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

With the concurrence of the Chairman under Section 100B (4)(b) of the Local Government Act 1972, this matter has been included on the agenda to ensure that the most up-to-date information is presented including a medium-term financial plan for 2008/09 and 2009/10.

1 Executive summary

1.1 This report proposes the recommendations to County Council on the 2007/08 budget and the council tax, based on the budget guidelines approved on 18 December 2006. The proposals take account of the consideration of the guidelines by the relevant Executive Members.

1.2 The budget guidelines were based upon a budget of £592.7m and a council tax rise of 4.9%. The proposed budget is raised to £598.2m (a 5.4% increase) but results in the same Band D council tax of £955.62 - an increase of £45 (4.9%). This is possible because of a (one-off) higher surplus on collection funds of £2.7m (which increases the income from council tax) and a (continuing) increase of £2.3m in precept income from more tax base Band D equivalent dwellings and £0.5m from future surplus on collection fund.

1.3 The continuing extra income has been used to:

· meet higher interest costs and additional unsupported borrowing costs of £0.7m from the 2006/07 capital programme

· provide £0.8m towards resources for the Hampshire Action Teams to meet local priorities

· make a budgeted contribution of £0.7m to a new invest to save reserve to provide better value for money in the delivery of adult services and children's services in 2008/09

1.4 The one-off increase in income has been used to:

· increase balances because of the greater risks in 2007/08 from: higher pay and price inflation than the budgeted amounts of 2.25% and 2.5% respectively; achieving the stretching target of £21.4m in cash savings, reductions and redeployments built into the budget especially £14.4m on Adult Services; and any shortfall against the ambitious capital receipts target of £60m.

1.5 The County Council fully consulted on its budget and council tax proposals before confirming its budget guidelines in December 2006. Further reductions in services (beyond the £21.4m now identified) were not supported to try and achieve a lower council tax rise.

1.6 The council tax rise has however been set within the Government's capping limit of 5%.

1.7 The Government has not taken any account of the representations the County Council made on its grant settlement for 2007/08.

1.8 The Government grant increase remains 2.7% for 2007/08 as announced over a year ago. This is below inflation (December retail price inflation was 4.4%) and less than the cost and demographic pressures, especially on adult social care and waste management, impacting on the County Council, which means that the extra costs all fall on the council tax.

1.9 The Dedicated Schools Grant (DSG) and other schools grants have increased by £39.4m (5.8%) in 2007/08. The DSG provides a minimum per pupil funding increase of 5%. Further additions of £8.1m in total are possible for personalised learning at key stage 3 and in primary schools and for practical learning for 14 to16 year olds. The total DSG is £644.9m, and other schools grants result in a total budget of £721m for schools.

1.10 Budget guidelines for other services provided for:

· base budget (the cost of providing services in 2006/07 rolled forward to 2007/08)

· extra resources for children's social care, and adult services, and to meet the increased costs of the waste management contract

· budget transfers between services for the introduction of Hants Direct (£1.8m)

which were offset by planned reductions:

· for pay and benefits realisation (£2m)

· redistribution of guideline figures to Adult Services (£1.1m)

1.11 Executive Members have submitted budgets within these guidelines.

1.12 Total growth proposals identified are £25.7m, including £19.9m on adult services for demographic pressures and costs of continuing care packages. These are partly offset by additional growth amounts above the base budget of £7.4m for adult services and children's services. The total reduction required within the guidelines is £3.1m. The guidelines were set requiring any new pressures or priorities to be met by further reductions to remain within the overall cash limit for each service. Further reductions or redeployments of £18.3m have therefore been identified by Executive Members to balance to the cash limit. The total redeployment required is therefore £21.4m, of this sum £14.4m is on Adult Services, which includes the previously planned £9.3m from the second year of the recovery plan. The impact of all these changes is summarised in Table 1.

Table 1: 2007/08 spending pressures and savings

1.13 The increases in each service budget are shown in the next table. The largest increase in percentage terms is for the waste contract, but priority has also been given to adult services, reflecting the Council's priority to maximise wellbeing, with a total increase of £11.4m (5.8%). Capital financing costs have also increased substantially because of higher interest rates and supported and unsupported borrowing committed in 2006/07. The overall position is summarised next:

Table 2: service and other budget increases 2007/08

1.14 There are two major risks for 2007/08 and following years, which are offset by specific reserves:

· job evaluation/equal pay claims reserve

· grant equalisation/CSR07 reserve

1.15 Job evaluation will be implemented in 2007/08. The budget strategy provides for the full year continuing costs to be met within the existing level of council tax. One off costs from back pay or compensation and from grievances or equal pay claims will be met from the earmarked reserve set up for this purpose. This will total £17.0m in 2007/08, less any drawdown for legal and other costs during the year, or any payment of agreed compensation or successful claims.

1.16 The grant equalisation reserve of £25m at 31 March 2007 was built up from a budgeted contribution to reserves which was switched into meeting the costs of job evaluation and equal pay claims in the 2006/07 budget. The formula grant changes introduced in 2006/07 resulted in the County Council having a total floor damping grant of £38m (£24m from the general grant floor and £14m within the adult services needs formula). When the Comprehensive Spending Review 2007 (CSR07) is announced later in the year, it is likely that floors will continue in some form. The medium term financial plan assumes grant will continue at its existing cash level - with no increase or decrease because of the expected tight settlement and anticipated requirement for 3% cash savings from the base. There remains a risk however that the damping grant could be removed over the CSR07 period by the application of a negative grant floor within a tight national settlement (i.e. there would a be cash reduction in Government formula grant even though a grant floor remains to prevent all the damping grant disappearing in one year). The reserve is therefore retained to offset cuts which would otherwise be required over the CSR07 period, assuming that the capping regime remains. It appears that the Government might be considering a reduction in the capping limit from 5% to the rate of inflation over the period of CSR07. This would require further reductions over those currently projected.

1.17 A small investment of £0.7m will be made in a new invest to save/value for money reserve, which will be ring-fenced against business cases for adult services and children's services to improve service provision and value for money from 2008/09 onwards when there is likely to be further strain on cash limits for these demand led budgets.

1.18 The changes in reserves and the rationale for them are set out in the report. It is also proposed to make additional one-off contributions to balances in both 2006/07 and 2007/08 to increase balances to £14.4m for potential use to meet the anticipated additional risks in 2007/08 set out in paragraph 1.4. £14.4m is about 2.4% of net expenditure - still relatively low by comparison with other local authorities, but about double the normal minimum level of balances of £7m.

1.19 In making comparisons with the 2006/07 original budget some adjustments (for changes by Government in calculating the grant floor) are required which reduce both the original budget and grant figures by £0.8m. The overall budget increase compared with the adjusted budget for 2006/07 is shown in table 3.

Table 3: 2007/08 budget requirement and council tax

1.20 The majority of proposed council tax rises for other counties appears to be close to the 5% capping limit especially in the south east. Despite the difficulties of pressures on waste, adult services and children's services, the County Council still has an underlying financial stability, with its risks assessed and covered by reserves and balances. It is anticipated that the County Council will continue to provide high quality services with a council tax that remains in the lowest quartile of counties, despite having the second lowest grant per head.

1.21 There is a sustainable medium term financial plan that anticipates future pressures and further reduced Government grant support during the CSR07 period.

1.22 The medium term financial plan sets out the provisional budget guidelines for 2008/09 and 2009/10, assuming council tax rises slightly less than the current 5% capping limit. The implications of CSR07 will be reported to Cabinet in September 2007 when a fully developed medium term plan, adding 2010/11, will be proposed for consultation in the Autumn, prior to setting firm budget guidelines for 2008/09, and provisional guidelines for the next two years, in December 2007.

1.23 This Executive Summary sets out the main features of the budget. The rest of the report provides more analysis of the changes since the guidelines were set. The Appendices to the report provide all the detail of the budget.

The recommendations are contained in the preceding summary decision sheet and include:

· carry forward to 2007/08 of an underspend of £0.5m on Environment and an overspend of £0.3m on Children's Services

· write off of the anticipated overspend of £10.9m on Adult Services from the additional balances provided for the purpose in July 2006

· budget proposal for 2007/08 of £598.2m (5.4% increase)

· recommended council tax of £955.62 (4.9% increase)

· medium term financial plan 2008/09 - 2009/10

· approvals required on growth and savings, increased income charges, reserves and balances, and the integrated workforce plan

· various statutory requirements on risk analysis and management, treasury and investment management and the prudential code on borrowing

1.24 The remainder of the report is set out in Part B and consists of the following paragraphs:

· revised budget 2006/07 (paragraph 2)

· 2007/08 Formula grant settlement (paragraph 3)

· 2007/08 base budget (paragraph 4)

· 2007/08 Budget guidelines and guidelines for 2008/09 and 2009/10 (paragraph 5)

· Efficiency savings (paragraph 6)

· annual review of charges and maximisation of income (paragraph 7)

· workforce plan (paragraph 8)

· additional resources and budget proposals (paragraph 9)

· performance and risk management (paragraph 10)

· earmarked reserves (paragraph 11)

· balances (paragraph 12)

· 2007/08 overall budget proposals (paragraph 13)

· 2008/09 to 2009/10 medium-term financial plan (paragraph 14)

· treasury management strategy and annual investment strategy for 2007/08 (paragraph 15)

· prudential indicators (paragraph 16)