Contacts: Paul Carey-Kent, Deputy Treasurer, Tel 01962 847525
David Howells, Director of Corporate Services, Tel 023 8062 6835

1 Introduction

1.1 This report sets out for members the latest budget position. Overall the projected overspend reported last quarter has been eradicated and the call on the modernisation reserve reduced by £49,000. However this does assume that pressures on staffing and utility budgets will be contained within existing budgets by continuing to adjust recruitment patterns and minimising energy use wherever possible.

1.2 As reported previously the Authority has provisions and reserves available along with further plans to deliver savings. These reserves are being held mainly to meet the Authority's objectives agreed as part of its Fire and Rescue Service Plan 2008 - 2011, but may need to be used to deal with any unavoidable spending pressures. At present there is balance of £81,000 available in addition to £109,000 unallocated inflation provision.

1.3 During the last quarter savings of £162,000 have been identified within the IT budget, £115,000 on supplies and services, £140,000 on pensions and £60,000 on interest payments. The paragraphs below set out details of each area of savings.

Icelandic bank investments

1.4 Members will be aware that the Authority's Treasury Management is managed by Hampshire County Council who invest any surplus funds that the Authority may have on a day to day basis. The County Council does not have any funds deposited with any Icelandic bank. Indeed the Council has no cash on deposit with any overseas financial institution.

2 Revenue

2.1 The latest position is given in Appendix A. Details of the main variances are as follows.

Wholetime firefighters pay and allowances

2.2 There has been very little change since the last reported projected overspend for the wholetime firefighters' pay and allowances budget, which remains at £250,000. However, recruitment activity is being adjusted during the year until this pressure is reduced and the budget continues to be monitored closely. The position will be reviewed again at the third quarter.

Retained firefighters pay and allowances

2.3 The cost of retained firefighters pay and allowances is difficult to predict due to the number of variables that affect the claims made by retained firefighters. As well as attending operational incidents, retained firefighters are carrying out a number of relatively new activities such as co-responder schemes, home safety visits, Personal Development Review (PDR) interviews, and various project tasks.

2.4 Based on a regular monthly pay profile, this budget has been exceeded by £170,000 as at the end of September. This is due, in part, to a shortfall in funding for the additional retained firefighter pump at St Mary's Fire Station(£40,000), unbudgeted Continuous Personal Development (CPD) payments (£58,000) and an increase in the duties requested of retained firefighters (£110,000), partly offset by fewer incidents (-£50,000).

2.5 The total number of incidents to the end of August is 8,342 which is 17% below the assumed number of incidents in the budget. If this trend continues and other activities do not continue to the same level (for example, most annual PDR interviews were completed in the first quarter) the projected outturn may stay within budget although it is unlikely unless Members wish to see a reduction in these relatively new activities such as home fire safety visits. The position will be reviewed again at the third quarter when additional savings may have to be identified elsewhere to offset any further increases.

2.6 It is clear therefore that this budget head will need careful examination as part of the forward budget. It is however pleasing to report in that context that from April the Ambulance Service will be financing the costs of the co-responder scheme which account for £30,000 of the additional costs incurred so far this year.

Utilities, rents, rates, etc (+£85,000, 6.0%)

2.7 The cost of business rates is expected to increase by £85,000 this year and by £50,000 in 2009/10. This is due mainly to property revaluations for business rates purposes at Headquarters and the part year costs associated with the Winnall site until the former workshop buildings are demolished.

2.8 Utility costs may also increase this year. At the time of preparing this report, electricity contracts for small sites are being re-negotiated which could increase prices by 45% from 1 October 2008 increasing costs by £50,000-£60,000 this year and £100,000 to £120,000 in 2009/10.

2.9 However, as part of the environmental impact review, action is being taken to help establishments to minimise their utility consumption which should help to offset the price increases. An updated position will be reported at the next quarter.

IT and Communications (-£162,000, 5.5%)

2.10 As a result of replacing the communications equipment at fire stations, the maintenance contract for the command and control system has been reduced and further savings related to telephone and radio systems expenditure have been identified. Also by re-prioritising e-Focus-funded projects it has been possible to reduce expenditure this year.

Other supplies (-£115,000, 5%)

2.11 The budget for members' conference expenses is estimated to underspend by the end of the year by £40,000 due to fewer conferences and fewer members attending than expected. The budget for purchasing new and maintaining existing hydrants is also expected to underspend by £35,000 this year. Further savings may occur later in the year but it would be premature to declare them at this stage . In addition £40,000 savings have been identified due to Service Delivery group projects not proceeding as expected.

3 Pensions (-£160,000, 19%)

3.1 It is pleasing to be able to report that the projected outturn of the pension costs which the Authority is responsible for are estimated to be £160,000 lower than that budgeted. This is mainly as a result of a combination of there being no ill-health retirements either last year (which would have generated payments this year) or this year to date: there are therefore no ill health charges as yet payable into the pension account, where as the budget allowed for six such cases. In addition, some transfer values have been received that related to firefighters joining the Authority before 1 April 2006 when the new financing arrangements came in.

4 Interest (-£60,000, 18%)

4.1 The cashflow forecasts and associated interest payable have been reviewed and it is currently estimated that the interest payable to the County Council will be £60,000 lower than the original budget. It is possible that there could be further savings against this budget head. However, given the current volatility of the financial sector it is considered prudent to allow cover for some possible rate increases.

5 Modernisation Reserve

5.1 The balance on the modernisation reserve currently stands at £362,000. There are no proposed changes to the projects (estimated at £73,000) previously agreed to be funded as set out in the table below:

5.2 At present the projected outturn would require a contribution of £24,000 from the reserve. This would reduce the original planned contribution of £341,000 to the reserve to £317,000 with a year-end balance of £679,000. Indeed, if the pressures set out earlier in this report are not contained or offset by savings, this balance will reduce further.

Future use of the modernisation reserve

5.3 The modernisation reserve was set up on 1 April 2006 to help meet the costs of delivering the modernisation agenda. To a large extent this has been achieved and it is considered timely to change the use of the reserve to delivering service improvements and dealing with sustainability (both financial - ie Value for Money - and environmental). It is therefore proposed to change the name of the reserve to the Improvement and Sustainability reserve in next year's budget.

6 Cashable Efficiency Gains

6.1 The Government's Comprehensive Spending Review (CSR07) requires the Authority to identify cashable efficiency gains of £1,055,000 in each of the next three years. Efficiency gains implemented to date and reflected in the latest budget are as follows:

6.2 The total cashable efficiency gains identified to date total £831,000, of which £750,000 has been reinvested leaving an unallocated balance of £81,000. Reinvestments to date are:

7 Capital

7.1 Appendix B sets out in detail the latest estimates of expenditure and funding against approved schemes with significant variances highlighted below.

Vehicles 2008/09 (+£91,000)

7.2 Two additional vehicles have been added to the current year's replacement programme:

· A support vehicle to replace the one that was written-off in a collision. Whilst the third party's insurance should cover the termination costs payable to the leasing company it leaves the Service short of a vehicle. The estimated cost is £11,000.

· The Training Centre uses an industrial fork lift truck to move crashed vehicles and other heavy equipment. It was bought second-hand ten years ago and is in need of replacement. An opportunity has arisen, as a result of the downturn in the building industry, to purchase a second-hand replacement. This will cost an estimated £30,000 and will be financed from the receipts from the sale of redundant vehicles. This is considered to offer good value, as a new forklift would cost £40,000 and this second-hand one has an expected life of 10 years.

7.3 These are relatively minor variations within the replacement programme, but it has highlighted the need to update financial regulations so as to authorise the Chief Officer, in consultation with the Treasurer and Chairman of the Authority, to vary the replacement programme if such action is in the best financial interests of the Authority. See paragraph 7.1 below.

Works required following closure of the Copnor Fire Station building

7.4 It was reported to the Authority last month that the urgent accommodation works at Southsea were underway and that the costs of works undertaken at Havant had exceeded the budget. £400,000 has been added to the capital programme to cover the overall costs of the works at Southsea and at Havant.

7.5 Works were required at Cosham Fire Station to be able to accommodate the additional staff and Special Equipment Unit previously based at Copnor. These works have now been completed a cost of £110,000.

7.6 The Authority has a £500,000 Capital Payments reserve. It is proposed to use this and some of the capital receipts referred to later in this report to finance the increases in the capital programme.

Capital receipts

7.7 The estimated value and timing of receipt of housing capital receipts have been further updated. A further reduction in the overall estimated receipt and the slippage in the expected timing of the housing sales reflects both the current housing market and also the continuing difficulties with the `flying freehold' status of some of the properties in Winchester.

7.8 However, negotiations are continuing with the sale of both the land at Carpenters Down, Basingstoke and the current Winchester Fire Station site. The estimated receipts from these two schemes have now been incorporated into the financing of the capital programme. When added to the estimated housing capital receipts it is now anticipated that £3.4m will be received in the current financial year and £4.1m in 2009/10.

Additional resources

7.9 A minimum of £42,000 capital grant will be received if the Authority commits to a new `stretch' targets for recruitment of women and BME firefighters. This has the support of the Human Resources Committee and is to be considered by the Performance Review and Scrutiny Committee next month before being presented (as part of the national Equality and Diversity Strategy) to the Authority.

8 Financial Regulations

8.1 Under the current financial regulations any increase in the capital programme requires approval from the Authority. Most of the time this works well but occasionally a delay of up to 3 months can be unhelpful to the efficient running of the Service. It is proposed to change the financial regulations so that the Chief Officer and Treasurer may approve an increase in the capital programme up to £25,000 and that the Chief Officer, Treasurer and Chairman of the Authority may approve an increase up to £50,000. In both cases the approved expenditure must be subsequently reported to the full Authority.

8.2 It is suggested that the following revised regulation should be added to the capital expenditure section of the financial regulations:

" B.15 The Chief Officer and Treasurer may approve an increase in the capital programme of up to £25,000 and that the Chief Officer and Treasurer in consultation with the Chairman of the Authority may approve an increase of up to £50,000. In both cases the approved expenditure must be subsequently reported to the Authority."

9 Equality impact assessment

9.1 An impact assessment has been made on the proposals in the 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 1998 and the Race Relations (Amendment Act 2000).

10 Conclusions

10.1 The revenue budget is l under significant pressure this year, but it seems likely that sufficient savings will be generated to offset.

10.2 Although there has been a reduction in the level of capital receipts from the sale of surplus housing the capital programme has remained intact.

Recommendations

1 That the latest budget position be noted.

2 That the name and use of the Modernisation Reserve be changed to the Improvement and Sustainability Reserve with effect from 2009/10 budget.

3 That it be a recommendation to the Authority:

· That the financial regulations be amended (as set out in paragraph 8.2 of this report) to allow the Chief Officer, in consultation with the Treasurer and Chairman of the Authority, to vary the capital programme by up to £50,000 if such action is deemed to be in the best financial interests of the Authority.

· That the vehicle replacement programme 2008/09 be increased to include an additional support vehicle and a second-hand fork lift truck.

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