Archived decisions
Hampshire Fire and Rescue Authority |
Item |
Finance and General Purposes Committee |
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14 January 2004 |
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Capping powers: `alternative notional amounts' for combined fire authorities |
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Report of the Chief Fire Officer and Treasurer |
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Contact: |
David Howells, Director of Corporate Services Tel: 023 8064 4000 Ext 203 Paul Carey-Kent, Deputy Treasurer Tel: 01962 847525 | ||
1 |
Introduction | ||
1.1 |
As combined fire authorities move from `levying' to `precepting' status on 1 April 2004, the budgets for 2004/05 of combined fire authorities and their constituent authorities will not be comparable with those for 2003/04. The ODPM has therefore calculated `alternative notional amounts' as the basis for considering the use of capping powers. The methodology for calculating these amounts was explained in a letter from the ODPM (dated 11 December 2003 and reproduced as Appendix 1). The ODPM has invited representations on the proposals and this report recommends an appropriate response that could be made on behalf of the Authority. | ||
1.2 |
It is anticipated that the constituent authorities will be making their own representations. | ||
2 |
Comments on the methodology | ||
2.1 |
For the Authority, the position appears quite straightforward. The ODPM is proposing to use the (original) budgets set for 2002/03 and 2003/04: £48.9m and £51.3m respectively. Taking a two-year view of past changes in budgets is welcomed. However, the methodology gives no indication (at least at this stage) that any allowance or adjustment will be made to take account of the additional costs incurred in moving to precepting status. It is hoped that this will be given due regard when the ODPM considers whether or not to exercise capping powers on combined fire authorities. | ||
2.2 |
Of prime concern in adopting such a broad-brush methodology is the inability to recognise the different starting (base) positions of individual combined fire authorities (CFAs). It is well known that some CFAs have interpreted the rules on reserves, balances and provisions quite differently. CFAs are not permitted to hold reserves and balances, but may make provisions in their accounts for specific future items of expenditure. Nevertheless, some CFAs have established quite generous general provisions - particularly for pensions and contingency sums for other volatile areas of expenditure - within their base budgets. In the main, these have been built up over several years largely from year-on-year underspendings. HFRA has correctly interpreted the regulations (with the full support of our local external auditors) and has always returned any underspendings to the constituent authorities. | ||
2.3 |
As a consequence, this has enabled the constituent authorities to increase their own reserves and/or reduce the impact on council tax payers arising from increases in subsequent years' levy increases made by the Authority. In return, the constituent authorities accepted that they would need to support the Authority if certain volatile items of expenditure were predicted to overspend by funding in-year supplementary levies (as is the case for 2003/04). | ||
2.4 |
This practice has resulted in the Authority setting lower base budgets than would have been the case had it chosen to make generous provisions. However, it now means that HFRA could fare less well than some other CFAs if `original' base budgets are used as the alternative notional amounts for capping purposes. As HFRA is raising a significant supplementary levy (about £0.8m) in 2003/04 (both to `recover' the underspending from 2002/03 and to fund the unplanned costs of the firefighters pay award). The estimated outturn position will be about £1m (1.9%) above the original budget. | ||
2.5 |
There are significant pressures impacting on all fire authorities in the current year (mainly as a result of the firefighters' pay award); and particular funding issues relating to CFAs as they prepare for precepting. It would seem reasonable in the circumstances that the alternative notional amounts should be based on likely outturn budgets for 2003/04 (rather than on original budgets) - or at least take these into consideration when considering capping powers. | ||
2.6 |
Notwithstanding HFRA's potentially disadvantageous position, all CFAs appear to be planning for significantly high increases in budgets as they take account of the need to fund: | ||
· realistic levels of reserves (and other administrative costs associated with precepting: e.g. issue of council tax leaflets; treasury management); · above-inflation cost of the firefighters' pay award; · the continuing burden of the firefighters' pension scheme; · the initial (short-term) costs of modernisation (including IRMP, IPDS) | |||
2.7 |
It is accepted that savings arising from the modernisation agenda should eventually offset the cost of the firefighters' pay award. However, some of the actions aimed at improving cost-effectiveness under authorities' Integrated Risk Management Plans will inevitably take time to implement (not least because of the need to ensure adequate consultation will all stakeholders). It should also be borne in mind that the scope for tangible savings (rather than efficiency gains) will vary from authority to authority dependent on their past approach to, and the rigour of, previous reviews of risk and resource deployment. | ||
2.8 |
It would be unrealistic and unreasonable to expect fire and rescue authorities to absorb the impact of these financial pressures may of which are `up-front' costs. The position is compounded for CFAs by the costs of moving to precepting status. CFAs need to set budgets - particularly in their first year of precepting - that takes due account of: | ||
· previous practices in relation to levying arrangements (reserves/balances/provisions) with their constituent authorities; · the need to establish robust levels of reserves to protect particularly volatile and significant areas of expenditure - notably pensions and operational activity (the latter being a more significant issue for those authorities with a high proportion of retained firefighters); and, · the scope and capacity to deliver significant savings in the first year of IRMP. | |||
2.9 |
From this brief analysis, it will be appreciated that there is a real problem in trying to achieve an equitable basis in relation to capping considerations for combined fire authorities during their first (transitional) year of becoming precepting local authorities. The position is further complicated by the extraordinary financial issues associated with the modernisation process facing all fire authorities. It makes sense, therefore, to consider the problem from the wider perspective of the overall impact on council tax payers in combined fire authority areas. Hitherto, under the levying arrangements, any significant increases or in-year variations in CFAs' budgets could, effectively, be offset in the context of the constituent authorities' much larger budgets and reserves. This provided the opportunity to reduce or absorb the direct impact on council tax payers of any unavoidable increases in expenditure resulting from CFAs' own budgets. So, for 2004/05, the ODPM is strongly urged to consider capping on the basis of the overall increase in council tax for CFA's and their constituent authorities. From 2005/06, it reasonable to treat CFA's as any other precepting local authority for capping purposes. | ||
2.10 |
The Committee is asked to and approve sending a copy of this report as the Authority's formal representation to the ODPM. | ||
3 |
European Convention on Human Rights and the Human Rights Act 1998 | ||
3.1 |
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. | ||
Recommendation | |||
That, in response to the letter from the Office of the Deputy Prime Minister (dated 11 December 2003), a copy of this report be sent as the Authority's formal representation on `alternative notional amounts' proposed to be used by the ODPM as the basis for consideration of capping powers. | |||
Section 100D - Local Government Act 1972 - background papers | |||
The following documents disclose the 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 the report. | |||
Letter dated 11 December 2003 from ODPM `Alternative Notional Amounts' - attached as Appendix 1 (but Annex B not included, only the figures from it relating to HFRA and its constituent authorities) | |||
NB The list excludes: | |||
1 Published works | |||
2 Documents that disclose exempt or confidential information as defined in the Act | |||
Secretarial/WP/Word/Corporate/HFRA FGP 14 1 04 03 Capping DH/JMW/14/1/2004 | |||