Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report :

EXECUTIVE SUMMARY

1) Summary of Decision Area:

1.1. This report reviews the initial budget monitoring reports for 2008/09 submitted to Executive members, which deal with progress in achieving budgeted savings and accommodating budget pressures. The 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. Initial contingency allocations to services for the cost of pay and benefits implementation in 2008/09 are also proposed.

2) Issues Covered in Report:

2.1. The report considers whether any action is required in response to budget monitoring in the first quarter of 2008/09 and recommends initial contingency allocations in 2008/09 for pay and benefits costs.

3) Recommendations:

3.1. That the progress made in progressing plans for achieving the savings in the 2008/09 budget be welcomed and that the actions being taken by all services to contain spending within cash limits be supported.

3.2. That the initial 2008/09 allocations for Pay and Benefits costs from the central contingency as set out in paragraph 3.20 be agreed.

MAIN REPORT

1) Purpose of the Report:

1.1. The purpose of the report is to review the implications of budget monitoring in the first quarter of 2008/09 both at service and corporate level and to obtain approval for any proposed amendments to cash limits.

2) Contextual Information:

2.1. Initial budget monitoring reports were submitted to the Executive member for Adult Services, Children's Services, Policy and Resources and Recreation and Heritage in July, and to the Executive member for Environment in September. The position on non-cash limited budgets has also been assessed. In addition a corporate review has been undertaken of high risk demand led budgets, overall employee budgets, plans to achieve budgeted savings, and the council's financial health indicators. This provides the context for determining whether spending is being managed within the approved budget and whether any additional action is required in response to the trends revealed by the monitoring information.

3) Key Issues:

Service-cash limited budgets

Adult Services

3.1. The monitoring report submitted to the Executive member in July indicated that, having achieved a £1.8m underspending against the 2007/08 cash limit, ( successfully meeting the financial recovery plan target) a small underspending of £0.3m was projected in 2008/09 (based on data for the first two months of the year). The position has not changed significantly, with a small overspending of £0.4m being projected. Spending on demand led care budgets is projected to be £3.4m (1.3%) above budget but this is largely offset by higher income and savings on other budgets. Overall client numbers are approximately 200 (1.2%) higher than budgeted mainly as a result of additional domiciliary and day care packages, while though client numbers for nursing and residential care are lower than budgeted, costs are slightly higher as a result of increasing dependency of clients.

Children's Services

3.2. As anticipated in the report to the Executive member in July, demand pressures on the Home to School Transport budget are evident from the first quarter's monitoring with spending projected at £1m (4.5%) above budget, mainly as a result of additional contracts that have been placed to meet the demand from eligible pupils. There are also budget pressures within the schools block on the central budget for SEN placements in independent schools and voluntary bodies. However due to savings on other budgets and management action to contain budget pressures, a balanced position on the overall non-schools budget is expected to be achieved.

Environment

3.3. Spending is expected to be contained within the cash limit, with savings being achieved in accordance with budgeted assumptions and some additional road safety resources made available as a result of the cost sharing arrangements with Portsmouth and Southampton within the Safer Roads partnership.

Policy and Resources

3.4. There are continuing budget pressures in a number of the services where overspendings were incurred in 2007/08, such as the Coroners Service, corporately used land and sites for gypsies and travellers, but action will continue to be taken to manage these pressures within the cash limit.

Recreation and Heritage

3.5. A budget monitoring report is being submitted to the September Executive decision day, which identifies a potential overspend in 2008/09 of about £250,000 mostly on the Libraries service as a result of further loss of income, higher energy and other premises costs. The Cabinet's attention has also been drawn to estimated legal costs of £220,000 which have not been taken into account in projecting the outturn, resulting from a successful appeal against the process used by Hampshire County Council and other local authorities to promote amendments to the Rights of Way definitive map.

Corporate budget monitoring

3.6. In additional to service based budget monitoring, a corporate monitoring process is undertaken across all services on a quarterly basis, focusing on high risk/demand led budgets, overall employment trends, the achievement of budget savings and the monitoring of financial health indicators.

High risk/demand led budgets

3.7. Appendix 1 summarises the first quarter's monitoring of spending and activity on high risk/demand led budgets which are mainly focused on Adults and Children's services. Spending on these budgets is projected to be £5.5m (1.5%) higher than budgeted, by £3.4m on Adult Services, £1.9m on Children's Services (including £0.8m within the schools block) and £0.2m on the Coroner's service. These are the main budget pressures referred to in the earlier paragraphs on Adults, Children's and Policy and Resources services. Management action and more favourable trends on other budgets are expected to enable these budget pressures to be accommodated, and there was a similar level of overspending (£5m) projected on the equivalent budgets at the same stage in 2007/08.

Employee budgets

3.8. Overall spending on employee budgets is projected to be in line with the budget (£0.1m above a budget of £316.6m), though there are some variations between services. Actual employee numbers in the first quarter averaged 9,009 full time equivalent staff (excluding schools and business units), slightly higher than the average of 8,924 in 2007/08, but about 5% lower than budgeted. Appendix 2 summarises the data.

Savings plans

3.9. The 2008/09 budget included planned savings of £14.5m to finance one-off and recurring budget pressures in 2008/09, that could not be accommodated within the budget guidelines. After allowing for savings achieved by means of carrying forward underspendings, the use of reserves or transfers from capital, savings of £11.4m remain that need to be planned and monitored in 2008/09. These comprise:

	£m
Adult Services	7.3
Children's Services (excluding schools)	1.6
Environment	1.5
Policy and Resources	0.2
Recreation	0.9
	11.4

3.10. Savings amounting to £6.7m are assessed as having been achieved, further savings of £4.3m have a detailed implementation plan, and the forecast of anticipated savings is £10.9m. This represents good progress in the implementation of savings plans.

Financial Health Indicators:

3.11. A set of Financial Health indicators was incorporated in the budget proposals approved by Cabinet in February 2008. The set is designed to provide an early warning of when action may be required to protect the County Council's financial health.
Appendix 3 contains a summary of the targets for 2007/08 and either the latest full-year projections or data for the first quarter.

3.12. The majority of the indicators are within the target range or have favourable variances. The one indicator that does provide a health warning is the indicator relating to capital receipts and third party contributions, where because of the slowdown in the housing market, capital receipts in 2008/09 are likely to be significantly lower than forecast in the capital financing plan. The Acting Director of Property, Business and Regulatory Services is currently undertaking a review of capital receipt forecasts, which will be reported in October. The slowdown in capital receipts also has implications for the indicator on the level of capital schemes starting in 2008/09, as the programming of rationalisation projects that are partly or wholly dependent on receipts from the disposal of surplus assets may need to be reviewed in the light of changed market assumptions.

3.13. The income collection indicator relating to the proportion of debt that is more than 6 months old is also slightly above target.

Non-cash limited budgets

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

	£m
Capital financing charges/interest on balances	41.4
Flood protection levies	0.5
Central contingency items:
Waste management contract	4.4
Pay and Benefits	10.0

Capital financing/interest on balances

3.15. Capital financing budgets for 2008/09 were based on short-term interest rates of 5.5%. Since the budget was prepared, there have been two further reductions in base rate in February 2008 and April 2008, which currently stands at 5%. Given the County Council's current balance sheet position and proportions of fixed rate and variable rate borrowing, the impact of falling short-term rates is relatively neutral, as savings in capital financing costs will be offset by lower interest on balances.

3.16. The level of revenue balances on which the County Council will earn interest in 2008/09 remains uncertain, but some of the favourable factors which resulted in higher interest being earned in 2007/08 than budgeted, will continue into 2008/09.

Flood protection levies

3.17. 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. In 2008/09 provision was made for a £20,000 increase (3.9%) but the actual increase was 6.9%, £15,000 higher than budgeted.

Waste Management Contract

3.18. A contingency of £4.4m has been included in the 2008/09 budget to cover potential increases in the cost of the waste management contract arising from inflation, increased landfill tax, higher waste volumes and more stringent regulatory requirements. Trends in waste volumes have been favourable in the first quarter, with a reduction in waste requiring disposal collected via household waste recycling Centres of 12.6% compared with the corresponding quarter in 2007/08, coinciding with the introduction of the new centre management arrangements and the introduction of trade waste controls. The first quarter's call on the contingency was £648,000.

Pay and Benefits

3.19. The central contingency for 2008/09 includes provision of £10m benefit realisation savings for the costs of pay and benefits implementation, including benefit realisation savings of £2.5m derived from service budgets. The main outstanding issue in relation to agreeing final allocations to services for 2008/09 concerns the impact of appeals against the new pay grades against which particular posts have been assimilated. The second stage of the appeal process is not expected to be concluded until December, which will enable the impact of appeals on the pay bill to be assessed and a decision taken on whether to reflect the impact of appeals in allocations for 2008/09 and future years. Irrespective of whether the ongoing impact of appeals is recognised in the distribution of the contingency, it is proposed to provide corporate funding in 2008/09 towards the backdated element of the appeal costs relating to 2007/08, so that services are not required to fund appeal costs relating to two years from their budgets in 2008/09.

3.20. However in order to enable services to monitor their pay budgets, initial allocations for 2008/09 are proposed, which exclude any allowance at this stage for appeal costs. The proposed allocations are:

	£000
Adult Services	3,793
Children's Services	2,132
Environment	460
Policy and Resources
Chief Executive (including HR)	222
Property, Business & Regulatory Services	323.5
County Treasurer's	225.5
	771
Recreation and Heritage	555
	7,711

Pay awards

3.21. The 2008/09 budget includes provision for pay awards averaging 2.5%. The latest offer from the Local Government employers of 2.45% for most employees and of an additional £100 on the three lowest points, represents an overall pay offer estimated at 2.5%. Following the industrial action taken on two days in July, further discussions are taking place between the employers and the unions. The assumption in this report is that agreement will be reached at a cost that does not greatly exceed 2.5% and that the settlement of the pay dispute does not introduce a further significant budget pressure in 2008/09.

Invest to Save reserve

3.22. The 2008/09 budget included a specific proposal to make invest to save funding available to enable the in-house fostering service to be strengthened, reducing the reliance on expensive independent fostering care. In addition the budget included a contribution of £1.9m to the invest to save reserve to provide funding for additional invest to save proposals subject to the approval of the Cabinet or the Executive member, Policy and Resources. The reserve is intended to operate on a revolving basis so that contributions are repaid to the reserve as savings or additional income to the service come on stream, arising from the investment. The current position on proposals that have been earmarked to date are as follows:

	£000
Efficiency review	500
Adult Services - transition between children's and adult services and continuing health care	139
Highway land records	119
Business rate appeals (per annum)	47
	805

4) Conclusion:

4.1. Despite the effects of the economic downturn the budget monitoring position at the end of the first quarter is satisfactory, with action being taken to manage spending within cash limits while continuing to meet corporate service objectives.

5) Recommendations:

5.1. That the progress made in progressing plans for achieving the savings in the 2008/09 budget be welcomed and that the actions being taken by all services to contain spending within cash limits be supported.

5.2. That the initial 2008/09 allocations for Pay and Benefits costs from the central contingency as set out in paragraph 3.20 be agreed.

CORPORATE OR LEGAL INFORMATION:

COMPREHENSIVE RISK & IMPACT ASSESSMENT:

Race and Equality impact assessment

Race and equality objectives are not considered to be adversely affected by the proposals in this report.

Crime Prevention

The County Council has a legal obligation under Section 17 of the Crime and Disorder Act 1998 to consider the impact of all the decisions it makes on the prevention of crime. The proposals in this report are not considered to have an impact on the prevention of crime.

0.5%

Financial Health Indicators