Contact: Jon Pittam, Contact Ext: (01962) 847400

1 Introduction

1.1 The County Council submitted its `forward look' efficiency statement for 2005/06 to the Office of the Deputy Prime Minister (ODPM) on
15 April 2005. The next stage in the new statutory process is to submit a statement reviewing efficiency improvements in 2004/05 to the ODPM by
15 June 2005. Further guidance on the submission was issued by the ODPM on 16 May 2005.

1.2 This report:

· reviews the impact of this guidance

· summarises the efficiency improvements contained in the County Council's proposed submission

· includes (Appendix 1) the submission in the form specified by the ODPM.

1.3 As work on quantifying potential efficiency improvements was not sufficiently advanced to enable the draft statement to be reported to May's Cabinet, the statement was considered by an informal Cabinet meeting on 13 June, having been previously considered by the Policy and Resources Scrutiny and Select Committee, and was submitted to the ODPM subject to formal ratification at this Cabinet meeting.

1 Background

1.1 The Cabinet have received a number of previous reports on the framework being introduced by the ODPM to demonstrate the efficiency improvements of £6.45bn which local authorities have been targeted to achieve over the three years 2005/06 to 2007/08. Excluding schools, the County Council target is at least £14.2m in each of the three years 2005/06 to 2007/08, in order to demonstrate a year on year improvement in efficiency of 2.5%. However local authorities are allowed to include efficiency improvements identified in 2004/05 towards this three year target providing the improvements are expected to last throughout the period to 2007/08.

1.2 The County Council was required to put together its submission of 2004/05 efficiency improvements by 15 June 2005 in order to take advantage of this opportunity.

2 Latest ODPM guidance

2.1 The ODPM's original technical note published in January established the general principles associated with demonstrating efficiency improvements, defining efficiency in terms of reduced inputs for the same outputs, higher outputs for the same inputs or an improved ratio between outputs and inputs. Gains associated with reduced inputs are potentially cashable and the Government's targets require efficiency improvements of at least 1.25% per annum to be in a cashable form. Nonetheless as there are no universally accepted methodologies for measuring efficiency improvements in the public sector, where outputs do not have a market value, an Efficiency Measurement Taskforce was established by the ODPM, including local authority representatives, to provide advice on how the principles of measuring efficiency might be applied in practice. The setting up of the Taskforce was designed to reduce the scope for disagreement in this area.

2.2 The initial findings of the Taskforce were incorporated in further guidance published by the ODPM on 16 May. The guidance provides clarification of the ODPM's approach to efficiency measurement in the following areas, which are discussed in turn

· demonstrating that output levels have been maintained

· the treatment of inflation in assessing a reduction in input prices

· the scope for improvements relating to capital spending and fees and charges

· further consideration being given to treasury management gains.

Maintenance of output level

2.3 The guidance develops the concept of the quality cross-check as the basis for demonstrating that output has been maintained where an efficiency improvement is being claimed on the basis of reduced inputs. For each service grouping or cross-cutting area of activity at least one relevant quality indicator from a list of approximately 50 specified by the ODPM must be cited as evidence that quality has either been maintained or improved in 2004/05. If a local authority is able to identify a more appropriate indicator for any activity it can include an alternative indicator in its quality cross check but will have to justify its use. It remains to be seen how the choice of quality cross-check indicators will be reviewed by the ODPM and the Audit Commission but potentially this is a pragmatic approach to this issue.

Inflation

2.4 The Treasury's general stance on measuring efficiency gains arising from lower input prices as a result of improved procurement is to argue that reductions have to be measured against the increase in the gross domestic product (GDP) deflator, currently running at 1.98%. This makes it very difficult to secure efficiency gains in markets where prices are rising significantly faster than this. The latest guidance indicates that the Treasury are prepared to consider alternative indicators to reflect different circumstances in particular sectors and have already approved some alternative indices for use in the social housing sector. A coordinated approach from local authorities may be worthwhile in seeking to secure Treasury approval of alternative indices in other service sectors, but the Treasury has rejected the Local Government Association's suggested index of local government inflation.

Capital spending

2.5 The guidance from the Taskforce identifies four potential areas for securing improved efficiency from capital spending

· pre-contract costs

· savings in the initial cost of capital assets

· optimising the balance between capital and revenue spending

· improved utilization of assets.

2.6 The guidance confirms that the revenue impact of capital receipts from the sale of formerly operational assets can be regarded as an efficiency gain providing there is no resulting loss of service quality.

Fees and charges

2.7 The introduction of new fees and charges or increases in existing charges, are not accepted as efficiency improvements. However where as a result of increased demand for a service, increased income is generated which exceeds any increase in associated costs, this can be treated as an efficiency gain.

Treasury Management

2.8 The Taskforce has still to finalise its guidance on the measurement of treasury management efficiency improvements, and the ODPM have advised that `for the time being' no treasury management efficiency gains should be included in the 2004/05 backward look AES. The County Council will want to reserve the right to amend the 2004/05 submission once the Taskforce has issued its guidance.

3 2004/05 AES submission

3.1 In view of the short time scale for submission of the 2004/05 AES in relation to the closure of 2004/05's accounts and the late issue of the ODPM's guidance, it was not possible to submit a draft statement to the Cabinet for approval prior to the submission deadline of 15 June 2005.

3.2 The improvements identified within the AES total approximately £11.9m, equivalent to about 2% of the budget, of which approximately £8.1m is cashable and £3.8m is non-cashable, in accordance with the ODPM's definitions. Staffing efficiencies from the absorption of the cost of increments (£2.1m) is included in all services. The main areas covered are:

Education (non-schools) (£1.0m)

· efficiencies in the provision of early years places (£0.5m)

· absorption of loss of income from cessation of VTSC dividend (£0.2m).

Environment (£5.2m)

· non-cashable improvements arising from accident reductions attributable to deployment of safety cameras (£2.9m)

· revenue impact of use of developer contributions to finance capital expenditure (£0.5m)

· increased passenger numbers on routes served by Quality Bus partnerships (£0.3m)

· procurement efficiencies relating to highway maintenance and disposal of abandoned vehicles (£0.5m)

· cessation of historic building grants without a deterioration in the condition of Hampshire's historic buildings (£0.2m).

Recreation and Heritage (£0.7m)

· redeployment of resources achieving improved service outcomes (£0.4m)

Social Care (£2.1m)

· efficiency improvements within the Supporting People programme (£0.9m)

· increased foster care placements (£0.3m).

Central support services and cross-cutting initiatives (£2.9m)

· SAP benefit realisation savings (£0.8m)

· corporate procurement savings (£0.4m)

· construction procurement improvements (£0.2m)

· revenue impact of disposal of surplus operational land (£0.9m).

3.3 Other than to the extent that efficiency improvements contribute to the underspending reported in the 2004/05 Final Accounts, the identification of cashable improvements in 2004/05 has no budgetary implications. Where savings have arisen they have been redeployed within the budget of the relevant service but the majority of cashable improvements relate to the avoidance of costs which were not allowed for in the budget. Only improvements that have the potential to continue throughout the period to 2007/08 have been included within the submission but there is a risk associated with many of them, which needs to be taken into account in the planning of further improvements over the period 2005/06 to 2007/08.

3.4 Nonetheless the identification of improvements equivalent to 2.0% of the Budget in 2004/05 provides a demonstration of the County Council's long term commitment to increased efficiency, as most of the actions which give rise to the improvements predate the publication of the Gershon report and its related local authority targets.

Recommendation

1 To ratify the County Council's AES submission (Appendix) for 2004/05 to the ODPM, which was submitted on 15 June 2005.

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

None