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

1 Introduction

1.1 The purpose of this report is to present an interim update on the revenue budget monitoring position previously reported during September, pending preparation of the 2006/07 revised budget in January, and to seek approval to the actions that are being taken to manage the cash limit before the revised budget is prepared later in the year.

1.2 Although this decision does not directly support one of the priorities in the Corporate Strategy, a decision is nevertheless required because Financial regulations require the revenue budgets of services to be regularly monitored and for corrective action to be taken, if necessary, to control expenditure within approved cash limits

1.3 The report provides details of a number of additional changes to the revenue budget cash limit for the year and reports on the outcome of the most recent budget monitoring review, which was carried out in consultation with Environment department budget holders during September. Details of assessed expenditure to date and a forecast outturn for the year are provided for each major service heading. The report then goes on to highlight significant issues that will affect the management of the budget during the remainder of the financial year.

1.4 In summary, the overall revenue budget monitoring position shown in this report is satisfactory for the halfway stage of the financial year, and the expected outturn for the full year is currently shown to be in line with the approved cash limit. However, there are indications of possible opportunities for the carry forward of underspendings to the 2007/08 budget, which would need to be considered more fully when the 2006/07 revised budget is prepared in January.

1 2006/07 cash limit changes

1.1 The previous monitoring report in September made reference to a number of adjustments to the revenue cash limit since the approval of the original 2006/07 budget during February. These adjustments had increased the Environment services' revenue budget cash limit to £101.237 million. The following additional changes to the cash limit also now need to be taken into account:

· An allocation of £80,000 to the waste management budget for facility maintenance from the central waste management contingency, relating to the ongoing financial obligations for the maintenance of closed landfill sites which are no longer the responsibility of the contractor.

· The 2006/07 cash limit includes a sum of £55,000 of pump-priming grant relating to the Local Public Service Agreement (LPSA) in respect of a performance target for increased volumes of work diverted from landfill. It is proposed to carry forward £10,000 of this grant funding to 2007/08, to reflect a revised assessment of the anticipated phasing of expenditure relating to achievement of this LPSA target.

1.2 The adjusted cash limit, taking into account the above variations, is £101.307 million. The attached appendix provides an analysis of the adjusted budget over the standard division of service headings, together with details of assessed expenditure to 30 September 2006.

1.3 Further changes to the cash limit, including the second quarter's allocation from the central waste management contingency, together with any additional budget transfers and adjustments, will be reported in the 2006/07 revised budget in January.

2 Budget monitoring review

2.1 The year's second main budget review, covering all of the department's activities, was carried out during September. Plans for service expenditure during the remainder of the year, together with trends in actual expenditure and income, were considered in order to arrive at an updated forecast outturn for each budget heading.

2.2 The main issues arising from the budget monitoring review are discussed in the following paragraphs.

Highways maintenance

2.3 The 2006/07 revenue budget for routine highways maintenance amounts to £24.152 million. Total expenditure and commitments to the end of September amounted to £13.220 million, being broadly in line with the expected profile for the first half of the financial year. Further allocations to budget holders have now been made since the previous budget monitoring review to reflect the final re-pricing of works contracts and to meet other operational pressures. This leaves a sum of £325,000 in reserve, which should be sufficient to help manage any further routine highways maintenance pressures that may emerge during the remainder of the year.

2.4 Repairs to the C18 road at Stoner Hill, between the villages of Steep and Froxfield (north-west of Petersfield), are currently underway. The works are due to be completed before the end of November, which would then enable the road to be re-opened.

2.5 Preparations for the street lighting PFI are now gathering pace following the recent appointment of a project director to oversee the development of the scheme, including the submission of the outline business case. As previously reported, a sum of £400,000 has already been allocated from within this year's street lighting maintenance budget to cover the initial consultancy and other preparation costs of the project, and a similar financial commitment is expected to be required next year. In addition, a sum of £115,000 has also now been earmarked to provide for the updating of the street lighting inventory, which will help to ensure that the data supporting the PFI outline business case is accurate.

2.6 The 2006/07 highways maintenance budget includes a sum of £105,000 carried forward from the previous year for IT system development and running costs in connection with the implementation of the Traffic Management Act. This re-phasing of expenditure arose because of an initial delay by the Government in implementing the legislation. Unfortunately there has now been further slippage in progressing this work because of delays by the Government in implementing changes to the existing regulatory framework and associated detailed guidance. This delay will result in a further underspending against this year's budget allocation, although the exact amount has still to be quantified. It is proposed that the Cabinet be asked to approve a further carry forward to the 2007/08 budget, to enable this work to be completed next year, when the revised budget is prepared in January.

Public transport

2.7 The previous budget monitoring report in September made reference to likelihood of pressures on the bus subsidies budget this year from planned contract extensions and re-tendering together with further additional costs that may arise from any de-registrations of commercial services. Any higher expenditure arising during 2006/07 from these factors would need to be accommodated within the approved budget limit by implementing various savings measures in line with the approved service strategy. These measures include a rolling programme of bus service area reviews, which would be carried out in advance of contract re-tendering, aimed at providing a number of options for the future level of service provision, which could be evaluated as part of future tendering processes.

2.8 An early estimate of the likely pressure from contract extensions and re-tendering of £200,000 during 2006/07 was identified in the previous budget monitoring report. This was based on information suggesting that bus operators' costs are rising at an annual rate of approximately 9%, being considerably in excess of the funding increase of 2.5% included in the budget. However, it was indicated that this figure was very provisional, pending future service re-tendering in the Alton, Havant and New Forest areas, which would be considered during October.

2.9 Tender results for Havant and New Forest tender areas have recently been evaluated. These show that the base cost of maintaining subsidised services in their existing form would require an increase in expenditure of some 24% in the Havant area and 39% in the New Forest area, equivalent to an additional £434,000 in a full year, which would clearly be unaffordable within current budget limits. At the time of writing this report, the tender results for the Alton area have still to be quantified. No significant pressures for 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 the budget.

2.10 Opportunities for economies in bus services are currently being considered in these contract areas, taking into account the need to minimise the impact of service changes on passengers, whilst ensuring that future patterns of bus subsidy support in this area can be sustained financially. The forecast outturn for public transport shown in this report assumes that this approach is successful this year in restricting overall expenditure on bus subsidies to the approved cash limit.

Management and support services

2.11 The overall departmental 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. Actual expenditure to 30 September 2006 at £11.033 million was slightly below the budget profile for the first half of the year.

2.12 The construction of the original budget for management and support services includes an allowance of £0.625 million, or approximately 3%, for incidental savings that are expected to arise, as a matter of routine, from staff turnover and the normal delay in filling vacant posts. Further projected underspendings from staff vacancies, together with other housekeeping efficiencies, have now been identified during the recent budget monitoring review, which covers this requirement in full.

2.13 Further options for the re-allocation of any other savings will need to be considered in January, including whether it would be prudent to carry forward resources to next year's budget, to help manage a number of organisational change issues that are likely to impact on the management of the Environment department next year.

Waste management

Waste contract related services

2.14 The approved 2006/07 original budget for waste management contract related services was £39.538 million, based on an estimate of expenditure commitments at the time it was prepared during November 2005. In addition, a sum of £4.800 million was included in a central contingency to cover future growth in waste volumes beyond predicted 2005/06 levels, together with an allowance for future price increases, changes in landfill tax or other contract pressures.

2.15 Periodic allocations are made from this central contingency throughout the year, based on quarterly assessments of cost increases on this part of the budget. The first quarter's call, which was identified in the previous budget monitoring report, increased the cash limit by £1.204 million, resulting in an adjusted budget for the waste contract related services of £40.742 million.

2.16 The overall level of waste volumes during the first five months of the year fell by 0.3%, which was lower than the allowance for growth of 2.5% provided in the central contingency. Within this figure, waste volumes from household collections fell by 1.5% compared to a year earlier. On the other hand, civic amenity waste from household waste recycling centres rose by 2.3%. However, it is still too early to predict whether these trends will continue across the full year.

2.17 At the time of writing this report, waste disposal volume data and other information relating for September was still being evaluated. Details of the growth in waste volumes covering the complete first half of the year, together with the next quarter's call on the central waste management contingency, will be reported in the revised budget report in January.

Other waste management services

2.18 The overall budget for the non-contract related waste management services is £3.598 million, covering facility maintenance, administration, promotions and developments, disposal of abandoned vehicles, the natural resources initiative and provision for household waste recycling centre (HWRC) management. As mentioned in paragraph 2.1, this now includes an additional sum of £80,000 which has been allocated from the central waste management contingency, relating to the ongoing financial obligations for the maintenance of closed landfill sites which are no longer the responsibility of the contractor.

2.19 The current forecast outturn assumes that expenditure on the non-contract waste management budgets will be contained within this services' cash limit.

3 Impact assessment

3.1 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.

4 Conclusion

4.1 A number of adjustments have been made to the 2006/07 budget, increasing the overall revenue budget cash limit by £70,000 to £101.307 million, compared to the figure of £101.237 million previously reported in the September budget monitoring report. In summary, the overall revenue budget monitoring position shown in this report is satisfactory for the halfway stage of the financial year and the expected outturn for the full year is currently shown to be in line with the approved cash limit.

4.2 Highways maintenance revenue reserves have now reduced to £325,000 following additional allocations that have been made to budget holders, following the re-pricing of works contracts and to meet other operational requirements. Preparations for the submission of the business case relating to the street lighting PFI are gathering pace. However, there have been further delays in connection with the implementation of the Traffic Management Act, which may require a planned underspending to be carried forward to 2007/08. Proposals will be included in the revised budget report in January.

4.3 As anticipated, significant cost pressures have emerged on the public transport budget for bus subsidies from recent contract re-tendering in the Havant and New Forest areas, which will need to be accommodated within the approved budget by implementing various measures in line with the approved strategy.

4.4 Additional projected savings have now been identified on the management and support services, which fully cover the annual vacancy savings target included in the budget. Further savings may emerge when the budget is revised in January, which might enable consideration to be given to the possible carry forward of resources to the 2007/08 budget. This could be used to help manage the impact of a number of change issues expected within the Environment department next year.

4.5 On the waste management contract related services, the trend towards lower volumes, compared with the budget assumption, has continued during the second quarter of the year. Details of the second quarter's call on the waste management contingency will be reported in the revised budget in January.

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.

3. Detailed ledger reports:

i) Environment Department Management Team : 18 October 2006 - Revenue Budget Monitoring 2006/07.

APPENDIX

Environment

Revenue budget 2006/07 - monitoring statement

Analysis of variations