Appendix 3

Revenue Budget 2005/06

2005/06 Base Budget

1. Service base budgets (£1,166.1m)

1.1 Provisional base budgets which formed the basis of the provisional guidelines set by the Cabinet in December 2004, totalled £1,159.7m. The final calculation of he base budget totals £1,166.1m, an increase of £6.4m, mainly as a result of additional specific grants of £5.4m primarily for Education and the incorporation of Policy and Resources planned under spending of £0.7m from 2004/05.

Inflation to November 2004 prices

1.2 In preparing the base budget of November 2004 prices, allowance has been made for the full year effect of pay awards at the level supported in 2004/05 and for inflation on the waste management contract, but has been otherwise restricted to the allocations made in 2004/05. In total allowance of £26.9m has been made for inflation between November 2003 and November 2004, made up as follows:

1.3 Actual inflation is estimated at £29.6m, or £2.7m more than the allowance made in the budget. £1.9m of this excess relates to Schools and Social Services budgets, whose budgets had been set on the basis of `passporting' increases in the respective formula spending shares (FSS) set by the Government, and provided for increases of £22.3m above the anticipated level of inflation. Part of this increase had therefore to absorb the excess cost of inflation and for other services excess inflation costs of £0.8m had also to be absorbed within the cash limit.

1.4 A central contingency provision had been made for the cost of pay increases in 2004/05 in excess of 2.5% for those services other than Schools and Social Services, who had not received increases based on FSS, so that for most services pay increases between November 2003 and November 2004 have been covered in full. For Schools and Social Services, £0.7m of the £1.9m excess cost of inflation relates to pay increases at above 2.5%, mainly resulting from the 2.75% Local Government pay award.

1.5 The remainder of the excess cost of inflation, £2.0m, relates to non-pay budgets for which a general allowance of 2.5% was made in line with the Government's inflation target, together with an additional £1.6m for Social Care prices and £0.3m for higher inflation on repair and maintenance of buildings. Table 2 analyses the main variations between actual and estimated non-pay inflation, and illustrates the impact of increases in fuel and energy costs.

Other variations

1.6 Variations other than inflation add £13.7m to the base budget and can be categorised as follows:

1.7 Details for each service of the most significant variations compared with the repriced budget for 2004/05 are set out in the annex to this appendix.

Allocation for future inflation

1.8 Included within service base budgets is a provision for future inflation, so that the budget is presented on a cash-limited basis, based on the following assumptions agreed by the Cabinet in December:

1.9 Provision has been retained centrally for increases in business rates, for higher costs arising from the waste management contract, and for potentially higher pay costs in respect of outstanding 2004/05 pay awards.

2. Summary of service budgets

2.1 A summary of service budgets is set out below:

2.2 Workforce numbers in the base budget are forecast to be 128 higher than in the 2004/05 budget. The growth and redeployment proposals in Appendix 4 add a further 361 to estimated workforce numbers. More details of changes in the workforce and in related workforce budgets are included in Appendix 8.

3. Expenditure outside cash limits

3.1 It is the County Council's policy to exclude a number of headings from service budgetary control limits. These items are outside the direct control of services, variations in which could unreasonably jeopardise service plans. They of course remain a prior charge on the Council's expenditure.

Education mandatory awards to students (£0.2m)

3.2 Mandatory awards to students are confined to disabled students and are now allocated directly by the Student Loan Company, leaving the County Council with responsibility for a small residue of awards. Awards are 100% grant-aided, so that changes in the level of spending have no impact on the County Council's overall position.

Flood Protection levies (£0.7m)

3.3 From 2004/05, the main source of funding for flood defence costs incurred by Local Flood Defence Committees is direct from central government. However a small sum has been retained within the Environmental, Protective and Cultural services FSS and Flood Defence Committees have the power to levy supplementary levies subject to a cap of three times the sum in FSS. Supplementary levies have yet to be set for 2005/06, but an additional sum has been included in the central contingency on the assumption that levies will be set at the maximum permissible level.

Capital financing charges (£39.9m)

3.4 The system of accounting for capital assets means that capital financing charges do not feature in service budgets but are charges to a central asset management revenue account. The level of financing charges made to the central account is however a key factor in setting the Council's budget. The charges comprise loan repayments and interest of £42.1m, offset by interest on balances of £2.2m. The base budget has been prepared on the basis of current short-term interest rates linked to a base rate of 4.75%.

3.5 The estimate assumes the continuation of the policy of repaying debt at the minimum statutory level and of making no voluntary set aside of capital receipts to repay debt, other than in circumstances where unsupported borrowing has been incurred on a temporary basis in the advance of the availability of a capital receipt. The estimate is £6.4m higher than the original estimate for the current year for the following main reasons:

· The capital financing requirement at the end of 2004/05 is expected to be about £65.3m higher than the level assumed at 1 April 2004 in setting the 2004/05 budget. Additional repayments of principal and interest on this increased borrowing in 2005/06 are estimated at £6.0m.

· Short term interest rates have increased during 2004/95 from 4% to 4.75% and higher interest rates have added a further £0.4m to capital financing charges.

Revenue contributions to capital (£30.5m)

3.6 Revenue contributions to capital supplement Government supported borrowing, grants and the use of capital receipts in financing the capital programme

3.7 The base budget is £0.4m lower than the 2004/05 budget as a result of the following variations:

Specific grants (£158.7m)

3.8 Specific grants are £4.3m lower than in the original budget as a result of additional Education, Environment and Social Services grants (£14.5m) more than offset by the ending of Magistrates Courts grant in conjunction with the establishment of a national courts service (-£9.4m), reduced Mandatory Awards grant (-£1.6m), the discontinuation of the recycling grant allocated in 2004/05 (-£0.3m) and the assimilation of Social Services and Emergency Planning grants into FSS (-£7.4m)

Provision for future inflation and contingencies (£7.3m)

3.9 Service budgets incorporate allocations for general pay and price inflation and for increased employers pension contributions. The contingency provision of £7.3m in the base budget covers other items for which resources have been earmarked, but where it would be premature to allocate the resources at this stage, or where allocation decisions have still to be made. The provision is made up as follows:

4. Summary

4.1 In summary therefore the base budget for 2005/06 is £1,095.1m, made up as follows: