Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report

1. Executive Summary

1.1 This report provides a summary of the 2008/09 final accounts, updating the provisional outturn that was reported to the Executive Member for Policy and Resources in May. The statement of accounts was reported to the Audit Committee in June.

1.2 Service cash-limited expenditure was £0.8m (0.1%) lower than forecast in the revised budget, and overall spending is £5.1m (0.8%) lower than budgeted, adding to balances at 31 March 2009. It is proposed that this saving be retained in balances so that it is available for one-off investment, and/or to help reduce the projected council tax rise of 3.8% in 2011/12. That year will be the first of a new spending review period and is expected to result in significant reductions in local government spending plans.

1.3 The report also recommends approval of

· the annual report on the exercise of the treasury management strategy

· the prudential and financial health indicators,

· the updated protocol on earmarked reserves

· the final 2008/09 efficiency indicator data to be submitted to Communities and Local Government.

1 2008/09 Final accounts

Service cash limits

2.1 The final accounts for each service are summarised in the next table.

Table 1: 2008/09 outturn variation for services

2.3 The overall underspending of £769,000 compares with the provisional underspending of £747,000 reported to the Executive Member Policy and Resources in May

2 Service spending is therefore close to the revised budget, as in 2007/08 and most previous years. There was a more significant variation in 2005/06.

Table 2: Trends in Service spending against the revised budget

3.1 A brief summary of the position on each service is set out below. Appendix 1 contains an analysis of the main variations between actual spending and the cash-limit for each service and summarises the end of year position on demand led and employee budgets.

Adult Services (-£495,000)

3.2 Adult Services revised budget included a proposal to carry forward a planned underspending of £3.9m to 2009/10, Cabinet in March agreed a further proposal to transfer £1.7m to capital to support planned investment in extra care housing. This was possible because additional care costs arising from winter pressures were met without drawing on the contingency.

3.3 As a result of more continuing health care funding than forecast and higher income than budgeted, a further saving of £0.5m was achieved at the year end.

Children's Services (-£2,000)

3.4 The revised budget for Children's Services (excluding Schools) assumed planned savings of £1.3m and these savings were achieved. Decisions on whether to apply specific grants in full in 2008/09, or to carry forward some grant to 2009/10, resulted in the outturn being almost identical with the cash limit.

3.5 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 grants. In total DSG of £9.3m will be carried forward to 2009/10, including £1.8m in respect of school capital repairs and £3m which had already been agreed by the Schools Forum and incorporated in the revised budget. Following the introduction of a revised scheme for financial management in schools in July 2008, including a number of changes in the criteria for claw back of surplus balances, schools collectively spent £6.5m above their budget shares in 2008/09. The underlying level of school reserves was reduced to £40.3m.

Environment (-£24,000)

3.6 As anticipated in the most recent budget monitoring report cash limited spending on Environment was very close to the cash limit.

Policy and Resources (-£256,000)

3.7 Some further savings were required in the revised budget to cover potential overspendings on property services and Coroners. A substantial overspending of £283,000 was incurred on Coroners Services, continuing a trend of increased spending on the service. Savings were achieved elsewhere within property services to cover higher net spending on corporately held land and gypsies and travellers. However underspendings particularly on support services, on member devolved grants and on member expenses were sufficient to cover the overspending on Coroners and produce an underspending of £256,000.

Culture, Communities and Rural Affairs (£8,000)

3.8 As forecast budget pressures were contained close to the cash limit.

Carry forward of over and underspendings

3.9 The County Council's financial management policy allows 50% of unplanned underspendings to be carried forward and requires services to plan on the assumption that 100% of any overspending will be carried forward. No significant under or overspendings occurred in 2008/09.

3.10 The provisional final accounts were considered by the Executive member for Policy and Resources in May 2009. He approved exceptionally that 100% of the 2008/09 final underspend could be carried forward, in total, but with 50% reserved for use in 2011/12 when cash-limits will be under greater pressure from the anticipated public spending cuts.

Other budgets

4.1 The overall underspending on other budgets is £5.1m, of which the most significant variations are summarised in this section of the report.

Contingency

4.2 A contingency of £2.7m was retained in the revised budget to cover pay and benefits appeal costs, the increase in the waste management contract in the third and fourth quarters and unallocated council tax second homes income.

4.3 Allocations have been made to services to cover the backdated 2007/08 cost of successful appeals against pay and benefits gradings implemented from 1 April 2007. This leaves a sum of £1.6m which has been transferred to the equal pay reserve set aside to meet the impact of equal pay claims submitted to the Employment tribunal.

4.4 A saving of £3m on the waste management contract was anticipated in the revised budget mainly as a result of lower waste volumes, but a further reduction of £0.5m was reflected in the final accounts.

4.5 A small element of the council tax second homes income for 2008/09 was reserved to provide additional funding for a proposed Homebuy Scheme. This sum is now no longer required following the decision taken in conjunction with East Hampshire, New Forest and Test Valley district councils not to proceed with the scheme.

Capital financing charge (-£269,000) and interest on balances
(-£5,637,000)

4.6 Capital financing costs were slightly lower than estimated with the average rate of interest for the year at 4.65% being marginally lower than forecast. More interest on balances resulted from both higher levels of balances and higher interest rates than budgeted. Underspendings on capital and revenue expenditure together with the carry forward of grants resulted in larger balances. The uncertainties about the level of short term interest rates obtainable from approved counter parties, given the instability of the banking system during the second half of 2008/09, led to an underestimate of the actual interest rate achieved.

Insurance (-£3,120,000 offset by contributions to Insurance and Building Schools for the Future reserves)

4.7 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. This broadly matched the premiums charged for employer and public liability claims. However there was a significant saving as a result of another favourable year in respect of fire reinstatement costs incurred and in the level of damage incurred from new incidents during the year. About 98% of the building insurance premiums relate to schools buying back insurance services from the County Council so that the saving should either be retained within the insurance reserve or returned to schools in some other form. Subject to the agreement of the Schools Forum, just under half of the saving relating to secondary schools has been earmarked to contribute to the feasibility costs associated with Building Schools for the Future. The balance relating to primary and special schools has been transferred to the insurance reserve to provide cover against future higher levels of claim.

Highways winter maintenance (£256,000)

4.8 The highways winter maintenance budget is set on the basis of a four year average of actual expenditure adjusted for inflation. As a result of the snow in February 2009, costs in 2008/09 have exceeded the four year average by £256,000. The overspend is slightly less than originally forecast and will be met from balances.

Doubtful debt provision (-£154,000)

4.9 The County Council's policy is to make a provision against a proportion of debts proving to be irrecoverable. The provision is assessed on the basis of the age profile of outstanding debts and partly on the probability of specific debts being irrecoverable. The provision varies from year to year. In 2008/09 the assessed provision is £154,000 lower than in 2007/08, following an increase of £607,000 in 2007/08.

Revenue contributions to capital

4.10 As explained in Appendix 6, capital expenditure of £193.6m required funding in 2008/09. This is £19.5m lower than estimated. The majority of the lower spending relates to projects which would have been financed by supported borrowing. So despite that lower spending, the contribution required from the capital reserve of £11.7m is only slightly higher than the estimated £10.7m.

4.11 Part of the interest saving (£1m) has been earmarked within the capital reserve to reduce the additional pressure on prudential borrowing, given that there is no sign of an early recovery in land values or in property market activity. A further £0.4m has also been added to the reserve, recognizing the long-term gap between capital programme aspirations and potential financing resources. The use of this £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.

Summary - other budgets

4.12 The variations on other budgets can be summarized as follows:

Table 3: Summary of variations on other budgets

4.13 Based on the proposed 100% carry forward of service over and underspendings and the earmarking of some of the savings on other budgets, the overall position is as follows:

4.14 Table 4: 2008/09 outturn

4 Proposal for use of additional balances

4.1 The target level of balances for 2009/10, based on the risk assessment carried out in setting the 2009/10 budget and provisional budgets for 2010/11 and 2011/12, was £15.7m. No material change has occurred affecting the level of balances required in 2009/10 since that budget was set.

4.2 The national budget announced in April 2009 confirmed the Government's current intention of holding to the planned final year of the three year local authority grant settlement for 2010/11 announced in December 2007. Though the County Council's formula grant increase at the floor falls to 1.5% in 2010/11 nonetheless if inflationary pressures continue to be suppressed by the impact of the recession, the spending position in 2010/11 in real terms could be slightly better than previously forecast. However though the Government has remained committed to its current spending plans for 2008/09 to 2010/11 to avoid lower public sector spending exacerbating the effect of recession, a sharp slowdown in public spending is planned to commence from 2011/12.

4.3 Current spending in real terms is expected to increase in real terms by 0.7% per annum from 2011/12 to 2013/14, having fallen from the 1.2% announced in the pre-budget report and 1.9% for 2011/12 and 2012/13, at the time of the 2008 budget. However the impact of increased social security benefits and debt interest, together with the continued priority expected to be attributed to health and school budgets, suggests that Government support for other local authority services is likely to decline in real terms rather than increase from 2011/12 onwards. Hampshire County Council as a floor authority can expect to receive an even lower grant increase than the average upper tier authority over the next few years, so that a negative floor increase i.e. a reduction in grant, is possible from 2011/12 onwards. In addition net Government support from capital investment across all services is planned to halve between 2009/10 (£44bn) and 2013/14 (£22bn).

4.4 The current provisional budget for 2009/10 - 2011/12 makes use of savings achieved in 2007/08 and in 2008/09 to contribute towards achieving a council tax increase of 1.9% in 2009/10 and 2010/11. Despite allowing for a smaller increase in social care spending in 2011/12, the council tax required to support the provisional 2011/12 budget is 3.8% above the 2010/11 level. Given the much tighter squeeze on local authority spending expected it would be very difficult to find sufficient savings both to reduce the level of the council tax to around 2% and to take account of likely reductions in Government grant and taxbase, in 2011/12.

4.5 The net underspending of £5.1m, added to balances in 2009/10, could be utilised either to reduce the level of the 2011/12 tax increase based on the provisional budget to 2.8%, or for one-off investment.

5 Balances

5.1 Taking into account the proposals in paragraph 5.5, the closure of the 2008/09 accounts has the following impact on the level of balances.

Table 5: Balances

	£m
Estimated balances at 31 March 2009	29.4
Increase in estimated balances as a result of 2008/09 outturn	5.1
Use of balances in 2009/10 budget	-5.3
Proposed use of balances in:
2010/11	-6.0
2011/12 - budgeted	-2.1
2011/12 from 2008/09 underspend*	-5.1
Underlying level of balances	16.0

*if not used for one-off investment before 2011/12

6 Earmarked Reserves

6.1 Earmarked reserves are £160.1m at 31 March 2009, an increase of £5.4m since 31 March 2008. The main reserves are for schools (£40.3m), equal pay (£39.2m), grant equalisation (£24.9m), the carry forward of underspends (£16.7m), trading units (£10.8m), insurance reserve (£9.4m) and capital reserve (£8.9m). Details of the movements in reserves during 2008/09 and of the protocol for each of the main classes of reserve are set out in Appendix 2.

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 3.

7.2 Treasury management risks were at an unprecedented level during 2008/09 due to the global banking crisis and required regular changes to be made to the lending list, to lending limits and to the duration of deposits. More use has been made of AAA rated money market funds to spread counter party risk more widely.

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 3 summarises the relevant indicators for the 2008/09 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 Efficiency indicator

8.1 The County Council is required to submit its 2008/09 efficiency indicator, NI 179, which forms part of the new national indicator set in July 2009. The indicator data requires the approval of the Leader, Chief Executive and County Treasurer.

8.2 2008/09 represents the first year of the efficiency target incorporated in the 2007 Spending Review which requires local government to achieve cash releasing efficiency gains of 3% per annum in 2008/09 and 2009/10, rising to 4% per annum in 2010/11, as a result of the recent budget. The proposed 2008/09 indicator, which is summarised and explained in Appendix 4 is £26.5m, including a carry forward of £8.3m representing `surplus' cashable efficiencies achieved during the Spending Review 2004 period. This represents an efficiency gain of 4% compared with the national 3% target.

9 Financial management policy

9.1 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 5 highlights the progress made in 2008/09 in implementing the financial planning policies.

10 Capital spending and financing 2008/09

10.1 Details are shown in Appendix 6, but in summary:

· £ 149.0m of capital schemes were committed leaving £ 70.0m to be carried forward to 2009/10

· Capital expenditure of £193.6m was incurred which can all be financed within available resources, including the use of £11.7m from the capital reserve

· £44.8m was borrowed under the prudential code net of repayment from capital receipts and other sources.

11 Partnership accounts

11.1 Details are included in Appendix 7 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.

12 Assurance statement

12.1 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 Audit Committee. Appendix 8 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.

13 Recommendations

13.1 That the favourable outturn position be approved and that the overall underspend of £5.1m be added to balances for its use to be identified in a further report to Cabinet.

13.2 That the updated protocol on earmarked reserves as set out in Appendix 2 be approved.

13.3 That the report on the County Council's treasury management activities, prudential and financial health indicators as set out in Appendix 3 be approved.

13.4 That the efficiency indicators for 2008/09 be approved as set out in Appendix 4 and submitted to Communities and Local Government.

13.5 That service capital programme cash limits for 2009/10 be increased to reflect the carry forward of capital programme schemes and shares of capital receipts, as set out in Appendix 6.

CORPORATE OR LEGAL INFORMATION:

Links to the Corporate Strategy

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Other Significant Links

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

1.1. Equality objectives are not considered to be adversely affected by the proposals within this report.

2. Impact on Crime and Disorder:

2.1. 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 proposals

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