Contact: Jon Pittam, (01962) 84 7400; [email protected]

1 Introduction

1.1 The Cabinet on 25 September 2006 agreed provisional revenue budget and capital programme guidelines for 2007/08 to 2009/10 (2010/11 for the capital programme). The guidelines were agreed as the basis for consultation on the budget strategy during the autumn, together with an alternative budget option requiring further spending reductions of £10.7m in order to reduce the council tax increase from 4.9% to 2.5%. This report reviews the outcome of consultations with stakeholders in October and two community workshops held in November. A further consultation is due to take place with the Citizens Panel early in the new year.

1.2 The Government has also announced details of the 2007/08 grant settlement, which as expected has confirmed the grant allocations originally announced on a provisional basis in January 2006. The grant announcement takes the form of a consultation and the County Council has until 5 January 2007 to respond. A draft consultation response is proposed as an appendix to the report.

1.3 Two announcements have also been made by the Department for Education and Skills providing additional capital grants for schools projects in 2007/08 and 2008/09, though part of this increase represents an advance of New Deals for Schools grant which is repayable in 2008/09, 2009/10 and 2010/11.

1.4 An update is also provided on plans for achieving £2m of pay and benefits realisation savings in 2007/08 which were agreed by the Cabinet in July as part of the strategy for funding the ongoing cost of the pay and benefits project which involved seeking to achieve the full anticipated savings in 2007/08 and 2008/09 to provide some greater budgetary flexibility.

1 Budget consultation

1.1 Meetings were held during October with representatives of the business community, Hampshire Strategic Partnership, the voluntary sector, Hampshire Residents' Association, the trade unions and also with the pressure group Is It Fair.

Savings required

1.2 The budget presentation highlighted the significant savings required to restrict the increase in spending to 4.4% and the council tax rise to 4.9%, within the expected capping limit. In addition to the impact of inflation, the budget needed to make allowance for inescapable demographic and legislative pressures, principally affecting social care for adults and vulnerable children, and waste management. To achieve a spending increase of 4.4%, the budget strategy for 2007/08 incorporated the following savings:

· £8.4m on Adult Social Care as the second stage of the recovery plan designed to offset the unfunded care commitments entered into in 2005/06

· £1.1m from other services to contribute to finance a £6m increase in the Adult Services budget in 2007/08, compared with the provisional budget for 2007/08, to meet additional demographic pressures

· employee savings of £2m to contribute to the higher cost of the new pay structure, to supplement the additional budget provision made in 2006/07

· another phase of SAP benefit realisation savings of £0.5m relating to human resources and financial services

· efficiency and other savings to meet all other service spending pressures. The scale of the savings required will be confirmed during the remainder of the budget process, as the forward look efficiency plan for 2007/08 is developed further and the extent of other inescapable spending pressures is firmed up.

Consultation meetings

1.3 Given the scale of savings from improved efficiency to achieve a 4.9% increase in council tax, further savings of £10.7m to limit the increase in council tax to 2.5% would need to be sought across all services and are likely to have a demonstrable impact on front-line services. In this context, the consultation groups (with the exception of Is It Fair, campaigning to end council tax) were prepared to support the County Council's proposed budget strategy for 2007/08, resulting in a 4.9% increase in council tax.

Budget workshops

1.4 Two budget consultation community workshops were held in November facilitated by IPSOS/MORI, which were the subject of a Cabinet policy briefing earlier in December. One of the workshops was for Hampshire adult residents selected in a way designed to achieve a representative sample of the adult population, while the other workshop was for young people, drawing on members of the Hampshire Youth Council.

1.5 Most of the participants at both workshops chose the budget option based on a 4.9% increase in council tax rather than 2.5%, recognising the reality of demographic pressures, the importance of providing social care to the vulnerable and that the County Council was continuing to seek further efficiency improvements. The difference of 42p per week for a Band D council taxpayer between the cost of the two options was also considered by many participants to be insufficient to justify the potential reductions in service outlined.

1.6 Participants were also generally in favour of the single council tax leaflet and of including some summary information showing how the council tax was distributed between the various authorities.

1.7 Further public consultation on the budget options is continuing until early January both via the Citizens Panel to provide quantitative evidence to complement the qualitative evidence obtained from the community workshops and via Hantsweb, though the latter responses are not necessarily representative.

2 2007/08 Revenue Support Grant settlement

2.1 The Government announced for consultation purposes in December 2005 details of the first two-year grant settlement for 2006/07 and 2007/08 designed to improve local authorities' ability to develop multi-year financial plans. The Minister of State for Local Government confirmed on 28 November that there were no changes to the grant allocations for 2007/08 provisionally set in January 2006. The Minister also confirmed that the Government expected to see average council tax increases of less than 5% and would use the reserve capping powers to deal with excessive increases.

2.2 Although the two-year grant settlement has brought some stability and predictability in Government grant in 2007/08, it also means that the concerns raised by the County Council in response to last year's grant settlement remain:

· a minimum grant increase of 2.7% as an authority below the grant floor, is insufficient to cover inflation in relation to the provision of services, let alone meet higher costs arising from demographic and legislative pressures

· use of a grant formula which gives priority to meeting unmet needs in areas with higher levels of deprivation, at the expense of providing adequate funding for basic needs in other areas, including Hampshire

· changes in the grant formula which cannot be introduced without a substantial level of damping, so that some of the basic mechanisms of the grant system do not work, for example in relation to the funding of supported borrowing. Approximately 30% of Hampshire's 2007/08 grant is dependent upon damping mechanisms.

2.3 It is highly unlikely that the Government will make any changes to its grant allocation proposals but the Government announcement on 28 November takes the form of a consultation to which responses are invited by 5 January 2007. The appendix contains an initial draft response for Cabinet comments.

3 DfES announcement on the Schools capital programme

3.1 Allocations of capital grants and supported borrowing levels were issued for most programmes last year as part of the two-year settlement. However two recent announcements have been made since the Cabinet agreed the provisional capital guidelines in September, which influence Government supported capital programmes relating to schools.

New Deals for Schools

3.2 Because of anticipated slippage in the Government's programme for transforming Secondary Schools (Building Schools for the Future), authorities have been given the opportunity to access additional capital grant under the New Deals for Schools modernisation programme for works to address condition and suitability issues in 2007/08, which would then be repaid in three-equal instalments over the following three years to 2010/11. Hampshire's advance is £11.8m.

3.3 Though there is a risk in taking up this offer, as the programme levels from which the deductions will be made in 2008/09 to 2010/11 will not be known until after Spending Review 2007, there are two advantages in taking up this offer - firstly it will more than compensate for the reduction of £6.7m proposed in schools programmes in 2007/08 as a result of the decision made in July not to take-up supported borrowing in full in 2007/08. Secondly, as repayment is on a £ for £ basis, a higher value of extra work is likely to be obtained in 2007/08 than will be foregone in the following three years. On this basis the Director of Children's Services has indicated to the Department for Education and Skills (DfES) that the County Council would wish to take up this offer.

Primary School pathfinder

3.4 The DfES invited bids from local authorities for pathfinder projects ahead of the roll-out of its national programme to ensure that all primary schools are fit for the 21st century. The County Council was one of 23 authorities selected as regional pathfinders and has been allocated a capital grant of £6.5m to be made available in 2008/09.

4 Pay and Benefits realisation

4.1 The Cabinet agreed in July that pay and benefits realisation savings of £0.5m should be sought in 2006/07 as one of the measures to reinstate the County Council's balances. The target will be increased to £2m in 2007/08 and £2.5m in 2008/09. The overall target was set on the basis that the additional cost of the new pay structure arising from the pay and benefits project would be approximately £10m and that therefore savings of £2.5m would be required in the medium-term to complement the corporate funding of £7.5m included in the 2006/07 budget. This strategy ensured that no extra cost would fall on council tax payers from the implementation of the single status agreement in respect of job evaluation. Targets have been initially been set in proportion to the overall pay bill but once more robust information on the cost of pay and benefits by service is available the targets will be adjusted to reflect the impact for each service. A further report was requested in December to provide an update on plans for achieving the £2m savings target in 2006/07 from employee budgets.

4.2 A saving of £2m represents about 0.8% of pay budgets, and on average would be equivalent to a saving of approximately 70 full time equivalent staff. There are two broad approaches being adopted by departments in planning to achieve the savings. In departments where restructurings are taking place or planned - in Adult Services, Children's Services, Environment, Library Services and Regulatory Services for example, new staffing structures are being planned which are designed to achieve lower costs than existing structures. In other areas service reviews are being planned focussing particularly on support functions. The aim of these savings is to reduce workforce numbers or improve productivity to offset the additional costs and Executive members will need to report back on firm action plans showing how these will be achieved in the 2007/08 budget.

5 Conclusion

5.1 The initial outcomes of consultation on the budget support the broad strategy underlying the provisional budget guidelines. The 2007/08 revenue support grant assumptions on which the provisional budget is based have been confirmed. It is therefore proposed that the budget and capital programme guidelines set provisionally in September also be confirmed as the basis for the preparation of service revenue budget and capital programme proposals for consideration by Executive members and the Policy and Resources Policy Review Committee in January, prior to the Cabinet on 9 February deciding on its budget recommendations to County Council.

5.2 As this is the second year of a two-year grant settlement, the Government is very unlikely to change the grant allocations as a result of its consultation, but it is recommended that the County Council nonetheless submits a response.

Recommendations

The following decisions are sought:

1 To confirm the provisional budget and capital programme guidelines covering a period extending (for capital purposes) to 2010/11, as the basis for executive members to prepare draft revenue budgets and capital programmes for consideration by the Cabinet on 9 February 2007.

2 To agree the basis of the County Council's response to the consultation on the 2007/08 Revenue Support Grant Settlement, as outlined in the appendix.

3 To note progress on delivering plans to achieve pay and benefits realisation savings.

4 To require Executive members to report back in February on specific action plans to make benefit realisation savings totalling £2m in 2007/08 in order to meet the unfunded costs of pay and benefits.

5 As a result of consultation, to confirm the planned council tax rise of 4.9% (£0.87 per week per band D tax payer) and to delete plans to cut services by £10.7m to achieve a 2.5% council tax rise.

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.

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