Archived decisions

HAMPSHIRE COUNTY COUNCIL

Report for Information

1. Executive Summary

1.1. This report seeks approval for submission to the Leader and Cabinet the revised budget for 2009/10, detailed proposals for the 2010/11 budget and provisional budgets for 2011/12 and 2012/13.

1.2. This report has been prepared in consultation with the Executive Member and will be reviewed by the Environment and Transportation Select Committee. It will be reported to the Leader and Cabinet on 4 February 2010 to make final recommendations to County Council on 18 February 2010.

1.3. The report considers revisions to the 2009/10 budget. In respect of the 2010/11 budget the report includes proposals for additional expenditure to meet service pressures matched by equivalent savings, together with details of efficiency improvements, the annual review of income and charges and the workforce implications of the proposed budget. The report also outlines the provisional budgets for 2011/12 and 2012/13.

1.4. The budget proposals contained in this report are derived from the departmental service plans which have been developed to support the priorities of the Corporate Strategy.

2. Contextual information

2.1. The Cabinet agreed a three year budget plan for 2009/10 to 2011/12 in February 2009. The key features of the plan are as follows:

· it makes allowance for increased demand for social care services and for the projected higher costs of the waste management contract, but otherwise contains no provision for growth in service budgets

· all service budgets are uplifted for inflation based on the assumption that increases in pay would be contained within an average increase of 1.5% per annum for 2009/10 and 2010/11 and 2% for 2011/12, and increases in other prices would be contained within an average increase of 2.25% for 2009/10 and 2010/11 and 2.5% for 2011/12

· income is to be maximised by reviewing charges in line with the average inflation on the related gross expenditure

· it assumes that efficiency savings will be achieved to finance any proposed service developments, unfunded demand pressures or to cover excess inflation within the context of the Government's target for local government of annual efficiency savings of 3% per annum (4% from 2010/11).

2.2. In order to maintain a three year financial plan, Cabinet agreed an updated medium term financial strategy in October 2009, together with provisional guidelines for 2012/13, based on assumptions similar to 2011/12. In order to reduce the proposed council tax rise to 1.9%, assuming a 2% cash reduction in Government grant, Cabinet set a target for corporate recurring efficiency savings of £15 million from 2011/12 and a further £15 million recurring savings from 2012/13.

2.3. For this service, the budget guidelines are:

2.4. The medium term financial strategy is closely linked to the Corporate Strategy and the Corporate Improvement Plan to ensure that priorities are affordable and provide value for money and that resources follow priorities.

3. Revised budget 2009/10

3.1. The most recent monitoring report in October presented a satisfactory position for that point in the financial year. It identified additional resources of £751,000 on the budgets for road safety education and the Safer Roads Partnership, arising from the recovery of costs shared between partners. This has been carried forward to the 2010/11 capital programme for a works programme to implement the outcome of a review of speed limits on A and B roads.

3.2. The report also identified that some realignment of the overall highways maintenance programme would be necessary to increase the level of highways maintenance revenue reserves from the relatively low level of £100,000 and that on public transport there may be opportunities later in the year to carry forward resources in support of the 2010/11 budget.

3.3. A further review of the budget position has recently been carried out within the Environment department and a revised budget for 2009/10 has been prepared taking into account recent trends in expenditure and income. The main issues arising from the preparation of the revised budget are set out in the following paragraphs.

Changes to the 2009/10 cash limit

3.4. The most recent reported figure for the 2009/10 cash limit was £114.030 million, set out in the budget monitoring report in October. Subsequent adjustments, including transfers between capital and revenue and between Environment and other County Council services, have reduced the cash limit to £112.885 million. Details are set out in Appendix 1.

Highways maintenance

3.5. The 2009/10 cash limit for routine highways maintenance is £30.271 million and reflects an increase of £500,000 since the last monitoring review arising from a realignment of expenditure between capital and revenue funded highways maintenance for certain categories of expenditure under the term highways contract. Budget provision was originally included within the 2009/10 capital maintenance programme to cover these items, but the types of expenditure now being covered by this provision, eg drainage cleaning, grass cutting and weed control, should more correctly be charged against the revenue budget. A similar adjustment has been included in the calculation of the 2010/11 base budget.

3.6. The above transfer, together with other changes to the maintenance programme since the last review, has now increased highways revenue reserves to £242,000, compared to the low level of £100,000 reported in October. This is considered to be a more reasonable reserve fund figure and will provide a greater degree of flexibility in managing the highways maintenance programme during the second half of the year.

3.7. The street lighting private finance initiative (PFI) achieved financial close on 10 December 2009 with a fixed interest rate of 4.7%. The new contract is due to start on 1 April 2010.

3.8. The street lighting budget has been ring-fenced this year so that maximum funding could be made available to support the introduction of the PFI project, after allowing for ongoing expenditure this year on routine maintenance activities and energy. However, additional expenditure this year arising from the implementation of the PFI contract is expected to be minimal due to the start date being later than originally expected. Taking into account the phasing of expenditure this year on street lighting column replacements and other related expenditure, transitional savings of approximately £900,000 on the street lighting budget are available, although £300,000 of this has been earmarked in the 2009/10 revised budget to cover one-off contract renegotiation costs relating to the future provision of the department's main IT system for highways management.

3.9. This leaves a sum of £600,000 which is proposed be carried forward to the 2010/11 budget to help cover extra transitional costs next year arising from the implementation of the PFI. This would include the cost of converting street lights on new building developments that have been adopted under Section 38 of the Highways Act 1980. These items, which had previously been agreed with developers, do not currently meet the required standard under the PFI and are not yet within the new contract. Following the achievement of financial close on the PFI contract, further work will now be undertaken to fully assess the cost of converting these items, which would then be built into future funding plans.

3.10. The 2009/10 highways maintenance budget also includes a further ring-fenced sum of £300,000 from the additional corporate support of £600,000 towards anticipated higher first year PFI costs. This allocation was spread evenly across the two financial years 2009/10 and 2010/11 when the budget was originally prepared, based on an assumption that the PFI contract would commence in October 2009. It is proposed that this sum of £300,000 be also carried forward to the 2010/11 budget to provide further support towards the first year transitional costs of the PFI project, which would take the total carry forward on street lighting to £900,000. The £300,000 balance of the additional corporate support, which was originally allocated to the 2010/11 budget, is not now expected to be needed to support the PFI and this element has been returned to corporate balances in the construction of next year's base budget.

School crossing patrols

3.11. It is proposed to allocate an additional sum of £30,000 from within the department's overall staffing budget to support higher employment levels within the school crossing patrol service. This reflects the continuation of the trend experienced last year of improved levels of staff recruitment and retention after many years of difficulty in this area.

Public transport support

3.12. Overall expenditure on public transport support and co-ordination is expected to be £100,000 below the cash limit this year, as a result of changes in the phasing of area re-tendering compared with the assumption when the 2009/10 budget was prepared, with the resultant cost increases being mainly deferred to 2010/11.

3.13. It is therefore proposed that this sum be carried forward to next year to help manage the anticipated future public transport cost pressures during 2010/11.

Waste management

3.14. The approved 2009/10 original budget for the waste contract related services was £42.764 million, based on estimated commitments at the time it was prepared during November 2008. In addition, a contingency amount of £2.941 million was set aside within the overall County Council budget to cover estimated growth in waste volumes beyond predicted 2008/09 levels, future price increases, changes in landfill tax rates and other contract cost pressures.

3.15. Periodic allocations are made from this central contingency throughout the year to increase the waste management cash limit, based on quarterly assessments of cost increases on the contract related services. Allocations from the waste contingency during the first half of the year have totalled £913,000, which are included in the calculation of the 2009/10 revised budget of £43.700 million. Further increases to the waste management cash limit will be made later in the year to reflect subsequent quarterly allocations from the waste management contingency, once these have been assessed.

3.16. Overall waste volumes during the first six months of the year have been lower, by 1.7%, compared to the corresponding period of 2008/09 and the allowance for growth of 1.4% included in the make-up of the central waste contingency. Within this figure, volumes from household waste collections have reduced by 3.6% year-on-year, although this reduction has been partially offset by increases of 3.0% in the volumes of residual waste from the household waste recycling centres.

3.17. Based on current trends of lower waste volumes and also taking into account the impact of reduced inflation on contract re-pricing, it is forecast that the outturn on the waste contract related budgets will be well within the overall budget provision, including the contingency sum of £2.941 million. The overall financial picture will become clearer as the year progresses once further information on monthly waste volumes becomes available.

3.18. The proposed 2009/10 revised budget provision for non-contract waste management services is £1.134 million, covering the main non-contract related activities such as facilities management, promotions and development, the disposal of abandoned vehicles and LPSA grant funded projects. This is in line with the cash limit for these services.

Staffing and operational support

3.19. The recommended 2009/10 revised budget for staffing and operational support is £26.690 million, taking into account the various cash limit changes set out in Appendix 1. These adjustments include transfers to other County Council services to facilitate the introduction of the new business model for IT services, which no longer require charges to be made to departments for the cost of IT infrastructure and some corporate services, together with adjustments relating to the implementation of the Facilities Management project as part of the wider Hampshire Workstyle programme.

3.20. The budget staffing and operational support mainly covers the annual running costs of the Environment department, after allowing for recharges to capital and other service headings, together with expenditure relating to the remaining agency arrangements with the district councils and other external support. As in previous year, the construction of the 2009/10 budget includes a significant allowance for incidental net savings that are expected to arise during the course of the year from staff turnover and the normal delay in filling posts, the figure for 2009/10 being £642,000.

3.21. The achievement of these savings is tracked during the course of the year as part of the programme of regular budget monitoring reviews. The latest position shows that although vacancy and turnover levels during 2009/10 have been below that in some previous years and that the corresponding savings in staff salary costs have been lower, it is anticipated that the turnover allowance will be fully achieved by the end of the financial year. As a result, the outturn on the budget for staffing and operational support is currently expected to be in line with the cash limit for the 2009/10 revised budget.

Summary of 2009/10 revised budget position

3.22. Appendix 2 provides a summary comparing the recommended 2009/10 revised budget to the cash limit, analysed over division of service headings, whilst detailed figures relating to the revised budget are shown in Appendix 7 (the green pages).

3.23. Overall the recommended revised budget is £111.885 million, being £1.0 million below the 2009/10 cash limit of £112.885 million. This position reflects the request that is being made to the Cabinet to approve the carry forward of planned underspendings to the 2010/11 budget of £900,000 in support of the street lighting PFI and £100,000 for public transport support.

4. Base budget 2010/11

4.1. The first stage in the construction of the budget for 2010/11 is the preparation of a base budget. This contains the current financial policies of the Council, to provide a starting point from which decisions can be made. The base budget for this service is £114.175 million at outturn prices, although this excludes allowance for price and volume changes on the waste contract services, which is covered separately by a provision within the central contingency.

4.2. Appendix 3 shows the detailed make up of the 2010/11 base budget. Overall, the base budget reflects a net reduction in expenditure at constant prices of £1.667 million (-1.5%), compared to the re-priced adjusted 2009/10 original budget. The main variations are as follows:

· provision for additional routine highways maintenance expenditure arising from variations in road lengths, the revenue effect of implementing capital programme schemes and the four-yearly average funding formula for highways winter maintenance (+£564,000);

· transfers between capital and revenue including adjustments relating to the reclassification of items of term highways contract expenditure as revenue expenditure and provision for major scheme preparation and design (+£600,000);

· variations in expenditure funded from Government grants (+£47,000);

· transfers to and from reserve accounts for community transport vehicle replacements and the minerals and waste development framework (+£40,000);

· reductions and other adjustments to offset higher inflation compared to the allowance for pay and prices increases included in the construction of the 2009/10 budget, mainly arising from the annual re-pricing of the schedule of rates within the highways term contract (-£776,000);

· exclusion of expenditure included in the 2009/10 budget which was financed by the carry forward of planned underspendings from 2008/09 and other items approved on a non-recurring basis including additional corporate support towards the street lighting PFI project (-£673,000);

· lower waste disposal volumes (-£1,270,000); and

· transfers to and from other County Council services (-£199,000).

4.3. The base budget also reflects provision of £1.345 million to cover future increases in pay and prices during 2010/11, in line with the assumptions in the medium term financial strategy. This allocation is based on an assumption that pay would be contained within an average increase of 1.5%, increases in other prices would average 2.25% and income would be maximised by reviewing charges in line with the average inflation on the related gross expenditure.

4.4. The make-up of the base budget for staffing and operational support includes provision of £558,000 for staff salary increments payable from 1 April 2010. Off-setting efficiency savings have been identified to absorb this additional cost, in accordance with the base budget preparation guidelines.

4.5. For the waste management contract services, the base budget allows for the cost of current contractual commitments, including known and estimated waste tonnages for the current financial year, at January 2009 prices. The contract is subsequently re-priced each year, on 1 January, in line with changes to the Retail Prices Index (RPI). As in previous years, a central contingency sum will be provided within the overall County Council budget to meet the estimated cost of growth in waste volumes beyond anticipated 2009/10 levels, future price and landfill tax increases and any other potential service related pressures. Quarterly allocations will be made to the waste management budget in line with actual cost increases incurred during the next financial year.

5. Cost pressures, redeployment proposals and efficiency improvements - 2010/11-2012/13

5.1. The Cabinet requires all services to consider and report on:

· cost pressures absorbed within the budget guidelines;

· the redeployment of any resources required to offset any new spending priorities, or inescapable budget pressures, or legislative requirements which otherwise cannot be met within their budget guidelines;

· annual efficiency improvements.

5.2. Details of cost pressures on services amounting to £1.605 million in 2010/11 are set out in Appendix 4. This appendix also contains proposals for savings and redeployment of resources to fully offset these pressures. These proposals are discussed in more detail in the following paragraphs.

Highways maintenance

5.3. As mentioned earlier, the new street lighting PFI contract has achieved financial close during December with commencement of the new contract in April 2010. Current assessments are that the ongoing annual County Council contribution towards the cost of the PFI will be within the existing base budget provision although there are still uncertainties regarding a number of transitional items, including the potential cost of converting street lights that have been recently adopted.

5.4. It is proposed that sums totalling £900,000 be carried forward from the 2009/10 budget to provide additional financial resources in 2010/11 for the PFI, including the current year's allocation of £300,000 from the additional corporate support of £600,000 made available towards anticipated higher first year PFI costs. Now that PFI financial close has been achieved, the cost of converting recently adopted street lights can start to be ascertained, and at some point early in the new year it will be possible to confirm medium term financial plans for the PFI, although this will be after the 2010/11 budget is approved. In the event that the full carried forward sum of £900,000 is not required for the PFI, then the sum of up to £300,000 from the additional corporate support would be returned to central balances with any balance being re-allocated in support of other high priority highways and transport measures.

5.5. One such pressure relates to proposals for a programme of drainage improvements and flood risk management measures arising from the development of flood management plans and the forthcoming Flood and Waste Management Act, to help mitigate the impact of climate change. An annual programme of up to £1.9 million per annum has been developed for the implementation of these measures, which would fall within the capital programme allocation for structural highways maintenance.

5.6. Ongoing savings of just over £300,000 have so far been identified in assembling funding for this programme, including £83,000 efficiency savings from within the highways maintenance revenue base budget, although some £1.6 million of these aspirations currently remain unfunded. It is possible that any PFI savings identified during the course of the 2010/11 financial year could be allocated in support of this programme.

5.7. In total the proposed 2010/11 revenue budget for routine highways maintenance amounts to £31.939 million, taking into account the above adjustments. In addition, provision of £26.860 million next year for the structural maintenance of roads and bridges is included within the service's proposals for the capital programme, resulting in an overall highways maintenance budget for 2010/11 of £58.799 million.

School crossing patrols/Safer Roads Partnership

5.8. The 2010/11 base budget provision for expenditure on the school crossing patrols service is £1.121 million. Projected expenditure next year is expected to be £62,000 higher than this figure, reflecting the ongoing impact of improved recruitment and retention of staff, together with higher costs under the new pay framework. It is considered essential that sufficient financial support is provided to maintain current levels of activity on this high profile front-line service and proposals are therefore included to allocate an equivalent sum from resources freed up following the delivery of operational efficiencies resulting in a lower recharge to the County Council for the Hampshire and Isle of Wight Safer Roads Partnership.

5.9. After allowing for the above transfer, the 2010/11 budget provision for the County Council's contribution to the Safer Roads Partnership is £1.261 million. This figure is provisional at this stage pending approval of the Partnership's 2010/11 budget, although this contribution may be reduced further pending the application of LPSA Reward Grant awarded to the Partnership directly, reduced accommodation costs, educational income and potential contributions from other partners, whilst at the same time delivering an enhanced service including speed enforcement for the Village 30 scheme. This would enable Road Safety Grant to be redirected towards other road safety related activities, particularly the safety capital programme, in view of the likelihood of reduced availability of capital resources from 2011/12 onwards

Public transport support

5.10. The base budget for public transport support and co-ordination has been set at £8.265 million, including an allowance of £144,000 for future inflation during 2010/11. Within this overall total, expenditure on bus subsidies is £6.768 million, including support from district councils, other external contributions and area based grant. This sum is currently sufficient to cover ongoing expenditure on existing bus service contractual commitments, but leaves only limited scope for the accommodation of future cost increases from contract re-tendering, re-pricing and commercial services de-registrations, or other cost pressures during 2010/11.

5.11. It will therefore be necessary to continue to apply existing policies, including the rolling programme of area reviews and service reconfigurations, for the containment of expenditure within the available budget limit. It is not possible to be precise about the financial impact on the public transport budget at this stage. However, an indicative sum of £485,000 for 2010/11 has been estimated, based on historic trends and local service knowledge in the three contract areas which are due to be re-tendered during 2010/11 (Alton, Havant and New Forest). It is proposed to carry forward £100,000 from the 2009/10 budget to help manage cost pressures within this service area during 2010/11.

Staffing and operational support

5.12. In addition to staff and other departmental running costs, the budget for staffing and operational support also covers this service's contributions towards various partnership activities, including Transport for South Hampshire (TfSH). TfSH is a delivery agency which was formed in 2007 for the South Hampshire sub-region, bringing together local transport authorities, transport operators, business interests and Government agencies to deliver change.

5.13. The 2010/11 budget includes proposals for an additional annual County Council contribution in support of the increasing level of activity of this partnership in developing sub-regional transport proposals in South Hampshire. This includes the preparation of major schemes for funding and implementation, undertaking studies into access to the strategic development sites, building the evidence base and refining the transport strategies.

5.14. The TfSH business plan has identified the need for additional staffing resources if the Partnership is to carry out the required level of work, at a cost of approximately £220,000 per annum. The County Council's contribution towards this additional resource is £75,000 which can be accommodated within the 2010/11 revenue budget by allocating additional anticipated income from increases to licences and search fees.

Efficiency improvements

5.15. The Government has set an annual efficiency target for local government overall of 3%, increasing to 4% from 2010/11, all of which has to be cashable. Performance against this target is now published twice yearly as part of the national indicator set. The Efficiency Panel will agree and bring forward proposals to achieve recurring corporate efficiency savings of £15 million (approximately 2%) from 2011/12.

5.16. In addition to these, Appendix 5 identifies new efficiency improvements for 2010/11 totalling £2.318 million (2.0% of the base budget). Of these, £1.464 million (1.3%) represent usable budget savings which have been allocated in constructing the 2010/11 base budget, or are incorporated into the redeployment proposals in Appendix 4.

5.17. Taken across the 3 year period covered by the national indicator (2008/09-2010/11), this budget proposal completes the achievement of a total of 11% efficiency savings against a target of 10% as set out below.

6. Review of charges

6.1. The service's 2010/11 revenue budget includes income of £12.5 million from fees and charges.

6.2. There are some mandatory and national charges which the County Council is not able to vary, the main example for the Environment services being planning application fees. Most other departmental charges to users are set to ensure full recovery of costs, including an appropriate contribution towards departmental overheads.

6.3. Wherever possible, charges are reviewed regularly in accordance with financial regulations, or rise automatically in line with increases in cost and are expected to produce additional income of £0.2 million during 2010/11, in line with the assumption included in the inflation allocation.

7. Other expenditure

7.1. The budget includes some items which are not counted against the cash limit. At the present time this includes the budgets for capital charges, flood protection, adjustments for pension and early retirement costs and estimated income relating to the operation of the landfill allowances trading scheme (LATS).

7.2. Further adjustments to the 2010/11 budget will be made later on in the budget preparation process, including charges for central departments support services and for repairs and maintenance of buildings. These costs are excluded at this stage because this expenditure is controlled by Policy and Resources and the budgets and subsequent allocation of expenditure to other services has not yet been agreed.

7.3. Included within the Environment Services' cash limit are costs relating to member support, which will be recharged to the Policy and Resources budget for corporate and democratic core services, also at a later stage in the budget process.

8. Workforce implications

8.1. The workforce implications of the proposed budget for 2010/11 are set out in Appendix 8.

8.2. The 2010/11 proposed budget supports a planned workforce of 833 full time equivalent (FTE) staff. This compares with the 2009/10 original estimate of 823 FTEs, which is an overall increase of 10 FTEs. This variation relates to:

· an increase of 7 FTEs within the construction of the base budget. This mainly relates to the transfer of staff from district councils to reflect changes to the arrangements for the provision of development control and traffic management services and adjustments between other County Council departments, relating to the facilities management review and the establishment of the departmental procurement team; and

· the net effect of proposals for growth, savings and redeployment of resources, as set out in Appendix 4, including additional support for the school crossings patrol service, equivalent to the employment of an extra 3 FTEs within the approved staffing establishment.

9. Provisional budget for 2011/12 and 2012/13

9.1. The provisional budget at outturn prices for 2011/12 and 2012/13 for these services is set out in Appendix 9 and summarised below:

2011/12 £116.0m

2012/13 £117.8m

9.2. The provisional budgets make allowance for future years' inflation together with other base budget changes in line with the approved guidelines. These include reductions for items of non-recurring expenditure carried forward from previous years' underspendings.

10. Conclusion

10.1. The above proposals set out a revised budget for 2009/10, the revenue budget for 2010/11 and provisional budgets for 2011/12 and 2012/13.

10.2. The recommended budgets are in line with the updated medium term financial strategy approved by the Cabinet in October 2009.

11. Recommendations

11.1. To approve for submission to the Leader and Cabinet:

(i) The revised budget for 2009/10 totalling £111.9 million (as set out in Appendices 1 and 2), including proposals for the carry forward of resources of £1.0 million to the 2010/11 budget.

(ii) The base budget for 2010/11 totalling £114.2 million (as set out in Appendix 3), including the return of £300,000 corporate support for the street lighting private finance initiative project to central balances.

(iii) The proposals for additional expenditure to meet service pressures totalling £1.6 million, matched by equivalent redeployment of resources and savings (as set out in Appendix 4).

(iv) The proposals for efficiency improvements totalling £2.3 million (2.0% of the base budget) in 2010/11 (as set out in Appendix 5).

(v) The annual review of income and charges (as set out in paragraph 6).

(vi) The detailed budget for 2010/11 (as set out in Appendices 6 and 7).

(vii) The workforce implications of the proposed budget for 2010/11 (as set out in Appendix 8).

(viii) The provisional budget for 2011/12 of £116.0 million and for 2012/13 of £117.8 million (as set out in Appendix 9).

2224Rpt/1131/BA

CORPORATE OR LEGAL INFORMATION:

Links to the Corporate Strategy

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

1.1. Assessment of the Race Relations (Assessment) Act has been considered in preparing this report. No adverse impact has been identified in terms of race, creed or gender.

2. Impact on Crime and Disorder:

2.1. As this is a general report covering the whole of the budget for the department it cannot set out detailed crime and disorder implications. However, crime and disorder implications of specific issues raised in the budget would be reflected in individual service plans and project reports where appropriate.

3. Climate Change:

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

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

As this is a general report covering the whole of the budget for the department it cannot set out detailed climate change implications. However, climate change implications of specific issues raised in the budget would be reflected in individual service plans and project reports where appropriate.

Appendices