Contacts: Ejner Knudsen, Assistant Treasurer, 01962 847403

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

[email protected]

1 Introduction

1.1 At its meeting on 18 January the Finance and General Purposes Committee considered the draft budget and the feedback from the consultation meetings held earlier that week. The recommendation from that meeting was that the Authority should be informed that it's preferred level of council tax was the 4.5% increase which would fund the cost of the draft budget. The report presented to the Finance and General Purposes Committee is attached as appendix A (but without the appendices which have been updated and attached to this report).

1.2 Concern was expressed at the meeting about the need to anticipate the potential for future pay and prices inflation being higher than currently assumed in the draft budget, the future costs of borrowing to support the capital programme and possible lower increases in future government grant. The Committee understood that these pressures and uncertainties would make it difficult for the Authority to continue to adhere to its preferred policy of maintaining average percentage council tax increases at or below the average percentage increase in state pensions (measured over a three-year period).

1.3 Members will receive a presentation at the meeting covering the main issues surrounding this year's budget and precept.

2 Updated information

2.1 There have been two main areas of movement since the position was considered by the Finance and General Purposes Committee:

Billing authorities' taxbases and collection funds surpluses and deficits

2.2 The information from the billing authorities on their taxbases and surpluses and deficits on their collection funds has now all been received. The result is overall a favourable one for the Authority and has had some impact on the council tax position compared with that reported to the Finance and General Purposes Committee. Some of the increased income is attributed to a growth in the taxbase but a larger proportion is in the form of a one-off distribution of collection fund surpluses which could add to future increases in council tax if applied to support continuing spending in excess of the original draft budget. It is therefore considered more prudent to support one-off capital pressures and a suitable proposal is discussed in paragraph 6.2 involving a contribution to the capital payments reserve. It is, therefore, proposed to increase the draft budget by making a contribution to the capital payments reserve.

Pensions

2.3 Further examination of this budget has highlighted that the projected outturn in 2006/07 on this budget is now predicted to be £50,000 less than reported to the Finance and General Purposes Committee. This has the knock on effect of reducing the sum required to replenish the general balance by £50,000 down to £354,000.

2.4 Overall, the updated draft budget stands at £62,450,000 which is an increase of 4.7% on the current year (2006/07). This can still be met from a council tax increase of approximately 4.5%.

2.5 The draft budget can now be summarised as follows:

	£000
Base budget	61,485
Unavoidable costs for equal pay	300
Replenishment of general reserve in respect of pensions expenditure	354
Growth: £20,000 for revenue costs of capital programme and one-off £240,000 day crewing transitional costs and £140,000 Home Fire Safety Visits	400
Savings to be identified in 2006/07 or 2007/08	-200
Contribution to capital payments reserve	111
Draft budget	62,450

2.6 Appendix 2 sets out the final calculation of the base budget, appendix 3 sets out the draft budget in more detail and appendix 4 the 2007/08 - 2009/10 three year outline budget.

3 Capital spending

3.1 There are no changes to report to the proposed capital programme and 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 5 and 6 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 7 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 earlier in the report the replenishment required to bring the level of the general reserve back to £2m is now £354,000. 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 8.

Specific reserves

4.2 It was reported to the Finance and General Purposes Committee that it is now expected that there will be a greater call on the modernisation reserve in 2006/07 to support the Integrated Risk Management Plan initiatives therefore reducing the available balance at the year end. In order to maintain some flexibility for modernisation issues in 2007/08 the original proposal to use the balance to fund specific modernisation expenditure is now not planned. It is now proposed that the £240,000 for transitional allowances and £140,000 for Home Fire Safety Visits be financed from one-off growth added to the budget.

4.3 No increases or decreases in reserves are thought necessary for 2007/08 other than the £354,000 to replenish the general balance.

5 Budget Consultation

5.1 The budget consultation meetings were held on 15 January 2007 with representatives from the unions, businesses and council tax payers present. The feedback received is set out on Appendix 10.

6 Council tax

6.1 As mentioned above the draft budget presented to the Finance and General Purposes Committee now equates to a council tax increase of 4.5%.

6.2 The improved position on council tax collection rates could potentially be used to reduce marginally the increase in council tax next year. However, as the additional income generated by the surpluses on collection funds is of a one-off nature it would be more appropriate that this be earmarked for expenditure that is also of a one-off nature. It is, therefore, proposed that the additional £111,000 be added to the capital payments reserve - especially given the situation regarding Cosham Fire Station and the need to fund fees for on-going feasibility work. Furthermore, the Finance and general Purposes Committee was particularly concerned to mitigate against future higher tax increases and it was felt that an increase of 4.5% (which can still fund the revised draft budget) would provide marginally better headroom for more sustainable council tax rises in future years.

6.3 Nevertheless, Members may still wish to consider alternative levels of budget and associated council tax. Three possible options are summarised below: option A is the proposed budget without the contribution to the capital payments reserve; option B is the proposed budget including a contribution to the capital payments reserve; and option C is the maximum budget that can be set within the Government's capping limit and which would still achieve the Authority's policy of maintaining average percentage council tax increases at or below the average percentage increase in state pensions (measures over the three-year period 2005/06 to 2007/08). Option C would also enable £222,000 to be added to the capital payments reserve:

Option	Budget	Variation against draft budget	Budget increase	Band D council tax	Council tax increase
	£000	£000	%	£	%
A	62,339	-111	4.67	55.89	4.19
B	62,450	0	4.85	56.07	4.53
C	62,561	+222	5.05	56.25	4.87

6.4 Appendices 11 and 12 set out the alternative recommendations should either option A or C be proposed.

7 The future.

7.1 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.

7.2 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 smaller increases in Government funding (in the context of a tight financial settlement in the Comprehensive Spending Review 2007, with potential 3% cash efficiency savings), possible above-inflation national pay awards, and the longer-term net cost of improving services.

8 Treasury Management Strategy

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

9 Local Government Act 2003 - s.25

9.1 Under S.25 of the Local Government Act 2003 the Chief Financial Officer has to report to the Authority when setting its council tax on two issues:

· the robustness of the estimates included in the budget

· the adequacy of the financial reserves in the budget.

Members are required to have regard to this in approving the budget and council tax.

Robustness of estimates

9.2 The estimates have been prepared on an incremental basis based on existing commitments, adjusted for inflation and any approved savings or service developments taking into account factors such as past trends in operational incidents, staff increments and revenue effects of the capital programme. With the effective budgetary and management control arrangements that are in place, the majority of the budget can be regarded as robust. However, a few budgets such as wholetime and retained firefighters' pay are higher risk because spending in 2007/08 is heavily influenced by factors such as equal pay audit and take up of pension by retained firefighters and activity levels. There are also other uncertainties which are difficult to budget accurately for such as the possible merger with the Isle of Wight and these have been taken into account when incorporating a general balance level of £2m in the draft budget.

Adequacy of reserves

9.3 Included within this draft budget are proposals to replenish the level of reserves to £2m. Given the assessment of risk associated with the Authority's budget set out above, this represents an adequate level of reserves.

10 Equality impact assessment

10.1 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 the revenue budget as set out in Appendix 3 be approved. (option B)

2 That the capital programme as set out in Appendix 6 and the associated prudential indicators as set out in Appendix 7 be approved.

3 That the total budget requirement for the general expenses of the Authority for the year beginning 1 April 2007 be £62, 450,000. (option B)

4 That the Authority's basic council tax for the year beginning 1 April 2007 be £56.07. (option B)

5 That the Authority's council tax for the year beginning 1 April 2007 for properties in each tax band be:

Band A	£37.38		Band E	£68.53
Band B	£43.61		Band F	£80.99
Band C	£49.84		Band G	£93.45
Band D	£56.07		Band H	£112.14

6 That precepts be issued totalling £34,566,536.55 on the billing authorities in Hampshire, requiring the payment, in such instalments and on such dates set by them and previously notified to the Authority, in proportion to the tax base of each billing authority's area as determined by them which are set out below:

Basingstoke and Deane Borough Council	61,049.70
East Hampshire District Council	47,044.89
Eastleigh Borough Council	43,012.29
Fareham Borough Council	42,043.00
Gosport Borough Council	26,948.20
Hart District Council	36,953.10
Havant Borough Council	42,468.00
New Forest District Council	71,687.40
Portsmouth City Council	58,128.00
Rushmoor Borough Council	30,359.64
Southampton City Council	65,114.40
Test Valley Borough Council	45,019.00
Winchester City Council	46,661.35
Total	616,488.97

7 That the Treasury Management Strategy set out in Appendix 9 be approved.

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. Draft budget report to Finance and General Purposes Committee (without appendices) (pink)

2. Calculation of base budget

3. Draft revenue budget (green)

4. Outline budget 2007/08 - 2008/09 (green)

5. Financing of proposed capital programme (yellow)

6. Proposed capital programme (yellow)

7. Prudential indicators summary (yellow)

8. Level of specific reserves and general balance

9. Treasury Management Strategy (salmon)

10. Feedback from consultation meetings

11. Recommendations relating to increase in council tax of 4.2%

12. Recommendations relating to increase in council tax of 4.9%