Archived decisions

Agenda Item: 11

HAMPSHIRE COUNTY COUNCIL

Report

1. Purpose of Report

1.1. The purpose of this report is to

· Enable the Select Committee to understand the County Council's financial position

· Enable the Select Committee to highlight any areas for further scrutiny, based on the financial position

2. Contextual Information

2.1. Scrutiny of the County Council's finances falls within the terms of reference of this Committee. In order to facilitate this, major financial reports to Cabinet and to the Executive member for Policy and Resources are brought to this Committee for discussion, to improve understanding, and to help members highlight areas for the Committee's work programme (whether directly `finance' related or not).

2.2. The Appendix to this report is a report on the County Council's Final Accounts 2008/09 approved by the Executive member for Policy and Resources in 19 May 2009. This shows the provisional final accounts and proposals for earmarking underspendings and meeting overspendings within that.

2.3. A more detailed end of year financial report will be presented to Cabinet on 27 July 2009. It is hoped that a verbal/PowerPoint update will be made to the Select Committee meeting, based on the information that report (although of course that report will not be approved until Cabinet on 27 July). Material changes to the figures are not expected.

2.4. As well as presenting all major financial reports to the Select Committee, twice yearly briefings will be arranged (in July and November) for all Select Committees on service finance and performance issues, in line with the previously agreed timetable. The briefing for this Select Committee will include overview of the County Council's finances as well as service issues.

3. Conclusions

3.1. Members are asked to consider the provisional 2008/09 final outturn and use it to inform the Committee's work plan.

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

1.1. No direct impact.

2. Impact on Crime and Disorder:

2.1. No direct impact

3. Climate Change:

3.1. How does what is being proposed impact on our carbon footprint / energy consumption?

No direct impact.

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

No direct impact.

HAMPSHIRE COUNTY COUNCIL

Decision Report

EXECUTIVE SUMMARY

1) Summary of Decision Area

1.1. The closure of the County Council's 2008/09 accounts is in progress and because of the timing of the County Council election, the Cabinet will not be able to consider the Final Accounts until after the formal Statement of Accounts has been approved. The purpose of this report is to review the provisional final accounts for 2008/09 and to consider any decisions particularly about the financing of capital expenditure or transfers to or from earmarked reserves that would affect the presentation of the Statement of Accounts for 2008/09.

2) Issues Covered in Report

2.1. The timetable for closure of the 2008/09 accounts provides for service revenue accounts to be finalised by 13 May 2009, after the deadline for despatch of papers for this meeting. This supplementary report incorporates a summary of the provisional final accounts for 2008/09. Some further changes are likely after 19 May, but these should not be material.

3) Recommendations

It is recommended that:

3.1. The proposals for earmarking underspendings and meeting overspendings in the provisional 2008/09 Final Accounts, as set out in paragraph 3, be agreed.

MAIN REPORT

1) Contextual Information

1.1. The Cabinet approved a revised budget for 2008/09 alongside the 2009/10 budget in February 2009. A subsequent monitoring report was presented to Cabinet in March 2009, which identified that spending was likely to be contained within the revised budget. Work on preparing the final accounts has confirmed that position and indicates some potential underspendings particularly on budgets outside service cash limits.

2) Key Issues

Cash limited expenditure

2.1. All services are expected to be at or very close to their cash limits and a small net underspending of approximately £0.7m, about 0.1% of the revised budget is forecast.

2.2. The policy is to return 50% of unplanned savings to the service and retain 50% corporately. It is proposed that services this year be allowed to retain 100% of their savings, but with only 50% to be made available in 2009/10 and the remaining 50% to help with the difficult transitional year in 2011/12, the first year beyond the current spending review period.

Contingency items

2.3. The main items for which contingency provision was made in the revised budget were for pay and benefits and the waste management contract.

2.4. A pay and benefits provision was retained in the contingency to cover both the 2007/08 backdated cost of pay and benefit appeals and additional costs of salary protection associated with changes in the use of allowances that could not be forecast immediately. About £1.6m has not been allocated. The current policy is to transfer any underspending against the contingency provision to the equal pay reserve.

2.5. A saving of £3m on the waste management contract was anticipated in the revised budget resulting from lower waste volumes. The final reduction in costs is now forecast to be approximately £0.5m higher than anticipated.

Capital financing and interest on balances

2.6. Interest on balances is expected to be significantly higher than budgeted. This is partly because of higher balances and earmarked reserves than forecast, lower capital expenditure and the carry forward of ring-fenced grants. Uncertainty about income levels since last autumn as a result of the action required to respond to the banking crisis, also has resulted in budget forecasts being subject to a wider than usual margin of error. In particular the reduction in interest earned over the second half of the year was not as great as anticipated, because higher interest earned on past deposits for periods of three months or more partly offset the sharp reduction in interest rates on short-term lending. Capital financing costs are likely to be very close to the budgeted level. Overall an underspending of £6.3m is anticipated.

Provision for doubtful debts

2.7. Based on an assessment of debt outstanding at 31 March, the overall provision will be slightly lower than in 2007/08, by about £0.2m.

Winter Maintenance

2.8. As projected in the previous budget monitoring report in March, spending will be about £0.3m higher than budgeted, as a result of the snow in early February.

Insurance

2.9. The Council's self insurance arrangements primarily cover damage to buildings and public and employer liability claims. Premiums charged relating to liabilities in 2008/09 are broadly in line with the cost of claims and the variation in the value of outstanding liabilities. However there will be a saving of approximately £3.1m as a result of the cost of fire reinstatement being lower than the level of premiums in 2008/09. Schools contribute about 98% of the premiums relating to buildings.

2.10. A decision is required as to whether this should be retained within the insurance reserve or returned in support of schools in some other way. The proposal is to return about half relating to secondary schools, subject to the School Forum's agreement, to cover the feasibility costs of preparing for the future phases of Building Schools for the Future, while primary schools' share is transferred to the insurance reserve to cover costs for future reinstatement, increasing the insurance reserve to around £9m. The amount can be adjusted in later years, subject to claims experience.

Revenue contributions to capital

2.11. £1.5m was added to revenue contributions to capital in the 2008/09 revised budget to reduce the extent to which it would to necessary to use the capital reserve in 2008/09 to compensate for lower capital receipts. Capital expenditure in 2008/09 will as previously reported be lower than the revised estimate, and a further small reduction in capital receipts is also anticipated.

2.12. Though the transfer from the capital reserve in 2008/09 will be lower than estimated, there is no sign of an early recovery in land values or in property market activity and it is proposed to transfer £1.4m of the savings from higher interest on balances into the capital reserve, to avoid additional pressure on prudential borrowing arising. This will result in a forecast balance on the capital reserve of £12.7m at 31 March 2009, but which it is estimated will be used in full to finance capital expenditure in 2009/10.

3) Summary and conclusion

3.1. The position outlined in paragraph 2 of the report, results in an underspending of £5.6m after transfers to reserves, or about 0.9%, which is summarized in Table 1 below:

Table 1

		£'000	£'000
Service cash limits		-747
Reserved for one off use in 2009/10 (50%) and 2011/12 (50%) in service cash limits		+747	0
Contingency:
	Waste	-518
	Second homes	-115
	Pay and benefits	-1,631
	Transferred to equal pay reserve	+1,631	-633
Business rates			7
Capital financing charges		-108
Interest on balances		-6,283
Transferred to capital reserve		1,400	-4,991
Provision for doubtful debts			-227
Winter maintenance			255
Insurance provision		-3,120
Transferred back to schools budget for use towards Building Schools for the Future and to the insurance reserve		+3,120	-
Total underspending			-5,589

3.2. It is proposed that £5.2m of the underspending could be used in 2011/12 to reduce the projected council tax rise from 3.8% to 2.8%. That still leaves some way to go to bring the Council tax increase to a level close to 2%, and requires a permanent saving of £5.2m from efficiency savings in 2012/13 to underwrite the same level of spending in that year. It is proposed to transfer the balance of £0.4m into the capital reserve, recognising the long-term gap between capital programme aspirations and potential financing resources, as a result of the recession and the inability to take up supported borrowing in full. The use of the £0.4m will be determined later following consideration of the Leader's priorities for one-off investment and a report back by the relevant officers.

4) Recommendations

Please see Executive Summary for recommendations.

CORPORATE OR LEGAL INFORMATION:

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

a) Equality objectives are not considered to be adversely affected by the proposals within 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