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Two Pattern Unitary Devon Item 3 from the Schedule of Supporting Information - Business Case Overview business case 1 The Boundary Committee published its proposal for the future of local government in

Devon on 7 July 2008. The publication of the proposal was followed by the issue of

financial workbooks for each of the proposals to specified lead s.151 financial officers.

The lead financial officer for the single unitary proposal is the Director of Finance, IT and

Trading of Devon County Council. The deadline for return of the workbooks to the

Boundary Committee is 12 September 2008.

2 The overriding purpose of the affordability study is to demonstrate that for the five years

from the year prior to the start of a unitary, the cumulative savings related to the

restructuring are in excess of the one off and ongoing costs that stem from the

reorganisation. The financial analyses that have been undertaken prove that there are

significantly greater savings that are delivered in making the transition to a single unitary

authority for Devon than under this model. In particular, there is a clearly longer payback

period for the rural Devon unitary and the overall affordability test, to achieve savings

greater than the costs of transition in the first five years, is only marginally achieved.

3 The benefits that will come from unitary local government cannot be measured simply in

financial terms. The criteria that the Secretary of State has specified to measure

proposals for unitary local government require that strategic leadership is effective,

accountable and can improve the way in which people are involved in decisions affecting

the places in which they live and the services they receive.

4 The timescale for this exercise is short. It is not possible, given this constraint, to

determine the detailed structures and precise costs and savings that would underpin a

working budget. The estimates and projections used have been designed to set a

reasonable base against which to measure the effect of transitional costs. The modelled

position results from applying robust assumptions to the budgeted expenditure for all the

contributing authorities where significant change is anticipated as a result of the

proposal.

5 A number of assumptions have been made. The key assumptions are that:

• The existing County Council will be a continuing authority for employment purposes.

• Changes to the formula grant regime and the impact of changes to the national

distribution of formula grant from this proposal have not been taken into account.

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• Demographic changes, inflationary pressures and policy changes reflected in budgets

since 2007/08 have not been recognised.

• Only general fund services have been considered (it is acknowledged that there are

implications for the Housing Revenue Account (HRA) as a result of the proposals but

that these will generally be accommodated from ring fenced HRA balances).

• Staff related costs and savings are estimated and may not reflect the actual cost of

adding or deleting posts

• Other costs and savings relating to the change in staffing levels have been derived

from average unit costs.

6 These assumptions have been applied to areas of review where significant change is

anticipated as a result of the proposal. Reviews have been completed for the following

service elements:

• Democratic arrangements;

• Management structure;

• Environmental and trading standards;

• Waste management;

• Planning services;

• Revenues and benefits;

• Housing services (GF);

• ICT services; and the

• Procurement of goods and services.

7 The affordability study demonstrates that by year five of operation annual savings will be

£22m and ongoing costs will be £12m. Of this £12m approximately £7m relates to new

investment for the community boards to strengthen working at a local level by the new

unitary council. Initial one off transition costs are high. Redundancy costs of £14m and

one off pay harmonisation costs of £5m have been included.

8 Costs in the lead up years and first year of operation exceed savings. In order to manage

this imbalance, reserves of £9m have been applied. The application £4m from general

reserves allows council tax to be equalised at a level below the average council tax in

the first year and to the lowest level of council tax from year two when measured at

2007/08 levels. Thereafter, the level of ongoing savings is sufficient to allow for further

Council Tax reductions and/or further investment in services.

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9 The financial health of the authority will be maintained throughout the period. Balances

will be maintained at £16m. This is in excess of those currently held by the existing

County Council.

10 The approach to this study and the risks attached to the process that has been followed

has been independently evaluated by external consultants Local Government Futures

(LGF). The conclusions drawn are that:

The submissions to the Boundary Committee

a) Given the nature of the exercise, in our opinion, the level of accuracy for the financial workbooks achieved should be sufficient for the Boundary Committee’s purpose.

The overall robustness of the financial workbooks

b) We have formed the view that a reasonable approach has been adopted and that the assessment of costs and cost reductions in the future are not inappropriate.

c) The workbook for the rural county is, in our opinion, sufficiently robust for its purpose,

even though its sensitivity for error is greater than the whole County approach, which we judge to be more robust.

Management of risks

d) We consider that the risk registers attached to the submissions to the Boundary Committee identify significant risks, record the actions that will be taken to mitigate the risk and identifies who is responsible for their control.

Implementation planning and contingency planning

e) DCC has identified the key issues that will be relevant to the implementation of each option. However, planning has not yet progressed to the next level, which will need to demonstrate that the plans can be achieved to the timetable without any adverse impact upon affordability.

Savings and costs

f) Our conclusion is that, whilst not all risks of misjudgement can be eliminated, DCC has made reasonable efforts to identify and assess the costs and savings attributable to the Local Government Reorganisation (LGR) proposals, with any bias being to overstate cost estimates and understate savings.

Budget disaggregation

g) There is a risk that the disaggregation may be sensitive to some revisions, however. Based upon our assessment, the exercise has been carried out with regard to the agreed principles determined by the Devon Section 151 officers group and, in overall terms, the allocated budget for the two unitary option should be within acceptable parameters of accuracy.

Formula grant allocations

h) The principal risk is that, where judgement has been exercised, that a material error in the split of the grant between the two unitaries would arise. It is our view that the

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accuracy of the split is reasonable, given the nature of the exercise. LGF carried out the formula grant disaggregation on behalf of DCC and Exeter City Council.

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Business Case A. Introduction

(a) This business case for a unitary authority for rural Devon has been produced in

response to the alternative pattern of two unitary authorities which the Boundary

Committee has asked respondents to consider. The Committee asked Devon County

Council to lead the assessment of the affordability of a rural Devon unitary authority

for the area of the county covered by the districts of North Devon, Torridge, Mid

Devon, West Devon, South Hams and parts of Teignbridge and East Devon. It asked

Exeter City Council to lead the assessment of the affordability of a unitary authority

covering the city of Exeter and parts of the districts of East Devon and Teignbridge.

(b) This business case should be read in conjunction with the completed financial

workbook issued by the Boundary Committee which details the financial impact of

restructuring. This is shown in item 1 of the schedule of supporting information.

B. Consideration of the Secretary of State’s Criteria

(a) The County Council shares the Boundary Committee’s view that the two unitary

pattern presents a number of challenges and that there is insufficient likelihood that it

would better meet the outcomes set out in the five criteria than the Committee’s draft

proposal.

1. Value for money services

(a) The separation of Devon into two unitary authorities would:

• Require formal joint arrangements between the two authorities for many local

government services

• Require the dismantling of integrated service delivery and management

arrangements

• Increase cost and complexity for partners

• Deny the role that Exeter plays as the site for specialist service provision serving a

wide geographical area.

• Require the simultaneous aggregation and disaggregation of county and district local

authority services.

(b) The creation of two new unitary authorities would increase the complexity and risks of

the transition relative to those envisaged for a single unitary. For example

disaggregating information currently contained within county ICT systems, the

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novation and splitting and contracts currently held by Devon County Council and the

disintegration of existing arrangements with the Devon Primary Care Trust would all

provide particular challenges for the two unitary model.

(c) The transition to one new authority would be easier than disaggregating the large

County services. It would facilitate an early start date for the new unitary

arrangements and a phased and managed approach to service integration.

(d) A single unitary Council will complement the current boundaries of the PCT and

Police Basic Command Unit which cover the whole of the 2 tier area of Devon. Our

experience is that this co- terminosity has accelerated our ability to take forward joint

projects and integrate services. Two unitary Devon by contrast introduces a

complexity to these partnerships and to the development of the Devon Strategic

Partnership.

2. Leadership

(a) Exeter is Devon’s historic capital and the hub of the county’s transport and

communications systems. Exeter exerts an influence beyond the area than would be

covered by a unitary authority for Exeter and Exmouth and relies upon the wider area

for its continued economic growth.

(b) Devon needs strategic leadership to bring together public, private and third sector

agencies and interests. The two-unitary pattern would dilute the leadership needed to

provide the long-term vision and foresight necessary to ensure that partners work

together towards shared priorities and targets.

3. Empowerment of citizens and communities

(a) A new residual Devon authority would utilise the concept of Community Boards as a

focus for empowering citizens and communities and devolving decision making. It is

unclear how a coherent set of community engagement and neighbourhood

engagement structures for an Exeter and Exmouth unitary would be achieved with

structures for Exeter likely to differ from those for Exmouth and the 20 parishes. For

Exeter, the community governance model would be developed through the extension

of the neighbourhood arrangements which Exeter City Council is piloting. In addition,

a community governance review should be undertaken to improve local engagement

and enhance local democracy.

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(b) In order to secure integrated and effective community governance for the area as a

whole there is likely to be a need for joint arrangements, coordination and partnership

between the two unitary authorities which the Boundary Committee’s draft proposal

avoids.

4. Broad cross-section of support

(a) The majority of responses to the Department for Communities and Local

Government’s 2007 consultation on Exeter City Council’s proposal for a unitary

authority for Exeter were overwhelmingly against that proposal. Evidence collected

from discussions with partners and stakeholders in the county, as well as specifically

within the area of an Exeter and Exmouth unitary suggests very little support for the

option. This is borne out by responses posted on the Boundary Committee’s website.

There does not therefore seem to be the prospect of the two unitary pattern

commanding support from key partners, stakeholders and service users/citizens.

5. Affordability

(a) The financial analysis that has been undertaken proves that there are significantly

greater savings that are delivered in making the transition to a single unitary authority

for Devon than under this model. In particular, there is a clearly longer payback

period for the rural Devon unitary and the overall affordability test, to achieve savings

greater than the costs of transition in the first five years, is only marginally achieved.

C. Detailed affordability considerations

1) Approach

(a) The Boundary Committee published its proposal for the future of local government in

Devon on 7 July 2008. The publication of the proposal was followed by the issue of

financial workbooks for each of the proposals to specified lead s.151 financial

officers. The lead financial officer for the Devon unitary authority excluding Exeter and

Exmouth is the Director of Finance, IT and Trading of Devon County Council. The

deadline for return of the workbooks to the Boundary Committee is 12 September

2008.

(b) The overriding purpose of the affordability study is to see if accumulated savings in

excess of total initial costs can be achieved between lead up year 1 (2008/09) and

year 4 (2013/14).

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(c) The timescale for this exercise is short. It is not possible, given this constraint, to

determine the detailed structures and precise costs and savings that would underpin

a working budget. The estimates and projections used have been designed to set a

reasonable base against which to measure the effect of transitional costs. The

modelled position results from applying robust assumptions to the budgeted

expenditure for all the contributing authorities where significant change is anticipated

as a result of the proposal.

2) Assumptions

(a) A number of assumptions have been made. The key assumptions are that:

• For employment purposes, the existing County Council will be a continuing authority

• Changes to the formula grant regime, the impact of changes to the national

distribution of formula grant from this proposal and other current reorganisations have

not been taken into account

• Demographic changes, inflationary pressures and policy changes reflected in budgets

since 2007/08 have not been recognised

• Only general fund services have been considered. (It is acknowledged that there are

implications for the Housing Revenue Account (HRA) as a result of the proposals but

that these will generally be accommodated from ring fenced HRA balances).

• Staff related costs and savings are estimated and may not reflect the actual cost of

adding or deleting posts

• Other costs and savings relating to the change in staffing levels have been derived

from average unit costs

• Disaggregated budgets for the two unitaries are a reasonable representation of

services provided in the areas of the proposed authorities

(b) It should also be noted that the same estimates and assumptions have been applied

for this Rural Devon option as were applied for the unitary that covers the whole of

Devon.

(c) The assumptions and estimates that are significant to the model are listed in item 2.

(d) Assumptions have been applied to areas of review where significant change is

anticipated as a result of the proposal. Reviews have been completed for the

following service elements:

• Democratic arrangements;

• Management structure;

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• Environmental and Trading Standards;

• Waste Management;

• Planning services;

• Revenues and Benefits;

• Housing services (GF);

• ICT services; and

• Procurement of goods and services.

(e) The transitional costs, ongoing costs and savings resulting from this analysis are

reflected in the workbook. Implications for reserve balances and Council tax levels

are derived from the aggregated position and are discussed later in this analysis.

(f) The approach outlined will provide a basis for determining the balance between

transitional costs and savings. There are inherent limitations. The analysis is static

and does not attempt to model all of the variables that will need to be brought

together to reflect the dynamics of either changes in policy, the grant regime, cost

pressures or changes in tax bases in years beyond 2007/08. Interpretation of future

Council tax levels will be needed. Levels of Council tax for the proposed unitary

Council in 2010/11 will not be easily reconciled to those in the workbook.

3) Budget disaggregation

(a) Disaggregation of the County Council Budget was subject to consultation and

explanation prior to work commencing. S.151 officers of all contributing District

Councils had the opportunity to comment on the methodology. Some changes to the

methodology were agreed. The methodology was applied to the County Council

budget (RA form analysis) and the resultant figures built into the workbook.

(b) Disaggregation of East Devon District Council and Teignbridge District Council

budgets has been completed independently by each of the contributing districts and

the disaggregated amounts built into the workbook.

4) Formula grant disaggregation

(a) At an early stage the s.151 officers agreed that consultants should be employed to

disaggregate formula grant. Local Government Futures (LGF) was jointly

commissioned by Exeter City Council and Devon County Council to undertake this

work.

(b) The nature of formula grant is such that the data required to disaggregate some

elements of it are not readily available at a sub County level. Some components of

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the calculation, for example the calculation of traffic flow factors, can only be

completed by government department. Other data are not routinely calculated at

parish level. The discussion with LGF resolved the information deficiencies by

adopting practical solutions where nationally published statistics were not available.

The result is a disaggregation that is robust but one that is based on a number of

proxy indicators which introduces estimates into the disaggregated position.

5) Detailed considerations

(a) The areas where significant change is anticipated as a result of the proposal have

been identified earlier. A consideration of the costs and benefits for each of these is

summarised below. Detailed information relating to costs and savings is included in

item 2.

5.1) Democratic arrangements

Member support

(a) The transition to a single group of elected members will have a significant impact to

the structure and costs of the democratic arrangements. The main implications of

unitary government to the costs of democracy are the reduced costs of supporting a

smaller number of unitary councillors (around 75) and the establishment of

Community Boards to provide leadership and responsiveness at a local level.

(b) Savings will be made from the various allowances that District Councillors currently

receive. A provision of £0.2m has been made toward the cost of elections to the

unitary council. Elections to the Unitary Council will not take place until May 2010. In

the period prior to this an Implementation Executive for the unitary Council will exist.

(c) A commitment to strengthen community engagement is made in the concept ‘Strong

Leadership and Local Focus’. In practice the Community Boards will be supported by

a small team led by a senior officer who would ensure the logistics of the Boards are

managed and provide a link to the service delivery structures of the unitary Council. It

is estimated that these arrangements will cost £1.6m pa and require 33 officers. The

officers needed to make these arrangements work will be deployed from the

combined workforce. This redeployment will reduce the potential level of severance

payments.

Community Boards

(d) In addition to officer support the Boards will receive an annual development budget.

This will cost £5.4m each year across all the Community Boards of rural Devon. The

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funding for this will come from savings generated in the transition to a unitary

authority. Summary of costs and savings – Democratic Arrangements Costs £m Savings £m Ongoing costs (per annum) Community Boards budgets Officer Support Total ongoing costs

5.41.67.0

Ongoing savings (per annum) Members allowances Total ongoing savings

1.7 1.7

One off Costs (total) Provision for Elections 0.2

5.2) Structure of Management Board and Support Costs

Management Board

(a) The structure of strategic board has been considered by the Corporate Management

Board and financial provision to reflect the scale of operations made. This

management structure will replace the existing County and District strategic

management Boards across all authorities and result in a net reduction of about 35

officers. Commensurate severance costs to the reduction in the number of senior

officers will be incurred.

Support services

(b) The theme reviews have predominantly identified savings from the merger of local

authorities into a single management structure. Within these front line services the

majority of client facing jobs currently undertaken for district services are assumed to

be unaffected.

(c) Back office support functions that are not client facing will however be affected by

local government reorganisation as a fewer number of entities are supported and

administered, and as a single set of procedures and systems are introduced. The

staffing required to operate these systems will reduce and savings will be made.

(d) The approach taken to derive the savings included in the business case has been to

review staff for all existing Councils in Devon including the County Council. Modelled

savings are based on the nature of support provided. Some allowance has been

made for skills to be retained where there are acknowledged pressures and where

shortages have been experienced in other reconfigured County areas. Therefore

professional staff in Finance, Human Resources and Legal are assumed to be

unaffected and this will allow the Community Boards and other client focussed

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initiatives to deliver the improvements in governance and services envisaged by the

county unitary concept document.

(e) In modelling the savings in support services it has been assumed that there will be a

reduction in the number of posts needed to deliver services. Prudent assumptions of

the timing of savings in support services have been applied. It has been assumed

that 75% of the post reductions will be in 2010/11 and 100% of the savings will not be

achieved until year 3 of the new unitary.

Summary of costs and savings – Management Board and Support Services

Costs £m Savings £m Transitional costs (total) Ongoing savings (per annum)

Support Staff Senior Staff Total

4.4 2.7 7.1

Ongoing costs (per annum)

5.3) Regulatory Services

(a) The arrangements designed by unitary authorities for these services vary

significantly. For the rural Devon unitary it is proposed that trading standards,

environmental health, licensing and related services are combined into a single

service.

(b) A single management structure will be created. Delivery will maintain its local focus

but will be directed through three area managers. The primary role of these managers

would be to take responsibility for service delivery within their geographic area and

integration of teams to focus on key service priorities rather than functional outputs.

They would also provide a direct link to central strategic operations and planning.

(c) Initially, specialists would be maintained for existing disciplines and specialists would

act as a focal point for coordination of that area of work leaving management and

performance monitoring to the area managers. In time it is envisaged that other

flexible patterns of working could be developed to deliver objectives in key priority

areas. Significant savings arise from this approach and these are set out in the

following table.

Summary of costs and savings – Regulatory services Costs £m Savings £m Transitional costs (total) Ongoing savings (per annum) 1.3Ongoing costs (per annum)

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5.4) Waste management

(a) Under a single Unitary Devon the existing management of the disposal function, the

recycling centre network and aftercare of redundant sites would remain intact as the

current operation in Devon County Council covers the geographic area of Unitary

Devon. A single Unitary Devon would enable the aggregation of all the existing waste

collection management teams into a single unit.

(b) The two unitary pattern would require the existing County waste disposal team to be

split between the two separate authorities and would require additional staff to cover

all functions.

(c) Within the waste management structure there would be economies of scale from

rationalising the waste collection services for those areas outside the Exeter and

Exmouth Unitary area. In this case, there would be three area based operational

teams.

(d) A unified management team in a unitary Devon that excludes Exeter and Exmouth

with three area based operational teams will also be required producing a potential

cost saving of £0.18m from staffing efficiencies.

Summary of costs and savings – Waste Services Costs £m Savings £m Transitional costs (total) Ongoing savings (per annum) 0.2Ongoing costs (per annum)

5.5) Planning services

(a) One of the key differences between a single unitary structure and a two unitary

concept is the need in the case of the latter for significant cross boundary working,

particularly looking at sub-regional infrastructure planning, housing market

assessment, economic planning, retail planning and transport strategy development.

As a result the staffing required is only marginally less than that required for the

proposal for the whole of Devon.

(b) In addition to the outline above, there are a number of ancillary services in place to

support the planning function, not least conservation officers, enforcement officers,

landscape officers etc who currently advise Districts on a individual or shared basis.

In a Unitary Devon structure, these support services could potentially be delivered

more effectively and efficiently with consequent savings. These savings will not be

available with the two unitary pattern.

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Summary of costs and savings – Planning services Costs £m Savings £mTransitional costs (total) Ongoing savings (per annum) 0.8Ongoing costs (per annum)

5.6) Revenues and Benefits

(a) Housing Benefit administration and revenue collection services together are the

single most significant group of services provided by District Councils. These services

reach all Council taxpayers and businesses in the Council’s area as well as many of

the most disadvantaged and vulnerable members of the community. The ability to

generate immediate savings from rationalising these services has been measured

against the risk of failing to provide them effectively and the harm that this would

cause.

(b) Although housing benefit payments are approaching £200m each year, these

represent transfer payments and cannot form part of the assessment for ongoing

savings. The only element of housing benefit related expenditure that has been

reviewed is administrative support. This element of cost is supported by housing

benefit administration grant. It is anticipated that any saving on administration costs

will be reduced by a reduction in grant.

(c) A phased approach to managing the transition to common platforms and software is

proposed. This approach will release duplicated management costs as it progresses.

This phased approach is reflected in the savings that are achieved. It is estimated

that by 2013/14, annual savings net of lost grant will be £0.59m each year. Further

efficiencies may be forthcoming over time, however, this will remain uncertain until

platforms and software transition is complete.

Summary of costs and savings – Revenues and Benefits Costs £m Savings £m Transitional costs (total) Ongoing savings (per annum) 0.6Ongoing costs (per annum)

5.7) Housing

(a) Housing services are provided by each of the District Councils. Across Devon

currently three of the Councils retain ownership of their housing stock and maintain

Housing Revenue Accounts, the remainder have undertaken Large Scale Voluntary

Transfers to Registered Social Landlords. There is some variation in the services

offered at a local level.

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(b) Organisationally the Councils undertake their housing responsibilities very differently.

Some split housing functions over more than one directorate; some link housing

services with planning, some with environmental health and some with wider social

and community functions. One authority delivers some housing services within its

revenues and benefits directorate.

(c) A single housing division is proposed for the unitary authority. A management

structure has been designed which will rationalise existing structures and reduce

cost. It is assumed at this stage that staff at lower levels would remain in place.

Further structural design will take place should the Secretary of State give approval to

unitary local government. Further savings may be identified when this work is

completed.

Summary of costs and savings – Housing services Costs £m Savings £m Transitional costs (total) Ongoing savings (per annum) 0.9Ongoing costs (per annum)

5.8) Streetscene and car parking

(a) A single management structure for Streetscene management will be created. Savings

will arise from rationalising management structures and from streamlining contract

administration. Further efficiencies will be derived from combining existing County

and District functions for lengthsmen. For example litter picking activities currently

undertaken by district staff can be combined with other activities to generate savings.

Combining contracts for grounds maintenance, weed control and tree management

will produce further efficiencies.

(b) Car parking management can be streamlined around a three area structure with

savings resulting from the replacement of individual district management structures.

Some costs will be incurred in relation to ancillary costs but these are less than

£0.2m. There will be a reduction in back office costs and the service encountered will

be the same for everyone, driving up customer satisfaction.

Summary of costs and savings – Streetscene and Car Parking Costs £m Savings £m Transitional costs (total) 0.2 Ongoing savings (per annum) 1.0Ongoing costs (per annum)

5.9) ICT services

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(a) A strategic review of ICT infrastructure has taken place. The objective of the review is

to recognise the economies of scale that can be achieved by moving to common

systems and standards. It is recognised that the ability to rationalise major systems

and functions for ICT purposes may not coincide with the ability to manage change

elsewhere in the organisation. Where absorption of district processing can be

arranged for the 1 April 2010, this will be programmed. It is envisaged, for example,

that the payrolls of all the district councils will be incorporated into one payroll from

that date.

(b) This is not the case with all client facing systems. Revenue and benefit systems are

considered at greater length above. It is acknowledged that the rationalisation of

these systems will need to be progressive and cannot be accomplished without

unacceptable risk immediately the unitary authority is formed. The costs and savings

included in the summarised figures reflect this.

(c) The review has concluded that there is sufficient capacity to maintain the main

accounting system for several years after reorganisation. It is recommended that

during the transition period only those enhancements needed to manage an enlarged

chart of account and an increased level of transactions are made.

(d) To achieve any savings there is an initial investment to be made. Among the most

significant initial investment is that needed to ensure that all personal computers

operate to the same standards. To achieve this it is intended to enter an enterprise

agreement with the software manufacturer as early as March 2009. The agreement

needs to be in place at the start of the second lead up year to allow work to be

undertaken and systems standardised before 1 April 2010 so that communication

difficulties are avoided.

(e) The purchase of this software licence can be capitalised and the intangible asset

written down over the five years of its life. The capital cost can be minimised in the

lead up years by negotiating an end loaded agreement with the manufacturer. There

is sufficient flexibility in the capital programme to fund this purchase from usable

capital receipts. This method of financing incurs no ongoing revenue financing.

(f) It is anticipated that some savings will be achieved in the first year of unitary status.

Transition costs are front loaded and occur typically in the second lead up year and

the first year of operation. This is reflected in the workbook financial analysis. Savings

will accrue thereafter reaching £4.9m pa in 2013/14 and beyond.

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Summary of costs and savings - ICT

Costs £m Savings £m Transitional costs (total) 4.3 Ongoing savings (per annum) 5.5 Ongoing costs (per annum) 0.6 Capital costs (total) 3.1

5.10) The Procurement of Goods and Services

(a) The procurement team have reviewed all of the standard procurement categories and

identified minimum and maximum anticipated savings for each. The savings included

within the affordability workbook are toward the minimum anticipated and include high

volume, high value supplies such as agency staff, waste collection, printing and

copying. Estimated savings of £2.0m per annum have been included.

(b) Significant efficiency savings are anticipated from year 1 onwards by rolling out the

use of, for example, Devon eBiz (an electronic purchase to pay system), and Devon

Tenders. These savings have not been included within the workbook.

Summary of costs and savings - Procurement Costs £m Savings £m Transitional costs (total) 0 Ongoing costs (per annum) 0 Ongoing savings (per annum) 2.0

6) Other costs and savings

6.1) Closedown

(a) Responsibility for the closure of the District Council 2009/10 accounts will rest with

the s.151 officer of the successor unitary authority. It is envisaged that existing

accountancy staff for each District will remain in place for the six month period ending

30 September 2010 in order to prepare the statement of account and whole of

government accounts return and to respond to the requirements of the external

auditor. To achieve this, the main accounting system of each district will need to

remain open for at least this period.

(b) Coinciding with the beginning of the 2010/11 financial year it is planned that

International Financial Reporting Standards will apply to local authority accounts for

the first time. The time available to the accountancy staff of each district should be

sufficient to deal with both the final accounts audit process and to convert financial

reports to the revised format in the period running up to 30 September 2010. The

converted reports for each district can then be consolidated for the new unitary

authority opening balance sheet in a cost effective manner.

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(c) Closedown is not limited to financial reporting. The payroll system for each District

Council will need to produce year end returns and individual P60 declarations for staff

employed up to 31 March 2010. It is proposed that the system will be maintained until

30 May 2010 to allow this to happen. Sales ledgers and purchase ledger processing

will still be required. For the period that staff are retained to close the accounts

invoices received for goods and services prior to 31 March 2010 can be paid and

similarly income can be posted against accruals for the previous year. This will allow

a reduced number of outstanding transactions for the previous financial year to be

taken into the corporate systems of the unitary authority and minimise the opportunity

for invoices to remain unpaid and income uncollected.

(d) The costs of achieving this will be in the region of £0.3m. The cost has been included

in the financial appraisal that accompanies this business case.

6.2) Redundancy and Early Retirement

(a) The costs of redundancy and early retirement in making the transition to a unitary

authority are significant. The reduction in the number of posts needed at the senior

level means that some existing staff will no longer be needed in the new structure. All

senior posts in the new unitary will be filled following a process of open competition

and there will be opportunity for both existing County and District staff to apply to fill

positions.

(b) Some reductions are inevitable at other levels within the organisation to reduce

duplication and the attendant cost. It has not been the purpose of this study to

attempt to individually calculate the costs of early retirement and redundancy as the

process of identifying individuals and understanding the relevant policies of their

employing organisations has not begun. However, it is recognised that in any change

of this magnitude a continuing provision to meet the costs of redundancy will be

required. A sum of £3.4m has therefore been included in the overall costs submitted

to manage potential increases in the costs here.

(c) Not all posts that become redundant will result in redundancy costs. Some post

holders will transfer to posts in the unitary structure. Other posts will fall vacant and

result in no severance costs at all. Where vacancies in the unitary structure occur or

there are new posts to fill, for example in relation to Community Board support roles,

redeployment will reduce the need for severance and redundancy and reduce the

total amount to be set aside for this purpose.

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(d) It is not possible to know with certainty the proportion of redundant posts that will

require severance payments. The redundancy costs calculated are based on the

assumption that 25% of posts will not carry a financial cost due to natural wastage

and redeployment.

6.3) Pay harmonisation

(a) It is difficult to estimate the revenue impact of integration without detailed information

about the district schemes and the extent of duplication where roles are common to

all Councils. It is not possible in the timescale available for this exercise to complete

this comparison. Without this information it would be prudent to allow a contingency

figure of £1m per annum. This is based on the assumption that district staff would be

integrated into the County’s pay and grading structure and that there could potentially

be an impact of £1m per annum on the total pay bill.

(b) Significant costs are attached to administering pay harmonisation reviews and

appeals. £2m has been included within the costing to provide for this.

6.4) Recruitment and selection

(a) Chief Officer posts and their deputies will all be filled by an open, externally run,

competitive process. This includes the Chief Executive, Executive Directors,

Directors and most Heads of Service.

(b) This process will result in additional one off costs that will fall, if the senior

management is to be in place by 1 April 2010, mostly prior to the first full year of

operation. The financial appraisal recognises the timing of this cost and an amount of

£1.1m has been included.

6.5) Relocation costs

(a) The customer focussed approach adopted in considering the way in which the unitary

authority operates requires that for many client facing services, particularly those

provided by District Councils, the provision of local service will not change. It is

envisaged that these services will continue to have the same customer service

access points as they do currently. For the overwhelming number of officers

relocation is not considered a possibility.

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(b) It is however possible that some officers may be appointed to posts that have a

different location from where they are currently based. For this reason a sum of

£0.9m has been put aside to meet potential costs of relocation. The policies of the

County Council encourage home working where this is possible and minimise travel

costs by using high speed IT links which facilitate remote working and are designed

to minimise avoidable travel. The limited number of cases where existing District or

County employees may need to relocate can be minimised by these modern working

practices.

6.6) Accommodation

(a) The combined estate of the County Council and District Councils is considerable. The

management of the combined estate will provide opportunities for rationalisation. It is

difficult to predict the exact shape of the estate without detailed appraisal of both the

pattern of services delivery adopted by the unitary authority and the exact location of

staff which will provide those services.

(b) Nonetheless a reduction in the number of staff, largely due to reducing duplication as

discussed earlier, will release office space. For the purposes of the business case the

saving from the released space has been calculated by estimating the cost of space

occupied by an employee and multiplying that by the reduction in the number of staff.

The aggregate saving has been calculated at £0.4m. Given the cost of running the

estate as a whole this is a marginal saving.

(c) The impact of this level of saving on the location of offices and whether some will be

released or surplus space sub-let is unclear and will depend on the location of

accommodation required and its proximity to other available facilities. It is not difficult

to envisage a situation where smaller and expensive accommodation is either sold if

it is owned or does not have its lease renewed if it is rented releasing greater savings

than those calculated. Where surplus accommodation is available in larger buildings

sub-letting to related organisations would provide an income stream and enhance

existing partnership working.

(d) The majority of both East Devon District Council and Teignbridge District Council in

terms of budget will be absorbed into the Devon unitary authority. In the case of

Teignbridge District Council all but a very small part will do so. The major

administrative Council offices both fall in the geographic area of the Devon unitary

authority. Sufficient office space in the geographic areas in which the new authority

will operate will be available and some rationalisation may be possible. Until the

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Secretary of State has determined how assets will be transferred it is difficult to

determine the financial impact if any. Nonetheless the principle outlined above, that

where there is surplus accommodation this can be sublet and where accommodation

is leased, leases need not be renewed, will allow flexibility to manage any

compensation that may be required. The financial impact will be neutral.

6.7) Contracts

(a) Contracts that will require immediate review and affect the amalgamation and

rationalisation of support services are few. Two District Councils have contracts with

external providers for internal audit services. It is envisaged that these contracts will

be terminated. The combined internal audit service will generate internal efficiencies

that will allow any residual audit work to be adequately staffed. Contract termination

costs are anticipated to be very small.

(b) One District Council has let a contract for housing benefit services. This contract is

due to expire on 31 March 2011. It is understood that the District Council concerned

is evaluating whether the service should be brought in house. The phased

rationalisation of housing benefit and revenue services onto common software will

allow for this contract to run down without need of early termination. There will be no

financial impact.

(c) Contract for other services will be allowed to run down and no financial penalty will be

incurred. Rationalisation of services will occur when they expire if this is appropriate.

Given the complexity of determining how services, such as leisure, will be organised

should the unitary proposal proceed, no attempt to model savings has been made.

(d) The creation of the Exeter and Exmouth Unitary will mean that approximately 24% of

existing County budgets will be transferred. For the vast majority of services provided

by the smaller authority this will have no impact. At the margin though some specialist

functions may not be able to deliver a service to the specification required and at the

same time sustain a reduction in budget.

6.8) Transition Team

(a) In order to achieve transition arrangements a focussed transition strategy is required.

Effective project management will only be achieved if the programme director and

programme managers can operate at the highest levels within the authority and to

exacting standards and timescales. A balance of project management and process

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re-engineering with a detailed knowledge of service requirements needs to be

achieved.

(b) The proposed transition team will total 23 members of staff and cost £2.3m.

Appointments to the team are unlikely to begin until after the Secretary of State’s

announcement in the first quarter of 2009 which means that a realistic start date for

the team is April 2009. For the financial consequences to be determined it has been

assumed that not all of the team will be appointed at the same time, although it is

anticipated that senior appointments will be made promptly. It has been decided that

for existing staff appointments, their substantive posts in the unitary structure will not

be backfilled during their secondment and therefore the costs of the team to the

authority will be approximately 50% less than the cash cost of employing them.

(c) The cost of the team to the authority will be £0.9m in the year immediately preceding

the 1 April 2010 and £1.4m in the first year of unitary local government.

6.9) Capital Programme

(a) The transition cost on the capital programme is relatively minor. The County Council’s

capital programme is currently running at approximately £190m annually. The

proposed capital investment as a result of transition is £3.1m. The expenditure begins

in the first lead up year 2008/09 and is phased over three years. The early funding

relates primarily to the Enterprise Agreement for computer systems that will be

required to ensure that all computers operate to the same standard. It is also the

largest individual element of expenditure.

(b) In relative terms the additional expenditure is small. Capital programme management

is dynamic and financing decisions are based on available resources at the time the

expenditure is made. It is envisaged that sufficient flexibility exists to fund this

expenditure without incurring additional borrowing costs. There is no impact on

revenue costs as a result.

(c) The existing capital programme is currently fully funded. Reference to the Medium

Term Financial Strategy (MTFS) confirms this. A link to the MTFS is contained in the

section on reserves and balances later in this document.

7) Financing

7.1) Reserves

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(a) The existing policy of Devon County Council is to manage demand and cost

uncertainties through robust budget management. Anticipation of future and major

cost pressures relating to significant policy changes or known and material financial

liabilities has been managed by establishing earmarked reserves and drawing them

down as need requires. This policy has been successful to the extent that no call has

been made on balances for a number of years even though the gross revenue

spending of the authority is now in excess of £1bn.

(b) Reserves are earmarked for specific purposes with well defined short term timescales

and some with longer term policy objectives in mind. The planned addition to

earmarked reserves is £8.4m in 2008/09 with further contributions of £14.6m and

£12.6m planned for 2009/10 and 2010/11 respectively. Existing reserves have some

degree of flexibility and are not immediately required to support policy initiatives or

significant financial liabilities. In particular the Service Development Reserve is only

partially committed. A combination of this flexibility and the re-prioritisation of planned

additions will allow the flexibility needed to meet transitional costs in 2009/10 and

2010/11. It is envisaged that the outturn for 2008/09 and the budget for 2009/10 will

be used to establish a transition reserve to finance additional costs.

(c) The level of reserves reported in the County Council’s statement of accounts is

£52.2m for 2006/07 and £59.8m for 2007/08. The availability of reserves at this level

provides a significant level of assurance over the authority’s financial health.

(d) It is accepted that the earmarked reserves of the District Councils have been

established for similarly well defined reasons that will play out either before

reorganisation or in the years immediately following it. This principle of financial

management in relation to earmarked reserves is well established and the various

judgements of s.151 officers mean that these reserves are not available to meet any

of the cost of transition.

(e) Funding transitional costs in lead up year two and in the first operational year will be

challenging because the savings stemming from moving to a single organisational

structure will not all be available to meet these costs at this point.

(f) Transition costs in 2009/10 of £4m will be entirely supported from uncommitted

earmarked reserves. The remainder of the uncommitted figure will be used to support

£5m of costs in 2010/11. The financial case that has been constructed recognises

that the developments relating to transition and organisational change will require

some support from earmarked reserves. It is envisaged that the outturn for 2008/09

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and the budget setting for 2009/10 will afford the opportunity to establish an

earmarked reserve specifically to manage the costs of transition in LUY2 and Year 1

of operation.

7.2) Balances

(a) The unallocated balances of the existing County Council stand at £14.2m. This

represents 3.4% of the existing County Council’s net revenue expenditure. This level

of balances is required to manage risk over and above that mitigated by earmarked

reserves. The nature and extent of these risks are summarised in the MTFS.

(b) Aggregated balances for the Devon unitary that excludes Exeter and Exmouth at the

1 April 2010 are projected to be £20.8m. This is an increase on those held by the

County Council and represents 5.2% of the estimated rural unitary authority’s net

revenue expenditure. A judgement has been made which assesses risk and requires

balances of £14m to be held. This provides some flexibility to support spending in

2010/11 when investment costs are high and savings streams are still to be fully

established. £4.0m has been used in 2010/11 to fund the costs of transition. Balances

are still at a level that is above that required by the risk being carried when modelled

on the existing a County Council approach to risk assessment.

(c) The MTFS demonstrating the County Council’s level of reserves and balances can be

reviewed by following the link provided.

http://www.devon.gov.uk/index/democracycommunities/decision_making/cma/cma_document.htm?cmadoc=agenda_dcc_20080214.html

7.3) Council Tax Equalisation

(a) The costs and savings in the foregoing have been added to the base data, reserves

and balance movements, to match spending to reserves in the first year of the unitary

authority. The indicative Council tax level for a Band D property in year 1 is £1,181.

(b) Council tax levels will reduce to £1,167 in the following years. This will mean that the

council tax for the unitary authority from Year 2 will be equivalent to the lowest council

tax level of district councils prior to reorganisation.

(c) [As the Boundary Committee’s workbook includes parish council tax the council tax

levels quoted include £30.46 for the average parish council tax for the County

calculated from the Finance and General Statistics 2007-08 published by CIPFA].

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8.) Contingency

(a) The affordability study has concentrated on management structures and has

essentially only looked at management and support service costs to determine

potential savings. The greater part of any future budget has not been scrutinised for

other potential savings. This gives a significant inbuilt safety valve against which to

manage financial risk. When detailed structures are prepared and costs calculated it

is likely that further savings to those declared will be achievable.

(b) Our view is that if the Secretary of State approves the proposal the issue becomes

one of budget management. This management is in two principal parts. Budget

setting: recognising budget pressures from growth in costs or shortfall in grant. The

mechanisms that have allowed the authority to set prudent and achievable budgets in

the past will continue to operate. In year budget management: where budget

overspending occurs, our monitoring procedures allow this to be identified early in the

year. Management action to contain costs can be taken.

(c) Because of its prudent approach to budget setting the authority has not been required

to set a formal recovery plan to manage material overspending. If there are persistent

pressures earmarked reserves are applied. At year end directorate over and under

spending are considered and both can be carried forward as circumstances require.

As outlined earlier financial uncertainty will continue to be managed through the use

of earmarked reserves.

9.) Pay back

(a) The aggregate gross savings for the period to the 31 March 2014 are £77.5m. Costs

for the period 2008/09 to 2013/14, before the application of reserves, amount to

£76.3m. Savings therefore exceed costs by £1.2m. Pay back occurs 4 years and 11

months after 1 April 2009.

10.) Risk assessment

(a) The business case has been based on 2007/08 budgets. The result is a snapshot

which is designed to demonstrate affordability if all factors had remained the same.

For this purpose the approach is valid. The business case does not attempt to model

changes to policies, real spending patterns and decisions made by each of the

authorities since the budgets were set. Neither does the study attempt to reflect

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changes in the national economy and international economic pressures. Delivery of

the first budget of the unitary authority and the consequent Council tax decision will

reflect the costs and savings discussed here but will not reflect the real world

changes and pressures that will have occurred subsequently. The result may look

very different from the model presented here.

(b) A conservative approach to estimating savings has been followed. Savings have

been calculated for major service themes only. Predominantly reviews have

concentrated on management costs. Savings from client facing activities have

generally not been considered due to the impact this may have on the customer

focused vision the authority is developing. This approach leads to low risk of

misstating savings and limits their impact in sensitivity analyses.

(c) Costs have been calculated on the basis of the best information available. The

following highlight estimated costs that may be subject to volatility and comments on

the potential impact on the business case that has been prepared.

10.1) ICT

(a) The detailed analysis that has been undertaken has revealed significant savings after

initial transition costs have been incurred. The nature of the review suggests that it is

unlikely that business critical systems have been missed. Each system or system

component in the ICT review has been subject to the same rigorous examination

resulting in cost and savings estimates. This suggests a low risk of significant cost or

saving misstatement.

10.2) Pay harmonisation

(a) There is considerable risk attached to estimates of future pay equalisation costs

resulting from unifying job evaluation arrangements for the unitary authority. The

costs in the workbook have been scoped to include the costs of administering the

process and the possible impact of an uplift in remuneration for transferring staff.

(b) Each of the districts are implementing their own agreement. The extent to which there

will be appeals or dispute is unknown. Accounting principles, however, require that

liabilities attached to the harmonisation undertaken by each district in terms of back

pay and appeals should either have been already settled or recognised by

appropriate accruals in the accounts of that district prior to the start of unitary

government. These costs should fall on the new unitary authority only to the extent

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that provision has been made and should not be a significant liability that remains to

be funded.

(c) Harmonising the district and county arrangements will result in additional cost.

Determining what should be provided is problematic without a significant amount of

detailed work which would take a considerable period to complete. The sums

included in the business case represent the best estimate available but the estimate

carries some degree of uncertainty with it.

10.3) Redundancy

(a) Assumptions have been made as set out above. There is uncertainty about a number

of factors; post reductions, the proportion of early retirements, the level of natural

wastage and deployment that will occur that will reduce costs and the estimate of the

cost of individual retirements.

10.4) Risk register

(a) High level risks are set out in the risk register in item 9 of the schedule of supporting

information. Although risks with financial impact are of importance to the financial

assessment, the business of the proposed unitary needs to recognise and manage all

of these risks if it is to function effectively.

(b) The County Council has encountered in one form or another many of these risks and

is managing them successfully in the current two tier system of local government.

This has influenced the view about likelihood and impact shown in the register.

10.5) Sensitivity analysis

(a) The impact of underachieving savings and underestimating costs will be the most

difficult situation to manage particularly in the first year of the unitary authority. In

practice some of the investment decisions, particularly around Community Boards will

be formally determined by a decision that is yet to be taken and are influenceable.

The costs of pay equalisation, redundancy, and to a lesser degree ICT, are less

controllable.

(b) An independent external evaluation has been undertaken of our procedures behind

the workbooks. The report concludes that even in the worse case scenario, reserves

and balances are sufficient to absorb the financial impact of the assessed risks.

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(c) It should be noted that the costs of redundancy will have less of an impact after the

first year of operation and management action can be taken if cost pressures persist

to reduce their impact on aggregate costs. The combined value of balances and

earmarked reserves will allow the impact to be addressed.

(d) The coincidence of increased costs and lower levels of savings are unlikely to

happen. The approach to assessing savings as outlined above will suggest that if

they were to vary from the anticipated levels it is likely that they will increase, limiting

the risk of increased costs before recourse to other corrective measures.

(e) The sensitivity to changes in the level of costs and savings in the two unitary option

are not significantly different from that of the unitary authority covering the whole of

Devon. The balances and earmarked reserves available to absorb risk will be

proportionately smaller which will in overall terms match the reduced impact of risk.

Nonetheless at the extremes of realised risk the financial impact will be more difficult

to contain. The size of the organisation will be approximately twenty five percent

smaller than its whole of Devon counterpart and the flexibility to manage the impact

and plan recovery will be proportionately smaller as a result.

11.) Briefing s.151 Officers

(a) It is a requirement set down by the Boundary Committee that s.151 officers of the

participating District Councils are fully briefed about the impact these proposals will

have. Liaison with them has been on a monthly basis since the original meeting with

Boundary Committee representatives and s.151 officers in April.

(b) As work has progressed toward a conclusion additional meetings have been

arranged to share more detail about assumptions and outcomes. The detailed

programmes for these meetings are described in Appendix 1.

(c) The Director of Finance, IT and Trading for Devon County Council has arranged

meetings with District Council s.151 officers and members to discuss the approach

taken and to answer questions about the business case and workbook. These

arrangements are deemed to meet the requirements of the Boundary Committee for

briefing and consultation.

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APPENDIX 1 s.151 Officers Briefing Content of the meetings and further consultation arrangements The meetings outlined below are for s.151 Officers of authorities which have contributed data to the workbooks being completed for the unitary proposal and for the Devon unitary in the 2 unitary pattern. The main focus of the meetings will be to discuss the progress made toward workbook and business case completion of the proposal and alternative option for which John Mills is the lead s.151 Officer and to develop consultation arrangements that will allow s.151 certification to take place by 11 September. In outline our intention is as follows: Consultation - first stage 22 August 2008 This meeting is intended to be the first stage in our consultation process. There are limitations to what we can give you at this stage because our work will very much be ‘work in progress’, however we intend to:

• discuss the disaggregation process • provide information on the process being followed for completion of the workbooks • provide base data either included in the workbook by the Boundary Committee or

provided subsequently for you to take away and check for accuracy • outline the major assumptions we have adopted • give an update on progress to date and where possible exemplify this with costs and

implications • outline the basis for our planning finance related services including revenue and

benefit services both during the transition (closedown of 2009/10 accounts etc) and for the future management of the services

• engage in discussion about balances and earmarked reserves • send to you after the meeting a copy of the presentation.

It will not be possible to give an accurate indication of the calculated overall costs and savings of either the proposal or option because the work will not be complete. Until the overall costs and savings are known the implications for Council tax levels cannot be determined. There will be opportunity for you to question us about the work to date and to raise any concerns that you feel need to be addressed. At the meeting we will agree with you the arrangements for further consultation. At the moment it is our intention to hold a meeting either on Friday 5 September or early in the following week. Consultation – second stage 5 September 2008 This is the second meeting in our consultation process. At this meeting it is intended to provide the following:

30

• final drafts of workbooks and business cases for both the unitary proposal and the Devon unitary in the 2 unitary pattern

• identify any significant changes we have made to the approach taken to complete the workbooks

• share the additional information we will provide to the Boundary Committee in support of the workbooks

• outline the approach adopted to the use of balances and reserves and the implication for Council tax

• identify any areas which are still to be finalised and the implications for s.151 certification.

• send to you after the meeting a copy of the presentation. There will be opportunity for you to question us about the final draft workbooks to date and to raise any concerns that you feel need to be addressed. Consultation – third stage The final draft workbooks, outline business cases and presentations from the consultation meetings will enable you to draw conclusions about the robustness of the work we have undertaken There should be two or three days for you to consider this material and make a certification in line with Boundary Committee requirements.

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