Contact: Nick Gibbins , ext 7544

1. Introduction

1.1 This report sets out the current projection of the outturn for 2004/05 prior to work commencing on producing the final accounts.

1.2 Service cash limited expenditure is likely to be close to the revised budget with the overall outturn depending upon how successfully the budget pressures within Social Care have been contained.

1.3 Budget monitoring influences the achievement of all the aims of the corporate strategy:

· maximising life opportunities

· stewardship of the environment

· achieving economic prosperity

· building strong and safe communities

· improving services

· developing councillors and staff

2. Service cash-limited expenditure

Education

2.1 After allowing for the use of the general contingency of £376,000 in the 2004/05 budget, the revised budget approved by the Executive member in January included a requirement to find further savings of £70,000 to keep within the cash limit. The latest budget monitoring report identifies net savings against the revised budget at just above this level, so that the Education outturn is expected to be very close to the cash limit.

Environment

2.2 Approval was given by the Cabinet in February to the use of a projected underspending of £300,000 on the cost of abandoned vehicles, which would otherwise have been ring-fenced for waste management purposes, to be used to meet additional expenditure in connection with the submission to the Government of revised proposals for the South Hampshire Rapid Transit project. Delays in the introduction of the effects of the end of life regulations related to vehicles and improvements in the value of the market for scrap metal suggest a further significant saving of around £300,000 and this saving in accordance with current policies will be ring-fenced to offset future waste management contract expenditure. Spending is otherwise expected to be close to the cash limit.

Policy and Resources

2.3 The revised budget was set at the cash limit although savings of £197,000 had still to be identified, having proposed that planned underspendings of £825,000 be carried forward to 2005/06. The latest monitoring report identifies savings of £127,000 leaving further savings of £70,000 to be achieved to keep within the cash limit.

Recreation and Heritage

2.4 There have been pressures throughout the year on the libraries and information service budget associated with reduced income levels during the refurbishment of libraries, spending on books following the reopening of refurbished libraries and the running costs of the Peoples Network. The strategy proposed for containing spending within the cash limit was based on deferring part of the proposed transfer to capital to fund library refurbishment until 2005/06 and to make a decision on the scale of the deferral required at year-end.

2.5 The latest monitoring report indicates that the scale of the net transfer from capital to revenue is likely to be around £275,000 rather than the £339,000 forecast in November 2004, though some further changes to the capital programme are also proposed in recognition of savings anticipated within the Calshot activities centre and outdoor centre budgets. The agreed one-off addition to the book fund of £250,000 in the 2005/06 budget therefore broadly matches the transfer from revenue to capital. This will fund the library refurbishment required in 2005/06, to compensate for the reduced transfer in 2004/05 in order to keep within the 2004/05 cash limit.

Social Care

2.6 When the revised budget was approved, the 2004/05 outturn projection for Social Care identified budget pressures of £1m in excess of the cash limit, as a result of higher projected spending of £2m on children and families and £1.9m on people with learning disabilities, offset by unallocated contingencies of £2.9m. Management action has been taken to achieve an outturn within the cash limit, with minimised risk to front line service delivery and performance. However the 2005/06 Social Care budget includes a contingency of £1.3m partly in case it is necessary to carry forward an overspending from 2004/05.

3. Expenditure outside service cash limits

Business rates

3.1 Some further significant reductions in business rate valuations have been achieved by the Estates Practice, as a result of successful valuation appeals. A large backdated refund of approximately £1m has been received following the revaluation of business rates payable on headquarters office accommodation in Winchester.

Capital financing costs and interest on revenue balances

3.2 Base rate has remained unchanged at 4.75% since August 2004, in line with the assumption made in the revised budget. However cash flow trends have continued to be more favourable than assumed especially from levels of reserves and advance capital contributions. Additional interest of at least £1.5m is forecast.

Winter maintenance

3.3 Daily salt runs took place throughout the cold spell of weather between 12 February and 6 March 2005 and as a result the outturn is expected to be about £1m higher than the revised budget, based on the average level of spending in the previous four years, re-priced to 2004/05 levels.

Waste management contract contingency

3.4 Following the reduction in waste volumes experienced in 2003/04, the upward trend in volumes has resumed in 2004/05, with average waste growth of 4% during the first nine months of the year. £2.2m of the £3.8m waste contingency has been allocated up to the 31 December 2004 and it is anticipated that cost increases during the final quarter and any additional provision required for outstanding liabilities should be contained within the budgeted contingency provision.

Other contingency provisions

3.5 A saving of £0.1m will arise against the provision made to support pay increases above 2.5% following agreement of the outstanding minor 2004/05 pay awards. The sum of £0.2m within the contingency earmarked to support increased foster care placements has not been allocated as it has not been possible to achieve the increase in placements.

3.6 Contingency provisions of £1.2m relating to second homes income and SAP configuration changes arising from the pay and benefits review will be carried forward to 2005/06 to match the expenditure for which the sums were earmarked.

Insurance

3.7 The contribution to or from the insurance provision included in the final accounts is based on the value of claims paid in the year and the assessed value of outstanding liabilities. Allowance also has to be made for the cost of fire, flood and storm reinstatement carried out in the year. Both have still to be assessed at the year-end.

3.8 A decision on the level of the insurance reserve carried forward into 2005/06 to reflect the value of outstanding fire reinstatement will need to be made when the final accounts are reported and despite the improvement in claims experience in 2004/05, a substantial level of reinstatement of school buildings damaged in previous years remains outstanding.

Part time pensions

3.9 A provision of £1.25m has been made in previous years for the estimated cost of making backdated employers' pension contributions for part time employees who have submitted claims seeking retrospective admission to the Local Government Pension Scheme. The claims resulted from a European Court ruling that previous restrictions on the admission of part time employees were unlawful. Claims have both been lodged with the Employment Tribunal and by letter and following tribunal hearings some reduction in the number of potential claims has been achieved, though some new tribunal claims have also been received. The level of the provision will need to be reviewed in closing the 2004/05 accounts and a reduction in the level of the provision may be justified.

Revenue contributions to capital

3.10 The overall capital financing position in 2004/05 has still to be finalised. Capital payments are forecast to be close to, but probably slightly below, the revised forecast of £203.1m for 2004/05. The revised financing plan included a contribution of £4.6m to the capital reserve in 2004/05, as some of the budgeted revenue contributions to capital in 2004/05 will be required in future years for capital financing purposes. This is still expected to be the position, although the revised financing plan for the Enhance project approved at the previous meeting of the Cabinet will have some impact on cashflow between financial years

4. Summary

4.1 Latest monitoring of the 2004/05 revenue budget indicates a generally satisfactory position with budget pressures being actively managed to contain spending at or close to service cash limits while sustaining services. A net underspending of £1.8m is forecast on budgets outside cash limits.

4.2 There are nevertheless outstanding issues relating to insurance and the financing of the capital programme, which could reduce the scale of the projected underspendings. There are also risks associated with the efficiency savings targets and calls on the modernisation, restructuring and efficiency plan reserve in 2005/06, together with a wide range of uncertainties about the allocation of government grant in 2006/07, which also need to be reviewed in the context of any underspendings that might emerge in 2004/05.

Table 1 : Projected outturn 2004/05

	£m
Service level cash limits (assumes carry forward of any overspend to 2005/06)	-
Other budgets
- business rates	-1.0
- interest on balances	-1.5
- winter maintenance	1.0
- contingency	-0.3
	-1.8

4.3 It would therefore be prudent to await the reporting of the final accounts in June, before making any decisions arising from the outturn for 2004/05. Some resources should then be available for priority one-off investment, but it is recommended to set aside the majority of any underspending within balances. This will help to mitigate the risks identified in preparing the 2005/06 budget during that year and particularly in 2006/07 (a potential shortfall of £8 - 10m, and the potentially higher rate of council tax rise).

5. Recommendation

5.1 That no specific action is required on the projected outturn for 2004/05 in advance of the consideration of the final accounts in June.

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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