit for the waste contract related budgets is £34.855 million. This figure includes total allocations of £1.506 million from the central waste contingency sum of £3.850 million, to cover cost variations on the waste contract related budgets during the first half of the financial year.

3.19 Waste volume levels during the first six months of the year have been higher than expected, with waste growth averaging 4.8% against an assumed growth level of 2.5% included in the 2004/05 budget. Although household waste growth levels at 1.8% during the first half of the year were below budgeted expectations, this has been more than offset by a significant increase of 10.4% in civic amenity growth from household waste recycling centres.

3.20 An analysis of contract volume information and other known factors suggest that total expenditure on the waste contract budgets is likely to be contained within the overall budget allocation for 2004/05. However, there are a number of factors, most of which will impact to some degree or other before the end of the year, which could have a material influence on the final outturn position.

3.21 A major influence on the final year end outcome will be the timing of the Marchwood and Portsmouth energy recovery incinerators (ERIs). The 2004/05 budget provision allowed for their introduction from the beginning of October 2004 and January 2005 respectively. Although the Marchwood facility started operations on 26 October 2004, the Portsmouth facility is not currently anticipated to be operational until mid-February 2005.

3.22 The Alton materials recovery facility (MRF) became operational on 26 October 2004 and has significantly increased the capacity to recycle the county's kerbside collected waste to over 150,000 tonnes per annum. A budget saving of approximately £40,000 has resulted from the slight delay from the assumed date of the beginning of October.

3.23 The Little Bushy Warren composting site is still under construction. Once completed, this will increase the County Council's capacity to deal with green waste to over 100,000 tonnes per annum, but this site will not now become operational until March 2005, a delay from the date of October 2004 assumed in the budget. This delay has also produced a saving of just over £100,000 against the assumption in the 2004/05 budget.

3.24In addition there are significant contractual claims that are currently being negotiated. The outcome will need to be reflected in the final call on the central waste contingency sum.

Other waste management budgets

3.25 The main uncertainty within this area of the waste management budget has been the likely level of expenditure on the disposal of abandoned vehicles. Recent estimates for expenditure being incurred by the agency district councils on behalf of the County Council on this activity suggests that expenditure will be in the order of £250,000, which would represent a total underspending of £609,000 on this budget heading. As previously mentioned, the healthy budget position reflects the buoyant market for scrap metal, together with delays in fully implementing the End of Life Vehicles (ELV) directive.

3.26 The overall 2004/05 budget provision for the disposal of abandoned vehicles is £859,000, including the sum of £311,000 carried forward from underspendings during 2003/04. Cabinet budget guidelines require the provision for abandoned vehicles to be ring-fenced to meet excess costs of abandoned vehicles, refrigerators or other electrical goods, so the projected savings of £609,000 are not automatically available for redistribution to meet higher expenditure elsewhere on other Environment services. However, it is suggested that a special request be made to the Cabinet, for £300,000 of the

projected abandoned vehicles underspending to be applied to cover the exceptional additional costs arising from the submission to the Government of revised proposals for the South Hampshire Rapid Transit project, as outlined in paragraph 4.15 above, which would otherwise require reductions to be made in front line services.

Micheldever depot

3.27 The Micheldever depot site is currently occupied by the County Highways Laboratory and Hampshire Transport Management (HTM). Part of the site, including the former asphalt plant, is leased to Raynesway Construction Limited, as part of the highways term maintenance contract. Raynesway have, in turn, subcontracted this part of the site to Foster Yeoman who have installed a mobile foamix plant on the site, which uses excavated blacktop material to produce recycled material for highways maintenance schemes.

3.28 The former asphalt plant is now closed down, having reached the end of its life and needs to be demolished. The depot generally is also in a very poor state and the present drainage at the site falls short of Environment Agency standards. There is an urgent need for approximately £250,000 to be spent on drainage, fencing and lighting works to secure the safety and security of the site, which would enable it to continue to be used for general depot use and blacktop production.

3.29 It is also in the County Council's interests to continue the production of recycled blacktop material for sustainability reasons, but also due to the large amount of incinerator bottom ash material that the foamix process can use. The incinerator bottom ash will be produced in very large quantities over the next few years and will be very expensive to dispose of using landfill unless use is made of recycling techniques and are costs which would otherwise fall on the waste management budget.

3.30 It is proposed that the cost of upgrading the site be shared between the Environment department, HTM and the contractors. A provisional agreement has been reached between the interested parties and a contribution from Environment of £100,000 is envisaged which would enable the Environment services' recycling initiatives to continue and expand.

Overall position of 2004/05 revised budget against cash limit

3.31 Detailed figures relating to the 2004/05 revised budget are shown in Appendix 5 (the green pages). The calculation of the revised budget is set out in Appendix 1, whilst Appendix 2 sets out the recommended 2004/05 revised budget summarised by division of service.

3.32 Overall the recommended revised budget is £90.506 million, being £393,000 in excess of the 2004/05 cash limit of £90.113 million. This variation reflects the additional provision of £470,000 required for routine highways maintenance and the allocation of £100,000 for repairs to the Micheldever depot. These increases can be partially absorbed by utilising available savings on the budgets for school crossing patrols (£50,000) and historic buildings grants (£127,000). A balancing transfer of £393,000 from the locally resourced capital programme provision for highways structural maintenance is proposed to cover that part of the increase to the routine highways maintenance budget that cannot be absorbed from savings within the revenue budget.

3.33 The recommended 2004/05 revised budget reflects the request that is being made to the Cabinet to agree the release of £300,000 from the projected underspending on the waste management budget for the disposal of abandoned vehicles, to meet additional expenditure in connection with the submission to the Government of revised proposals for South Hampshire Rapid Transit.

4 Base budget 2005/06

4.1 A base budget has been prepared which contains the current financial policies of the Council, in order to provide a starting point from which decisions can be made. The base budget for this service is £93.444 million.

4.2 Appendix 4 shows the make up of the base budget. Overall, the base budget includes a net increase in expenditure of £1.157 million, at constant prices, together with an allocation of £1.693 million to cover future inflation during 2005/06. The main variations affecting the individual services are discussed below.

Highways maintenance

4.3 The 2005/06 base budget for routine highways maintenance is £21.727 million, at November 2004 prices. The budget represents an increase of £139,000 (+0.6%) compared to the 2004/05 original budget, at constant prices, including additional sums of £126,000 to cover routine maintenance of recently adopted highways and £204,000 for additional revenue expenditure resulting from the implementation of capital improvement schemes.

4.4 The budget also includes increased funding of £238,000 for highways winter maintenance salting and snow clearance, which has been met by adjusting the capital programme locally resourced provision for structural maintenance schemes. This adjustment is in accord with the special budgeting arrangements that apply to winter maintenance whereby the base budget provision is set at a level equivalent to the average expenditure on this activity during the past four years, with a corresponding variation to offset any increase or reduction in winter maintenance provision being made to the budget for highways structural maintenance.

4.5 As in the current year, it is necessary to make an adjustment within the base budget to transfer £83,000 to management and support services. This reflects higher fees payable to the district councils for the administration of highways maintenance environmental works, the funding for this having been included within the construction of the 2004/05 highways maintenance programme.

4.6 The County Council receives special grant from the Government in respect of its responsibilities for part of the A339. Provision of £418,000 has been included in the 2005/06 base budget for the grant, in line with the sum actually receivable this year, which is £10,000 higher than the sum included in the 2004/05 original budget.

4.7 An assessment of inflation during the past year has been included in the calculation of the 2005/06 highways maintenance base budget. Actual inflation on the routine maintenance operations has been assessed as being £867,000 (4.1%), which is £356,000 in excess of the corporate allowance of £511,000 (2.5%) for inflation originally included in the 2004/05 budget. Part of the highways maintenance inflation allocation (£227,000), was subsequently re-allocated to cover higher costs on management and support services and the Chichester Harbour Conservancy. The total inflation shortfall in the 2005/06 highways maintenance base budget is therefore £583,000. Proposals are considered later in this report to redeploy savings elsewhere from within the Environment budget to cover this shortfall, to ensure that routine highways maintenance activities are adequately funded in 2005/06.

Public transport

4.8 The 2005/06 base budget for public transport support and co-ordination has been set at £6.047 million, in line with the control total for this service. The base budget makes allowance for the absorption of higher costs of £79,000 arising from higher inflation and other contract variations during the current financial year.

4.9 Within the above provision, the bus subsidies base budget for 2005/06 is £5.634 million, at November 2004 prices. Although this sum currently covers the full year cost of £5.595 million relating to existing contractual commitments, only a very small sum of £39,000 remains available to help to offset any additional costs from contract re-tendering and re-pricing or other service pressures during 2005/06. This issue is discussed more fully in considering service pressures and opportunities for the redeployment of resources, later in the report.

4.10 Provision of £1.429 million has been included within the 2005/06 base budget for the provision of rural bus services, in line with the Government grant recently announced. This sum is £94,000 more than the provision of £1.335 million included in the 2004/05 budget, which was originally based on the grant receivable in 2003/04, and £54,000 (3.9%) higher than the sum of £1.375 million finally allocated by the Government for rural bus subsidy grant in 2004/05.

Management and support services

4.11 This budget mainly represents the running costs of the Environment department, together with expenditure relating to the remaining highways agency arrangements with the district councils. For presentational purposes, the management and support services budget is allocated between highways and transportation and planning services in the appendices, in order to comply 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.

4.12 The 2005/06 base budget for management and support services is £21.596 million, which is £564,000 (-2.5%) lower than the 2004/05 original budget, at constant prices. A number of technical budget adjustments and transfers are reflected in its construction:

· A transfer of £83,000 from the highways maintenance revenue budget to cover higher environmental maintenance fees payable to agency district councils, as mentioned in paragraph 5.5.

· A reduction of £100,000 relative to the 2004/05 original budget, to reflect the deletion of additional provision for IT system development included in the 2004/05 budget from underspendings carried forward from 2003/04.

· A budget transfer of £538,000 to Policy and Resources services to reflect the full year effect of financial adjustments in connection with the implementation of the Human Resources department reorganisation.

· A transfer of £9,000 relating to a corporate levy to help fund records management.

4.13 It is normal practice, in setting the budget for management and support services, to make an allowance for future turnover savings from staff vacancies and other housekeeping efficiencies. As mentioned in paragraph 4.13, a savings requirement of £684,000 was originally set for 2004/05, which was equivalent to 3.1% of the budget. This savings requirement has been carried forward and is reflected at a similar level in the calculation of the 2005/06 base budget.

4.14 However, it will be necessary to absorb additional departmental running costs of £420,000 in 2005/06, mainly relating to the estimated net cost of staff salary increments payable from 1 April 2005, together with the need to provide for increased expenditure arising from continued growth in demands for information technology. Proposals to offset this additional expenditure by redeploying efficiency and other revenue savings are discussed later in this report.

Waste management

4.15 A base budget of £39.461 million has been set for the waste management services for 2005/06. In considering the key elements of the calculation of the base budget, it is necessary to divide this service into two distinct categories:

· The waste contract related budgets, comprising the main waste disposal contract together with related budgets covering trade waste income and recycling credits. The base budget for this element totals £36.491 million, equivalent to 92 % of the overall waste management budget.

· Other waste management budgets, including facility maintenance, administration, promotions and developments, the disposal of abandoned vehicles and household waste recycling centres (HWRC) management costs. This part of the base budget accounts for £2.970 million, or 8% of the waste management budget.

Waste contract related budgets

4.16 The contract and related budgets are principally demand led and are subject to long term contractual obligations, thus providing very little scope within the overall management of the budget to vary expenditure.

4.17 The base budget for the contract and related services has been prepared in accordance with the guidelines set by the Cabinet and therefore accords with the control total for this element of the budget. It allows for the cost of current contractual commitments, which include known and estimated waste tonnages for the current financial year, at January 2004 prices. The contract is subsequently re-priced each year on 1 January in line with changes in the Retail Prices Index (RPI). The 2005/06 base budget for the contract related budgets reflects increases of £1.265 million (3.8%) for inflation, covering the contract re-pricing in January 2004 and the increase in landfill tax in April 2004, together with £1.877 million (5.4%) in respect of other cost increases.

4.18 No allowance has been included within the base budget for any future growth in waste volumes beyond 2004/05 levels, future price increases, the forthcoming £3 per tonne increase in the rate of landfill tax due to be implemented from 1 April 2005, or other potential service related pressures. As in previous years, a central contingency sum, under the control of the Cabinet, will be provided within the overall County Council budget to meet these estimated costs during 2005/06. Quarterly allocations will be made to the waste management budget in line with actual costs incurred during the next financial year.

Other waste management budgets

4.19 Base budgets for 2005/06 totalling £2.970 million have been set for the other waste management services, in line with the base budget control total. The base budget is £311,000 lower, relative to the 2004/05 original budget, which included an additional sum brought forward from underspendings in 2003/04, to cover uncertainty in relation to future levels of expenditure on the disposal of abandoned vehicles.

The sums included in the 2005/06 base budget are based on a roll forward of the 2004/05 situation 4.20 and are generally expected to be sufficient to match the likely level of expenditure on the various non-contract related waste management services next year. As in 2004/05, there is scope to re-deploy savings from the budget for the disposal of abandoned vehicles, to meet other priorities and pressures, reflecting lower expenditure following delays in the introduction of the ELV directive, together with the positive effects of an improved market for scrap metal. However, Cabinet budget guidelines suggest that the abandoned vehicles budget should be regarded as ring-fenced, to meet costs of the disposal of abandoned vehicles, refrigerators or other electrical items. Any proposals to redeploy savings from this budget to meet other service pressures would therefore be subject to the approval of the Cabinet.

5Redeployment proposals, efficiency improvements and cost pressures

5.1 The Cabinet requires all services to consider and report on:

· The redeployment of resources required to offset any new spending priorities, inescapable budget pressures, or legislative requirements which otherwise cannot be met from within the budget guidelines.

· Efficiency improvements to be achieved in absorbing pressures and costs within the budget guidelines.

· The annual review of charges and the maximisation of income.

5.2 Details of redeployment of resources of £1,963,000 together with efficiency savings of £1,963,000, equivalent to 2.1% of the base budget, are included in Appendices 6 and 7 (the yellow pages).

Redeployment proposals

5.3 The following paragraphs set out a number of service pressures and proposals that cannot be included within the definition of the base budget and will need to be offset by equivalent savings or by redeploying resources from within the base budget total.

5.4 The proposals are considered under the following main service headings:

· Highways maintenance

· Public transport

· Planning and development

· Waste management

· Management and support services.

Highways maintenance

5.5 The first two items are unavoidable changes arising from new Government requirements, but for which no additional budget is being made available by the Government. Additional budget provision is proposed which seeks to meet these new requirements in the most resource efficient way.

5.6 Traffic Management Act - although the full implications of the new Act are still being evaluated, it is clear that in order to better co-ordinate all on-street works, the County Council will need to reorganise the way in which some of its functions are managed and employ additional resources, to respond to the legislation. As a minimum, there will be a need for one-off costs of £75,000 during 2005/06 for IT systems development and training, with ongoing IT systems running costs of £30,000 per annum. An additional member of staff will also be required to provide support, including the input of highways works notices, at an estimated cost of £30,000 per annum. However, it is also intended to add additional co-ordinating responsibilities, equivalent to work for three additional full time equivalent staff members, to the workload of existing employees. The effectiveness of this approach will need to be reviewed during the year to ensure compliance with the Act.

5.7 Asset Management - new requirements have been announced by the Department for Transport requiring an asset management approach for highways to be set out in the 2005 Local Transport Plan, aimed at improving business efficiency. All components of the network, including street lighting, have to be recorded and their condition analysed on a systematic basis. There is a national methodology for road and pavement condition analysis, which would produce the annual BVPI data. In addition to this, it is necessary to understand the rate at which components are deteriorating and the impact of interventions. This more rigorous asset management planning approach should enable the County Council to demonstrate more clearly the impact of changes in the level of funding to the quality and serviceability of the highway network. Consultancy work is underway to identify gaps in the County Council's existing data capture and resource planning processes. However, it is estimated that additional one-off costs of £125,000 will need to be incurred on the required resource input, to produce the asset management plan, together with £150,000 to address any remaining inventory gaps. Ongoing costs of £50,000 in 2005/06 and 2006/07, falling to £25,000 in 2007/08 will be needed in connection with continued updating of the new inventory system.

5.8 Bridge inspections and maintenance - bridge inspections are becoming more onerous to carry out to comply with nationally required standards. The results of inspection will provide the County Council with its `bridge condition indicator', which will, in the future, be used as one of the criteria for the allocations of funding for bridge maintenance within the Local Transport Plan. An increase of £60,000 per annum to the bridge inspections budget (making the total £240,000 per annum) is required so that this work may be resourced at the necessary level.

5.9 Excess inflation not absorbed in 2005/06 base budget - as mentioned in paragraph 5.7, an assessment of inflation is made in preparing the base budget for routine highways maintenance. A total inflation shortfall of £583,000 has been identified reflecting increases of £356,000 from higher prices for street lighting energy and other contracts, compared with the corporate allocation for inflation, together with a shortfall of £227,000 relating to the adjustment made in the 2004/05 budget to transfer part of the inflation allocation to cover higher costs on management and support services, which has reduced highways maintenance expenditure in real terms. Additional provision would therefore need to be made to cover this shortfall if current standards of routine highways maintenance service were to be sustained.

Public transport

5.10 Bus subsidies - on the basis of recent trends, it is possible that the cost of renewing contracts for supported bus services will increase by approximately 10%, creating a budget pressure of approximately £100,000 during 2005/06. In addition, it is very likely that further pressures will emerge from de-registrations of existing commercial services. Although any additional contractual commitments for new services would be subject to an assessment of priorities within the public transport budget, this further pressure could be in the region of £200,000, making a total budget pressure of up to £300,000 on bus subsidies which would need to be managed next year. Similar pressures are likely to emerge during 2006/07.

5.11 Community transport - the cost of supporting existing Cango services will increase in future years due to the expiry of external funding. Although no additional call on funding from the revenue budget is expected to be required in 2005/06, it is estimated that an additional £80,000 will be required in 2006/07 to maintain these services, rising to £300,000 in 2007/08.

5.12 Budget plans will need to be made to re-order priorities to meet this additional expenditure within the public transport budget in those years.

Planning and development

5.13 Spatial strategy - a one-off financial contribution of £60,000 is expected to be required in 2005/06 towards further consultancy work in connection with the development and implementation of the South Hampshire and Western Corridor and Blackwater Valley sub-regional strategies, continuing the work programme agreed by the relevant cross-authority member steering groups. In particular, work on housing need (south Hampshire), and infrastructure testing are envisaged.

Minerals and waste planning - further expenditure will be incurred during 2005/06 in preparing the consultation draft Minerals and Waste Local Development Framework (MWDF), which has been accommodated within the base budget. However, in 2006/07 and 2007/08, a temporary increase to the base budget will be needed to cover further substantial costs of £130,000 and £70,000 respectively for the Public Inquiry process, although the timetable is dependant on Government capacity to manage the implications of the new Planning Act.5.14

Waste management

5.15 Waste contract related budgets - a provisional assessment of £41m has been made, covering the likely level of expenditure on the waste contract in 2005/06, which is an increase of approximately £4.5m over the base budget provision. It is recognised that expenditure on the waste contract related budgets is principally demand led and subject to long term contractual obligations, and that there is very little scope within the management of the budget to vary expenditure. As in previous years, it will be necessary for the County Council to make provision for this estimated additional expenditure within the overall provision for inflation and other contingencies.

5.16 The £4.5m estimated cost increase covers higher waste volumes, increased prices (including the landfill tax escalator) and the full year costs of recently introduced infrastructure. In addition, one-off legislative compliance costs are included as is a significant provision for the ongoing contractual negotiations referred to in paragraph 4.24.

5.17 Household Waste Recycling Centre (HWRC) management - this budget covers the cost of managing the HWRC operation, which is covered by five individual contracts which are due to be re-tendered, beginning in January 2006. The introduction of improved HWRC facilities, aimed at increasing recycling levels, will in future result in extra demands on this budget as the bigger and additional sites will require more management. As a result, containing costs within current budget levels during the next round of re-tendering will be a very difficult proposition, particularly as a number of efficiencies have already been realised to keep costs as low as they are currently. However, as landfill tax continues to increase, it will become more cost effective for waste streams to be diverted from end disposal and the impact of any higher HWRC management fees in 2006/07 is likely to be cost neutral, taking the waste management budget as a whole.

Management and support services

5.18 Special projects - currently there is reliance within the Environment department upon a single member of staff to manage multiple business improvement projects simultaneously. A single large and urgent project, such as improving the department's risk assessment and management regime, can effectively suspend activity on other improvement projects for months, plus there is no capacity to cover for sickness or absence. There is currently a need to invest more resources in improvement projects across the department, including the management of various proposals for efficiency savings, if these projects are to be successfully implemented. It is therefore proposed to add an additional post to the department's establishment, at an estimated cost of £35,000 per annum, to work on these special projects. This would enable project work to be allocated according to need and aid the implementation of agreed efficiency savings without resorting to the employment of external consultants.

5.19 Health and safety management - an additional staff resource, at an estimated cost of £45,000 per annum, is required to provide support for strategic health and safety management. Following the recent prosecution of the County Council by the Health and Safety Executive, all departments have been urgently reviewing this function. As the Environment department is responsible for major operational activities and capital works, risks of non-compliance are significant. A recent audit of the effectiveness of existing controls shows that insufficient progress is currently being made. It will be necessary to review progress again before the next annual budget and there may need to be proposals for a further increase in 2006/07.

5.20 Base budget pressures - as mentioned above in paragraph 5.14, the base budget strategy assumes that the cost of staff salary increments and other back office cost increases identified during the budget roll-forward process are absorbed. Additional expenditure of £420,000 has been identified and will need to be offset by equivalent savings or by the redeployment of resources within the base budget total.

Summary of redeployment proposals

5.21 Appendix 6 provides a summary of the budget pressures and service priorities described in the above paragraphs. Overall pressures next year that have not been absorbed within the preparation of the 2005/06 base budget total £1,963,000. The following paragraphs discuss options for cashable efficiency savings aimed at accommodating these pressures within the control total for the base budget.

Proposals for efficiency savings

5.22 The efficiency and other savings proposals are considered under the following main service headings:

· Highways maintenance

· Public transport

· Planning and development

· Waste management

· School crossing patrols

· Traffic surveys

· Management and support services.




Highways maintenance

5.23 Term maintenance contract - in accordance with the terms of the contract, savings of 1% are available in the form of a rebate on the schedule of rates prices, provided that the total value of work undertaken in any particular year exceeds £30m. In 2004/05 this turnover threshold is expected to be exceeded, which should result in a rebate of approximately £300,000 that could be applied as an efficiency saving in constructing the 2005/06 budget. Looking further ahead, it may be possible to achieve additional efficiency savings of approximately £100,000 per annum by reviewing service delivery arrangements and developing the partnership approach in working with the term maintenance contractor. This could lead to improvements from the use of new technology, smarter working methods and improved working practices to avoid duplication

5.24 Street lighting maintenance contract - negotiations are presently underway with Southern Electric Contracting to develop a partnering approach to realise efficiency savings for both organisations. Efficiency savings of £50,000 per annum may be realisable from 2006/07. Both this and the above efficiency saving relating to the term maintenance contract, would require member support for the increased transfer of control to our major contractors.

5.25 Traffic management - the highways maintenance revenue base budget includes a sum of £452,000 for the implementation of various traffic regulation orders and traffic management schemes. These schemes normally involve traffic signing, carriageway markings and other minor works. It would be possible to consider capitalising all of these programmes, in that the schemes involved are improvements rather than maintenance, and in future to make provision for this expenditure from within the local transport allocation for integrated transport provided by the Government. This would release £452,000 from within the highways maintenance revenue budget to meet other spending pressures and priorities, although there would be a corresponding reduction in the availability of integrated transport funds for other improvement measures.

Developers' contributions - an investigation of all legal agreements held between developers and the County Council has identified a number of commuted sums that are held for future highways maintenance purposes. Subject to the use of the contribution complying with the conditions in the various legal agreements, approximately £50,000 of this funding could be released each year to supplement the budget for highways maintenance. The commuted sums are generally provided to meet the additional revenue costs of new highways works and this practice is expected to continue in the future. It is therefore fully justified that they should be used for this purpose.5.26

5.27 Transfer from structural maintenance - the savings proposals outlined in the above paragraphs total £802,000 in 2005/06 and would contribute significantly towards covering the identified additional pressures on the highways maintenance revenue budget of £1,103,000 (paragraphs 6.5 to 6.9). It is recommended that a balancing transfer of £301,000 be made from the locally resourced capital provision for highways structural maintenance, so that the revenue budget for routine maintenance activities is adequately funded in 2005/06. This would ensure that activities such as grass cutting, traffic signals maintenance, white lining and safety repairs are funded in accordance with current policies and contractual commitments.

Public transport

5.28 As mentioned above in paragraph 6.10, it is expected that the budget for bus subsidies will experience further pressure, of approximately £300,000 in 2005/06, from higher contract tender prices together with additional costs arising from the deregistration of commercial services. Equivalent efficiency savings would need to be sought from within the existing supported bus network to absorb these pressures from within the bus subsidies base budget.

5.29 Savings of £300,000 would require a reduction of just over 5% in the budget for supported bus services. This could be achieved by implementing reductions in weekday evening and Sunday services, or a combination of these with a reduction in some daytime services, which would reduce the maximum subsidy per passenger journey to around £2.40. A detailed plan, with options, will be prepared once the savings target is confirmed.

5.30 However, any reduction in the supported network to accommodate budget pressures could have an adverse effect on BVPI targets. The current PSA target is for a 4% increase in passenger numbers between 1999 and 2004. The decline in passenger numbers over the past two years means that the County Council is very unlikely to receive even the minimum PSA performance reward grant, although the results of investment and promotion of the quality bus contract routes has resulted in significant growth on these services.

Planning and development

5.31 A number of specific efficiency savings have been identified covering departmental activities falling within the definition of the planning and development services. Small savings could be achieved by discontinuing the County Council's contribution towards the New Forest Committee, withdrawing service level agreement support to the Danebury Trust and reducing service level agreements for ecology. Efficiency savings could also be sought by reducing the budget for events in the spatial strategy section and the consultancy and advertising budgets in the minerals and waste section. In future years, additional savings could be sought by reducing expenditure on service level agreements with environment service providers and by reducing archaeology and heritage support following the conclusion of a current project.

5.32 For 2005/06, overall savings of £68,000 have been identified on the planning and development services, which more than cover the additional budget pressure of £60,000 for the development of sub-regional spatial strategies, as discussed in paragraph 6.13.

5.33 At this point, no efficiencies have been identified in the strategic planning function due to the retention of statutory responsibilities within the new Planning Act and because the current passage of the South East Plan is proving to be exceptionally demanding in resource requirements.

Waste management

5.34 The 2005/06 base budget provision for the disposal of abandoned vehicles is £548,000. As in 2004/05, it is expected that spending during 2005/06 will be lower than the base budget provision because of the delays in fully implementing the ELV directive and the improvement in the market for scrap metal, although this situation may not be sustained in the longer term. It would be prudent to assume that savings of £150,000 could be re-deployed from this budget to meet other service pressures in 2005/06. However, as this may not continue in future years, no savings are assumed for 2006/07.

School crossing patrols

5.35 A small saving of £25,000 in 2005/06 could be made against the budget for school crossing patrols, reflecting the reality of continuing staff recruitment difficulties for this service. It is suggested that this sum be temporarily redeployed to help meet budget pressures elsewhere, although this transfer could be subject to annual review and the budget reinstated should the staff recruitment position improve. In addition, changes to national standards may result in pressure for increasing the number of staffed crossing points in the future.

Traffic surveys

5.36 An efficiency saving of £25,000 could be sought against the department's specific budget allocation for traffic surveys. Although the budget saving would reduce the number of surveys that could be undertaken, the reduction could be managed by critically reviewing and prioritising the surveys to be completed each year.

Management and support services

5.37 Specific efficiency measures have been identified which would realise savings of £292,000 in 2005/06, rising to £582,000 in 2006/07 when further savings from a follow-up review of service delivery within network management and lower IT systems development costs are anticipated. Details are set out in Appendix 7.

5.38 Specific measures that would contribute towards the savings required in the 2005/06 budget include:

· IT client section - an efficiency saving of £30,000 relating to the deletion of an unfilled post that is no longer required.

· IT hardware and software - potential efficiency savings totalling £41,000 in 2005/06, rising to £70,000 per annum thereafter, have been identified in relation to printing, software and hardware maintenance and the HPSN contract for departmental mobile telephones.

· Business support - various potential efficiencies have been identified to reduce the cost of providing back office support, including the deletion of one unfilled post in office/text services, savings on IT consumables, postage, printing and stationery, and other general office expenses.

· Scheme preparation - some departmental activities that contribute towards the design fee element of capital programme schemes are currently being met from the revenue budget. It is proposed that, in future, these costs be recharged to the capital programme as they more correctly relate to the fee element within scheme preparation.

· Transport charges - it is thought likely that income from utility trench inspections and works overruns could be increased. However, this increase is unlikely to be sustainable in the longer term, as the purpose of the charge is to provide an incentive to improve the quality and timing of utility works. Other areas where additional income could be sought by increasing charges include licences for skips and scaffolding on the highway and highways status enquiries.

Summary of efficiency savings

5.39 The above proposals for cashable savings from efficiency improvements total £1,963,000 in 2005/06, equivalent to 2.1% of the base budget, and would fully cover the need for additional expenditure for new service developments and pressures.

5.40 A review of non-cashable efficiency improvements is currently being carried out within the Environment department which would contribute to the forthcoming production of the County Council Efficiency Plan for 2005/06. Although not yet quantified, these non-cashable efficiency savings would identify departmental efficiencies arising from higher costs absorbed within current service levels and improved service outcomes achieved at same costs. Current service areas being evaluated include the implementation of the Traffic Management Act, the rural pathfinder, asset management, the administration of the River Hamble, the departmental management review and savings arising from the introduction of waste management infrastructure.

6 Review of charges

The
6.1service's 2005/06 revenue budget includes estimated income of approximately £8.2m from fees, charges and reimbursements. Details of the main sources of income are included in Appendix 8.

6.2 There are some mandatory and national charges which the County Council is not able to vary, the main example for the Environment services being planning application fees, although these are expected to increase from April 2005. Most other charges to users are designed to ensure full recovery of costs, including an appropriate contribution towards departmental overheads. In the main, charges are reviewed regularly in accordance with financial regulations, or rise automatically in line with increases in costs. Proposals for additional increased income from trench inspection fees and transport charges are included in the recommended 2005/06 budget.

6.3 Charges for the two main waste management sources of income, namely disposal site rentals and trade waste, are increased from the beginning of January each year in accordance with price increases applied to the long-term waste disposal contract. This is based on a formula contained within the contract which effectively provides for an increase based on the change in the retail prices index (RPI) to the previous October. The charge for trade waste is currently subject to a further flat rate increase in April, to reflect increases in the cost of disposal arising from variations in the rate of landfill tax.

7 Other expenditure

7.1The budget includes some items which are not counted against the cash limit. At the present time, this includes the budget for capital charges of £29.4m, which are allocated to services in order to show the full cost of service provision, together with provision of £0.7m for supplementary levies from the three divisions of the Environment Agency in relation to the County Council's responsibilities for the funding of flood protection.

7.2 Further adjustments to the 2005/06 budget in respect of non-cash limited expenditure will be made later on in the budget process to cover central departments' support services and for repairs and maintenance of buildings. These have been excluded at this stage as Policy and Resources control them and they have not yet been agreed.

7.3 Included at present within the Environment cash limited budget are costs of member support which will be recharges to the Policy and Resources budget for corporate and democratic core services at a later stage in the budget process. Adjustments will also be made at that time for pension and early retirement costs, in accordance with Financial Reporting Standard 17 (FRS 17).

8 Workforce levels and costs

8.1The workforce implications of the proposed budget are set out in Appendix 9. The 2005/06 base budget supports a planned workforce of 785 full time equivalent (FTEs) staff. This compares with the original estimate for 2004/05 of 767 FTEs, which is an increase of 18 FTEs. This increase mainly relates to the implementation of new arrangements for highways development control, involving the transfer of posts from agency district councils.

8.2 The proposals for redeployment and efficiency savings set out in Appendices 6 and 7 include proposals which would reduce overall staffing numbers by one FTE.

8.3On a pro-rata basis, further reductions of approximately nine FTEs would be required to fully implement additional efficiency savings of 1.25% (approximately £300,000) against the department's staffing budgets. In the short term, this could only be achieved by holding additional vacancies on top of the turnover savings of £684,000 already included in the construction of the 2005/06 base budget, resulting in unacceptable loss of service to the public. In the longer term, a savings plan involving further structural review and review of priorities within the department would need to be developed.

9 Business units

9.1 The trading account for the River Hamble is summarised in Appendix 10.

10 Presentation of detailed budget

10.1 Appendix 5 of this report showing the detailed budget (the green pages) has been prepared in accordance with the service expenditure analysis required by CIPFA in the relevant accounting code of practice. This presentation varies slightly from the headings which are used to present the budget in the rest of this report, which reflect the reality of how budgetary control is exercised within the department. This mainly affects the presentation of the budget for the highways and transportation services, where the total revenue budget for highways maintenance is split over three standard service headings to differentiate between structural, routine and traffic management related expenditure. In addition, the budget for management and support services, which is retained as a separate heading during budget preparation to enable departmental running costs to be considered separately from operational service expenditure, is subsequently fully re-allocated over other divisions of service.

10.2 For the planning and development services, the total cash limited budget is initially shown against the management and support services heading and is then re-allocated over the service headings prescribed by the accounting code of practice. Similarly, on the waste management services, a separate analysis is included within the detailed budget pages to meet these requirements.

Recommendation

1 That the Environment Policy Review Committee consider the proposals for the revenue budget 2005/06, that have been prepared in consultation with the Executive Member - Environment, prior to formal approval of the budget proposals by the Executive Member for submission to the Cabinet.

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

1 Cabinet : 13 December 2004 - 2005/06 Provisional Budget and Capital Programme Guidelines

2 Executive Member - Environment : 9 November 2004 - Revenue Budget Monitoring 2004/05

Appendix 1

Environment

Revised budget 2004/05

Calculation of the cash limit for the revised budget 2004/05

The following table shows the progression from the original budget for 2004/05 to the cash limit for the revised budget 2004/05. Both are at estimated outturn prices 2004/05.

Appendix 2

Environment

Revised budget 2004/05

Summary comparing the revised budget with the cash limit

Appendix 3

Environment

Revised budget 2004/05

Summary showing detailed allocation of highways maintenance budget

Capital maintenance programme 2004/05

Appendix 4

Environment

Revenue budget 2005/06

Construction of the base budget 2005/06 - summary of cash limited expenditure

The following table shows the progression from the original budget for 2004/05 which was prepared at outturn prices 2004/05 to the base budget 2005/06 at outturn prices 2005/06.

Annex 1 to Appendix 4

Environment

Construction of base budget 2005/06

Parameters used in the compilation

Annex 2 to Appendix 4

Environment

Calculation of base budget 2005/06

Significant costs of inflation

Annex 3 to Appendix 4

Environment

Calculation of base budget 2005/06

Significant variations

Major variations between the repriced budget 2004/05 and the base budget for 2005/06 at November 2004 prices contributing to the increase of £1,157,000 (1.3%) are set out below:

Annex 4 to Appendix 4

Environment

Base budget 2005/06

Analysis of variations

Appendix 5

Environment

Revenue budget 2005/06

Reconciliation of the original 2004/05 budget on the following pages with the 2004/05 budget in the budget book.

Appendix 6

Environment

Revenue budget 2005/06

Proposals for growth and redeployment

Appendix 7

Environment

Revenue budget 2005/06

Proposals for efficiency savings and improvements

Appendix 8

Environment Department

Revenue Budget 2005/06

Review of income

Appendix 9

Workforce levels and costs

Note 1 - the cost of establishment includes the actual salary for those staff in post and the mid-point salary cost of vacant posts. Salary costs include National Insurance & Superannuation and allowances other than payments for additional hours.

Appendix 10

Environment

Base revenue budget 2005/06

Business units - summarised trading accounts

The budget of the River Hamble Management Committee is outside the cash limited budgets of the Environment services and operates on a trading basis. The following statement shows the summarised trading position and movement in the earmarked reserve accounts.

Note

The detailed budget will be considered by the River Hamble Harbour Management Committee before going to the Executive Member for approval when the annual charges are approved.

The above summarised accounts bring together income, expenditure and reserves for the combined statutory Harbour Undertaking and Management of the Moorings and the Visitor Centre Partnership.

The figures include exceptional income of £100,000 per annum from the sale of river piles to the Crown Estate (the third and fourth instalment of five).

Also included within the revised budget is expenditure of £41,000 from the Crown Estate Receipts for CCTV which has been installed at the Harbour Office this year. Further CCTV costs have been met from revenue.

Income also includes interest earned.

The Harbour Undertaking and Management of the Moorings is run on a breakeven basis.

The reserve is currently in a deficit position following the income period adjustment made early this financial year. Options for bringing this reserve out of deficit have been considered and the suggested approach is for the balance to be met from budget allocations over a 3 year period. £38,000 is the first year's payment to reserves in 2005/06 and is shown in the figures above as both an expense to the revenue and income to reserves. Any under spend at the end of the financial year would also be used to reduce the deficit.

Discussion have been ongoing with Crown Estates for some time with regard to the Visitor Centre Partnership. The 2004/05 revised budget and the 2005/06 base budget reflect a revised income split and fee basis.

The Partnership has been operating at a deficit for some time and is predicted to continue to do so.