Explanatory Foreword

1. Introduction

1.1. This document contains Hampshire County Council's statement of accounts for the year ended 31 March 2006. The pattern of presentation of the statement is laid down by a code of practice, which the County Council is legally required to follow.

1.2. This foreword gives:

· a summary of the various statements that make up the County Council's 2005/06 accounts

· a broad picture of where the money comes from and what it is spent on

· a summary of revenue expenditure on services and capital expenditure on new assets over the course of the year.

2. Summary of statement of accounts

2.1. The accounts for 2005/06 are set out on pages 8 to 71. They consist of:

· Statement of accounting policies

· Statement on the system of internal control

· Statement of responsibilities for the statement of accounts

· Consolidated Revenue Account - this covers income and expenditure on all services

· Consolidated Balance Sheet - this sets out the financial position at 31 March 2006

· Statement of total movements in reserves - this sets out how reserves have changed and been used during the year

· Cash flow statement - this summarises all cash coming in or going out for revenue and capital purposes

· Pension Fund accounts- these are the accounts of the pension fund, which is operated for employees of the County Council, Hampshire unitary and district councils and other bodies.

3. Where the money comes from

3.1. Most of the County Council's income comes from general Government grant, a share of national business rates and the council tax. In addition, specific Government grants pay directly for certain services, and fees are charged to customers for some services. Interest is earned on day-to-day balances.

3.2. The proportion of the Council's income obtained from these sources is as follows:

There was no significant change in the balance of income obtained from local and national taxes and from fees and charges in 2005/06. However general government grant was reduced to compensate for increased income from the national business rate pool.

4. What the money is spent on

4.1. Type of expenditure

4.2 Service shares of gross revenue expenditure

5. Employees

5.1. In 2005/06 the County Council employed 38,849 people, making the Council one of the largest employers in the county. Many of these employees work part-time, and in full-time equivalent (fte) terms, the total number of employees was 26,139 at 31 March 2006. The March 2005 data has been adjusted for an under-recording of school- based employees by 438 fte and additional school-based employees, funded from schools delegated budgets, account for most of the increase in 2005/06.

6. Summary of the year - Revenue account

6.1. 2005/06 has again been a challenging year for the management of the County Council's finances, in particular in dealing with the impact of increased social care demand pressures, which have developed during the course of the year. The initial organizational changes required to the provision of Education and Social Services by the Children Act were also implemented during the year. The Government for the second year in succession allocated additional Revenue Support Grant on a non-recurring basis and this enabled the County Council to set a budget with the lowest increase in its local tax for 35 years. Despite the pressures on the budget, the County Council has continued to improve the quality of its services and improvements have been made in more than half of the Best Value performance indicators. The County Council has also been successful in meeting nearly half of the stretching targets in the first Local Public Service agreement, generating reward grant of approximately £10m. Efficiency improvements assessed at £19.8m (3.4%) have been identified in 2005/06 and incorporated in the Annual Efficiency statement.

6.2. The County Council also maintained an excellent rating from the Audit Commission in the Comprehensive Performance Assessment for the fourth year running, despite the `harder test' introduced in the 2005 assessment.

6.3. The main components of the 2005/06 budget, revised budget and actual income and expenditure are set out below:

6.4. The budget requirement for 2005/06 was set at £1,107.9m, an increase of 4.7% on the adjusted budget for 2004/05. The budget was influenced by the continued gradual removal of Education damping designed to limit the effect of the new grant distribution formula introduced in 2003/04 on schools, which resulted in the County Council again receiving a below average increase in Government support. As a result of the additional non-recurring grant announced by the Chancellor of the Exchequer in December 2004, it was possible to contain the increase in council tax in 2005/06 to 3.5%. The budget continued the policy of passing on the increases reflected in the County Council's formula spending share for schools and Social Services to those services, representing an increase of £19.6m above the cost of inflation. Cashable efficiency savings of £7.6m were identified for retention within the relevant service as a means of meeting demand and legislative pressures not accommodated within the budget guidelines for services other than Schools and Social Services. The overall budget incorporated efficiency improvements and other savings totalling £16.1m. The budget incorporated a contribution of £5.9m from the grant equalisation reserve proportionate to grant loss to phase the impact of grant loss on the Council tax and included a contribution to a new modernisation, restructuring and efficiency plan reserve of £12.7m,partly funded from increased balances as a result of savings achieved in 2003/04 and 2004/05.

6.5. In June 2005 the final accounts for 2004/05 were reported. Net operating expenditure was £11.7m below the revised budget. Half of the savings in service cash-limited budgets, the reduction in the insurance provision, uncommitted council tax second homes income and additional trading unit surpluses were transferred to earmarked reserves, totalling £7.2m, so that the revenue account balance was £4.5m higher than forecast at 31 March 2005 at £17.6m. Additional non-recurring expenditure of £0.9m was agreed in 2005/06 leaving the remaining £3.6m to be retained in balances in view of the uncertain prospects for 2006/07 and 2007/08, together with £0.6m from the carry forward of service overspendings from 2004/05. This resulted in estimated balances of £12.9m at 31 March 2006.

6.6. When services revised their budgets in the autumn, savings of £0.6m on Children's services, Environment and Policy and Resources were earmarked to be carried forward for use in 2006/07. Management action was planned to contain Adult Social Care spending pressures but the risk of an overspending of up to £4m was also identified and contingency provision was made in the 2006/07 budget to recover a potential overspend. Savings of £3.1m on non cash-limited budgets were also forecast mainly as a result of lower interest rates and higher interest on balances. These savings were partly offset by the need to allow for a £0.4m reduction in Government grant as a result of the issue of an amending report for 2005/06. A decision was also taken to make a contribution of £5.7m to the Pay and Benefits transitional cost reserve in order to increase to £10m the sum earmarked for back pay costs. The effect of these changes was to reduce the forecast revenue account balance at 31 March 2006 by £3m to £9.9m.

6.7. Following the approval of the revised budget, subsequent monitoring of the Adult Social Care budget indicated that spending pressures were higher than forecast and that management action was unlikely to be successful in containing spending and a projected overspending of £10m or more was reported in February 2006.At the end of the year despite an Adult Services overspending of £11.1m, net operating expenditure was £1.5m below the revised budget. Part of the reduction in the insurance provision, together with income from sale of landfill allowances and Public Service Agreement reward grant were transferred to earmarked reserves, a total of £7.2m. The resulting overspending of £5.7m led the revenue account balance to fall to £4.2m at 31 March 2006.

6.8. The table below analyses the main factors:

6.9. Allowing for the planned use of balances in the 2006/07 budget to finance non-recurring spending and the carry forward of small overspendings on services other than adult social care, balances at 31 March 2007 are forecast at £3.5m, £3.5m below the target level. A decision was taken not to carry forward the Adult Social Care overspending as part of the recovery plan for the service.

7. Summary of the year - capital expenditure

7.1. In 2006/07 the County Council spent £184.8m on capital projects, £2m less than the revised budget.

7.2. Spending on schemes financed from Government grants, supported borrowing and contributions from developers and outside agencies was £3.4m lower than forecast. Payments on locally resourced projects were £1.4m higher than estimated.

7.3. Capital receipts available to finance capital expenditure in 2005/06 were £5.2m higher than expected and £3.6m more was spent on projects financed from revenue reserves and unsupported borrowing. So the requirement to use unsupported borrowing to cover a temporary shortfall in local capital resources in 2005/06 was £7.4m lower than anticipated at £1.9m.

7.4. Spending financed from supported borrowing amounted to £40.9m, supplemented by increased unsupported borrowing of £12.5m . Repayment of debt amounted to £18.8m. Potential outstanding borrowing for capital purposes to be serviced by the County Council now amounts to £493.5m, together with extra debt of £46.8m for services transferred to the unitary and other authorities. The Council is able to borrow on a day-to-day basis from internal resources, such as the revenue account and earmarked reserve balances. Net of temporary investments, £302.1m (an increase of £36.7m on the previous year) was owed to external lenders at 31 March 2006.

8. Changes

8.1 The County Council ceased to contribute to the costs of the Magistrates Courts Committee when responsibility for funding the service passed to the Department of Constitutional Affairs from 1 April 2005.

9. Further information

9.1. You can get more information about the accounts, and the related companies, from The County Treasurer, Hampshire County Council, The Castle, Winchester, SO23 8UB, telephone (01962) 847533, e-mail [email protected].