Contact: Paul Carey-Kent, (01962) 84 7525; [email protected]

1 Introduction

1.1 This Committee has previously expressed a desire to scrutinise forward budget issues before the Cabinet sets the guidelines for consideration by individual Executive members, so that it might influence the Cabinet's consideration of those guidelines on 18 December. The Government, having previously declared its intention to publish settlement details by mid-November, is not now expected to do so until early December. This confirms that the 4 December meeting of this Committee will be too early to consider the forward budget in a context informed by the settlement. Consequently, the opportunity is being taken to bring a set of papers setting out the key budget issues as they stand at present. It should remain the case that any broad strategic views expressed at this stage will remain valid for the process as a whole.

1 Information provided

1.1 An overview presentation will be made at the meeting. The detail of the relevant budget issues as they stand at present is set out in the attached report on the medium-term financial strategy, provisional budget strategy and budget consultation considered by the Cabinet on 25 July 2005. The Cabinet accepted that the options set out in paragraph 6 of that report should form the basis for consulting on a provisional budget strategy for 2006/07 and 2007/08 and that the consultation arrangements for the Autumn should be agreed by the Chief Executive and County Treasurer in consultation with the Leader.

1.2 Since then, the Government has decided to defer the council tax revaluation, which was thought likely to have an impact on grant distribution and council tax increases in 2007/08 under the current funding system, but has proposed three significant other changes as reported to Cabinet on 26 September and attached as background to this agenda:

· A review of the formula grant distribution, reported along with the County Council's proposed response, which was agreed. These proposals were made after the consideration of the medium-term strategy in July. If - as is likely - the Government proceeds with the options proposed, then in the longer-term this will reduce the County Council's grant support within the range £9m (2%) to £37m (9%). This repeats the approach taken by the Government in 2003. Due to "damping" arrangements which ensure that a minimum increase is received by all authorities in each year, these proposals are unlikely to materially alter County Council's 2006/07 settlement, but the long-term effects could be significant in deciding how to plan in the medium-term, eg should a reserve be set up to ease the impact of grant reductions in future years, as was done in the previous cycle of formula review?

· details of the Government's proposals to separate out funding for schools, again together with the County Council's proposed response which was agreed. The thrust of these proposals is to reduce the flexibility of local education authorities by introducing a ring-fenced Dedicated Schools Grant on a multi-year basis, and to require the Schools Forum to agree any changes in non-delegated elements of that grant to cover a two year period.

· proposals to change the way that financial allocations for integrated transport are calculated for Local Transport Plans.

1.3 Also attached is the report taken to the Cabinet's meeting on 24 October setting out the major current developments in the Council's capital programme. This, together with the current three-year capital programme in the budget book, give a good overview of activity in this area.

1.4 Taken together, these papers present a comprehensive but relatively detailed overview of the factors to take into account in planning for the next budget cycle. They will be supplemented by an overhead presentation at the meeting. This will be as given to the budget consultation group on 29 October, and will provide a simpler up-to-date overview of the key issues, as they have been presented to council tax payers in line with Cabinet considerations to date.

2 Issues to consider

2.1 The main issue for budget consultation is what balance to strike between a low council tax increase with severe pressure on services, and a higher council tax increase (albeit that would still require that significant savings be made, given the likelihood of capping if the increase exceeds 5%). The key considerations here are set out in paragraphs 6.1 to 6.11 in the medium-term financial strategy paper. The main options may be summarised as follows:

	Percentage increase in:
	Budget	Council tax
2005/06 budget	4.7	3.5
2006/07 budget
· Current strategy	5.4	8.5
· After use of reserve	4.0	6.7
· Base budget increase only	3.4	5.9
· 1% cash education on base budgets	2.4	4.7

2.2 It is assumed in the above table that some further actions could be taken, were base budget the guideline, to reach a level of council tax which would not be capped. It will be apparent, however, that further reductions would be needed beyond the 1% cash reduction option should members wish to position the Council to reduce the future impact of likely grant loss.

2.3 The provisional strategy agreed by the Cabinet in July revolves around the current budget strategy and two alternative options requiring efficiency savings and reductions in spending in order to achieve a lower increase in council tax.

2.4 The current strategy assumes:

· the 2005/06 budget is increased for inflation, based on 2.95% for pay increases, 2.5% for price increases and increased contributions to the Hampshire Pension Fund

· `passporting' of forecast increases in adult and children's social care FSS, but base budget increases for other services with no additional funding of new service developments

· a continued contribution to the modernisation, restructuring and efficiency reserve to cover the outcome of the pay and benefits review, the transitional costs of implementing the Children Act and other legislative pressures and investment required for modernisation, restructuring and efficiency purposes

· any cashable efficiency savings achievable against the service base budget being available for redeployment within the relevant service.

2.5 The further two options revolve around:

· Limiting increases in adult and social care to the corporate inflation assumptions in the base budget

· Requiring all services to achieve savings of 1% against the base budget.

The objective for planning purposes is to seek to identify savings of at least 1% for each service that might be achieved by efficiency savings, either forming part of or being additional to efficiency improvements of at least 2.5% required for the annual efficiency statement (AES).

2.6 Planning for the 2006/07 and 2007/08 budget therefore needs to be based upon the assumption that any high priority developments in services or other inescapable pressures beyond the base budget need to be matched by offsetting savings and that in addition options for achieving savings of up to 1% against the base budget need to be identified.

2.7 In weighing up the options, members may also wish to consider:

· whether there are any broad areas of spending which might be dramatically reduced, or services which could be completely ended. Those kind of approaches could provide the means to achieve more flexibility elsewhere

· whether different means of providing services should be pursued, for example outsourcing or collaboration with other authorities or public sector bodies

· whether the capital programme, for which options for reductions will also need to be sought, might be differently prioritised.

2.8 Members may wish to be aware in formulating their challenges in these areas, that substantial review work is taking place in line with the Gershon agenda. The Corporate Management Team recently prioritised the key areas for this work as follows:

· procurement

· exploitation of the electronic service delivery and
e-government agenda

· staff productivity, concentrating on the improvements to be generated by the Pay and Benefits project and programmes of absence reduction

· capital programme reassessment, concentrating on ensuring that significant capital investments are subject to a rigorous option appraisal, perhaps including a shift towards investing primarily for future revenue benefit rather than to improve the quality of services

· restructuring options for the Waste Management contract

· Supporting People

· generating bottom-up action through staff involvement.

2.9 This will provide streams of work which may be factored into the forward budget strategy in some way.

Recommendations

3 The Committee is asked to consider, in the light of the information provided, what comments and suggestions would wish to make to the Cabinet to inform its consideration of the budget guidelines on the 18 December.

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.

(Quote list of documents here: either "none" if 1 or 2 above apply; or list the relevant letters, memos, etc and their location)