Expenditure outside service cash limits Appendix 3

1.1 The table below provides a detailed schedule of the variations on budgets outside service cash limits, which is summarised in Table 3 of the report.

Table 1

Second Homes income (-£200,000)

1.2 The 2005/06 budget included a contingency provision of £200,000 from the additional council tax income from reducing the discount on second homes for supporting the continuing cost of affordable housing initiatives initially launched in partnership with district councils financed from 2004/05's second homes income. None of the contingency has been committed in 2005/06 as a result of delays in resolving legal, taxation and regulatory issues associated with the launch of Homebuy Schemes, and as a further contingency of £270,000 is included in the 2006/07 budget it is not proposed to transfer this underspending to an earmarked reserve.

Interest rates (-£100,000)

1.3 A sum of £100,000 was retained in the contingency in the revised budget in view of the possibility that short term interest rates would increase before the end of the year. In the event, base rate has remained at 4.5% since August 2005.

Tsunami Team expenses (-£61,000)

1.4 £100,000 was included as a contingency in the 2005/06 budget to cover the expenses of County Council staff travelling to Sri Lanka to assist in relief work following the Tsunami. Costs of £39,000 were incurred during the year.

Waste Management contract and other contingencies (-£197,000)

1.5 The balance of the contingency within the revised budget was earmarked primarily to cover increased costs arising from the Waste Management contract for the third and fourth quarters of the financial year. Though waste volumes grew more slowly than budgeted in 2005/06, higher costs arising from the implementation of the Hazardous Waste Directive have largely offset savings arising from lower growth in volumes. A saving of £26,000 within the contingency has also arisen from the transfer of Reservoirs Act responsibilities to the Highways Agency for which no allowance was made in the budget.

Business rates (-£341,000)

1.6 Successful appeals against business rate revaluations have generated further refunds of £0.3m in 2005/06 mainly in respect of office accommodation.

Capital financing charges (£12,000)

1.7 The increase of £13,000 against the revised budget is summarised in Table 2 below:

Table 2

1.8 Short term interest rates in the latter part of the year were very close to the budgeted assumptions, and the average rate of interest payable for the year at 5.211% was in accordance with the revised budget. This represents a reduction on the equivalent 2004/05 interest rate of 5.345%.

Interest on revenue balances (-£3,592,000)

1.9 Interest on revenue balances is difficult to forecast with accuracy as relatively small changes associated with large cash flows can have a significant impact on the internal resources available to earn interest from day to day. An underspending of around £2m had been forecast in the latest budget monitoring report, but the final outturn was even more favourable than assumed.

Revenue contributions to capital (-)

1.10 The revised capital financing plan for 2005/06 required the use of revenue contributions to capital in full in 2005/06, the balance of £3.6m of the capital reserve, together with unsupported borrowing of £9.3m, in view of the slower rate of progress in generating capital receipts than had been assumed in the original financing plan.

1.11 Capital expenditure in 2005/06 was £2.1m lower than forecast and in conjunction with higher capital receipts of £5.2m than forecast in the revised budget, unsupported borrowing to cover the temporary resourcing shortfall has been limited to £1.8m, £7.5m lower than forecast.

Insurance provision (-£2,866,000 partially offset by a contribution to the insurance reserve of £1.2m)

1.12 The assessed value of outstanding liability claims was £0.5m lower at 31 March 2006 than at the end of the previous year, while claims paid in the year were £2.4m lower than the premiums paid by services. There was therefore a saving of £2.9m in the insurance provision required, as set out in Table 3 below:

Table 3

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 still a substantial level of outstanding fire damage reinstatement in schools, arising from fires at Costello Design Technology Centre, Pinewood School and the Woodlands Centre. It is proposed to transfer £1.2m of the underspending to the insurance reserve, increasing the reserve to £7.3m, sufficient to cover the outstanding claims on these major fires.

Highways winter maintenance (£562,000)

1.14 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 2005/06 was £2,950,000, £562,000 above the revised budget. Despite the absence of any significant snowfall this winter, salting operations took place on a total of 70 days, a higher than average level, resulting in an overspending. Following a series of relatively mild winters, spending has now been significantly above the budget in the last three years, which is likely to result in a further increase in the four year average in the next budget cycle.

Doubtful debt provision (£774,000)

1.15 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. An increase in the provision of £576,000 to £2,017,000 is proposed in 2005/06 mainly reflecting the increase in outstanding debt with the National Health Service, whereas a reduction of £198,000 had been budgeted as a result of the write-off of a specific debt allowed for in the 2004/05 calculation. Table 4 below summarises the data relating to the collection of debt in 2005/06.

Table 4 - Analysis of outstanding debt

1.16 Irrecoverable debts written off during the year were equivalent to 0.4% of debt settled during the year. Quarterly monitoring of information specifically on debts more than 12 months old has been introduced during 2005/06 and at the year end 10.1% of debt outstanding was in this category.

Business Rate growth incentive scheme (-£720,000)

1.17 A minor change to the basis for distributing business rate income was introduced in 2005/06, designed to recognise the alleged disincentive effect arising from the pooling of business rate income, particularly where local authorities are concerned about the adequacy of the resources to fund the public infrastructure requirements associated with the new development.

1.18 A small element of business rate income (less than 1%) has been allocated directly to local authorities in areas where business rate growth has exceeded a threshold based on the historical trend in that area. In 2005/06, six Hampshire districts have experienced business rate growth in excess of their threshold retaining a proportion of the income generated from growth above the threshold. This income is shared roughly 2/3 : 1/3 between the district and the County Council, resulting in payments of £1.3m to the relevant district councils and £720,000 to the County Council.

Landfill Allowance Trading Scheme (-£3,538,000 matched by an equivalent contribution to an earmarked reserve)

1.19 The Landfill Allowance Trading Scheme (LATS) was introduced on 1 April 2005 as a means of seeking to achieve the UK's targets for reducing the landfill of biodegradable waste under the EU landfill directive. Allowances are allocated to Waste Disposal authorities at a level consistent with the targets, being distributed in proportion to 2001/02 landfill levels, each allowance enabling one tonne of waste to be landfilled. Authorities with insufficient allowances to meet their landfill needs can purchase them from authorities with surplus allowances, but otherwise are liable to a fine of £150 per tonne imposed by the Government.

1.20 Because of the early investment in waste disposal and recycling infrastructure through Project Integra, Hampshire (together with Portsmouth and Southampton) are in a relatively strong trading position with substantial surplus allowances available over the first four year trading period. The Cabinet in June 2005 agreed a trading strategy for LATS, involving the ring-fencing of any income received from LATS trading in an earmarked reserve to be used for a combination of reducing cost pressures from the existing waste management contract and to provide scope for further reinvestment in waste infrastructure, subject to satisfactory business cases, in order to avoid future costs.

1.21 During the first year of trading, approximately 234,000 allowances were sold on behalf of the three local authorities at an average price of £19.68, generating income of £4.6m, of which £3.5m is retained by the County Council. In accordance with the policy approved in June 2005, it is proposed to transfer this sum to an earmarked reserve.

Public Service Agreement (PSA) reward grant (-£2,466,000 matched by an equivalent contribution to an earmarked reserve)

1.22 The County Council's first PSA agreement covered the period from 1 April 2002 to 31 March 2005. Reward grant payable for the achievement of targets within the agreement is payable in equal instalments in 2005/06 and 2006/07, 50% as revenue grant and 50% as capital grant. The County Council received £4,992,000 as its first instalment in 2005/06, £2,496,000 as a capital grant and £2,496,000 as a revenue grant. The Cabinet in July 2005 agreed the principles for allocating reward grant:

· £1.5m for the development of the Local Area Agreement

· £2.25m to repay unsupported borrowing incurred in connection with PSA

· The remainder (estimated at £6.2m) allocated to departments in line with the reward grant earned on targets for which the department is responsible

1.23 The capital grant of £2,496,000 in 2005/06 was used to repay unsupported borrowing with the balance of £246,000 being used to fund locally resourced capital expenditure in place of revenue contributions to capital to enable a reserve contribution to be made. £30,000 of revenue expenditure was incurred on the set up costs of the Local Area agreement, which has been funded from the revenue grant, a reserve contribution having been made for the balance of the grant. £2.7m has therefore been transferred to an earmarked reserve, which together with the remaining grant receivable in 2006/07 is available for use in accordance with the policy agreed last July.

Mandatory awards to students (-£116,000 offset by reduced grant of £106,000)

1.24 Responsibility for paying awards to disabled students has largely transferred to the Student Loan Company and the expenditure incurred in 2005/06 is likely to represent the final costs borne by the County Council. Awards made by the County Council are 100% grant-aided but the County Council is responsible for the cost of any unrecovered grant overpayments.