Contact: Nick Gibbins, (01962) 84 7544; [email protected]

1 Introduction

1.1 Executive members have now considered initial 2007/08 budget monitoring reports, reviewing progress on the achievement of budgeted savings and in dealing with budget pressures. This report also reviews the first quarter's monitoring of high risk/demand led budgets, overall employee budgets, savings plans and financial health indicators to provide an overall corporate context to budget monitoring. Anticipated variations in spending on non cash-limited budgets have also been assessed.

1 Recommendation

1.1 That the progress made in progressing plans for achieving the savings in the budget be welcomed and that the action being taken by all services to contain spending within cash limits be supported.

1.2 That an invest to save contribution of £78,000 to fund a benchmarking review of support services, by Mott Macdonald and RSe be approved, to be repaid by top-slicing savings emerging from the review.

2 Service cash-limited budgets

Adult Services

2.1 The Executive member for Adult Social Care received a budget monitoring report in July based on data covering the period to 31 May 2007. At that stage the latest 2007/08 spending projection was £1.9m in excess of the budget, and at the end of June 2007 higher spending was projected at £3.6m. Given the overspending of £7.5m in 2006/07 and the requirement to achieve further savings of £13m in 2007/08, this represents an improvement on the position in 2006/07 with budget and spending more closely aligned and with reduced risk of a significant overspending. Nonetheless progress in achieving the savings in the Financial Recovery Plan will need to be sustained and some alternative savings identified in 2007/08, where planned savings are likely to take longer to achieve than originally planned. Higher nursing care staffing costs are also imposing a budget pressure, due to the extent of the reliance on agency staff and overtime and management action is being taken to address this issue.

Children's Services

2.2 The Executive member for Children's Services also received a budget monitoring report in July covering the period to 31 May 2007. A full assessment of the budget monitoring position had not been made but increases in the number of home to school transport contracts, mainly associated with pupils with special educational needs, and in numbers of children in non-county placements or placed with independent fostering agencies provided an early indication of further budget pressures in 2007/08. Monitoring of progress in achieving savings included in the 2007/08 budget also indicated areas where savings were unlikely to be achieved in full and where alternative savings were being sought by managers.

Environment

2.3 A report presenting the outcome of the first quarter's budget monitoring review was presented to the Executive member earlier in September. This indicates that spending is expected to be contained within the budget, following the implementation of the proposed changes to subsidised bus services agreed by the Executive member in August. The scale of the service changes required was less substantial than originally anticipated due to more favourable tendering results in the Blackwater Valley and Eastleigh areas than had been forecast. Waste management volume trends have also been favourable in the first quarter of the year with overall volumes being 2.83% lower than in the corresponding period in 2006/07.

Policy and Resources

2.4 A monitoring report based on the position at the end of May 2007 was presented to the Executive member in July. This identified continuing budget pressure in 2007/08 associated with some of the property related budgets where overspendings or income shortfalls were also incurred in 2006/07, but action is being taken with a view to keeping spending within the cash limit.

Recreation and Heritage

2.5 The main challenge to the Recreation and Heritage budget in 2007/08 is in managing the implementation of the Library Service restructure, recognising that a number of the changes required to avoid library closure and reductions in opening hours, will have some transitional costs in 2007/08. The Invest to Save contribution of £175,000 agreed by the Cabinet in June recognised this, but continued management action will be required to manage operational budgets over the remainder of the year to achieve the overall savings of 4% built into the 2007/08 budget both to meet corporate savings targets and to fund higher priority new service developments designed to widen participation.

Corporate budget monitoring

2.6 In addition to service based budget monitoring, corporate budget monitoring is also undertaken across all services on a quarterly basis focussing on high risk budgets, overall employment trends, the achievement of budget savings and the monitoring of financial health indicators.

High risk/demand led budgets

2.7 Appendix 1 summarises the first quarter's monitoring of spending and activity levels on high risk/demand led budgets which are mainly focussed on Adults and Children's services. Spending on these budgets is projected to be £5m higher than budgeted, £3.4m on Adult Services and £1.6m on Children's Services, and these are the main budget pressures referred to in the earlier paragraphs on Adults and Children's services. This does not mean that budgets will be overspent by these amounts at the year end as management action being taken and other more favourable trends in other budgets may emerge as the year progresses. The position will continue to be reviewed.

Employee budgets

2.8 Overall spending on employee budgets is projected to be about £1.1m (0.4% higher than budgeted mainly because of higher spending on nursing care agency staff and overtime within Adult Services, which also form part of the higher spending on high risk/demand led budgets referred to in the previous paragraph. Actual employee numbers in the first quarter (excluding schools and business units) averaged 8,965 FTE, slightly lower than the average staffing level in 2006/07. Appendix 2 summarises the data.

Savings plans

2.9 Table 1 below analyses the latest progress in achieving the savings incorporated in the 2007/08 budget, totalling £18.9m.

Table 1

2.10 Since the previous monitoring report in May, further savings of £1.9m have either been achieved or are now supported by an implementation plan, now covering £17.0m of the overall savings of £18.9m. Alternative savings are now likely to be required to cover the remaining £1.9m of planned savings. A detailed schedule indicating progress on individual savings proposals is attached at Appendix 3.

Financial Health indicators

2.11 A set of Financial Health indicators were incorporated within the Medium Term Financial Strategy approved by the Cabinet in May. These are not performance indicators but a set of upper and lower limits the monitoring of which can provide an early warning that action may be required to maintain the County Council's financial health. Appendix 4 contains a summary of the targets for 2007/08 and either the latest full-year projection or first quarter's data. Monitoring of the indicators for budget variances, capital programme management, prudential indicators relating to borrowing and income collection indicate that all indicators are either expected to be at or within the target levels for 2007/08.

3 Non cash-limited budgets

3.1 There are a number of budgets which are outside service cash limits - these mainly comprise the following:

Capital financing/interest on balances

3.2 Capital financing budgets were based on short-term interest rates of 5.25% and provision was made in the contingency for rates to increase to an average of 5.5% in 2007/08. Since the budget was prepared, there have been two 0.25% increases in base rate to 5.75% from July 2007. A further increase to at least 6% was widely anticipated during the autumn but the recent fall in the rate of increase in the consumer prices index and concerns about the impact of losses on sub-prime mortgage lending in USA now make the timing and direction of changes in short-term interest rates more uncertain. If short-term rates remain at this current level, interest costs are likely to increase by about £0.4m in 2007/08, about £0.1m higher than the allowance made in the contingency.

3.3 The level of interest on balances remains uncertain at this stage in the year but the impact of higher general fund balances and earmarked reserves at
31 March 2007 than forecast is likely to have a positive impact on the level of interest.

Flood protection levies

3.4 Flood protection levies are not notified until immediately before the County Council sets its budget and consequently the budget is normally set on the basis of the previous year's levies with a provision made in the central contingency for potential increases. While the increases in the Southern and Wessex levies were broadly in line with expectations, there was a large 60% increase in the Thames levy in 2007/08 for which no advance warning was given. As a result, the overall level of flood protection levies in 2007/08 is about £0.1m higher than budgeted. Because of the large number of authorities within the Thames Region, Hampshire is only represented on the Committee on a rotational basis. It is proposed to contact the Environment Agency to seek to ensure that the County Council are better informed of the plans of the Thames Regional Flood Defence Committee in 2008/09, particularly in view of the possible impact on those plans of the flooding that has occurred in the Thames Valley during the summer.

Waste Management Contract

3.5 A contingency of £4.2m is included in the 2007/08 budget to cover potential increases in the cost of the waste management contract arising from inflation, increased landfill tax, higher waste volumes and regulatory requirements. The trend in waste volumes in the first quarter was favourable, resulting in an allocation of £0.8m towards higher costs in the first quarter.

Pay and Benefits

3.6 Implementation of the new pay structure has been delayed as a result of the rejection of the County Council's proposals in the trade union ballots held in May. The local government employers have made a revised pay offer effective from 1 April 2007, offering an increase of 2.475%, with a 3.4% pay rise for the lowest paid council workers to £6 per hour. This has not been accepted and the unions are to ballot on industrial action. If a higher award is eventually agreed, it is assumed that management action will be taken to absorb the extra 0.25% during 2007/08 by managing staff vacancies. The impact of the award on different services will be considered with the revised budget.

3.7 Budget projections contained in this report currently assume a pay increase at the budgeted level of 2.25% in 2007/08.

3.8 2007/08 budget limits include pay and benefit realisation savings of £2m (increasing to £2.5m in 2008/09). The savings of £2m were allocated between services pro rata to pay budgets with a view to amending the distribution of the savings targets to reflect the incidence of higher pay costs once the new pay structure had been agreed. Though implementation will be backdated to 1 April 2007, the earliest the new pay structure will be in place will be just prior to the end of the financial year, too late for services to amend their savings plans in 2007/08 to reflect any redistribution of the savings target. It is therefore proposed that the pay and benefits realisation savings targets should remain unchanged in 2007/08, with adjustments made in 2008/09 to reflect the incidence of higher pay costs.

Hantsdirect

3.9 The first services transferred to Hantsdirect in July 2007. A more significant second phase of services mainly relating to social care calls in Adults and Children's Services were due to transfer in December 2007 and budget transfers in 2007/08 were agreed on that basis. It is likely for a variety of reasons that the transfer of the second phase of services will take place later in the year than budgeted, potentially effecting the ability of the departments to achieve budgeted savings from the transfer of services and only partly compensated for by lower Hantsdirect costs in 2007/08. It may be necessary to review the transitional funding arrangements in 2007/08 to reflect amendments to the implementation timetable and the scope for this will be considered with the revised budget.

Invest to save

3.10 The 2007/08 budget included an invest to save contribution of £0.7m primarily to support improvements in Adult and Children's Services designed to transform service provision and improve value for money from 2008/09 onwards. A contribution of £175,000 towards the transitional costs of library restructuring was approved by the Cabinet in June repayable over a three year period to 2010/11.

3.11 Mott Macdonald and RSe have been appointed to carry out a benchmarking review of the County Council's support services, as a first stage in identifying opportunities to achieve efficiency savings which can be redirected to support service priorities. The cost of the review is estimated at £78,000 and it is proposed that the cost should also be funded from the Invest to Save contribution in the budget, with repayments achieved by top slicing the savings proposals which emerge from the review.

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.

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.

None.

Financial Health Indicators