Contact: Ejner Knudsen, Assistant Treasurer 01962 847403;
[email protected]
David Howells, Director of Corporate Services, 023 8062 6835,
[email protected]

1 Introduction

1.1 The Authority has operated a consistent Financial Management Policy in recent years which has also set out the parameters for its budget strategy. Three key aspects are:

· Maintain council tax in the lowest quartile of combined fire authorities and contain increases to that of general inflation and particularly the level of pension increases (averaged over a three-year period)

· 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 takes the opportunity to consider the assumptions to be used in forecasting the cost of current service levels as part of the base budget preparation process. It also identified several issues likely to influence the allocation of financial resources from 2007/08.

1 Base budget

1.1 The base budget represents the cost in 2007/08 of carrying forward the policies from the current year, updated for inflation and the full year effect of any changes. The main factors assumed in the preparation will be:

· Provision for pay awards of 2.25% to all staff

· Provision for price inflation of 2.5%

· Interest rates expected at 5%.

1.2 At this early stage it is estimated that the base budget would require a council tax increase of approximately 1.8%. This would provide the Authority with some scope for considering options for funding some of the identified budget pressures without compromising the existing Financial Management Policy.

2 Government funding

2.1 In November 2005 the Government announced a two-year finance settlement for the fire service, including a "fairly firm" provisional increase of 2.9% for this Authority for 2007/08.

2.2 The Government are currently consulting on the 2007/08 settlement and its distribution but no significant changes are expected for 2007/08.

2.3 The capping limit is likely to remain at 5%.

3 Reserves

3.1 The Authority's policy has been to maintain a general reserve of £2m - a level supported as good practice by the Audit Commission. The former risk associated with funding pensions has now reduced and its impact on the future level will be considered when final decisions are made in February 2007.

3.2 The transitional grant reserve, set up to repay past Government funding to support some one-off costs of the modernisation agenda, will be exhausted after the final instalment is paid in 2007/08.

3.3 The remaining balance on the capital payments reserve is also expected to be fully committed to the Capital Programme during 2007/08.

3.4 As reported in the monitoring report also on this agenda, the modernisation reserve is currently supporting a number of projects in 2006/07 requiring a contribution of just £91,000 against project costs of £571,000 and some commitments estimated at £60,000 in 2007/08. It is possible that if the Authority makes a decision on how to finance the projected pensions overspend that is different to that assumed in the monitoring report then the balance on the modernisation reserve would be much lower than that currently predicted.

4 Efficiency targets

4.1 Savings and efficiency measures are currently being pursued in order to:

· Deliver the Gershon requirements of 5.7% cashable savings by 2007/08

· Maximise the scope for diverting 2% of the budget into prevention and protection services.

4.2 The latest budget monitoring reports indicate that both these targets are likely to be met. It is also probable that similar measures will be required for 2007/08 and beyond.

5 Capital issues

5.1 The Authority's previous policy of providing new vehicles using operational leases has ceased in favour of financing through revenue, capital reserves or loan. In the transitional phase some former leased vehicles will be acquired by finance lease arrangements also requiring capital funds.

5.2 Decisions on the proposed relocation of the vehicle workshops are due to be taken later this year and, if agreed, will also start before 2007/08.

5.3 Other major projects likely to come forward for consideration include the relocation of Cosham and Winchester stations.

5.4 Several of these changes may also generate capital receipts, along with the proposed disposal of housing. The timetable for these developments over the next three years should become clearer and allow financing options to be determined as part of the budget process in February 2007.

6 Budget pressures

6.1 Officers have identified the following issues which may have an impact on resources in the short to medium-term. This is not a bid for funding but work will proceed to quantify the potential costs in time to present options to members for prioritising them and considering any funding allocations when decisions on the 2007/08 budget are made in February 2007.

Integrated Risk Management Plan (IRMP)

6.2 Continued implementation in 2007/08 was previously reported to members as costing an estimated £1m. Decisions have yet to be made on the issue of Day Crewing transitional arrangements but this sum could increase to £1.5m although some slippage of the timetable for changes could spread the impact over two years.

Isle of Wight review

6.3 The Authority has already contributed to the costs of the independent review of options for the collaboration or merger between the Isle of Wight and Hampshire Fire Services, and the subsequent public consultation exercise. Should the government decide in favour of a significant change such as a extended combination order there would be a considerable workload to deliver the project.

Equal pay audit

6.4 This project is currently underway with external consultants engaged on the methodology to be used to meet the equal pay requirements, which may have significant financial implications.

Regional control

6.5 Although the new Regional Control Centre will not become operational until some time beyond 2007/08, measures may become necessary in the medium-term to maintain cover for staff migrating to the new service.

Firelink

6.6 As the roll-out of this national project for improved Communication Systems is implemented some additional costs are expected to be incurred from June 2007.

Home fire safety visits

6.7 This initiative which is a key objective for the Financial Management Policy and linked to the delivery of efficiency gains will see a reduction of Government funding in the second year which may increase the resultant costs of the Retained Duty System (RDS) if productivity is maintained.

Secondary control room

6.8 The current location of this facility at Ashburton Court, Winchester is to undergo substantial refurbishment shortly and the service will be required to make alternative arrangements.

Capital building maintenance

6.9 Some £50k annual provision was made in the capital programme for repairs and improvements to retained stations from 2006/07, to be financed from supported borrowing. Condition surveys indicate that this may not be sufficient to prevent major deterioration at some locations.

6.10 Other issues:

SMT restructuring

Multi presentation units update

ICT training database

ICT hydrants

HR and legal consultancy fees

Marketing/communications

Staff car allowances.

6.11 The financial implications of these issues will become clearer both in scale and timing as budget preparation proceeds and the scope for any redeployment of resources identified.

6.12 When considering the final budget proposals for 2007/08 members will also be able to decide whether to accommodate any of the higher priorities with additional funding.

7 Equality impact assessment

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

Recommendation

That the budget preparation process continues with the aim of identifying options that would ensure a council tax increase in line with the current Financial Management Policy.

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