Contact: Paul Carey-Kent 01962 847525

David Howells 023 80 644000

1. Introduction

1.1 This report has two separate but related components: long-term financial strategy and an update on issues affecting the 2005/06 budget-setting process.

1.2 Now that the Authority is fully independent in financial terms, it is appropriate for Members to consider their medium and longer-term financial goals and to set the annual budget process in that context. To this end, a draft financial management strategy is attached for members' consideration. This sets out the broad financial policies and aims which it is proposed members might wish to adopt. Subject to any comments and further modification, this would then be incorporated as a policy statement in the budget book. It would be reviewed and updated on an annual basis and the final accounts report would include an assessment of the extent to which the strategy has been followed.

1.3 This covering report picks up on some of the issues set out in the proposed financial management strategy and provides the context for planning and preparing the 2005/06 budget. Detailed consideration and decisions will have to await the announcement of the Authority's grant settlement and the results of consultation. However, it is helpful to set out at this stage the likely key influences for members' early consideration.

2. Budget Issues

2.1 The key aspects of the Authority's Financial Management Strategy (see attached Appendix 1) which need advancing in the 2005/06 budget setting process are to:

·increase reserves from £1.4m to £1.6m in accordance with the agreed assessment of risks faced, and if possible to £2m in line with members' preference for a minimum risk positioning if possible;

·divert 2% of current resources to prevention and protection activities by 2008 (approximately £1m in total).

2.2The possible means to achieve this include:

· ensuring that new spend (including from the additional income from reduced discounts on council tax for second homes) is focused on protection and prevention;

· making efficiency savings and/or increasing income and using it for new protection and prevention initiatives;

· redeploying staff resources into protection and prevention;

· re-examining previous spending plans for 2004/05 and beyond to see whether there is scope to delay or abandon previously approved growth items in favour of new prevention/protection activities.

2.3 The speed at which the Authority can move in this direction during 2005/06 will be influenced by the details of the settlement expected in late November. Other measures that should be addressed include the need to:

·demonstrate - in conjunction with the above - that value for money is being delivered in the wider context of the modernisation agenda and the Gershon review, with an expectation of 2.5% annual efficiency improvements; and

·examine the potential for increasing income (possibly across the two-year cycle of special events including, for example, the Farnborough Air Show).

2.4 At this stage no significant new growth pressures have been identified with the exception of costs arising from the Regional Management Board arrangements and activities. It would be prudent to make provision for this and it is estimated that up to £150,000 may be required even though this investment may not directly deliver the Authority's own objectives.

2.5 There is no requirement for additional firefighter posts unless a demand arises from the Government's requirements under the New Dimension initiatives - but we would assume that these would be funded by the ODPM. Retirement/wastage rates will continue to be closely monitored in order to provide the best possible information about future recruitment and training needs and the consequential impact on the 2005/06 budget. During periods when new firefighters are not being trained the opportunity is taken to use training staff to deliver continuation training courses because this is then considered to be more cost effective than using external training providers.

2.6 The initial assessment is that the increase in council tax over the current year will be small enabling the Authority to maintain its comparatively low council tax in 2005/06. Whether this going to be easy or difficult to achieve will depend on such factors as: (a) the amount of underspending achievable this year; (b) whether the Government requires repayment of transitional funding allocated in 2005/06 to be repaid in full or in part; (c) the final level of uninsured losses (claims against the Authority); and; (d) the distributional details of the settlement.

3. Risk Assessment

3.1 The need to manage risk is central to the Financial Management Strategy. The development and approval of such a strategy is an important factor in demonstrating that financial risks have been properly evaluated by the Authority.

4. Resource Implications

4.1 Adoption of the strategy does not in itself have any resource implications beyond those already budgeted for. It does consolidate some existing policies (eg holding a separate bank account, some systems issues), the continuation of which does have resource impacts which are already budgeted for.

5. European Convention on Human Rights and the Human Rights Act 1998

5.1 The proposals within this report are considered compatible with the provisions of the European Convention on Human Rights, the Human Rights Act 1998 and the Race Relations (Amendment) Act 2000.

Recommendations

1. That, subject to any proposed amendments made at the meeting, the financial management strategy (set out as Appendix 1 to this report) be presented for approval to the Authority at its December 2004 meeting .

2. That the preliminary budget planning issues identified in this report be endorsed and used to set the context for preparing the Authority's Draft Budget for 2005/06.

Appendix 1

Draft Financial Management Strategy - Hampshire Fire and Rescue Authority

Overall purpose : Provide the necessary financial resources to enable the Service to make Hampshire safer, and to ensure a high standard in the management of public finances.

The key policies and actions designed to achieve this are set out as follows. If implemented successfully, they should be reflected in achieving the maximum score of four for the financial aspects of the forthcoming Comprehensive Performance Assessment. As part of the annual closure of accounts process, the Authority's performance in following this strategy will be assessed and reported on

Financial Planning - Budget strategy

· The budget strategy will be clearly related to the priorities set out in the Service's Corporate Plan and Integrated Risk Management Plan.

· Growth and savings proposals to be presented in a transparent manner to members as part of the annual budget cycle, identifying planned outcomes and performance improvements for budget growth and mechanisms for achieving any significant savings.

· Ensure that the long-term level of revenue commitments does not exceed long-term funding likely to be available including reasonable expected levels of future grant settlement and council tax.

· Maintain three-year budget projections based where necessary on alternative scenarios to reflect uncertainty of spending and resource assumptions in order to set the likely context for making final resource allocation decisions on an annual basis.

· Divert 2% of current resources to prevention and protection activities by 2008.

· Set a prudent minimum level of reserves based on a strategic-level risk assessment and reassessed annually as part of the budget process

· Minimise functuations in spending levels and council tax by absorbing the impact of different levels of pension outturn costs.

· Operate within firm cash limits, allocating provision for pay and other inflation at the start of the financial year.

· contain spending within the approved cash limit for the year with no supplementary allocations being made from reserves other than in exceptional circumstances.

· Seek Best Value in services which should always include considerations for quality, risk to achieve sustainability, environmental impact, local economic development and equalities as well as price.

· Aim to achieve a level of council tax that is in the lower quartile of the taxes of Combined Fire Authorities.

Capital programming

· Review capital strategy on an annual basis and prepare a three-year programme in the light of needs identified in the Integrated Risk Management Plan, vehicle replacement programme and built estate condition survey, and prepare a three year capital programme in accordance with the strategy

· Continue to reduce the proportion of vehicles leased and aim for full ownership of the fleet.

· Reinvest income from disposal of capital assets where possible in order to fund new developments and initiatives identified in the IRMP.

· Make full use of Government-supported borrowing.

· Make use of unsupported borrowing within the framework of the Prudential Code where there is a sound business case approved by the Authority.

Provision of Financial Services - Effective management of budgets

· Maintain rigorous annual budgeting and budget monitoring processes.

· Maintain integrated accounting, budgetary and human resources systems.

Ensuring good practice and probity

· Apply sound financial regulations and associated financial procedures in support of good practice in financial administration and corporate governance

· Provide an effective and efficient internal audit function which works co-operatively with the service's external auditors.

· Recognise the statutory role of the Treasurer in ensuring lawful and financially prudent decision making.

· Report the internal audit strategy to the Governance Committee.

· Present an annual internal audit assessment for the Service to the Governance Committee.

· Operate and develop ICT systems with enhanced provision of financial management information to users.

· Comply with the Cipfa Code of Practice for Treasury Management.

· Comply with accounting and audit standards contained in the relevant codes of practice and Cipfa guidance.

Efficient and accessible processing of transactions

· Operate best practices in relationships with local contractors and suppliers, including payment of bills in line with the Government's prompt payment target.

· Seek continuous improvement through "customer focus" in the delivering of financial services and support.

· Improve and extend the use of ICT in delivering financial support services to users.

· Ensure that financial systems are set up in a way which facilitates use of e-government and e-procurement.

· Review the balance of in-house and contracted-out provision of financial services with the aim of achieving Best Value.

· Maintain a separate bank account for the Fire and Rescue Service irrespective of any contracted-out arrangements for financial administration.