1 Expenditure outside service cash limits

1.1 The table below provides a detailed schedule of the variations on budgets outside service cash limits, which is summarised in Table 3 of the report.

Table 1

	Revised Budget	Actual	Variation
	£000	£000	£000
Contingency provisions:
Waste Management Contact	443	-	-443
Council tax second homes income	270	-	-270
Contribution to second home income reserve	-	270	270
Business rate savings	226	-	-226
Capital financing charges	44,347	44,375	28
Interest on balances	-9,095	-11,879	-2,784
Revenue contributions to capital	19,293	17,861	-1,432
Contribution to capital reserve	-	1,432	1,432
Insurance provision	-	-1,996	-1,996
Contribution to insurance reserve	-	1,996	1,996
Highways winter maintenance	2,645	2,430	-215
Flood protection levies	403	403	-
Doubtful debt provision	-	-410	-410
Landfill allowance scheme	-2,291	-2,297	-6
Contribution to LATs reserve	2,291	2,297	6
Part-time pensions	-179	-1,100	-921
Contribution to job evaluation transition cost reserve	-	921	921
Mandatory awards	-	11	11
Specific grants	-769,651	-770,531	-880
	-711,298	-716,217	-4,919

Waste Management contract (-£443,000)

1.2 The balance of the contingency within the revised budget was earmarked primarily to cover increased costs arising from the Waste Management contract for the third and fourth quarters of the financial year. Mainly due to a lower rate of growth in waste volumes than assumed, the overall allocation from the waste contingency of £ 4.7m, totalled £4.3m, a saving of £0.4m.

Council tax second homes income (-£270,000 matched by an equivalent reserve contribution)

1.3 The majority of the additional council tax income payable to the County Council generated by the reduction in the council tax discount on second homes is being utilised to finance accredited community safety officers, but a contingency of £270,000 was retained in the budget to provide additional funding for Homebuy key worker housing schemes which were planned to be introduced in New Forest, Test Valley and East Hampshire funded initially from income received in 2004/05 and earmarked for projects agreed with the respective district councils. Delays in finalising the relevant agreements have resulted in the launch of the Homebuy schemes being delayed into 2007/08, and it is proposed to transfer the contingency sum to the second homes income earmarked reserve subject to review once the success of the scheme can be gauged.

Business rates (-£226,000)

1.4 Provision is made centrally for increases in business rates for properties other than schools in view of the uncertainties associated with transitional arrangements arising from revaluations and the impact of appeals against revaluations. Savings of £83,000 were incorporated in the revised budget and further savings of £226,000 have been achieved in the final accounts, mainly relating to office accommodation.

Capital financing charges (£28,000)

1.5 The increase of £28,000 against the revised budget is summarised in Table 2 below:

Table 2

1.6 Short-term interest rates in the latter part of the year were very close to the budgeted assumptions, and the average rate payable for the year was 5.30%, compared with 5.29% assumed in the revised budget. This represents an increase on the equivalent average rate of 5.21% in 2005/06, as a result of higher short-term interest rates in 2006/07.

Interest on revenue balances (-£2,784,000)

1.7 Interest on revenue balances is difficult to forecast accurately as relatively small changes associated with large cash flows can have a significant impact on the internal resources available to earn interest from day to day. More favourable revenue and capital cash flows have resulted in interest receipts being £2.8m more than forecast in the revised budget.

Revenue contributions to capital (-£1,432,000, matched by an equivalent contribution to the general capital reserve)

1.8 The revised capital financing plan for 2006/07 required both full use to be made of budgeted revenue contributions to capital in 2006/07 and further temporary unsupported borrowing of £4.9m to meet a temporary short fall, to supplement unsupported borrowing of £1.8m in 2005/06.

1.9 Capital expenditure was £18.9m lower than forecast, partly matched by lower capital receipts of £2.8m. Lower capital expenditure on projects supported by Government approvals and scheme specific external contributions accounted for £8.0m of the lower capital expenditure. The requirement for local resources from revenue contributions to capital to finance capital expenditure in 2006/07 was therefore £8.1m lower than forecast, enabling 2005/06 unsupported borrowing to be repaid, further temporary unsupported borrowing to be avoided in 2006/07 and resulting in lower revenue contributions to capital of £1.4m. A contribution of £1.4m to the capital reserve is proposed to assist in financing the higher capital expenditure in 2007/08 and later years, resulting from the slippage in the capital programme.

Insurance provision (-£1,996,000 matched by an equivalent contribution to the insurance reserve)

1.10 The assessed value of outstanding liability claims was £0.5m lower at 31 March 2007 than in the previous year, while claims paid in the year were £1.5m lower than the premiums paid by services. There was therefore a saving of £2m in the insurance provision required, as set out in Table 3 below:

Table 3

1.11 Though in accounting terms there are no liabilities for which a provision is required in the accounts in respect of damage to the County Council's own buildings outstanding fire reinstatement needs to be taken into account in determining the requirement for an insurance reserve. Claims settled on an indemnity basis, where the damaged building is not being reinstated, have been financed from the insurance reserve, reducing the reserve to £4m at 31 March 2007, before any further contributions are determined. This is sufficient to cover current outstanding fire damage reinstatement, but provides no cover against the risk of a further major fire on a scale which could not simply be covered from current premiums. It is therefore proposed to make a contribution to the insurance reserve of £2m which matches the reduction in the provision required.

Winter maintenance (-£215,000)

1.12 The County Council's policy is to budget for winter maintenance on the basis of average spending at current prices in the previous four years, with any under/overspending at the year end being dealt with outside service cash limits. Following three years in which spending has been above the four year average, spending in 2006/07 was £2,430,000, £215,000 below the revised budget, reflecting below average salting and snow clearance activity in 2006/07 as a result of the mild winter.

Doubtful debt provision (-£410,000)

1.13 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 also likely to have to be written off. A reduction in the provision of £410,000 is proposed in 2006/07 to £1.662m, following a substantial increase of £774,000 in 2005/06, mainly as a result of increased outstanding debt with the National Health Service, which has returned to more normal levels in 2006/07. Table 4 below summarises the data relating to the collection of debt in 2006/07.

Table 4 - Analysis of outstanding debt

	Quarter ending
	30/6/06	30/9/06	31/12/06	31/3/07
	£'000	£'000	£'000	£'000
Debt outstanding at the beginning of the quarter	36,441	25,012	21,591	20,060
Debt raised	31,117	33,743	28,946	56,136
Debt settled	-42,500	-37,124	-30,436	-41,434
Debt written-off as irrecoverable	-46	-40	-41	-134
Debt outstanding at the end of the quarter	25,012	21,591	20,060	34,628
Debt outstanding for more than 12 months	4,530	4,263	4,263	4,280

1.14 Irrecoverable debts written-off during the year were equivalent to 0.2% of debt settled during the year, as compared with 0.4% in 2005/06. The average value of debt outstanding more than 12 months old was 17.1% of debt outstanding during the year, but only 12.4% at the year end compared with 10.1% in 2005/06.

Landfill allowance trading scheme (LATs) (-£6,000 matched by an equivalent transfer to the LATs reserve)

1.15 The landfill allowance trading scheme was introduced in 2005/06 as a means of seeking to achieve the UK's targets for reducing the landfill of biodegradable waste under the EU landfill directive. Allowances are allocated to Waste Disposal authorities at a reducing level each year consistent with the targets, in proportion to 2001/02 landfill levels, each allowance enabling one tonne of waste to be landfilled. Authorities with insufficient allowances to meet their landfill needs can purchase them from authorities with surplus allowances, but otherwise are liable to pay a fine of £150 per tonne to the Government.

1.16 Because of the early investment in waste disposal and recycling infrastructure through Project Integra, Hampshire (together with Portsmouth and Southampton) are in a relatively strong trading position with substantial surplus allowances available over the first four year trading period. The Cabinet in June 2005 agreed a trading strategy for LATs, involving the ring-fencing of any income received from LATs trading in an earmarked reserve to be used to reduce cost pressures from the existing waste management contract and to provide scope for further investment in waste infrastructure, subject to approval of business cases, to avoid future costs.

1.17 During 2006/07 155,100 allowances were sold on behalf of the three authorities at an average price of £19.18, generating income of £3.0m, of which £2.3m is retained by the County Council. 234,000 allowances were sold in 2005/06 at an average price of £19.68. Sales in 2006/07 were very close to the revised estimate and it is proposed to transfer the savings of £6,000 to the earmarked reserve.

Part-time pensions (-£921,000, matched by a transfer to the job evaluation transitional costs reserve)

1.18 A provision has been included in the accounts since 2000/01, most recently revised to £1.1m, to cover potential backdated employers' contributions following a European Court ruling regarding the rights of part-time workers to join pension schemes. In practice it has proved possible to defend many of the claims successfully and it has also been established that no backdated employer contributions will be required, with any strain on the Pension Fund being dealt with in the triennial actuarial valuation. £179,000 of the provision has been set aside to cover legal costs associated with defending claims, of which £29,000 was incurred in 2006/07 and the balance of £150,000 transferred to an earmarked reserve. It is proposed to transfer the saving of £921,000 to the job evaluation transitional costs reserve to cover potential legal costs associated with equal pay compensation claims arising from the Pay and Benefits review.

Mandatory awards (£11,000 matched by additional specific grant)

1.19 Responsibility for paying all awards to students has transferred to the Student Loan Company, but some minor residual costs were incurred in 2006/07, which will be 100% grant aided.

Specific grants (-£880,000)

1.20 Table 5 below summarises the additional specific grants received in 2006/07 compared with the assumptions made in the adjusted revised budget:

Table 5

			£'000
Local Authorities Business Growth Incentive
	- adjustment to 2005/06		-9
	- 2006/07 notification in excess of £1m included in the revised budget		-56
Additional waste management grant for WEEE directive costs incurred in 2006/07 (announced on 28 March 2007)			-804
Additional mandatory award grant			-11
			-880