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

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

1. Introduction

1.1 As an Authority setting its own precept, there are two aspects of budgets for this Authority to consider:

· first what are the spending requirements and

· second how much is available from Government support and how much do members wish to seek from local taxpayers in order to allow for some or all of these requirements?

2. Need to spend

2.1 Budget requirements can be split into three main categories:

· first, the base budget. This totals £56.1m and represents the cost in 2004/05 of continuing with the policies in place during 2003/04. This includes inflation costs (notably, of course, significant firefighter pay increases), projected pensions expenditure, changes in the level of operational activity that will trigger payments to retained firefighters, and the full year cost of growth introduced in 2003/04. Details are set out in Appendix 1. This is an exceptional year such that the base budget alone represents an increase of 9.3% in the budget

· second, unavoidable costs due principally to legislative change. The most significant of these is the need to raise (an estimated £1.385m assuming 2003/04 overspends do not reduce the amount available) towards building up reserves for the authority under precepting arrangements. These total £2,304,000, and add a further 4.5% to the 2003/04 budget. Details are set out in Appendix 3

· further growth priorities, also set out in Appendix 3, which have been ranked in two categories of priority. Implementation of category one would bring the total budget increase to £58,874,000 (+14.7%), whilst implementation of all these options would cost £61,037,000 (+19%).

2.2 These priority options do incorporate some savings - they are net requirements - but members may nonetheless wish to look for more radical savings options as well. As the Integrated Risk Management Plan (IRMP) continues to be developed, opportunities for the more cost-effective use of resources will be identified during 2004. However, it should be noted that any substantial efficiency gains are unlikely to occur before 2005/06 and some may not result in tangible cash savings. Further, Members will be aware that local assessment to date suggests that the savings potential from modernisation is likely to be less in Hampshire than is typical nationally as many of the potential cost savings practices have already been adopted.

2.3 One of the 'Year 1' IRMP proposals is to implement a policy aimed at reducing attendances to false calls from automatic fire detection systems. It is too early to estimate with confidence the potential reduction in costs that should follow, but an initial saving of £18,000 in 2004/05 has been included in the proposals (see Appendix 3).

3. Obtaining the funding

3.1 Nationally, the Fire and Rescue Service has received an increase in formula spending share (FSS), together with associated grant, of 3.9% compared with 2003/04. Hampshire has a marginally higher increase of 4.0%.

3.2 Total Government funding for 2004/05 will be £27.5m This settlement does not take account of the fact that the Authority is moving to precepting status and its associated cost in setting-up new reserves.

3.3 On the basis of this level of grant funding, the following table illustrates the potential levels of council tax:

3.4 Each £1m increase in spending adds £1.67 to the band D council tax.

3.5 Members will also wish to be mindful that the Government has reserve powers to cap authorities who propose council taxes which they consider excessive. Increases in budget (not just this year, but taking account of the history of recent increases) would be the criterion used, so it will make no difference that there was no Fire and Rescue council tax this year. However, the equivalent amount can be derived by adjustments to FSS and grant for comparisons (eg council tax increase at base budget level is equal to 12.8% rising to 32.3% if all the priorities are included). The Government does not set capping limits in advance, but informal indications to date have suggested that such powers might be invoked for increases above 10%. Given that 2.7% of the budget increases set out above are in respect of a one off balance contribution due to legislative change, it might be reasonable to expect that only increases above 12% would attract the Government's attention, but lower levels of increase might nonetheless prove problematic.

3.6 The Secretary of State in the provisional local government finance settlement said that the Government `recognises that in areas where there is a Combined Fire Authority next year's budgets will not be comparable with this year. The Government will consult about the level of earlier years' budgets which we will use for comparison purposes when we come to consider the use of capping powers. The history against which the Authority might be judged can be summarised as follows:

4. Base budget

4.1 The base budget has been prepared in the same way as last year and includes:

· the current year's original budget increased to the November 2003 price base

· the net cost of salary increments

· all known and projected pension costs. These are known to be particularly hard to predict due to the discretion firefighters have over their exact timing of their retirement. The figures given represent best estimates, but some reduction would be made in the context of a relatively high level of resources at £2m, which could then cover any shortfall.

· an estimate of the costs of inflation from November 2003 to March 2005; 4.2% for firefighters pay from July 2004; 2.5% for support staff pay; 2.8% for pension payments and 2.5% for non-pay costs

· full year effect of previous years' growth items

· increases in the cost of operational leasing and capital financing.

4.2 The changes to the base budget are detailed in Appendix 1 and is set out in more detail in Appendix 2 which also shows the projected base budget for 2005/06 and 2006/07.

5. Growth

5.1 Appendix 3 lists the funding pressures and growth proposals (some of which are net figures and take account of assumed savings that would be achieved as part of their implementation). The proposals are set out under four main headings: 'Corporate Management'; 'Prevention'; 'Protection' and 'Intervention' - the last three consistent with headings used in the Authority's IRMP. Several of the proposals directly support the aims and activities identified in the IRMP Action Plans - notably those associated with improvements in 'prevention' and 'protection'.

5.2 These proposals have been prioritised by officers in three categories: 'Unavoidable' (U); 'Priority 1' (1) - those considered to be the most essential and/or urgent; and, 'Priority 2' (2) - those still considered important but less urgent. As in previous years, these proposals have been considered as a medium-term (three-year) revenue budget forecast - with phased implementation where appropriate. This prioritised list of proposals was considered by Members of the Precepting Panel which met on 14 November 2003. Further details will be available on each of the proposals at the meeting if required.

6. Capital

6.1 The proposed capital programme for the three years 2004/05 to 2006/07 is set out in Appendix 4. This includes all existing commitments revised to reflect the latest estimate of costs.

6.2 The Government have consulted on whether to support capital expenditure in future by capital grant or by supporting the cost of servicing borrowing through RSG. The RSG consultation announcement implies that support will continue to be provided as at present through RSG. Details of supported capital expenditure for 2004/05 have still to be notified. The assumption here is that support continues at the same level as now.

6.3 The vehicle programme is as presented to the Finance and General Purposes Committee in October (with costs updated to 2004/05 outturn prices).

6.4 Anticipating that the Authority will approve the recommendation of the Asset Management Working Group and the Finance & General Purposes Committee to re-examine the business case for a second fire station in the Basingstoke area, it should be noted that this will give the opportunity to consider bringing forward the proposed scheme to replace the current Cosham Fire Station. The implications of this potential change to the capital programme will need to be considered in more detail by the IRMP Corporate Management Team and subsequently by the Asset Management Working Group. In the meantime, the draft capital programme shows both schemes as potentially starting during latter part of 2005/06.

7. European convention on Human Rights and the Human Rights Act 1998

7.1 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:

1. The base budget be approved.

2. Arrangements be made for statutory consultations on the level of Council Tax based on the options set out in this paper.

3. The final budget and council tax be set by the Authority at its meeting on
11 February 2004.

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

Fire Budget 2004/05 - General papers

Fire pensions 2004/05 budget

Appendix 1

Calculation of the base budget

8. Summary of changes in the base budget

9. Full year cost of inflation to November 2003 prices

9.1 The original budget has been increased by the actual costs of inflation to November 2003. Total inflation is £2,173,000 for pay and prices and -£4,000 for pensions.

10. Increments

10.1 These are the gross cost of increments less savings on turnover. The net cost for firefighters is nil and for support staff is £20,000.

11. Operational leasing and capital financing costs

11.1 The operational leasing budget has been calculated based on indicative quotes for vehicles to be leased by 31 March 2005. This increases the operational leasing budget by £90,000 and is for existing commitments only. It has been assumed that all vehicle starts from 2004/05 will be financed from loan. Should the vehicles be purchased from revenue then the capital financing costs in later years will reduce.

11.2 The latest estimate of the cost of making the statutory debt repayments and interest on loans taken out adds £8,000 to the base budget.

12. Previous year's growth

12.1 When the growth was approved in February 2002, implementation of several items was either phased in or delayed until 2004/05. These are added at a cost of £148,000.

13. Retained pay - number of incidents.

13.1 The budget is currently based on paying for 23,253 incidents. This was calculated using the agreed formula which takes the average of the last five years excluding the highest and lowest years to avoid any distortion of exceptional years.

13.2 The formula has been reviewed for 2004/05. The average number of incidents now stands at 23,570 and adds £38,000 to the base budget.

14. Pensions

14.1 The overall pensions budget for 2004/05 consists of:

	£m
Pensions payroll	7.9
Lump sum payments	2.6
Transfer values paid	0.3
Transfer values received	-0.5
Employee contributions	-2.3
	8.0

14.2 The trends in pensions since 1999/00 are:

15. Provision for future inflation

15.1 The provision for inflation from November 2003 to March 2005 has been calculated based on 4.2% for firefighters from 1 July, 2.5% for support staff, 2.8% for pension payments and 2.5% for all other costs. The increase in local government employers pension contributions from 215% to 225% of employees' contributions has also been included.