Contact: Jon Pittam, (01962) 84 7400; [email protected]

1 Summary

1.1 Service cash limited spending was very close to the revised budget, as predicted in the last monitoring report in April, with a net underspend of £0.4m (0.04%) as a result of small underspendings on Education, Environment and Policy and Resources, offset by a smaller overspending than anticipated on Social Services.

· Education's outturn is £0.8m lower than the revised budget, mainly as a result of a slower increase in take up of early years places by 3-year olds and lower special educational needs placement costs than predicted

· management action to deal with pressures on the Social Services budget has successfully reduced the predicted overspend to £0.5m, which can be accommodated from within the £1.3m contingency in the Social Services 2005/06 budget. This was broadly matched by an underspending of £0.5m on the ring-fenced Supporting People programme, which can be carried forward to 2005/06 and will be vital in managing the reductions in Government funding commencing in 2005/06

· Policy and Resources revised budget required savings of £0.2m to be identified prior to the year-end and these savings were achieved.

· the cash limit for Recreation and Heritage was balanced by deferring a contribution to capital, as planned

· a very small underspending was incurred on Environment.

1.2 Net savings of £4.6m have been achieved on other budgets, more than the net underspending of £1.8m predicted in April:

· as anticipated from interest on balances and business rates, but by even more than projected, partly offset by higher spending on winter maintenance of roads

· but in addition the call on the waste management contract contingency has been lower than estimated mainly due to the availability of savings in the cost of disposing of abandoned vehicles, which have helped to offset higher contract costs

· and from adjustments on the provision for doubtful debts and on both the insurance provision and insurance reserve. A saving has been achieved in the provision for future insurance liabilities, but an additional contribution to the insurance reserve is proposed to cover current commitments to fire reinstatement.

1.3 The County Council's financial management policy will allow Education, Environment and Policy and Resources to carry forward 50% of their underspendings to 2005/06 and require Social Services to meet its overspending from its contingency in 2005/06.

1.4 The overall addition to balances, before proposed adjustments set out in the report, is £5.1m.

1.5 Earmarked reserves have increased by £9.2m, compared with those at 31 March 2004. This includes the final planned contribution to the grant equalisation reserve, but also increases in schools, trading unit and designated underspending reserves. The underlying level of school reserves, before allowing for temporary use of part of the reserves to provide bridging finance for education capital schemes, has increased by £6.7m to £35.0m.

1.6 Figures may still be subject to some further changes before the statement of accounts is prepared for approval by the Statement of Accounts Panel in July

1 Service cash limits

1.1 Variations in service spending against the revised cash limits set out in Appendix 1 and compared with 2003/04 outturn variations are as follows:

Table 1 - 2004/05 outturn variations

1.2 This continues the trend of service outturns very close to budgets. Comparative figures for recent years are:

The position on each service is summarised in the following section of the report:

Education (-£803,000)

1.3 At the time that the revised budget was approved in January, savings of £70,000 had still to be identified within the Education service to keep within the cash limit. In practice a number of savings have emerged both within the schools block, as a result of lower spending on special educational needs placements and take-up of early years places, and within the local education authority block, principally on adult education and support services to schools. These underspendings have been partly offset by higher spending on strategic management and an additional contribution to the youth offending team.

Environment (-£15,000)

1.4 As indicated in the previous budget monitoring report spending on the Environment service was very close to the cash limit. The main variation in planned spending against the revised budget related to the cost of abandoned vehicles. A saving of £377,000 has been achieved as a result of delayed implementation of the end of life vehicle directive and the more buoyant market for scrap metal. This saving was ring-fenced in accordance with the policy established by the Cabinet to meet part of the increase in the cost of the waste management contract, reducing the call on the central contingency.

Policy and Resources (-£129,000)

1.5 The revised budget for Policy and Resources was set at the cash limit but required savings of £197,000 to be identified during the remainder of the financial year. £127,000 was found in the last monitoring report leaving a balance of £70,000 which has been achieved within the final outturn. The eventual underspending largely reflects the unforeseen delay in installing closed circuit television in the vans used by the new Accredited Community Safety Officers. The underspending of £102,000 on community safety, will be reflected in higher spending in 2005/06.

Recreation and Heritage (-)

1.6 The outturn is at the cash limit which is the outcome envisaged in the agreed strategy for managing higher net revenue expenditure on libraries in 2004/05. This strategy was based on reversing part of the budgeted £0.5m virement from revenue to capital in 2004/05 to finance the library refurbishment programme, with the final transfer to be determined when the accounts had been closed. A transfer from capital to revenue of £352,000 was required to bring the cash limit into line with the outturn, after allowing for a number of service underspendings to be earmarked for capital investment purposes.

Social Services (+£532,000)

1.7 When the revised budget was approved, the 2004/05 outturn projection for Social Services identified budget pressures of £1m in excess of the cash limit. This was due to higher projected spending of £2m on children and families and £1.9m on people with learning disabilities, offset by unallocated contingencies of £2.9m. Subsequently further similar overspending pressures emerged on services for older people.

1.8 Management action was taken to contain spending within the cash limit while minimising the risk to front-line service delivery and performance. This has been successful in containing spending to within £0.5m (0.17%) of the cash limit, after allowing for a virement of £0.5m in respect of uncommitted capital spending. The overspending on cash limited expenditure is broadly matched by underspending on Supporting People. The grant-aided Supporting People programme is ring-fenced so this underspending must be carried forward to 2005/06 and will be vital in phasing in the impact of reduced government funding for Supporting People.

1.9 The reported outturn is after allocating £200,000 from the central contingency which was earmarked to support improved performance in placing children in foster care and family and friend arrangements. The Cabinet in June 2004 agreed that allocation of this sum should be conditional upon increasing the number of such placements by 15 during the course of 2004/05. An increase of 19 placements has been achieved by the end of the year and inclusive of adoptions and residence orders with non-foster parents, an overall increase of 45 (5.2%) in placements within the family group was achieved.

1.10 A contingency of £1.3m was included in the 2005/06 Social Services budget primarily to cover the possibility that an overspending of around that sum might need to be carried forward from 2004/05. The final overspending of £0.5m can therefore be carried forward to 2005/06 and met from the contingency, releasing £0.8m towards any new pressures in 2005/06.

Cash limit adjustments

1.11 Appendix 1 shows the adjustment made to cash limits since the original budget for 2004/05 and Appendix 2 analyses the main variations between the actual and the approved cash limit for each service.

2 Other budgets

2.1 The overall underspend on other budgets is £4.6m compared with the previous projection of £1.8m. A full analysis of the variations on other budgets is contained in Appendix 3.

Waste management contract and other contingency items (-£1,804,000 but partly offset by proposed reserve contribution of £1,255,000)

2.2 An underspending of £0.4m against the waste management contract contingency sum has been achieved mainly because savings in the cost of disposal of abandoned vehicles have been available to offset some of the cost increases in the waste contract. Following a small reduction in waste volumes in 2003/04, waste volumes increased by 2.9% in 2004/05, slightly higher than the 2.5% assumed in the budget.

2.3 The County Council's share of the additional income raised by reducing the council tax discount on second homes in 2004/05 was £1.2m, and this was earmarked within the contingency, pending agreement with the relevant district councils on joint spending proposals within their area. £0.2m was committed from Test Valley's share of the income towards Cabinet priorities and from Fareham's share for spending on local roads. Although agreement has been reached with New Forest and East Hampshire District Councils (to use the 2004/05 income in their areas in support of affordable housing for key workers) and with Eastleigh Borough Council (to finance a specialist housing occupational therapist post), no expenditure was incurred in 2004/05. It is proposed to earmark the County Council's share of the uncommitted income for use in 2005/06 for the agreed purposes.

2.4 A contingency sum of £500,000 was included in the 2004/05 budget for the costs associated with developing the pay and benefits project proposals. This provided funding for the project team within the human resources department in 2004/05 and 2005/06, and for the one-off costs associated with reconfiguration of the payroll system. The latter costs and some of the project team funding requirements have slipped into 2005/06 and it is proposed to earmark the £270,000 from the original sum, which has yet to be allocated, for use for this purpose in 2005/06. In addition a sum was retained within the contingency for the outstanding, mainly Education pay awards, and for Children Act implementation costs, against which there is a saving of £0.1m.

Business rates (-£1,720,000)

2.5 Savings on business rates of £1.7m have been achieved as a result of successful valuation appeals during 2004/05, mainly affecting headquarters office accommodation and schools. The saving in school business rates was higher than predicted.

Capital financing charges (-£72,000) and interest on balances
(-£3,347,000)

2.6 Capital financing costs are very close to the estimate as the average interest rate for the year was 5.345% as compared with the revised estimate of 5.35%. Interest on balances was predicted to be at least £1.5m higher than estimated but continued favourable cash flows have resulted in a larger saving than anticipated.

Winter maintenance (£832,000)

2.7 An overspending of about £1m had been predicted in the previous monitoring report as a result of daily salt runs having taken place throughout the cold spell in February and March. The final position was slightly more favourable than forecast.

Insurance (-£3,766,000 matched by an equivalent reserve contribution)

2.8 The contribution to or from the insurance provision is based on the value of claims paid in the year and the assessed value of outstanding liabilities for the year. Primarily as a result of claims settlements on more favourable terms than had been anticipated, particularly of one large public liability claim, a reduction of £3.8m in the provision for insurance liabilities has arisen.

2.9 However, this only reflects the level of fire reinstatement work carried out in the year, not the level of outstanding reinstatement, and makes no allowance for the contribution of £2.5m from the insurance reserve towards the programme of improvements to primary school provision in Basingstoke, following the Beechdown fire. Substantial fire reinstatement work at Costello Design Technology College and Pinewood schools has still to be undertaken for which fire insurance contributions are in the process of being agreed, but will significantly exceed the balance of £2.8m available within the insurance reserve. It is therefore proposed that the saving of £3.8m in the insurance provision be matched by a corresponding transfer to the insurance reserve, increasing its level to £6.6m at 31 March 2005.

Provision for doubtful debts (+£447,000)

2.10 The County Council's policy is to make a provision against a proportion of debts which are more than one year old proving to be irrecoverable, together with any more recent debts which have to be written off at a later date. After allowing for a specific property related debt from a sub-tenant of £200,000 which falls into this category, the overall provision required at 31 March 2005 is £1,441,000, which is £447,000 more than the equivalent provision in the final accounts for 2003/04.

Revenue contributions to capital

2.11 As explained in Appendix 9, 2004/05 has been another successful year in the implementation of the capital programme, with capital projects valued at £144.7m, starting in the year (86.2% of the programme) and capital expenditure of £208.4m requiring financing in 2004/05. After allowing for a non-recurring effect of a change in policy from financing capital payments to financing capital expenditure (including the value of end of year creditors), the requirement to use local resources to finance capital expenditure in 2004/05 is £1.5m higher than budgeted. This requires full use to be made of revenue contributions to capital together with a contribution of £4.8m from the capital reserve.

Summary - other budgets

2.12 These variations can be summarised as follows:

2.13 Assuming that 50% of service underspendings are retained by the relevant services and that Social Services carry forward its overspending, the overall position is as follows:

3 Proposals for use of balances

3.1 The 2005/06 budget provides for balances of £8.7m at 31 March 2006, £2m higher than the target level in view of the higher risks associated with the 2005/06 budget strategy.

3.2 The risks identified in preparing the 2005/06 budget, in that year and in to 2006/07, left a potential shortfall of £8m to10m, excluding any provision for back pay from the single status and job evaluation process to be concluded in 2005/06. It would therefore be prudent to retain most of the £5.1m potentially available within balances until the position both in relation to spending pressures and Government grant becomes clearer when setting the budget for 2006/07.

3.3 However it would also be possible to provide some pump priming, or priority one-off investments from this potential increase in balances. These should be subject to further reports to the relevant Executive members on the business case, value for money and link to the corporate strategy for each priority before commitment.

3.4 Potential use of balances to support higher spending in 2005/06

Table 5: One-off use of balances

3.5 This reduces the contribution to balances from £5.1m to £4.2m, and has the following impact on the level of balances:

4 Earmarked reserves

4.1 Earmarked reserves have increased by £9.2m to £75.7m at 31 March 2005. Details of movements in reserves during 2004/05 and of the protocol for each of the main classes of reserves are set out in Appendix 4.

5 Treasury management

5.1 The County Council's treasury management policy requires an annual report to the Cabinet on the exercise of the treasury management function. Details are set out in Appendix 5.

6 Prudential indicators

6.1 The prudential code for capital finance in local authorities includes a number of prudential indicators for which actual indicators for the year as well as budgeted indicators need to be set by the County Council. Appendix 6 summarises the relevant indicators for 2004/05 together with proposed revisions to future year indicators which result from the outturn for 2004/05 or from changes to the capital programme that have been approved since the capital programme was agreed in February. These revisions comply with the policies adopted when the Prudential Code was approved by the Cabinet in November 2003.

7 Pension Fund accounts

7.1 The separate accounts for the Hampshire Pension Fund are also submitted for approval as Appendix 7.

8 Financial management policy

8.1 The County Council's financial management policy incorporates both the financial planning policies that underpin the County Council's medium-term financial planning strategy and policies relating to the provision of financial services. Appendix 8 highlights the progress made in 2004/05 in implementing the policy.

9 Equalities impact

9.1 An impact assessment has been made on the proposals in this paper and shown that they are not discriminatory.

10 Conclusions

10.1 The recommendations are contained in the decision sheet.

Section 100 D - Local Government Act 1972 - background documents

The following documents disclose facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

Summary of Appendices