Contact: Ejner Knudsen, Treasurer, Tel., 01962 847403;

David Howells, Director of Corporate Services, Tel., 023 80626833

1 Introduction

1.1 The Authority's current previous medium term Financial Management Policy has operated for 3 years up to 2007/08 and also set out parameters for the Budget Strategy. The three key aims of the Policy were:

· to maintain council tax in the lowest quartile of fire authorities, and also to contain council tax increases to that of general inflation and pension increases averaged over the 3 year period;

· to keep reserves and balances at an appropriate level as indicated by a risk assessment;

· to redeploy resources from fire response to prevention and protection services.

These aims have all been successfully delivered.

1.2 This report considers the influence of several national and local issues likely to impact on the budget preparation process for 2008/09 and beyond, and recommends the assumptions to be used in forecasting the cost of current service levels in the medium term.

2 Base budget

2.1 The base budget represents the cost in 2008/09 of carrying forward the existing level of service and policies from the current year, updated for inflation and the full year effect of any changes. The main factors assumed at this stage are:

· provision for pay awards of 2.5% to all staff

· provision for price inflation of 2.5%

· interest rates expected at 5.75%

2.2 Government policy on future pay increases in the public sector still assume 2%, but with current awards exceeding this level it is considered prudent for the initial provision to reflect the current climate. A provisional assessment of the Comprehensive Spending Review 2007 (CSR 2007) indicates that the Government remains committed to its 2% target and the Authority may wish to review this assumption again in January.

3 Comprehensive Spending Review 2007

3.1 The decisions arising from CSR 2007 have now been announced. Public spending is planned to increase by 2.1% per annum over the next three years, but local authority services have been given a low priority with the increase in formula grant being limited to 1% per annum in real terms.

4 Grant Distribution

4.1 The Department for Communities and Local Government (DCLG) has recently consulted on various options to amend the grant distribution formula. Formula grant includes revenue support grant, the re-distribution of non-domestic rates, and, for police authorities, the police principal grant. It will not be known until the announcement of the grant settlement in December which, if any, of the proposed amendments has been adopted. It is also possible that the three year grant settlement may be announced in two phases in view of the tight timescale between consultation and the spending reviews.

4.2 Most of the options within the consultation will have no major impact on the Fire and Rescue Authority. However, one proposal is to update the basic demographic data which is used to support the relative needs assessment. This would involve changing the base period from 1998/99 - 2000/01 to the latest available data in the period (i.e. 2003/04 - 2005/06). The Authority could expect to gain from this change (which captures a population increase and therefore a relative growth in demand for services), subject to the retention of any damping provisions for the re-distribution of grant. No assumptions are being made at this stage of the budget process, but more information is expected to be available for the decision meeting in January, and the prior public consultation.

4.3 The implications of CSR 2007 for Fire and Rescue Authorities and the effect of any changes in grant distribution will not be known until December, so that firm decisions on spending and council tax cannot be made at this stage.

5 Efficiency targets

5.1 CSR 2007 also includes targets for cashable efficiency savings. The Fire and Rescue Service has a separate target of £110m. The target of £4.9bn for other local authority services requires annual efficiency savings of 3% per annum, but the basis of the Fire and Rescue target still has to be resolved. It is therefore recommended that the budget strategy includes a requirement to plan for efficiency savings at the expected 3% level, to assist with the continued funding of the modernisation programme.

6 Budget pressures

6.1 Officers have identified the following issues which may have an impact on resources either in 2008/09 on the medium term. This is not intended to represent a bid for funding at this stage but work will proceed to quantify the potential costs in time to present options to members for prioritisation and consideration as part of the budget decision process between December 2007 and February 2008.

Integrated Risk Management Plan (corporate plan)

6.2 The latest review of this plan has been approved for public consultation and feedback is expected to be available in time for the conclusion of the budget process. It will also form the basis of the three year corporate plan for 2008/09 - 2010/11 and is, therefore, co-terminus with the medium term financial strategy thus providing the direction for future investment and redeployment of resources. The financial impact of implementing all of the proposals contained in the plan are estimated to be in the range £340,000 to £504,000 in year 1 rising to £495,000 to £920,000 in year 3. These estimates include a sum of £200,000 in each of the three years to provide for the loss of specific Government grant for Home Fire Safety Visits (2007/08 marks the last year of this three year Government-funded initiative).

Equal pay audit

6.3 Progress on this project has continued during the year and is monitored by the Human Resources Committee. Although some provision has been made in the current budget the analysis of future financial implications has yet to be finalised and reported to the Committee.

Regional Control Centre

6.4 Funding pressures will remain during the transition period until the new Regional Control Centre becomes operational. This remains a strategic risk for the Authority and financial implications will include the cost of measures to maintain cover for staff migrating to the new service and the maintenance of the Services existing communications and mobilising software and hardware.

Additional Responsibility Allowances

6.6 The concept of Additional Responsibility Allowances (ARAs) formed part of the November 2003 national pay agreement for staff conditioned to Grey Book Conditions of Service. ARAs provide fire and rescue services with the option to make financial payments to staff for responsibilities outside of those detailed within their respective role map. A project group was established to consider this matter and make recommendations to Service Management Team (SMT) and the Human Resources Committee. Following a full consultation process, a total of 11 activities (approximately 650 staff) have been identified that merit an ARA payment. The costings have now been completed and the proposals, if introduced, would have an annual cost of £180,000.

Marketing & Communications

6.7 The Marketing and Communications department was restructured three years ago, following a review by an external agency, to focus on the internal and external communications required by a modern fire and rescue service. During this time additional funding has been made available from the modernisation budget. The results of the Comprehensive Performance Assessment report and surveys, including the employee survey, cultural audit and the recent customer satisfaction survey, continue to indicate the importance and need for professional and highly effective marketing and communications activity. To maintain the department at its current level of staffing by making permanent the two Press and Communications Officers (one currently a grey book secondee) and a part-time Web Support Officer to enable the department to undertake strategic marketing and communications activity is an annual cost of £145,000.

Incident Command Training

6.8 Incident management is a risk critical activity and an essential element of managing operational effectiveness plus health and safety primarily in the area of response. Developing incident commanders in the Incident Command System and providing regular updates and assessment is vital to support them in achieving and maintaining competence. The additional workloads created to meet this training/assessment requirement are beyond existing capacity. Establishing the two watch manager posts within the training department will provide sustainability and effective delivery. The estimated cost is £97,000 per annum.

Workforce Strategy Management Information System

6.9 There has been a long-standing need to improve the quality of management information and the Workforce Strategy has reinforced this need. A number of options are being considered by a project team and it is estimated that developments costs will be in the order of £350,000 with ongoing maintenance costs of about £30,000 per annum. Approval of a business case will be required in advance of any funds being identified or earmarked.

Other Information and Communications Technology (ICT) issues

6.10 The final completion of the new infrastructure and network last year improved the resilience, reliability, speed and potential capacity of the Service's ICT applications. Inevitably, this successful project has increased end-user demand for increased access points at fire stations. A provision of £25,000 per annum would enable a modest increase in the number of `managed service' workstations. The new network also provides an opportunity to deliver greatly enhanced telephony services (Voice Over Internet Protocol or VOIP). The net cost of the initial hardware required to implement VOIP is estimated at £100,000. Ongoing maintenance costs would be completely offset by reductions in the costs of telephone line rentals. This increased demand (for both new and increased use of existing applications) and will need to be supported and an additional `database technician' post would cost approximately £35,000 per annum.

6.11 It is most unlikely that all of these funding pressures will be capable of being satisfied. Therefore, the draft budget for 2008/09 to 2010/11 - due to be presented to the Authority at its December meeting - will need to indicate which are the highest priority (unavoidable) issues and which might be capable of being dealt with on a phased basis.

7 Capital Programme

7.1 The Authority is already supporting an extensive capital programme linked to the modernisation plans within IRMP, and which will depend on access to prudential borrowing.

7.2 Several further operational vehicle leases come to the end shortly. It is proposed in the vehicle replacement report, also on this agenda, that through the combination of using some finance leasing and the phasing of their replacement will help even out the cash flow implications and future replacements.

7.3 Additional programme provision for a new project in Portsmouth will be dependent on the outcome of consultation for the redeployment of resources (i.e. Cosham redevelopment or relocation).

7.4 Asset management has become a particular focus of recent external audits and inspections and has highlighted that good practice includes the provision of sufficient resources for maintenance of the built estate. Major projects such as extensions or relocation have previously featured in the capital programme and following concerns raised by early building conditions surveys a provision for capital repairs was also introduced to the programme for 2007/08. A property management strategy is in preparation and due to be considered by the Authority shortly - this may require a review of the level of provision for capital repairs. An increase of £250,000 (which would bring the total in the capital programme to £450,000) may well be required.

8 Reserves

8.1 In preparing for the 2007/08 budget the Authority had to consider several uncertainties which presented financial risks during the year. After an assessment of these risks it was decided to maintain the general reserve at a level of £2m, although this was quite properly the subject of considerable scrutiny during the process for setting the council tax. It is intended to enhance the information available to members during the next evaluation to include for example controls to mitigate risk, and inter-authority comparisons. This should help significantly in making decisions on future budgets.

9 Council tax

9.1 This issue is inextricably linked to the outcome of the Comprehensive Spending Review (see paragraph 3) and the Grant distribution (paragraph 4). The Government indicated in the Spending Review announcement that it expects the overall increase to be well under 5% in each of the next three years. This seems likely to form the basis of the guidance on council tax capping in the forthcoming grant settlement. Given the tight financial settlement expected it may be difficult for the Authority to follow a financial policy similar to the previous strategy period which contained increases to general or pension inflation. It is expected that the increase in state pensions will be 3.9% reflecting the September RPI figure.

9.2 Similarly, the council tax for 2007/08 did benefit from a favourable one-off distribution of collection funds surpluses which may not be repeated. However,, the tax base is expected to increase by 0.5% per annum over the period and this will yield some additional resources.

Recommendation

1 That the Committee considers the issues set out in this report and approves the assumptions used to prepare the first draft of the budget for 2008/09.

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