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

1 Introduction

1.1 The Government has recently published a number of alternatives to the way it calculates grants for local authorities in a consultation paper "Local Government Finance: formula grant distribution". It is intended to introduce the arrangements for 2003/4, replacing the current system of Standard Spending Assessment, and responses to the consultation proposals are invited by the end of September. This paper summarises the options proposed by the Government and their potential effects on this Authority, and suggests possible responses to the consultation.

1 Detailed proposals

1.1 The Government intends to move towards a new formula approach which is `fairer, simpler, more intelligible and more stable' than current arrangements. It intends to follow the structure of :

Basic Allocation + Deprivation Top-Up + Pay-Cost Top-Up + Other Top-Ups

1.2 One of the stated aims of the review is to simplify the current system. It is questionable whether this has been achieved to any significant extent by the proposals for fire, a detailed account of which is attached in Appendix 1.

1.3 There are three main areas of impact:

· the formula assessment of funding for fire services

· any additional funding to cover area cost adjustment, that is recognition of additional costs arising from an authority being in or near London. These costs will eventually form part of the formula funding, but have not been attributed to individual services at this stage

· proposals to equalise resources across the country by redistributing grant from `low-need/high resource' areas, such as Hampshire, to `high-need/low resource' areas. This would not impact directly on the fire formula, but does impact (as do the other two factors) on constituent authorities' ability to pay their levies.

1.4 If, as planned, the Authority subsequently becomes a precepting authority setting its own council tax, all three of these factors will then be relevant to the total government support received and the level of council tax which the Government would expect the Authority to collect in order to provide a given level of service.

2 Fire formula

2.1 The Government's consultation paper asks the following questions on the fire options:

(i) Which of the options for the fire formula do you prefer?

(ii) Are there any alternative or additional changes you would wish to see?

(iii) How far should the formula rely on weighted risk area?

(iv) Which of the variants, if any, that are within option 4 should be included?

(v) Should provision for fire safety be rolled into the main formula?

3 Fire formula options

3.1 The Government has exemplified four options which they have labelled 1 - 4 but which are not most logically considered in that order. Option 3 is to redistribute fire funding pro-rata to existing spending. This proposal would reward past inefficiencies and introduce perverse incentives to spend more. As such, it appears to contradict the Government's own stated purposes of achieving fairer distribution and should be rejected in principle.

3.2 The other three options all remove the `perverse' indicator of volume of fire calls (which under the existing system means that authorities effectively lose grant if they carry out successful fire prevention activity) and replaces it with alternative means of assessing authorities' need to spend.

· under Option 2 (broadly neutral for Hampshire) the fire calls indicator is replaced by a fire risk indicator calculated from deprivation factors

· under Option 1 (Hampshire loses £800,000) the same approach is used but in addition the "A" risk area indicator is replaced by a new weighted risk area indicator, the reasoning behind which is not clear

· under Option 4 (Hampshire loses £450,000) factors for fire safety, sparsity and pensions are added to the approach under Option 1.

3.3 As Option 2 is the simplest, represents the least change from current established arrangements, is well founded in current risk assessments and is the most favourable to Hampshire, it is recommended that this is supported.

3.4 On similar grounds of seeking simplicity where possible, it is also suggested that:

· because a significant element of fire service costs are driven by population, more should be allocated via the basic amount per head of population and less via the top-ups which are harder to explain and harder to justify in terms of the need for fire cover

· the existing practice of a separate top slice of funding for fire safety and redistribution based on deprivation factors should be ended. The whole idea of a formula funding approach should be that such factors are already incorporated where relevant (ie through the deprivation factors) and so such top-slicing should be unnecessary.

3.5 If the formula does include an allocation according to risk areas, it should be limited to "A" risk areas only, as the data is more robust.The balance should be allocated via the basic amount for population.

3.6 On the basis of the main factors above (supported by the detailed analysis in Appendix 2) it is proposed that the Authority responds to the Government's questions as set in the recommendations to this report.

4 Area cost adjustment

4.1 The impact of proposed changes here is at this stage on constituent authorities, who could find it harder to pay for this Authority's levy. Although the detailed attribution to fire is not yet known, the range of loss in area cost adjustment for the constituent authorities could be in the range 0.2 - 1.6% which if applied pro-rata would reduce the grant to a future precepting fire authority by £70,000 - £700,000.

5 Resource equalisation

5.1 Here the impact would be on overall grant and Council Tax levels and is not sensibly attributable to individual services. The City Councils would gain under the proposed changes, and the County Council would lose significantly, making it harder to accommodate any increase in the fire levy.

6 Conclusion

6.1 The Government's proposals could have an immediate effect on the Government's view of how much this Authority should be expected to spend and on constituent authorities' ability to pay for spending at current levels. They could also have significant direct funding impacts on the position of the Authority as a precepting body in the future. The rational behind the changes proposed is not convincing, and the Authority is recommended to respond accordingly.

6.2 Which, if any, of the options will be adopted by the Government will not be known until the provisional revenue support grant settlement is received in late November. It makes budgeting for the constituent authorities very uncertain and difficult for 2003/04.

8 European Convention on Human Rights and Human Rights Act 1998

8.1 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.

9 Recommendations

It is recommended that the Authority puts forward the following responses to the Government's questions:

i) Which of the options for the fire proposals do you prefer?

Option 2 is preferred as it is simplest and most firmly founded in current well-established arrangements for risk assessment. The Authority considers Option 3 in particular to be wrong in principle, as it rewards past spending rather than being based on objective measures of need, and this option is strongly opposed.

ii) Are there any alternative or additional changes you would wish to see?

The Authority believes that fire service costs are largely driven by population. In the interests of simplicity and the most readily understandable link to the need to provide fire cover, the Authority would therefore expect more of the funding to be allocated via the basic amount per head of population and less via the top-ups to that.

iii) How far should the formula rely on weighted risk area?

If the formula does include an allocation according to risk area, it should be limited to `A' risk areas only, as the data is more robust, with the balance allocated via the basic amount for population.

iv) Which variants, if any, that are within Option 4 should be included?

Again in the interests of simplicity, comprehensibility and the preference for concentrating funding on the proven factors of population and `A' risk, the Authority believes that sparsity should not be included and that the Fire Safety top-up should be reduced to zero and not increased (this is consistent with the use of the revised formula funding and captures the relevant factors). It is not possible to comment on the technical charge to Pensions without further information.

v) Should provision for Fire Safety be rolled back into the main formula?

Yes, as is consistent with the Authority's views above.