Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report

1. Executive Summary

1.1. This report reviews the initial budget monitoring reports for 2009/10 submitted to Executive members, which deal with progress in achieving budget savings and accommodation of 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.

1.2. The initial indications are that containing spending within cash limits in 2009/10 will be more challenging than in 2008/09. This is reflected in the projections for spending on high risk demand led budgets, which based on the first quarter's data, is running further ahead of the budget than in 2008/09 and therefore will require more significant management action to review the current forecasts and deal with the underlying budget pressures. The management of employee budgets may also have to adapt to the impact of the recession where this results in reduced levels of staff turnover and facilitates the filling of vacancies which were difficult to fill when demand in the labour market was stronger. Good progress is being made in implementing savings plans included in the budget, but some of the savings proposals are not yet certain of being fully achieved.

1.3. Agreement has been reached on a revised national pay offer of 1% for most staff, with a higher increase of 1.25% for staff paid on Grade A of the County Council's pay structure. However as only about 3% of the pay bill relates to staff on Grade A, the overall cost of the pay award is about 1.01%, a reduction of 0.19% on the allocation of 1.2% made in service budgets, equivalent to a saving of £0.5m on non-school budgets. However this saving is partly offset by the effect of reductions in electricity prices from this Autumn not fully matching the assumption made in the budget about the likely short-term nature of the substantial increases which took place in the autumn of 2008.

1.4. The Cabinet agreed in July, in considering the implications of the addition of £5.1m to balances in 2008/09 as a result of savings on non-cash limited budgets, to consider a further report at this meeting on potential additional one-off spending on 2009/10 funded from balances. A report has been considered by the Executive member for Policy and Resources on priorities for additional spending on highways and it is proposed to utilise £2.6m from balances for this purpose, and to earmark the remaining £2.5m to reduce the council tax increase in 2011/12.

1.5. In view of the impact of slippage in capital expenditure on the level of new supported borrowing taken up in 2008/09 and lower short term interest rates, capital financing costs will be lower in 2009/10 than budgeted and this provides scope for continuing to set aside additional balances to support the budget in 2011/12, the first year likely to be affected by tighter Government spending plans, while enabling some additional one-off spending to be incurred in 2009/10.

1.6. The Annual Investment Strategy approved by the County Council alongside the budget in February indicated that changes in the Council's lending list would be reported to the Cabinet on a quarterly basis. Some further narrowing of the list has occurred since February, primarily as a result of changes in credit ratings, but a slight relaxation on lending for longer periods of between 3 - 12 months has been introduced.

1.7. The Executive Member for Culture, Communities and Recreation has requested Cabinet approval for an increase of £5,897,000 in the 2009/10 capital programme to cover the County Council's contribution to the Runways End Youth Adventure Centre Project. This contribution will be fully financed from a grant received from the Government's Co-location Fund. Subject to approval of the project appraisal, this proposal can be supported subject to any budgetary impact relating to running costs being containable within the existing Culture, Communities and Rural Affairs budget.

1.8. The County Council can only bring very limited influence to bear on the level of spending on the Coroners' Service. In view of the difficulties of budgeting for the service within the Policy and Resources cash limit, it is proposed that, as from 2009/10, the Coroners' budget be excluded from the Policy and Resources cash limit. This means that the impact of variations in spending on the service effect the overall budget rather than just Policy and Resources services

2. Service cash limited expenditure

Adult Services

2.1. The initial budget monitoring report to the Executive Member for Adult Social Care in July based on data for the first two months of the year identified that current client activity was running at a higher level than budgeted, but forecast that a balanced budget position could be achieved. The data at the end of the first quarter shows a further small increase in client activity levels, particularly relating to domiciliary care and projected spending overall on demand led care budgets is £4.6m higher than budgeted. After allowing for forecast higher income, net spending is projected to be £1.6m (0.5%) in excess of the budget. Management action is being taken to contain spending levels within the budget and a further monitoring report will be submitted to the next Adult Social Care Executive Member decision day.

Children's Services

2.2. The Executive Member for Children's Services received an initial budget monitoring report in July based on data for the first two months of the financial year. This did not contain a comprehensive forecast of spending in 2009/10 but was mainly focussed on higher risk activity led areas, in particular in relation to the non schools budget, home to school transport, interest on balances and children looked after. This indicated that there were potential budget pressures in all three areas and the projections on high risk demand led budgets covering home to school transport and looked after children for the first quarter indicated a potential overspending of £2.4m. Lower levels of staffing vacancies are also putting pressure on employee budgets. A further comprehensive budget monitoring report will be presented to the Executive Member in October together with options for managing outstanding budget pressures.

Culture, Communities and Rural Affairs

2.3. A budget monitoring report was submitted to the Executive Member for Culture, Communities and Recreation on 10 September, which indicated a projected overspending of £220,000 before allowing for management action, which is expected to ensure that a balanced budget position is achieved. The projection mainly reflects the continuing downward trend in library income, estimated at £150,000 lower than budgeted. The majority of services are however expected to meet their targets for participation levels and there is no strong evidence so far that the recession has had an adverse impact on service usage and income levels.

2.4. The County Council has been awarded a capital grant of £5.9m from the Government's co-location fund in support of the development of the Runways End Youth Adventure Centre, in partnership with Rushmoor Borough Council and the Blackwater Valley Scout Association. The balance of the estimated total capital cost of £6.1m will be incurred and funded by Rushmoor Borough Council. The Cabinet has been requested to agree to the addition of £5.9m to the 2009/10 Culture, Communities and Rural Affairs capital programme, subject to the approval of the project appraisal before the scheme is implemented. The Cabinet is recommended to approve this addition to the capital programme, subject to any net revenue impact of the project, which could be of the order of £50,000 to £100,000 per annum, being met from the existing Culture, Communities and Rural Affairs revenue budget.

Environment

2.5. A monitoring report is being submitted to the Executive Member for Environment on 6 October 2009. This identifies good progress in achieving budgeted savings and in containing budget pressures within the service's cash limit.

Policy and Resources

2.6. An initial budget monitoring report was submitted to the Executive Member for Policy and Resources on 23 July. The report identified some continuing budget pressures relating to chief officer controlled budgets, particularly relating to Property Services, but it is anticipated that these can be managed within the overall cash limits for each service.

2.7. A greater concern however is the continuing upward tread in spending on the HM Coroner Service, which resulted in an overspending of £282,000 on the service in 2008/09, despite an increase of £100,000 in the 2008/09 budget. The County Council has made representations to the Ministry of Justice about the lack of local authority accountability for the Coroners' service and has supported the Local Government Association's response to the Coroners' Bill, calling for central funding to be put in place.

2.8. Following a review of the position on other non-Chief Officer controlled budgets in 2009/10, it will be possible to accommodate the carry forward of the Coroners' overspending in 2008/09 within the Policy and Resources cash limit while enabling underspendings on grants to voluntary organisations and member devolved budgets to be carried forward. However there is no indication that the upward trend in spending on Coroners' will be reversed in 2009/10. In view of the very limited influence the County Council can bring to bear on the level of spending, it is proposed that the budget for the Coroners' service be excluded in future from service cash limits, as is the current practice for the Environment Agency's Flood Protection levies. This means that the impact of variations in spending on Coroners' would affect the resources available for the overall County Council budget rather than just affecting other Policy and Resources services.

Corporate budget monitoring

2.9. In addition 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

2.10. 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 £8.4m (2.2%) higher than budgeted, by £4.6m on Adult Services, £3.6m on Children's Services (including £1.2m within the schools block) and £0.2m on the Coroners' service. It is not uncommon for the first quarter's monitoring to reveal projected overspendings on demand led budgets, enabling management action to manage the overall service budget to be planned in good time. At the equivalent stage in 2008/09, the projected overspending was £5.5m, so there is some evidence that budget pressures may be greater than last year.

Employee budgets

2.11. Overall spending on employee budgets is projected to be slightly higher than budgeted at £0.6m (0.2%) above the budget of £353.7m, though there are some variations between services. This makes no allowance for the estimated saving of £0.5m now anticipated as a result of the agreed 2009 national pay increase. Actual employee numbers (excluding school based and business unit employees) in the first quarter averaged 9,872 full time equivalent staff numbers (FTE), about 2% lower than budgeted, although slightly higher than the average of 9,681 FTE in the previous quarter, reflecting additional posts included in the 2009/10 budget. There is some evidence that the recession is resulting in a reduction in the level of staff turnover and that some vacancies are proving easier to fill than in the past, requiring the approach to managing employee budgets to be adapted where these considerations apply.

Savings plans

2.12. The 2009/10 budget included planned savings of £15.2m to finance one-off and recurring budget pressures in 2009/10, that could not be accommodated within the budget guidelines. This excludes savings achieved by means of carry forward of underspendings, the use of reserves or transfers from capital, which do not require monitoring.

2.13. Good progress has been made in implementing plans to achieve the budgeted savings, with savings of £6.4m assessed as having been already achieved and with firm evidence of likely achievement being available for £13.0m (86%) of the planed savings, thus limiting the extent to which it may be necessary to identify alternative savings to meet budget targets.

Financial Health Indicators

2.14. A set of Financial Health indicators were incorporated in the budget proposals approved by Cabinet in February 2009. They are 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 2009/10 and either the latest full year projections or data for the first quarter.

2.15. All of the indicators are expected to be within the target range or have favourable variances: Because forecast capital receipts for 2009/10 are only £4.7m, the County Council's exposure to achieving lower capital receipts and third party contributions than budgeted is relatively low.

2.16. The annual investment strategy approved by the County Council in February indicated that changes in the Council's lending list would be reported to the Cabinet on a quarterly basis. The lending limits reflect the County Council's role in operating pooled Treasury Management arrangements on behalf not only of the County Council but also the Pension Fund, Police and Fire authorities.

2.17. Northern Rock bank has been readmitted to the lending list as a nationalised bank which satisfies the minimum rating criteria of A2 or better, but subject to a relatively low limit of £10m and a maximum lending term of six months. The ratings of the majority of building societies have been downgraded since February and only Nationwide and Leeds societies of the top 10 building societies now have ratings of A2 or better, with Yorkshire, Coventry, Chelsea and Skipton societies now having ratings below A2 and having been deleted from the list. New limits for lending longer than 3 months have been reintroduced, with up to 1/3 of lending to UK Clearing Banks and the Nationwide Building Society now being for periods between 3 and 12 months.

Non cash-limited budgets

2.18. There are a number of budgets which are outside service cash limits - these manly comprise the following.

	£m
Capital financing charges/interest on balances	47.3
Flood protection levies	0.5
Waste management contract contingency	2.9

Capital financing/interest on balances

2.19. Capital financing budgets for 2009/10 were based on short-term interest rates of 1.5%. Since the budget was prepared there have been two further reductions in base rate in February and March 2009 to the current rate of 0.5%. Given the County Council's current balance sheet position and proportion of fixed rate and variable rate borrowing, the impact of falling short-term interest rates is relatively modest, but a forecast saving of approximately £1m would arise if rates remain at their current level for the remainder of the financial year.

2.20. Capital financing charges in 2009/10 were estimated on the basis of the capital financing plan for 2008/09 agreed by the Cabinet in February 2009, which envisaged new borrowing for capital purposes of £86.5m in 2008/09. Mainly as a result of slippage in capital expenditure in 2008/09, actual expenditure financed by borrowing was lower than forecast at £61.3m. The effect of lower borrowing in 2008/09 will be to reduce capital financing costs in 2009/10 by about £1.9m.

Flood Protection levies

2.21. 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 2009/10 provision was made for a £25,000 increase (4.6%), following an increase of £35,000 in 2008/09, but the actual increase was only 1.1%, £19,000 lower than budgeted.

Waste management contract

2.22. A contingency of £2.9m was included within the budget to cover the impact of contract price increases, changes to landfill tax rates and to volumes of waste occurring after November 2008. The contingency sum made allowance for waste volumes to increase by 1.4% on the previous year, but overall waste volumes were lower in the first quarter of 2009/10 than in the equivalent period in 2008/09 by 2.1%. It is too early in the year to be clear about trends in waste volumes, but the data for the first quarter is encouraging.

Pay awards/Electricity prices

2.23. An allowance of 1.5% was made in the budget for pay awards in 2009. Following approval of the budget, a further 0.3% 2008 pay increase was implemented following an arbitration award, effectively reducing the allowance for a 2009 increase to 1.2%. The Local Government Employers in July made a revised pay offer, effective from 1 April 2009, providing for an increase of 1%, together with an additional 0.25% for the lowest paid workers. The 1.25% increase would apply to staff paid on Grade A of the County Council's pay structure, but this represents only about 3% of the overall paybill.

2.24. The revised pay offer has now been agreed and increases the County Council's paybill for the relevant staff by about 1.01%, 0.19% less than the assumption made in setting service cash limits for 2009/10, equivalent to a saving of about £0.5m on non-schools budgets.

2.25. Additional allocations were made on a one-off basis to services in 2008/09 and 2009/10 to take account of the sharp increase in electricity prices in Autumn 2008, which averaged about 70% but which were expected to fall back when new contracts took effect in Autumn 2009. The allocations made to services in 2009/10 assumed that there would be an average 30% reduction in electricity prices in Autumn 2009 (so that prices would fall back to about 20% above their level prior to the 2008 increase). New contracts have now been agreed for either one or two year periods, which will result in average price reductions of about 25% from October/November 2009, very close to the assumption made in the budget, but resulting in costs on non-schools budgets being about £0.1m higher than budgeted in 2009/10.

Use of 2008/09 underspending

2.26. The Cabinet considered a report in July on the 2008/09 end of year position. £0.4m was set aside for one-off capital investment which it is planned to utilise to extend the High Street repaving scheme in Winchester to improve the Square, Winchester. The balance of the 2008/09 underspending of £5.1m has been added to balances, to be utilised either to reduce the level of the 2011/12 council tax increase or for one-off investment. The Executive Member for Policy and Resources agreed a recommendation to the Cabinet at his September decision day that £2.6m be allocated for additional spending on highways in 2009/10, £0.3m for drainage improvements, £0.3m to implement additional Village 30 speed limits and £2m for highway structural maintenance. This would leave the balance of £2.5m available to reduce the planned council tax increase in 2011/12 from 3.8% to 3.3%, but as a result of anticipated lower capital financing charges in 2009/10 it would be possible to set aside a further sum of up to £2.9m to reduce the council tax increase in 2011/12 by a further 0.5%.

3. Conclusion

3.1. The budget monitoring data for the first quarter does not raise any major concerns, but the indication is that managing service budgets within cash limits is becoming more challenging in 2009/10 and that the impact of the recession upon the Council's services may be beginning to become more apparent.

4. Recommendations

4.1. That the action being taken to achieve planned savings in the 2009/10 budget and to deal with additional budget pressures be supported.

4.2. That the allocation of £2.6m to Environment for highway priorities agreed by the Executive Member for Policy and Resources be approved.

4.3. That the inclusion of the Runways End Youth Adventure Centre project in the capital programme, fully funded by Government grant, be approved, on the condition that any additional running costs are contained within the existing Culture, Communities and Rural Affairs budget.

4.4. That the budget for the Coroners' service be treated as a non cash- limited budget from 2009/10 onwards.

CORPORATE OR LEGAL INFORMATION:

Links to the Corporate Strategy

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

1.1. Equality objectives are not considered to be adversely affected by the proposals in 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:

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

No specific proposals.

3.2. 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