Contact: Ejner Knudsen, (01962) 847403; [email protected]

1 Introduction

1.1 This report presents the outcome of the first monitoring review for the 2006/07 financial year, covering the Environment services' revenue budget, which was carried out in consultation with departmental budget holders during the summer.

1.2 The report provides an update of the 2006/07 revenue budget cash limit, taking into account recent budget changes, and gives an assessment of actual expenditure against each of the main service headings. The report then goes on to highlight significant issues that will affect the management of the budget during the course of the year.

1.3 In summary, the overall revenue budget monitoring position shown in this report is satisfactory for this stage in the financial year and the expected outturn for the year is currently shown to be in line with the approved cash limit. However, this forecast assumes that action will be taken as necessary to restrict expenditure in order to offset anticipated pressures on the public transport bus subsidies budget and to fully attain other savings assumptions built into the budget.

1 Corporate strategy

1.1 Monitoring of the Environment revenue budget supports all of the Aims of the Corporate Strategy by focusing financial resources in these areas:

1) Maximising life opportunities

2) Stewardship of the environment

3) Achieving economic prosperity

4) Building strong and safe communities

5) Improving services

6) Developing councillors and staff.

2 2006/007 cash limit changes

2.1 The original 2006/07 cash limited revenue budget for the Environment services, which was agreed by the County Council at its meeting in February, was £99.901 million. A number of changes have subsequently been made to the cash limit:

1) A reduction of £27,000 relating to the transfer of responsibility for the enforcement of the Reservoirs Act, 1975 to the Highways Agency.

2) A budget reduction of £4,000 being this service's share of the further corporate procurement savings of £100,000 included in the overall County Council budget.

3) An increase of £37,000 arising from the transfer of funding for the Environment department's health and safety officer from the Human Resources department.

4) A transfer of £61,000 to the Environment capital programme provision for environmental improvements to partially reinstate planned 2006/07 budget savings. It had been assumed, when the budget was being prepared, that employee savings from within the Landscape and Heritage section would be found from staff whose cost would normally be recharged against the scheme design fee element within the environmental improvements capital allocation. In practice these savings are now being found from posts formerly funded directly from the revenue budget.

5) The allocation of Government planning delivery grant for 2006/07 has now been confirmed at £77,000, resulting in an equivalent increase in the cash limit.

6) An increase of £7,000 arising from this service's share of the unplanned underspendings that arose from the closure of the 2005/06 accounts. It has been agreed that this sum be added to the highways management and support services budget, to help manage additional expenditure expected to arise from planned organisational changes during 2006/07.

7) An allocation of £125,000 of pump-priming grant relating to the Local Public Service Agreement (LPSA) in respect of performance targets for reductions in the number of road casualties, improved cleanliness of land and highways and increased volumes of work diverted from landfill.

8) The estimated call on the central waste management contingency, reflecting additional expenditure arising from the operation of the waste management contract during the first quarter of the financial year, has been assessed at £1,204,000, resulting in an equivalent increase in the 2006/07 cash limit.

9) On 24 July 2006 the Cabinet considered a report reviewing the 2006/07 budget and agreed a number of actions to provide additional balances to cover the risks of a further overspend on Adult Services. This included the acceleration into 2006/07 of benefit realisation savings totalling £500,000 for the pay and benefits review, in advance of implementation, of which this service's share is £55,000.

10) An increase of £33,000 has been made in respect of the management of further corporate sustainability initiatives involving a communications action plan.

11) A number of cost neutral transfers within the overall 2006/07 budget to reflect a number of technical adjustments between divisions of service in order to more correctly account for the cost of the planning and development services, in accordance with the relevant accounting codes of practice.

2.2 The adjusted cash limit, taking into account the above variations, is £101.237 million. The attached appendix provides an analysis of the adjusted budget over the main service headings, together with details of assessed expenditure to 31 July 2006.

2.3 Further adjustments to the cash limit will be made throughout the year to cover the quarterly allocations from the waste management contingency, together with any subsequent budget transfers and adjustments that may be required.

3 Budget monitoring review

3.1 The Environment department's budget monitoring process reflects a wide-ranging approach involving a series of meetings between finance section staff and those departmental officers with budget management responsibilities. During this process plans for service expenditure during the year, together with trends in expenditure and income, are systematically reviewed in comparison to the approved budget, in order to arrive at a provisional forecast outturn for each of the main service headings. The outcome of this process is subsequently reported to the department's management so that any necessary actions can be considered.

3.2 Details of the main issues arising from the first quarter's budget monitoring review are discussed in the following paragraphs.

Highways maintenance

3.3 The 2006/07 cash limited budget for highways maintenance is £24.152 million. Works allocations to departmental and district council budget holders currently amount to £23.456 million, leaving unallocated highways maintenance reserves of £696,000. As in previous years, this sum will be allocated to budget holders on a phased basis to cover the re-pricing of works contracts, together with any other operational pressures, during the year.

3.4 Allowance of £1.0 million was included in the 2006/07 highways maintenance budget to cover the estimated 56% increase in street lighting energy costs arising from the re-tendering of the energy supply contract during 2005/06. Monitoring of actual expenditure trends so far this year suggests that the additional sum should be sufficient to cover this higher energy cost. A sum of £400,000 has also been allocated within the street lighting budget to cover initial consultancy and other preparation costs in connection with the possible future PFI project for street lighting maintenance, and a further £400,000 is anticipated in 2007/08.

3.5 The 2006/07 highways maintenance budget includes an allowance of £350,000 income for the anticipated 1% rebate on the value of completed works carried out through the term maintenance contract during 2005/06. A provisional payment on account of £300,000 has now been agreed with Raynesway Construction Services (RCS) in respect of 2005/06 pending agreement of last year's contract turnover, which was expected to be in the region of £35 million. The total rebate income in 2006/07, including any adjustments for additional income due from earlier years, will be reassessed in due course.

3.6 The C18 road at Stoner Hill, between the villages of Steep and Froxfield (north-west of Petersfield) was closed to traffic on 30 March 2006, following a landslip which took away up to one-third of the road width, over a length of about 20 metres. A second smaller slip subsequently occurred nearby. Work is progressing in preparation for repairs and the subsequent re-opening of the road, which is currently planned for October or November. The cost associated with the scheme, estimated to be up to £1.0 million, is expected to be met by redirecting expenditure.

Public transport

3.7 The 2006/07 revenue budget for public transport support and co-ordination is £6.347 million, including provision of £5.579 million for bus subsidies. In addition, a sum of £1.464 million is available for the provision of rural bus services, in line with the Rural Bus Subsidy grant allocation advised by the Government.

3.8 At the time of preparing the 2006/07 budget in January 2006, further cost pressures in the range £300,000 to £500,000 were expected to arise during the year from planned contract re-tenderings in the New Forest, Havant and Alton areas, together with potential higher expenditure from the de-registration of commercial services where operators decide that certain operations are no longer commercially viable.

3.9 At the decision day meeting on 30 May 2006 the former Executive Member for Environment: South Hampshire and Resource Management agreed a strategy for containing annual bus subsidy expenditure within available budget limits. The approach would involve undertaking a rolling programme of area reviews around the county in advance of the future area tendering timetable, together with the implementation of some general housekeeping contract withdrawals where

services no longer meet the financial criteria for subsidy support. The de-registration of commercial services would continue to be considered on their merit as and when they occur, but adjustments to the overall package of subsidised services, in first instance with the operator involved, would be made to contain higher expenditure.

3.10 Latest monitoring information for public transport support indicates that the estimated higher expenditure during 2006/07 from contract extensions, re-tendering and other minor contract variations could amount to approximately £200,000. However, this is a very provisional figure at this stage pending contract retendering in several areas, the results from which will be considered in October. No significant pressures from the de-registration of commercial services have so far emerged this year, although this still remains an area of potential risk for the management of this budget.

3.11 Any higher expenditure during 2006/07 from contract re-tendering or commercial de-registrations would need to be contained within the approved budget limit by implementing various measures in line with the approved strategy set out above. Subsequent to the adoption of this strategy, an initial package of economies in supported bus services, producing estimated savings of £200,000 in a full year, has been approved by the former Executive Member for Environment: South Hampshire and Resource Management at his decision day meeting on 25 July 2006.

Management and support services

3.12 The overall budget for management and support services is £23.470 million, mainly representing the running costs of the Environment department, together with the remaining agency arrangements with the district councils.

3.13 Additional expenditure of £151,000 on temporary and other contract staff within the department's highways units has been identified during the budget monitoring review to help design and implement the 2006/07 structural maintenance programme which was set at a higher level than originally assumed in the calculation of the 2006/07 base budget. This additional expenditure will be fully covered from the fee allowance for scheme design and supervision included in the capital maintenance programme.

3.14 A number of savings targets were incorporated in the make-up of the 2006/07 management and support services budget, including premises and staff savings within network management, lower advice and advertising within the traffic management section, a reduction in the intelligent transport systems (ITS) operational budget and lower IT costs. These savings were in addition to the normal allowance for incidental savings from staff turnover and other housekeeping efficiencies included each year in the construction of the base budget. Most of the required savings have now been identified and implemented or are expected to be achieved in accordance with the budget plan. The attainment of these savings will however need to be carefully monitored throughout the remainder of the year and appropriate action taken, as necessary, to ensure that expenditure is managed down through vacancy management and the identification of further housekeeping savings.

3.15 Monitoring of the management and support services budget is currently based on the departmental staffing structures that were in place when the 2006/07 budget was originally prepared and makes no allowance for cost changes arising from the forthcoming implementation of the department's Area/HQ review of highways and transportation service delivery arrangements. It is envisaged that additional ongoing savings will be achieved from this review in due course, once transitional costs have been covered, which will help in addressing anticipated budget pressures in 2007/08.

Waste management

3.16 The waste management revenue budget is divided into two separate categories for budget monitoring purposes:

· The waste contract related services, including trade waste income and recycling credits.

· The other non-contract related waste management services covering facility maintenance, administration, promotions and developments, disposal of abandoned vehicles, the natural resources initiative and provision for household waste recycling centre (HWRC) management.

Waste contract related services

3.17 The 2006/07 approved waste contract related services budget is £39.538 million and was based on estimated expenditure commitments at the time it was prepared, during November 2005. In accordance with corporate budget guidelines, no allowance was included in the 2006/07 base budget for growth in waste volumes beyond predicted 2005/06 levels, nor for future price increases, changes in landfill tax or other contract pressures. As these factors are principally demand led, or subject to long term contractual obligations, there is very little scope within the management of the budget to vary expenditure. The estimated cost of these pressures is therefore covered by an annual amount set aside in the County Council's central provision for inflation and other contingencies.

3.18 For 2006/07 a sum of £4.800 million has been included in the central contingency to cover these inescapable service pressures. Periodic allocations will be made throughout the year to increase the waste management cash limit, based on quarterly assessments of cost increases on the contract and related services' budget.

3.19 The overall growth in waste volumes during the first three months of the year was 0.7%, which was lower than the allowance of growth of 2.5% provided in the central contingency. Within this figure, waste volumes from household collections fell by 0.7% compared to a year earlier. On the other hand, civic amenity waste from household waste recycling centres rose by 3.8%. However, it is too early to predict whether these trends will continue across the full year.

3.20 The overall call on the £4.800 million central waste contingency has been assessed at £1,204,000 for the first quarter of the year, leaving just under £3.6 million to cover higher waste contract costs during the remainder of the year. It is currently estimated that total expenditure during 2006/07 on the waste contract and related services will be contained within the overall budget allowance, including the contingency sum.

Other waste management services

3.21 The total 2006/07 budget provision for the non-contract waste management services is £3.528 million. As with the contract related services, it is difficult to currently predict with any certainty the outturn for this part of the waste management revenue budget, which includes volatile services such as the disposal of abandoned vehicles. Although the abandoned vehicles budget was underspent by £46,000 during 2005/06, annual expenditure levels tend to vary year-on-year and are largely dependent on external factors such as the buoyancy of the market for scrap metal. At present it is reasonable to assume that overall expenditure on the non-contract related waste management services during 2006/07 will be contained within the overall cash limit.

4 Impact assessment

4.1 Monitoring of the Environment revenue budget benefits all sectors of the community as it helps to ensure that the department's services are delivered in a cost effective manner within overall corporate budget guidelines. As such, proposals in this report are not considered to be discriminatory.

5 Conclusion

5.1 A number of adjustments have been made to the Environment services' cash limit, increasing the overall revenue budget by £1.336 million to £101.237 million. The most significant item is an allocation of £1.204 million for the first quarter's call on the central waste management contingency relating to the operation of the waste disposal contract during the first three months of the year, although there are also a number of other largely offsetting changes.

5.2 Highways maintenance revenue reserves currently total £696,000. Phased allocations to departmental budget holders will be made during the remainder of the year to cover re-pricing of contracts and to meet other operational requirements and priorities.

5.3 Budget pressures of approximately £200,000 could arise on the public transport budget during 2006/07 from contract re-tendering and extensions. Action is being taken to contain expenditure within the approved public transport budget allowance by implementing various measures in line with the approved strategy. Any further pressures arising from the de-registration of commercial services would need to be similarly managed.

5.4 On the management and support services, most of the target savings included in the make-up of the 2006/07 budget have now been identified and implemented or are expected to be achieved in accordance with the budget plan. However, the attainment of these savings will still need to be monitored carefully and action taken to further manage down expenditure where appropriate.

5.5 The growth in waste management volumes during the first quarter of 2006/07 was 0.7% which was lower than the overall growth allowance of 2.5% included in the budget. Expenditure on the waste management services is currently expected to be contained within the overall budget sum, including the £4.800 million waste contract contingency.

5.6 The overall revenue budget monitoring position, taking into account the above, is considered satisfactory for this stage of the financial year and the projected outturn is currently shown to be in line with the cash limit.

Recommendation

That the actions being taken to manage the cash limit before the budget is revised later in the year be approved.

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.

i) Environment Department Management Team: 12 July 2006 - Revenue Budget Monitoring 2006/07.

Appendix

Environment

Revenue budget 2006/07 - monitoring statement

Analysis of variations