Contact: Paul Carey-Kent, 01962 84 7525; [email protected]
David Howells, 023 8064 6834, [email protected]

1 Introduction

1.1 The Authority's Financial Management Policy sets out the main budgetary goals of the Authority. Three key aspects are:

· maintain council tax in the lowest quartile of combined fire authorities

· keep reserves and balances at an appropriate level as indicated by risk assessment

· achieve a shift in resources from fire response to prevention and protection (initial target 2% over the three years to 2007/08).

1.2 This report sets out the main factors which will need to be taken into account in delivering this strategy in the context of the factors likely to apply over the next three years. This is a broad indicative paper which is prudent in its assessment of possible pressures, and suggests that due mainly to the up-front costs of the modernisation process, there will be some pressures and a consequent need to prioritise these in setting the 2006/07 budget. It comes ahead of the Government's funding announcements due late in November, which will have two main features:

· the overall settlement for fire service, expected to be 3.3% in 2006/07 and 3.8% in 2007/08.

· the distribution of this grant between fire authorities. This was the subject of a paper to the last full Authority meeting which showed that a broadly neutral outcome is likely for Hampshire, and this paper assumes that this is the case and therefore ignored in this review.

1.3 This report concentrates on 2006/07: subsequent reports will consider more fully those factors that might impact on the longer-term prospects for efficiency improvements resulting from modernisation and the implementation of IRMP actions.

1 Base budget

1.1 The base budget represents the cost in 2006/07 of carrying forward the policies applied in the 2005/06 budget, updated for inflation and the full year effect of changes. The main factors assumed in preparing this will be:

· assumed pay award of 3.4% for firefighters (being the same level as 2005 ) and 3% for support staff

· assumed price inflation of 2.5% with the exception of certain expenditure items such as mapping fees, business rates and fuel where the increases are known to be significantly higher

· expected cost of any fluctuations in the level of firefighters retiring (minimal effect expected in 2006/07)

· increases in local government pension scheme costs resulting from the increase in employer's contributions

· a cautious approach to both the expected implications for retained staff joining the pension scheme with backdated employers contributions and possible costs resulting from the change in funding arrangements from April 2006 (estimated £700,000 one-off provision)

financing costs of the capital programme (minimised as a result of the policy, established in this year's budget, of funding all vehicle purchases from revenue)·

the reductions resulting from one-off elements being included in constructing the 2005/06 budget - principally the £600,000 increase in general reserves and a one-off provision of £150,000 was included for regional activities (note: not all this budget is likely to be required in 2005/06 and it is likely that any underspend will be requested to be carried forward into 2006/07, but it is still anticipated that a sum of £150,000 will continue to be required from 2007/08 onwards).·

Taking these issues into account would lead to an estimated increase in the base budget of £1.8m (3.0%).

2 New policy developments

2.1Modernisation and other proposals are likely to add some £0.5m. These include administrative support at retained stations, a health and safety review, funding for the Equalities Team and making permanent the temporary support funding for the Marketing and Communications Team which will come to an end in March 2006.

2.2 Combining this with the base budget changes leads to a likely increase of £2.3m or 3.8% over the 2005/06 budget.

3 Transitional grant.

3.1 The Government has previously indicated that the transitional grant, received in 2003/04 to meet some of the initial costs of modernisation, would need to be repaid in 2006/07. The Authority has set aside £0.7m for the repayment, should repayment not be required at all, then this would be available for other uses.

4 Use of underspend

4.1 In recent years the Authority has been able to utilise underspendings to make contributions to one-off funding pressures and reserves. Given that the general reserve is now at an appropriate level, there is an opportunity to use any underspending in 2005/06 to increase the modernisation reserve or reduce the level of council tax that would otherwise be required in 2006/07.

5 Efficiency and redeployment issues

5.1 The Authority has an existing policy of redeploying 2% of its budget towards prevention and protection activities in the three-year period to 2007/08. This is consistent with, and has to some extent been superseded by, the Government's recent indications in its consultation exercise that `Gershon-type' efficiency savings of 5% from the 2004/05 base year will be required in the three-year period 2008/09. In principle, it would be advantageous to seek to make the required Gershon savings in a way which releases cashable resource for redeployment in to prevention and protection activities. That would imply an increase in the Authority's own target and Members may wish to consider what balance they wish to strike in this matter.

5.2 The consultation proposals as currently set out allow savings made in 2004/05 to count towards the target. These are currently being compiled. A full return of the backward-looking Annual Efficiency Statement (AES) is required by 17 November. However, the Government's requirements have not yet been finalised, and it seems likely that the timescales required will be such that it is not possible to bring the backward-looking AES to this Committee for full Member approval. Therefore it is recommended that this Statement be finalised by the Treasurer and Chief Officer in consultation with the Chairman.

6Council tax

6.1 If all the above assumptions proved correct, it could lead to a council tax increase in the range 4.7% to 7.0% leading to a council tax at Band D of between £54.57 and £55.75 compared with the current £52.11. Each additional £1m of spending would add approximately £1.65 to the council tax and a 1% increase in the budget leads to a 3.2% increase in council tax. The Government's initial indications are that Authorities with council tax increases above 5% are likely to be capped, and Members will want to bear this in mind when considering expenditure priorities.

6.2 Hampshire was just in the lower quartile last year. It is too early to assess where other fire and rescue authorities are likely to pitch their increases, but an increase at the upper end of that range could also take this Authority out of the lower quartile.

6.3 Another factor will be consultation views. It is proposed to bring together the various representative bodies in the usual way during January for full consultation on the draft budget proposals.

6.4 A contribution of £500,000 was made to a modernisation reserve from the 2004/05 underspending. This has proved to be beneficial in meeting short-term funding needs to initiate and support the implementation of IRMP actions and to enhance capacity within the Service during this time ("improving capacity" was a key area of improvement for the Authority following it's recent CPA inspection). It would make sense to keep this reserve at a relatively healthy level and use it prudently in order to dampen the potential impact of short-term funding needs on future council tax levels Consequently it is recommended that the Authority plans on the basis of maximising underspends in 2005/06 and using these to contribute to the maintenance of the modernisation reserve and/or to reduce the level of council tax for 2006/07. The optimum balance of options will become clearer as more detail on the likely outturn position for 2005/06 and grant level for 2006/07 emerges.

7 Equality impact assessment

7.1 An impact assessment has been made on the proposals in the paper and shown that they are not discriminating they 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).

8 Conclusion

8.1 This report indicates that, due principally to the up-front costs of modernisation, the budget position for 2006/07 may be tight and require consideration of relative funding priorities if the Authority is to avoid the risk of capping.

Recommendations

1 That the Treasurer and Chief Officer, in consultation with the Chairman, be authorised to finalise the Annual Efficency Statement.

2That the budget preparation process continues with the aim of identifying options that would ensure a council tax increase of below 5%.

Section 100 D - Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

none