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

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

1 Introduction

1.1 This report seeks to address four main questions:

·What are the spending requirements for 2005/06 onwards?

·What possibilities are there for savings, and how can the Government's requirements to demonstrate efficiency be demonstrated?

·What should be the priorities for capital investment?

·How much is available from Government support and how much do members wish to seek from local taxpayers?

2 Need to spend

2.1 Potential budget requirements can be split into four main categories:

·Base budget: This totals £59.0m and represents the cost in 2005/06 of continuing with the policies and future funding decisions made by the Authority when it set its budget for 2004/05. The base budget includes: inflation costs (including a provisional 3% for firefighter pay increases), projected pensions expenditure, and an increase in reserves from £1.4m to £1.6m. It also assumes that the current level of capital investment will be continued.

A key factor is that the 2004/05 budget contains significant one-off costs to set up the Authority on a proper footing following its move to precepting status which when netted off against those items which are due to start or increase in 2005/06 total -£517,000.

Overall, the base budget increase is 1%. Details are set out in Appendix 1 with the three year budget projection on appendix 2.

·Unavoidable costs: These arise principally from legislative changes or requirements. There are three significant issues:

- The requirement to repay transitional funding of £787,000. It is intended to deal with this requirement through savings measures or from existing resources.

- The need to recognise that the Government's modernisation and regionalisation proposals will cost the Authority money (£150,000 in 2005/06) prior to any savings being achieved.

- There are potential capital costs arising from the some of the vehicles which are coming to the end of their operational lease. These may require revenue contributions to the capital programme. For 2005/06 this represents £115,000 for some support vehicles.

· Typically, when preparing the forward budget, the opportunity is taken to identify and prioritise any new growth items. There was prudent investment in 2004/05 and it would be consistent with the modernisation programme and the Authority's own Corporate Aims to take every opportunity to re-deploy resources and reprioritise spending plans rather than seek new growth. Consequently, no new growth items are proposed.

· The Authority will also wish to ensure that it is suitably placed to deal with possible future calls on funds, eg for uninsured losses, heavy pensions lump sum costs in a particular year, and to maximise flexibility in dealing with capital investment requirements. These goals can be met by ensuring the right level of reserves and provisions are in place and by making some contribution to the capital programme through revenue contributions (which frees up borrowing approvals for future use or reduces future capital financing costs).

2.2 The draft budget can then be summarised as follows:

	£000
Base budget	58,965
Revenue contributions	115
Regionalisation costs	150
Further increase in balances	250
Revenue costs of proposed capital programme	61
Draft budget 2005/06	59,541

Savings and efficiency measures

2.3 Members will wish to be sure that appropriate savings and efficiency measures are taken in order to both minimise the level of the council tax and to maximise the scope for shifting resources from `responding' towards `preventing' and `protecting' in line with the Corporate Aims. Accordingly, and in line with the Authority's financial strategy, the opportunity is being taken to use any underspendings achieved in 2004/05 to optimise the position for 2005/06 and subsequently. At this stage budget monitoring data for 2004/05 suggests that it is reasonable to plan on the basis that:

Sufficient savings can be achieved to repay the Transitional Funding Grant if required. Members will be aware of the national debate on whether repayment in 2005/06 is appropriate and reasonable, the argument being that - given the delays in agreeing the pay award, it was not possible for fire and rescue authorities to make much progress on modernisation during 2004/05. For budget planning purposes, however, it is assumed that the Authority would want to be in a position to repay the grant. In so far as repayment is not required, the Authority could `pump-prime' some of the modernisation initiatives identified in the Integrated Risk Management Plan, subject to identifying future savings so the grant can be repaid at a later
· .

· Any further underspendings achieved can be added to reserves to complete the move to Members' preferred level of £2m. This would have the advantage of reducing the Authority's exposure in particular to the risk that more firefighters than anticipated retire in 2005/06 having deferred retirement from 2004/05.

2.4 The Authority is required to produce an efficiency plan demonstrating that cashable savings of 1.25% and non-cashable efficiency measures of a further 1.25% can be achieved in the 2005/06 budget. By utilising savings already made and continuing to plan for diverting resources towards `preventing' and `protecting' initiatives, it should be possible to demonstrate this. A fuller assessment of planned spending on prevention (including from specific grant and the use of any additional council tax income from reduced discounts for second homes) will be included in the final budget paper.

3 Obtaining the funding

3.1 Nationally, the Government has announced that the formula spending share (FSS) for fire and rescue services will increase, together with associated grant, by 2.8% compared with 2004/05. If its share is similar to that in 2004/05, this represents £53.3m (+2.8%) for this Authority . These figures are estimated at the time of writing: the announcement of (provisional) figures for this Authority is expected on 2 December - an oral update will be given at the meeting.

3.2 Based on the assumptions set out above, the total estimated external funding would be £27.7m (Revenue Support Grant £12.3m and National Non-Domestic Rates £15.4m), leaving the remainder to come from council tax. On this basis, the following table illustrates the level of council tax likely to be proposed for consultation:

3.3 Each £1m increase in spending adds £1.65 per year to the band D council tax.

3.4 The Government has reserve powers to cap authorities that propose council taxes which they consider excessive, and has indicated that council tax increases in "low single figures" are required. Clearly, the increase proposed would be in line with that.

3.5 Trends in the Authority's budget are as follows:

4 Base budget

4.1 The base budget totalling £58,965,000 has been prepared in the same way as last year and includes:

· the current year's original budget increased to the November 2004 price base;

· the net cost of salary increments;

· all known and projected pension costs. Note: these are particularly hard to predict due to the discretion firefighters have over the exact timing of their retirement;

· an estimate of the costs of inflation from November 2004 to March 2006; 3% for firefighters' pay from July; 2.95% for support staff pay; 3.1% for pension payments and 2.5% for non-pay costs;

· increase in the retained pay budget in accordance with the agreed formula reflecting the increase in the average number of incidents;

· full year effect of previous years' growth items;

· planned increase in the level of reserves £1.4m to £1.6m (i.e. before any use of underspends) in line with the risk assessment previously agreed. This assessment will be reviewed prior to finalising the budget;

· increases in the cost of capital financing

· the assumption that income from council tax for second homes will continue to be used for fire prevention measures.

4.2 The changes to the base budget are detailed in Appendix 1.

5 Capital

5.1 The proposed capital programme for the three years 2004/05 to 2006/07 is set out in Appendix 3. This includes all existing commitments revised to reflect the latest estimate of costs, and also assumes some revenue contributions to capital spending from 2005/06 onwards, as shown in para 5.7 .

5.2 The Government has not yet announced the levels of supported Capital Expenditure. It has been assumed that the same level of supported borrowing will be received in 2005/06 as in 2004/05 (£1,504,000).

5.3 The Government has, however, announced a new capital grant for Home Fire Risk Initiatives This will provide a significant level of funding to help achieve the Authority's most important Corporate Aims. The grants available for each year are:

2004/05 - £145,954

2005/06 - £145,954

2006/07 - £145,954

2007/08 - £292,055

Total - £729,917

5.4 The Asset Management Committee has considered proposals to refurbish the HQ reception area. It is proposed to include this as a 2004/05 start at a cost of £60,000. The work will be started during 2004/05 but the bulk of the cost will be incurred in 2005/06. It will be financed from a capital receipt from releasing a restrictive covenant at a site adjacent to Horndean Fire Station of £25,000 with the balance of £35,000 from revenue contributions in 2004/05.

5.5 The vehicle programme for 2005/06 is as presented to the Finance and General Purposes Committee in October (with costs updated to 2005/06 outturn prices). The programme for 2006/07 and 2007/08 has been prepared and is included in the appendix. In 2006/07 the first major tranche of operational vehicles acquired through operational leasing will come to the end of the leasing period. It was always accepted that leasing was not the best long-term option for vehicles, though it was necessary in the financial circumstances at the time leases were entered into, and the costs of this policy are now impacting. Following this:

· it has been assumed that replacements will be bought for the support vehicles, which are anyway near the end of their useful lives, though not yet at the age at which replacement would have been automatic were they not leased. This adds £115,000, £134,000 and £11,000 respectively to the vehicle replacement programme for the coming three years.

· it has been assumed that leases should be extended or renegotiated for the principal operational vehicles, which still have significant useful lives and would be expensive to replace. An operational lease agreement for breathing apparatus cylinders also comes to an end in 2007/08. These leases could add £28,000 in 2006/07 and £224,000 in 2007/08 to the capital programme should finance leases be entered into. At this stage they have been included in the proposed capital programme on this basis.

In order to avoid constraining the flexibility available for other capital projects, revenue contributions to capital should be applied to cover these commitments.

5.6 For planning purposes it has been assumed that:

·The proposed second fire station for Basingstoke will not commence.

· Phase 1 of the HQ development will start in 2005/06. Phase 2 is not included in the programme at this stage as it is dependent on a business case being made and approved.

·There may be some capital receipts to help with the programme. These cannot yet be quantified, but if they do not cover the gap in the availability of supported borrowing 2006/07 some retiming will be required if unsupported borrowing is to be avoided.

5.7 On that basis the capital position can be summarised as follows:

	2005/06	2006/07	2007/08	2008/09
	£000	£000	£000	£000
Balance of supported borrowing as at 1 April	2,582	1,085	-2,454	-2,767
Existing commitments	-571	-	-	-
Assumed supported allocation	1,504	1,504	1,504	1,504
Capital resources available for new projects	3,515	2,589	-950	-1,263
Vehicle replacement programme	-845	-1,505	-1,506	- 522
BA cylinders			-35
Vehicles & equipment financed from revenue	115	162	224
HQ development - phase 1	-1,200	-1,700
Cosham Fire Station	-500	-2,000	-500
Balance of supported borrowing available as at 31 March	1,085	-2,454	-2,767	-1,785
--------------------------- Home risk fire initiative funded from specific capital grant	--------- 146	------------ 146	------------- 292	----------

5.8 The revenue effect, should all the above be approved, would add £820,000 in a full year.

6 Consultation

6.1 Arrangements are being made for consultation with trade unions and with business community and council tax payer groups on 14 January 2005.

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 and considered in the light of the Race Relations (amendment) Act 2000.

Recommendations

1. That the base budget be approved.

2. That the latest costs of the existing capital commitments and the addition of the Home Risk Fire Initiative and the refurbishment of the HQ reception as set out in appendix 3 be approved.

3. That arrangements to be made for statutory consultations on proposals consistent with a 2.5% council increase.

4. That the Treasurer, in consultation with the Chief Officer, be authorised to negotiate leasing arrangements for vehicles and equipment based on the limits set out in section 5.

5. That the final budget and council tax be set by the Authority at its meeting on 9 February 2005.

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 2005/06 - General papers

Fire pensions 2005/06 budget

Appendix 1

Calculation of the base budget

1 Summary of changes in the base budget

2 Full year cost of inflation to November 2004 prices

2.1 The original budget has been increased by the actual costs of inflation to November 2004. Total inflation is £220,000 for pay and prices and £1,000 for pensions.

3 Increments

3.1 These are the gross cost of increments less savings on turnover. The net cost for firefighters is nil and for support staff is £22,000.

4 Operational leasing and asset management costs

4.1 It has been assumed that all vehicle starts will be financed from loan. The reduction in the budget reflects the leases coming to an end during the financial year.

4.2 External interest payments and receipts are expected to decrease by a net £222,000 reflecting fewer long term loans taken out with the PWLB and the creation of general balances together with a projected underspend in 2004/05 which will increase balances further.

4.3 The latest estimate of the cost of making the statutory debt repayments and interest on loans taken out adds £62,000 to the base budget.

5 Retained pay - number of incidents

5.1 The budget is currently based on paying for 23,570 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.

5.2 The formula has been reviewed for 2005/06 and the average number of incidents rises to 24,743. To reflect this increase £110,000 has been added to the base budget.

6 Pensions

6.1 The overall pensions budget for 2005/06 consists of:

6.2 The trends in pensions since 1999/00 are:

The significant drop in costs between 2004/05 and 2005/06 is due to higher numbers and ranks of retirements being predicted for 2004/05 than in 2005/06.

7 Provision for future inflation

7.1 The provision for inflation from November 2004 to March 2005 has been calculated based on 3% for firefighters from 1 July, 2.95% for support staff, 3.1% for pension payments and 2.5% for all other costs. An increase in local government employers pension contributions from 225% to 250% of employees' contributions has also been assumed.