Contact: Nick Gibbins, ext 847544, e-mail: [email protected]

1. Introduction

1.1 This report is the first monitoring report for 2005/06 and provides an overview of the position on:

· Policy and Resources own revenue cash limited budgets including an update on the implementation of growth proposals

· Policy and Resources business units

· Policy and Resources capital programme

· the County Council's capital payments and sources of finance

1.2 The budgetary position will require close monitoring and prompt management action in 2005/06 across all budgets, in particular to ensure that the budgeted efficiency savings of £1m are achieved. The main pressure area identified in this review is the budget for the Human Resources Department. In other areas, actions have been identified to contain spending within the cash limit.

1.3 Capital payments for the County Council at this early stage of the year are expected to be broadly in line with the budget forecast of £192m.

1.4 The Policy and Resources revenue budget and capital programme includes financial resources for those central services that support all other County Council services and as such contribute to all the corporate strategy aims.

2. Policy and Resources cash limited revenue budget 2005/06

2.1 The latest cash limit for 2005/06 is £46.4m as set out in Appendix 1, this excludes sums earmarked in the budget, the allocation of which are subject to the approval of the Executive Member. Based on monitoring of expenditure up to the end of July 2005 some pressures in keeping within the cash limit are forecast. These are outlined below.

Chief Executive's Department

2.2 Overall the budgets for which the Chief Executive is responsible are broadly in line with the cash limit after allowing an increase of £66,000 for the Members budget. This is due primarily to the number of Councillors being increased from 74 to 78 at the last election. The budget has also been increased by £49,000 to fund survey work commissioned by the Corporate Communications Unit required for the new public service agreement (LPSA2) to be funded from pump priming grant.

2.3 Plans for achieving the efficiency savings of £196,000 in the budget were reported to the previous Executive decision day. This figure includes a target of £100,000 from refining the Council's democratic procedures including a reduction in the number of member meetings. However, given the implementation timetable for the review reported to the County Council in July, the scope for a significant reduction in the number of meetings this year is limited.

County Treasurer's Department

2.4 County Treasurer's Department is expecting to spend at the cash limit. That said, there are risks to be managed, notably around the £250,000 savings target for the second tranche of SAP Benefit Realisation actions. These depend critically on moving forward quickly with the full implementation of new arrangements for a payroll service centre, which is due to take place when former Treasurer's staff move together with Human Resources staff to Eastleigh in December. There are also risks to be managed around funding of the Treasurer's Training Team, as take-up of SAP courses has been lower than anticipated in the year to date (this in itself is an issue, as it suggests that not all the SAP training required for new starters is taking place).

2.5 The department's spending requirements are relatively independent of activity trends within a year, but transaction volumes are generally fairly constant, but with some increase in line with a long-term trend in the number of members of the Pension Fund. The major new workloads to be absorbed derive from the transitional impacts of Children Act reorganisation and the growing industries of self-assessment and the efficiency agenda.

2.6 To help with the latter, the Cabinet earmarked £60,000 and this is being spent on some backfilling to and a secondment to help with the efficiency agenda, and a consultant to oversee application of Cipfa's Financial Management Model, which will flow into the broader aspects of self-assessment for the 2006 CPA. This exercise will take the form of an extensive survey to assess the nature of financial management practice across the authority, and is recommended by the Audit Commission as back-up for the requirements of the new Use of Resources self-assessment. The Executive Member is requested to agree the allocation of this earmarked sum.

Human Resources Department

2.7 Projected expenditure on Human Resources is currently estimated to be £150,000 above budget. This is due to the later than anticipated implementation of the Pay and Benefits project (£50,000) and additional temporary contracts required to cover absences through ill-health and high levels of maternity leave (£100,000). In order to minimise the financial impact of these pressures a vacancy management scheme is being undertaken. However, without additional funding it is unlikely that savings from vacancy management alone will be sufficient to balance the budget this year.

2.8 Corporate funding for the staff costs of the Pay and Benefits project of £200,000 per annum for 2004/05 and 2005/06 was approved in 2004/05's budget. If it is necessary to retain the current pay and benefits team in place for the remainder of the year, this will create a budget pressure of £50,000. No specific funding has been earmarked in 2005/06's budget for the launch of the new pay framework, and this could cost up to £100,000.

2.9 A combination of continuing ill-health problems in key positions and significantly high levels of maternity leave in senior posts within the department have necessitated temporary short term contracts being put into place to sustain the department through this period. The anticipated additional cost to the department from these arrangements is estimated at £100,000.

2.10 A draft business case for the Employee Relationship Management system has been developed. An evaluation of anticipated operational benefits against investment and future running costs is being undertaken. In addition, the opportunity cost of the ERM set against the possible need to improve other HR infrastructure, such as the Organisational Management structure in SAP is being assessed.

2.11 A significant pressure exists in the handling of Part-time pensions claims for the authority. The Secretary of State for Education has, subject to certain conditions, accepted that employer costs for backdated membership to the Teacher's Pension Scheme will be met by the scheme and not by a direct charge on individual employers. However, the Department for Education and Skills has made clear that where it is not satisfied that its guidance on cases is being followed that employer contributions will fall to be met by individual employers. It is therefore evident that these claims need to be defended in a robust manner. In order to do so it may be required to instruct Counsel. Additional costs of around £300,000 are estimated in order to adequately protect the County Council from estimated liabilities of £943,000, for which funding would need to be identified.

2.12 The budget contains a contingency sum of £110,000 for additional resourcing of occupational health services. Work volumes for the occupational health service have grown significantly. Since an initial review of the service in 2002/03 there has been a growth in pre-employment assessments of some 66% (4717 in 2004/05); health assessments (referrals) have increased by 33.5%. Reasons for the increase in workloads include an increased awareness of the need to have pre-employment assessments, an improved recruitment process, an increase in headcount, a slight increase in staff turnover and an improved referral process. An increase in the number of complex mental health cases has required more resource and lengthier case management, and this trend seems likely to continue. Further work is underway to develop key performance indicators for the service, but the benefits of the County Council's initial increased investment in the occupational health service are reflected in a number of cases where pre-employment assessments have prevented inappropriate appointments being made to work with vulnerable clients, and in the County Council having the second lowest ill health retirement rate in the Hampshire Pension Fund. The Executive member is requested to agree the allocation of the contingency sum.

2.13 CMT has also approved the provision of additional Employee Support Line counselling sessions for the County Council. The costs of this increased provision will be funded by increased charges to departments.

2.14 SAP realisation benefits savings of £50,000 are required from recruitment advertising expenditure this year. At present the department is on target to achieve this target.

2.15 The Cabinet earmarked some additional sums from the underspending in 2004/05 for initiatives being managed by the HR department. £20,000 was identified for Equalities, to respond to the statutory duty to promote race, disability and gender equality. This will cover specifically the external validation of the Equalities Standard for Local Government, to meet the target of achieving Level 3 by March 2006 and associated communication activity, in redeveloping publications, the website for internal and external stakeholders and supporting the work of the Corporate Equality Group. £55,000 was made available for pre-employment checks, as the existing Occupational Health Service resource was inadequate to meet the County Council's statutory requirement to undertake health assessments of staff working with vulnerable children and adults. These assessments enable physical or mental health issues to be identified before appointment, protecting the County Council, the individual and vulnerable client groups. The additional funding has enabled additional qualified nursing and administrative resources to be employed to reduce the backlog of assessments, while a wider review of the service is in progress.

£21,000 was allocated to support the Futures Group. This group was established under the auspices of the Leader of the Council to bring together a number of highly motivated staff at junior management level who were identified by Chief Officers as potential senior managers of the future. The group will have three events per year with the intention of fostering innovative thinking on a range of topics as well as providing a development opportunity for the staff involved.

The Executive Member is requested to agree the allocation of the earmarked sums.

Property Business and Regulatory Services

2.16 It is currently estimated that it will be possible to manage net expenditure for the department within the overall budget but there are a number of emerging pressures detailed below.

2.17 The Accredited Community Safety Officers service has been operating for just under a year and its performance has been very well received by a number of stakeholders. However it is now evident that staffing costs, in particular allowances for out of hours working, will be higher than originally anticipated and that annual income from fixed penalty notices will be lower. The gap between 2005/06 budget and projected outturn is currently forecast at £70,000 but it is anticipated that this figure could be reduced by a series of one-off measures in 2005/06.

2.18 The Scientific Service has had a noticeable reduction in income from external clients this year. The precise impact is difficult to assess at this relatively early stage but any loss of external income will clearly have an adverse impact on the budgetary position and capacity to provide the statutory requirements associated with this service.

2.19 As in previous years, the costs of securing properties awaiting disposal mean that the Corporate Estate budget is likely to be overspent. In the past this position has been alleviated by an additional allocation as part of the capital receipts programme but without this additional support security costs will be £86,000 overspent.

2.20 The position on Office Accommodation for 2005/06 will be tight with the full year effect of new properties and higher energy costs but one-off measures, principally the agreed carry forward of £200,000 from 2004/05 should mean that the outturn is in line with cash limit however the underlying pressure on this budget remains.

2.21 Repair and Maintenance inflation continues to run well ahead of RPI with levels of 6-7% likely to persist into 2006/07. Pressure on this budget is strongest in the non-Education sector which has not benefited from the passported funding arrangements applicable to schools. As in previous years the budget includes a winter contingency provision to protect the financial position in the event of unforeseen circumstances and in addition to this the Department will aim to contain costs within cash limit by concentrating resources on statutory and emergency work.

Other non-departmental Policy and Resources budgets

2.22 No significant variations on non-departmental budgets have been identified in this review.

2.23 Additional funding was earmarked by the Cabinet from 2004/05's underspending for two specific grants.

Trinity Centre, Winchester (£100,000) - The Trinity Centre is a registered charity which provides support for people experiencing the effects of homelessness, drugs and alcohol dependency. An appeal has been launched to fund the provision of new operational premises estimated to cost £1.7m net of the proceeds from the sale of the charity's existing premises. A grant from the County Council of £50,000 in 2005/06 is proposed subject to equivalent matched funding being raised, together with a further grant of £50,000 towards the last £50,000 of the appeal target.

Citizens Advice Bureau (CAB) (£50,000) - CABs play an important role in supporting the aims of the corporate strategy and currently receive annual support from the County Council and from each of the District Councils totalling £2.1m within Hampshire. Nonetheless the bureau are experiencing considerable financial pressures, in part in developing and maintaining more efficient IT arrangements. A grant of £50,000 to the CAB South East region is proposed to support the upgrading of IT equipment in CAB offices in Hampshire.

Summary

2.24 At the end of July 2005 the main variations from cash limit are forecast to be within the Human Resources Department although the Property, Business and Regulatory Department will experience difficulty in keeping within the cash limit for Accredited Community Safety Officers and the Scientific Service.

3. Business Units

Property, Business and Regulatory

3.1 The position for HC3S continues to be uncertain due to the ongoing loss of income following the adverse national publicity about school meals earlier in the year but initial responses to the new menus for the autumn term have been very encouraging and the other businesses are continuing to perform strongly. The current forecast for the business units overall is that the target surplus of £286,000 will be achieved but the final results will be determined by the extent of the improvement in HC3S's position.

IT Services

3.2 IT Services are currently forecasting a trading deficit in 2005/06 of up to £750,000 which would result in a carried forward deficit of £250,000 after application of the current IT reserve brought forward. This deficit can be recovered over the next two years through charges for services. The reason for the deficit is that IT Services averages its costs over a number of years in order to provide customer departments with stability in costs. During 2005/06 IT Services has been required to absorb a range of additional and unforeseen costs for which no service funding is available. These include the continuing costs of Babbage House in Andover, additional capital charges and higher than expected external consultant costs because of the difficulty in recruiting some key skills. IT Services is also investing around £200,000 in the current year in the SAP improvement programme to enable more widespread exploitation of the technology and hence to contribute to departmental benefits realisation targets.

4. Policy and Resources capital programme

4.1 Following the approval of the carry forward of schemes totalling £3.6m from 2004/05, the Policy and Resources capital programme for 2005/06 amounts to £46.5m, as set out in Appendix 2. The capital repairs programme, including New Deal for Schools, totals £27.2m and is controlled on an expenditure basis. The balance of £19.3m, including £14.1m for North Popley infrastructure, in controlled on a starts basis.

4.2 As at 31 July, expenditure on capital repairs totalled £7.5m, and schemes to the value of £14.4m had started, representing an overall commitment of £21.9m.

5. Overall capital payments and sources of finance

5.1 The capital financing plan approved by the Cabinet in February was based on projected capital expenditure of £191.6m in 2005/06.

5.2 Capital expenditure to 31 July 2005 totalled £32.7m. It is too early in the year to be able to forecast with any certainty the likely outturn level of capital expenditure, but based on previous capital expenditure profiles, there is no reason to anticipate that expenditure will vary significantly from the planned level.

5.3 Inclusive of the in-and-out schemes, capital receipts of £20.5m are allowed for in the latest financing plan. Actual capital receipts to 31 July 2005 amounted to £3.5m. Success in achieving the forecast, or an outcome close to the estimate in 2005/06, will be dependent upon progress in completing a few significant disposals.

6. Recommendations

6.1 To note the current position on the monitoring of the revenue budget and capital programme.

6.2 To agree the allocation of £110,000 from the contingency for occupational health services.

6.3 To approve grants to the Trinity Centre, Winchester (£100,000) and to Citizens Advice Bureau for IT equipment (£50,000) from the sums earmarked by the Cabinet in June 2005.

6.4 To agree further additions to the 2005/06 Policy and Resources cash limit from sums earmarked by the Cabinet in June 2005 for:

	£000
Finance input to efficiency plans and revised Comprehensive Performance assessment requirements	60
Pre-employment checks	55
Equalities strategy	20
Futures Group	21

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.

Appendix 1

Policy and Resources Revenue budget - latest 2005/06 cash limit

Appendix 2

Policy and Resources 2005/06 capital programme