Contact: Ejner Knudsen, (01962) 847403, e-mail: [email protected]

1 Introduction

1.1 This report presents the outcome of the first budget monitoring review for 2005/06 for the Environment services, which was carried out in consultation with Environment department budget holders during the summer.

1.2 The report provides an update of the total revenue budget cash limit for the year, taking onto account recent budget changes, and gives as assessment of actual expenditure to date against each of the main budget headings. The report then goes on to highlight significant issues within each of the main service headings which will affect the management of the budget during the course of the year.

1 Corporate strategy

2.1 Monitoring of the Environment revenue budget supports all of the aims of the corporate strategy by focusing financial resources in these areas:

1. Maximising life opportunities

2. Stewardship of the environment

3. Achieving economic prosperity

4. Building strong and safe communities

5. Improving services

6. Developing councillors and staff

2 2004/05 underspending of £15,000

2.1 During 2004/05 there was an underspending of £15,000 on the Environment services' cash limited budget, which was mainly due to lower expenditure on the highways management and support services. A sum of £8,000 has been returned to the 2005/06 Environment revenue budget, which is in line with the corporate policy that enables services to carry forward 50% of any net unplanned underspendings to the following year. The Cabinet decides what use should be made of the remaining 50% of the underspending.

2.2 It is proposed that the £8,000 returned to the 2005/06 Environment revenue budget be added to the cash limit for management and support services, to assist in managing the pressures on this division of service during 2005/06.

3 2005/06 cash limit changes

3.1 The original 2005/06 cash limited revenue budget for the Environment services, which was agreed by the County Council in February, was £93.730 million. A number of changes have been made to the cash limit which are reflected in the budget column shown in Appendix 1:

· The carry forward of £8,000, being this service's 50% share of the 2004/05 revenue underspending, referred to in paragraph 3 above.

· An increase of £11,000 following the confirmation by the Government of the actual amount of special grant awarded to cover additional expenditure on routine maintenance activities relating to the de-trunking of part of the A339 (the total 2005/06 grant is £429,000).

· An increase of £30,000 to the management and support services budget in connection with the Environment services' share of expenditure for the highways land asset project, which has been approved by the Executive Member for Policy and Resources. This project involves the establishment of a digital record of highway land holdings and is aimed at increasing the level of future capital receipts from the sale of surplus highway land and also minimising future claims against the highway authority by more clearly identifying maintenance responsibilities.

· An increase of £931,000 for the estimated call on the central waste management contingency, to reflect additional expenditure arising from the operation of the waste management contract during the first quarter of the financial year.

· A number of cost neutral transfers within the overall 2005/06 budget to reflect technical adjustments between division of service headings in respect of higher environmental maintenance and drainage project fees, changes to the departmental cost centre structure to implement revised accounting arrangement for the Natural Resources Branch and a revised assessment of departmental overheads attributable to the waste management services.

3.2 The adjusted cash limit, taking into account the above variations, is £94.710 million. Appendix 1 provides an analysis of the budget over the main service headings, together with details of assessed expenditure to 31 July 2005.

3.3 Further adjustments to the cash limit will be made throughout the year to cover the quarterly allocations from the central waste management contingency, together with any additional budget transfers and adjustments. This may include a share of the targeted savings of £1.150 million in procurement costs, which were included in the overall County Council budget for 2005/06, but have not yet been distributed to services.

4 Budget monitoring review

4.1 As in previous reviews, the department's budget monitoring process has involved a series of meetings between finance section staff and those departmental officers with budget management responsibilities. Plans for service expenditure during the year, together with trends in payments and income, have been considered in order to arrive at an early forecast outturn for each budget heading. The outcome of this process was reported to departmental management during July.

4.2 Details of the main issues arising from the budget monitoring review are discussed in the following paragraphs.

Highways maintenance

4.3 The 2005/06 cash limit for routine highways maintenance, after taking into account the budget adjustments outlined in paragraph 4 above, is £22.090 million.

4.4 The forecast outturn for 2005/06 includes anticipated income of £300,000 in respect of the 1% discount on the value of completed work carried out through the highways term maintenance contract during 2004/05, which has been added to the highways maintenance general reserve. This sum is a provisional payment on account, pending agreement of the final 2004/05 turnover figure with Raynesway Construction Limited, which is expected to be in the order of £32m. A further adjustment will be made to the programme when the final figure is agreed.

4.5 Highways maintenance reserves currently total £815,000, including £482,000 general unallocated reserves and £333,000 to cover future re-pricing of budgets for inflation. Further phased allocations from these reserves will be made during the second half of the year in accordance with operational highways maintenance requirements.

4.6 Appendix 2 sets out in detail the 2005/06 highways maintenance revenue programme, showing the original programme approved in April, together with the latest amended plan. Details relating to the highways capital maintenance programme are included in the separate capital monitoring report elsewhere on this agenda.

Public transport

4.7 The 2005/06 budget for public transport support and co-ordination is £6,226,000, including a sum of £5,829,000 for bus subsidies. The bus subsidies budget is under considerable pressure this year because of significantly higher costs arising from contract re-tenderings in the Gosport and Fareham areas, together with a number of commercial service de-registrations. The estimated total part-year cost of these contract changes is £279,000 in 2005/06 and would total £347,000 in a full year.

4.8 Action is being taken to manage the position, including the planned withdrawal of support from those bus services which no longer satisfy the existing policy of a maximum subsidy per passenger journey of £2.50. The implementation of these changes would be sufficient to meet the full year impact of the budget pressures, but because they would only take effect from September 2005, there is expected to be a residual shortfall of £93,000 during 2005/06. To avoid making further reductions in services it is proposed to carry this sum within the overall cash limit for the Environment services during the remainder of the year by seeking alternative savings. A number of options are being evaluated and would need to be included in the construction of the 2005/06 revised budget later in the year.

Management and support services

4.9 The overall budget for the management and support services is £24.143 million, mainly representing the running costs of the Environment department together with the remaining agency arrangements with the district councils. For the purposes of presentation, the overall management and support services budget is allocated between highways and transportation, planning and the waste management services in the appendices, in line with the requirements of the relevant accounting codes of practice. However, in practice, this budget is being managed and controlled as one combined departmental budget.

4.10 As in previous years, the budget for the management and support services assumes that savings of approximately 3% will be achieved during the year from incidental staff turnover and the normal delay in filling vacant posts, enabling departmental expenditure to be contained within the available cash limit.

4.11 The initial budget monitoring review for 2005/06, covering the first quarter of the financial year, identified significant projected savings from staff vacancies of approximately £400,000. However these savings have so far been offset by the need for additional provision to cover expenditure on temporary, agency and other contract staff and to offset lower capital fee recharges. Although further savings may be expected to occur as a matter of routine from further staff vacancies and turnover, some direct management action may need to be taken later in the year to fully achieve the required savings that are necessary to balance the budget. This budget is being closely monitored to identify and review the contributing factors.

4.12 Other variations identified during the budget monitoring review include the need for additional expenditure of £229,000 on temporary and other contract staff within the department's highways units, to help implement the highways structural maintenance programme, which was set at a higher level than originally assumed in the calculation of the 2005/06 base budget. This additional expenditure will be met from the additional design and supervision fee allowance arising from the higher highways structural maintenance programme.

4.13 No allowance has so far been made within the management and support services budget to cover expenditure this year in connection with the South Hampshire Rapid Transit (SHRT1) resubmission bid. It is currently estimated that approximately £160,000 would be needed to cover expenditure falling on the revenue budget to cover work carried out by the project team up to the end of July. A further assessment of the project team's costs beyond this date would need to be made in due course as these may also impact on the revenue budget. Options for the accommodation of this expenditure in the budget would need to be considered later in the year when the 2005/06 revised budget is prepared, once the likely revenue costs are clearer.

Waste management

4.14 As in previous years, it is necessary to divide the waste management revenue budget into two separate categories for budget monitoring purposes:

· The waste contract related services, including trade waste income and recycling credits.

· The other non-contract related waste management services covering facility maintenance, administration, promotions and developments, disposal of abandoned vehicles and provision for household waste recycling centre (HWRC) management.

Waste contract related services

4.15 The 2005/06 waste contract related services budget of £36.491 million, was based on estimated expenditure commitments at the time it was prepared in November 2004. No allowance was included in the Environment services' cash limited base budget for any growth in waste volumes beyond predicted 2004/05 levels, nor for future price increases, increases in landfill tax or other contract cost pressures. As these factors are principally demand led or subject to long term contractual obligations, these is very little scope within the management of the budget to vary expenditure. These pressures are therefore covered by an annual amount set aside in the County Council's central provision for inflation and other contingencies.

4.16 For 2005/06, a sum of £4.730 million has been included in the central contingency to cover these inescapable service pressures. Periodic allocation will be made throughout the year to the waste management cash limit, based on quarterly assessments of cost increases on the contract and related services' budgets.

4.17 Waste volume levels during the first three months of the year were lower than expected. Household waste growth levels only rose by 0.3% during the period, well below budgeted expectations of 2.0% growth, whilst levels of civic amenity waste actually fell by 5.3%, compared to a year earlier. Overall, waste volumes were 1.5% lower during the first quarter of 2005/06 than in the corresponding period last year, although it is too early to predict whether this trend will continue across the full year.

4.18 The overall call on the £4.730 million central waste contingency for the first quarter of the year has been assessed at £931,000, leaving just under £3.8 million to cover higher waste contract costs during the remainder of the year. Current projections suggest that overall expenditure during 2005/06 on the waste contract related services will be contained within the overall budget provision.

Other waste management services

4.19 The total 2005/06 budget provision for the other waste management services is £2,939,000, including a sum of £358,000 for the disposal of abandoned vehicles. During 2004/05 total expenditure of £182,000 was incurred on this latter heading and it is possible that some further underspendings will arise during the current year, although this would be largely dependent on external factors such as the buoyancy of the market for scrap metal.

5 Impact assessment

5.1 Monitoring of the Environment revenue budget benefits all sectors of the community as it helps to ensure that the department's services are delivered in a cost effective manner within overall corporate budget guidelines.

6 Conclusion

6.1 A number of adjustments have been made to the 2005/06 revenue cash limit, increasing the overall revenue budget cash limit by £980,000 to £94.710 million. This includes an allocation of £931,000 for the first quarter's call from the central contingency for higher expenditure relating to the operation of the waste disposal contract and an increase of £8,000 from this services' share of 2005/06 underspendings, which have been allocated to the management and support services budget.

6.2 A further adjustment may need to be made to reflect a share of total procurement savings of £1.150 million that have not yet been allocated to services from the allowance included in the overall County Council budget.

6.3 On highways maintenance, a reserve sum of just over £0.8m is currently available for future allocation, including a sum of £300,000 representing a payment on account in respect of the 2004/05 term maintenance contract discount, pending agreement of last year's final turnover figure with Raynesway Construction Limited.

6.4 The public transport bus subsidies budget is under pressure this year because of higher costs following contract re-tendering and de-registrations of commercial services. Action is being considered to contain expenditure by withdrawing a number of services that no longer meet the criteria for subsidy support, but this would leave a residual shortfall of £93,000 in 2005/06, that would need to be managed within the overall Environment's services cash limit. This figure may be subject to change following consultation on the proposed bus service economy measures.

6.5 On the management and support services budget, savings from staff turnover and vacancies have so far been offset by the need for additional provision for temporary, agency and other contract staff, together with lower capital recharges. Management action may need to be considered later in the year to fully achieve the allowance for savings from staff turnover and vacancies assumed in the budget.

6.6 Provision of at least £160,000 will also need to be made in the 2005/06 revised budget for expenditure relating to the SHRT1 resubmission bid.

6.7 Expenditure on the waste management services is expected to be contained within the overall budget sum, including the £4.730 million waste contract contingency. The achievement of further savings on the budget for the disposal of abandoned vehicles would be dependent on external factors such as the buoyancy of the market for scrap metals.

Recommendation

1. That the actions being taken to manage the cash limit before the budget is revised later in the year be noted.

Section 100 D - Local Government Act 1972 - background documents

The following documents discuss 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.

i) Environment Departmental Management Team: 15 July 2005 - Revenue Budget Monitoring 2005/06.

Appendix 1

Environment

Revenue budget 2005/06 - monitoring statement

Analysis of variations

Appendix 2

Environment

Revenue budget 2005/06

Summary showing detailed allocation of highways maintenance budget