Contact: Jon Pittam, ext 7400

1. Summary

1.1 Executive Members are only just beginning to review their substantive spending trends in 2003/04 in the current meeting cycle and a report on overall budget monitoring will be made to the October Cabinet. This report deals with a request by the Hampshire Fire & Rescue Authority (HFRA) to retain the value of all its underspendings from 2002/03.

1.2 The following decision is sought :

· to determine the response to the HFRA on its underspending from 2002/03 which will affect the County Council's budget during 2003/04.

2. Reason

2.1 To respond to the request of the HFRA.

3. Other options considered and rejected

3.1 Not applicable.

4. Conflicts of interest declared by the decision maker or a member or officer consulted

4.1 Not applicable.

5. Dispensation granted by the Standards Committee

5.1 Not applicable.

6. Reason for the matter being dealt with if urgent

6.1 Not applicable.

Approved by: (signature) Date: (date of decision)

Councillor T K Thornber

Contact: Jon Pittam, ext 7400

1. Introduction

1.1 A report on the County Council's overall budget monitoring for 2003/04 will be brought to the next meeting of the Cabinet. Early budget monitoring reports to Executive Members did not identify any significant item, but the current cycle of reports in September and October will begin to identify any emerging issues. Social Services are experiencing the usual level of budget pressures apparent at this time of year, but after assuming the allocation of the £3.5m provided to reduce delayed discharges from hospitals. The progress against the business plan and the achievement of performance targets on delayed discharges will need to be considered by Cabinet in October in order to agree the allocation of the extra £3.5m set aside for delayed discharges from hospitals.

1.2 This report deals with the request from the HFRA to retain the value of all its underspendings in 2002/03 during 2003/04.

2. HFRA underspending 2002/03

2.1 There was a net underspending of £655,000 against the original 2002/03 budget of the Authority. This was after a revenue contribution of £336,000 made to the 2002/03 capital programme.

2.2 The main underspendings were

· £313,000 on pensions

· £163,000 on interest, leasing and provisions for debt repayment

· £100,000 from additional grant income

2.3 The Treasurer's recommendations on the underspending were:

· to retain £312,000 in lieu of a supplementary levy in 2003/04 in order to make provision to meet costs of the 2003/04 pay award to firefighters (as although both transitional grant and offsetting savings measures are potentially available it would be prudent to provide for these costs)

· to ring fence the pension underspending and request the constituent authorities to retain it to contribute towards the reserve the Authority will require under precepting arrangements

2.4 The Authority cannot hold reserves under present arrangements, nor can it create a provision in the 2002/03 accounts which does not comply with the Accounting Code of Practice.

3. HFRA Consultation

3.1 The Authority however minuted

"In considering Recommendations 3 and 4 of the report - on the return of underspendings to constituent authorities - the Committee was mindful of two factors:

i) The current constitutional position: such that annual levies should be restricted to the net expenses of the Authority; the fact that combined fire authorities are not permitted to hold reserves and balances; and the established local arrangements with constituent authorities for 'ring-fencing' the pensions budget.

ii) The expectation that combined fire authorities will become 'precepting authorities' from 1 April 2004 which will require the Authority to establish a sufficient level of reserves but without the guarantee of any transitional funding arrangements.

In this context, the Committee felt that there was a case for retaining the value of all underspendings. Members were mindful that many other combined fire authorities (rightly or wrongly) have retained underspends which cannot be linked to specified future commitments.

The Committee therefore asked the Treasurer to: consult constituent authorities with a view to the whole underspend being retained by the Authority; to check the acceptability of this arrangement with the Audit Commission; and, to report back with the results of the consultation to the meeting of the Authority on 17 September 2003."

4. Possible actions

4.1 The likely mechanism for effecting the retention of the underspend would be to charge actual spend in 2002/03, but to make a supplementary levy in 2003/04 matching the full 2002/03 underspend. This is the only viable mechanism as the Treasurer would be unable to certify the Statement of Accounts for 2002/03 by creating an artificial provision to retain the underspending in 2002/03.

4.2 The Authority can issue a supplementary levy and the contributing authorities would have to pay up but it would be expected that this would be for necessary spending which cannot be matched by compensating savings during the year. The need to protect the interests of the Authority as it moves to precepting status is appreciated but it cannot be at the expense of established accounting principles, or without due business and budgetary need during the year in question.

4.3 The principles should be:

· not to advantage or disadvantage the contributing authorities or the Authority but treat all fairly

· not to expect council tax payers to pick up a bigger total bill over a period of years to benefit one authority at the expense of others

4.4 There are some clear extra spending needs in 2003/04 from the extra cost of the firefighters pay award which could be met by a supplementary levy. However the Authority cannot levy to create a reserve during 2003/04 as there is no power for it to do so.

4.5 It will need balances and earmarked reserves when it becomes a precepting authority from 1 April 2004. It will need to prepare a risk assessment to determine the level of balances and reserves it requires. The ODPM's proposed arrangements for transferring balances at 1 April 2004 from contributing authorities is to require local agreement between the four authorities concerned in Hampshire's case. These contributions cannot be determined unilaterally by each Authority. Each contributing authority will hold different levels of balances to meet its own assessment of risks and pressures which will vary from year to year. Balances will however have to be transferred from each contributing authority by an equal share proportionate to taxbase of each contributing authority's balances at 31 March 2004. The arrangement is designed so that each authority contributes proportionally the same amount regardless of the different size of balances held at the time precepting status is introduced. HRFA will then need to determine if the total amount transferred is sufficient to meet its needs. Any top up, or contributions to new earmarked reserves, will need to be part of its budgeted precept decisions for 2004/05 (not 2003/04).

5. Suggested way forward

5.1 The way forward would be to return any underspend due in accordance with normal practice. That could include ring-fencing the pension underspend in a reserve to transfer to the Authority on 1 April 2004 if the contributing authorities were to agree to do so. The Authority should then consult on the additional budgetary pressures it is facing in 2003/04 and on any consequent proposals for a supplementary levy. It is understood that both Portsmouth and Southampton City Councils would concur with this approach. It is suggested that the Leaders of the contributing authorities might wish to meet with leading members of the Fire Authority to determine how best to deal with the request of the Authority.

5.2 The Leaders would also be able to give the Authority an indication of the proportionate share of balances it might expect at the year end and possible avenues for utilising as far as possible the value of its 2002/03 underspend towards its need for balances for 2004/05. These arrangements need to be distinguished from the Authority's business and budgetary needs in 2003/04.

6. County Council position

6.1 The County Council's own policy for its services is to allow 100% of planned underspending (determined no later than January of the financial year in question) and 50% of other underspendings to be returned to each service to spend in the following year. If the Fire and Rescue Authority was treated on the same basis, a designated underspending earmarked reserve would have been created for £327,500 to be returned to meet spending needs and pressures on a one-off basis during 2003/04. This is coincidentally much the same figure required to meet the extra firefighter's pay costs in 2003/04. A supplementary levy based on the firefighter's pay award costs would therefore be appropriate and the Cabinet are asked if they wish to support that.

6.2 The anticipated revision of the Fire budget in 2003/04 for the firefighter's pay award and for any additional pensions costs slipping from 2002/03 into 2003/04 was reported to the Cabinet in the report on the Final Accounts 2002/03 on 23 June 2003. Additional balances of £1.7m from all the County Council's resources were set aside for possible use during 2003/04 for the firefighter's pay award and other pressures (not just on the Fire and Rescue Service!) during the year, or for one- off budget support in 2004/05. There was no separate ring-fencing of the Fire pensions underspend, but this could be returned as part of, or in addition to, the proportionate share of balances for the Authority at 31 March 2004, depending upon the views of the Cabinet and the two city councils.

Conclusion

The Authority next meets on 17 September 2003 and the Leader will respond to meet that deadline based on the arguments set out in this report.

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.

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