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 (+18.6%).

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). Members may wish to note that the base budget already incorporates target savings of £140,000 for catering, set in advance of the best value review.

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 In addition, the Government has announced that transitional funding will be available to Fire Authorities during 2004/05, with repayment expected in 2005/06 on the grounds that modernisation savings will by then be coming on stream. This would therefore provide a potential savings target towards which to work. The provisional allocations indicate that Hampshire's share would be £787,000 equivalent to 1.5% of the 2003/04 budget or £1.31 less on the council tax required. Receipt appears to be dependent on the Audit Commission verifying the Authority's progress with the modernisation programme, but early informal indications are encouraging in this respect and it is proposed that the Authority seeks to take up its full allocation and assumes for the purposes of setting next year's budget that this will be received.

3.3 Total estimated external funding would then be £28.3m (Revenue Support Grant £11.5m, National Non-Domestic Rates £16.0m and transitional grant £0.8m), leaving the remainder to come from council tax. On this basis, the following table illustrates the potential levels of council tax:

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

3.5 Members will wish to be mindful that the Government has reserve powers to cap authorities who propose council taxes which they consider excessive. Although there was no Fire and Rescue council tax this year, the equivalent amount can be derived by adjustments to this year's FSS and grant to make comparisons (eg council tax increase at base budget level is equal to 10.0% rising to 29.5% if all the priorities are included). The Government does not set capping limits in advance, but has said that it is expecting council tax increases in `low single digits'.

3.6 However, increases in budget (not just this year, but taking account of the history of recent increases) would be the main criterion used for capping. Informal indications to date have suggested that such powers might be invoked for budget 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 be challenged by the Government. Given that combined Fire Authorities face particular pressures in 2004/05 the level of increases across CFAs as a whole may well prove relevant. Informal indications are that comparable increases are being considered elsewhere, but of course actual increases may well be less.

3.7 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'. This consultation is considered later in this agenda.

3.8 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 the 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 reserves 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.

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 has now announced the levels of supported Capital Expenditure. This Authority is allocated £1.504m for 2004/05 compared with £1.401m Basic Credit Approval for 2003/04.

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. Consultation

7.1 Arrangements have been made for consultation with trade unions and with business and council tax payer groups on 8 January 2004. Outcomes from the consultation will be reported orally to the meeting of the Finance and General Purposes Committee.

8. European convention on Human Rights and the 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.

Recommendations

That:

1. This Committee advises the Authority of its preferred level of budget for 2004/05 and/or any factors to which it would like to draw attention; and

2. 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