Explanatory Foreword

1. Introduction

1.1. This document contains Hampshire County Council's statement of accounts for the year ended 31 March 2008. The pattern of presentation of the statement is laid down by a code of practice, which the County Council is legally required to follow.

1.2. This foreword gives:

· a summary of the various statements that make up the County Council's 2007/08 accounts

· a broad picture of where the money comes from and what it is spent on

· a summary of revenue expenditure on services and capital expenditure on new assets over the course of the year.

2. Summary of statement of accounts

2.1. The accounts for 2007/08 are set out on pages 8 to 85. They consist of:

· Statement of accounting policies

· An annual governance statement

· Statement of responsibilities for the statement of accounts

· Income and Expenditure account - this covers income and expenditure on all services recorded in accordance with UK generally accepted accounting practice

· Statement of movement on the General fund balance - identifies the adjustments required to the income and expenditure account in arriving at the General Fund balance for council tax setting purposes

· Statement of total recognized gains and losses - brings together all the gains and losses in the year that are reflected in the change in Net worth

· Balance Sheet - this sets out assets and liabilities at 31 March 2008

· Cash flow statement - this summarises all cash coming in or going out for revenue and capital purposes

· Pension Fund accounts- these are the accounts of the Pension Fund, which is operated for employees of the County Council, Hampshire unitary and district councils and other bodies.

3. Where the money comes from

3.1. Following the introduction of the new schools funding arrangements in 2006/07, most of the County Council's income comes from Specific Government grant and the Council tax. The national business rate and general government grant now contribute only 7% of the Council's income, less than contributed by charges made to customers for some services. Interest is earned on day-to-day balances.

3.2. The proportion of the Council's income obtained from these sources is as follows:

	2006/07 %	2007/08 %
Council tax	29	29
National business rates	7	6
General Government grant	1	1
Fees, charges and interest	13	14
Specific Government grants	50	50
	100	100

There was no significant change in the balance of income obtained from the various funding sources in 2007/08.

4. What the money is spent on

4.1. Type of expenditure

	2006/07 %	2007/08 %
Staff costs	56	57
Running expenses	40	40
Capital financing	4	3
	100	100

4.2 Service shares of gross revenue expenditure

	2006/07 %	2007/08 %
Children's services and education	63	63
Adult social care	23	22
Highways, roads and transport	5	5
Cultural, environmental and planning services	8	8
Other services	1	2
	100	100

There were no significant changes in the classification of gross expenditure in 2007/08.

5. Employees

5.1. In 2007/08 the County Council employed 39,352 people, making the Council one of the largest employers in the county. Many of these employees work part-time, and in full-time equivalent (fte) terms, the total number of employees was 26,806 at 31 March 2008, 273 higher than at 31 March 2007, mainly as a result of additional school-based staff. The setting up of Hantsdirect as a central call handling service has resulted in the transfer of some staff from direct service departments into a central service.

6. Summary of the year - Revenue account

6.1. The County Council continued in 2007/08 to pursue the objective of being a local authority that provides services that are of well above average quality while setting one of the lowest Band D council taxes. The County Council remains a local authority receiving transitional support by means of the grant floor and thus receives, along with other floor authorities, the lowest increase in government grant of all county councils. This was an increase of 2.7% in 2007/08.The budget was framed in the context of significant demand pressures on social care, which had resulted in adult care spending in excess of the budget in 2005/06, being addressed by means of a two year financial recovery plan linked to the modernisation of services. This required some rebalancing of the provisional budget strategy for 2007/08, originally approved in February 2006, to provide an additional £6m for Adult Social Care, partly funded by savings in other services. Despite the pressures on the budget, the County Council has continued to improve the quality of its services and improvements have been made in 40% of the Best Value performance indicators, while maintaining a council tax in the lower quartile. Efficiency improvements assessed at £20.2m (3.2%) have been identified in 2007/08 with cumulative improvements since 2004/05 being well in excess of the 7.5% per annum target set in the Gershon review.

6.2. The County Council also maintained an excellent rating from the Audit Commission in the Comprehensive Performance Assessment for the sixth year running, despite the `harder test' now being applied, one of only three county councils to do so.

6.3. The main components of the 2007/08 budget, revised budget and actual income and expenditure are set out below:

Budget	Original budget	Revised budget	Actual	Variation from revised
	£m	£m	£m	£m
Net cost of services	597.3	631.6	617.2	-14.4
(Surpluses)/ deficits on trading units	-0.3	2.4	-1.9	-4.3
Net interest payable	22.4	15.6	10.5	-5.1
Loss/gain on disposal of assets		-6.4	-6.4	-
Pension interest cost and expected return on pensions assets	12.5	16.5	16.5	-
Net operating expenditure	631.9	659.7	635.9	-23.8
Amount to be met from government grant and local taxpayers
Council tax precept income	-475.5	-475.5	-475.5	-
General government grant	-17.6	-17.6	-17.6	-
National business rates	-105.1	-105.1	-105.1	-
Funding of budget requirement	-598.2	-598.2	-598.2	-
Deficit for the year on the income and expenditure account	33.7	61.5	37.7	-23.8
Contribution to capital	32.4	28.7	16.8	-11.9
Excess of depreciation and deferred charges and grants over statutory provision for debt repayment	-45.5	-78.1	-78.1	-
Contribution from pensions reserve	-20.9	-33.9	-33.9	-
Net cost of soft loans and reversal of disposal gain	-	6.4	6.4	-
Contribution to/(from) earmarked reserves	-4.7	17.0	44.5	27.5
Movement in General Fund balance	-5.0	1.6	-6.6	-8.2
General Fund balance
Brought forward 1 April 2007	-9.4	-16.7	-16.7	-
Carried forward 31 March 2008	-14.4	-15.1	-23.3	-8.2

6.4. The budget requirement for 2007/08 was set at £598.2m, an increase of 5.4% on the adjusted budget for 2006/07. The budget was influenced by the risks associated with social care demand pressures and the achievement of the adult services financial recovery plan, resulting in a risk assessment of the required level of general balances of £14.4m, £3m higher than in 2006/07, requiring a contribution of £5m to balances in 2007/08. The budget continued the policy of passing on the increases reflected in the Government's spending plans for social care to Adult Services and Children's Services respectively, but in addition provided for a further £6m addition to the Adult Services budget. Cashable efficiency savings of £12.6m were identified mainly for retention within the relevant services as a means of meeting demand and legislative pressures not accommodated within the budget guidelines for services, but also to finance £1.1m of the Adult Services increase. The budget required a 4.9% increase in the Band D council tax to £955.62.

6.5. In June 2007 the final accounts for 2006/07 were reported. Though spending on Adult Services was £7.5m higher than originally budgeted, it was £3.4m lower than assumed in the revised budget, representing a successful first phase of the financial recovery plan. Overall net operating expenditure was £12.8m below the revised budget, and after allowing for the earmarking of savings of £6.4m, the general fund balance at 31 March 2007 was £6.4m higher than forecast at £16.7m. After allowing for £1.8m of the underspending in 2006/07 to be used for additional non-recurring spending in 2007/08, and a further addition of £0.6m to the general fund balance from higher government grant towards the abortive costs of South Hampshire Rapid Transit, the forecast general fund balance was £5.2m higher at 31 March 2008 than originally targeted, at £19.6m.

6.6. When services revised their budgets in the autumn, savings of £5.9m were targeted by Adult Services, Environment and Policy and Resources to be carried forward within earmarked reserves to 2008/09. Other savings of £4.8m from higher interest on balances, lower capital financing charges and additional Local Authorities Business Growth Incentive grant were also incorporated in the revised budget, together with costs of £0.7m which were deferred to 2008/09. As a result of savings in 2006/07's final accounts and 2007/08's revised budget, it was possible to make a contribution to the job evaluation reserve of £10m towards the cost of equal pay compensation, while retaining a forecast general fund balance of £15.1m at 31 March 2008.

6.7. At the end of the year, service cash limited spending was £3.4m lower than budgeted and taking account of lower insurance costs, the transition to higher pay costs from the Pay and Benefits project and other factors, the net cost of services was £14.4m below the revised budget. Allowing for interest savings and higher trading unit surpluses, net operating expenditure was £23.8m lower than estimated and the requirement to make revenue contributions to capital to finance capital expenditure in 2007/08 was £11.9m lower than forecast.£27.5m of these savings were transferred to earmarked reserves, resulting in an underspending of £8.2m against the general fund compared with the revised budget. The general fund therefore increased to £23.3m at 31 March 2008.

6.8. The table below analyses the main factors:

	Over/ under- spending	Contribution to/from- reserves	Net over/ under- spending
	£m	£m	£m
Service cash-limited spending	-3.4	1.7	-1.7
Trading unit surpluses	-4.3	4.3	-
Interest savings	-5.1	-	-5.1
Insurance provision	-3.6	2.5	-1.1
Pay and Benefits project	-5.7	5.7	-
Specific grants	1.0	-	1.0
Revenue contributions to capital	-11.9	11.9	-
Rowner regeneration project	-1.5	1.5	-
Other variations	-1.2	-0.1	-1.3
	-35.7	27.5	-8.2

6.9. Having determined that with the level of Government grant having been set for the next two years, there was no need to revise the risk assessment of the general fund balance above £15.1m, additional non-recurring spending of £3.1m in 2008/09 was approved funded from 2007/08's underspending, with the remaining £5.1m to be utilised to reduce the proposed council tax increase in the provisional budgets for 2009/10 and 2010/11 from 3.5% to 3%.

7. Summary of the year - capital expenditure

7.1. In 2007/08 the County Council spent £177.1m on capital projects, £12.0m less than the revised budget.

7.2. Spending on schemes financed from Government grants, supported borrowing, contributions from developers and outside agencies and other scheme-specific funding was £6.3m higher than forecast. So expenditure on locally resourced projects was £18.3m lower than estimated.

7.3. Capital receipts available to finance capital expenditure in 2007/08 was £6.4m lower than forecast, mainly due to deferred consideration on a completed disposal, thus reducing the revenue contributions to capital required in 2007/08 by £11.9m. This was matched by an equivalent transfer to the general capital reserve to provide the resources to finance the expenditure deferred to 2008/09.

7.4. Spending financed from supported borrowing amounted to £28.9m, after allowing for the non-take up of £12.5m of supported borrowing on affordability grounds, supplemented by increased unsupported borrowing of £6.7m. Repayment of debt amounted to £21.5m. Potential outstanding borrowing for capital purposes to be serviced by the County Council now amounts to £543.7m, together with extra debt of £42.6m for services transferred to the unitary and other authorities. The Council is able to borrow on a day-to-day basis from internal resources, such as the revenue account and earmarked reserve balances. Internal resources increased significantly during the course of 2007/08 so that net of temporary investments, £245.3m (a reduction of £76.5m on the previous year) was owed to external lenders at 31 March 2008.

8. Pension Fund liability

8.1 The County Council's pension liability has reduced from £609.040m at 31 March 2007 to £438.860m at 31 March 2008. The reduction in the deficit is largely the result of changes in actuarial assumptions, in particular the higher interest rate applied to the discounting of future liabilities, as a result of higher corporate bond rates at 31 March 2008. The deficit on the Pension Reserve reduces the County Council's net worth from £2.87bn to £2.43bn.

9. Changes

9.1 There are no significant changes to the County Council's range of functions in 2007/08. However there are three changes which effect the presentation of the income and expenditure account in 2007/08, with compensating adjustments through the statement of movement on the general fund balance.

9.2 The introduction of a UK GAAP compliant revaluation reserve with an opening nil balance at 1 April 2007 has the effect of requiring any initial downward revaluation of a specific asset to be written off to the income and expenditure account, rather than to the revaluation reserve. Prior to 2007/08, the revaluation would have been adjusted against the Fixed Asset Revaluation Account. This change has the effect of increasing the net cost of services by £11.2m in 2007/08.

9.3 The new benefit structure of the Local Government Pension scheme from 1 April 2008 primarily affects the value of future benefits but also the value of some existing benefits, increasing non-distributed costs by £13.2m in 2007/08.

9.4 There has also been a change of practice in relation to the revaluation of assets due to be disposed of, so that assets are not automatically revalued on disposal at their disposal value, so that no gain or loss is recorded. In 2007/08 a gain of £6.5m has been credited to the income and expenditure account.

10. Further information

You can get more information about the accounts from The County Treasurer, Hampshire County Council, The Castle, Winchester, SO23 8UB, telephone (01962) 847533, e-mail [email protected].