Contact: Anne Hibbert, (01962) 84 7533; [email protected]

1 Summary

1.1 This report is the second monitoring report for 2006/07 and provides an overview of the position on:

· Policy and Resources own revenue cash limited budgets including an update on the implementation of redeployment proposals

· Policy and Resources business units

· Policy and Resources capital programme

· the County Council's capital payments and sources of finance

1.2 At the end of October 2006 the main pressures to be managed in order to meet savings targets and keep within cash limit relate to Property and Regulatory Services, and continuing management action will be required to manage budget pressures across all services.

1.3 Capital payments for the County Council during the first four months of the financial year were significantly higher than would be expected on the basis of a normal profile. However, the rate of spending has reduced in the last three months. A detailed review of each scheme is in progress in order to identify any action required to manage the outturn position.

1.4 The Policy and Resources revenue budget and capital programme includes financial resources for a range of direct services and for central services that support all other County Council services and as such contribute to each priority of the corporate strategy.

1 Policy and Resources cash limited revenue budget 2006/07

1.1 The latest cash limit for 2006/07 is £52.4m as set out in Appendix 1. Adjustments since the last budget monitoring report in September 2006 include:

· the transfer of £35,000 from other services being savings in national insurance arising from salary sacrifice benefit schemes and required by Policy and Resources to administer the schemes.

· a budget transfer of £10,000 from Children's Services as part of the RETIS programme (European Trans-Regional Network for Social Inclusion.)

· further re-phasing of SAP benefit savings of £86,000 to reflect actual savings achieved in excess of the planned target for 2006/07.

· The temporary return to balances of £100,000 set aside for developing a customer relationship management system - the timescale for this project has been delayed while Hantsdirect systems are being established.

· An adjustment to the Local Area Agreement top slice allocation for 2006/07 of £40,000 which is not required until 2007/08 to fund a one year secondment within the LAA co-ordinating team.

1.2 Based on monitoring of expenditure up to the end of October 2006 some pressures in keeping within the cash limit are forecast. These are outlined below.

Chief Executive's Department (including Human Resources)

1.3 With the exception of one area, overall expenditure for the Chief Executive's Department during 2006/07 is expected to be within the cash limit.

1.4 As reported previously, a significant pressure exists this year in respect of the Pay and Benefits project. This amounts to £132,000 and arises from the work associated with implementation of the project. A more detailed breakdown was included in a recent report to the Employment in Hampshire County Council Committee outlining potential future calls on the corporate funding earmarked for the project. Although it may be possible to absorb an element of this additional cost this will depend on levels of recruitment activity for the remainder of the year. Therefore, it would be prudent to work on the basis that this amount may be required from the corporate provision for the project.

1.5 It is also worth noting that Human Resources are confident that the SAP savings target of £310,000 for 2006/07 will be met. This represents a significant achievement and means that since the restructure of Human Resources in 2004/05, running costs of the service have been reduced by £460,000 a year.

1.6 For the remainder of the year the department will continue to bear down on costs to ensure it remains within the cash limit and with a view to carrying forward an underspend to ease the budget reductions and pressures in 2007/08. A clearer idea of whether this will be achievable should be available for the next monitoring report.

County Treasurer's Department

1.7 For 2006/07 the department's outturn forecast is in line with its cash limit. The SAP savings target for 2006/07 of £100,000 has been achieved and the ongoing review of services has meant that a further £86,000 of savings planned for future years will also be delivered this year. This balanced position is despite reduced income with the loss of the Police Pensions administration contract and the continuing low level of demand for services from the financial training team.

Property Business and Regulatory Services

Property Services

1.8 The pressures referred to in the previous report relating to feasibility work, the management of consultants and projects in support of the Corporate Strategy such as Ashburton Court, the Strategic Property Review and feasibility study for Whiteley School continue. They are expected to total between £500,000 and £900,000 and it does not look as if all this can be absorbed in the revenue budget in the current year. Proposed changes to funding arrangements from 2007/08 were agreed at Cabinet on 24 July 2006. The pressure in 2006/07 will be resolved within current resources available within the capital programme.

Corporately held land

1.9 Security costs, unavoidable repairs and maintenance work to properties awaiting disposal and costs associated with properties newly designated as surplus to operational requirements mean the pressures on the corporate estate budget are increasing and could reach £180,000 in 2006/07. The shortfall in rental income from properties in the development account is expected to result in a further overspend of £50,000.

County Farms and Sites for Gypsies and Travellers

1.10 Both these budgets continue to experience shortfalls in income against budget and a combined overspend in the region of £120,000 is expected.

Scientific Service

1.11 The pressure on income from external clients as reported to the September meeting is persisting and options to increase income and reduce costs continue to be pursued. However an overspend of £70,000 is forecast which is expected to be contained within the overall cash-limit for Regulatory Services in view of the savings that have been made with the new management structure.

Summary of actions

1.12 Considerable efforts are being made to bring spending within cash limit. The most significant area of cost is staffing and measures taken to date include a recruitment freeze and reductions in agency staff. Staff are being deployed flexibly to meet key priorities across teams and senior managers continue to be used on project issues. A longer term plan is being developed to meet both existing budget constraints and the cost of implementing pay and benefits. The largest non-pay budgets are travel and IT costs and work is underway to achieve efficiency savings in both these areas.

HM Coroner Service

1.13 Pressures from higher mortuary fees, special analyses and examinations and court attendance costs are likely to result in an overspend of £100,000. A service level agreement is being developed to provide a framework for mortuary charges in future years and financial and procurement arrangements for the services are currently being reviewed by County Treasurer's consultancy team. The Coroner Service budget is not treated as a Chief Officer controlled budget so that the impact will have to be reviewed within the context of the overall Policy and Resources budget.

Other non-departmental Policy and Resources budgets

1.14 A budget saving is anticipated in relation to the audit fee, though the exact amount is uncertain given the on-going audit of grant claims. No other significant variations on non-departmental budgets have been identified in this review.

Summary

1.15 At the end of October 2006 the main pressures to be managed in order to meet savings targets and keep within cash limit relate to corporately held land, county farms, sites for gypsies and travellers and the Scientific Service. Net expenditure in these areas is currently forecast to exceed the cash limit by £350,000. Additional expenditure on feasibility and other advance work will be met from the existing guideline for the Policy and Resources capital programme unless additional capital receipts can be achieved to allow the guideline to be increased.

Business Units

Property, Business and Regulatory

1.16 The target overall surplus for the business units in 2006/07 is £21,000. HC3S continues to face difficult trading conditions with meal numbers below target. Measures planned and taken to contain and reduce costs have substantially offset the reduction in income but it remains possible that the original business plan target will not be met. The pressures on customer purchasing budgets are likely to have an impact on the turnover of the other businesses but all units are currently expected to achieve targets.

IT Services

1.17 IT Services had planned to return to a net trading surplus by the end of 2006/07. This was a challenging target because of the size of the brought forward trading deficit and the savings targets which were implicit in the pricing strategy for 2006/07. Whilst some significant cost reductions have already been achieved in 2006/07, income projections have had to be scaled back significantly as customer departments have sought savings by reducing their investment in IT. In addition, IT Services are required to transfer a further £102,000 contribution towards corporate savings targets in 2006/07.

1.18 The impact will be a reduction in the trading surplus in 2006/07 which will be insufficient to eliminate all of the trading deficit brought forward from previous years. As a consequence, it is expected that the cumulative trading deficit at year end will reduce by £200,000 to £230,000. Plans are being developed to clear the deficit in 2007/08.

2 Policy and Resources capital programme

2.1 The Policy and Resources capital programme for 2006/07 amounts to £87.2m, as set out in Appendix 2. This includes additional IT investment of £5.9m required to meet the demands of a modern integrated IT infrastructure. Specifically the investment includes the procurement and implementation of enterprise software, the replacement to replace the Castle complex network and replacement of the Castle complex telephone system. These projects were approved by the Executive Member in October 2006 and it is proposed that they be financed by prudential borrowing. This is in line with the Council's established policy under the Prudential Code with the cost of borrowing funded by capital charges to the IT Services trading account.

2.2 The capital repairs programme, including New Deal for Schools, totals £35m and is controlled on an expenditure basis. The balance of £52.2m, including £40.2m for the Ashburton Court refurbishment, in controlled on a starts basis.

2.3 As at 31 October, expenditure on capital repairs totalled £16.2m, and schemes to the value of £42.6m had started, representing an overall commitment of £57.5 m.

3 Overall capital payments and sources of finance

3.1 The capital financing plan approved by the Cabinet in February was based on projected capital expenditure of £175.3m in 2006/07.

3.2 Capital payments for the County Council during the first four months of the financial year were significantly higher than would be expected on the basis of a normal profile. However, the rate of spending has reduced in the last three months. A detailed review of each scheme is in progress in order to identify any action required to manage the outturn position.

3.3 Estimated capital receipts for 2006/07 (including in-and-out schemes) of £38.3m were allowed for in 2006/07's capital financing plan approved by the Cabinet in February. Cabinet in July 2006 increased the two-year target for 2006/07 and 2007/08 by £5.5m. Actual capital receipts to 31 October 2006 amounted to £10.9m. Success in achieving the forecast, or an outcome close to the estimate in 2006/07, will be dependent upon progress in completing a number of significant disposals over the remainder of the financial year.

4 Impact assessment

4.1 The proposals in this report are the result of budget monitoring carried out in accordance with the County Council's financial management policy. This policy applies equally to all services and ensures consistent financial management decisions across all services. The proposals in this report are not considered to be discriminatory.

Recommendations

1 To note the current position on the monitoring of the revenue budget and capital programme.

2 To approve the use of prudential borrowing for IT investment of £5.9m.

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.

Capital Programme Review, Report of the County Treasurer and Director of Property Business and Regulatory Sercvices, Cabinet 24 July 2006, item 10.

Appendix 1

Policy and Resources Revenue budget - latest 2006/07 cash limit

Appendix 2

Policy and Resources 2006/07 capital programme