Contacts: Paul Carey-Kent, Deputy Treasurer 01962 847525
David Howells, Director of Corporate Services 02380 644000 ext 203

1 Introduction

1.1 This report seeks to address five main questions:

· What are the spending requirements for 2006/07 onwards?

· What are the main risks faced by the Authority, and as a result of them are any changes necessary in the level of reserves and provisions?

· What possibilities are there for savings, and how can the Government requirements to improve efficiency be met?

· What should be the priorities for capital investment?

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

1.2 At the Finance and General Purposes Committee meeting on 21 October, Members requested that a range of budget options be presented leading to alternative council tax increases, one of which should be at the level of increase expected in the basic state pension. Accordingly, this paper sets out options which on the basis of current information would be expected to lead to increases of 4.4% (i.e. the full draft budget), 3.4% (i.e. linked to the current estimate of likely pay award due in July 2006) and 2.7% (i.e. linked to likely pension increase). Intermediate options are of course possible, but can be derived from these three options.

1 Need to spend

1.1 Potential budget requirements can be split into three main categories: base budget (including revenue contributions to capital), unavoidable new costs and any proposed growth items.

1.2 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 in preparing this are:

· 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 heads such as mapping fees, business rates and fuel where the costs 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 pensions scheme costs resulting from the increase in employer's contributions

· 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)

· reductions as a result of one-off elements being included in constructing the 2005/06 budget, principally the £600,000 increase in general reserves (a one-off £150,000 was also included for regional activities whilst the extent of involvement was evaluated: not all this budget is likely to be required in 2005/06 and it is anticipated that any underspend on this head will be requested to be carried forward into 2006/07, but it is still judged likely that a further £150,000 will be required for this and it has been built into the budget from 2007/08 onwards).

1.3 The base budget also assumes revenue contributions to capital of £640,000 in 2006/07, largely arising from the Authority's preferred policy of purchasing vehicles from cash rather than through loan. That rises to £745,000 in 2007/08 and £708,000 in 2008/09. In the long term this is an advantageous policy - markedly advantageous compared with leasing, though only marginally advantageous compared with borrowing in order to obtain vehicles. Furthermore, the ability this gives to switch to loan-based acquisition of vehicles offers some flexibility in framing budget options.

1.4 The actual effect of the national change in financing arrangements for firefighters' pensions from 1 April 2006 is not yet known. Although the changes are to be cost neutral over Fire Authorities as a whole the effect on this Authority is not yet known. A cautious approach has been taken at this stage and £250,000 has been included in the draft budget.

1.5 Overall, the base budget increase is 2.2%. Details are set out in Appendix 1.

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

· the expected implications for retained staff joining the pension scheme with backdated employer's contributions (£450,000 in 2006/07 based on the assumption that approximately 20% of retained firefighters would opt to join the scheme and that half of these would opt to back date their membership to November 03). This figure will be revisited in January when more information should be available.

· The need to establish full funding for the new equality and diversity team. This was met from underspendings in 2005/06, but needs to be sustained in order to meet this crucial agenda. This will cost £120,000 annually.

· Changes required as a result of a review of the Occupational Health, Safety and Welfare Unit will cost £60,000 p.a. Details of this proposal were considered by the Human Resources Committee at its meeting on 29 November 2005.

1.7 The only new growth item proposed is to roll out station-based administrative support (eight fte) to retained stations. It is intended to provide this for clusters of stations such that all retained stations are supported by 2007/08, with costs being incurred of £121,000 in 2006/07 and the full year cost of £176,000 in 2007/08. The aim of this is to help support the Integrated Risk Management Plan (IRMP) proposals which deliver on the authority's overall efficiency and effectiveness agenda. Again, details of this proposal were considered by the Human Resources Committee on 29 November.

1.8 No other optional growth items are proposed. In so far as any other requirements emerge they will be met by generating underspends or efficiencies.

2 Level of Reserves

2.1 The Authority currently sets aside a reserve of £2m to deal with any unanticipated costs arising related to a range of risks. This level has been commended as good practice by the Audit Commission. Pensions is a key element in the calculation and given that the risk associated with pensions will reduce under the new funding arrangements it is possible that the level of reserves could be reduced. It is thought prudent however to consider this for 2007/08 after the new arrangements have been introduced.

2.2 The Authority may also set up reserves for expected future spending which are more specific in nature and less dependent on risks. The current levels of such provisions are:

·transitional grant reserve - for repayment of transitional funding £0.8m: so far as is known repayment or an equivalent reduction in grant is still expected in 2006/07, therefore this remains appropriate


· capital payments reserve - provision for capital payments. This was set up in order to avoid borrowing. The balance is estimated to be £1.5m on 1 April 2006 and as set out in section 5 of this report will be fully used by 31 March 2008

2.3 On this basis, no increases or decreases in reserves are thought necessary for 2006/07. Consequently the draft budget which represents a 3.5% budget increase can be summarised as:

	£'000
Base budget	61,574
Unavoidable costs	630
Growth items	121
Total draft budget	62,325

3 Savings and efficiency measures

3.1 Members will wish to be sure that appropriate savings and efficiency measures are taken in order to:

· minimise the level of council tax;

· deliver the Gershon requirements of 5.7% cashable savings by 2007/08; and

· maximise the scope for shifting resources from `responding' towards `preventing' and `protecting' in line with the Authority's corporate aims.

3.2 There are two possible ways of achieving this:

· underspending in 2005/06 and using this as one-off support in the following year. In line with the policy established in previous years, it is intended to underspend if possible, and even though some £0.5m of underspendings have been recycled into new policy developments in 2005/06, it is hoped to achieve some further underspend which could help in 2006/07

· make efficiency savings. The annual efficiency statement for 2004/05 demonstrated that 1.3% (£717,000) cashable efficiency savings were made. With planned savings in 2005/06 of 1.22% (£709,000) this leaves a further 3.22% (£1,801,000) to be made by 2007/08. It is hoped to make these principally through implementation of the third Integrated Risk Management Plan (IRMP), on which consultation is currently taking place. It is assumed at this stage that this will meet the Gershon targets, but that any savings achieved will be diverted into additional protective work, eg more home fire safety checks, and that in terms of the budget requirement the effect will therefore be neutral.

3.3During 2004/05 £377,000 (0.65%) of the Authority's budget) was transferred to prevention and protection, increasing to an estimated £1,207,000 (2.07%) in 2005/06 and levelling to £1,172,000 (2.01%) from 2006/07. The submitted Annual Efficiency Statements for 2004/05 and 2005/06 are attached as appendices 4 and 5 respectively.

4 Capital Spending

4.1 The proposed capital programme for the three years 2006/07 to 2008/09 is set out in Appendix 3. This includes all existing commitments revised to reflect the latest estimate of costs. The projections include estimated capital receipts of £496,000 in 2006/07 and £2,823,000 in 2007/08.

4.2 The Government has not yet announced the level of supported capital expenditure and so it has been assumed that the same level of supported borrowing will be received in 2006/07 as in 2005/06 (£1,500,000).

Vehicles

4.3 The vehicles programme for 2006/07 to 2008/09 is as presented to the Finance and General Purposes Committee in October with the costs updated to 2006/07 outturn prices. As agreed for 2005/06, revenue contributions are used to cover the replacement support vehicles that were previously leased and the capital costs incurred as a result of renegotiating the leases on the operational vehicles.

Headquarters work

4.4 Members will be aware that there is existing capital provision of £3,530,000 for developing the new stores and vehicle garaging; the HQ/Training Centre extension/link building; and the refurbishment of reception and other offices.

Compartment Fire Behaviour Training facilities (CFBT)

4.5 A proposal to provide additional CFBT facilities to cope with demand from both Hampshire and West Sussex firefighters is nearing finalisation. The total cost of the works is estimated at £300,000 and West Sussex CC have offered to pay £150,000 towards the capital costs. It is proposed that Hampshire's share would be financed from savings in the 2005/06 training budget of £100,000 and £50,000 from Urban Search and Rescue (USAR).

USAR practical training facilities and associated accommodation

4.6 This facility is to be funded by the ODPM but exact funding arrangements have yet to be agreed. In order to retain maximum flexibility it is suggested that this is added to the main headquarters scheme. £281,000 was identified as part of the October budget monitoring and so a further £19,000 is now required.

4.7 Approval is sought from Members to negotiate prices with the main contractor for phase 1 of the main HQ scheme for these additional two elements of work.

Capital Financing

4.8 The revenue effects of the proposed capital programme do not add to the budget in 2006/07 but add £189,000 in a full year.

4.9 It is proposed to finance the capital programme as follows:

5 Obtaining the funding

5.1 Nationally the Government has announced that the formula spending share (FSS) for Fire and Rescue services will increase by 3.3% compared with 2005/06. The level of grant to be provided is less clear at this stage and could be in the range 0.5% - 2.5%. This paper is based on the mid-point of these assumptions, ie 1.5%, and also assumes that:

· Hampshire's FSS increases in line with the national average, and that there is no significant impact resulting from the formula grant review which the Government has announced and consulted on; and

· There is a national increase of 1.5% government grant for Fire and Rescue. The figures are estimated at the time of writing: the announcement of (provisional) figures for this Authority is expected early in December - an oral update will be given at the meeting.

5.2 Based on the assumptions set out above, the total estimated external funding would be £29m (Revenue Support Grant and Non-Domestic Rates), leaving the remainder to come from council tax. On this basis, the following table illustrates the level of council tax dependent on the actual level of grant received:

5.3 Each £1m increase in spending adds £1.63 per year to the band D council tax.

5.4 The Government has reserve powers to cap authorities proposing council taxes which they consider excessive, and has indicated that council tax increases below 5% are required.

5.5 In addition, the Government has published Amending Reports for 2004/05 and 2005/06 grant settlements. These are published when the Government discovers an error (not attributable to local authorities) in the data used in previous grant settlements. This Authority has had its grant allocation reduced for the two years by a total of £184,000 which will be taken off the 2006/07 allocation. This is equivalent to a one-off increase of 0.6% in council tax, and is taken into account in presenting a 0.5 - 2.5% range of likely grant income.

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

5.7 If council tax is to be reduced from the draft budget level to either 3.4% or 2.7% then a possible way in which that can be achieved is by reducing revenue contributions to capital by up to £0.5m, which would mean borrowing to buy part of the vehicle replacement programme rather than financing them from the revenue budget.

Recommendations

(a) That the base budget be approved.

(b) That the additional works to provide the extensions to the compartment fire behaviour training facility and the practical training facilities for Urban Search and Rescue at HQ be added to the existing HQ capital programme and a single tender be negotiated with the HQ scheme main contractor (Brazier).

(c) That arrangements be made for statutory consultations on proposals consistent with a range of possible council tax increase depending on Members' views and the level of the grant settlement.

(d) Final budget and council tax be set by the Authority at its meeting on 15 February 2006.

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:

Published works.

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

Fire Budget 06/07

Appendix 1

Calculation of the base budget

1 Summary of changes in the base budget

2 Full year cost of inflation to November 2005 prices

2.1 The original budget has been increased by the actual costs of inflation to November 2005. Total inflation is £525,000 for pay and prices.

3 Increments

3.1 These are the gross costs of increments less savings on turnover. The net cost for firefighters is nil and for support staff is £23,000.

4 Asset management costs

4.1 This reflects the change in the level of revenue contributions and continues the policy of funding from revenue the support vehicles need to be replaced as a result of leases ending prior to the age at which replacement would have been automatic had they been purchased. It also reflects the capital costs of the finance lease arrangements that will be entered into for the operational vehicles that will ending their operational leases during the year.

5 Full year effect of previous years growth

5.1 These reduce the budget by £1,195,000. This unusual position arises mainly as a result of the deletion of growth items from previous years (mainly 2004/05) including £600,000 contribution to balances, trainee firefighters establishment £166,000 and regionalisation costs £150,000. There were no new growth items started in 2005/06 and therefore no knock on full year effects in 2006/07.

6 Retained pay - number of incidents

6.1 The budget is currently based on 24,743 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.

6.2 The formula has been reviewed for 2006/07 and the average number of incidents remains at 24,743. This is due to the fact that 2004/05 is now the lowest year in the calculation and replaces 1999/00 which was previously the lowest year. No cash adjustment is therefore required.

7Pensions

7.1 The pensions budget has, at this stage simply been inflated. When the details of the change in financing are known the pensions budget will be removed from the Authority's budget and replaced with just the elements payable by the Authority.

6 Provision for future inflation

6.1 The provision for inflation from November 2005 to March 2007 has been calculated based on 3.4% for firefighters, 2.95% for support staff, 2.7% for pension payments and 2.5% for all other costs. An increase in local government employers pension contributions from 250% to 275% of employees' contributions has also been assumed.

7 Provision for increased firefighters pension costs

7.1 A sum of £250,000 has been added into the base budget at this stage to cover possible costs to the Authority resulting from the change in financing of firefighters pensions.

Appendix 4

ANNUAL EFFICIENCY STATEMENT - FIRE AND RESCUE AUTHORITIES - Efficiency Savings Achieved in 2004-05

Summary

Narrative

Our Corporate Plan and IRMP

HFRA has consolidated all its plans within the IRMP to ensure our performance can be measured against one overarching service improvement plan. As a result this report on efficiencies achieved is presented in the same format as our IRMP which describes how our Service will achieve the aim of `Making Hampshire Safer' in the four areas of Preventing, Protecting, Responding and Managing Resources.

The efficiencies listed above have been achieved as a result of a number of ongoing initiatives eg Best Value, IRMP1, Schools education strategy etc.

Efficiency Savings Achieved in 2004/05

Annual cashable efficiency savings of £702k and non-cashable savings of £190k have been achieved.

Recurring cashable efficiency saving of £503k and non-cashable savings of £545 will carry forward.

All efficiencies have been calculated using 2004/05 rates.

Staff costs include employers oncosts for National Insurance and Local Government Pension Scheme.

Monitoring and Review

We have an ongoing programme of monitoring and review of our performance against key performance indicators and targets to ensure that the expected efficiency gains and improvements are being achieved and that the quality of service delivery is being maintained.

Preventing

One of our key objectives to reduce fire deaths and injuries in the home is to ensure that every home has a home fire safety visit by 2010. A major plank of our strategy to achieve this is to transfer 2% of our resources to prevention and protection activities by 2007/08. In 2004/05 we diverted budget that had been set aside for the initial purchase and ongoing replacement of lightweight firefighting personal protective equipment together with turnover savings from the wholetime pay budget releasing £108k ongoing and £124k one off savings which funded purchase of smoke detectors. In addition newly appointed station administration staff absorbed the administration associated with the home fire safety visits into their existing workloads producing non cashable savings of £45k assessed at 5 hours each per week. The major contribution towards meeting the HFSC target is that of the operational crews with each wholetime crewed appliance being targeted to do one HFSC per day from January 05 producing non cashable savings of £130k in 2004/05 (£500k per annum).

Protecting

Part of our strategy to reduce the number of fires that occur in buildings by 3% by 2006 is to work in partnership with other organisations and agencies to promote better awareness of the benefits of installing fire protection systems eg sprinklers into all new builds and refurbishments. As the largest landlord in Hampshire the County Council (HCC) has provided funding for secondment of an officer to work in their Property, Business and Regulatory Services department to help manage fire safety in all their premises. This produced a cashable saving of £75k over the 20 month contract.

Responding

With 35 retained stations in Hampshire, recruitment presents a continuing challenge. To assist the already understaffed station personnel we have formed a Retained Awareness Team (RATS), equipped with information packs and trained to ensure they target all areas of our diverse community to help us meet our recruitment needs. This team drawn from our existing staff has been funded from £26k cashable retained turnover savings.

Working in partnership with Hampshire Ambulance Service Trust (HAST) we developed three Co-Responder Schemes in 2004/05. To establish the training programme we funded the secondment of an officer to work full time with HAST £15k non cashable savings achieved. The schemes have been highly successful in saving lives.

Managing Resources

Best Value Reviews have been the traditional tool to reduce unnecessary cost and ensure increased effectiveness. The BV Review of Catering recommended the withdrawal of provision of catering on stations. The efficiency saving achieved from deletion of cooks and watch catering allowances is £130k. At the same time the catering contract at Headquarters was reviewed and the subsidy of £4k was removed.

e-Government has provided significant opportunities for improving IT communications both internally and externally, a new IT system developed in the Technical Fire Safety department as part of our ieg3 plan has resulted improved efficiency enabling a reduction of two clerical staff to be made who have been transferred to other departments. This produced an ongoing cashable saving of £37k.

We constantly review our staffing requirements against our workforce plan to ensure that we have the right number of people with the right skills to meet our needs. We use a number of means to achieve this: Best Value, zero based budgeting, job evaluation etc. During 2004/05 the following efficiencies were achieved with all the uniformed posts being redeployed for delivery of our IRMP:

Risk Intelligence Team delete 1 SubO

Performance Review delete 1 ADO

Central Services delete 0.5 fte Information Administrator

Financial Services delete 1 Financial Services Manager

Corporate Services delete 2 Corporate Services Managers

Civil Protection delete 1 ADO add 1 Non Uniformed Officer

In total these achieved ongoing cashable savings of £198k per annum.

To be signed by the Chair of the Hampshire Fire and Rescue Authority

Chief Fire Officer:

and Chief Financial Officer

Sec/Sec_to_CFO/Word/Dir-Fin/Financial Efficiency statement 04 05 Annex C WL/JMW/18/11/2005

Appendix 5

ANNUAL EFFICIENCY STATEMENT - FIRE AND RESCUE AUTHORITIES - Efficiency Savings Planned in 2005-06

Summary

Narrative

Our Corporate Plan and IRMP

The requirement to secure efficiency gains has been built into our improvement plan and our strategy is to achieve these principally through IRMP 2.

Preventing

Home Fire Safety Checks (HFSCs)

Aim: Continuing our policy of providing free HFSCs and installing smoke detectors we aim to carry out 20,000 HFSC's in 2005/06. Building on the success of operational crews conducting 1 visit each day since January 2005 we increased this target to 2 per day in April increasing the non-cashable saving to £1m per year. (Calculation: 5 Ff, 1 hour per visit at 2004/05 hourly rate)

Protecting

Sprinkler Protection and Working with Local Authorities

Aim: We will champion the benefits of fire protection initiatives, particularly fire sprinkler systems, to reduce loss of life in premises and lessen the impact on the wider community. We have formed a new partnership with Southampton City Council who are providing £35k funding for an officer to work with their estates department to promote installation of fire safety systems in their public premises and housing.

Responding

Reducing Risk through Improved Resource Management

Aim: To use our resources in a far more flexible way than we could before so that we can react to the ever changing nature of risks that we have to prepare for. In April a trial was launched in the Popley area of Basingstoke with a fire appliance being located at a community centre that is in an area of identified risk, whilst allowing us to integrate our service into the community. This enables us to provide community fire safety advice as well as improving our emergency response times during known periods of increased risk to the community from fires and road traffic collisions. We had plans to build a fire station in this location starting this year but due to the success so far in the trial the £3m for this project has been removed from the capital programme with cashable savings of £270k costs of borrowing.

Regional and National Collaboration

Aim: To be the centre of excellence for the provision of Urban Search and Rescue training and resources for the region. To help us achieve this we have formed a close partnership with the Maritime Coastguard Agency and they have provided £34k funding for an instructor to work with them for a year to build our expertise.

Managing Resources

Best Value Reviews

Aim: Cost effective use of resources. Best Value Reviews have been undertaken in Workshops and Procurement and resulted in deletions of 4 posts in total achieving ongoing cashable savings of £120k .

Workforce Plan

Aim: Maximise the effectiveness our staffing resource. Reviews have been undertaken in Performance Review and Driver training resulting in 1 post being deleted and a leading firefighter being replaced by a non uniformed driving instructor producing cashable savings of £41k.

Organisational Structure

Aim: to ensure that our Middle and Senior Management Structure meets the needs of HFRS to deliver on IRMP. We have completed Senior and Middle Management Reviews and identified a number of efficiencies that can be delivered over the medium term. We will confirm and consolidate our findings with the more detailed job evaluation project. To date 1 DO post has been deleted, 2 DO posts have been regraded to StnO and 1 DO replaced by a non uniformed staff member with recurring cashable savings of £96k. Total cashable savings by 2007/08 are estimated to be in the region of £200k

Procurement

Aim: to achieve efficiency in procurement in line with the National Procurement Strategy, best value principles and regional and national collaboration. Since his appointment in March 05 our Procurement Manager has been actively involved in the Regional Procurement Working Group and has been able to identify savings for the benefit of the group as well as HFRS. He has undertaken a review of all our suppliers and reduced them down significantly; as a result of aggregating our spend we have been able to negotiate good discounts and by placing fewer orders for larger quantities of goods have also reduced the administrative costs of procurement. A review of annual orders has also been undertaken with similar results. Our stockholding is also being reviewed and alternative methods being researched through the regional working group. The major savings identified so far are: stationery supplies 25% discount £49k, operational hand tools 25% discount £24k, BOC cylinders £7k. Total cashable savings planned this year £90k

Regional Collaboration

Aim: To make substantial improvements to the practical training facilities and accommodation at the Headquarters site to ensure they are capable of supporting our IRMP - particularly in the provision of training and major incident response. We want these facilities to become a `centre of excellence' for the delivery of specialist training. Building work has commenced on phase 1 of the HQ and Training Centre development. Part of the project is to provide additional Compartment Fire Behaviour Training facilities (CFBT) to cope with demand from both Hampshire and West Sussex firefighters. The total cost of the works is estimated at £300k and West Sussex CC have offered to contribute £150k towards the capital costs which are included as non-cashable gains.

To be signed by the Chair of the Hampshire Fire and Rescue Authority:

Chief Fire Officer:

and Chief Financial Officer