Contacts: Ejner Knudsen, Assistant Treasurer, 01962 847403

[email protected]
David Howells, Director of Corporate Services 02380 626835

[email protected]

1 Introduction

1.1 This report sets out for Members changes to the financial projections for 2007/08 since the draft budget was presented to the Authority last month. Members will receive a presentation at the meeting covering the main issues and feedback emerging from the statutory budget consultation process.

2 Updated information

Gas prices

2.1 New information has brought to light the fact that the inflation assumed for the full year effect in 2006/07 is far lower than the likely outturn position (only 15% had been assumed instead of the necessary 57%). The financial consequence of this adds £64,000 to the base budget and a further £1,000 to the inflation contingency.

Billing authorities' taxbases and collection funds surpluses and deficits

2.2 More up-to-date information has now been received from the billing authorities on their estimated taxbases and surpluses or deficits on their collection funds. Some figures are still estimates but any further changes are unlikely to be significant. The position is extremely favourable for the Authority, with most billing authorities now estimating increases in their taxbases and surpluses on their collection funds for 2007/08.

2.3 The estimated effect this will have on the budget is to increase the budget which can be afforded within any given council tax increase by approximately £280,000.

Projected outturn 2006/07

2.4 The budget monitoring report (also on this agenda) identifies that there is likely to be a greater pressure on the modernisation reserve than anticipated. At the time of compiling this report, it seems unlikely that the full £200,000 worth of savings required by the end of 2006/07 will be achieved and any shortfall will need to be carried forward and achieved in 2007/08. However, pensions expenditure is predicted to be marginally lower.

Use of modernisation reserve

2.5 Given the pressure the modernisation reserve is now under in 2006/07 it would seem more prudent to include the £380,000 of expenditure (£240,000 transitional allowances and £140,000 for Home Fire Safety Visits) that was planned to be financed from the modernisation reserve as one-off growth in 2007/08.

Summary of changes to the draft budget

2.6 The changes to the draft budget are:

	£'000
Draft budget as presented to HFRA December 2006	61,955
Increases in gas costs	+65
Additional one-off growth	+380
Change in projected outturn re pensions in 2006/07	-11
Updated draft budget	62,389

2.7 Overall these changes increase the draft budget by £434,000 which can now be summarised as follows:

2.8 This draft budget increase now stands at 4.7%, which equates to an increase in council tax of 4.5%. Appendix 1 sets out the updated calculation of the base budget and Appendix 2 summarises the draft budget.

3 Capital spending

3.1 Given the continuing uncertainty over acquiring a suitable alternative site for the redevelopment of Cosham Fire Station, no provision has been made for funding the scheme in the three-year capital programme for 2007/08 to 2009/10. The proposed funding and programme are set out as Appendices 3 and 4 respectively.

3.2 In considering the capital programme proposals Members will wish to take account of the Prudential Code for Capital Finance. The main objective of the Code is to provide a framework that will ensure and demonstrate that capital expenditure plans are affordable and that all external borrowing and other long-term liabilities are within prudent and sustainable levels. To achieve this, the Code uses a set of Prudential Indicators which relate to capital expenditure plans, external debt and treasury management.

3.3 Appendix 5 summarises the indicators which the Authority needs to set on an estimated basis in approving the budget and capital programme and which will then be subject to monitoring during the year and approval at the year end. In compiling these figures it has been assumed that the capital programme will be approved as set out in this report. In summary, the proposed programme can be judged to be prudent as defined by the requirements of the Code, however, it should be noted that the Authority's allocation of `Government-supported' borrowing will be exceeded substantially.

4 Level of general balance and specific reserves

General balance

4.1 As mentioned in section 2 (above) there was a slight reduction in the projected outturn on pension expenditure in 2006/07. The replenishment required for the general reserve has been adjusted in line with this (now totalling £404,000 compared with the £415,000 reported last month to the Authority). It has been assumed that the Authority will wish to maintain the recommended level of £2m. The risk analysis justifying the sum has not changed and this is reproduced as Appendix 6.

Specific reserves

4.2 The only change to report on these is that, again as reported in section 2, it is now expected that there will be a greater call on the modernisation reserve in 2006/07. In order to maintain some flexibility for modernisation issues in 2007/08 the proposed budgeted call on the modernisation reserve is now not proposed.

4.3 No increases or decreases in reserves are thought necessary for 2007/08 other than the £404,000 to replenish the general balance.

5 Council tax

5.1 The levels of increase in council tax consulted on were:

5.2 An oral report will be given to Members at the meeting on the feedback received at the various consultation meetings held on 15 January 2007.

5.3 Each £1m increase in spending adds £1.62 (3.0%) to the band D council tax or 1% on the council tax delivers approximately £330,000.

6 The future

6.1 The Authority has been successful in delivering its policy of keeping the average increase in council tax below that for the average increase in state pensions over the last two years. Last year, only one other fire and rescue authority achieved a lower increase.

6.2 Despite having achieved over £3.8m worth of efficiency savings for the period 2005/06 to 2007/08 (which is well above Government expectations), there remains considerable pressure on the budget next year and beyond. While it would always be preferable to restrict council tax increases to below that for state pensions, it would be a high-risk strategy to ignore or understate the potential impact of: likely future reductions in Government funding, possible above-inflation national pay awards, and the longer-term net cost of improving services.

7 Treasury Management Strategy

7.1 The Authority is responsible for approving the annual Treasury Management Strategy this is attached as Appendix 7 for Members' consideration.

8 Equality impact assessment

8.1 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 Human Rights Act 1998 and the Race Relations (Amendment) Act 2000.

Recommendations

1 That this Committee advises the Authority of its preferred level of budget and/or council tax for 2007/08 and any factors to which it would like to draw attention

2 That the Authority be recommended to approve the Capital Programme and associated Prudential Indicators (appendices 4 and 5)

3 That the Authority be recommended to approve the Treasury Management strategy (appendix 7)

4 That the Committee notes that the final budget and council tax will 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:

none

Attached appendices:

1. Calculation of base budget

2. Draft revenue budget (green)

3. Financing of proposed capital programme

4. Proposed capital programme (yellow)

5. Prudential indicators summary

6. Level of specific reserves and general balance

7. Treasury Management Strategy