The booklet contains details of the revenue budget for 2004-05 and the capital programme for 2004-05 – 2006-07. The budget and capital programme will enable the continued implementation of the priorities set out in the Medium Term Corporate Strategy which was agreed by the County Council in July 2003.

The 2004-05 settlement is the second since the Government changed the system to one based on Formula Spending Shares (FSSs). There were no proposed changes to the basic formula used to calculate FSS.

The actual increase nationally in grant from Central Government – the sum of Revenue Support Grant (RSG) and National Non-Domestic Rates (NNDR)  - is 5.9%.  However Leicestershire’s increase is higher than this at 6.8%.  

The reason Leicestershire’s increase is above the national increase is twofold.  Firstly the Government continues to give a higher priority to those services provided by the County Council, such as Education and Social Services. Secondly the County has seen favourable movements, relative to other authorities, in the data used to calculate FSS’s, particularly in Social Services, Environmental, Protective & Cultural Services and Highways Maintenance. However this data increase reflects the relative increase in demand for County Council services.

Leicestershire County Council’s financial position would have been better if the Government had incorporated the latest census information into the calculations of each authority’s FSS.  Much of the data used is still based on the 1991 Census.  If the 2001 Census data had been used, it is estimated that the County Council would have received an additional £3m.  The Council will continue to put pressure on the Government to ensure the 2001 Census data is used for the 2005-06 settlement.

The 6.8% increase in RSG and NNDR means that Leicestershire County Council will receive £329.587m for 2004-05. This includes the Council’s share of the additional £340m the Government made available after the settlement to help keep down council tax increases to  “low single figures” as per statements by the Deputy Prime Minister and the Local Government Minister.

There are two changes which have been taken into account in the setting of the 2004-05 budget. They are:

The budget requirement for 2004-05 is £514.6m. It complies with the requirement of Government to ensure that the increase in the Government funding for schools is passed on to the schools’ budgets.

The budget allows for £6.6m of inflationary pressures (excluding schools), based on 2.5% for both pay inflation and price inflation.  Where there is additional provision to cover anticipated price increases above 2.5%, this is contained in growth bids.

In total £16.1m (excluding schools) has been included in the budget to meet demand and cost increases, Government requirements (including loss of grant) and for service improvement primarily relating to the Council’s Medium Term Corporate Strategy priorities.

These are broken down by departments as shown in the table below:

Within Education, the main item is increased transport costs for pupils.

Pressures in Social Services include increases in demand for, and cost of, independent sector residential placements, independent sector home care services and residential placements for children.  Provision has been made for reduced income under Fairer Charging.  In addition there are improvements to day care for people with learning disabilities, community equipment and adaptation services, community mental health and increases in support for carers.

There are increases in the costs of bus services and for the implementation of the Highways Charter including the ‘Roadline’ initiative.  Waste disposal costs are increasing principally as a result of additional landfill tax and recycling payments to Districts. There are also the costs of implementation of the Joint Waste Strategy.

Resources have been provided for other Medium Term Strategy priorities including  e-government and Better Access to Better Services (BABSI).

The 2004-05 budget includes £3.8m of efficiency and other savings to offset the increased cost of services (including improvements) and restrict the council tax increase. The savings are the result of efficiency improvements and a reassessment of service priorities. The full year impact of these savings is £6.5m.

In addition to the efficiency savings across all departments, the budget provides for a saving of £350,000 (increasing to £1m in 2005-06) for Community Plus and a reduction of £400,000 (approximately 50%) in the provision for Shire Grants.  This will be achieved by a review to ensure that grants are better focused.

The Local Government Act 2003 requires the Council’s Chief Finance Officer to report on the robustness of the estimates included in the budget; and the adequacy of the proposed financial reserves.

The Director of Resources provides detailed guidance notes for departments to follow when producing their budgets.  As well as setting out certain assumptions such as inflation, these notes set a framework for the effective review and compilation of budget estimates.  As a result, all estimates have been reviewed by appropriate staff in departments.  In addition, each Departmental Head of Finance has identified the main risk areas in their budget and these have been evaluated by the Director of Resources.

The forecast balance on the County Fund at the end of 2003-04 is  £4.226m, which represents 1.5% of the non schools budget.   The 2004-05 budget includes a contribution of £228,000 to balances making an estimated total of £4.454m at 31st March 2005.

The key risks faced by the County Council for 2004-05 which could lead to additional costs to the authority have been assessed to determine their likelihood and the potential financial impact. Chief Officers will be increasing the focus on budget monitoring in 2004-05 to ensure these risks are effectively managed. The frequency of reports to Scrutiny and Cabinet will be increased.

The School Standards and Framework Act 1998 places an obligation on Local Education Authorities to allow schools and colleges to retain their accumulated balances in relation to delegated budgets.

The net school balances brought forward as at 1st April 2003 amounted to £11.8m.  This balance consisted of a net revenue balance of £7.1m; delegated capital £3.5m and specific grant £1.2m.  The two latter balances are for specified purposes.

In 2003-04 schools have experienced a budget reduction in real terms of approximately 1.5% which is likely to lead to a reduction in the brought forward balances for 2004-05.  The transitional support grant should reduce the pressure on school balances during 2004/05 and potentially in 2005-06.

It is estimated that the schools' revenue balances (excluding capital and specific grants) will reduce to between £3m to £4m by 1st April 2004.

Having taken account of the overall control framework, budget provisions included for inflation and growth to reflect spending pressures, assurance can be given that the estimates are considered to be realistic and take account of the key factors that influence expenditure patterns.

Given the basis on which the budget is prepared, taking account of the main risks faced by the County Council, making an allowance for potential unforeseen eventualities and an increased focus on financial control, the level of reserves including the free balance on the County Fund is considered to be adequate.

The budget recommendation for 2004-05 is based on a 6.4% Council Tax increase. This will result in Council Tax for a Band D dwelling increasing from £814.85 (an adjusted figure to take account of precepting by the Combined Fire Authority) to £866.99.

(Details of Council Tax increases are shown on pages 22 to 24.)

For the first time, the 2004-05 budget setting process has taken account of the medium term financial position. This has been identified to support the Council’s corporate planning process and in particular to link into the Medium Term Corporate Strategy.  In order to look at the likely position for future years it has been necessary to make a number of assumptions in respect of both income and expenditure.

In terms of expenditure an allowance has been included for pay and price inflation and the impact of future budget pressures has been estimated.

The significant cost and demand increases and service developments over the medium term are forecast to be:

•Social Services – continuing demand pressures for independent sector residential and nursing home placements, home care, day care and development of supported living.  Other significant cost pressures relate to children’s residential agency placements and progressing the Learning Disability Review.

•Waste – significant cost pressures are due to arise from the planned increases in landfill tax, implementing the Joint Waste Strategy and the need for alternative disposal arrangements as existing landfill sites become full.

•Other – these include inflationary costs of bus contracts for both schools and the public, the cost of the 2005 county elections, increasing cost of highways maintenance and progressing other key priorities such as BABSI.

There is also a great deal of difficulty in forecasting the level of resources. The key areas of uncertainty are whether the 2005-06 settlement will be based on data from the 2001 Census, the contents of the July 2004 Comprehensive Spending Review and whether the £340m additional resources included in this year’s settlement are ongoing or a one off contribution.  In respect of the £340m the Government has made no commitment that this will be included in next year’s settlement. The Government decisions on all these matters could impact significantly on resource levels. The census data and the additional £340m together could result in a £6m variation in Government resources.

These uncertainties make it difficult to forecast over the medium term.  However, there will be strong national and local pressures for council tax increases to be lower in 2005-06 than in 2004-05.  The extent that further savings will be required to achieve this will depend both on actual Government resources and budget pressures in 2005-06.

The 2003 Local Government Act abolishes central government controls on borrowing for capital expenditure with effect from 2004-05.  It replaces these with a requirement for local authorities to ensure capital expenditure plans are affordable, sustainable and prudent in accordance with the CIPFA Prudential Code for Capital Finance in Local Authorities.

The following table sets out the expected capital resources available to the County Council.  These include resources made available by the Government for the main programme areas, third party contributions and discretionary resources generated by the County Council (principally capital receipts).

This table incorporates the £21.5m made available by the DfES to help finance the replacement of 4 Intergrid Schools.  The DfES wrote to the County Council on February 3rd setting out the additional funding of £12.8m and £8.7m in 2005-06 and 2006-07 respectively.  

The financing of the programme in 2005-06 and 2006-07 is likely to require the Authority to make use of the new freedoms under the Local Government Act and enter into borrowing which is not supported by Government grant and has to be met from council tax.

It is difficult to estimate the resources available in future years as these will be influenced by factors such as the 2004 Comprehensive Spending Review, the success in bidding for specific projects and the extent of third party contributions. As a result the affordability and sustainability of the capital programme in these years will be considered as part of each year’s budget process.

The proposed programme is summarised in the table below.

The key issue with respect to the Prudential Code is the revenue impact of borrowing unsupported by Government Grant. On the basis of affordability no unsupported borrowing has been included in the 2004-05 budget, therefore there is no impact on council tax.  In future years a degree of unsupported borrowing is assumed.  The projections set out below incorporate the impact of this limited additional borrowing following announcement of DfES support for Intergrid schools.

The full programme of prudential indicators include scope for the County Council to borrow to fund capital expenditure where existing revenue budget provision is available to meet borrowing costs.  This will, for example, enable the Authority to borrow rather than lease where this approach is more financially beneficial to the Authority and there is existing budgetary provision.

The key priorities which are reflected in the proposed Education capital programme are set out below:

•Replacement of five Intergrid Schools over the period 2004 to 2007.  These schools are coming to the end of their economic life.

•Targeted capital funds for the building of a new Hinckley Special School have been approved (total cost £5m).  An  LEA contribution of £1m is included in the programme.

•A New Opportunities Fund sports capital programme of £3.2m is planned for 2004-05.

•The remaining programme mainly covers provision for replacement of mobile accommodation and minor works to improve the condition of school buildings.

In addition to the main Education programme schools devolved formula capital is increasing by £1.1m to £8.9m.  These resources are allocated directly to schools, mainly on the basis of pupil numbers.  This means a 1,200 place secondary school will receive around £100,000 in 2004-05.  A 240 place primary school will receive around £25,000 in 2004-05.

The replacement of the five Intergrid schools is expected to cost in the region of £50m.  This includes meeting the full cost of four of the schools and making a contribution to the cost of Enderby Brockington which is a Church of England (Controlled) School.  These costs are based on estimates and the ultimate cost and phasing of the replacement programme will be dependent on the tendering process. The programme currently assumes that available capital resources of £3m in 2004-05 will not be spent and will be carried forward into 2005-06 to contribute to meeting the costs of Intergrid Schools replacement.

The capital programme for Highways and Transportation is comprised of £21.58m relating to the Department for Transport’s LTP settlement and capital receipts of £875,000, a total of £22.46m.

The 2004-05 LTP settlement includes £5.9m for the construction of the Rearsby Bypass.  However, proposals for the bypass of Earl Shilton are still awaiting ministerial approval following a resubmission of the scheme in the July 2003 APR.

Within the Integrated Transport Schemes (ITS) block, £5.8m is to be spent on measures across the so-called (for Government purposes) Central Leicestershire and County Areas.  These measures include schemes targeted at town centre improvements, safer routes to schools, speed management, and improvements in accessibility to the highways network for cyclists, pedestrians, people with disabilities and users of public transport.  A sum of £864,000 has been programmed on schemes that contribute towards national targets for casualty reduction.  This is supported by a further £200,000 to meet PSA casualty reduction targets.

The Transport allocation is set against the background of the Government’s 10 year Transport Plan, including tackling the backlog of structural highway maintenance works.  Funding within the 2004-05 LTP settlement for maintenance, whilst increased, is still insufficient to make a real impression into the backlog of work. In order to try to balance the impact of the above, £500,000 has been transferred within the LTP settlement from the ITS block into Maintenance.

The backlog in replacing structurally unsound lighting columns remains a problem.  No funding was provided within the LTP settlement for column replacement and £500,000 has been included within the programme to continue the level of work undertaken in previous years.

The three year £1.5m waste capital programme is mainly to be spent on improving Civic Amenity Site provision throughout the County in order to meet the increasing targets for waste recycling.  This is part of a long-term programme to improve Civic Amenity Sites.  

The procurement of other required waste management infrastructure to enable the County Council to meet Government recycling targets, including a Materials Recycling Facility, is being considered in the context of partnerships with the private sector.

The main priorities over the three year programme are progressing the learning disability review, introducing electronic social care records in line with central government requirements and upgrading the three retained care homes.

The three year learning disability programme of £2.1m is focused on improving the service in Oadby and Wigston, Blaby, Melton and Charnwood.

The main focus of the programme is the replacement of libraries.  Over the three year programme, ten libraries will either be replaced, extended or relocated in addition to the refurbishment programme.

The main priorities are e.government, BABSI and ICT infrastructure.  Resources have also been allocated to adaptation of buildings to continue the programme of meeting Disability Discrimination Act requirements.

Once again, a tremendous amount of work has been needed to produce the budget and capital programme. The requirement to take into account the budgetary position, not just in 2004-05, but in subsequent years also has meant the process was even more demanding this year. I am grateful to staff in all departments involved in the process for the application and commitment they have shown and I would like to take this opportunity to formally thank them all for their efforts.