Appendix 7

Annual Efficiency Statement: 2005/06 Backward look

1 Introduction

1.1 Following submission of the Annual Efficiency Statement (AES): 2006/07 forward look on 18 April 2005, the next stage is to submit the AES: 2005/06 backward look to the Department of Communities and Local Government (DCLG), by 6 July 2006. This will confirm 2004/05 efficiency improvements sustained and new gains achieved during 2005/06.

1.2 Further guidance has been issued by the DCLG in May 2006 to assist the production of AES returns.

1.3 This report

· reviews the impact of the guidance

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

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

1.4 Approval is sought to submit the AES to the DCLG.

2 Background

2.1 To confirm, the indicative cumulative efficiency target is to achieve £43.7m improvements by 2007/08. This is marginally higher than the previous three year target of £42.6m and is based on 2004/05 outturn.

2.2 Excluding schools, the County Council target is at least £14.6m in each of the three years 2005/06 to 2007/08, in order to demonstrate a year on year improvement in efficiency of at least 2.5%. However local authorities are allowed to include efficiency improvements identified in 2004/05 towards this three year target, £12.4m has already been achieved.

3 Latest DCLG guidance

3.1 The DCLG have published revised guidance on measuring and reporting efficiency gains. The changes are outlined below.

3.2 The AES 2005/06 backward look deadline has been moved from 14 June 2006 to 6 July 2006. This enables consideration and ratification by Cabinet prior to submission.

3.3 Inflation is to be calculated using the GDP deflator currently at 2.09% except for certain areas. This makes it very difficult to secure efficiency gains in markets where prices are rising significantly faster. For example building construction: despite the Department of Trade and Industry Public Sector Tender Price Index being 6.02% and the Business Cost Information Service General Building Cost Index identifying 2005/06 inflation at 4.89% these indices are not approved for AES calculations.

3.4 Service areas approved to use alternative deflators include Adult social services with a latest index estimate for 2004/05 of 4.7% and within Environment, the road construction index Roadcon is currently at 7%. Both may provide scope for identifying future efficiency improvements, if cost increases can be capped below the recognised inflation rates.

3.5 One-off efficiencies have been defined as: `an efficiency gain which is not present for two full financial years after the year it is generated'. These can be included in the AES but they only count towards the annual target in the year they delivered improvements.

3.6 The presumption is that councils will increasingly put in place projects which drive sustainable gains and that by 2007/08 one-off efficiency gains will not be out of line with previous years and will be no more than 25% of the 2.5% annual target for 2007/08. No one-off improvements are included in this year's backward look, demonstrating a commitment to sustaining efficiency improvements.

3.7 Ongoing gains must genuinely continue over time, with adequate processes in place to ensure those reported in one year are sustained subsequently. It is recommended that the efficiency agenda forms part of core service planning, budget and performance monitoring processes.

3.8 Gershon reporting has been brought into the mainstream and monitoring and review processes are being established across the authority.

3.9 Quality cross check data must be available for both the year in question and the previous year for any performance indicator that it chooses. For example, if a council has had only one CPA inspection, then it cannot choose a CPA crosscheck, even if it is on the approved list. This rules out the Recreation and Heritage residents' survey and the staff satisfaction survey included in last year's backward look. Other quality cross check data will be reported.

3.10 Capital spending guidance has been extended to include gains from leasing/borrowing strategy decisions through 'whole-life' option appraisals. An efficiency gain has been identified through the option appraisal that recommended the purchase of Capital House for decanting staff, rather than the more expensive option of leasing a suitable building.

3.11 Adult Services efficiencies reported in the AES should correspond with efficiencies reported in the Delivery Information Statements (DIS) submitted to the Commission for Social Care Inspection (CSCI). This has been met and the two forms are consistent.

3.12 The auditors appointed by the Audit Commission will report by exception where they have specific and significant concerns about the process followed by the council in compiling the efficiency statement or where the statement is not consistent with the auditor's knowledge of the council obtained through other audit work.

3.13 As part of the Comprehensive Performance assessment a checklist has been developed to assist evaluation of whether "the council manages and improves value for money", one of the "Use of Resources" key lines of enquiry. The Council is developing a Value for Money Strategy which takes account of these external assessment processes, as well as ensuring best value is achieved for Hampshire communities.

3.14 All non-school gains made by LEAs can now be reported through the AES, even though the efficiency baseline for councils is derived on a slightly different basis. These improvements have been incorporated into the 2005/06 backward look, producing gains of approximately £0.9m through home to school transport and special educational needs efficiencies.

3.15 Supporting statements will be required for the backward look if:

· The value for `Miscellaneous efficiencies' is more than 25% of the total value of gains reported.

· The total value for the crosscutting work stream efficiencies is more than 50% of the total value of gains reported.

· The cumulative total value of efficiency gains is less than the target for that year.

· The cumulative total value of cashable efficiency gains is less than the target for that year.

· The quality crosscheck data entered indicates that service quality has declined compared to the previous year.

3.16 Fluctuations in 2004/05 reported efficiency improvements must be reflected in the AES backward look, by reporting each service's gains sustained through 2005/06. Monitoring confirms that some reported gains were overestimated but these fluctuations have been offset by further 2004/05 improvements identified since AES submission. There is no guidance to clarify the treatment of new 2004/05 gains recognised by better processes, so no change to the 2004/05 net sustained improvements is being highlighted.

3.17 CPA scores for some services fell from 2004/05 to 2005/06 due to the `harder test' and changes of criteria. The CPA scores are still being used as quality cross checks but a note is being included in the AES that the apparent deterioration is due to the different CPA model used, rather than a fall in performance. As the majority of performance indicators have improved it is proposed this can be supported, should it be assessed by audit.

4 2005/06 AES submission

4.1 The improvements identified within the AES total approximately £19.8m, equivalent to about 3.4% of the budget, all gains are expected to be ongoing. £15.2m is cashable and £4.6m is non-cashable, in accordance with the DCLG's definitions. Staffing efficiencies from the absorption of the cost of increments (£1.4m) and corporate procurement savings (£1.0m) are included in all services.

4.2 The cumulative total achieved by the end of 2005/06 is £32.2m, of which £23.6m is cashable and £8.6m is non-cashable, £12.4m was achieved in 2004/05 and has been sustained through 2005/06.

4.3 The main improvements achieved in 2005/06 are:

Adult Services (£4.8m)

· domiciliary and residential care provision (£1.9m)

· more efficient use of agency staff (£0.6m)

· more cost effective placements and keen price negotiation (£0.3m)

· reprovision of uneconomic services (£0.3m)

· Supporting people (0.1m)

Children's Services (£2.5m)

· home to school transport (£0.5m)

· special educational needs (SEN) out county placements (£0.4m)

· increased proportion of children looked after in house (£0.4m)

Environmental Services (£8.9m)

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

· avoidance of purchase of Landfill tax allowances (£1.8m)

· highways maintenance procurement (£1.3m)

· revenue impact of use of developer contributions and contractual rebate to finance capital expenditure (£0.7m)

· selling excess Materials Recovery Facility capacity (£0.5m)

· improved recycling (£0.3m)

· renegotiation of contracts (£0.2m)

· increased passenger numbers on routes served by Quality Bus Partnerships (£0.1m)

Policy and Resources (£3.1m)

· IT Services efficiencies, including renegotiation of contracts and replacement of data storage technology (£1.0m)

· SAP benefits realisation (£0.8m)

· HR - corporate advertising (£0.4m)

Recreation and Heritage (£0.5m)

· redirection of policy fund (£0.2m)

· completion of IT2000 roll out (£0.1m)

4.4 Where efficiency gains have arisen they have either been redeployed within the budget of the relevant service, or they relate to the avoidance of costs which were not allowed for in the budget. Despite one-off improvements being eligible for Gershon, the gains included are those that have the potential to continue throughout the period to 2007/08, although there is a risk associated with many of them, which continues to be taken into account in the planning of further improvements over the period 2005/06 to 2007/08.

4.5 During 2005/06 arrangements for identifying and monitoring Gershon improvements have become mainstream through reports to Executive Members and Cabinet, with scrutiny by the Corporate Performance and Efficiency Group to strengthen the integrated approach.

4.6 Improvements equivalent to 3.4% of the baseline budget have been identified in 2005/06, surpassing Gershon requirements and demonstrating the County Council's long term commitment to increased efficiency.