Contact: Nick Gibbins, (01962) 84 7544; [email protected]

1 Summary

1.1 Service cash-limited spending in 2005/06 was in line with the predictions in the last monitoring report in April with a significant overspending of the Adult Services budget and other services spending at levels very close to their cash limits. The net overspending of £11.2m represented 0.9% of budgeted cash-limited spending.

· Higher spending on care for older people (£8.4m) and younger adults (£2.9m) resulted in an overspending of £11.2m against the Adult Services budget, as predicted in the latter part of the financial year.

· Children's Services outturn was in balance with the cash limit as a potential underspending of £260,000 was utilised to meet part of the over commitment on the Children's Services element of the former social services capital programme.

· Environment and Recreation and Heritage's outturns were almost exactly in accordance with the cash limits.

· A small overspending arose on Policy and Resources as predicted in the previous monitoring report.

1.2 Net savings of £5.5m have been achieved on other budgets, which is £2.5m more than the net underspending of £3.0m predicted in April:

· as anticipated from interest on balances, business rates, and business rate incentive income, partly offset by higher spending on winter maintenance of roads, though to a greater degree than forecast

· in addition a net saving on the provision for future insurance liabilities has been achieved after allowing for a contribution to the insurance reserve to cover current commitments to fire reinstatement

· these savings have been partly offset by the need to increase the provision for doubtful debts.

1.3 The County Council's financial management policy allows 50% of unplanned underspendings to be carried forward to 2006/07 and requires services to plan on the assumption that 100% of any overspendings will be carried forward. The policy can be applied to Environment, Policy and Resources and Recreation and Heritage, where the variations involved are manageable, but given the substantial savings that Adult Services will be required to make in 2006/07 to compensate for the full year effect of higher than planned care commitments in 2005/06, it is unrealistic to seek to carry forward the 2005/06 overspending as an additional pressure on the Adult Services budget in 2006/07.

1.4 Allowing for the write off of the Adult Services overspending in 2005/06,the overall reduction in balances is £5.6m to a level of £3.5m, requiring savings of £3.5m to be identified to restore balances to their target level of £7m. However this is based on the risk assessment made when the 2006/07 budget was set, based on an Adult Services projected overspend of £4-£6m in 2005/06. The risks are now greater of an overspend in 2006/07 and the minimum level of balances may need to be increased to cover that risk. This can be determined at the July Cabinet meeting when the recovery plan for Adult Services should be available.

1.5 Earmarked reserves at 31 March 2006 are £11.8m higher than planned, mainly as a result of the increase in the underlying level of school reserves by £3.4m to a level of £38.4m and the proposals for earmarking the use of local public service agreement reward grant and landfill allowance trading income, totalling £6.2m, in accordance with policies agreed by the Cabinet during the financial year.

1.6 Figures may still be subject to some further changes before the Statement of Accounts is submitted for approval by the Governance Committee on 29 June, to meet the new timescale for closure of accounts by the end of June for 2005/06 and future years.

1 Service cash limits

1.1 Variations in service spending against the revised cash limits set out in Appendix 1 are as follows:

Table 1 - 2005/06 outturn variations

1.2 Though the outturn is within 1% of the budget, this is a more significant variation than in previous years. Comparative figures for recent years are:

Table 2 - Trends in service spending

The position on each service is summarised in the following section of the report:

Adult Services (+£11,124,000)

1.3 The Cabinet received a report at the previous meeting in May explaining the background to the projected Adult Services overspending of £11.3m. That projection is now broadly confirmed on the closure of the 2005/06 accounts.

Children's Services (-)

1.4 The previous monitoring report had predicted a small overspending of £285,000 but the final outturn resulted in a small underspending of £260,000 partly because of savings on special educational needs after allowing for inter-authority adjustments. This saving has been utilised to make an additional revenue contribution to capital to meet part of the Children's Services share of the over commitments in the former Social Services capital programme on information systems, mainly SWIFT.

Environment (-£13,000)

1.5 As indicated in the previous monitoring report spending on Environment was very close to the cash limit. Some additional routine highway maintenance work was carried out at the year end utilising predicted savings on other budgets, mainly management and support services.

Policy and Resources (+ £139,000)

1.6 The latest budget monitoring report predicted an overspending of £222,000 against the revised budget, after allowing for a planned underspending of £225,000 which had been carried forward in the revised budget to 2006/07. The final overspending was restricted to £139,000 and mainly reflected higher spending on the expenses claimed by district councils for administering the County Council elections (£112,000) and on the Coroners service (£82,000), neither of which had been predicted on that scale earlier in the year.

Recreation and Heritage (+£14,000)

1.7 The Recreation and Heritage outturn was also very close to the cash limit. As predicted a small overspending on libraries was largely offset by savings on other services.

Cash limit adjustments

1.8 Appendix 1 shows the adjustments made to cash limits since the revised budget for 2005/06 and Appendix 2 analyses the main variations between actual spending and the cash limit for each service.

2 Other budgets

2.1 The overall underspend on other budgets is £5.5m compared with the previous projection of £3m. A full analysis of the variations on other budgets is contained in Appendix 3.

Contingency (-£558,000)

2.2 Contingency provisions of £4.9m were retained in the revised budget for: a contribution to affordable housing schemes from second homes income; higher interest rates; Tsunami team expenses; waste management contract cost increases; and a number of other minor items. Subsequent allocations to services have totalled £4.4m leaving an unallocated contingency sum of £558,000. It is not proposed to transfer any of these sums to an earmarked reserve for a specific future use.

Business rates (-£341,000)

2.3 The invest to save contribution to the funding of a team to review business rate valuations has generated further business rate savings in 2005/06, mainly in respect of office accommodation.

Capital financing charges (£13,000) and interest on balances (-£3,592,000)

2.4 Capital financing costs are very close to the estimate with the average interest rate payable of 5.211% being in accordance with the revised budget assumption. Interest on balances was predicted to be around £2m higher than estimated but continued favourable cash flows have resulted in a larger saving than anticipated.

Insurance (-£2,866,000 partly offset by a reserve contribution of £1.2m)

2.5 The contribution to or from the insurance provision is based on the value of claims paid in the year and the change in the assessed value of outstanding liabilities. A reduction of £2.9m in the provision for insurance liabilities has arisen both because of a continuation of a more favourable trend in employers and public liability claims and because the value of fire insurance reinstatement carried out during the year was less than the internal premiums charged.

2.6 However there remains a significant commitment outstanding in respect of fires in previous years at Costello Design Technology Centre, Pinewood School and the Woodlands Centre and a contribution of £1.2m to the insurance reserve is proposed, increasing it to £7.3m, to cover the outstanding claims relating to these fires.

Highways winter maintenance (£562,000)

2.7 An overspending of £0.5m had been predicted in the previous monitoring report as a result of salting operations taking place on more days than in the average winter up to the end of February. The final position was close to the forecast.

Doubtful debt provision (£774,000)

2.8 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 known to be doubtful. An increase in the provision of £576,000 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 specific debt allowed for in last year's calculation.

Local authority business rate growth incentive scheme (LABGI) (-£720,000)

2.9 As reported to the Cabinet in April, the County Council was notified in February, after the budget recommendation had been agreed, of its allocation of business rate income for 2005/06 of £720,000 under this new incentive scheme. The relevant district councils had not been able to forecast in advance of the Government announcement with any accuracy the extent of any income likely to be generated by the scheme in its first year, and this partly compensates for the loss of formula grant of £1.7m as a result of the amending reports for 2004/05 and 2005/06.

Landfill allowance trading scheme (LATS) (-£3,538,000 matched by an equivalent contribution to an earmarked reserve)

2.10 LATS was introduced on 1 April 2005 and the Cabinet agreed a trading strategy in June 2005 for surplus allowances resulting from Hampshire's early investment in waste disposal and recycling infrastructure. This involved the ring fencing of any income generated from the sale of LATS within an earmarked reserve to be used both to reduce 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. The County Council has received income of £3.5m from the sale of allowances in 2005/06 and it is proposed to transfer this sum to an earmarked reserve for use in 2007/08.

Local Public Service Agreement (LPSA) (-£2,466,000 matched by an equivalent contribution to an earmarked reserve)

2.11 The County Council received the first instalment of reward grant in respect of the achievement of targets in LPSA1 in March, totalling £4,992,000, paid 50% as revenue grant and 50% as capital grant. A further payment of an equivalent amount is expected in 2006/07. The Cabinet in July 2005 agreed the principles for allocating reward grant:

· £1.5m for the development of the Local Area Agreement (LAA)

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

· The remainder (estimated at £6.2m and to be received in 2005/06 and 2006/07) allocated to departments in line with the reward grant earned on targets for which the department is responsible.

2.12 £30,000 of the revenue grant of £2,496,000 has been used to finance LAA set up costs in 2005/06 leaving £2,466,000 to be earmarked for future use. Proposals for the use of the majority of the £1.5m set aside for LAA development have been agreed in consultation with the Leader. These comprise:

2.13 £966,000 of the revenue grant is available to be returned to services in 2006/07. The second instalment of reward grant will be paid in March 2007 and is available for allocation to services in 2007/08.

Revenue contributions to capital

2.14 As explained in Appendix 10, 2005/06 has been another successful year in the implementation of the capital programme, with capital projects valued at £169.5m having been committed in the year (84.6% of the programme) and capital expenditure of £184.8m requiring financing in 2005/06, £2m lower than estimated. This requires full use to be made of revenue contributions to capital in 2005/06 together with the balance of £3.6m of the general capital reserve and leaves a shortfall of £1.9m to be financed by unsupported borrowing. The shortfall however is £7.4m lower than forecast in the revised financing plan for 2005/06 approved by the Cabinet in February.

Summary - other budgets

2.15 These variations can be summarised as follows:

Table 3 - summary of variations on other budgets

2.16 The overall position is therefore a net overspend of £5.7m (0.5%) for the year (£11.2m overspend on services, offset by £5.5m underspend on other budgets)

2.17 Assuming that Environment retains 50% of its service underspending and that Policy and Resources and Recreation and Heritage carry forward their overspendings, the overall position is as follows:

Table 4 - 2005/06 outturn

3 Balances

3.1 The overspending of £5.6m has the following impact on the level of balances:

Table 5 - Balances

3.2 Savings of £3.5m are required to restore the target level of balances assessed at the time the 2006/07 budget was set. However this assessment needs to be reviewed in the light of current assumptions particularly on the Adult Services recovery plan, and a revised risk assessment and savings proposals will be considered at the July meeting of the Cabinet.

4 Earmarked reserves

4.1 Earmarked reserves are £11.8m higher than budgeted at £92.9m at 31 March 2006. Details of movements in reserves during 2005/6 and of the protocol for each of the main classes of reserve are set out in Appendix 4. These reserves are all set aside for specific purposes and cannot be used to reinstate balances without changing policies or changes in the risk assessment, especially around future grant changes and the costs of the pay and benefits review and equal pay.

5 Treasury Management

5.1 The County Council's treasury management policy requires an annual report to the Cabinet on the exercise of the treasury management function. Details are set out in Appendix 5.

6 Prudential indicators

6.1 The prudential code for capital finance in local authorities includes a number of prudential indicators for which actual indicators for the year as well as budgeted indicators need to be approved by the County Council. Appendix 6 summarises the relevant indicators for 2005/06 outturn. These revisions comply with the policies adopted when the prudential code was approved by the Cabinet in November 2003, as modified subsequently where appropriate.

7 Annual efficiency statement

7.1 The County Council is required to submit its 2005/06 backward look annual efficiency statement (AES), based on actual performance in 2005/06, to the Department for Communities and Local Government by 6 July 2006. The statement requires the approval and certification of the Leader, Chief Executive and County Treasurer.

7.2 Appendix 7 summarises the revised guidance on measuring and reporting efficiency gains, and the proposed improvements included in the County Council's submission, which is attached as an annex. The submission indicates that the County Council is on target to demonstrate achievement of efficiency gains in excess of 2.5% per annum.

8 Pension Fund accounts

8.1 The separate accounts for the Hampshire Pension Fund are also submitted for approval as Appendix 8.

9 Financial management policy

9.1 The County Council's financial management policy incorporates both the financial planning policies that underpin the County Council's medium-term financial planning strategy and policies relating to the provision of financial services. Appendix 9 highlights the progress made in 2005/06 in implementing the policy.

10 Equality impact

10.1 The proposals contained in this report are not considered to be discriminatory.

11 Conclusions

11.1 The recommendations are contained in the decision sheet.

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.

Summary of Appendices