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

1 Summary

1.1 Service cash-limited spending in 2007/08 was £3.4m (0.25%) lower than forecast in the revised budget, mainly because of lower spending on Adult and Children's Services:

· Adult Services' outturn was £1.9m lower than planned partly because there were no significant winter pressures this year and because the financial recovery and modernisation measures produced slightly higher savings than anticipated

· Children's Services spending on the non-schools budget was £1.4m below budget, a bigger underspending than previously forecast. This was partly due to the need to redeploy the use of General Sure Start Grant because of later implementation during the year of new children's centre provision. Other savings were from higher interest on school balances, lower premature retirement costs in schools and delays in social care recruitment

· spending was close to the budget on the other three services, with a small underspending on Policy and Resources and with spending on both Environment and Recreation and Heritage being almost in line with the budget

1.2 Adult Services had set a target of achieving planned savings of £3.5m in the revised budget to carry forward to 2009/10; and in the event have slightly exceeded that target. Similarly the final Children's Services monitoring report predicted an underspending of £0.3m, but the final outturn produced a higher underspending. Assuming that 50% of the unplanned underspendings together with 100% of the Recreation and Heritage overspending are carried forward to 2008/09, the net impact is to increase balances by £1.7m.

1.3 Net savings of £6.5m have been achieved on other budgets from:

· additional interest on balances, partly offset by higher capital financing charges, an increased provision for doubtful debts, and a delay in allocation of the Local Authorities Business Growth Incentive grant (LABGI) originally expected to be allocated in 2007/08 (£3.4m)

· lower waste management contract costs than originally budgeted, as forecasted (£0.8m)

· lower spending on highways winter maintenance, as a result of the mild winter (£0.6m)

· favourable trends in relation to both liability claims and new fire reinstatement cases, reducing the provision for insurance liabilities by £1.1m after allowing for the earmarking of fire reinstatement costs at a reduced level

· savings against sums previously earmarked from council tax second homes income based on the proposal not to proceed with a County Council funded Homebuy Scheme, to complement the Government scheme for key workers (£0.4m)

· an additional value added tax (VAT) recovery of £0.2m relating to libraries income following a court ruling against Her Majesty's Revenue and Customs (HMRC) decision restricting the period of the claim

1.4 Overall spending is therefore lower than budgeted, adding £8.2m to balances. A further £0.1m is also released as external funding is now available for the set up costs of the Hampshire Senate. Despite the savings that all services were required to achieve to comply with their cash limits and these further savings achieved against the budget, the accompanying performance report indicates that the County Council has again managed to achieve a net improvement in performance, which represents a very positive outcome.

1.5 It is proposed that the additional contribution to balances is allocated as follows:

· £5.1m to reduce the council tax rise by 0.5% in both 2009/10 and 2010/11 from the planned 3.5% in the medium-term financial strategy to 3%. This in effect returns a `dividend' to council tax payers from the higher interest on balances resulting from the more favourable cash flow and higher balances during 2007/08

· £2m further investment in highways maintenance to repair potholes, to accelerate the completion of the 30 mph speed limits in villages and to provide a further contingency for road and pavement maintenance and repairs (in accordance with outcomes 1.2 and 3.2 of the corporate strategy)

· £1.2m to improve the quality of life in the County's residential homes for the elderly (£0.4m), to provide resources to meet the anticipated initial funding gap for the private finance initiative (PFI) street lighting scheme (£0.6m) and to provide resources towards an educational centre (£0.2m) for use by Hampshire schools (in accordance with outcomes 1.2, 1.4 and 2.3 of the corporate strategy)

1 Recommendations

1.1 The recommendations are set out in paragraph 1.3 (summary decision sheet).

2 Service Cash limits

2.1 Variations in service spending against the revised cash limits are set out in Appendix 1, and summarised in Table 1.

Table 1: 2007/08 outturn variation for services
	2007/08 Cash limit	Variation against cash limit
	£'000	£'000	%
Adult Services	268,085	-1,865	-0.7
Children's Services - Schools block - Other services	724,234 137,997	- -1,366	- -1.0
Environment	106,957	-23	-
Policy and Resources	55,409	-125	-0.2
Recreation and Heritage	32,366	10	-
	1,325,048	-3,369	-0.25

2.2 Service spending is therefore close to the revised budget, as in 2006/07 and most previous years. There was a more significant variation in 2005/06.

Table 2: Trends in Service spending against the revised budget

	£m	%
2002/03	-0.2	-0.02
2003/04	-0.6	-0.05
2004/05	-0.4	-0.04
2005/06	11.3	0.94
2006/07	-3.8	-0.30
2007/08	-3.4	-0.25

2.3 The position on each service is summarised in the following section of the report:

Adult Services (-£1.865m)

2.4 Adult Services revised budget included a proposal to carry forward planned underspendings of £4.3m to 2008/09. This included a target to achieve savings of £3.5m against the contingency set aside for winter pressures, partly in order to supplement the 2008/09 contingency and partly to fund additional capital spending. The winter was exceptionally mild, so that additional seasonal pressures on care budgets did not arise. Measures being taken as part of the financial recovery and modernisation plan (to review high cost learning disability placements; and to improve the management of learning disability clients transferring from Children's Services) and lower than assumed demand pressure for purchased residential and domiciliary care, also assisted in achieving slightly higher savings than anticipated.

2.5 As a result Adult Services outturn was nearly £1.9m (0.7%) lower than had been targeted, bringing to a successful conclusion the two year recovery plan to realign Adult Services spending with the budget.

Children's Services (-£1.366m)

2.6 Children's Services non-Schools budget spending was £1.4m below the revised budget, a slightly larger underspend than had been anticipated in the latest budget monitoring report.

2.7 This has arisen partly in order to avoid the loss of General Sure Start Grant, which cannot be carried forward, but where there is some scope to include within the grant claim early years expenditure which would otherwise have been funded from the non-Schools budget. The management of General Sure Start Grant during the roll-out of the Children's centre programme within the annual allocations determined by the Department for Children, Schools and Families (DCSF) has been a difficult issue nationally, not just within Hampshire. The County Council remains on course to deliver to the targets, but start up in 2007/08 was later than forecast.

2.8 An underspending of £0.6m on the Children's social care element of the budget has also arisen, partly because of delays in recruiting to qualified social worker and administrative support posts. The revised budget for 2007/08 also contained a contingency sum, £0.3m of which did not need to be allocated.

2.9 The Schools budget is fully funded by Dedicated Schools Grant (DSG) and other ring-fenced grants, which have to be carried forward for school purposes, unless an overspending arises. Spending is therefore automatically in line with the cash limit, as the cash limit is adjusted for the carry forward of grant. In total DSG of £6.5m will be carried forward to 2008/09, including £2.0m in respect of school capital repairs and £1.8m which had already been agreed by the Schools Forum. In addition, schools collectively spent £5.8m less than their budget shares for 2007/08 and this will be added to schools reserves, the underlying level of which has increased to £46.8m.

Environment (-£23,000)

2.10 As anticipated in the latest Executive member budget monitoring report, cash limited spending on Environment was very close to the cash limit.

Policy and Resources (-£125,000)

2.11 The Policy and Resources revised budget required unidentified savings of £291,000 to be achieved to comply with the cash limit. These savings have been achieved and a small underspending has arisen mainly in the areas identified in the last budget monitoring report. Property, Business and Regulatory Services achieved savings to cover most of the spending pressures on the corporate estate, sites for gypsies and travellers, county farms and the development account. Small savings arose on the other central support services. These were lower external audit and election costs than anticipated, and savings on members support costs.

2.12 The cash-limit has been adjusted to allow the carry forward of unspent members devolved budget (£0.2m) and repair and maintenance winter contingency (£0.3m).

Recreation and Heritage (£10,000)

2.13 The Recreation and Heritage department was also successful in containing budget pressures particularly on the Library Service, very close to the service's cash limit.

Carry forward of over and underspendings

2.14 The County Council's financial management policy allows 50% of unplanned underspendings to be carried forward to 2008/09 and requires services to plan on the assumption that 100% of any overspending will be carried forward. No significant overspendings have arisen in 2007/08 and it is proposed that the financial management policy should be applied to Adult Services, Children's Services, Environment and Policy and Resources underspendings and to Recreation and Heritage's overall overspending.

Cash limit adjustments

2.15 Appendix 1 shows the adjustments made to cash limits since the revised budget for 2007/08 and Appendix 2 analyses the main variations between actual spending and cash limit for each service, and summarises the end of year position on demand led and employee budgets.

3 Other budgets

3.1 The overall underspending on other budgets is £6.5m. A full analysis of the variations is contained in Appendix 3.

Contingency (-£931,000)

3.2 A contingency of £13.7m was retained in the revised budget to cover Pay and Benefits costs (£9.5m), the Rowner regeneration project (£1.5m), increases in the waste management contract in the third and fourth quarters (£2.6m), and unallocated council tax second homes income (£0.1m).

3.3 Allocations have been made to services to cover the first year costs of pay and benefits implementation and it is proposed to transfer the balance of the contingency sum to the job evaluation reserve pending the resolution of equal pay claims submitted to the Employment Tribunal. It is also proposed to earmark the resources set aside to contribute to the Rowner regeneration scheme. In view of favourable trends in waste volumes in the earlier part of the year and the impact of the introduction of producer responsibility for electrical waste, a saving against the waste management contingency had been anticipated and this amounts to £0.8m.

3.4 A small element of the council tax second homes income for 2008/09 had not been applied in the budget. Additional support might have been required for the Homebuy scheme due to be introduced in New Forest, Test Valley and East Hampshire which was to be funded mainly from 2004/05 second homes income. In view of the extension of the Government scheme beyond the limited range of key workers originally covered and the tax disadvantages of an employer sponsored scheme, the Leader has proposed that the Council's proposed Homebuy scheme should not proceed. This has been agreed with East Hampshire, New Forest and Test Valley District Councils. It is therefore not necessary to carry forward the council tax second homes sum within the contingency and a further sum of £270,000 earmarked in 2006/07 can also be added to balances. The unutilised income from 2004/05 remains available for other purposes to be agreed with the relevant district councils.

Capital financing charges (£99,000) and interest on balances

(-£5,105,000)

3.5 Capital financing costs are very close to the estimate in the revised budget with the average interest rate payable in 2007/08 of 5.55% being very close to the forecast in the revised budget. The combination of underspendings on capital and revenue expenditure in 2007/08, the success in achieving planned capital receipts and the carry forward of government grants to 2008/09 have all had a favourable impact on cashflow, resulting in significantly higher interest on balances than allowed for in the revised budget.

Insurance (-£3,624,000 offset by a reserve contribution of £2,491,000)

3.6 The contribution to or from the insurance provision is based on the value of claims paid in the year and the change in the assessed value of outstanding liabilities. Though the trend in employees and public liability claims has again been favourable, the main reason for the saving has been the result of fire reinstatement carried out in 2007/08 being lower than the `premiums' charged to services. Savings emerging from premises insurance are primarily generated by schools. The total savings can either be returned to services by means of a lower future premium, or transferred to the insurance reserve to protect services against future volatility. It is proposed to transfer the assessed savings of £2.5m on fire reinstatement to the insurance reserve.

Highways winter maintenance (-£642,000)

3.7 The highways winter maintenance budget is set on the basis of a four year average of actual expenditure adjusted for inflation. The winter in 2007/08 was exceptionally mild and a saving of £0.6m was achieved against a budget of £3.0m.

Doubtful debt provision (£607,000)

3.8 The County Council's policy is to make a provision against a proportion of debts proving to be irrecoverable, partly assessed on the basis of the age profile of outstanding debts but partly based on assessing the risk of specific debts proving to be irrecoverable. The provision varies from year to year, but in 2007/08 the assessed provision is £607,000 higher than in 2006/07, following a reduction of £410,000 last year.

VAT exceptional item (-£168,000)

3.9 A recent court ruling has enabled the County Council to backdate a value added tax (VAT) recovery claim. This covers the period from the introduction of VAT up to 1996 on income derived from the sale of library CDs/DVDs etc, amounting to £168,000.

Specific grants (£1,000,000)

3.10 The Government planned to allocate Local Authority Business Growth Incentive (LABGI) scheme grant in 2007/08, but a decision has been delayed as a result of the Government's review of the basis of allocation in the light of judicial reviews sought by a number of authorities. The budget included an allowance for grant of £1m in 2007/08, and a recent provisional Government announcement indicates that a grant of £1.4m may be received in 2008/09.

Revenue contributions to capital

3.11 As explained in Appendix 9, capital expenditure of £177.1m requires funding in 2007/08. This is £12m lower than estimated. Overall the use of supported and unsupported borrowing, capital grants, external contributions and capital receipts is broadly in line with the estimates in the revised financing plan, so that the impact of lower payments reduces the requirement to make revenue contributions to capital by £11.9m in 2007/08. Higher capital expenditure will be incurred in 2008/09 and later years as a result and it is therefore proposed to transfer the saving to the capital reserve to enable the additional expenditure to be financed.

Summary - other budgets

3.12 These variations can be summarised as follows:

Table 3: Summary of variations on other budgets
	£'000
Contingency
· Waste management contract	-811
· Council tax second homes income	-120
· Rowner regeneration scheme	-1,500
· Pay and benefits	-5,716
· Contribution to earmarked reserves for unused contingency	7,216
· Contributions from council tax second homes income reserve	-270
Capital financing charges	99
Interest on revenue balances	-5,105
Insurance provision	-3,624
Contribution to insurance reserve	2,491
Highway winter maintenance	-642
Provision for doubtful debts	607
VAT exceptional item	-168
Specific grants	1,000
Revenue contributions to capital	-11,883
Contribution to capital reserve	11,883
Other variations	2
Net saving on other budgets	-6,541

3.13 Based on the recommendations about the carry forward of service over and underspendings and the earmarking of some of the savings on other budgets the overall position is as follows:

Table 4: 2007/08 outturn
	£'000
Service underspending (Table 1)	3,369
Saving on other budgets (Table 3)	6,541
Earmarking of 50% of Adult Services, Children's Services, Environment and Policy and Resources underspendings	-1,691
Increase in balances at 31 March 2008	8,219
Carry forward of Recreation and Heritage overspending to 2008/09	10
Potential increase in balances	8,229

4 Proposals for use of additional balances

4.1 The target level of balances for 2008/09, based upon the risk assessment carried out in setting the 2008/09 budget and medium term financial plan for 2009/10 - 2010/11 was £15.1m. With the exception of higher risks on equal pay claims, dealt with by a further contribution to earmarked reserves, there is no other material change to the risk assessment.

4.2 The 2008/09 budget includes a one-off allocation of £100,000 towards the set up of the Hampshire Senate. Improvement and Efficiency South East (IESE) has agreed to make a grant of £50,000 towards the set up costs. Free consultancy from the Improvement and Development Agency for local government is also available to the project. As a result the budget allocation for the Senate will not be required and can be returned to balances, and together with the additional balances from the closure of 2007/08 accounts, £8.3m is therefore available for use on a one off basis in the period 2008/09 to 2010/11.

4.3 As £5.1m extra has been earned as interest on balances (paragraph 4.5) it is suggested that this "dividend" should be returned to council tax payers. The planned council tax rises in 2009/10 and 2010/11 within the medium term financial plan were 3.5% each year. It would therefore be possible to reduce the planned rise in each of those years from 3.5% to 3% (0.5% reduction in council tax requires about £2.5m on the current tax base, and £2.6m in 2010/11).

4.4 Research with residents has shown that a top priority is for improvements to the condition of Hampshire's 5,000 miles of maintained roads. Overall it is proposed to invest £2m on a one-off basis in roads and pavements so that resources follow this priority and match the corporate strategy aims of Hampshire safer and secure for all and enhancing the quality of place.

4.5 The first highways proposal is to use £1m to bring forward repairs to potholes which have a big effect on how the public see the condition of roads. There have been recent problems arising from warmer, wetter winter conditions. £0.5m will also be set aside in a contingency to provide for repairs and maintenance of pavements, including temporary repairs as appropriate to Winchester High Street. The third proposal is to use £0.5m to accelerate the Village 30 programme which would mean significantly more villages being considered for reduced speed limits this year.

4.6 The PFI scheme for street lighting is progressing and there is likely to be a funding gap of up to £600,000 between the PFI credits available from Government and the payment streams to the PFI service provider. £0.6m will be reserved to cover the first year costs. The Executive Member for Environment is asked to consider matching this amount to meet anticipated higher street lighting energy costs, from the savings achieved by accelerating pothole repairs and the Village 30 programme into 2008/09 from 2009/10.

4.7 A further £0.4m will be set aside to improve the quality of life in the County's residential homes for the elderly, by installing double glazing and other building maintenance improvements.

4.8 £27,000 will be provided to cover the costs of maintaining the 101 non-emergency number during 2008/09, with £200,000 allocated towards the Winchester Cathedral educational centre appeal, to facilitate its use by Hampshire schools.

4.9 The additional £8.3m added to balances will therefore be used as follows:

Table 5: Use of extra balances

	£'000	£'000
To reduce the council tax rise - in 2009/10 - in 2010/11	2,500 2,600
Council tax reduction		5,100
Potholes and other road maintenance repairs	1,000
Pavement repairs and contingency	500
Accelerate the Village 30 programme	500
Highways maintenance	2,000
PFI street lighting scheme	600
Environment		2,600
Building maintenance repairs for Adult Services		400
Policy and Resources Grants Panel		200
101 non emergency number		27
Total planned withdrawal from balances		8,327

5 Balances

5.1 Taking into account the spending proposals in paragraph 5 above, the closure of the 2007/08 accounts has the following impact on the level of balances:

Table 6: Balances
	£m
Estimated balances at 31 March 2008	15.1
Increase in estimated balances as a result of 2007/08 outturn	8.3
Additional one-off spending proposals	-3.2
Additional balances available to reduce council tax in 2009/10 and 2010/11	-5.1
Target level of balances based on risk assessment for 2008/09	15.1

6 Earmarked reserves

6.1 Earmarked reserves are £154.1m at 31 March 2008. The main reserves are for schools (£46.8m); capital (£13.4m); the carry forward of underspends (£11.2m); job evaluation (£36.4m) and grant equalisation (£26.1m). The reserves are £27.5m higher than budgeted, mainly as a result of the recommendations to earmark 2007/08 savings contained in this report. Details of the movements in reserves during 2007/08 and of the protocol for each of the main classes of reserve are set out in Appendix 4.

7 Treasury management, and prudential and financial health indicators

7.1 The County Council's treasury management policy requires an annual report to the Cabinet on the exercise of the treasury management function, details of which are set out in Appendix 5.

7.2 In addition the latest local authority capital finance regulations replace the existing formula for calculating the minimum revenue provision for the repayment of debt with a requirement to make `prudent' provision, reinforced by statutory guidance. The regulations require the Council to approve a policy on an annual basis for making revenue provision for the payment of debt and in this transitional year a policy needs to be agreed both for 2007/08 and 2008/09. Appendix 5 proposes a policy for 2007/08 and 2008/09 for submission to the County Council, which is consistent with the statutory guidance but which will not have a material impact on the current three year budget plan for 2008/09 to 2010/11.

7.3 The prudential code for capital finance in local authorities includes a number of prudential indicators for which actual indicators for the year as well as budgeted indicators require approval. Appendix 5 summarises the relevant indicators for the 2007/08 outturn which are in accordance with the policies approved by the Cabinet, together with the remaining financial health indicators included in the medium term financial strategy.

8 Annual efficiency statement

8.1 The County Council is required to submit its 2007/08 backward look annual efficiency statement (AES) based on actual performance in 2007/08 to Communities and Local Government in July 2008. The statement requires the approval and certification of the Leader, Chief Executive and County Treasurer.

8.2 2007/08 represents the final year of the `Gershon' efficiency targets set in the 2004 Spending Review. Appendix 6 summarises the proposed improvements included in the County Council's submission which is attached as an annex. The submission indicates that the cumulative efficiency gains from 2004/05 to 2007/08 total £71.2m (3.8% per annum), in excess of the 2.5% annual target. £51.9m (2.7%) of these gains represent cashable efficiency gains and to the extent that these exceed the overall 2.5% target (by £4.5m) can be carried forward to the first year of the new efficiency regime, based on a national target for cashable efficiency savings of 3% per annum over the period 2008/09 to 2010/11.

9 Pension fund accounts

9.1 The separate accounts for the Hampshire Pension Fund are also submitted for approval as Appendix 7. The value of the Fund's assets has increased marginally from £2.92bn to £2.95bn during the course of 2007/08.

10 Financial management policy

10.1 The County Council's financial management policy incorporates both the financial planning policies that underpin the County Council's medium term financial strategy and policies relating to the provision of financial services. Appendix 8 highlights the progress made in 2007/08 in implementing the policy.

11 Capital spending and financing 2007/08

11.1 Details are shown in Appendix 9, but in summary:

· £151.8m of capital schemes were committed leaving £62.1m to be carried forward to 2008/09

· capital payments of £177.1m were incurred which can all be financed within available resources

· £21.7m was borrowed under the prudential code and capital receipts of £63.9m were achieved

12 Partnership accounts

12.1 Details are included in Appendix 10 of partnerships for which the County Council is the accountable body, but where no other reporting to members of the County Council takes place and the full expenditure and income of the partnership is not included in the County Council's revenue accounts.

13 Assurance statement

13.1 The Code of Practice on Local Authority Accounting in the UK requires the County Council within its Statement of Accounts to publish an annual governance statement signed by the Leader and Chief Executive. As part of this process, the Chief Internal Auditor provides an independent opinion on the adequacy and effectiveness of the system of internal control operating in each department and in the County Council as a whole. These opinions are reviewed by the Governance Committee. Appendix 11 contains the overall statement and concludes that the County Council has an appropriate framework of control that provides reasonable assurance regarding the effective, efficient and economic achievements of the County Council's objectives. Audit testing has shown that the controls are working in practice with some exceptions.

14 2008/09 Budget

14.1 On the appointment of the Chief Executive in December the Executive Member for Policy and Resources agreed that a number of significant reviews should take place which were approved in the budget papers in February 2008. The reviews relate principally to the organisation of the central and corporate services of the Council, but also to take forward the work started by external consultants in relation to efficiency and value for money with regard to Council services.

14.2 The corporate reviews relate to how the County Council organises its central services to remodel and regroup those services in a more cost efficient way, to identify opportunities with business partners for the development of these services, and overall to remodel the central capacity of the Council in relation to its services and budget pressures.

14.3 It is also proposed to carry out a series of efficiency reviews on senior management costs, support costs, central overheads and value for money studies and to regroup the procurement functions, the latter being agreed by Cabinet late last year.

14.4 It is proposed to undertake this work over the next six months with a series of external consultants and in-house teams. It is therefore recommended that £500,000 be allocated to cover the costs arising from these reviews from the Invest to Save reserve. A detailed report on the proposals, the processes and the areas of activity will be prepared for Cabinet in July 2008.

14.5 The Chief Executive also proposes, with the agreement of the Leader, to proceed with the appointment of a new Director of Corporate Services to assist with the reviews and in the absence of a permanent Director of Property, Business and Regulatory Services this will be cost neutral.

14.6 The 2008/09 budget included a contingency of £626,000 to be allocated to meet a number of unfunded pressures in 2008/09, subject to the agreement of the Leader and Cabinet. £156,000 of the contingency remains unallocated and it is proposed that this be allocated to provide continuing funding through to the end of the financial year for Hampshire Action Team support and revised scrutiny arrangements pending the outcome of the review of the Hampshire Action Team pilot.

15 Impact Assessment

15.1 Decisions on the final accounts are taken in accordance with the Council's financial management policy, which applies equally to all services ensuring consistent financial management.

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.

Summary of Appendices