Hampshire Fire and Rescue Authority 25 September 2002
	Budget 2003/04	Item 8
	Report of the Treasurer and the Chief Fire Officer

Contact: Paul Carey-Kent, Deputy Treasurer 01962 847525
David Howells, Director of Corporate Services 023 80644000 ext. 203

1 Introduction

1.1 It was agreed at the meeting of the Finance and General Purposes Committee on 10 July that an indicative report on major pressures and areas of potential savings should be brought to this meeting in order to assist in informing both Members and the constituent authorities as early as possible of likely budget requirements for 2003/04.

1.2 This report sets out those factors by considering for each major area of the Authority's expenditure:

· how much is involved

· how the area fits in with the programme of Best Value reviews which offer an opportunity to assess value for money and spending needs

· significant pressures and/or opportunities to pursue savings - often these will be constrained by national policies and this is noted as appropriate.

1.3 The resulting assessment can inform constituent authorities' views. It will also need to be seen in the context of the range of likely national funding settlements for the fire service. These are considered in a separate paper on the agenda, together with a draft response to the Government on the issues raised.


2 Firefighters salaries £25.4m

2.1 This is the single largest cost, and the predominant issue will be the result of the national pay settlement due to take effect from November. The forward budget allows for a 4% increase: every 1% above this would cost an estimated £247,000 in 2003/04.

2.2 The pay award aside, whole time firefighter costs are essentially a function of :

· the number of whole time fire stations and appliances needed and the number of firefighters required for each appliance. Although some aspects of this spending are to be reviewed for Best Value "responding to emergencies" in 2004/05, the key cost drivers here are the subject of a continuing programme of reviews of fire cover and HMI validation of those reviews. As such, the Authority has taken the decision that standards of fire cover do not need to be duplicated by Best Value reviews. As part of the 2002/03 budget process, members agreed that the firefighter establishment should increase by 12 this year and a further 12 in next year in order to address shortfalls in the "weight of attack" at incidents.

· the proportion of a firefighter's time which is actually spent on the run. The number of shifts which a firefighter covers in a year (after leave), will depend on how much is lost to sickness, training and other factors (principally time off in lieu either as an alternative to overtime for time worked beyond the end of a shift, or for fire safety and other work duties which it is not judged practical to organise cover for within the normal rotas). This is an area in which local policy and practice can influence costs and there is continuing management action being taken to improve leave timetabling and reduce sickness levels. Other issues could be examined, for example whether it is possible to cover more community safety work other than through taking firefighters off shifts. These topics would sit well in the Best Value review of operational arrangements, but this will not be in time to impact on the 2003/04 budget process.

2.3 The comparatively large number of relatively inexpensive retained fire stations is one of the main reasons why Hampshire's spend per head is low compared with other large fire authorities. This cost effective arrangement is under increasing pressure because of the problems of recruiting and retaining sufficient retained firefighters in some areas.

2.4 There is a well-established formula in place to allow for the financial effect of fluctuations in numbers of incidents.

2.5 The other potential determinant of firefighter costs is the organisation of the brigade. This is being reviewed and it is intended to move towards a functional, rather than divisional structure. This is expected to bring with it chances for improved efficiency, though no cash savings are being proposed at this stage. Full details of this reorganisation and the financial implications will be determined over the next year.


3 Other Staff £6.0m

3.1 Although the review of Control and Communications (2001/02) recognised the potential to collaborate with the Isle of Wight, no significant gains for Hampshire were identified. Support services will be covered by a Best Value review in 2004/05.

3.2 The Authority's base budget assumptions have always allowed for funding increments, which will be £20,000 for non-uniformed staff in 2002/03, (whereas some authorities require this to be found as a mechanism to set savings targets.)


4 Other employee expenses £0.8m

4.1 Training is the predominant expense here, but the statutory government-timed Best Value review has been postponed. This deals with the costs of providing training, as opposed to the cost of employing additional firefighters as result of abstracting staff for training which is part of the ridership factor discussed above. In general, there is continuing government pressure to provide more training for firefighters, which has a cost impact on both elements which is likely to exceed any efficiencies savings generated.

4.2 The Authority is relatively generous compared with some other local authorities in subsistence and travel allowances paid, and the results of such a comprehensive review of allowances will be presented to the Authority shortly.

4 Pensions £7.5m

5.1 This major area of expense is constrained by a national scheme, so there are no opportunities for savings, other than management action to minimise early or ill health retirements. The main issue within the current arrangements is the problem of being able to make sufficiently accurate predictions of retirement timings to forecast budgets accurately.

6 Premises £2.4m

6.1 The key issues here, subject of considerable recent debate by the Authority are:

· general provision for building repair and maintenance. The Authority is now in a well-informed position, having budget provision and identified maintenance requirements as follows:

	2003/04 £000	2004/05 £000	2005/06 £000	2006/07 £000
Budget	765	1043	1043	1043
General maintenance	360	360	360	360
Short-term survey work	405	370	-	-
Mid-term survey work	0	313	322	-
Long-term survey work	0	0	361	683
Work outstanding at year end:
Short-term	370	-	-	-
Mid-term survey work	635	322	-	-
Long-term	1331	1331	970	287

all work identified as outstanding as at Dec 2001 will therefore be cleared by 2007 given the continuation of current funding policies


· possible changes to the full-time station stock. Here there are three main issues ongoing:

o Building a new Basingstoke Fire Station - capital programme funding in place, although there could be significant ongoing revenue costs should an additional pump be needed

o Cost of repairs to Copnor station £250,000 required. The work is proceeding as there are no short-term funding issues (because £123,000 underspend carried forward from 2001/02 to 2002/03 can be used to fund repairs at Copnor Fire Station), but in order to prevent this having a knock-on effect on other priorities, the constituent authorities have been asked whether they will contribute to these costs. The replies received are attached at Appendix A, and indicate that they would prefer to do so as part of the 2003/04 budget process

o Longer term resolution of the fire coverage in the Portsmouth area : likely to involve building a replacement station for Cosham. Funding options for this, including the opportunity of PFI, will be considered in due course. This will not impact on the 2003/04 budget process.


7 Transport £1.9m

7.1 A Best Value study of fleet management is due in 2003/04. The current in-house arrangements for vehicle maintenance and any alternatives will be considered in detail.

8 Supplies and Services (including externally provided support services) £5.1m

8.1 The Best Value review of procurement has concluded with no savings identified.

The Best Value Review of Catering (due to report in October) will include an assessment of the potential sum of £120,000 per year savings identified at the scoping stage.

9 Income £0.7m

9.1 The Authority has been successful in recent years in improving levels of commercial income beyond that budgeted for as follows:

	2000/01	2001/02	2002/03
Original budget	873	837	682*
Actual	1143	986	?

* reduced for ending of the Warsash contract.

9.2 There might therefore be some potential for increasing the budgeted amount of income, though this would reduce the amount of contingency/flexibility in the budget. It is not clear where there is scope for new types of income generation - the most potentially promising one, ie charging for call-outs in response to false alarms, has been ruled illegal.

9.3 One general theme which might be pursued is the possibility of better co-ordination/joint working/joint purchasing with other brigades although there is evidence that consortia arrangements do not always guarantee savings.

10 Conclusions

10.1 In summary, an initial view of likely budget requirements for 2003/04 might be along the following lines:

	£000	%
Budget 2002/03	48,867
Inflation: - Pay * 1584 - Non-pay 248 - NI increase 212 - Pensions 219	2,227	4.6
Insurance 41	41	0.1
FYE of growth (approx)	452	0.9
Cost of borrowing	100	0.2
Legislative pressures (provisional)	100	0.2
Best Value savings (provisional)	(100)	(0.2)
Sub-total	51,707	5.8
Copnor repairs/building maintenance **	250	0.5
Total	51,957	6.3

* Including £20,000 in increments.
** If funded at this level, £123,000 underspendings carried forward from 2001/02 to 2002/03 would be released for other purposes/reduction of levy. See para 6.1

10.2 This assumes 4% pay increases for firefighters from November 2002 and again from November 2003 (clearly a very important assumption), no volume changes in pension costs (the detailed work to assess this has not yet been done), the current level of investment in building maintenance (and hence the speed of clearance of backlog shown above) and a cash limited sum to allow for some response to new legislative pressures and equipment needs. The context for this allowance is provided by the analysis in Appendix B. It recognises the potential for an above-inflation pay settlement, funding which would make it difficult to add to other budgets. Clearly these are illustrative assumptions, and hence the table above is also illustrative.

10.3 The overall conclusions are that:

· Although Best Value reviews to date have identified improvements to working practices , they have not resulted in cash savings. This might be considered unsurprising given the national constraints on many decisions, and the comparatively low spend of this Authority compared with others. That said, the rate of increase in this Authority's budget has been much above average in recent years so it might be expected that pressures for further budget increases will be lower in the immediate future.

· the effect in 2003/04 of growth agreed in previous years is 0.9% (£452,000) and the full-year effect in 2004/05 is a further £905,000

· the continuing programme of Best Value reviews may bring other savings opportunities but these will not be assessed in time to impact on the 2003/04 budget process

· there may be opportunities to improve efficiency by reducing the percentage of time which firefighters spend off the run for sickness and other reasons apart from training, but these are realistically likely to be offset by increased training requirements and the need to match national standards on weight of attack and should therefore be regarded as opportunities to offset future growth requirements rather than to make cash savings

· much has been done over the last year to assess more fully the Authority's property maintenance requirements. At the same time, considerable extra resources have been added to the base budget in this area. Members will need to take a view as part of the budget process as to whether the work required and the budget available to cover it are now in reasonable balance

· the new national radio system is potentially a significant cost factor, while it can be assumed at this stage that this will be funded nationally

· insurance costs continue to be problematic and this will have to be built into the forward budget

· it remains the case that is will be advantageous to switch from leasing vehicles to purchase. However, it is likely that pressures on the revenue budget will prevent this in 2003/04, in which case a more realistic means of moving towards this strategy would be to hope to utilise the enhanced borrowing powers likely to be available under the Government's capital review proposals from 2004/05. This would be made easier if PFI credits can be utilised for other major future capital requirements, for example building of a new fire station at Cosham

· constituent authorities have been asked whether they are willing to contribute to the costs of repairs to Copnor fire station. The replies to date suggest that they are not willing to contribute immediate in-year payment, but would prefer this to be taken into account when this Authority sets its levy for 2003/04.

· The introduction of formula funding is likely to have a significant impact on constituent authorities' ability to pay the levy.


11 European Convention on Human Rights and Human Rights Act 1998

11.1 The proposals within this report are compatible with the provisions of the European Convention on Human Rights and the Human Rights Act 1998, and considered in the light of the Race Relations (Amendment) Act 2000.

12 Recommendations

It is recommended that the Authority:

a. notes the issues raised prior to preparation of 2003/04 budget

b. forwards a copy of this report to constituent authorities to inform them of the pressures identified for the 2003/04 budget, the likely level of increase in the levy, and efficiency savings considered.