Contact: Paul Carey-Kent: 01962 847525

1 Introduction

1.1 This report deals with the constituent authorities' responses to this Authority's request to retain the value of all its underspendings in 2002/03 during 2003/04. It takes account of both written responses, and the outcome of a meeting on 14 October, a note of which is attached as Appendix A.

2 Background

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's decision, as minuted, was that:

"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."

2.5 The 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 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. Consequently, 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.

3 Results of Consultation

3.1 The Audit Commission made no objection to the Authority's intended approach and request to carry forward the full value of underspendings.

3.2 All three constituent authorities expressed a preference for this Authority to return all underspends, and levy only such a supplementary levy as can be justified by expected additional costs in 2003/04, ie not using this directly to contribute towards building up reserves ready for the introduction of precepting from April 2004.

3.3 The County Council gave the fullest written account of constituent authority views:

`HFRA 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.

3.4 The principles should be:

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

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

3.5 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. This issue therefore needs to be distinguished from the Authority's business and budgetary needs in 2003/04.'

3.6 Such an approach would be consistent with the Treasurer's original advice to the Authority. If that approach were followed, 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 by way of additional contribution to balances if the contributing authorities were to agree to do so. This should be in addition to any share of balances agreed as set out in the accompanying paper. It could be combined with an agreement in advance that the value of any underspendings achieved by the Authority in 2003/04 would be similarly returned in order to help build up balances.

3.7 The next step would then be to finalise the assessment of extra costs in 2003/04 in order to determine the appropriate supplementary levy. It is suggested that such an assessment could cover:

· additional pay costs

· the cost of the new arrangements for direct payment by this Authority (rather than by constituent authorities) of member allowances with effect from May 2003

· costs arising from the new requirement to produce an Integrated Risk Management Plan

· the costs of sending out precept leaflets, which will be incurred in 2003/04.

The budget monitoring report on this agenda sets out current estimates of the relevant amounts.

1. Conclusion

1.1 Consistent with the issues set out above, the meeting on 14 October agreed that the next full meeting of the Fire Authority should decide on the appropriate supplementary levy on the basis of the latest information available on budget pressures.

Recommendation

That the Fire Authority decide on the appropriate supplementary levy at its meeting on 10 December.