Archived decisions

Contacts: Ejner Knudsen, Assistant Treasurer, 01962 847403

[email protected]
David Howells, Director of Corporate Services 02380 644000 ext 203

[email protected]

1 Introduction

1.1 Further to the budget strategy approved by the Finance and General Purposes Committee on 26 October 2006, this report seeks to consider the following issues:

· What are the spending requirements for 2007/08 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 will be available from Government support and how much do Members wish to seek from local taxpayers?

· What range of council tax increases should be consulted on?

2 Need to spend

2.1 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.

2.2 The base budget represents the cost in 2007/08 of carrying forward the policies applied in the 2006/07 budget, updated for inflation and the full year effect of changes. The main factors in preparing this are:

· assumed pay award of 2.3% for firefighters and support staff. This is marginally higher than the 2.25% agreed as part of the budget strategy and adds £9,000 to the base budget

· assumed price inflation of 2.5% with the exception of certain heads such as business rates where the costs are known to be significantly higher

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

· financing costs of the capital programme

2.3 The base budget assumes revenue contributions to capital of £760,000 in 2007/08, largely arising from the Authority's preferred policy of purchasing vehicles from cash rather than through loan. That drops to £742,000 in 2008/09 and rises to £985,000 in 2009/10.

2.4 Overall, the base budget increase is 3.1%. This is higher than was predicted at the start of the year when the three year budget predictions were made. The areas of the budget attributable to this increase are mainly the replenishment of the general balance and the revenue effects of the capital programme (in particular the HQ projects). Full details are set out in Appendix 1. Appendix 2 sets out the outline revenue budget for 2007/08 - 2009/10.

2.5 Unavoidable costs: It should be noted that some of these arise from legislative changes and some from external pressures. There are several significant issues:

· Equal pay audit +£600,000: This is the estimated total cost likely to arise from the job evaluation review. This review is essential to ensure that the Authority complies with equal pay legislation. It is suggested that a provision be made for half of the sum in 2007/08 with the balance being met from the general balance should that prove necessary.

· Retained pensions +£100,000: Changes to the firefighters' pension scheme mean that retained firefighters will, for the first time, be eligible to benefit. The base budget has sufficient provision for a 30% take up by retained firefighters of the option to join the new firefighters pension scheme from 1^st April 2007 (it was originally 1 October 2006 but has been delayed). Should 50% of retained firefighters opt to join, the costs would increase by £100,000. This risk can be covered by the general reserve.

· Day crewing transitional allowances +£240,000: This is the estimated cost in 2007/08 of making payments to personnel as part of the implementation of the transition from day-crewing to shift-crewing at Andover, Winchester and Havant Fire Stations (as approved by the current Integrated Risk Management Plan (IRMP)). The justification for and cost of these payments has been the subject of reports to both the Finance and General Purposes and Human Resources Committees (see minutes from both meetings elsewhere on this agenda). It is proposed that the cost be met from the modernisation reserve.

· Hydrants database +£50,000: This is the estimated cost of implementing a new database (software and hardware costs only) for the `geo-coding' of hydrant location and associated management information. The information will be required to inform the new national database which will be set up as part of the implementation of the new Regional Control Centres. It is anticipated that the cost will be met from underspending in the revenue budget for hydrant maintenance.

· Rollout of Firelink (national radio communication project) and implications for the `Secondary Control Room' at Ashburton Court, Winchester: Unfortunately, information about the cost (and timing) of the financial implications are uncertain at the time of compiling this report, so, for the time being, any costs would need to be covered by the general balance.

2.6 Growth pressures:

· Revenue effects of proposed capital programme +£20,000 (£645,000 full year effect by 2011/12 which equates to approximately £1.06 increase in council tax before the Winchester fire station capital receipt): This is the increased costs of borrowing to fund the proposed capital programme.

· Major building repairs +£200,000: It had been hoped to increase the revenue budget for the repairs, maintenance and improvements to the built estate in order to satisfy some of the more urgent items of work identified in the buildings' condition survey. Owing to other pressures on the revenue budget, it is felt appropriate to increase the capital programme by this sum instead to be financed by borrowing.

· Home Fire Safety Visits (HFSVs) +£250,000: This high priority and successful activity is making increasing demands on our resources. It is considered that £140,000 of the required sum can be covered next year from the modernisation reserve with the balance being met from efficiency savings that might arise during the year.

· Increasing demands in the budgets for staff car allowances, marketing & communications, external consultancy, HR database improvements , Performance review staffing, audio/visual equipment replacement estimated to be £317,000 in total will similarly have to be met from any opportunities for virement and efficiency savings in other areas of expenditure during the year.

2.7 It has been assumed that the Authority could aim for savings of £200,000 in the current year that could be carried forward to help offset some of these additional costs.

2.8 No other specific growth items are proposed. In so far as any other requirements emerge they will be met by within the existing budget either by re-prioritising spending or improved efficiency.

3 Level of reserves and general balance

General balance

3.1 The Authority currently sets aside a general balance 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 was a key element in the calculation and the risk associated with pensions has reduced under the new funding arrangements and therefore the risk analysis has been re-examined. There are now several new budget pressures that the Authority is under and the exact scale and timing of their impact is uncertain. For this reason it is recommended that the level of general balance be retained for 2007/08. Appendix 3 sets out the risk analysis in more detail behind the proposal to set the level of general balance at £2m for 2007/08.

3.2 Members of the Finance and General Purposes Committee received a Budget Monitoring report at their last meeting that recommended that the overspend resulting from pensions transfer values that relate to starters who joined and leavers who left before 31 March 2006 when the change to pension funding arrangements was introduced should be met from the general balance given the nature of the expenditure. If accepted, this would require £415,000 to reinstate the balance for 2007/08.

Specific reserves

3.3 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 reserves are:

· transitional grant reserve - for repayment of transitional funding. The balance as at 31 March 2007 will be £393,000 which will be used in 2007/08

· capital payments reserve - provision for capital payments. This was set up from a previous year's underspending in order to avoid borrowing in a later year. It is now estimated that the reserve will be fully utilised in 2006/07

· Modernisation reserve - to finance expenditure on modernisation issues if sufficient in year savings cannot be identified. It is currently estimated that £320,000 will be used during 2006/07 leaving a balance of £440,000 on 31 March 2007. Currently just £60,000 worth of expenditure has been identified as being possibly needed to be funded from this reserve during 2007/08 so it would be possible to fund the £240,000 day crewing transitional costs and £140,000 for the Home Fire Safety Visits in 2007/08.

3.4 On this basis, no increases or decreases in reserves are thought necessary for 2007/08 other than the £415,000 to replenish the general balance.

3.5 Consequently the draft budget which represents a 4.0% budget increase can be summarised as:

	£'000
Base budget	61,420
Unavoidable costs	300
Replenish general balance	415
Growth items	20
Less savings from 2006/07	-200
Total draft budget	61,955

4 Savings and efficiency measures

4.1 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

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

4.2 £1m of ongoing cashable efficiency gains are planned in 2007/08 principally through the delivery of the IRMP and the change of crewing at Havant, Winchester and Andover fire stations. This will bring the cumulative total for efficiency gains to £3.8m compared with the Government target of £3.3m by 2007/08.

5 Capital Spending

5.1 The proposed capital programme for the three years 2007/08 to 2009/10 is set out in Appendix 4. This includes all existing commitments revised to reflect the latest estimate of costs and additional proposed starts for 2006/07 the details of which are set out below.

5.2 The Government announced the level of supported capital expenditure for 2007/08 last year. The same level of supported borrowing will be received in 2007/08 as in 2006/07 (£1,524,000). It has been assumed that this level of supported borrowing will be received in 2008/09 and 2009/10.

Vehicles

5.3 The vehicles programme for 2007/08 to 2009/10 is as presented to the Finance and General Purposes Committee in October with the costs updated to 2006/07 outturn prices. Revenue contributions equivalent to £500,000 plus the capital costs incurred as a result of renegotiating certain leases as finance leases on the operational vehicles have been included for the three year period.

Headquarters Phase 2 - vehicle workshops

5.4 The project appraisal for the relocation of vehicle workshops from Winchester to the Headquarters site in Eastleigh is being recommended for approval by the Finance and General Purposes Committee (the report attached to the minutes of the November 2006 meeting also on this agenda sets out in full the financial implications). The estimated total capital cost is £4m; with capital financing costs of £360,000 per annum and other revenue implications of £55,000 in 2008/09 reducing to £25,000 by 2011/12.

Building works associated with shift crewing changes

5.5 The Finance and General Purposes Committee are also recommending that provision also be made in the capital programme to carry out essential building works associated with changing the crewing system at Andover, Winchester and Havant fire stations from day-crewing to continuous-(shift)-crewing (see report attached to the minutes of the November 2006 meeting also on this agenda). These works - estimated total cost of £650,000 - are required in order to accommodate and provide facilities for the increased number of firefighters at each station. Officers are exploring options to reduce the works at the existing Winchester Fire Station given that only a short-term solution may be necessary if the Authority agrees to redevelop the station at the current workshops site.

Winchester Fire Station

5.6 The project appraisal for the relocation of workshops (referred to in paragraph 5.4 above) makes it clear that the scheme can only be fully justified in the wider context of the opportunity it provides for the eventual relocation of Winchester fire station to the current workshops site at Winnall. The cost of developing a new fire station on the site is estimated at £3.5m and it is recommended that a scheme be included in the capital programme for a start in 2008/09. It should be noted that the overall costs of the proposed capital programme would have been significantly higher without the anticipated capital receipts from the sale of 23 houses (at Andover, Havant and Winchester) which will no longer be required when the day-crewing duty system ceases at those stations. The eventual disposal of the Winchester fire station site will help to address the level of unsupported borrowing required to finance the proposed programme.

Cosham Fire Station

5.7 Owing to the continuing uncertainty over Portsmouth City Council's willingness to enter into negotiations on the acquisition of the site identified as being suitable for developing a replacement Cosham Fire Station, no proposal is being made to include the scheme in the capital programme at this stage. It is hoped that the position can be clarified in time for the preparation of the final budget report.

Capital Financing

5.8 Taking into account the recommendations outlined above it is proposed to finance the capital programme as follows:

6 Government grant

6.1 The provisional level of revenue grant for 2007/08 is known - £27.595m (+2.9%). This figure will be formally finalised during January as usual although it is not expected to change.

7 Council tax

7.1 The Government has reserve powers to cap authorities proposing council taxes which they consider excessive, and it has been confirmed that the Government expects council tax increases to average less than 5%.

7.2 The Authority agreed last year the policy of aiming to keep the level of council tax increases at or below that of state pensions over a three year period. The table below shows the position to date and the maximum increase in 2007/08:

	Council tax increase (%)	State pension increase (%)
2005/06	1.6	3.1
2006/07	2.9	2.7
2007/08	4.9	3.6
Average	3.13	3.13

7.3 However should this level of increase be agreed by the Authority then assuming a state pension increase of 3.6% again in 2008/09 the council tax increase could be a maximum of just 2.1% in 2008/09. Should the level of increase in state pension be 3.13% in 2008/09 the increase in council tax could be a maximum of just 1.6%. It would therefore be more prudent to aim for an increase of say 3.6% in 2007/08 which would give scope for a council tax increase of 3.4% in 2008/09 (assuming a state pension increase of 3.6%).

7.4 Each £1m increase in spending adds approximately £1.64 (3%) per year to the band D council tax.

7.5 Trends in the Authority's budget and council tax are as follows:

Option A - Full draft budget

Option B - Budget equates to a 3.6% increase in council tax.

Option C - Budget equates to a 4.9% increase in council tax.

7.6 It can be seen from the above table that should Members wish to set a budget which represents a council tax increase of 3.6% then savings of approximately £296,000 would need to be identified.

Recommendations

(a) That the base budget be approved.

(b) That the Headquarters phase 2 scheme (£4m) and the accomodation requirements at Andover, Havant and Winchester Fire Stations (£650,000 - with the caveat concerning Winchester Fire Station as set out in the report) be added to the current capital programme.

(c) That arrangements be made for statutory consultations on proposals consistent with a range of possible council tax increases depending on Members' views.

(d) That the final budget and council tax be set by the Authority at its meeting on 14 February 2007.

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.

None

List of appendices

Appendix 1 - calculation of base budget

Appendix 2 - Outline revenue budget 2007/08 - 2009/10 (green)

Appendix 3 - Level of reserves and general balance 2007/08

Appendix 4 - Existing capital commitments and proposed programme 2007/08 - 2009/10 (yellow)