Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report :

EXECUTIVE SUMMARY

1) Summary of Decision Area:

1.1. This report reviews the latest budget monitoring reports for 2008/09 submitted to Executive members, dealing with progress in achieving budgeted savings and accommodating budget pressures. The report also reviews the first three quarters' monitoring of high risk demand led budgets, overall employee budgets, savings plans and financial health indicators to provide an overall corporate context for budget monitoring.

1.2. The report also reviews the arrangements for reporting on the final accounts for 2008/09 in June 2009. These are affected by the national decision to defer the May 2009 County Council elections to June 2009 to coincide with the elections to the European Parliament.

2) Issues Covered in the Report:

2.1. The report:

· reviews any action required in response to budget monitoring

· recommends a virement of £1.7m from the Adult Services' revenue budget to capital to support planned investment in extra care housing

· proposes revised arrangements for the reporting of the 2008/09 outturn

· notifies the final Local Authority Business Growth Incentive (LABGI) allocation for 2007/08.

3) Recommendations:

It is recommended that Cabinet:

3.1 Support the action being taken by all services to contain spending within cash limits and to enable planned underspendings to be carried forward to 2009/10

3.2 Approves the virement of £1.7m from the Adult Services' revenue budget to revenue contributions to capital in order to support planned investment in extra care housing

3.3 Approve the transfer of a further £501,000 to the Local Authorities Business Growth Incentives (LABGI) reserve following the final allocation for 2007/08

3.4 Agrees that a report on the provisional final accounts be submitted to the Executive Member for Policy and Resources on 19 May 2009, as a result of the timetable implications of the deferral of the County Council elections

MAIN REPORT

1) Purpose of the report:

1.1. The purpose of this report is to review the implications of budget monitoring in the first three quarters of 2008/09 both at service and corporate level.

2) Contextual information:

2.1. Executive members received reports in January on revised budgets for 2008/09 in conjunction with their consideration of the budget for 2009/10 and provisional budgets for 2010/11 and 2011/12. Proposals for planned carry forward of projected underspendings in 2008/09 in Adult Services, Children's Services, Environment and Policy and Resources were incorporated in the budget proposals. Further monitoring reports have been considered by some of the executive members in March.

2.2. In addition a corporate review has been undertaken of high risk demand led budgets, overall employee budgets, plans to achieve budgeted savings and the County Council's financial health indicators. The position on non-cash limited budgets has also been assessed.

3) Key issues:

Service cash-limited budgets:

Adult Services:

3.1. The revised budget was reduced by £3.9m to enable a planned underspend to be carried forward to fund the shortfall in revenue resources required to meet the pressures in 2009/10. That assumed that the winter pressures contingency of £1.7m would be needed in full, but the Director of Adult Services indicated her intention to minimise that spend and if possible seek to absorb any winter pressures arising in the mainstream service budgets. That strategy recognised that the Adult Services' capital programme will also come under severe pressure next year, due in large part to the impact of the recession on the likely level of capital receipts achievable, which had been expected to enable the planned £5m investment in extra care housing to be achieved.

3.2. It is too early to be certain, but it is anticipated that this strategy will be successful - i.e. winter pressures will be contained within service budgets. On this basis, a transfer of £1.7m to capital is proposed, to compensate for reduced capital receipts, principally for spending on extra care housing but also to improve Older People's Homes and invest in Learning Disability equipment as part of the integration project with health. The budget monitoring as at 1 January indicates that further underspendings may be achievable as there has been recent high turnover in residential clients and the impact of reablement is having a positive impact on longer term client needs. If so, further capital investment may prove possible, which would place the Department as favourably as possible to meet both the revenue and the capital challenges ahead for 2009/10 onwards.

Children's Services

3.3. The monitoring report to the Executive Lead Member for Children's Services (Education) in March, based on information to the end of January, forecast an underspending in 2008/09 of £1.4m against the cash limit for the non-schools budget, as compared with the £1.3m planned underspending reported in January. The underspending primarily arises as a result of deferred spending on IT projects, and later recruitment to Connexions Consortium teams and social work vacancies than budgeted. The anticipated level of underspending on the schools budget in 2008/09, resulting in the carry forward of dedicated schools grant, is now anticipated to be £1.5m rather than £0.5m, mainly as a result of slower progress than anticipated in the take up of increased provision for 3 to 4 year olds from 12.5 hours to 15 hours per week.

Environment

3.4. The revised budget for 2008/09 reported to the Executive Lead Member in January included proposals to carry forward planned underspendings of £314,000 to 2009/10. Actual spending is expected to be very close to the budget plan

3.5. The budget for Winter Maintenance is set on a basis that reflects average weather conditions over the previous four years, with the impact of more or less severe than average conditions in a particular winter falling on the County Council's balances rather than the Environment cash limit. As a result of the snow in early February, an overspending of approximately £300,000 on winter maintenance is forecast in 2008/09, assuming average weather patterns over the remainder of the financial year.

Policy and Resources

3.6. Though the Policy and Resources revised budget provided for the carry forward of planned underspendings of £1.2m from 2008/09, some further savings were required to cover potential overspendings on Property Services and Coroners' budgets. The allocation of additional one-off resources in 2008/09 agreed by Cabinet in February to cover higher electricity costs covers a significant part of the additional spending on Property Services, but substantially higher spending than budgeted is still forecast on the Coroner's Service and the implications will need to be reviewed at the year end.

Recreation and Heritage

3.7. The decisions taken in February to allocate additional resources to cover the legal costs of a Rights of Way case and higher electricity costs cover the main Recreation and Heritage budget pressures identified in previous budget monitoring reports. The monitoring report to the March Executive Member decision day anticipates that a balanced budget for 2008/09 will be achieved. The report also contains the latest projections on visits / users of the main Recreation and Heritage Services, which indicates that most indicators at the end of Quarter 3 are showing an improvement compared with the same period in 2007/08.

Corporate budget monitoring

3.8. In addition to service 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

3.9. Appendix C summarizes the monitoring of spending and activity on high risk / demand let budgets as at the end of the third quarter. This mainly focuses on demand led services within Adult's and Children's Services, and represents the majority of the areas within the budget which are subject to the greatest demand pressures.

3.10. At the end of December 2008, spending on these budgets is projected to be £6.9m (1.8%) higher than budgeted, primarily as a result of higher than budgeted spending on adult social care packages by 2.3% mainly as a result of overall client numbers being 2.5% higher than budgeted. However increased income from fees and charges and from NHS contributions of £6m enables this additional spending to be accommodated within the cash limit and a planned underspending to be achieved as a result of the achievement of efficiency improvements and the management of demand pressures, without the need to allocate the contingency included in the budget.

Employee budgets

3.11. Overall spending on employee budgets is projected to be very close to the latest cash limit for 2008/09, with an overall underspending of £0.3m (0.1%) being projected. Actual employee numbers in the third quarter (excluding schools and business units) averaged 9,490 full time equivalent posts (FTEs), 142 FTEs higher than in the second quarter, as a result of the filling of vacant posts in Adult Services and Children's Services, increasing average FTE levels by 43 and 119 posts respectively. Appendix D summarises the data.

3.12. The arbitration decision in respect of the 2008 Local Government Pay Settlement has now been announced and this adds 0.3% to the cost of the interim award, backdated to 1 April 2008. Excluding schools staff, the additional cost of the award is approximately £750,000, or £450,000 net of the projected underspending referred to in the previous paragraph. Though the announcement of the award allows little time for planning in 2008/09, services will be expected to absorb the additional cost where possible from savings achieved against the revised budget. The implication of this additional pay increase in 2008/09 is that the provision included within the 2009/10 service cash limits for pay increases now only allows for a 2009 pay increase of 1.2%.

Savings Plans

3.13. 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 guideline. After allowing for savings achieved by means of carry forward of underspendings, the use of reserves or transfers from capital, savings of £11.4m needed to be planned and monitored in 2008/09. These savings are expected to be achieved in most cases in accordance with the original plan or if not from an alternative source.

Capital Programme

3.14. The forecast of capital expenditure for 2008/09 and the proposals for financing that expenditure were reviewed by the Cabinet in February, in recommending a capital programme for 2009/10 to 2011/12. Though projects to the value of £11.0 m have been deferred to 2009/10, capital expenditure for 2008/09, originally estimated at £197.3m has been revised to £215.0m , including allowance for additional capital expenditure of £19.3m approved as part of the restructuring of the waste management contract. The latest monitoring of capital expenditure indicates that based on the average of recent expenditure annual profiles, capital expenditure is likely to be slightly lower than approved in February.

Financial Health indicators

3.15. A set of Financial Health indicators was incorporated in the budget proposals approved by Cabinet in February 2008, designed to provide an early warning when action may be required to protect the County Council's financial health. Appendix E contains a summary of the targets for 2008/09 and either the latest full-year projections or data for the first three quarters. Where the relevant indicators differ significantly from their target levels, the implications have been taken into account in setting the 2009/10 to 2011/12 revenue budget and capital programme.

3.16. The substantial reduction in the level of capital receipts in 2008/09, as compared with the original financing plan also affects the level of the capital financing requirement forecast at 31 March 2009, as a result of the additional temporary borrowing proposed. The additional revenue contributions to capital in 2008/09 and 2009/10 included in the budget and the decision to spread the planned locally resourced capital programme for 2009/10 and 2010/11 over three years are designed to mitigate against the effect of the slowdown in the property market.

3.17. Higher balances at 31 March 2009 than originally planned have also been factored into the setting of the 2009/10 and 2010/11 budgets.

3.18. The income collection indicators relating to debt under 60 days and more than 12 months old are both slightly more favourable than the target. Within the category of debt between 60 days old and 12 months old, slightly more of the debt is over 6 months old than targeted; and the position will need to continue to be closely monitored.

Non cash-limited budgets

Capital financing / interest on balances

3.19. The revised budget for 2008/09 took account of the sharp reduction in short-term interest rates that has occurred since the autumn and of the higher level of balances projected in 2008/09. Further reductions in base rate from 1.5% to 0.5% in February and March 2009 will in the short-term lead to a marginal net increase in costs in 2008/09. The scope for further reductions in UK interest rates in an attempt to stimulate economic activity is now very limited.

Local Authority Business Growth Incentive Scheme (LABGI)

3.20. The initial LABGI scheme ran from 2005/06 to 2007/08. The basis for calculating local authority entitlement to a share of business rate growth under the scheme has been subject to a number of legal challenges and as a result the 2007/08 initial allocations were not announced until early 2008/09. The County Council's share was £1.418m, of which in accordance with the policy agreed at the Leader's decision day in December 2007, 30% (£425,000) was set aside for economic development purposes, with the remainder (£993,000) having been transferred to an earmarked reserve for long term contributions towards economic prosperity, wellbeing and regeneration and other capital investment projects. However at that stage, the final £100m of the £1bn allocated for the scheme nationally over three years was held back in contingency in case further legal challenges were successfully pursued by local authorities.

3.21. The Government has now decided to release the contingency and the County Council will receive a further £501,000 in respect of business rate growth in Hampshire in 2007/08. It is recommended that the additional income be transferred to the LABGI reserve.

3.22. A revised LABGI scheme working on a much smaller scale, with a sum of only £150m available nationally over 2009/10 and 2010/11, was due to be implemented prior to 1 April 2009, but agreement has still to be reached on the sub-regions over which business rate growth will be measured.

Approval of the 2008/09 accounts

3.23. The current arrangements for the approval of the final accounts involve the presentation of the accounts to the Cabinet in a locally determined format, prior to the approval of the Statement of Accounts subject to audit in a format dictated by the Local Authority Accounting Code of Practice. The statutory requirement is for the Statement of Accounts to be approved by members prior to the end of June following the year end. Approval of the Statement of Accounts is a non-executive function requiring the approval of the full Council or of a committee with powers delegated by the full Council; and in recent years this function has been delegated to the Governance Committee.

3.24. In normal circumstances, the meeting of the Cabinet in June is early enough to agree any matters concerning the treatment of under or overspendings or the financing of capital expenditure in the final accounts, which can then be incorporated in the Statement of Accounts approved by the Governance Committee. Because of the delay in the County Council elections until June this year, Cabinet is not until 29 June, which would make subsequent approval of the Statement of Accounts by a committee extremely tight in view of the statutory deadline. As an alternative it is recommended that a report on the provisional final accounts be submitted to the proposed Leader's decision day on 19 May 2009 covering any issues that need to be resolved prior to the approval of the Statement of Accounts.

4) Conclusion

4.1. Though the likelihood that the current recession will involve a sharp downturn in economic activity has increased since the previous quarter's monitoring report, the impact upon the County Council's finances in 2008/09 is still being managed successfully. Planned underspendings being achieved in 2008/09 will assist in managing anticipated more severe recessionary impacts on the County Council's services in 2009/10.

CORPORATE OR LEGAL INFORMATION:

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

a) Equality objectives are not considered to be adversely affected by the proposals of this report.

2. Impact on Crime and Disorder:

a) The proposals in this report are not considered to have any direct impact on the prevention of crime.

3. Climate Change:

a) How does what is being proposed impact on our carbon footprint / energy consumption?

· No specific changes.

b) How does what is being proposed consider the need to adapt to climate change, and be resilient to its longer term impacts?

· No specific proposals affecting adaptation to climate change.

Financial Health Indicators