Appendix 3

1 Expenditure Outside Service Cash Limits

1.1 Table 1 below provides a detailed schedule of the variations on budgets outside service cash limits, which is summarized in Table 3 of the report

Table 1

Waste management (£-400,000)

1.2 The revised budget incorporated allocations of £1,506,000 to the Environment Service in respect of cost increases on the waste management contract during the first six months of the financial year. Subsequent allocations totalled £1,944,000, so that the overall allocation for the year amounted to £3,450,000, £400,000 lower than the sum of £3,850,000 included in the budget. The main reason for the underspending is that savings of £377,000 in the cost of disposal of abandoned vehicles have been achieved against the revised budget and these savings have been available to offset some of the cost increases in the contract.

Pay and Recruitment and Children's Act (-£149,000)

1.3 A contingency sum of £218,000 was retained within the revised budget to cover the cost of pay increases above 2.5% in respect of the 2004/05 Soulbury and Youth Worker pay awards which had still to be agreed and to cover further possible corporate start up costs relating to the implementation of the Children's Act. Further allocations of £69,000 were made to cover the excess cost of the agreed Soulbury, and Youth Worker pay awards in 2004/05 (£17,000) and additional Children's Act costs mainly relating to the recruitment of the new directors (£52,000) leaving £149,000 of the contingency unallocated.

Second Homes Income (£-985,000 offset by reserve transfer of £985,000)

1.4 The County Council's share of the additional income generated by reducing the second homes council tax discount amounted to £1,160,000. The income derived in Fareham (£97,000) and half of the income in the Test Valley area (£78,000) was used to finance expenditure in 2004/05 but the balance of £985,000 was uncommitted at 31 March 2005, although the majority of the income had been earmarked to support affordable housing for key workers in the New Forest and East Hampshire and a specialist housing occupational therapist post in Eastleigh. It is proposed to transfer the uncommitted sum to an earmarked reserve.

Pay and Benefits project (-£270,000 offset by a reserve transfer of £270,000)

1.5 The 2004/05 budget included a contingency of £200,000 for the Pay and Benefits project staffing, £100,000 for consultancy support, and £200,000 for the cost of reconfiguring the payroll system for the new pay structure. The delay in finalising the proposals has meant that reconfiguration has been deferred to 2005/06 and £70,000 of the project team main funding requirement has also slipped to 2005/06. A transfer of this uncommitted sum to an earmarked reserve is also proposed.

Business rates (-£1,720,000)

1.6 Successful appeals against Business rate revaluations have generated refunds of £0.6m in respect of schools and £1.1m for headquarters office accommodation.

Capital financing charges (-£72,000)

1.7 The saving of £72,000 against the revised budget is summarised in Table 2 below.

Table 2

1.8 Short term interest rates in the latter part of the financial year were very close to the budgeted assumptions, and the average rate of interest payable for the year at 5.345% was within 0.005% of the estimate in the revised budget.

Interest on revenue balances (-£3,347,000)

1.9 Interest on revenue balances is difficult to forecast with accuracy as relatively small changes associated with the large cashflows associated with payments and receipts can have a significant impact on the internal resources available to earn interest from day to day. An underspending of at least £1.5m had been forecast in the latest budget monitoring report, but in the event cashflow movements were even more favourable than assumed. The larger saving also reflected interest received on business rate and VAT refunds.

Revenue contributions to capital (-)

1.10 The revised capital financing plan for 2004/05 required the use of revenue contributions to capital of £26.1m and allowed for a contribution of £4.6m to the capital reserve. However a technical adjustment required to bring the financing of capital onto an expenditure basis from the payments basis of the previous capital controls, the restructuring of the financing of the ENHANCE project, together with other more minor changes in the balance between service revenue and capital spending, resulted in an adjusted requirement for revenue contributions to capital of £12.5m together with a contribution of £3.3m from the capital reserve

1.11 Capital expenditure in 2004/05 was £5.6m more than forecast and after allowing for changes in borrowing approvals, capital grants, external contributions and capital receipts, payments to be funded from revenue contributions was £1.5m higher than forecast, requiring a contribution of £4.8m from the capital reserve. Table 3 sets out the changes to the revised financing plan.

Table 3 - Revenue Contributions to Capital in 2004/05

Insurance provision (-£3,766,000 offset by equivalent reserve contribution)

1.12 The assessed value of outstanding liability claims was £4.3 lower at 31 March 2005 than at the end of the previous year as a result of claim settlements on more favourable terms than predicted, while claims paid in the year were £0.5m higher than the premiums paid by services. There was therefore a saving of £3.8m in the insurance provision required, as set out in Table 4 below:

Table 4

	Buildings £000	Liabilities £000	Total £000
Provision at 1 April 2004	-	9,634	9,634
Premiums for 2004/05	2,610	4,070	6,680
Payments charged to provision	-3,134	-4,101	-7,235
Outstanding provision at 31 March 2005	-524	9,603	9,079
Outstanding liabilities at 31 March 2005	-	5,313	5,313
Variation in provision required	524	-4,290	-3,766

1.13 Though in accounting terms there are no liabilities for which a provision is required in the accounts in respect of damage to the County Council's own buildings, there is nonetheless a continuing high level of commitments in 2005/06 or in later years in respect of fire damage reinstatement in schools, in particular arising from fires at Costello Design Technology College and Pinewood Schools. In addition a contribution of £2.5m has been made from the insurance reserve towards the programme of improvements in primary school provision in Basingstoke, following the Beechdown Fire, reducing the insurance reserve to £2.8m. It is therefore proposed that the saving of £3.8m in the insurance provision be transferred to the insurance reserve.

Magistrates' Courts (£111,000, largely offset by increased grant of £95,000)

1.14 The County Council ceased to act as paying authority for the Magistrates' Courts Committee on 1 April 2005, when responsibility for magistrates courts transferred to a national courts' service. During the course of 2004/05, the Department of Constitutional Affairs increased the Magistrates' Courts Committee's cash limit by £119,000, increasing the County Council's contribution by £111,000 after allowing for the contributions from the Isle of Wight, Portsmouth and Southampton unitary authorities. 80% grant is payable towards this additional expenditure, leaving a net additional cost of £16,000 to be borne by the County Council.

Highways Winter Maintenance (£832,000)

1.15 The County Council's policy is to budget for winter maintenance on the basis of average spending at current prices in the previous four years, with any under/overspending at the year end being outside service cash limits. Spending in 2004/05 was £2,924,000, £832,000 above the revised budget. Though there was no significant snow in the winter of 2004/05, the cold spell in February and March resulted in daily salt runs being undertaken throughout the period. Following a series of relatively mild winters, spending has been significantly above the budget in both 2003/04 and 2004/05, which is likely to result in an increase in the four year average in the next budget cycle.

Flood Protection levies (-£16,000)

1.16 New funding arrangements for Flood Protection were introduced in 2004/05, with the Environment Agency's costs being largely funded directly by Government. However a small residual sum was left within local authority formula spending shares (FSS) for Flood Protection and local Flood Defence Committee retain the power to issue levies on local authorities up to a maximum of three times FSS. The budget was set on the basis that maximum levies would be issued, amounting to £654,000, but actual levies were marginally lower than the maximum.

Mandatory Awards to Students (-£68,000 offset by reduced grant of £48,000)

1.17 Responsibility for paying awards to disabled students has largely transferred to the Student Loan Company. Awards made by the County Council are 100% grant-aided but the County Council is responsible for the cost of any unrecovered grant overpayments.

Doubtful Debts provision (£447,000)

1.18 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 are also likely to have to be written off. Partly because of a specific property related doubtful debt from a sub-tenant of £200,000, an increase in the overall provision of £447,000 to £1,441,000 is required in 2004/05. Table 5 below summarises the data relating to the collection of debt in 2004/05

Table 5

Analysis of Outstanding Debt

Of the total debt outstanding at 31 March 2005, £1.836m had been outstanding for more than 12 months, as compared with £1.931m at 31 March 2004. The increase in debt raised and outstanding in the final quarter was influenced by NHS contributions to ENHANCE, and this accounted for £6.1m of the debt outstanding on 31 March 2005. Irrecoverable debts written off during the year were equivalent to 0.3% of debt settled during the year.

Part-time Pensions claims (-£150,000)

1.19 A provision was made in 2000/01 and increased in 2003/04 to £1.25m to cover potential backdated employers' contributions following a European Court ruling regarding the rights of part-time workers to join pension schemes. The extent of the liability has still to be resolved but the latest estimate of the potential claims indicates that the provision should be reduced by £150,000.

Specific grants (-£47,000)

1.20 The net increase of £47,000 is attributable to additional Magistrates' Courts grant of £95,000 (paragraph 1.14), partly offset by lower grant towards Mandatory Student awards of £48,000 (paragraph 1.17).