Contact: Paul Carey-Kent, Deputy Treasurer, (01962 847525)

David Howells, Director of Corporate Services (023 8064 4000 ext 203)

1 Summary

1.1 At its meeting on 5 December 2001, the Authority approved for consultation purposes the budget for 2002/03 of £48.9m, a cash increase of £3.6m or 8%.

1.2 This proposal represented the base budget (the cost of continuing current policies) which itself involves a 5.1% cash increase, and further growth of £1.3m (2.9%) to meet new policies and changes which were regarded as unavoidable.

1.3 In reaching this proposal, the Authority considered further priority options for growth which would have led to increases of up to a further £1m (2.2%), but concluded that taking into account the constituent authorities' ability to pay it could not support increases at that level.

1.4 It was resolved that a meeting should be offered to the constituent authorities in order to explain the proposed budget and to obtain their views. Two meetings were held and written comments have been obtained from all three authorities. In response, all three indicate that they would prefer to see the budget constrained to the base budget increase at most, and that in any event they believe that 8% should be the maximum increase.

1.5 Members emphasised at the meeting on 5 December 2001 that the Chief Fire Officer should prioritise growth items within the 8% increase proposed. Accordingly, this report includes that list.

1.6 The Sub-Committee can recommend to the Authority either to:

· confirm the indicative budget of £48.867m or

· recommend an alternative budget.

1.7 The final decision on the budget and consequent levies will be made by the Authority at its meeting on 6 February 2002.

2 Indicative budget

2.1 The figures included in the December report were provisional and it was noted that they may be subject to revision. Some minor changes to the budget figures are necessary mainly to reflect the actual changes to National Insurance rates in April 2002 and a correction to the budget for external interest. However, overall the total budget has not changed. In addition, details of borrowing approvals had not yet been received at the time of the December meeting. These have now been received and are in line with expectations.

2.2 The detailed revenue budget set out in Appendix 1 (green pages) is based on the indicative budget approved in December 2001. The changes compared with the 2001/02 budget can be summarised as follows:

2.3 In requesting consultation on an 8% increase, the Authority at its December meeting did not recommend any particular figure as the full year effect to be expected. However, the range of options presented to the December meeting typically included a full year effect of 1% more than the 2002/03 increase. This has been achieved for 2003/04 but the full year effect in 2004/05 is 10%.

2.4 The levies on the constituent authorities (based on the revised consultation tax base) would be:

3 Budget consultation

3.1 The views of the three constituent authorities are included in Appendices 4(b), (c) and (d). All three constituent authorities expressed similar views, emphasising:

· the pressures on other services provided by them

· the context of a large increase in the levy for 2001/02 and the trend in spending over recent years which, were the indicative budget to be approved, would see the Authority's budget increase from 3.6% over SSA in 1997/98 to 15.0% over SSA in 2002/03

· the perceived generosity of the Authority's base budget rules, which do not require increments, excess inflation or pay increases to be absorbed through efficiency savings and

· the low impact of savings proposals on the Authority's plans.

3.2 Accordingly, all three constituent authorities express a preference for a budget increase at the base budget level of 5.1% (which is broadly equivalent to passporting the SSA increase) or below. All three are strongly opposed to any increase above 8%, with Hampshire County Council's Cabinet expressing "strong concern" that "8% should be the maximum increase in the Fire levy with a maximum full year effect of 9%".

3.3 All three also request that three year budget projections be produced in order to inform them of future plans likely to affect the levies.

3.4 On the subject of levies, members may wish to note that the recent Government White Paper on local government finance proposes to turn Combined Fire Authorities into separate precepting authorities. However, no timescale is given.

3.5 A group of Members of the Authority met with the trades unions representatives on 4 January 2002 to discuss the budget proposals presented to the Authority on 5 December 2001. In expressing their general support for the full range of proposals, the representatives made particular mention of the need to alleviate increasing workload pressures on existing staff. The FBU representative strongly supported the need to bolster crewing at fire stations and the additional support for officers. The Unison representative made the point that this action, together with other specific proposals for increasing non-uniformed support staff, would go some way to addressing the problems of excessive workloads.

3.6 In thanking the representatives for their comments, Members explained that the proposals will need to be revised in order to contain total growth in the budget to 8% in 2002/03; and, that their comments will be taken into account in assessing the relative priority given to the various proposals.

4 Borrowing limits

4.1 Section 45 of the Local Government and Housing Act 1989 requires fire authorities to determine borrowing limits. Details of those proposed are set out as Appendix 5.

5 Capital programme

5.1 The detailed capital programme is attached as Appendix 2 (yellow pages). The programme has been revised to reflect the latest estimate of capital payments based on the adjustments included in the monitoring report.

5.2 This reflects basic credit approvals of £1.231m, as notified shortly after the December meeting. This was in line with expectations, and so has not significantly affected the extent of the capital programme proposed.

6 European Convention on Human Rights and the Human Rights Act 1998

6.1 The proposals within this report are compatible with the provisions of the European Convention on Human Rights and the Human Rights Act 1998.

Recommendations

That it be recommended to the Authority that:

1 The indicative budget and the levies set out in paragraph 2.4 be either confirmed or amended in light of the consultation responses received.

2 The final budget and levies be determined at its meeting on 6 February 2002.

3 The capital programme set out in Appendix 2 be approved.

4 As set out in Appendix 5:

· an overall borrowing limit be fixed at £10.604m for the year ending 31 March 2003

· a short term borrowing limit be fixed at £8.054m for the year ending 31 March 2003

· the proportion of interest paid rates which can be varied by the level of external factors be set at 35% for the year ending 31 March 2003.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

Published works.

Documents which disclose exempt or confidential information as defined in the Act.

TITLE/FILE

Draft budget 2002/03, HFRA 5 December 2001

Fire budget 2002/03 - general working papers

List of appendices

Appendix 5

Borrowing limits

1 Section 45 of the Local Government and Housing Act 1989 requires fire authorities to determine, before the beginning of each financial year:

· an overall external borrowing limit for the year

· a short-term external borrowing limit for the year (short-term borrowing is defined as borrowing which matures in less than 12 months)

· a limit of the proportion of interest which is payable at rates which can be varied by the lender or by external factors.

2 External debt outstanding on 1 April 2002 is estimated to be:

3 Total capital expenditure financed from loan in 2002/03 is estimated to be £1,139,000. Credit approvals (and PWLB quota) will be £1,139,000 which can be borrowed for capital purposes in 2002/03. This borrowing can be either at fixed or variable rates from the PWLB, County Council or other sources.

4 Cash flow projections for 2002/03 show that there could be a maximum requirement of £6,692,000 for temporary borrowing pending the receipt of revenue monies.

5 It is suggested that a total borrowing limit of £10,604,000 be set for 2002/03 as follows:

6 It is suggested that a limit of £8.054m should apply to short-term borrowing. This will avoid any obligation to borrow long-term should rates be unfavourable.

7 Currently the Authority's borrowing consists of five loans totalling £2.55m at fixed rates between 4.5% and 5.875% from the PWLB and temporary borrowing from the County Council at variable rates. The Authority should allow for the possibility that it may wish to borrow long-term at variable rates from the PWLB or another external lender.

8 Based on the Authority's capital payment estimates, this should not exceed £1.362m. Assuming a variable rate of 5%, this would imply total variable-rate interest in 2002/03 of £68,000, plus £127,000 on the current PWLB loans. The Authority is therefore asked to approve a limit on the proportion of borrowing at variable rates of 35%.

Recommendations

1. That an overall borrowing limit be fixed at £10.604m for the year ending 31 March 2003.

2. That a short-term limit be fixed at £8.054m for the year ending 31 March 2003.

3. That the proportion of interest paid at rates which can be varied by the level of external factors be set at 35% for the year ending 31 March 2003.