Contact: Ejner Knudsen, Assistant Treasurer, 01962 847403;

David Howells, Director of Corporate Services, 023 8064 6834

1 Summary

1.1 This report summarises the spending of the Authority for the last financial year. Overall there was an underspend of £403,000 against the revised budget.

1.2 The report also sets out for Members consideration proposals as to how proposed contributions could be varied to take account of the actual year end position and suggests a way to use the underspend to provide a greater level of resilience in the current financial year. It is recommended that a reserve of £300,000 be made to offset any currently unbudgeted costs arising from the equal pay review; and that the previously anticipated call on the modernisation reserve be reduced by £103,000.

1 Revenue expenditure

1.1 There were some significant variations which contributed to the net underspend position. These are set out in full in Appendix 1 and summarised in the following paragraphs.

Wholetime firefighters pay and allowances (-£166,000)

1.2 A small variation (-0.5%), given the size of the budget (£32.5m). Most of the saving arises from the reduction in the day-crewing duty system allowances.

Retained firefighters pay and allowances (+£165,000)

1.3 This overspend (+3%) results from: the increased number of retained firefighters, a higher than anticipated number of co-responder incidents, the cost of retained firefighters undertaking Home Fire Safety Visits, higher levels of claims for non-operational activities such as attending management meetings, and additional hours paid for carrying out Performance Development Reviews. Critical activities such as co-responders, animal rescue teams etc have no agreed budget and are therefore also funded from here. These additional costs were partly offset by a reduction in the number of emergency incidents attended (see below).

Number of incidents

1.4 The number of incidents attended in 2007/08 was 21,762 which was 12.6% below the budgeted level of 24,898. Under the long-established local budgeting formula this would have led to the first ever year end reduction in cash limit. However, given the other retained pay budget pressures that have emerged (as outlined in 2.3 above), it would not seem necessary to make such a reduction - especially as these pressures are likely to increase and continue over the coming years.

Support staff pay (-£321,000)

1.5 This underspend (3%) has occurred as a result of the proposals for the implementation of the equal pay being delayed. It is therefore proposed to set up an equal pay reserve using this underspend. This is referred to in more detail in paragraph 7.4 (below).

Vehicle fuel and other running expenses (+£86,000)

1.6 This overspend (23%) is due partly to the increased cost of vehicle fuel and partly to greater consumption. The level of consumption has remained relatively constant for the last three years, with increased travel associated with home fire safety visits and training activity being partly offset by a reduction in operational activity.

Car allowances (+£110,000)

1.7 These costs have continued to increase steadily over the last five years. Last year the overspend (12%) is due mainly to the additional travel costs arising from the relocation from firefighters following the changes to the crewing-systems at Andover and Winchester Fire Stations. There is a 12 month allowance for Andover and Winchester transferees and existing personnel. The Andover claims ended in March 2008 and Winchester will end by the end of September 2008. There will be similar payments permitted for staff transferring from Copnor to Havant from October 2008 although the maximum mileage claimed is significantly less.

1.8 As part of the wider `environmental impact' best value review - and because of the continuing growth in this particular budget - a more detailed `value for money' review of staff travel costs will commence this month (involving Internal Audit). It is hoped that the detailed analysis of current costs will identify possible options for changing existing schemes and/or their application. The aim is to reduce both the cost and the environmental impact of staff travel.

Hired and contracted services (-£98,000)

1.9 This budget is underspent by using HFRS staff to undertake project work wherever possible and reducing the call on external consultants. Also, there was an overall underspend on the Group Managers' budget allocations (used to support local community-based activities).

Unallocated inflation provision (-£114,000)

1.10 This is a new contingency budget held by Directors and allocated to meet service delivery priorities. It was agreed that this balance should offset the predicted overspend on car allowances.

Income (+£306,000)

1.11 This significant shortfall (14%) is attributable to the change in focus and priorities undertaken by the Business Education Team. This has resulted in running considerably fewer courses for industry and commerce where running costs are recovered. Instead, many more (non-chargeable) activities are undertaken.

Interest payable (-£151,000)

1.12 This occurred mainly as a result of lower interest rates and less cash overdrawn at the end of the year than was assumed when the revised budget was finalised and actual expenditure being lower than forecast.

Pensions (-£219,000)

1.13 Pensions expenditure for which the Authority is responsible was underspent due mainly to the fortunate position of not having any firefighters retire on ill-health grounds (which would incur associated `top-up' premiums into the pension fund account).

2 Capital

2.1 Capital payments during the year totalled £6.8m compared with the £7.6m. forecast in December 2007. Full details are given on a scheme by scheme basis in Appendix 2 with details of those with significant variations in the following paragraphs.

Vehicles 06/07 (+£116,000)

2.2 This overspend is a consequence of the budget being reduced in error in the autumn when it had been incorrectly assumed that all the payments had been made. Final expenditure was, however, in line with the original budget.

Vehicles 07/08 (-£367,000)

2.3 This variation occurred mainly as a result of payments for the aerial appliance slipping into 2008/09 - it had been assumed these would have occurred in 2007/08. Currently, there are no other variations to overall vehicle replacement programme costs to report, but full details will be available next month as part of the 2008/09 budget monitoring report. And will be reported to the Corporate Management team as the July meeting of this Committee has been cancelled.

Andover, Winchester and Havant Fire Stations - building works associated with implementing changes in crewing arrangements (-£227,000)

2.4 This variation results mainly from deferring the implementation of the proposals at Havant (from April 2008 to October 2008). As a consequence the bulk of payments will now occur in 2008/09. Also, it is pleasing to report that the costs of the works carried out at Winchester were £72,000 below the assumption in the budget.

Financing

2.5 The capital payments can be financed as follows:

2.6 The Authority received an allocation of £1,524,000 for supported borrowing for 2007/08. At the start of the year the balance of unused supported borrowing was £2,093,000. The excess of payments over supported borrowing for the year means that the Authority has used £922,000 of unsupported borrowing in the year.

3 Treasury Management

3.1 The debt management strategy approved by the Authority in February 2007 was followed throughout the year.

3.2 The Authority took out one new long-term loan from the Public Works Loan Board. It is a 30 year £500,000 loan at a fixed interest rate of 5.0%.

3.3 Daily surpluses and deficits on the bank balance were lent to or borrowed by the County Council at the local authority seven-day rate which averaged 5.68% over the year.

3.4 The final prudential indicators for 2007/08 are set out in Appendix 3.

4 Statutory provision for debt repayment

4.1 New capital financing regulations - The Local Authorities ( Capital Finance and Accounting ) (England) (Amendment) Regulations 2008 - came into force on 31 March 2008 and effect 2007/08 retrospectively. Previous regulations required local authorities to make a statutory minimum revenue provision for the repayment of debt ( known as MRP), generally based on 4% of the authority's outstanding capital financing requirement, but subject to some detailed rules. The new regulations repeal the detailed rules and replace them with statutory guidance, while requiring local authorities to make 'prudent' provision for the repayment of debt. The statutory guidance recommends that before the start of each financial year a local authority prepares a statement of its policy on making MRP for the approval of the full council or equivalent. In this transitional year, it has been recommended that a statement for 2007/08 and 2008/09 should be approved as soon as practicable in 2008/09.

4.2 The guidance identifies four options for calculating MRP, but two of them are technical variants on the main options, so there are two main approaches identified

· to continue to calculate MRP as if the former regulations remained in place. The government intend to continue to allow for the cost of financing supported borrowing through the relative needs block of the formula grant on this basis and for this reason, the guidance suggests that this continues to represent a prudent approach to calculating MRP in respect of all capital expenditure incurred before 1 April 2008 and all supported capital expenditure from that date onwards

· to base MRP on the life of the asset created by the capital expenditure. Authorities may choose to adopt this approach in respect of all their borrowing for capital purposes, but are advised that they should adopt this approach in respect of any unsupported borrowing taking place after 1 April 2008. Applied to all borrowing this approach would have some significant administrative implications, as it has not been necessary since MRP was introduced in 1990 to attribute borrowing for capital purposes to specific assets. The guidance suggests that MRP should either be calculated on an equal instalment basis over the life of the asset or on an annuity basis based on equal overall payments of principal and interest over the life of the asset, with the latter put forward as an option that is particularly appropriate for projects where the benefits expressed on an annual basis are likely to build up over time and be greater in the later years of the project.

4.3 Based on this guidance, the Authority's proposed policy for 2007/08 and 2008/09 is follows:

· 2007/08 - to calculate MRP in accordance with the previous regulations in respect of all capital expenditure incurred prior to 1 April 2008

· 2008/09 - to continue to calculate MRP in respect of supported capital expenditure incurred both before and after 1 April 2008 and unsupported capital expenditure before 1 April 2008, in accordance with the previous regulations. In respect of unsupported borrowing relating to capital expenditure incurred after 1 April 2008, it is proposed to calculate MRP on the basis of asset life, using the equal instalment basis, and adopting asset lives that are no greater than those used to calculate the depreciation provision for the relevant assets.

4.4 The 2008/09 policy in respect of unsupported borrowing does represent a change of policy which could have a budgetary impact in either direction but is not expected to have a material impact on the level of capital financing charges in the three year budget.

5 Financial Management Strategy

5.1 The Authority managed its financial affairs in accordance with its agreed Financial Management Strategy. Appendix 4 sets out the details.

6 Provision for uninsured losses

6.1 Payments made from this provision totalled £11,000 during the year. A re-assessment of the risks has resulted in the balance being reduced by a further £10,000 to the balance of £38,000 as at 31 March 2008.

7 Reserves and general balance

7.1 The revised budget required the following contributions to/from reserves and the general balance:

7.2 The contributions from the transitional grant and underspendings reserve and to the capital payment reserve have been made in line with the revised budget as the reduction in the grant occurred, savings utilised and the capital payments have been made. The contribution made to the capital payments reserve was also applied in the year.

7.3 It is suggested that as the 2008/09 budget assumes a balance of £2m at the start of the year that the £354,000 contribution to the general balance should still be made.

7.4 As mentioned earlier in the report the equal pay proposals have been delayed. When the 2007/08 budget was set £300,000 was added to the pay budget to cover these costs. Given that no costs were incurred in 2007/08 it is proposed that a reserve be established specifically to cover costs associated with equal pay (which would include both the cost of implementing the new pay scales and the costs of meeting any successful appeals).

7.5 This leaves the modernisation reserve. Members will be aware from monitoring reports that the reserve has been utilised to ensure that expenditure on new and continuing initiatives should not adversely impact on the overall revenue budget outcome. Given the position now reached at the end of the financial year it is possible to reduce the contribution required from the reserve to £252,000 - rather than the £355,000 contribution anticipated at the time the revised budget was approved.

7.6 The movements in these reserves, including the proposed adjustments to reserves can be summarised as follows:

8 Equality impact assessment

8.1 An impact assessment has been made on the proposals within this 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 1988 and the Race Relations (Amendment Act 2000).

Recommendations

1 That the accounts for 2007/08 be approved; including the utilisation of £252,000 from the Modernisation Reserve and the creation and contribution of £300,000 to a specific reserve to meet the anticipated costs of the equal pay review now expected arise in 2008/09.

2 That capital payments for the year be financed as set out in paragraph 3.5.

3 That the Treasury Management Activities set out in paragraph 4 and prudential indicators on appendix 3 be approved.

4 That the policy on the calculation of MRP for 2007/08 set out in paragraph 5.2 be approved.

5 That it be recommended to the Authority that the policy for the calculation of MRP for 2008/09 as set out in paragraph 5.2 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:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

None

I:\Treasurers\Corporate Finance\Jane\Fire\Final\Final 07 08\HFRA Finance and General Purposes Committee 19.06.08 Final Accounts 2007 08.doc